May 7, 2019

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CFPB Notice of Proposed Rulemaking (NPRM) on "Payday, Vehicle Title, and Certain High-Cost Installment Loans"

Deadline to submit comments is May 15


Comments can be submitted now through May 15, and can be sent electronically, via email or through regular mail.

2) Submit via email
Include Docket No. CFPB-2019-0006 in the subject line of the message.

3) Submit via regular mail or hand deliver to:
Comment Intake,  Bureau of Consumer Financial Protection, 
1700 G Street, NW,     Washington, DC 20552 
 Include Docket No. CFPB-2019-0006 in the letter. 
Must be mailed by Friday, May 10, to ensure arrival by deadline.

If you have questions or would like additional information, please email


The Economic Illiteracy of a 36 Percent Interest Rate Cap

Earlier this week, the House Financial Services Committee held a hearing on a draft bill that proposes to set a national 36 percent annual percentage rate (APR) cap. That is to say, for daring to provide credit to people who would otherwise be unable to access it-something considered to be Nobel Prize-worthy in other parts of the world-you could face up to one year in prison and a $50,000 fine for each violation.

The legislation would destroy large swaths of the country's consumer credit market, especially for those living on the financial fringe. As any economics 101 class would teach you, setting a price ceiling below the market clearing rate will create a shortage. By doing so, a 36 percent rate cap will solve precisely none of the concerns that motivated the legislation, such as improving the financial well-being of the poorest Americans.

Central to the argument for a 36 percent interest rate cap is the idea that high-priced credit, such as payday, installment, and vehicle title loans as well as bank overdraft fees, are "predatory." But headline grabbing numbers of "400 percent APR" and "huge profits" for small-dollar lenders are deceptive, at best.

As my colleague John Berlau made clear in his paper, "The 400 Percent Loan, the $36,000 Hotel Room, and the Unicorn," the annual percentage rate of interest is inappropriate for small-dollar loans, because they are not used on an annual basis. A 400 percent APR on a two-week loan may sound enormous.     Read more at Competitive Enterprise Institute

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Community bankers urge CFPB to identify consequences before issuing rules

The Independent Community Bankers of America (ICBA) are calling on the Consumer Financial Protection Bureau (CFPB) to identify potential benefits and burdens before rules are put forth.

In a letter to CFPB Director Kathleen Kraninger, ICBA officials reiterated their concerns with the negative impact of Section 1071 of the Dodd-Frank Act, which they contend would "commoditize small-business loans and disrupt lending."

"Imposing any new data collection and reporting requirements under Section 1071 on community bank small business lenders would negatively impact small business lending and lead to unfortunate, unintended consequences for small business owners seeking credit," ICBA President and CEO Rebeca Romero Rainey wrote to Kraninger. "ICBA stresses the importance of thorough study and analysis before the issuance of a proposed rule that could disincentivize small business lending, thereby impairing small business access to credit."

Section 1071 requires the CFPB to implement rules for the collection and reporting of data on the small-business lending of financial institutions. They believe it will have a chilling effect on the ability of lenders to price for risk unless the CFPB studies its potential risks and tailors the rule before adoption. Read more at Financial Regulation News

Alternative Credit Reporting

COMMENTARY: Capitol Hill hearing takes up the war between the needy and the greedy

At an April 30 Capitol Hill hearing, the multi-dimensional problems wrought by small-dollar, high-cost loans were brought to the attention of lawmakers serving on the powerful House Financial Services Committee. A witness panel representing bankers, consumers, clergy, and public policy organizations taught, recounted, reasoned and preached to lawmakers on the rippling and disastrous effects of debt-trap loans.

Each addressed the industry that reaps billion-dollar profits from the poor: payday, car-title, and other triple-digit interest small-dollar products. The average annual interest rate for payday loans in the United States is 391% although in more than 17 states, many of them home to consumers of color, the APR is even higher.

As consumers suffer financially, it's a different story for payday lenders: $4.1 billion in fees every year in the 33 states that allow these debt traps, according to the Center for Responsible Lending (CRL). Similarly, the annual fees generated on car-title loans was found to be $3.8 billion.

