October 11, 2018
2018 edition: 81 / 104

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The end of the two-week pay cycle: How every day can be payday

Teresa Long, an assistant manager at a Walmart near Dallas, is like many Americans: She sometimes struggles to pay her monthly bills on time, especially when her biweekly paycheck fluctuates.

Occasionally, when she was not able to budget correctly for the month, she would default on a bill, miss a payment or send in a check late. Sometimes Long would take out a payday loan, but the fees were crippling. "You're taking a $300 loan, and, by the time you pay it off, it's probably $1,000 or $1,500," said the 40-year-old mother of four. "It's extra money you could have been saving."

So when she saw information on an internal Walmart WMT, -0.11% website about a new service from a New York-based company called Even, Long was intrigued. It promised to pay her up to half her wages in advance, on demand, for an average $6 monthly subscription fee.

Even aims to address the "mistiming of expenses and income," said Jon Schlossberg, the company's chief executive officer. Being able to get money when you need it - along with some self-control - "is far more important than some arbitrary pay cycle," he said.

The origin of the U.S.'s common two-week pay cycle is somewhat mysterious, but one thing is for sure: It's costly for workers. At least 15 million people each year use at least one small-dollar credit product, including payday or pawn loans, according to the Chicago-based Center for Financial Services Innovation. Those loans often have interest rates of 30% or higher, and their fees alone amount to $9 billion a year, according to Pew Charitable Trusts, a nonprofit based in Philadelphia. Read more at MARKETWATCH

The Changing Face Of Short-Term Lending

About a year ago, the CFPB, which now goes by the BCFP, dropped the final version of its payday lending regulations. This followed a nearly five-year-long process that included debates, discussions and a few out-and-out screaming contests.

At its core, the new set of rules restricted a lender's ability to continually collect fees on small loans by more tightly controlling how often, and how much, customers can borrow.

The regulations were designed to curb the main complaints leveled by consumer advocates: CFPB data showed that nearly a quarter of borrowers rolled over their loans at least six times, leading to total fees that exceeded more than the size of the initial loan.

"Lenders actually prefer customers who will re-borrow repeatedly," then-CFPB Executive Director Richard Cordray said after releasing the new regulations last year. "These protections bring needed reform to a market where far too often, lenders have succeeded by setting up borrowers to fail."

Being compliant with these new regulations meant big changes to the payday lending process, including testing requirements to confirm a borrower's ability to repay a loan on time while still meeting day-to-day expenses. The rules also limit the number of loans that can be made in quick succession to three individual borrowers. Lenders who do not want to deal with the more complex underwriting requirements can elect to offer loans lower than $500 or to change their payday loan products into installment loans. Read more at PYMNTS.COM

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Financial education flunks out - and here's what's being done about it

If the average American went in for a financial checkup, he or she might get rushed to the emergency room.

Forty-four percent of us can't cover a $400 out-of-pocket expense, and 52% of American households have no retirement savings. We seem to be chronically poor at making financial decisions. We commit costly mistakes across all areas of personal finance including decisions about savings, investing, budgeting and borrowing.

Diagnosing the problem is easy: We make mistakes because financial decision making is hard, and we lack an understanding of the decisions we face. Finding a cure is much more difficult. To many, the obvious treatment is financial education, but recent research suggests that financial education is not effective. Some promising new ideas such as "just-in-time" education and "nudges" to help us make better decisions are starting to emerge as alternative approaches.

Ineffective programs
Governments around the world have invested huge resources in initiatives aimed at improving financial literacy, such as the Federal Deposit Insurance Corp.'s My Smart program, which helps low-income individuals develop financial skills.

Unfortunately, research into the effectiveness of these programs paints a grim picture. A recent meta-analysis looked at every known study examining whether a financial-education intervention - such as training sessions, classes or one-on-one counseling - improves positive financial behaviors and financial health. Across all those studies, there was almost no benefit. Those participating in financial education were essentially no better off. Read more at MARKETWATCH

Private-Label Cards Are Ready For Disruption

The reason private label works so well in stores, Bread CEO and Co-founder Josh Abramowitz told PYMNTS' Karen Webster, is because they are so well-integrated with the physical retail environments for which they were created. They are easy for consumers to use, they are white-labeled so they create a bond with the customers and - most critically - they speak to the desires and wants of in-store customers.

The problem, Abramowitz noted, is that retail in the last decade has moved online and into multi-channel - and private-label cards have not really made the necessary transformation to keep pace. The big, private-label companies are offering good in-store solutions today, but the solutions aren't built for the web or the typical eCommerce shopper.

