“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]

“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.

The CFPB should require all covered persons, as defined, to be registered with the CFPB in each State in which they do business.

Exactly what this type of registration would entail remains unclear, but such a shift could mean major changes to the licensing process as we know it.

One reminder: A majority of states have chosen to meet consumer demand for payday advances with balanced, responsible regulation for their constituents. Thirty-two states have recognized the need for a small dollar, short-term credit source for their constituents and enacted legislation that protects consumers and their access to credit, while allowing law-abiding payday lenders to operate.

Here are a few key highlights from her letter (to read the letter in its entirety, click here):

Contrary to what Mr. Ashworth suggests, the payday advance industry is currently subject to a high level of regulation and oversight in the State of Louisiana. Where payday lending occurs, each state – including Louisiana through its Office of Financial Institutions (OFI) – has thorough licensing, regulation, and enforcement processes that govern payday advance companies. Additionally, Louisiana provides statutory limits on payday advance renewals, contrary to one of the main points of focus of the article.

…

Given the existing state law, as well as important industry requirements, it is not surprising that the Louisiana OFI received only 20 consumer complaints in all of 2009 regarding the payday advance industry. This incredibly low number of consumer complaints certainly calls into question Mr. Ashworth’s criticism about the OFI’s failure to “publicize the number and nature of complaints.”

“Special consideration should be given to ensure that rules aimed at financial institutions with different corporate structures, different products and different financial incentives do not create unintended consequences for not-for-profit credit unions,” NAFCU Associate Director of Regulatory Affairs Dillon Shea wrote in a comment letter.

…

CUNA Deputy General Counsel Mary Mitchell Dunn wrote that credit unions are in favor of reasonable consumer protections but urged the bureau top minimize the new requirements with which credit unions have to comply.

What’s a “larger participant”? Our nonbank supervision program may look at all sizes of nonbank mortgage companies, payday lenders, and private student lenders. But Dodd-Frank says that in other markets, the Bureau’s supervision program generally covers only institutions that are “larger participant[s] of a market for other consumer financial products or services.”

“Larger”? Larger than what? Well, that’s what the CFPB has to figure out. Congress did not set the thresholds for inclusion in this supervision program for these other markets. Congress required that we define what these size thresholds should be, so we can lay the foundation to start this part of our nonbank supervision program. In other words, it’s our job to figure out exactly how large “larger” really is.

A Colorado law that was passed last year extended the terms of the loans from a few weeks to six months and capped interest rates at 45 percent annually, basically eliminating the industry from serving customers who need access to short-term credit.

Jamie Fulmer, vice president at Advance America, said the law did more than reform the industry. “The law eliminated payday lending. It created a new system of six month installment loans. It is an entirely new product.” He continued, “Our company has closed half of our centers in the state and over 400 jobs have been lost in Colorado as a result of the law.”

Here’s a snapshot of how this industry previously served the Colorado economy (survey was done by IHS Global Insight in 2007).

The industry contributed over $294 million to Colorado gross state product (GSP) in 2007.

The payday lending industry supports over 4,200 jobs1 in Colorado, including 2,093 people directly employed in 641 storefront locations.

• The industry indirectly created another 783 jobs in supplier industries.
• Payday loan store and supplier industry employees induced the creation of 1,354 jobs through the purchase of goods and services using earned wages.

In Colorado, the total labor income impact from the payday loan industry is $184.5 million:

• Through direct employment, payday loan stores contributed $80 million in labor income.
• Suppliers to the payday lending industry contributed $41.6 million in labor income as an indirect result of the revenues generated by the payday loan industry.
• $62.9 million was generated from the wages of payday loan store employees and supplier industries’ employees as they were spent in Colorado’s economy.

According to the article:

CRL estimates that $3 million per year is being sucked out of the Rhode Island economy by nationally run payday loan companies, such as Check ‘N Go of Ohio and Advance America of S.C.

IHS Global Insight conducted a comprehensive study analyzing the economic impact of the payday loan industry nationally and in states with storefront locations. Findings illustrate “measurable and significant” economic benefits to local economies directly through employment, compensation and taxes, as well as through indirect and induced relationships with suppliers and other industries.

SOME KEY FINDINGS:

The industry contributed over $5 million to Rhode Island’s gross state product (GSP) in 2007.

The payday lending industry supports 74 jobs1 in Rhode Island, including 42 people directly employed in13 storefront locations.

• The industry indirectly created another 10 jobs in supplier industries.
• Payday loan store and supplier industry employees induced the creation of 23 jobs through the purchase of goods and services using earned wages.

In Rhode Island, the total labor income impact from the payday loan industry is nearly $3.2 million:

• Through direct employment, payday loan stores contributed $1.7 million in labor income.
• Suppliers to the payday lending industry contributed $480,000 in labor income as an indirect result of the revenues generated by the payday loan industry.
• $1 million was generated from the wages of payday loan store employees and supplier industries’ employees as they were spent in Rhode Island’s economy.