Looks like Richard Cordray’s CFPB head nomination is gaining some traction. Reuters is reporting that the Senate Banking Committee is expected to vote on Obama’s pick to run the new consumer agency on October 6.

From State Senator Don Benton, (Ranking Minority Member), Washington State during the hearing SB 5547, Senate Committee On Financial Institutions, Housing & Insurance, Washington State, February 16, 2011:

“The fact remains that for the many years that I sat on this committee and considered bills concerning payday lending, the bottom line is we ask DFI every year for the number of complaints they received. There were none, none. Repeatedly year after year we could find no evidence of complaints [through] DFI. Now that has certainly changed in the last year, because now DFI reports that the Washington law that limits eight payday loans per year, now they’re turning to unlicensed Internet payday lenders and here are the complaints. Hundreds of them. Not one before the law, now all of these after the law. … Now I would rather have my constituents doing business with a licensed regulated entity that DFI can control. But we have no way of regulating out of state or out of country [lenders].”

Several stories this week have surfaced on this issue, and for a Friday we thought you might want to watch some video coverage. As mentioned in the story, the latest report out of the DFI in Washington shows that, of the licensed entities of which the DFI tracks, consumers paid $122 million dollars less in payday loan fees than they did in 2009. But what we want to know is whether or not these numbers include unregulated entities? Does the DFI accurately portray the full lending picture in Washington?

Such restrictions on payday lending would merely force consumers to use higher cost providers, some of which are unregulated and unlicensed. In the wake of the Washington state restriction, some regulators and legislators said that they have seen an increase in consumers turning to unlicensed and unregulated lenders who may operate beyond the reach of state regulators.

Unlicensed lenders are not accountable to the state either through state examination or compliance standards. DFI’s enforcement chief said that even if the agency can get a subpoena to go after an illegal lender, it’s difficult to get a response and difficult to enforce the subpoena because the lender is either out of state or in another country.[1]

News stories, like the video below from CBS Nightly News, all too often do not distinguish between licensed payday advance providers who offer regulated loans and unlicensed, unregulated lenders, many offshore, who tender illegal loans.

Today, payday advance stores fill an important need for small dollar, short-term credit for banked, working Americans in communities throughout the country. Millions of customers across the country have used payday advances responsibly and appreciate having somewhere to turn when they need quick access to credit. Analysts estimate payday advances are used by 19 million American households.

We strongly encourage consumers who need access to credit to do business with CFSA members who are required to be licensed and regulated. A member that offers payday advances through the Internet must be licensed in the state where the payday advance customer resides.

As an example, in October, 2010, the Washington State Department of Financial Institutions (DFI) warned consumers of the danger of unlicensed payday lenders.

“When a consumer takes a loan from an unlicensed lender, there is very little we can do to protect them, and often little we can do to the company if they don’t adhere to our laws, especially if they are located outside of the United States.”

Wisconsin’s Supreme Court will be hearing a case on whether or not state law permits judges to determine when payday loan interest rates are too high, according to GazetteXtra.com.

As a reminder on CFSA Best Practices:

• CFSA members always provide the most transparent application forms and fee descriptions. We strongly support applying these to all other short-term lenders, both bank and nonbank.

• Members are required to disclose the cost of the service fee in both dollar amount and as an APR on loan documents and informational brochures. In addition, members must post fees in large type on posters in all store locations to ensure that customers know, in simple terms, exactly what the fees are before, not after, they enter into a transaction.

Significant restructuring appears to be underway in the personal finance market as major banks look to avoid what’s estimated to be a $9.4 billion revenue loss as a result of the Federal Reserve’s cap on debit card interchange fees that takes effect on October 1, FOX Business News is reporting.

In light of these simultaneous debit card rewards decreases and fee increases, the question that’s being asked: Should consumers be looking for checking account alternatives? This article encourages consumers to consider prepaid card accounts. Why? Because they are not subject to interchange fee caps and can basically serve the same purpose as a checking account.

AOL DailyFinance picked up the Moebs report, and in it the CEO G. Michael Moebs said this:

“The surprise is, no matter how much government tries to regulate and legislate away this small loan market, it keeps coming back,” says Moebs. “People want and need a funding safety net.”

AND CONTINUED FROM THE STORY:

“Regulators should get out of and stay out of the short term money needs of consumers — they cause more problems than solutions. Instead of trying to tell consumers what they need and how to manage their money, let the market do it,” says Moebs, whose clients include banking and savings institutions.

“The huge mistake that many make when looking at overdrafts, payday loans and pawn loans, is trying to measure it by large loan standards — namely APR. It’s like bringing a baseball speed gun used to measure the velocity of a pitch to measure the speed of a college or NFL football player. Overdrafts are measured by fee amounts, not rates.”

Despite all of the regulatory efforts to inhibit the use of overdrafts (ODP), more than 100 million American consumers (77 percent of more than 130 million checking accounts) have opted in for overdrafts (ODPs) on debit and ATM card transactions, according to Moebs $ervices. Since its peak at $37.1 Billion in 2009, ODP revenue has fallen for six straight quarters, ending at $30.1Billion for the first quarter of 2011.

Like the mythical bird the Phoenix, Moebs says, ODPs are becoming reborn. The economic research firm reported that ODP revenue at the end of the second quarter of 2011 is up over $700 million at both banks and credit unions. Additionally, the average number of overdrafts per household increased during the same period.

“From our study of usage, behavior, and prices of over 2,500 depositories and a million checking accounts, Americans not only want ODPs but are using overdrafts with increased frequency,” said Mike Moebs, CEO and economist of Moebs.

Some analysts and business owners are concerned that the CFPB is going to make access to credit more difficult, slowing the wheels of commerce considerably in the process. Crain’s New York Business reports that the newly minted Bureau is making small business owners in New York nervous that they, and their customers, will have limited access to credit, as the CFPB flexes its regulatory muscles.

The combination of the credit card act and the recession triggered card issuers to raise interest rates by about 2 percentage points, notes Nessa Feddis, VP and senior counsel at the American Bankers Association.

“If the bureau imposes further restrictions, the additional regulatory burden could [result in] higher interest rates and fees,” Feddis said. The agency does not have the power to cap either.

Today in Bloomington, IL, CRL will be hosting a grassroots rally that they say will encourage local lawmakers to place a 36 percent rate cap on payday loans, effectively placing a restriction on access to short-term credit for consumers.

We just wanted to remind our critics that recent evidence demonstrates that certain types of restrictions on payday advances, including annual loan limits and cost-prohibitive rate caps, drives consumers to financially risky and more expensive products.

Since 2009, 19 of the 32 states where payday lenders operate have rejected prohibitive rate caps. These states, which provide an important short-term credit option to consumers, have rejected prohibitive rate caps that would force regulated payday advance stores out of business.  On a federal level, Congress has also rejected rate caps on several occasions. Most recently during the debate on the Dodd-Frank­Wall Street Reform and Consumer Protection Act, Congress expressly prohibited federal regulators from establishing a national rate cap on payday advance fees.

Research shows that heavy-handed restrictions on payday loans have caused consumers to bounce more checks, pay more late fees, and experience more credit problems.