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.”

Back in July, CFSA’s D. Lynn DeVault sent a letter to the editor to American Banker discussing the same issue. Here’s a look at what our Board Chair had to say:

“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.”

The Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection held a hearing Tuesday, according to the American Banker,  just days before the full committee was scheduled to vote on the nomination of Richard Corday to be the Bureau’s first director. Although the witnesses talked about the wealth gap and discriminatory lending practices, the subtext of the hearing and the issue on everyone’s mind was the CFPB.

As far as alternatives go and the need for more clarity and transparency in disclosure agreements, the following was a key quote from a representative from Pew Charitable Trusts:

Susan Weinstock, Pew Charitable Trusts: “Unfortunately, the checking accounts in our study did not meet this standard. We found a median of 111 pages of disclosure documents…The banks often used different names for the same fee or service; put the information in different documents, different media, or different locations in a document…Many of these documents are not user-friendly, with much of the text densely printed, difficult to decipher, and highly technical and legalistic.”

We believe that CFSA’s Best Practices should be considered as a blueprint for responsible lending within the payday advance industry, 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.

Another quote from CFPB Interim Head Raj Date at yesterday’s event in Philadelphia, most notably the topic on short-term credit:

“We also recognize that there are a variety of products which are targeted at consumers who have a short-term need for cash – including products offered outside of the traditional banking sector,” Date said. “The consumer agency has the capacity to address this range of products in an even-handed way. ”

Date said that the agency plans to examine the issue to ensure the market for short-term credit is “fair, transparent and competitive.”

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.

More specifically, CFSA Best Practice #3:

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.”

Raj Date, acting dead of the CFPB will be keynoting the American Banker Regulatory Symposium to be held in Washington on September 20.

American Banker is pulling out all the stops. Here are others that are expected to speak at the event: Martin Gruenberg, acting chairman of the FDIC; John Walsh, acting Comptroller of the Currency; Thomas Hoenig, president of the Federal Reserve Bank of Kansas City; Rep. Barney Frank, D-Mass., ranking member of the House Financial Services Committee; Sen. Jack Reed, D-R.I., chairman of the Senate Banking Subcommittee; and Rep. Shelley Moore Capito, R-W.Va., who serves on the house financial services committee.

Could Obama miss seeing a CFPB director appointment during his first-term in office? Some think that the Cordray confirmation could be drawn out for weeks, if not months.

“This situation will continue until 2013,” said Mark Calabria, a former Republican staffer on the Senate Banking Committee who is now director of financial regulation studies at the Cato Institute. “Republicans are unlikely to support anyone until all three of their changes are made. Just keeping the agency around is viewed as a major compromise.”

Calabria is referring to the structural changes that GOP leaders are calling for before they confirm anyone to lead the new consumer agency.

According to American Banker, The U. S. Court of Appeals for D.C. Circuit Court ruled July 22 that the Securities and Exchange Commission did not properly conduct a cost-benefit analysis before finalizing a proxy rule required by the regulatory reform law.

So what does this mean for all other agencies? Well, they could be next.

The decision serves as a stark warning for all federal regulators tasked with writing the myriad of regulations under Dodd-Frank, and gives the industry and others more leeway to challenge new rules in court.

…

“The entire Dodd-Frank implementation is at heavy risk because if any of these rules are challenged by the courts, they won’t survive,” said Hal Scott, Nomura Professor and Director of the Program on International Financial Systems at Harvard Law School.

According to the American Banker, payday lenders have a ‘few friends in high places,’ at least as it relates to the recent KC Fed discussion.

In particular, KC Fed economist Kelly D. Edmiston found evidence that, in states that ban or restrict payday loans, consumers have lower credit scores and make less use of traditional credit.

“I’m arguing that they either lose access to credit, or are using less healthy forms” of short-term borrowing, such as bounced checks, overdraft loans or even illegal loan sharks, says Edmiston.

…

Sharing the debate panel with Frank and with Darrin Anderson, an executive from payday lender QC Holdings, Edmiston defended his research, pointing out that the results were not intended as an argument against bans but as a starting point for discussions on payday loan restrictions, which he says haven’t been examined enough. “The evidence is mixed,” he says with a shrug.

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