The session occurred as the current Administration seeks to permanently reverse a payday rule that was developed over five years of public hearings, research and comments that sought the input of consumers, financial institutions and other stakeholders. Announced by the first Consumer Financial Protection Bureau (CFPB) Director, the rule would require lenders to determine if a consumer could repay the loan, also known as the ability-to-repay standard.

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Major Wall Street banks are telling clients to be ready for a sudden rip higher in the market

As stocks enjoy their best start to a year in three decades, Wall Street firms are flagging the risk of another, surprise move even higher.

And they have a playbook for clients if and when that happens.

In notes to clients this week, Morgan Stanley and Bank of America highlighted the possibility of another quick move higher. They refer to a so-called "melt up," driven by investors late to the game looking to get in on a positive momentum shift and often a sign of a late-stage bull market. The S&P 500 is up more than 17% this year, but there have been little inflows into stocks, suggesting a whole group of investors that could one day rush back in.

To make the most of it, the analysts are are recommending call options contracts that would pay off in a move higher. A call option is a contract giving investors the option, but not the obligation, to buy in at an agreed-upon price during a specific time period. Read more at CNBC

Lending as a Service

Even these Wharton business school students lack a basic personal finance education

When it comes to money, most people lack the know-how to make smart moves on their own. Even at Wharton, one of the nation's top business schools, financial illiteracy is widespread.

To address the problem, a few MBA students in 2016 founded Wharton Common Cents to shed some light on personal finance topics that aren't often taught in the classroom.

"There are a ton of financial circumstances you have to deal with as a graduate student that you're not fully prepared for," said Laura Gentile, 29, incoming co-president of the student-run club. Without the know-how, "you are at a huge disadvantage."

The club's mission is to provide fundamental skills and resources to create a secure financial future, Gentile said.

Surprisingly, it's the first-ever club of its kind at a business school, according to current President Anuj Khandelwal, 28. The club hosts nearly weekly programs for graduate students on topics such as the difference between credit and debit cards, saving now versus later and how to talk about money with a significant other. Read more at CNBC

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Check vs. ACH; Yes, there is a huge difference for the Fraudsters. by Dave King

Are your check verification procedures robust enough to keep the fraudsters at bay?

Online fraud is becoming a serious epidemic worldwide, and so far, it just keeps getting worse. In the last couple years, hacking attacks have quickly moved towards targeting personal consumer information, specifically for the purpose of enabling fraud. In fact, according to a recent Verizon study, 95% of hack attacks last year targeted personal info.

This is why it's vital for your business to have solid check verification processes in place to help prevent fraudulent sales when the customer is not present. In theory, you should be able to accept online checks as readily as physical ones, but in reality, this simply isn't the case.

Check verification is easy when the customer is present. You see them pull out their bank-issued checkbook and write the check. You can ask for ID, and verify their name and signature match. Fundamentally, the only real X factor is their funds availability.

Unfortunately, the same cannot be said for online check verification when the customer is not present.

Fundamentally, the current electronic check verification procedures are extremely lacking. The only element that is actually verified at the point of sale during customer-not-present transactions is the bank's own routing number. All other information, such as the account number and funds availability, are only processed days later, once the charge gets to the receiving bank. Worse, many elements - including the customer's name - are often not validated at all. This makes online check verification an inherently risky process. Read more at MICROBILT

Compete in the data-driven lending era

Redlining, lending discrimination set for a comeback under Trump administration mortgage policies

New rules helped journalists and academics prove banks are still redlining minority borrowers. Now they're hanging by a thread.

Mortgage lenders will find it easier to discriminate against prospective borrowers under the latest quiet sabotage of financial industry rules proposed by the Trump administration.

The new rollbacks take a two-pronged approach to undermining a relatively new system that's helped journalists and watchdogs identify prejudicial lending practices they characterize as modern-day redlining. During the Obama administration, the CFPB played an instrumental role in earning settlements against banks accused of racial discrimination. These changes would do harm to the agency's continued ability to be a cop on this particular beat.

One proposed regulation would end mortgage data reporting requirements for relatively small lenders who issue dozens of loans per year, while leaving them in place for the industry leaders who sell hundreds or thousands of home loans annually.

Lender allies have argued that these low-volume shops don't play a large enough role in the overall housing finance market to produce harmful macro effects even if they were to use this new obscurity in nefarious ways. More than a thousand different lenders would be exempted under the proposal, however, creating a scattershot jigsaw of unpoliced potential discrimination.

