It appears obvious to the ABA that customers understand deposit advance programs, according to ABA’s letter to OCC. The actual deposit advance program is probably much easier to understand than the explanation below, but at least ABA is acknowledging that the terms of the agreement are simple and clear:

“Customers understand that deposit advance programs are the functional equivalent of receiving an advance on income or other regular deposit. Thus, when the recurring deposit actually occurs, the balance not previously advanced is credited to the account. In other words, the normal, recurring payment is bifurcated into an accelerated portion (the advance), and the remaining balance received on schedule less the fee for taking the advance. When a person goes to his or her employer for an advance on their salary or commission payout, the obliging employer naturally pays only the balance (regular periodic earnings less the advance) on the scheduled pay day. The bank that offers a deposit advance program is behaving similarly, but as a third party, the bank charges a fee for the accommodation.”

The CFPB has repeatedly emphasized the need for greater disclosure in financial products. Could the next product to undergo this simplification process be checking accounts? A recent Pew study shows that consumers would be happy to see clearer forms when signing up for a checking account. Here’s what the Pew researchers are saying about the need for better disclosure:

“You can’t comparison-shop based on minimum balance needed, monthly fees and policies, because you can’t figure out what they are,” says Susan Weinstock, director of the Safe Checking in the Electronic Age project for Pew Charitable Trusts. She adds that Pew has proposed something similar to the “Schumer Box” that credit card companies are required to include in their marketing materials, which spells out major terms and conditions. Since the layout of the box and included information is the same from issuer to issuer, consumers can get a good comparative overview of what different cards offer and require.

 

Debbie Matz, chairman of the National Credit Union Administration, issued a letter to the Washington Post’s editor in response to the story that ran last week: “More credit unions offering payday loans.” In the letter she says:

We recently authorized federal credit unions to develop loans designed to offer members much more affordable short-term cash. Yes, at 28 percent, these loans have a higher annual percentage rate than conventional loans, which are capped at 18 percent. But compared to the triple-digit costs of payday loans, these alternatives are very attractive.

When we did the math on credit union short-term loan alternative (or STS loan) given by the reporter in an MSN Money article the APR went into the triple digits. (Scenario: $300 loan, 1 month, 28 percent interest rate, plus fees). CFSA will be putting out a media statement soon, so stay tuned.

Payday Pundit put out a couple posts last week on the issue, click on the below to review:

Re: Washington Post/Ben Hallman’s story

Re: MSN Money’s pickup of the Ben Hallman story

Remember the days when headlines didn’t have a reporter’s slant? MSN Money picked up on reports surrounding credit unions offering short-term loans. Only their story had a subhead that makes you wonder if the piece should’ve been labeled as an op-ed?

Not all short-term loans from credit unions are created equal. Some are nearly as predatory as the loans from the corner check-cashing place.

Oh and by the way, when you say “payday loan folks have taken note,” we wonder if maybe you should’ve cited our opinion versus assuming that one blog speaks for the whole industry.

Also, when you do the APR on your scenario below, did you know it comes out to 109.9 percent (scenario: $300 loan, 1 month, 28 percent interest rate, plus fees). Even at their scenario, it’s still a triple-digit APR. Credit unions aren’t after making a profit to sustain their business. The pricing structure of a payday advance is reasonable based on the lenders costs to deliver the service. Thought maybe those points could’ve been put in the story:

These short-term, small amount loans, or “STS loans,” have a higher interest rate (28%) than your typical credit union loan, with limits on the term (one to six months), amount ($200 to $1,000) and fees. The cost for applying is $20, presented as a reasonable charge to cover the processing costs. Credit union members – the only people eligible for them — can’t get more than three of these loans in six months.

Who said all short-term credit comes from “traditional” lenders? It’s no secret that some banks, including Wells Fargo, Fifth Third, and U.S. Bank, offer payday loan products with interest rates that are consistent with traditional payday advance fees. Wells Fargo’s Direct Deposit Advance carries a 195 percent APR and Goodwill Industries charges an APR of 250 percent. Take a look at Regions’ Ready Advance.

