July 16, 2019

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Bank Regulators Set to Make Big Decisions About Small Loans

Path they choose to manage this type of credit could save-or cost-Americans billions

The nation's three federal bank regulators-the Federal Deposit Insurance Corp. (FDIC), Federal Reserve Board, and Office of the Comptroller of the Currency (OCC)-have agreed to pursue joint action on small-dollar lending, according to FDIC Chairman Jelena McWilliams. To date, most banks have not offered small installment loans because of regulatory uncertainty, but an announcement from these agencies clarifying their expectations could substantially boost the market for alternatives to payday and similar high-cost loans.

Depending on the choices that regulators make in the next few months, borrowers could see a return to costly single-payment deposit advances, payday loans that had been offered by some banks, or they could gain access to much more affordable small installment loans, which are repayable over multiple paychecks and generally have terms of more than 45 days. Their deliberations probably will lead to one of three broad outcomes:
  1. Banks again would offer harmful deposit advances, which are loans with three-digit annual percentage rates (APRs) that have to be repaid on the borrower's next payday.
  2. Banks would maintain the status quo and provide few small loans to customers, and borrowers would continue to take out payday and other costly nonbank loans.
  3. Banks would issue affordable small installment loans-with prices about six times lower than payday loans.
Read more at The Pew Charitable Trusts

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IRS Staffs Up As a Result of Disputed Private Debt Collection Program

With revenue projected to double, 200 specialized workers will be hired.

In its latest congressionally-mandated report on contracting out collection of recalcitrant tax debts, the Internal Revenue Service said it is hiring 100 specialist staffers this fall and plans to bring on another 100 in a year.

The revival of an earlier program required by Congress in 2015 contracts with four private companies which, under specified rules, go after delinquent taxpayers the IRS has been unable to collect from. Critics-including the just-departed National Taxpayer Advocate Nina Olson-blast the public-private partnership for superseding an IRS core function and for deploying company bill collectors who are not always sensitive to the challenges of low-income taxpayers.

The new report said the program brought in more than $82 million in fiscal 2018, a figure projected to rise to $114 million for 2019 and again in 2020. By law the Treasury secretary cannot reroute the program's proceeds, but must channel them back into the debt collection program.

Boosters, such as Senate Finance Committee Chairman Chuck Grassley, R-Iowa, praised the program, noting its reliance on IRS in-house staff called "special compliance personnel." Efforts by that category of worker are projected by the end of fiscal 2019 to have collected $6.7 million, an amount the agency thinks will double in fiscal 2020, to $13.5 million.

Small-Dollar Loans Benefit Communities.

Small-dollar lenders provide essential financial services to many individuals in underserved communities throughout the nation. By providing loans to those who cannot otherwise access traditional forms of credit, small-dollar lenders help communities and small businesses thrive and allow money to be reinvested in local businesses and neighborhoods where it is needed most.

Don't Use The National Defense Authorization Act To Push Unrelated Financial Regulations

The National Defense Authorization Act (NDAA) is being debated in Congress, which naturally means that members are offering amendments entirely unrelated to our nation's defense in hopes of advancing policies that probably wouldn't win support if they were publicly debated and considered.

One such amendment, introduced by Representative Katie Porter (D-CA), seeks to limit the ability of servicemembers, veterans, and surviving spouses to access small-dollar, high-interest loans, typically referred to as payday loans.

Putting aside the merits of the policy itself, the amendment is an attempt to short-circuit a review and legal process that is well underway. According to the Federal Register, the Bureau of Consumer Financial Protection issued a rule in October 2017 to restrict how high-cost, short-term financial products, including payday loans, can be offered. The rule took effect in January 2018, but had a compliance date of August 19, 2019. The rule was challenged in federal court, and in June 2018, the federal court issued a stay, postponing the August 19, 2019 compliance date for fifteen months to give time for further federal review and clarification. Read more at FORBES

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Banking expert from 2008 crisis says low interest rates make banks vulnerable and Americans poorer

Wall Street better be careful what it wishes for.

Karen Shaw Petrou, a prominent voice on financial regulation for decades, wants the Federal Reserve to know it will be making a big mistake if it listens to Wall Street and cuts interest rates later this month.

"I read everyone saying the Fed should drop rates, because that will improve the economy. That it is good for employment. Well, it isn't," Petrou told MarketWatch in an interview.

The promise of low central bank rates has helped lift U.S. stocks to all-time-highs, with the Dow Jones Industrial Average DJIA, -0.02% and S&P 500 SPX, -0.04% this week reaching new records as investors flee the near $13 trillion pile of global debt currently offering negative yield, including recently even some corporate bonds.

