“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
- 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
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.
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.
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.
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…..
Samuel Gregg makes some great points in American Banker, “Bankers and Processors Are Not Moral Police.”
- how free do we allow transactions between businesses and customers to be;
- how do we hold people accountable for their free choices;
- how far we should go to protect people from self-destructive behaviors;
- what is the financial sector’s broader responsibility for the common good of a given society; and
- how far can regulators go in making financial institutions fulfill those responsibilities (whatever they happen to be)?
Take a look at this article by Lisa Servon titled THE HIGH COST, FOR THE POOR, OF USING A BANK. It’s good to see the New Yorker taking on both sides of the argument. The vibe you get is that banks are deceptive and they do not care about their customers. I can’t fault banks. They’re a business just like anyone else. They also get a lot of advantages that other business don’t. They get to borrow money at the lowest rates and they get bailed out when they bet big and fail.
I’ve been saying this for years. It’s not the people that use the check cashers and payday lenders that despise them. It’s the people that do not use the services. These people may have decent jobs and refuse the ignore that not everyone received the support they did growing up. It’s called reality. Instead of helping the underbanked, we take moral stances and make decisions for them by eliminating their options. You can fault a business for providing a service to someone, especially when they don’t have other options.
I like this quote: Joe Coleman, the president of RiteCheck, put it this way:
“Banks want one customer with a million dollars. Check cashers want a million customers with one dollar.”
The Wall Street Journal is reporting JP Morgan Chase is ending their lending relationships with what they perceive “high-risk” industries. Sources say that this period of heightened regulatory scrutiny is the reason they will scale back lending to pawn shops, payday lenders, check cashers and certain car dealerships.
(Sarcasm) Because we all know that the payday industry caused the financial meltdown that required the federal government to bail out the banks.
One such example is Cash America International, which owns CashNetUSA.com. It’s hard to say if this is the reason. “Cash America International Inc., Fort Worth, Texas, disclosed in a July securities filing that its lending relationship with J.P. Morgan had ended, but the filing didn’t explain why.”
JP Morgan Chase is also eliminating other industries like: student lending, commodities and potentially gun companies.
The CFPB is making it clear that it is going to hold payment processors responsible for it’s customers actions. The CFPB charged one of the nation’s largest payment processors, Washington-based Meracord LLC, for processing $11.5 million in illegal upfront fees from consumers on behalf of debt-relief service providers.
The collection’s companies were Payday Loan Debt Solution and American Debt Settlement Solutions. The CFPB had already obtained judgments against the two firms.
Alan Kalinsky of Ballard Spahr summed it up:
“Rather than prosecute hundreds of cases against lenders that regulators think are violating the law, they realize a lot of debt settlement companies and lenders outsource to third party providers. By going after third parties if you can get them to stop servicing what appears to be an illegal activity, that’s a very efficient way in their mind of the regulators of stopping the activity overall.”
You can read the full article titled CFPB Flexes Enforcement Muscles Against Payment Processors in the American Banker.
A must read in Time Magazine titled, Meet the New Payday Loan Customer: Middle-Class, Well-Educated.
What I found interesting about the article:
A recent study conducted by the Urban Institute found that, in 2011, 41% of American households reported using what the agency calls “alternative financial services,” according to Boston College’s Center for Retirement Research. That’s up from 36% in 2009, in the midst worst recession since the Great Depression. About a quarter of all households used an alternative financial service within the past year, F.D.I.C. data studied by the Urban Institute revealed, and about 12% had used one in the 30 days prior to the research being conducted.
About 14% of households turn to what the Urban Institute calls “nonbank credit,” a term encompassing payday lenders, pawn shops, rent-to-own contracts or tax refund anticipation loans. Roughly one in six used these services for the first time between 2009 and 2011. Nearly half said they did so just to meet basic living expenses.
About two in five people who use payday loans or who get loans from pawn shops do so because they think it’s easier or more convenient, researchers found. About half that number say they can’t get a small-dollar loan from their bank.
The most surprising increase came when the Urban Institute broke down use of products like payday loans by income. The poorest Americans, those who make $15,000 or less a year, actually scaled back their use even as wealthier people — those who conventional wisdom would assume had access to banks and credit cards — turned to alternative financial products in higher numbers. Among households with incomes between $50,000 and $75,000, the number went up by about a percentage point; for households earning over $75,000, the jump was two percentage points.
Consumer advocates believe that “payday” lenders prey on poor people. What they fail to recognize is that the industry is providing a service where the demand eclipses the supply.