Debt collection is front and center as the Consumer Financial Protection Bureau (CFPB) holds a field hearing today in Seattle to gather information about the consumer debt collection market from the industry and the public. The CFPB also published a new rule that will allow the agency to federally supervise the larger consumer debt collectors for the first time.
And as part of the CFPB’s supervision authority, examiners will be assessing potential risks to consumers and whether debt collectors are complying with requirements of federal consumer financial law – which is precisely what CFSA’s Best Practice on Appropriate Collection Practices requires its members to do.
All CFSA members are asked to routinely evaluate and monitor the activities of all service provider relationships with debt collection companies to better assess risk and to ensure compliance with federal consumer law.
In fact, CFSA mandates that all our member companies collect past due accounts in a professional, fair and lawful manner. Under this Best Practice, CFSA members must also use the provisions of the Fair Debt Collections Practices Act (FDCPA) as a guide in their corporate practices, which would include:
Refraining from harassing, oppressing, or abusing any person in connection with collection of a debt;
Not using false, deceptive or misleading representations in collecting a debt; or
Not engaging in any unfair or unconscionable means to collect a debt.
The FDCPA would not generally apply to payday lending companies attempting to collect their own debt under their own names, however, CFSA members hold themselves to a higher standard and follow this guidance.
An informational video about CFSA’s Best Practice on Appropriate Collection Practices can be found here:
As part of an ongoing education campaign that showcases how CFSA is ensuring responsible lending in the payday advance industry, this week we’re highlighting CFSA’s Best Practice on Compliance – which requires all CFSA member companies to fully comply with all federal and state laws.
This Best Practice also clearly states that members will not charge a fee or rate that is not authorized by state or federal law.
CFSA members are expected to be familiar with and to abide by all applicable laws and regulations, which would include the Truth in Lending Act, the Equal Credit Opportunity Act, the Electronic Funds Transfer Act, and other important federal statutes. Additionally, CFSA members are expected to follow the relevant state laws in the state(s) in which they operate. Further, full compliance also means holding appropriate – and active – state and local licenses necessary for operation in those locations.
PBS Oklahoma affiliate’s ONR examined the price of payday loans in the state with the following broadcast segment that aired earlier this week. In the story, Lis Exon talks to Oklahomans about their use of the product, how often it’s used, and why O
K consumers are choosing to use it over its “traditional” alternative.
Though the cost is more expensive than a credit card, 13 percent of Oklahomans have used a loan store in the last five years. Not only has the product become more mainstream, but Oklahomans don’t always have access to credit cards (due to credit ratings or lack of access), and prefer a payday loan for its convenience, reliability, and upfront disclosures.
When asked why she would choose a payday loan over a credit card, Billie Adams, an OK payday loan customer said: “This I can control if I need it for a week, if I need it for two weeks. I can take control and pay it back.”
And how do complaints stack up against storefront payday lenders in Oklahoma? Well, they’re virtually nonexistent. According to Rick Brinkley of the Tulsa Better Business Bureau, in the last three years, only complaints about some online payday loan companies have skyrocketed. “We’ve seen nearly 3,000 complaints on tribal payday loan companies,” he said. “We have seen one complaint, I believe, on a traditional payday loan company.”
“I would personally prefer to have storefront payday loan companies in the state, with restrictive laws that are pretty limiting to what a consumer can get. Cause if we do away with payday loan companies in this state, we are literally pushing the poor to these websites where they will be—in my opinion—taken advantage of,” Brinkley said.
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PBS Oklahoma affiliate’s ONR examined the price of payday loans in the state with the following broadcast segment that aired earlier this week. In the story, Lis Exon talks to Oklahomans about their use of the product, how often it’s used, and why OK consumers are choosing to use it over its “traditional” alternative.