But the Fed's "lower for longer" interest rate policy also ratchets up risks for banks, warned Petrou, the co-founder of Washington, D.C.-based Federal Financial Analytics Inc., a banking advisory firm to lawmakers, central banks and industry groups since 1985.
Read more at MARKETWATCH

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Why Small Businesses Should Accept ACH Payments

Merchants have a variety of considerations to make, including the different types of payment that the business should accept. ACH payments are seen as an established and trusted payment method, with 23 billion payments processed over the ACH network in 2018 alone. With low costs and fast processing times, many smaller businesses are considering accepting ACH payments from their clients.

ACH payments are payments routed through the Automated Clearing House (ACH), an electronic network that transfers funds directly between banks and accounts. ACH payments are often used for direct deposit of payroll, as well as recurring payment of fees such as rent, mortgage, and monthly memberships.

While ACH payments may be beneficial to enterprises of all sizes, they can significantly impact small and medium businesses:

Low Transaction Cost
Many companies strive to work lean, taking advantage of every possible opportunity to control costs. ACH payments are far less expensive than other forms of payment, often coming in at a fraction of the cost of cards or paper checks. Read more at PAYLIANCE 

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Community banks gain Volcker Rule exclusion

Five federal financial regulatory agencies have adopted a guideline excluding community banks from the Volcker Rule.

The Volcker Rule generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with hedge funds or private equity funds.

The action is consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule is being issued by the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Securities and Exchange Commission.

Under the final rule initiated by the regulatory agencies, community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5 percent or less of total consolidated assets gain exclusion.

The exclusion also permits a hedge fund or private equity fund, under certain circumstances, to share the same name or a variation of the same name with an investment adviser, as long as the adviser is not an insured depository institution, a company that controls an insured depository institution or a bank holding company. Read more at Financial Regulation News

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Payday Lending Rule

Resources to help industry understand, implement, and comply with the Payday Lending Rule.

On June 28, 2019, the Bureau updated the small entity compliance guide summarizing the Payday Lending Rule's payment-related requirements. The guide has been updated to incorporate the changes that the Delay Final Rule made to the 2017 Payday Lending Rule.

Payday, Vehicle Title, and High-Cost Installment Lending Rule: Payment Related Requirements

Lending as a Service

Civil Rights Group Files Lawsuit Against the CFPB

A civil rights group called the Lawyers' Committee for Civil Rights Under Law recently filed a lawsuit against the Consumer Financial Protection Bureau (CFPB) for not responding sufficiently or quickly enough to four Freedom of Information Act (FOIAs) requests filed last year.

The four FOIAs seek to uncover documents and correspondence related to the CFPB's reorganization in 2018 led by former Acting Director Mick Mulaney and the CFPB's proposal to rescind certain provisions of the Small-Dollar Rule, also known as the payday rule.

"We know that Mr. Mulvaney previously accepted large campaign contributions from key points of contact in the payday lending industry as a member of Congress, and the American people deserve to know if their influence had anything to do with his decision to undermine anti-discrimination enforcement or roll back regulations preventing predatory lending," said Kristen Clarke, president and executive director of the legal group. "Through our litigation we are fighting to promote transparency during an era in which CFPB, OMB, and other agencies have increasingly concealed information to keep the public in the dark."

The CFPB has not provided comment on the lawsuit.
Read more at Native American Financial Services Association

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I tried Dave Banking, the Mark Cuban-backed fintech, and it's a dead-simple app with real potential

Dave, the Mark Cuban and Diplo-backed fintech startup, rolled out its new Dave banking service in June, announcing a $110 million raise at the same time.

I reviewed their original overdraft-killing service, and felt that it had some great features. However, the app also made it very easy for users to give an optional tip that could be equivalent to the highest payday loan rates.

I tried out Dave's new banking service, and my feelings are much more positive. It works similarly to other online-only challenger banks. The user does all of their banking within the Dave app, can access a network of ATMs that require no fees for cash withdrawals, and pays no fees beyond the $1 monthly fee that's already a part of Dave's non-banking services.

The service also doesn't allow overdrafts, protecting users from aggressive fees. As of now, Dave banking is only available to users of their app, who can sign up for a waitlist.

While the market for challenger banks has become increasingly crowded, Dave banking is a little different. It is built ontop of an already popular app, giving it a built-in audience. It also is the first checking account to partner with CreditPop, which reports a user's rent payments to credit agencies, allowing them to build credit without taking out any loans. This service could be invaluable for Dave users who are finding it challenging to build credit, and is a definite step forward in banking features.

