Payday Loans Comprise Less than 1% of CFPB Complaints

“Consumer complaints are the CFPB’s compass and play a central role in everything we do. They help us identify and prioritize problems for potential action,” CFPB Director Richard Cordray said in a press release announcing the new public database.

Sounds like Richard Cordray is speaking out of both sides of his mouth.  The facts do not substantiate his blitzkrieg on payday loans.  They comprise less than 1% of the complaints at the CFPB.   So why all the new rules?  It’s personal.  You can read the full article at titled “CFPB’s Inconvenient Truth Revealed By Complaints Database

  1. mortgage (36 percent)
  2. debt collection (17 percent)
  3. credit reporting (15 percent) and other categories
  4. payday loans (less than 1%)

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Text messaging – Do’s and Donuts (haha)

I’ve received a lot of questions on text messaging, so I’m breaking it out into it’s own post.  I’m not listing the legal cases here b/c they’re everywhere now.  If you’re going to send someone text messages, make sure your documentation is clear, conspicuous and unambiguous. Seems here that if there is a question of an unsolicited text, you have to prove consent ……like zero confusion here.

  • Don’t bury your opt in.
  • Make the customer check a box.
  • Document and prove your opt-ins.
  • Marketing texts must be sent through short codes as opposed to long codes.
  • Two opt-ins are better than one.  This is called a double opt-in.  The consumer responds back to your request that they receive your marketing texts.

I’ll defer to Twilio regarding  the opt-in disclosures for receiving text messages.   Can you make this part of your written opt-in?  Sorry, not sure.

Additionally, the FCC has some short and concise information on both email and text messaging here.  Not sure how definitive it is, but it’s something.

This article from Experian titled SMS compliance: What you don’t know CAN hurt you is extremely helpful.

 

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The Grey Area (and fines) of SPAMMING

This is an attempt to educate you and not provide legal advice blah, blah, blah.  Always consult with your lawyer, first.

It’s easy to assume that SPAM is unwanted electronic messages, but the operative word is “unsolicited”.  Unsolicited means “given or supplied without being requested or asked for.”  I’m going to focus on email and text messaging, which fall under completely different laws, which is worth noting.

SPAM –  “It is named after Spam, a luncheon meat, by way of a Monty Python sketch (funny video) in which Spam is included in every dish. The food is stereo-typically disliked/unwanted, so the word came to be transferred by analogy.”

So, why should you care about being accused of SPAM?

Let’s tackle email first and CAN-SPAM (Controlling the Assault of Non-Solicited Pornography And Marketing).  This law is pretty easy to comply with.  There are seven (7) items to focus on here and they are reasonable.  The truth is that it does not have a lot of teeth b/c does not seem to be enforced a lot, unlike text messaging.

The FTC breaks commercial emails into two categories:

  1. Commercial content:  In a nut shell, advertisement or promotion.  These are the emails that can cost you $16,000 a pop.  CAN-SPAM was a bi-partisan effort, so it’s very forgiving if you follow the rules.  Allegedly consent can be oral or written.  The reality is that if you send borderline SPAM emails, you may not get fined, but the Internet has SPAM filters that will black list you forever.  This is as bad in it’s own special way.
  2. Transactional or Relationship content:  This part is tricky:  If the message contains only commercial content, its primary purpose is commercial and it must comply with the requirements of CAN-SPAM. If it contains only transactional or relationship content, its primary purpose is transactional or relationship. In that case, it may not contain false or misleading routing information, but is otherwise exempt from most provisions of the CAN-SPAM Act.

Next up…text messaging.  I’m not listing the legal cases here b/c they’re everywhere now.  If you’re going to send someone text messages, make sure your documentation is clear, conspicuous and unambiguous. Seems here that if there is a question of an unsolicited text, you have to prove consent ……like zero confusion here.

  • Don’t bury your opt in.
  • Make the customer check a box.
  • Document and prove your opt-ins.
  • Marketing texts must be sent through short codes as opposed to long codes.
  • Two opt-ins are better than one.  This is called a double opt-in.  The consumer responds back to your request that they receive your marketing texts.

I’ll defer to Twilio regarding  the opt-in disclosures for receiving text messages.   Can you make this part of your written opt-in?  Sorry, not sure.

Additionally, the FCC has some short and concise information on both email and text messaging here.  Not sure how definitive it is, but it’s something.

This article from Experian titled SMS compliance: What you don’t know CAN hurt you is extremely helpful.

 

 

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SNL makes fun of executive orders

Must see for anyone that thinks the President has too much power.  These executive orders are used to circumvent the legislative process.  It’s a hilarious parity on the School House Rock public message from the 80’s.

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Is Operation Choke Point Over?

The Washington Post writes, “FDIC attempts to end Operation Choke Point with letter, action.”  So is it?

Wow, what a coincidence?  Republicans take hold of the House and Senate and the financial witch hunt ends.  Obviously, this is good news.

“The FDIC is issuing this statement to encourage institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers,”

Operation choke point targeted businesses that the government deemed illegal, and in the process, cut off banking services to legal, licensed business such as:  payday lenders, gun retailers and ammunition merchants.

So, is ACH a good payment option for lenders?  Meh.  Nacha is proposing new rules:

  • Lower the return rate threshold that could trigger such inquiry for unauthorized debits from one percent to 0.5 percent.
  • Establish for the first time return rate thresholds of 3 percent for administrative returns (for example, debits returned for invalid account numbers).
  • 15 percent for overall returns.

I get the 15% rule at some level, but a charge back does not have any type of remediation  in place.  So, your customer reverses a legitimate payment and your in trouble.  As far as administrative returns, most bank information is entered in by the consumer.  How is that the lender’s fault?  I guess you can verify the account somehow, but it seems like a stiff penalty for something that is usually human error.

 

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How To Use APRWin

We changed our minds and decided to provide a complimentary web-based APR calculator instead.

Cick HERE to try it out.

Why did we do this?  The main reason is that APRWin is very hard to use.  APRWin requires the user to determine the “frequency” and “odd days” of the loan….which is complicated.  You can get different calculations using identical payment dates and amounts.  Yep, doesn’t make sense to us either.

Determining the “frequency” is the real problem, with APRWin,  mainly because not all “monthly” loans are “monthly” or all “bi-weekly” loans “bi-weekly”.  This is where the waters start to get muddy….when the unit period does not match the payment frequency of the loan.  You have to be able to interpret Appendix J of the Federal Truth in Lending Act to determine if your unit period is correct.  I listed a link to Appendix J below.  If you can do this and you’re ever in Chicago, I’d like to shake your hand.

You can use our APR Tester HERE.  We’ll provide an APR that is within the 1/8% of the federal tolerance.  Just plug in the Amount Financed, payment dates and payment amounts.

If you like torture, you can read Appendix J of FTIL (Federal Truth in Lending).

http://www.law.cornell.edu/cfr/text/12/part-226/appendix-J

TIPS:

Using this example TILA example:

2015-01-16_1817


Step 1:  Enter in the standard loan data.  This will create payment dates and amount…that you can edit in the next step.2015-01-16_1743Step 2:  Modify any payment dates (date roll) or payment amounts.  Typically, you’re always going to have to change the last payment to match your TILA.  Click “Get APR”.

2015-01-16_1751

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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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