Though the cost is more expensive than a credit card, 13 percent of Oklahomans have used a loan store in the last five years. Not only has the product become more mainstream, but Oklahomans don’t always have access to credit cards (due to credit ratings or lack of access), and prefer a payday loan for its convenience, reliability, and upfront disclosures. When asked why she would choose a payday loan over a credit card, Billie Adams, an OK payday loan customer said: “This I can control if I need it for a week, if I need it for two weeks. I can take control and pay it back.” And how do complaints stack up against storefront payday lenders in Oklahoma? Well, they’re virtually nonexistent. According to Rick Brinkley of the Tulsa Better Business Bureau, in the last three years, only complaints about some online payday loan companies have skyrocketed. “We’ve seen nearly 3,000 complaints on tribal payday loan companies,” he said. “We have seen one complaint, I believe, on a traditional payday loan company.” “I would personally prefer to have storefront payday loan companies in the state, with restrictive laws that are pretty limiting to what a consumer can get. Cause if we do away with payday loan companies in this state, we are literally pushing the poor to these websites where they will be—in my opinion—taken advantage of,” Brinkley said. Path:
The Treasury Department will be awarding finalists in the MyMoneyAppUp challenge this week with a $25,000 prize purse. Five of eight app design finalist teams to receive the reward took on the challenge to create next generation mobile apps that will help Americans shape their financial futures. The ceremony will be held this Friday at Treasury, where the first-place winner will take home a $10,000 grand prize.
You can learn more about the challenge and its finalists by clicking here, or watching the video below. One finalist, Know It ALL!, “enables consumers to instantly calculate the full cost of a credit card purchase so they can make a fully informed decision about a purchase.” Who couldn’t use n app that helps customers make informed decisions on the cost of credit? Now only if it could help compare it to other forms of credit!
Native American partnerships with payday lending companies is getting increasing media attention, and for once, news coverage is accurate in stating this is solely a practice of some Internet-based lenders who choose to license themselves under the laws of a sovereign nation, rather than through states.
That distinction is important, but consumers should also know which lenders are not partnering with Native American tribes. They should know which lenders offer a safe, reliable short-term credit product that is regulated at the state and federal level. And those lenders are all CFSA member companies.
The loophole involves payday lending firms affiliating with Native American tribes and taking advantage of tribal sovereignty to offer loans online that would otherwise be blocked by many US state laws.
CFSA members have a long history of operating within the state regulatory framework, and follow all state and federal laws. Also, CFSA Best Practices require that all member companies that offer payday advances through the Internet must be licensed in the state in which the customer resides and that they comply with all applicable state laws.
CFSA has long-advocated through its Best Practices that responsible payday lenders follow state and federal laws. Last year, we put out a statement on the issue where CFSA Board Chair D. Lynn DeVault said: “CFSA believes that our strict set of Best Practices is a business model that ensures strong consumer protections while preserving access to short-term credit.”
Yesterday, as we blogged, the FDIC released a study showing that 821,000 households opted out of the banking system from 2009 to 2011 and that the unbanked population grew to 8.2 percent of U.S. households.
As a Washington Post article points out today, roughly 17 million adults are without a checking or savings account. Another 51 million adults have a bank account, but use pawnshops, payday lenders, or rent-to-own services, the FDIC said.
This goes to show that consumers are making the choice to use alternative financial services. As a reminder, there are certain requirements that a customer must have in order to obtain a payday advance:
An active checking account,
Proof of regular income,
Proper identification,
Upon completion of a simple application and approval, a borrower must read and sign an agreement containing disclosures required by the Truth in Lending Act (TILA), and
Write a personal check for the amount of the advance plus the fixed fee.
When customers start to migrate and make the choice to use our services—which have collectively been called “alternative” but are now evident to be mainstream—this should be a tell-tale sign that consumers have the competency to pick what financial option works best for their given situation. More options for the consumer will force banks to lower prices and become more competitive in the marketplace. When this happens, consumers benefit.
Even payday industry critics understand the consumer’s rationale for choosing to use non-bank services:
“Banks need to have pricing and practices that consumers can trust and allow them to build wealth and have economic mobility,” said Deborah Goldstein, chief operating officer at the Center for Responsible Lending. “If the account fees will leave them worse off, then its going to be a challenge for people to use banking services.”
There are many benefits to establishing a relationship with an insured financial institution, yet according to a recent survey, a growing number of U.S. households today are either unbanked or underbanked.
The Federal Deposit Insurance Corporation (FDIC) today released the results of its 2011 National Survey of Unbanked and Underbanked Households, which revealed that “more than one in four U.S. households (28.3 percent) are either unbanked or underbanked, a slight increase from the findings of the FDIC’s 2009 inaugural survey.”
The new survey also found one-quarter of households have used at least one alternative financial service (AFS), such as non-bank check cashing or payday loans in the past year, and almost one in 10 households have used two or more types of AFS products or services. In all, 12 percent of households used an AFS in the past 30 days, including four in 10 unbanked and underbanked households.
These survey findings are a testament to a reality of our financial system – that millions of Americans turn to various financial products offered by banks and non-banks for their specific financial situation. Recognizing the need to serve different economic groups in different ways with different financial products and services is the first step toward creating a better market that works for consumers.
Pew released a study this week that shows that prepaid cards are a better option for consumers versus checking accounts.
The report divides consumers into three types in terms of their banking expertise: “savvy,” who use direct deposit and avoid fees whenever possible; “basic,” who aren’t as proficient at avoiding fees and have at least one overdraft fee a month; and “inexperienced,” who make heavy use of services but typically pay two overdraft fees a month.
Then, the researchers applied those characteristics to more than 200 checking accounts offered by the 12 largest banks, and 52 prepaid cards available online, to see which accounts best-suited each category.
Interesting take away from the study:
Most consumers use prepaid cards as a way to keep spending within their means; overdraft options run counter to this goal and should not be offered.
Check out the fees below.
Along with the report, “Loaded with Uncertainty,” Pew introduced an online tool to help consumers determine which option is best for them. Which one is right for you? Fill out the quick Pew survey below and find out.
A recent opinion piece in The Huffington Post (“New Name for Payday Won’t Fix It,” 08/29/12) is riddled with inaccuracies about the payday loan industry and the millions of Americans who turn to our product to manage financial obligations that come due before their next paycheck.
To be clear, CFSA does not advocate for H.R. 6139. And to be even clearer, H.R. 6139 does not include the payday loan product or any credit product with a term of 30 days or less.
CFSA member companies have long operated in a highly regulated environment – at both the state and federal level – and we believe such regulation is effective, balancing credit availability and consumer protection.
Lawmakers have acknowledged that consumers understand a payday advance is for short-term use. Just as a taxi is great for a short trip across town, it wouldn’t be economical on a journey from Los Angeles to Boston.
In fact, a payday advance can be the best option for short-term credit. It’s safe, reliable, and often less expensive than other alternatives, which include unregulated loans, overdraft usage, bounced checks, late payments to credit card companies, and utility reconnection fees.
Payday lenders provide a valuable service to American consumers, who can then keep their families and the economy moving forward. That’s a service we’re proud to offer.
And just to give our audience more color on the importance of competition in the marketplace, and how it drives innovation and reduces costs for the millions of consumers, here’s another quote from Martin that CFSA supports:
“A strongly regulated short-term credit market is desperately needed by millions of Americans trying to manage tight budgets in a tough economy. The Birmingham News should take time to better understand this important issue before taking a position, and should be encouraging competition, new services and entrepreneurship in this market, not the elimination of a single service.”
“The storefront payday lenders represented by the Community Financial Services Association welcome banks and credit unions into the payday lending market. Increased competition will drive innovation and reduce costs for the millions of consumers who need help managing unexpected and periodic financial difficulties. Our members offer a regulated mainstream financial service that competes favorably with deposit advance and overdraft protection products. What is important is that the CFPB ensures all short-term credit options are simple, fully disclosed, transparent and cost competitive.”
