Category: payday loans

Although ZestCash claims not to be a payday lender, it’s the same customer.  What’s worth noting is that lending to the underbanked can attract investment dollars and VC funding.   Here is the press release from GIGAOM.

ZestCash, a next-generation loan service for the underbanked, has raised $19 million, including an $8 million line of debt financing, to expand its data-driven approach to offering short-term loans. The company, led by former Google CIO Douglas Merrill, received $11 million in Series A funding from Lightspeed Venture Partners and GRP Partners with participation from Flybridge Capital Partners. Lighthouse Capital Partners has added $8 million in debt financing that will go toward offering more loans to customers.

I get a lot of questions about email marketing. Here is the FTC’s guide for sending commercial messages through an email. It’s called the CAN-SPAM Act.  Notable, the name is not telling people how to SPAM legally.  CAN-SPAM stands for Controlling the Assault of Non-Solicited Pornography And Marketing.  In a hurry?  Watch this video.

Here are the basics according to the FTC:

1. Don’t use false or misleading header information. Your “From,” “To,” “Reply-To,” and routing information – including the originating domain name and email address – must be accurate and identify the person or business who initiated the message.
2. Don’t use deceptive subject lines. The subject line must accurately reflect the content of the message.
3. Identify the message as an ad. The law gives you a lot of leeway in how to do this, but you must disclose clearly and conspicuously that your message is an advertisement.
4. Tell recipients where you’re located. Your message must include your valid physical postal address. This can be your current street address, a post office box you’ve registered with the U.S. Postal Service, or a private mailbox you’ve registered with a commercial mail receiving agency established under Postal Service regulations.
5. Tell recipients how to opt out of receiving future email from you. Your message must include a clear and conspicuous explanation of how the recipient can opt out of getting email from you in the future. Craft the notice in a way that’s easy for an ordinary person to recognize, read, and understand. Creative use of type size, color, and location can improve clarity. Give a return email address or another easy Internet-based way to allow people to communicate their choice to you. You may create a menu to allow a recipient to opt out of certain types of messages, but you must include the option to stop all commercial messages from you. Make sure your spam filter doesn’t block these opt-out requests.
6. Honor opt-out requests promptly. Any opt-out mechanism you offer must be able to process opt-out requests for at least 30 days after you send your message. You must honor a recipient’s opt-out request within 10 business days. You can’t charge a fee, require the recipient to give you any personally identifying information beyond an email address, or make the recipient take any step other than sending a reply email or visiting a single page on an Internet website as a condition for honoring an opt-out request. Once people have told you they don’t want to receive more messages from you, you can’t sell or transfer their email addresses, even in the form of a mailing list. The only exception is that you may transfer the addresses to a company you’ve hired to help you comply with the CAN-SPAM Act.
7. Monitor what others are doing on your behalf. The law makes clear that even if you hire another company to handle your email marketing, you can’t contract away your legal responsibility to comply with the law. Both the company whose product is promoted in the message and the company that actually sends the message may be held legally responsible.

This information is mainly for Internet lenders. It’s a common practice to buy lists. That’s very risky, so you should consult an attorney before you buy a list.  This is the first draft of this post.  More to come…..

“Teletrack, Inc. has agreed to pay $1.8 million to settle Federal Trade Commission charges that it sold credit reports to marketers, in violation of the Fair Credit Reporting Act (FCRA).”

It goes on to say, “For example, Teletrack sold lists of consumers who previously sought payday loans to third parties that wanted to use this information to target potential customers.”

Now, were they selling your payday information to other payday lenders or were they selling this data to other industries?  Does not say.  In Teletrack’s defense the fine was for sharing consumers personal data.  I’m not sure how it harmed lenders.

You can read the full article at the FTC’s website here.

Critics want to scowl at your payday loan product.  Send them over to Wells Fargo, 53rd or US Bank.

Wells Fargo’s calls it a Direct Deposit Advance.

“This is a line of credit, not a loan. You may make advances as often as you like in increments of $20 up to your available credit limit.”

• You have to have direct deposit
• $7.50 per $100 borrowed.
• Up to $500
• No cool off period.
• Repayment Plan:  Pay the loan off $100 at a time, until paid in full.  Once paid, the lower the amount you can re-borrow.
• Charge a $35 late fee (no grace period), if the loan is not paid in full on time.  That’s appr. $9 per $100 on a $300 loan.
• Can collect collection costs an reasonable attorney’s fees as allowed by state law.
• Not offered in all states (CT, FL, MD, NY, NC, PA, SC, VA, DC).

The product is a lot cheaper than a conventional payday loan, but the bank is not taking a large risk (compared to payday lenders) and cherry picking the good customers.

The huge advantage is that banks have deposits and they get bailed out by the government.  We don’t.

Here are their full terms and conditions.

53rd also has a product called Early Access.  This product is $10/$100 for 30 days.

US Bank’s product is called Checking Account Advance.  This product charges $10/$100, but is due on your next pay date.  This makes it the most expensive of the three banks.

The Supreme Court in Wisconsin may throw a wrench in the Wisconsin payday loan business.  The Associated Press reports “Wis. judges ask Supreme Court to take loan case.”

Here is the borrowers side:

Consumer: Mount filed a counterclaim alleging the loans violated the Wisconsin Consumer Act because the interest rates were unconscionable. La Crosse County Circuit Judge Ramona Gonzalez agreed with Mount and granted her summary judgment.

Here is the Lenders side:

Payday Loan Store of Wisconsin: The loan company contends on appeal that a judge can’t find a particular interest rate is unconscionable because the consumer act expressly permits any rate or charge. The company goes on to argue that the Legislature, not judges, should determine what interest rates are too high. If judges start making those decisions, their rulings will vary and lenders won’t know what interest rates are acceptable, the company maintains.

Currently, there is a new law on the books that took effect on January 1, 2011.  The above case stems from a 2009 case that has made its way up to the Wisconsin Supreme Court.  The industry is at stake here b/c we’ve managed to promote laws that are diplomatic between borrower and lender through the legislative process.  If this ruling goes bad, it would erase all the lobbying for the payday loan industry in Wisconsin.

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: