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.”

CFPB is at a “virtual halt” and the GOP are close to calling it a victory, or so says this Washington Post article.

The stalemate has lasted so long that it would be virtually impossible for the Senate to vet any candidate before the agency opens for business July 21, even if a compromise could be reached. The White House could make a recess appointment during the Independence Day holiday, but Republicans have promised to keep the Senate in session. The CFPB has said it will be ready to start work on the launch date, even if it has no leader and sharply curtailed authority.

One tiny little inaccuracy in the article that we wanted to clarify:

The industry also chafed at the prospect of payday lenders, check-cashers and other financial firms flying under the radar of the new agency unless a director is named, while banks will still be subject to the CFPB under existing regulations.

Not all payday lenders are unregulated. Since the 1990s, states have steadily gained expertise in regulating the payday advance industry. That knowledge has led to broad discretionary power for state regulators to impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways, and issue new administrative rules.

CFSA members are regulated by state law.  State regulations are meant to ensure that the payday advance remains a responsible, small dollar, short-term loan product.

The Washington Post reported that Senate Minority Leader Mitch McConnell (R-KY) is standing by his vow to block any candidate.

“It’s not sexist. It’s not Elizabeth Warren-specific,” McConnell spokesman Donald Stewart said. “It’s any nominee.”

It takes only a single senator to hold up the confirmation indefinitely. President Obama could appoint someone during the next congressional recess, but Republicans can keep the Senate in session to block that move.

We talked about this in an earlier post, but can’t help thinking of Festivus when reading Ezra Klein’s comment below re: lack of leadership in high profile posts within government agencies.

A week ago, Nobel-prize winner Peter Diamond withdrew his nomination to the Federal Reserve’s Board of Governors. Republicans had blocked him for being unqualified, perhaps because the Nobel laureate had not also completed Hercules’ 12-feats of strength. That took one high-profile Obama nominee off the board. But it left the highest-profile candidate still in limbo. What about Elizabeth Warren, who bankers seemed to be warming to, even if Republican congressmen weren’t getting along with her?

 

The following comments can be attributed to D. Lynn DeVault, Board Chair of the Community Financial Services Association of America (CFSA):

“The National Credit Union Administration’s (NCUA) response to a recent Washington Post article, “Credit unions increasingly offer high-rate payday loans” defended credit unions for offering payday loan alternatives, specifically, that “compared to the triple-digit costs of payday loans, these alternatives are very attractive.” While CFSA believes that credit unions should be commended for providing consumers another short-term loan option, let’s be clear about the true cost of these “alternatives.”

Last September, the NCUA voted to allow credit union members to raise the annual interest rate for short-term loans to 28 percent. What the NCUA doesn’t discuss is that the fees credit unions tack on to a loan, drive the true cost up to, yes, triple-digits. For example, a two-week (typical payday loan) $400 loan at Kinecta Federal Credit Union costs $42.25, that’s an annual percentage rate (APR) of 275 percent. Or when considering a two-week loan at Mountain America Federal Credit Union, this short-term alternative has an APR at 876 percent.

Like it or not, short-term, unsecured credit is expensive and no one, including banks and credit unions can afford to make loans at the rates of traditional, secured loans. Is the cost worth it to consumers? We think that payday lenders, banks, and credit unions should clearly disclose loan fees and terms and at the end of the day, only the consumer can decide whether the loan is appropriate for their needs.”

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

Yes, in case you’re wondering… that is a David Bowie reference. It’s Friday, we can reference a rock legend. Why did we mention it, you say? Question is: Could Bowie’s “Hey man, droogie don’t crash here. There’s only room for one and here she comes, here she comes” apply to Elizabeth Warren? A story from the Washington Post thinks so.

Massachusetts Rep. Barney Frank, top Democrat on the House Financial Services Committee, said some of the resistance to Warren, a Harvard law professor, is because of a feeling that a woman should not tell bankers what to do.

“Some people almost unconsciously think that for a woman to be in an important position regarding the titans of the financial industry is not appropriate,” Frank said at a news conference. He said while that attitude hasn’t affected the substance of the debate over Warren, “The tone has been exacerbated.”

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.

Michelle Singletary throws a little hissy in the Washington Post today about payday lenders supposedly drawing from folks’ social security benefits.

I guess it doesn’t matter that CFSA denounced the same practice last week.

Lynn DeVault, board chair of CFSA, said she knows of no payday advance companies that engage in this practice and that the industry strongly supports efforts to block all lenders from gaining access to a borrower’s bank account through these sub-account arrangements.