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:
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.”
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.”
“Your uninformed conclusion to eliminate this service from the marketplace would only force consumers who rely on payday advances to use other, less-regulated, more-costly, short-term credit products such as illegal offshore Internet loans and overdraft protection, or pay late fees on credit cards and utility bills.
In Georgia and North Carolina, where payday lending was effectively banned, a Federal Reserve Bank of New York staff report found bounced checks, personal bankruptcies and complaints about other types of lenders jumped significantly when consumers no longer had the regulated payday-loan option.”
Today CFSA applauded the Federal Trade Commission’s (FTC) success in stopping an illegal debt collection operation which tricked people into paying off phantom payday loans. The scam bilked consumers out of more than $5 million over two years.
“CFSA members and federal and state officials all agree on the urgent need to protect consumers from scammers,” said D. Lynn DeVault, Board Chair of CFSA. “We applaud the recent federal enforcement actions against these unscrupulous lenders and debt collectors, who up to now have operated illegally and largely beyond the reach of regulators.”
All members of the CFSA operate by a code of Best Practices, including the collection of past due accounts in a professional and lawful manner. CFSA members adhere to the Fair Debt Collection Practices Act and do not use threats, intimidation, or harassment to collect accounts. Consumers seeking short-term credit and the assurance of fair collections should look for lenders displaying the CFSA Member Seal in their store or on their website.
In a blogpost dated last Friday, the Consumer Financial Protection Bureau put out an announcement asking any and all interested parties to “share your input on payday lending for the official record”.
“Public input is tremendously important to our work at the CFPB. At our January field hearing in Birmingham, we had the opportunity to gather information directly from Alabamans about their experiences with payday loans.
Payday loans are typically marketed as a way to get quick cash when you need it. They generally have three features: the loans are for small dollar amounts; borrowers must repay the loans quickly; and the loans require that a borrower give lenders access to repayment through a claim on the borrower’s deposit account.
We heard and learned a lot at the Birmingham forum, and we know that there are many others around the country who may wish to add to the dialogue. Please tell us your experiences!
