Installment lenders in today’s Kansas City Star rightly point out that a proposed ballot initiative in the state amounts to an all-out assault on consumer credit that would impact banks, credit unions, and others. We seen this before — righteous, but misguided efforts to help borrowers actually drive them to more expensive and credit-damaging alternatives…
“Removing installment loans as an option for borrowers will force them to look to black market sources or unregulated Internet lenders for the money they need. This must not happen. If Missouri must deal with payday lenders, it must do so in a significantly more targeted way.”
Swanson said that people in need of a loan would be “better off trying to find a bricks-and-mortar financial institution in Minnesota” that’s licensed. Consumers may be able to get a small line of credit with a local bank or credit union.
“The worst then they can do is to do business with these unlicensed” firms, she said.
We’ll remember this when our critics start hammering us for having an “abusive” product. From the American Banker story we just posted:
“One could argue that … financial institutions with strong or successful marketing plans always look out for the best interests of consumers, because those are the products that are going to be the most successful over time, those that are good for consumers,” Fischer said. “If you develop those types of products, price them appropriately, you’re going to do very well.”
We believe that CFSA’s Best Practices should be considered as a blueprint for responsible lending, and can be adopted for most short-term financial products. Provisions include: Full disclosure of fees, truthful advertising, right to rescind, appropriate collection practices, including no criminal action, and a requirement to be licensed in each state where the company does business.
A member will not advertise the payday advance service in any false, misleading, or deceptive manner, and will promote only the responsible use of the payday advance service.
‘Abusive’, that’s the 7-letter word that has all financial institutions on edge. At least when it comes to the CFPB and how it regulates the financial services industry. But what does it mean, and how is it different from practices that are unfair and deceptive, which are already banned? According to American Banker’s Kate Davidson, more than a year after the law’s passage, bank lawyers and Bureau officials still can’t say for sure.
“I’ve always said it’s like pornography: I’ll know it when I see it,” said Jeffrey Taft, a partner with Mayer Brown LLP. “It’s hard for you to define it. I think it will be virtually impossible for the bureau to really come out with concrete guidelines.”
So what authority does the CFPB have under Dodd-Frank?
Under Dodd-Frank, the bureau cannot declare an act or practice abusive unless it: “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.”
The Catch 22:
“It creates a knife edge,” said Jo Ann Barefoot, the co-chairman of Treliant Risk Advisors. “What happens if you decide that you think that certain loans are unsuitable for proportionately more minority borrowers, or more women or more elderly, then you could be charged with not being liberal enough in your lending.”
According to the Associated Press, in remarks prepared for the hearing, Cordray said his experience as former Ohio attorney general taught him that litigation can be slow, costly, and unnecessarily acrimonious. He said he would use lawsuits “judiciously,” and noted that the bureau has other powers to resolve problems, including issuing rules, writing reports and examining large banks and many nonbank institutions.
In a bid to reach out to Republicans, Cordray also said that if confirmed, “I promise that you will have one person who will always be accountable to you for how we are carrying out the laws laid down by Congress and I will be eager to hear your thoughts about how we should do our work.”
Here’s a look at what’s on the docket for today’s hearing:
Panel 1
Ms. Patricia M. Loui
to be a Member of the Board of Directors
Export-Import Bank of the United States, Hawaii
Mr. Larry W. Walther
to be a Member of the Board of Directors
Export-Import Bank of the United States
Panel 2
Honorable Richard Cordray
to be Director
Bureau of Consumer Financial Protection
A recent study done by Moebs Services highlighted that average bank overdraft fees have remained the same ($25) over the last year, despite tighter regulations from the Federal Reserve. So, how does this compare to other forms of short-term credit? Here is what the firm’s CEO, Mike Moebs, had to say about the impact that such high fees could have on the short-term credit market:
Payday lenders can provide a good alternative source. The small loan market… is driven by people who don’t have FICO scores high enough for a credit card.
In his analysis of the report, Main Street’s Matt Brownell concluded that…
If you need a small loan to get you to payday and you’re confident you can pay it off in time, a payday loan beats bouncing a check if you can pay the loan quickly. Just be careful.
The Federal Trade Commission announced yesterday that they will be mailing checks to over 110,000 payday loan customers who had been deceived into paying for unrelated prepaid debit cards when applying for loans. The total amount paid out will be approximately $1.9 million.
The FTC alleged that payday loan marketers Matthew Patterson, Mark Benning, Jason Strober, and Swish Marketing, Inc., worked with debit card marketers Jerry Klein, Joshua Finer, and VirtualWorks, LLC, to design the deceptive payday loan application form that triggered a charge of up to $54.95 for a prepaid debit card with a zero balance.