This isn't the case for retailers born in the online world, Abramowitz contends. Consumers in the digital era, he noted, are looking for something that many private card products aren't known for offering, which is total transparency into the finance charges associated with those purchases. Delivering that isn't a matter of building a better private-label card as much as it is rethinking retail credit from the ground up. Read more at PYMNTS.COM

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The $300B Employee Financial Stress Tax On Employers

Four hundred dollars.

That's the dollar amount that is out of reach for a significant number of employees in a world where financial stress is commonplace.

It's where an emergency, such as car repairs or a broken water heater, means choosing between fixing those items or paying the rent, perhaps.

It's an oft-quoted stat, illustrating how ill-prepared many individuals and families are to deal with shocks and unforeseen events. Thus: short-term lending, massive debt and a financial black hole that gets deeper and deeper.

In the latest Data Drivers, the question arose: Should employers care when their workers are in financial distress?

David Kilby, FinFit president, told Karen Webster that employers have - or should have - a vested interest in how their employees are coping with financial reality.
The company - which provides both financial education and short-term lending programs to more than 100,000 employers, who in turn offer them to their employees - was born of Kilby's personal experience.

"One of one of my own employees happened to be working in a remote location ... She had a financial challenge where she couldn't afford a prescription for her daughter ... She did not have the appropriate resources in order to solve the challenge, nor was the marketplace providing solutions," he noted. "Ultimately, she solved the challenge by stealing money from the business."

Said Kilby, "I as an employer should have taken on a responsibility to have helped out my employee during that challenge. I wasn't there for her that day, but I was going to be there for the rest of the employees. The next day or so, we started developing financial wellness as an internal employee benefit." Read more at PYMNTS.COM

CALIFORNIA passes historic truth in small-business lending law - Congress should take note

California made history on Sept. 30 when Gov. Jerry Brown signed the nation's first bill that will provide truth-in-lending for small-business borrowing. As an organization that promotes small and micro businesses we are excited that SB 1235 (Glazer) will give our state's small businesses the information they need to understand the confusing world of business financing. The bill was passed with broad bipartisan votes in the California legislature: 28-6 in the Senate and 72-3 in the Assembly which shows the country that working together in a bipartisan way to solve problems of real people and support small-business owners is possible.

Traditional bank lending for small-businesses loans under $250,000 has been declining since the Great Recession. Online lending has risen in its place with little to no oversight. It's never been faster or easier for small businesses to fill out an application and receive the money they need in their account. The problem is online lenders often throw out low numbers that sound like they are related to costs of capital, but the true cost of the funding is usually much higher.

If a deal sounds too good to be true, it often is. It is not uncommon to find small-business financing with interest rates of higher than 50 percent - some even reaching 350 percent - without these rates being disclosed to the borrower. Read more at THE HILL
Dreher Tomkies LLP Dreher Tomkies LLP is a law firm concentrating in the areas of Banking and Financial Services law.

Consumer credit grows $20.1 billion in August, fastest pace in three months

The numbers: Consumer borrowing picked up in August, according to the Federal Reserve on Friday. Total consumer credit increased $20.1 billion in August to a seasonally adjusted $3.94 trillion. That's an annual growth rate of 6.2%. Economists had been expecting a $15 billion gain, according to Econoday.

What happened: Revolving credit, like credit cards, rose 5.6% in August after two sluggish months. Nonrevolving credit, typically auto and student loans, rose 6.4% in August, the same pace as July. The data does not include mortgage debt.

Big picture: Credit has been growing strongly, bolstered by solid wage growth. Fed Chairman Jerome Powell said late last month that household balance sheets are in good shape, suggesting they can handle higher short-term interest rates. Consumer credit card delinquencies remain low, according to the latest data from the American Bankers Association. Economists expect consumer spending to add to economic growth in the third quarter, but probably not as strong as the 3.8% annual rate seen in the second quarter.

Market reaction: Consumer credit rarely moves markets. Stocks were down sharply on jitters caused by this week's sharp bond market selloff. The Dow Jones Industrial Average DJIA, -1.46% was down nearly 300 points at one point in the afternoon before staging a comeback. Fed officials attributed the rise in bond yields to a stronger economic outlook seen in the recent data.
Read more at MARKETWATCH

COLORADO: Payday loan interest rate cap on November ballot

Currently in Colorado, when anyone wants to get a payday loan- they could face interest rates of about 200 percent on the high end.

'Being caught up in something like this is a continual thing and I almost want to say perpetual because the loan lasts for such a long time,' said Frank Lytle, the NAACP State Economic Justice Co Chair and a supporter of Proposition 111.

Which is why the group organizing this ballot initiative wants to cap interest rates at 36 percent.

15 states and the District of Columbia have enacted similar laws.

'You're taking advantage of people, it should be up front you know for a reasonable payment,' said Lytle.

