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.

Learn more about CFSA’s Best Practice on Compliance by clicking here.

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.”

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.”

A direct solicitation from The Consumer Financial Protection Bureau says they want to hear from you for the official record! Meaning, payday advance customers! Here’s what Zixta Martinez said in her March 23 blogpost:

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.

We’d also like to hear from you. The CFPB is inviting public comments for the record. Please take this opportunity to share your thoughts and insights.

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.

Article in the Salt Lake Tribune is asking consumers the following question: Want out of a payday loan? According to HB 459, you could get out of your loan if the payday lender you’re doing business with is not properly registered with the state. Here’s an excerpt from the article:

If a payday lender is not properly registered with the state, a bill approved by the House on Friday would void its loans — and ban collecting any principal or interest.

HB459, approved by the House on a 60-11 vote and sent to the Senate, also requires payday lenders to report some additional information to the state every year — but stops requiring some data that raised questions about how many loans they are making.

Rep. Jim Dunnigan, R-Taylorsville, sponsor of HB459, said most payday lenders with stores in Utah are properly registered, but some shadier ones operating online are not. He said the provision to void loans of unregistered lenders puts teeth in requirements to register.

CFSA released the following statement today regarding the Bureau’s field hearing yesterday in Birmingham, Alabama. The following comments can be attributed to D. Lynn DeVault, CFSA’s Board Chair:

“We appreciate the Consumer Financial Protection Bureau’s (CFPB) willingness to hear from all stakeholders as it develops plans to regulate the small loan market. Storefront lenders made 110 million loans to nearly 20 million American families last year. At a time when access to small dollar loans is more vital than ever, developing strong, uniform, research-based rules will be a benefit to consumers.

“State governments currently regulate all aspects of payday advance lending in every state where payday advance loans are available. We have long worked with our state regulators in all 32 states where we operate to ensure compliance with state licensing and renewal requirements, supervision and examination procedures, and other consumer protection laws and regulations. Our member companies are committed to following all state and federal laws, as well as adhering to our association’s strict set of Best Practices that include truthful advertising, appropriate collection practices, and providing an Extended Payment Plan to customers who are unable to repay their payday advance loan.

“The Bureau’s new Short-Term, Small-Dollar Lending Examination Procedures is now published and our members look forward to working with our new federal regulator to confirm their compliance with all federal consumer financial laws and regulations.”

Quote of the day (from yesterday’s hearing) came from none other than Ted Saunders, member of CFSA’s Board of Directors and also CEO of Community Choice Financial:

“My customer is not uninformed, my customer is not unintelligent and I respectfully disagree that closing me down and letting alternatives flourish would be a good solution”

Kim Gardner, CEO of Cash USA and member of CFSA’s Board of Directors, delivered her remarks at the Consumer Financial Protection Bureau’s (CFPB) first field hearing in Birmingham, AL which convened to discuss the issue of payday loans. The following are her written comments that were submitted for the record:

Hello, my name is Kim Gardner. I represent a small family-owned financial services business. We are also CFSA members and I represent the small member companies on its Board of Directors. I’ve been in the financial services business for 16 years – 10 of which have been right here in Alabama.

I would like to thank Director Cordray and the staff of the Consumer Financial Protection Bureau for inviting me to share some insight into the Alabama payday lending market, and for organizing this series of important discussions.

I am proud to be a payday lender. Not everyone can or will turn to a bank or credit union when they are in need of credit. We provide critical access to short-term credit for millions of American families each year through affordable, reliable and transparent services.

Payday loans are simple, clear and easy to understand. Consumers like the product because it’s quick and confidential. Let’s face it; no one wants to borrow money. But when an urgent need comes up before their next payday, our consumers know they can turn to us.

As a member of the Community Financial Services Association of America (CFSA), an organization seeking to ensure consumer confidence in the payday advance industry, my company abides by a strong code of best practices. These best practices offer consumer protections in addition to those required by state and federal law. Measures include a commitment to full disclosure, truth in advertising and fair collection practices and extended repayment plans – which allow consumers more time to repay their loans and no additional cost.

Our services are effectively regulated at the state level. Under the Alabama Deferred Presentment Services Act, payday loans cannot exceed $500, and through a state-managed database, lenders verify a borrower’s outstanding loans do not exceed the $500 limit. Fees are capped, with a term of 10 to 31 days. Loans can only be renewed once. These measures help to ensure that our customers can be successful borrowers – and that’s our primary goal.

Here in Alabama, approximately 1,100 licensed lenders serve thousands of consumers. Loan examiners from the State Banking Department regularly perform examinations for compliance, and the state collects and manages consumer complaints.

In addition to these comprehensive regulations, lenders also comply with a number of federal regulations including the Truth in Lending Act (TILA) and the Military Financial Services Protection Act, among others.

As a lender and small business owner, I am committed to operating a viable business. But my employees and I are also dedicated to our customers and communities too. Our success belongs to the consumers we serve, and without offering strong consumer protections, we would not be sustainable.

As storefront lenders, we are part of the neighborhoods we serve and sensitive to the needs and concerns of our customers.

As I have found in our stores – communication is key. You have to get to know the customers in order to know how to serve them.

We contribute to the Alabama economy by providing reliable access to credit, but also by hiring local employees and vendors, renting storefronts and using other local services.

But the core of our business is customer service. We treat our customers with respect and dignity and we always keep their best interests in mind.

We know consumers have options when it comes to short-term credit – whether it’s a payday loan, a bank or credit union overdraft program or a credit card advance. Our job is to make sure they have the information they need to make the best personal and financial decision for their individual situations.

As the CFPB and other federal and state regulators work together to look for the best ways to protect consumers, I urge you to create a regulatory framework that allows consumers to compare financial services and products similarly – regardless of the provider.

It’s my experience that customers are best served when they can quickly and easily compare different credit options. You’ve heard different perspectives on payday lending today. Please come see for yourself. I would like to have you visit some of our stores and meet our employees and customers. Listen to their stories and get a better understanding of our service.

I look forward to continuing to working with the Bureau and others to strike the appropriate balance between regulation and reliable access to a wide variety of financial services, including payday loans.

I am confident the Bureau will come to see payday lending as I do – a valuable and legitimate service, offering consumers a needed short-term credit option with meaningful consumer protections and outstanding customer service.

This was mentioned by Salmon in the article we just posted about: “At the same time, however, the loan companies do themselves no favors at all by being incredibly opaque about the terms on their loans and the interest rates they’re charging; I’d never actually recommend that someone go to such a shop, since the entire business model seems to be based on exploiting sophistication asymmetries and charging as much interest as possible.”

As a reminder to any payday advance consumer doing business with a CFSA Member, this is one of our Best Practices that we believe sets us apart from the rest:

1. FULL DISCLOSURE: A member will comply with the disclosure requirements of the state in which the payday advance office is located and with federal disclosure requirements including the Federal Truth in Lending Act. A contract between a member and the customer must fully outline the terms of the payday advance transaction. Members agree to disclose the cost of the service fee both as a dollar amount and as an annual percentage rate (“APR”). A member, in compliance with CFSA guidelines where they do not conflict with applicable federal, state or local requirements, will further ensure full disclosure by making rates clearly visible to customers before they enter into the transaction process.