Category: Uncategorized

New legislation in the House would cap loans at $750, limit interest rates, and prohibit a borrower from having more than one outstanding loan at any time writes the Missouri Times.

Missouri is a great place to operate if you’re a lender.  This law would cripple the industry.  The bill stinks from this standpoint.  The proposed max loan amount is $750 and limited to one loan per borrower.   How does that encourage competition?

I’m against these databases.  I would be fine, if they gathered anonymous information for the benefit of lenders and consumers.  They’re just too “Big Brother” for my taste.

It’s insane that we baby these voting adults.  It’s like, hey, you can not make a financial decision, but you can vote for the president of the United States.  The inmates are taking over the asylum.

State banking and consumer protection officials have ordered five payday lenders and their debt collector to stop taking payments on more than 100 allegedly illegal loans according to the Boston Business Journal.   The lenders listed in the complaint are:  Cash Call Inc., WS Funding LLC, GP Investors LLC, Novea Resource Management LLC and Western Sky Financial LLC.

The Division of Banks, in Massachusetts, claims to have issued hundreds of cease and desist orders since 2005.  Currently, Massachusetts has a 23% interest rate cap on loans and a $20 administrative fee.

The loans in question have rates between 59% and 169%.   Not sure what MA expects people to do if they can not get a loan at 23% or lower?

This is a good opportunity for the Division of Banks to survey the borrowers.  I think it matters what these people think.  I bet the majority of them want access to capital.

The CFPB put out a white paper on April 25th titled, “Payday Loans and Deposit Advance Products“.  For the most part, it was very bad.  It’s not a question of what, but when.  When will the CFPB impose rules on payday lenders?

Today, Bloomberg put out some inside information out there, “Payday Loan Restrictions Said Considered by Three U.S. Agencies“.  According to one “anonymous” person, they believe the guidelines will include:

“The new rules will require banks to measure a borrower’s ability to repay the loans.  They will have to disclose an annual percentage rate for the loan, wait a full billing cycle between loans and ensure that a customer pays off any loan before getting a new one.”

Of course, it seems like the CFPB is drawing a line here.  If you look at the credit card industry, imagine if they imposed cool off periods?

What’s worth noting is that Texas has a legislative session every two years.  If it does not get done prior to May 28th (140 days from January 8th), it will take adjourn for two more years.  The Senate passed this bill by an alarming margin of 24-6.  Now the bill has to pass the House of Representatives.

The problem I perceive with this legislation is that it’s the equivalent of throwing shit at the wall to see what sticks.  The legislation does not know what will make short term credit more accessible and less abusive.  They’re just guessing.

Some pretty good comments here:

“So poor people are too stupid to make their own financial decisions regarding the borrowing of money. Nice to know.”

“Bad bill. Excess regulation is far worse than inadequate. In this case, you have an industry that caters to a clientele that other financial concerns aren’t interested in. As a result, the poor, and sometimes middle class, find it cheaper, more convenient, and far less complicated than the borrowing/begging-from-family or pawn shop alternatives. These regulations will limit competition in the market, raising rates on the people the upside-down legislation purports to help. Shame on you phonies.”

“Political posturing, pure and simple. The House needs to kill the bill.”

You can read the full article in the Statesman titled, “Senate approves tougher payday lending law“.

SB 515 did not get the required votes to make it to the Senate floor in California. The Banking and Financial Institutions Committee voted 5-3 not to forward the bill to the full Senate.

Here is one of my biggest pet peeves when it comes to law makers.  They try and create a law that defies free markets.  By making the industry less profitable, it just scares away new entrants from entering the space.  It’s called competition.  Here is what one Senator had to say:

“Proponents of SB 515 argued that they are not seeking to kill the industry, simply to hold it to its advertised mission of offering emergency, occasional loans.”

This may be a silly analogy, but imagine if lawmakers decided that you could not charge more than $1 for a specific product?