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WASHINGTON, D.C. - The Consumer Financial Protection Bureau (Bureau) today issued a Notice of Proposed Rulemaking (NPRM), which proposes to raise the coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under the Home Mortgage Disclosure Act (HMDA) rules. The NPRM would provide relief to smaller lenders from HMDA's data reporting requirements, and would clarify partial exemptions from certain HMDA requirements that Congress added in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). The Bureau today also issued an Advance Notice of Proposed Rulemaking (ANPR) seeking information on the costs and benefits of reporting certain data points under HMDA.

"Today's proposed changes would provide much needed relief to smaller community banks and credit unions while still providing federal regulators and other stakeholders with the information we need under the Home Mortgage Disclosure Act," said CFPB Director Kathleen L. Kraninger. "The public is encouraged to submit their comments on the proposals, which will be considered by the Bureau before the next step is taken."
Read more at Consumer Financial Protection Bureau

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Small businesses extend streak of erratic job creation

NEW YORK (AP) - Small business Opens a New Window. hiring gained in April, extending a run of erratic job Opens a New Window. creation.

Payroll provider ADP's monthly tally of small business hires Opens a New Window. released Wednesday showed companies added 77,000 jobs last month, a jump from an upwardly revised 20,000 in March and 30,000 in February. ADP's numbers, which reflect hiring at its customers who employ up to 49 workers, have fluctuated since last summer.

Mark Zandi, chief economist at Moody's Analytics, said he doesn't see a change in small business hiring, which he has described as slow. The April gain "was likely overstated due to several technical measurement issues," he said.

Monthly economic figures including the ADP report are often subject to revisions, so economists look at hiring over a period of months to discern a trend. Small businesses created on average 52,000 new jobs a month last year, down from 56,000 in 2017.
Read more at FOX BUSINESS

Dreher Tomkies LLP
Dreher Tomkies LLP is a law firm concentrating in the areas of Banking and Financial Services law.

Banks were 'stupid' during housing meltdown: Former FDIC Chair

Alexandria Ocasio-Cortez Opens a New Window. , D-N.Y., asked JPMorgan Chase CEO Opens a New Window. Jamie Dimon Opens a New Window. , on Wednesday, whether more people should have gone to jail for their role in the 2008 financial crisis that led to a decade-long housing Opens a New Window. meltdown. Former FDIC Opens a New Window. Chairman Sheila Bair believes people are still frustrated by the lack of accountability.

"I think it's just reflective of a broader you know populist sentiment that there wasn't enough accountability," she told FOX Business' Maria Bartiromo Opens a New Window. in regards to AOC's question. "And I don't think any of the gentlemen there should have gone to jail. I think a lot of this activity was just stupid and high risk and greedy didn't cross the line into illegal activity."

In Bair's opinion the efforts to expand homeownership were praiseworthy objectives, but "very misguided in terms of how it was executed," because it backfired. However, it doesn't "excuse the banks for doing stupid things" she stressed.

"A lot of people lost their homes after the crisis and then bank regulation was encouraging this," she said. Read more at FOX BUSINESS

Payliance: Powerful Payment Processing Technology

Bank short-term credit options explored

The Consumer Bankers Association (CBA) is touting the potential of financial institutions to aid Americans in need of emergency funds.

"Millions of Americans live paycheck to paycheck, leaving consumers with less cushion for emergencies, strained credit scores, and fewer credit option," CBA president and CEO Richard Hunt wrote in correspondence to House Financial Services Consumer Protection and Financial Institutions Subcommittee Chair Gregory Meeks (D-NY) and Ranking Member Blaine Luetkemeyer (R-MO). "The need for access to affordable, short-term liquidity products has become more important than ever. CBA is encouraged by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation's recent actions related to DAP and the CFPB's decision to revise the small dollar rule as these actions will help to foster a vibrant small-dollar loan market for consumers in need."

Six years ago the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) issued guidance on small-dollar bank loans, officials said, often known as deposit advance products (DAP), which served as a safe and affordable alternative to payday loans.

The guidance recommended the use of underwriting that is more appropriately applied to a much larger credit product, such as a mortgage loan and placed other restrictions on the products.
Read more at Financial Regulation News

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