Banks Face Hit From CFPB on $30 Billion in Overdraft Fees

Bloomberg reports,Banks Face Hit From CFPB on $30 Billion in Overdraft Fees. Here are the highlights…..

Richard Cordray, the bureau’s director, said in an e-mailed statement about the report. “Overdraft fees should not be ‘gotchas’ when people use their debit cards.”

IDEA:  Maybe we can stick the CFPB on some of the state auditing bodies if they care about “fair”?

Wayne Abernathy, executive vice president of the American Bankers Association, criticized the bureau’s annual percentage-rate analysis.

“Where is the logic in applying a yearly percentage rate to a fee intended for a service of no more than a few days?” Abernathy wrote in an e-mail.

IDEA:  An APR is there to compare the cost of two types of credit.  That’s not the situation here.

“Consumers value and appreciate the ability to cover expenses when they need to, from an institution they trust, without resorting to entities outside the heavily regulated banking system,” Richard Hunt, the group’s president, said in a statement. “These debit card services are completely optional.”

IDEA:  Educate the consumer.

In the new study, the CFPB found that the majority of overdraft fees are incurred on transactions of $24 or less, and that more than half of consumers pay back negative balances within three days.

IDEA:  Give people more options (not less) to cover anticipated over drafts.

A 2010 rule imposed by the Federal Reserve, the CFPB’s predecessor as the main consumer-banking regulator, required banks to obtain an affirmative “opt-in” from customers who want overdraft coverage when they swipe their debit cards. Without it, transactions are supposed to be declined at the point of sale.

IDEA:  This is a was and is a good idea.

“Opting in for overdraft coverage for debit card and ATM transactions is an expensive way to manage a checking account,” Cordray told reporters.

IDEA:  Again, the key word here is optional over draft protection fee.

A second area would address the order in which transactions are debited from a consumer’s account. A court case against Wells Fargo & Co. found that the bank manipulated the order of transactions to maximize overdraft fees.

IDEA:  Makes sense.  They should clear smaller transactions first.

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Missouri Governor Vetoes Payday Loan Bill

In a surprising turn of events Gov. Nixon vetoes payday loan bill.  The bill passed the House 112-39 and the Senate 26-4.  With this much support, this veto comes as a surprise.  

The big change here was removing rollovers.  The Governor wrote in a statement:

“Missourians want meaningful payday lending reform, not a sham effort at reform that allows such predatory practices to continue.”

I think this is positive news.  Many lenders are moving to installment loans in Missouri, so this buys us at least another year before legislators start meddling with that product.

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More Fallout…..Judge Rules Against Large Tribal Lender

A US District judge rules against AMG Services.  AMG processed upwards of  5 million loans.  The entity was partnering with a Native American tribe and believed they had sovereign immunity.  The judge ruled that the FTC Act grants the agency authority to regulate arms of Indian tribes, their employees, and their contractors.  This creates a conundrum of how Native American Tribes can safely lend online, if all their vendors are in the line of fire?

Here is what the Judge found:

  • Violated the FTC Act by piling on undisclosed and inflated fees, and by threatening borrowers in debt collection calls with arrest and lawsuits.
  • The defendants violated the Truth in Lending Act by giving inaccurate loan information to borrowers,
  • ….and the Fund Transfer Act by requiring consumers to preauthorize electronic withdrawals from their bank accounts as a condition of obtaining credit, according to the FTC.

 

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Missouri Passes New Payday Loan Law

The big change here is for payday loans in Missouri.  This new law eliminates rollovers and caps the fee at 35%.  From a pricing standpoint this is not a problem.  The problem is that borrowers can not afford the large balloon payment.  PDL Industry discusses why installment loans work better than payday loans back in 2012.

Most online lenders are already offering installment loans online under the Missouri Consumer Installment Lender license Statute 408.510.  If you’re a store-front lender and want to add installment loans to your tool box, you have options, click here.

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The CFPB Is Growing Teeth

“Winter is Coming.” – George R.R. Martin, A Game of Thrones

Jeremy Rosenblum of Ballard Spahr published an informative article on what the “payday” industry can expect from the CFPB in 2015 (not 2014), titled “Hints of future payday rule-making.”

CFPB may take a look at:

  • required payment plans
  • databases
  • and multiple loan limits.

At first blush, this not new.  What is worrisome is that these rules are not legislated.  It’s a small group of people calling the shots.  In Richard Cordray’s own words, “grappling with all aspects of this issue,”.

My fear is that the CFPB tries to implement rules that they think are “fair”.  My first thoughts, “The road to hell is paved with good intentions.”

Things that are fair on paper, but not real life:

  • Communism (Yep, I went there.)
  • Airline miles
  • The finale of Lost
  • The finale of the Sopranos

 

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When Regulators Are Vague?

In a letter to NACHA, Benjamin Lawsky, writes:

“The Department believes these proposals do not adequately address the current abuses of the ACH network by…payday lenders who make usurious loans in and to New York,……..should adopt stronger measures to prevent online payday lenders and others from using the ACH network to violate state and federal laws.”

Like what?  I guess we can call everyone that takes out a loan and ask them where they live?  If someone lives in NY and lies on their application, how is this the lenders fault?

Fine, you can’t charge more than 25% interest in NY, but other states have laws the the books.  Mind your own business Benjamin.  Btw, you don’t work for the Federal government either, so no one cares what you have to say about Federal laws.

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Four Oaks Bank Cuts Deal with Dept. of Justice

Four Oaks Bank cut a deal with the DOJ regarding alleged illegal, online payday loans.  Long story short, the DOJ is choking off access to the ACH network for online lenders who are not licensed in the states where they operate.   What’s next?

You can read the full article here: Four Oaks Bank agrees to $1M fine to settle DOJ suit.

 

 

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An Unsolicited Text Can Cost Your Business…..

Without express consent, that marketing text message can cost you $500-$1,500 a pop and let’s not forget the legal fees in an article titled Curbs on Cellphone Calls Pay Off for Lawyers (WSJ subscription required).

What’s confusing is that cell phones operate by their own rules.  The law, known as the Telephone Consumer Protection Act, or TCPA, was passed in 1991 by lawmakers hoping to blunt telemarketing and end expensive, unwanted calls to cellphones.  Well, most cell phone calls and text messaging plans are unlimited, but this law has not been revised to reflect this.   This law has been a huge boom for lawyers that go after these companies.

Here are some egregious example:

  • Consumer receives six digit settlement from Santander Consumer USA Inc., which called her cellphone 1,026 times to try to collect her debts and left 116 prerecorded messages.
  • NCO Financial Systems Inc. for auto-dialer debt-collection calls to cellphones. NCO agreed to pay $70 per class member, up to $950,000.
  • $17 million with units of Wells Fargo WFC  and Freddie Mac
  • Bank of America Corp. and $24 million with student-lender SLM Corp. SLM Last year
  • Heartland Automotive Services Inc., a Jiffy Lube franchisee, and mobile-ad company TextMarks Inc. for $47 million in vouchers for oil changes because the company sent text-message advertisements.

Think the government is immune?  In the Obama administration’s 2014 budget, the government said it could reduce the deficit by $120 million over 10 years if it were allowed to call debtors on their cellphones.

 

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Better Get Your Popcorn Ready!

According to the Consumer Financial Protection Bureau (CFPB) website, the CFPB is now accepting complaints from borrowers encountering problems with payday loans. The Bureau requests that companies respond to complaints within 15 days.

Consumers can submit payday loan complaints to the Bureau about:

  • Unexpected fees or interest
  • Unauthorized or incorrect charges to their bank account
  • Payments not being credited to their loan
  • Problems contacting the lender
  • Receiving a loan they did not apply for
  • Not receiving money after they applied for a loan

Get ready for the theatrics.   I’m sure the national database is just around the corner…..

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Bankers and Processors Are Not Moral Police

Samuel Gregg makes some great points in American Banker, “Bankers and Processors Are Not Moral Police.”

  1. how free do we allow transactions between businesses and customers to be;
  2. how do we hold people accountable for their free choices;
  3. how far we should go to protect people from self-destructive behaviors;
  4. what is the financial sector’s broader responsibility for the common good of a given society; and
  5. how far can regulators go in making financial institutions fulfill those responsibilities (whatever they happen to be)?

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