1. The product would never get better.  It would get worse.  
2. There would be no incentive for new companies to compete b/c there is really no upside.

California SB 515 would be huge step backwards for consumers and lenders alike. Here’s my opinion:

• Making a payday loan 30 days makes no sense.  The borrower should be paying on their pay date.  If they do not, they risk not having the money to pay on another day.  By definition, “payday” loans should be paid back when the borrower gets paid by their employer.
• Limit the borrower to six (6) loans makes sense for consumer groups, but does it make sense for the people that borrow?
• Implementing a state database.  We deal with the database in many states and it just pisses off consumers.  States love it because they get to make a few nickels on every loan.
• Making the law worse will eliminate lenders and create less competitions in the market place.

I liked this quote, btw:

“The best people to decide about their finances are the customers themselves,” said Greg Larsen, a spokesman for the California Financial Service Providers.

You can read the article titled “Bill would limit number of payday loans to any one borrower” in the LA Times.

The state of Ohio is managing to piss everyone off – lenders and consumer groups alike.  They want to pass along $0.50 to the consumer.  It’s a pretty flimsy rule b/c it includes loans less than 60 days long.  Looks like CSO installment loans (61 days +) will be the new loan product.

You can read “Database that tracks payday loans tucked into Ohio’s budget” here.

It was worth reading this article for this comment:

According to the Washington Post, there are $17m unbanked households.   This number is extremely important for the online lending industry.  Bank accounts are the vehicle that online lenders use to place and withdraw money from a bank account.

So, how do you work with a customer that only has a prepaid debit card?

You process their transactions through the merchant card network.  This alternative costs more than the typically ACH, which usually costs anywhere from $0.25 – $0.40 a transaction.  Prepaid cards are superior, in some ways, to the ACH system in a couple of ways:

• The lender gets an instant approval.
• The money is made available, within 48hrs.
• The Lender does not incur return fees when a transaction is dishonored.
• From a collections standpoint, these forms of payment are convenient and instant.

If you’re looking for a partner in the processing space, take a look at Repay Online.  They are an OLA (Online Lenders Alliance) and CFSA (Community Financial Services of America) member and recognized as an Inc. 500 fastest-growing private company.

EZ Pawn and EZ Money have sixty (60) days to refund $400,000 in fees from refinanced payday loans.  The Attorney General claims that the lender did not refund unearned on refinanced loans.  What’s annoying about Colorado is they passed a bill that made the fee structure on these loans extremely complex.  You wonder who comes up with this stuff?

Here is how bad the law must be, CashNetUSA does not lend there.  Here is PaydayLoanInfo.com’s explanation of the fee structure:  “20%: $0-$300 + 7.5%: $301-$500 plus 45% per annum interest plus monthly maintenance fee $7.50 per $100 borrowed, up to $30, after first month.”  That does not seem complicated at all 😉

On a side note, bumped into a letter from Scott Tucker’s attorney to CBS4 News in Colorado.  Thought it was worth sharing.

The state of Colorado is a paradox.  They legalize pot, but will take a difficult stance on small dollar loans.

Payday loans are getting  a lot of press from major news sources.  Back in February, the New York Times took aim at payday loans.  Recently, the Economist addressed this product in an article titled, “Payday lenders
Endangered sharks“.  Not sure what they mean by “endangered shark” because the article says that more people are getting shut off from traditional credit.   At the end of the article the author writes, “payday lenders will thrive, regardless of the conditions placed upon them.”  Not sure what the author’s point is.

What I think is worth noting is that not everyone qualifies for a payday loan.  Wonga, the largest payday lender in the UK claims that it rejects 62% of the applications it processes.   If you look at Wonga’s site, it claims that 92% of it’s customer’s polled would recommend Wonga to a friend.  They surveyed over 25,000 respondents.

The problem with regulation is that it usually backfires and harms the consumer by giving them fewer options.  Only real competition can bring costs down.