October 30, 2018
2018 edition: 86 / 104

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Public Statement Regarding Payday Rule Reconsideration and Delay of Compliance Date
OCT 26, 2018

The Bureau expects to issue proposed rules in January 2019 that will reconsider the Bureau's rule regarding Payday, Vehicle Title, and Certain High-Cost Installment Loans and address the rule's compliance date. The Bureau will make final decisions regarding the scope of the proposal closer to the issuance of the proposed rules. However, the Bureau is currently planning to propose revisiting only the ability-to-repay provisions and not the payments provisions, in significant part because the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions. The proposals will be published as quickly as practicable consistent with the Administrative Procedure Act and other applicable law. Read more at CFPB

CFPB looks to rescind crucial part of payday loan rules

NEW YORK (AP) - The Consumer Financial Protection Bureau will revisit a crucial part of its year-old payday lending industry regulations, the agency announced Friday, a move that will likely make it more difficult for the bureau to protect consumers from potential abuses, if changed.

The CFPB finalized rules last year that would, among other changes, force payday lenders to take into account the ability of their customers to repay their loans in a timely manner, in an effort to stop a harmful industry practice where borrowers renew their loans multiple times, getting stuck in a cycle of debt. Those "ability to repay" regulations will now be revisited in January 2019, the bureau said.

The bureau took more than five years to research, propose, revise and finalize the current regulations. The payday lending rules were the last regulations put into place by President Obama's CFPB Director Richard Cordray before he resigned late last year to run for governor of Ohio.

The cornerstone of the rules enacted last year would have required that lenders determine, before approving a loan, whether a borrower can afford to repay it in full with interest within 30 days. The rules would have also capped the number of loans a person could take out in a certain period of time.

But since President Trump appointed Acting Director Mick Mulvaney, the bureau has taken a decidedly more pro-industry direction than under his predecessor. Mulvaney has proposed reviewing or revisiting substantially all of the regulations put into place during Cordray's tenure.

The bureau is not proposing revisiting all of the payday lending regulations, but the crux is the ability-to-repay rules. Without them, the regulations would only govern less impactful issues like stopping payday lenders from attempting to debit customer's account too many times, and making sure payday lending offices are registered with authorities. Most of these rules would not have gone into effect until August 2019. Read more at ASSOCIATED PRESS

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

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Legal businesses still being choked by Obama-era initiative (Operation Choke Point)

The news was shocking: High-ranking officials in the federal government used their power to harass lawful businesses they disliked. Their goal was nothing less than forcing these businesses to shut down. The perpetrators? According to newly-released documents: the Obama Administration's Justice Department.

The name of the campaign was Operation Choke Point, which began as a well-intended means for government officials to investigate industries that they believed were a "high risk" for fraud or money laundering. Documents subpoenaed through Advance America et al. v. Federal Deposit Insurance Corp. et al. show that any good intentions in Choke Point were quickly choked off; instead, the politicized leadership at the Justice Department used the campaign to target industries that they personally disliked.

Through the Federal Deposit Insurance Corporation (FDIC), officials used strong-arm tactics to pressure banks, credit lenders, and credit processing systems to stop serving industries including firearms, fireworks, porn, and small loan (or payday) lenders. For instance, according to the now-public emails, these officials directed their staffs to use "all available means" to "strongly encourage [supervised banks] to refrain from any activities that provide assistance to the business activities of [payday] lenders."

One email from an Atlanta based FDIC regional director stated that "[a]ny banks even remotely involved in payday [lending] should be promptly brought to my attention"- regardless of whether there was any hint of wrongdoing. Read more at THE HILL

CFPB makes it official: Changes to payday rule coming in new year

The Consumer Financial Protection Bureau said Friday that it will propose changes in January to the underwriting provisions of the agency's rules for payday lenders as well as to when those rules take effect.

Current acting Director Mick Mulvaney is pursuing two goals: water down the forthcoming "ability-to-pay" requirements for payday lenders, and extend the compliance date - now August 2019 - to give the agency and industry enough time to incorporate the changes.

In a statement, the agency said it will "issue proposed rules in January 2019 that will reconsider the ... [payday loan regulation] and address the rule's compliance date."

The payday industry has fought all efforts to federally regulate the industry and has claimed the ability-to-repay provision, which is also intended to limit the number of loans lenders can make to borrowers, would put the vast majority of lenders out of business.

