May 29, 2018

Finance Regulators Pave Way for Banks to Reenter Small-Dollar Loan Market

Under the letter of the law, banks can now reenter the small-dollar lending space. On Wednesday, the Office of the Comptroller of the Currency (OCC) issued new guidance encouraging banks to offer small-dollar installment loans. This follows the OCC rescinding prior guidance governing "deposit advance" products last year, which effectively enabled banks to offer a payday loan-type products again.

On its face, this is a great win for consumers. A Federal Reserve report issued this month found that around 40 percent of adults would not be able to pay an unexpected $400 expense without borrowing funds or selling a personal item. Opening up the small-dollar loan market to greater competition is a necessary and encouraging step to help fill an enormous need for small-dollar credit. However, it is naïve to think that banks are the complete answer to credit hungry consumers-or a replacement for non-bank installment and payday lenders, as some suggest. The truth is that such a diverse market requires a mix of lenders and products, including both bank and non-bank lenders.

First, it is less than certain whether banks will want to reenter the space. Back in 2013, the Obama administration regulated them out of the market through a handful of enforcement actions and guidance documents. While the current OCC may view market competition more favorably, a new administration in 2020 could all too easily institute new guidance prohibiting banks from the market. That kind of regulatory uncertainty is not helpful to firms.
OCC to National Banks: Please Compete With Payday Lenders! by Parker Poe Adams & Bernstein LLP

This week, the Office of the Comptroller of the Currency (OCC) signaled a big shift in how it views small-dollar installment loans issued by the institutions it regulates. In OCC Bulletin 2018-14 to the CEOs of all national banks, federal savings associations, and others, the agency announced it now "encourages banks to offer responsible short-term, small-dollar installment loans, typically two to 12 months in duration with equal amortizing payments, to help meet the credit needs of consumers."

Historically, the OCC and other federal banking agencies have shied away from encouraging their regulated institutions from offering small-dollar loans and left that market to the payday lending industry. The bulletin noted that U.S. consumers borrow nearly $90 billion every year in short-term, small-dollar loans typically ranging from $300 to $5,000, and that many banks have withdrawn from this market. If you read between the lines of the bulletin, the OCC appears to understand that its previous guidance on this subject has driven consumers away from OCC-regulated institutions and, in their place, toward the high-cost payday lending industry. Read more at JD SUPRA
National Debt Holdings
OHIO: Payday lenders say ex-Ohio House Speaker Cliff Rosenberger threatened them, delayed bill

Former Ohio House Speaker Cliff Rosenberger used strong-arm tactics to tank a bill to regulate the payday loan industry, including threatening loan companies that were trying to work on a compromise with reform advocates, according to two payday loan CEOs and their lobbyists.

The Ohio Consumer Lenders Association, a group of payday lenders, says Rosenberger stopped their efforts for a compromise on House Bill 123 so he could keep promises to other lending companies that objected to any changes in the law. The bill was introduced in March 2017 but languished in a House committee for over a year before advancing without a single change.

"He was telling members and editorial boards that he favored reform while telling certain lobbyists and their clients that he would prevent any reform from taking place on his watch," association members Ted Saunders and Cheney Pruett wrote in a May 15 letter to Rep. Niraj Antani, which obtained through a public records request.

Association lobbyists Neil Clark and Jeff Jacobson corroborated the events outlined in the letter in interviews.

Rosenberger, a Clarksville Republican, resigned in April amid reports the FBI was asking questions about a trip he took to London in August, where he was accompanied by lobbyists for the short-term lending industry. Read more at CLEVELAND.COM
CALIFORNIA must take a small step against predatory lending

Many Californians have seen those neon storefront signs advertising fast cash advances and same-day loans. If it sounds too good to be true, it is.

The reality is these loan sharks trap distressed borrowers in triple-digit interest rate loans. They ruin their credit, get their wages garnished and cars repossessed and can even be forced into bankruptcy.

Every year, lobbyists in Sacramento have stymied efforts for much needed consumer protection laws against predatory lending. This year, the payday lending industry has hired various lobbying firms and paid for radio ads and social media campaigns.

This session, California families have allies in Assemblyman Ash Kalra, D-San Jose, and Sen. Holly Mitchell, D-Los Angeles, who are pushing Assembly Bill 2500 to protect them from abusive installment loans. The bill is expected to go to the Assembly floor this week.

Currently, California has no annual percentage rate limit for installment loans between $2,500 and $5,000. AB 2500, the Safe Consumer Lending Act, would cap interest rates at 36 percent for loans of this size. Read more at SACRAMENTO BEE
Lawyer gets eight years in U.S. prison for payday lending scheme

A Delaware lawyer was sentenced on Friday to eight years in prison for helping clients including a pioneer of the payday lending industry to collect on hundreds of millions of dollars in illegal loans, prosecutors said.

