Author: admin

I was at a wedding Saturday night and was sat next to a comptroller for a large bank.  His portfolio was subprime housing.  His bank has over $50 billion in subprime mortgages and there is almost a 30% default rate.  I asked him what happens when they work out the loans, if they would be loaning that money again.  His response was, No.  They’re going to dissolve the entire subprime division.

I also asked if they get sued all the time.  Yes, they get sued all the time.

We’re all confused why auto title loans were banned this year in Wisconsin.  They have a new Republican governor and things are looking up.

“The Joint Finance Committee voted 11-5 this month to add the proposal to the budget.”  Here is the source.

Not a lot of information out there, but the Huffington post is pissed…..and that’s a good thing.  The proposed bill is sponsored by State Senator Hugh T. Farley of Schenectady.  What NY is realizing that the easy money for check cashing is gone and they need the ability to offer new products, like small consumer loans.

Technically, they’re not payday loans b/c the terms will range from 90-180 days.  I guess we’ll see if this passes.

Here is the Senate Bill 3841.

“The Associated Press is reporting that the Texas Legislature has approved a package of measures requiring payday lenders to meet stricter transparency standards — mandating that they post full interest rates, fees and terms of service.

The House approved on Thursday two companion bills directing that loan companies display the disclosures prominently and advise customers that payday loans are only meant to meet short-term needs, not solve long-term financial problems.

The bills now go to Gov. Rick Perry. They would also require lenders to post contact information for the state consumer credit commissioner.”

HB 2592 requires credit service organizations to provide consumers with “adequate information” about the costs they face before they sign any agreements. It does so by strengthening notice and disclosure requirements for lenders.

HB 2594 requires payday and car title lenders specifically to be licensed and regulated by the state. In order to obtain a license, those companies will have to pay minor fees and issue bonds from $10,000 for the first license up to a maximum of $2.5 million for additional licenses. The Finance Commission of Texas is charged with overseeing the new rules.

I think the industry did well for themselves.

The information in this post is taken from a power point by attorney Scott Sheehan of Greenberg Traurig.  J. Scott Sheehan is a business lawyer with a national practice in banking and financial institutions, and consumer and commercial financial services.

The CSO registers as a CSO under Chapter 393 of the Texas Finance Code. It advertises for customers for credit services, including the arranging of loans by an independent third-party lender and the issuance of a letter of credit or similar engagement that secures payment by the customer of the loan from the third-party lender.

The third-party lender, in turn, operates as a lender under Chapter 302 of the Texas Finance Code by limiting its compensation to an effective rate of interest not to exceed 10% per annum. In Texas, a lender is not required to be licensed if the interest rate is below 10% per annum.

Characteristics:

• The CSO and the third-party lender must be unaffiliated, with no common ownership, no common directors, officers or employees, and with no financial relationship;
• The CSO must maintain all necessary registrations, bonds, disclosure statements, contract terms and procedures required for a CSO under Chapter 393;
• All all loans by the lender must be approved based upon criteria established by the lender;
• The lender’s loan documents must conform to the limitations of Chapter 302;
• The lender’s funds must be the sole source of funds for all of the consumer loans;
• The lender may not share directly or indirectly in the CSO fees or other permitted charges;
• The CSO may not share directly or indirectly in the lender’s 10% per annum interest or other permitted charges;
• The CSO is not authorized to act as the lender’s general agent; and
• The CSO may act solely as special limited agent of the lender as to specific matters expressly approved in writing by the lender.

Legal Precedent:

I’ve noticed that when I ask lenders about their APR calculation, they assume it’s correct. We used to think that way too. Calculating APR’s for single payment loans is easy. It starts to get complicated when you do installment lending, different frequencies, odd days, rolling back/forward due dates.

I’d like to do a free webinar about APRs. Like how to test APRs and what variables to use and why. If I can get enough lenders to join up, I’ll do a Webex. Additionally, if you like, I can also take a look at a loan agreement and give you some feedback. I’m not a TILA expert, but a play one on television. You would be surprised at how many attorney’s we deal either miss this stuff or don’t really understand it.

Please contact me below.

Unlike a store front, where state regulators can walk in, the Internet is more like outer space.  If someone wants to hide, they can.  So what’s it going to be?

Here are the options:

• Offshore
• Choice of state law (lender is licensed and will processes loans in their state regardless of the applicants geographic location.)  The lender find a state w/ favorable laws and the permission to lend outside of the state.
• Licensed in each state
• Cowboy model (flying under the radar)
• Sovereign Nation.

Here are some of the problems:

The “licensed” lenders can only compete up until a point w/ offshore and choice of law models.  Something as little as a cool off period, puts a licensed lender at a huge disadvantage.

If you’re Offshore, good luck selling your business.  Besides, who wants to get arrested at the airport?

Does “choice of law” make you an easy target?  Seems like a logical first choice for Attorney Generals.

Sovereign Nation?  I don’t know about you, but I’m just not that connected.

Cowboy model:  Get a lawyer.

What does help is information.  The CFA (Consumer Federation of America) put together this study titled Consumers at Risk from Online Payday Lending CFA Survey of 100 Internet Payday Loan Sites.  The study is 6 years old, so take it with a grain of salt.  Here is what they found from 100 sites surveyed and how they operate:

Lead Generators vs Direct Lenders

• 42 were lead generation sites.
• 58 were direct lenders.

Licensing:

• 20 licensed in their home state
• 28 claim choice of state law (Delaware and Nevada were listed by six sites each, followed by California, New Mexico, and Utah.)  I’m not sure if all these states still allow lenders to offer payday loans outside the state.
• 10 were probably offshore lenders (by process of elimination).

If you’re an attorney and have experience with this, let me know.  I have a lot of people that want to speak with you.

Mississippi House Bill 455 has moved onto the Senate.  The bill will extend the minimum period that a borrower can pay back a loan.  Instead of making loans that land on a borrower’s pay date, the new law would require a minimum of 21 days ($20 per $100) for loans less than $201 and 28 days for $201 ($21.95 per $100) and higher.

This will lower the APRs drop from around 523%  to 347 % (for $200 or less) and 286% (for $201 and up).

The industry is in support of a new bill b/c if  nothing passes, the current payday law will sunset in 2012 and rates will cap at 36%.