There is a Cash Advance fee of $1 for each $10 that you advance. For example, if you borrow $100, the Cash Advance fee would be $10. The Cash Advance fee does not reduce either the amount of your advance or your available credit limit. All Cash Advance fees are collected at the time of repayment.

Repaying the Ready Advance is seamless and convenient. Subject to your authorization, any outstanding balance is automatically repaid on the day the bank receives your next direct deposit of at least $100. If a direct deposit is not made to your qualifying checking account within 35 days of your advance to repay it, the outstanding balance will simply be withdrawn from the checking account.

Note: Ready Advance may be an expensive form of credit compared to some alternatives. Please contact a Regions Bank associate to discuss other credit opportunities for which you may qualify.

Looks like credit unions are no stranger to the same criticism our industry faces.

… encouraged by federal regulators, an increasing number of credit unions are competing directly with traditional payday lenders, selling small, short-term loans at prices far higher than they are permitted to charge for any other product.

Last September, the National Credit Union Administration raised the annual interest rate cap to 28 percent from 18 percent for credit unions that offer payday loans that follow certain guidelines. Under this voluntary program, credit unions must allow at least one month to repay, and cannot make more than three of these loans to a single borrower in a six-month period.

But because these firms can charge a $20 application fee for each new loan, the cost to borrow $200 for two months translates into an annual rate of more than 100 percent.

“We spent a long time trying to do this in a way that would work for members and for the credit unions and not be predatory,” said NCUA Chairman Debbie Matz.

The Florida Attorney General’s office has announced that they will begin an investigation of five prepaid card companies (First Data Corp, Green Dot Corp, Account Now Inc, NetSpend Corp and Unirush Financial Services LLC) looking to find “deceptive and unfair practices”.

“Failing to disclose fees is essentially stealing money from consumers,” Attorney General Pam Bondi said in a statement.

A new report by the Pew Charitable Trust’s Safe Checking in the Electronic Age Project analyzed the policies of the nation’s 10 largest banks. A New York Times Editorial says it shows why checking account holders — in other words most adult Americans — are in desperate need of better protections. Required disclosure documents run an average of 111 pages and often hide penalty and fee information in several places so that customers cannot easily find it. Checking overdraft fees are not “reasonable and proportional,” as late fees must now be for credit cards. According to the study, the average overdraft charge of $35 on an average overdraft of $36 amounts to an annualized interest rate of more than 5,000 percent. Click image below to see the full infographic from Pew.

CFPB’s first action.  From the story:

The Consumer Financial Protection Bureau advanced its overhaul of annoying, incomprehensible mortgage forms on Wednesday in its first regulatory maneuver since the agency was created by last year’s financial reform bill.

The CFPB rolled out two prototypes for a single, streamlined form to replace two complex and overlapping forms used by consumers to help gauge the real costs of their mortgage. The new regulator, which hopes to have a final form ready by September, is asking consumers to provide feedback on the forms online and is conducting in-person tests and interviews about the forms in six cities.

Online lender Payday Loan Tree sent out a press release that invites Ralph Nader to join a virtual consumer rights rally it is organizing.  From the story: 

Payday Loan Tree, the company that makes short-term immediate payday loans online available to consumers who need emergency funds between paydays, has announced plans to invite Mr. Ralph Nader to sit on the virtual dais of the upcoming web-based consumer rights rally that the company previously announced that they were developing.

“As we set out to complete plans for the upcoming rally, we would be remiss if we failed to extend an invitation to the most well-known consumer activists in the country,” said a spokesman for the company. “Mr. Nader has been a staunch supporter of consumer rights for decades, and it would be an honor for us to have him in attendance at our rally. The purpose of this rally is to protest the exorbitant amounts of fees and interest that large financial entities are charging to the average consumer – even for short-term loans.”