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.
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!
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,
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.
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.
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.
Your official comments will help inform how the CFPB works to protect consumers and create a fairer short-term credit marketplace. And to make it easier, you can do it online! Click here to tell the CFPB why a payday advance is an important financial option for you.
You can also watch CFPB Director Cordray’s opening remarks from Birmingham below, or read the transcript of the entire event, including what the Bureau heard from the public.
“So another key objective is making sure that both banks and their nonbank competitors receive the evenhanded oversight necessary to promote a fair and open marketplace. Our supervisors will be going on-site to examine their books, ask tough questions, and fix the problems we uncover. Under the laws enacted by Congress, and with a director now in place, we have the ability to make sure this is true across all financial products and services.”
“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!
This is an excerpt from an email that came out earlier from the CFPB’s Zixta Martinez, Assistant Director for Community Affairs, The Consumer Financial Protection Bureau:
Tonight, we’re hosting a town hall in New York to hear stories from community members about their experiences with checking accounts. You can watch it live on our website starting at 5:30p.m. Eastern / 2:30p.m. Pacific. We’re interested in stories from elsewhere, too. As you share your status, feel free to share additional thoughts about your checking account experiences. We’ll share what we hear with the CFPB’s Director, Richard Cordray.
Need not worry, you can watch the recap of CFPB Director Richard Cordray’s remarks by clicking here.
If you missed the first event, CFPB Director Rich Cordray talked about CFPB’s inquiry into overdraft practices. Here are some of the things the Bureau is working on when it comes to overdraft protection. EXCERPT BELOW IS TAKEN FROM THE CFPB’S WEBSITE:
We’re researching how overdrafts affect you. We launched an inquiry through a data request that is being sent to a number of banks and a Notice and Request for Information to gain insight into overdraft practices.
We want you to understand what actions you can take now to protect yourself from overdraft fees. Do you know your overdraft status? Read our Consumer Advisory that explains how you can learn whether or not you have opted in to debit overdraft fees on ATM and point-of-sale transactions. Go to our Twitter and Facebook accounts to tell us your debit overdraft status.
We’re working to make it easier for you to understand the costs and risks of overdraft programs. Our model overdraft “penalty fee box” is a thought-starter for a disclosure that would appear on your checking account statement and online banking landing page. It would highlight the amount overdrawn and total overdraft fees charged, so you so can clearly see how much overdrafts are costing you. Tell us what you think.