Insiders say the CFPB is looking to extend the compliance date to late 2019 or even 2020, and finalize the extension quickly.

The CFPB said its January proposal will not address how lenders extract loan payments directly from consumers' accounts, restrictions designed to protect funds from being garnished by payday lenders.

"The Bureau is currently planning to propose revisiting only the ability-to-repay provisions and not the payments provisions, in significant part because the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions," the bureau said in the statement. Yet the specifics of the proposal are still somewhat in flux. "The Bureau will make final decisions regarding the scope of the proposal closer to the issuance of the proposed rules," according to the statement. Read more at AMERICAN BANKER

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How to Rewrite the Payday Loan Rule

Last Friday, the Bureau of Consumer Financial Protection announced that it will be reconsidering its' controversial Payday, Vehicle Title, and High-Cost Installment Loan rule. For a recap of what the rule involves, you can see my paper here. Despite what some predicted, the Bureau is considering rewriting only certain provisions of the rule, such as the ability-to-repay requirement, rather than rescinding or rewriting the rule in its entirety.

Undoubtedly, the Bureau's hesitance to rescind the entire rule is due to the problem of overcoming "arbitrary and capricious" review by the courts. Arbitrary and capricious review is a process by which a court reviews an agency's policymaking process to ensure that it does not exceed the proper bounds of administrative discretion. In other words, the agency must provide adequate justification for rewriting the rule.

Rescinding the rule would be a challenging process, but by no means insurmountable. As I have outlined in my paper, as well as in regulatory comments, the research underlying the payday rule is deeply flawed. The two studies undertaken by the Bureau to justify the regulation have major shortcomings, such as their dubious behavioral economics claims, to the extent that the validity of the entire rule is in question. For example, as University of Chicago economics professor Marianne Bertrand and University of California, Berkeley law professor Adair Morse have written in their study of the industry:

...the simple fact that individuals take out payday loans, even for relatively extended periods of time, certainly does not prove that these individuals are being fooled or preyed upon by payday lenders. Individuals might be fully informed about the fees associated with payday loans, might not have self-control problems, might not suffer from overly optimistic expectations about their ability to repay these loans, and instead might decide to borrow from payday lenders at high interest rates.
Read more at Competitive Enterprise Institute 

CFPB releases its assessment report of the Remittance Rule

The Bureau of Consumer Financial Protection released the findings of its assessment of the Remittance Rule. The report describes the Rule, the market, and the Bureau's findings on the Rule's effectiveness in meeting factors outlined in the Dodd-Frank Act.

The Bureau's 2013 Remittance Rule was intended to bring new consumer protections to international money transfers. The Remittance Rule requires remittance transfer providers to give consumers disclosures showing costs, fees and other information before they pay for a remittance transfer and to provide cancellation and refund rights. The Remittance Rule also requires remittance transfer providers to investigate disputes and remedy certain errors.

The Bureau released its report assessing the Remittance Rule today. The Bureau used both its own research and external sources to conduct its assessment and prepare its report. The Bureau expects that the report will help inform the Bureau's future policy decisions concerning remittance transfers, including whether to commence a Rulemaking proceeding to make the Remittance Rule more effective in protecting consumers, less burdensome to industry, or both. Read more at CFPB

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Bill Gates funds research to spur banks to innovate for the poor

The Bill and Melinda Gates Foundation has conducted a worldwide study to help financial service providers and governments understand the needs of the underbanked.

The report, which is called The Human Account, was announced Thursday night and is being released piecemeal at

In an interview, David Kim, program manager, Financial Services for the Poor at the foundation, said there were two intentions behind the research.

One is to better describe this group.

"The tenor of the conversation has felt off," Kim said. "We tend to talk about 'the Poor' with a capital P, or 'the Underserved' with a capital U, without getting at the nuance and understanding we need to inspire differentiated products."

The second is inspire better product and policy innovation.

The World Bank maintains a global Findex database that tracks how people use financial services around the world, Kim noted. But when his team in Seattle analyzed that data to look at why people don't have a financial account, the number-one response was, I don't have enough money. The second reason was, I just don't need one. Read more at AMERICAN BANKER

What is alternative credit data and how can you use it? by Philip Burgess

The first "credit cards" surfaced at around the turn of the 20th century, as pointed out by PYMNTS. Those credit markers weren't actual cards, but rather often awkwardly shaped metal plates - objects more akin to oversized tokens than anything even remotely resembling the small, sleek, microchip-enhanced pieces of plastic that consumers rely upon so much today. By contrast, the concepts of credit and money-lending - and all of the concerns tangential to those fiscal principles - are considerably older than that, dating back hundreds and arguably thousands of years, to the dawn of commerce. In essence, only the tools and resources have changed; the core principle of credit is still "buy now, pay later."