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Rent Reporting Will Motivate Seven in 10 Renters to Make More On-Time Payments

TransUnion research finds rent payment reporting can benefit both renters and property managers

Property managers have been slow to adopt the process of reporting rent payments to credit bureaus, but findings from a new survey may motivate some of them to move a bit faster. The survey, commissioned by TransUnion (NYSE: TRU), found that seven in 10 renters (73%) would be more likely to make on-time rent payments if property managers reported rent payments to a credit bureau. Furthermore, when given a choice between two similar properties, two-thirds of renters (67%) in the survey said they would choose the rental unit with reporting already in place.

The survey, which took place in May 2019, included responses from 1,330 current renters in the United States. Rent payment reporting has been offered to property managers by TransUnion since 2014 as a way to help more people receive credit for making on-time payments. Yet only 17% of multifamily rental property executives in a separate TransUnion survey last month said they report payments. Read more at TRANSUNION

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

Trump blasts Bitcoin, Facebook's Libra, demands they face banking regulations

WASHINGTON (Reuters) - U.S. President Donald Trump on Thursday criticized Bitcoin, Facebook's proposed Libra digital coin and other cryptocurrencies and demanded that companies seek a banking charter and make themselves subject to U.S. and global regulations if they wanted to "become a bank."

"I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air," Trump wrote on Twitter.

"If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International," he added.

Facebook said last month it would launch its global cryptocurrency in 2020. Facebook and 28 partners, including Mastercard Inc (MA.N), PayPal Holdings Inc (PYPL.O) and Uber Technologies Inc (UBER.N), would form the Libra Association to govern the new coin. No banks are currently part of the group. Read more at REUTERS

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Opinion Reaching Hispanic members should be a priority for every credit union

The fundamental purpose of a credit union is to meet the financial needs of its community of members, and this can't be done if the institution doesn't reflect that community. This is particularly important when it comes to a group that faces unique financial needs and happens to comprise almost one-fifth of the U.S. population: Hispanics.

After seeing a 7% decline in personal income between 2007 and 2013 (largely due to the Great Recession), the Hispanic population in the U.S. as a whole have made substantial gains. But the U.S.-born population was hit hardest by the recession, and its recovery has actually gone in reverse since 2015. The U.S-born Hispanic population accounts for almost two-thirds of the total, and it's growing faster than the foreign-born population.

And it's a problem compounded by the fact that Hispanics are often underserved by financial institutions in the United States. Many of them are unbanked, do not trust financial institutions, often face language barriers, and don't feel like they're getting the individual assistance they need.

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In Next Recession, Household Debt Will Feature Big Again

Families are getting crushed by debt again. After the mortgage crisis ended, families desperate to pay their bills, move to a new job and pay for their and their kids' education took on ever more consumer loans. Consumer credit - student loans, auto loans and credit card debt have soared to ever new highs. This is especially true for families in the bottom half of the wealth distribution --- those who had the hardest time finding new and jobs with decent wages and good benefits over the last decade since the Great Recession ended. These families are at risk of losing everything when the next recession comes. They will still have to repay that debt. They will then quickly fall behind in paying their bills when jobs disappear. This could lead to another wave of delinquencies, foreclosures and bankruptcies that will not only hurt millions of families, but also worsen the next recession and make an economic recovery harder.

People borrow money not because they want to, but because they have to. Typically families take on more debt to buy a house, a car and pay for an education. They also borrow to pay their bills when things go wrong such as a layoff, a divorce and medical emergencies.
Read more at FORBES

Alternative Credit Reporting

Opportunity for organizations that serve economically vulnerable populations to receive support

For the past five years, the Bureau's Office of Community Affairs has supported organizations committed to helping people manage their money and work toward their goals using a suite of financial empowerment tools called Your Money, Your Goals. If your organization serves economically vulnerable populations and you are interested in gaining more intensive support, such as training and technical assistance for your consumer financial empowerment efforts, you can apply for the Your Money, Your Goals 2020 cohort.

The Office of Community Affairs-which focuses on economically vulnerable consumers-is looking for approximately 40 organizations from across the country that are interested in using the Your Money, Your Goals toolkit, issue-focused booklets, and companion guides to help build the financial well-being of the people they serve.

The Office of Community Affairs is interested in working with organizations that serve economically vulnerable populations to equip frontline staff and volunteers to introduce financial capability topics in their meetings with the people they serve. These organizations may include:


Alternative Financial Service Providers Association

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