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.
Have you taken out a payday loan? Email us! TODAY is looking for people to interview for a future segment on payday loans. If you are interested in being interviewed, please tell us about your loan experience and include your contact information.
If you have a story about your experience in getting a payday loan you want to share, share your story! You can go to the form, fill it out, and be honest about what you experienced with your payday loan.
Jamie Fulmer, spokesman for Advance America (a CFSA Member), had a letter to the editor published in the Jackson Clarion-Ledger yesterday, where he discusses the importance of short-term lending. As a response to a recently published article, Fulmer had this to say:
Your article described short-term loan customers as those “without access to other credit.” But when facing such a shortfall, consumers say they consider the pros and cons of credit cards, overdraft programs, and cash advances from banks, credit unions, and retail lenders.
They also weigh the costs and consequences associated with missing bill payments or submitting them late.
Consumers thrive in a competitive, regulated financial services environment. The Mississippi Legislature approved meaningful reforms last year, preserving access to a variety of regulated options and implementing consumer safeguards. That was step in the right direction. But we must continue to ensure that consumers are equipped with all of the information they need to compare services and make informed choices.
So what’s wrong with too much regulation? Uncertainty in the markets that will eventually trickle down to consumers, according to Warren Stephens. The CEO of Stephens Inc. was interviewed yesterday (you can watch it by viewing the video below) by FOX Business News regarding the impact of regs and rules out of Dodd-Frank and how they could impact access to credit. If you missed the Wall Street Journal story featuring Stephens, click here.
And again we ask, how is this different from what CFSA says? We have always promoted responsible use of the payday advance product, and even go as far to say in the Your Guide brochure handed out at our Member Company stores (both in English and Spanish): “Never use payday advances as a long-term solution for financial challenges.” Continued from the Las Vegas Review Journal story just posted:
“This is an expensive form of credit that is designed to be a short-term loan,” Messick said. “We don’t want them to use this to try and solve their long-term financial situation.”
Comes from a spokesperson from a CFSA Member Company, when commenting on banks entering into the payday loan arena, featured in this Las Vegas Review Journal article.
“There is a growing need for access to short-term credit,” said Jaime Fulmer, an Advance America spokesman. “Credit unions and banks offering short-term loans is a reflection of consumer demand.”
Truth is, though, that they’ve been offering direct deposit advances for quite some time (and Wells Fargo isn’t the only one).
“We have been offering these loans for a while,” said Richele Messick, a Wells Fargo spokeswoman. “To be eligible, you have to be an established Wells Fargo checking customer with recurring direct deposit or a tax refund.”
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.”