There's not a registered opposition for the question in Colorado, but on the federal level there are lobbyists working with payday lender groups. Read more at KOAA NEWS 5

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Avoiding the Next Crash: 10 Alternative Investments Outside of Stocks, Bonds, ETFs and Mutual Funds

It may seem hard to imagine that it has been 10 years since the United States was in the grips of the financial crisis. The crisis is over and the bull market has continued to thrive in 2018, but this run-up in stocks is also now closing in on 10 years old. Many investors remain scared about the next market correction becoming a market crash, and there are many investors who were too deeply scarred during the financial crisis. Many investors have stayed in bonds and earned very low returns during what the history books are likely to call the "Great Recovery."

With U.S. stocks valued at all-time highs overall, maybe those investors who still hate stocks or who think bonds pay too little should look into alternative forms of investing. This may seem like a crossover for generating additional income, but alternative investments also can generate occasional windfalls that can help the army of Americans who are short of their retirement goals catch up. There are millions of Americans who make money outside of just buying stocks or bonds. Some alternatives to traditional investing can be quite safe. Others can be quite risky or come with many complications.

24/7 Wall St. has outlined 10 alternative investing strategies that the public can use. While there may be restrictions, many forms of alternative investments may even be able to be used for retirement accounts like 401(k)s and IRAs. Read more at 24/7 WALLST

EDITORIAL: Finally, banks and others challenge payday lenders

For many who have needed to borrow small amounts of cash in a crunch, there were few alternatives to risky payday loans. Customers at U.S. Bank, of which there are more than 200 branches in both Missouri and Illinois, now have a safer option.

The bank unit of Minneapolis-based U.S. Bancorp is the first of the nation's large banks to offer small-dollar loans to its depositors through an online or mobile app process.

It's about time a corporate bank found a way to challenge predatory payday lenders. U.S. Bank's Simple Loan program allows customers to borrow up to $1,000 and pay it back in three payments over three months.

These loans aren't cheap. The bank will charge $12- $15 for every $100 borrowed if the borrower repays the loan via autopay or $15 for every $100 if repaid manually, such as by writing a check. This is a are, however, favorable rates compared to the debt traps of payday loans. In Missouri, effective payday-loan interest rates can run as high as 452 percent per year. Read more at MISSOURIAN

* CHICAGO area: Small Dollar Installment Lender
* TENNESSEE: 2 PDL-Title-Check Cashing-PrePaid
* SOUTHERN CALIFORNIA: 1 Payday Loan Store
* IOWA: 6 Payday / Check Cashing Stores

South African company buying 1-5 payday loan outlets
* International Lender seeking 2 or 3 U.S. locations

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Are alternative lenders worth the risks?

When your bank turns you down, an online business loan might make sense. Here's what you need to know.

When it's time for a business loan, where do small and medium-sized builders turn? Most look to their local bank, with people who know them and their enterprise best.

Even the friendliest local banker, though, might respond to a loan request with a resounding "no." Reason? The regulatory environment: The nation's financial meltdown a decade ago sparked a network of tighter lending rules that still hamper the flow of money.

"Prior to the recession of 2008, conventional lending was booming," says Parag Nevatia, CEO of EZ Funding Solutions in Metuchen, N.J. "If you had six months of business history and receivables, banks would throw you money. Then came the financial crisis and conventional financing froze. Bankers started asking for cash flow, credit score, and collateral. If any one of the three was missing, you were out of luck."

Getting to yes has been made tougher by the continuing merger of financial institutions, leaving borrowers with fewer choices. "Bigger banks have been swallowing community banks and gravitating toward the business of making larger loans," states a recent story in The Wall Street Journal. The problem's worse if you are in one of a growing number of small towns and rural communities where banks are closing profit-challenged branches. Read more at BUILDERONLINE

How to make your business a big data leader: 5 steps

Three-quarters of executives said big data and analytics will be critical to their business strategy over the next three years, according to an NTT Data report.

Effective use and management of data and analytics are necessary to keep companies alive through 2025, according to a Tuesday report from NTT Data and Oxford Economics.

The overwhelming majority of the 500 executives surveyed agreed that data is critical to overall financial performance (90%), growth (88%), improving the customer experience (92%), and improving the employee experience (79%). Additionally, 83% agreed that data will be a competitive differentiator for their company moving forward.

Different industries use data for varying purposes, and are maturing in this usage at different rates, the report found. Financial services and telecommunications are the furthest along in their adoption of technology and proficiency of data management and use.

The Internet of Things (IoT) was ranked as critical for more than half of respondents from the automotive, financial services, and telecom sectors, and for about half of those in insurance, according to the report. In three years, IoT will be mainstream across many industries, led by telecom (84% said it will be important or critical), automotive (76%), financial services (73%), and insurance (70%). Read more at TECHREPUBLIC


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