Wheeler Neff, 70, was sentenced by U.S. District Judge Eduardo Robreno in Philadelphia after a federal jury in November found him guilty on charges including racketeering conspiracy, mail fraud and wire fraud.

He was convicted alongside Charles Hallinan, who prosecutors said owned and operated more than a dozen payday lending businesses and who was indicted along with Neff in April 2016 amid a U.S. crackdown on abusive practices by payday lenders.

Such companies say they help consumers by offering small loans that are to be repaid in a short time, often from the person's next paycheck, but critics say they exploit borrowers through high interest rates and fees. Read more at REUTERS
OHIO: Frustrated Payday-Lending Opponents Hope to Take the Issue to Voters

A citizens group is moving forward with its attempt to put a measure on the Ohio ballot that would crack down on payday lending. They say they're tired of waiting for state lawmakers, who are still struggling to pick a speaker so they can act on the bill.

The delayed vote on a new speaker stalled the payday-lending crackdown, which was supposed to be on the House floor last week. So Nate Coffman with Ohioans for Payday Loan Reform says they're going to take their issue to the voters.

"We are operating under the assumption that there's not going to be meaningful reform passed by the Legislature," he said.

The Ohio Consumer Lenders Association says the bill would force storefronts to close and cut off access to loans. But opponents argue that the industry has been preying on people in need and charging them interest rates of up to 591 percent APR.

The initiative must now be approved by the ballot board before Coffman's group can collect the more than 300,000 signatures it needs to make the ballot next year. Read more at WKSU.ORG
Dreher Tomkies LLP
The Opportunities And Challenges Of Small-Dollar Lending

Responsible short-term, small-dollar loans to consumers will result in increased purchasing power, according to a paper from the American Banking Association about small-dollar lending.

The Office of the Comptroller of the Currency (OCC) last week issued new guidance encouraging banks to offer those loans to their customers. The guidance changed no regulation. It only clarified the OCC's stance on those loans.

In a white paper issued last year, the ABA "highlighted the important role that small-dollar credit plays in helping consumers meet their financial needs, and called on regulators to remove barriers that impede banks from making small-dollar loans. The white paper is part of the banking industry's continuing response to President Trump's executive order outlining 'core principles' for financial regulation."

The paper takes a look at the consequences of overdrafts in the absence of a robust small-dollar loan environment. "Consumers lose an average of $443 in purchasing power for each attempted check or ACH transaction that is returned due to insufficient funds in the consumer's account," the ABA's research found. "The total annual lost purchasing power is $43.7 billion."

The paper also challenged the view that overdraft mainly hurts lower-income consumers. "Middle-income consumers use overdraft protection at higher rates than lower-income consumers," the ABA researchers said. "In general, there is no typical user of overdraft protection; consumers across the income spectrum use overdraft protection and do so for many different reasons."
A_S Management
NCUA wants to expand payday lending alternatives for credit unions, consumers

Federal credit union members could have more options for short-term, small-dollar borrowing under a rule proposed today by the National Credit Union Administration Board.

The proposed rule would create one new product in addition to the current payday loan alternative that has been available to federally chartered credit unions since 2010. The Board also is requesting credit union stakeholders to comment on a possible third option.

"The Board's goal is to help people of modest means by expanding access to safe and affordable short-term, small-dollar loans," NCUA Board Chairman J. Mark McWatters said. "Federal credit unions have had a payday alternative loan option since 2010, which has been extremely effective. Now, we want to create additional opportunities."

"Providing affordable credit and helping members build financial security is the very foundation of the credit union system," NCUA Board Member Rick Metsger said. "Federal credit unions have, for eight years now, been able to offer an alternative to the kind of predatory lending that can entrap a borrower with astronomical interest rates and fees. The NCUA Board wants to give federal credit unions more tools to help their members, and we will keep members' needs as well as safety and soundness uppermost in our minds as we proceed." Read more at CREDIT UNION INSIGHT
Employment Skip Tracing
Alternative loan borrowers may be traditional prospects

Debt management ability found among users of payday and other short-term credit

Competition for consumer credit from inside and outside the banking business continues stronger than ever. So attempts to sift additional eligible borrowers from groups previously either evaluated-or self-selected-as not quite ready for bank credit continue. The latest example of this comes from a new study by TransUnion that indicates that some borrowers who use "alternative loans" may actually be good candidates for traditional consumer credit products.

Alternative loans typically don't appear in traditional credit bureau files. These services include short-term debt, such as "payday loans"; point-of-sale finance offered by retailers or third-party lenders; virtual "rent-to-own" finance; and auto-title loans.

"Alternative loans are often utilized by consumers who need money fast or have no other avenues to secure a loan," says Matt Komos, TransUnion vice-president of research and consulting. "The majority of these consumer are among the riskiest, from a traditional credit score perspective, but those who maintain satisfactory payment status on alternative loans can in fact present acceptable risks on traditional credit products." Read more at BANKING EXCHANGE
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