More than 100 years ahead of when prototypical credit cards emerged, the financial services industry is facing another turning point, albeit one that has been more subtle in its progression than some transitions of the past: the rise of alternative credit data and the different ways of looking at credit that such information allows for. This way of looking at individuals' credit can benefit consumers and businesses alike. But in the world of finance, institutions sometimes become set in their ways and their old habits die hard. As such, alternative credit data is sometimes misunderstood.

In the interest of correcting this problematic perception, Microbilt presents our definitive guide on the precise nature of alternative credit - what it is, how it became a form of financial assessment and its potential value for decades to come: Read more at MICROBILT


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Fix a little work stress with ping pong or fix a lot of employee stress with a Financial Wellness Program

71% of Americans are stressed by money1. Take a look around your organization at your employees. Many of the signs of stress are there for you to see:
  • Reduced work efficiency or productivity
  • Forgetfulness, disorganization, confusion
  • Difficulty making decisions
  • Reduced punctuality
Financial stress takes a direct toll on businesses, costing them about $250 billion in lost wages2, in part, because employees who are struggling financially may spend two to three hours per week dealing with personal finances rather than doing their work3.

Employee financial struggles can also become an administrative burden for the employer. Four in ten Americans aren't able to pay for a $400 unexpected expense4. When a financial emergency arises, limited options may include borrowing from family or friends, credit cards, or high-interest payday-loans. The employee may even borrow from their 401k or request a pay advance from their employer. Borrowing from a 401k investment not only hurts the employee in lost interest and potential tax penalties, it can also impact the employer, especially considering that nearly 60% of millennials have taken money from their retirement account5. This practice can negatively impact the employer's retirement plan asset size, increasing the plan's administrative expenses.

If an advance is requested on earned pay, this places a burden on the payroll department, with added complications of tax implications, not to mention the additional work involved to administer the advances.This kind gesture by the employer has the potential to snowball out of control.
Read more at FINFIT.COM

September auto performance helps overall default rate dip to lowest point of 2018

Auto-finance performance helped the composite rate of the S&P/Experian Consumer Credit Default Indices register its best reading thus far this year.

Based on data through September, S&P Dow Jones Indices and Experian reported on Tuesday that the auto finance default rate decreased 8 basis points to 0.89 percent.

To give that auto figure a little more perspective, the latest reading is 1.29 percent lower than it was 10 years ago when the economy in the fall of 2008 began to descend into the financial maelstrom that created the Great Recession.

Fast forward to now, analysts determined the September composite rate -which represents a comprehensive measure of changes in consumer credit defaults - came in 5 basis points lower than the August reading to register in at 0.82 percent.

The bank card default rate dropped 38 basis points to 3.14 percent.

The first mortgage default rate was down 2 basis points to 0.63 percent.

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Despite rise of mobile money, millions still outside U.S. bank system

More than 60 million Americans continue to exist on the fringes of the financial system, the Federal Deposit Insurance Corporation announced this week. They either have no bank account or are "underbanked," meaning they do have an account, but also have used payday loans, pawn shop loans or money orders in the past year.

Why it matters: Because insurance, savings and other protections often require ownership of a bank account, those who are excluded from the system are highly vulnerable to unexpected financial hardship. Not having a bank account also means being almost completely locked out of the benefits of a growing stock market.

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By the numbers: Even as more than two-thirds of Americans are now "fully banked," 63 million adults and 21.8 million children remain excluded from the financial system, or are only partially included. Underbanked households skew younger, and disproportionally comprise people of color.

At 17% and 14%, black and Hispanic families are about five times more likely to be unbanked than Asian or white households.
Most (67%) of those that are unbanked save their money at home, or keep it with family and friends.
The most-cited reason for being unbanked (53% of respondents) is not having enough money to keep an account. Lack of trust (30%) also scores high.

Yes, but: The good news is that the percentage of Americans who are "financially excluded" has been marginally declining over the past decade. From 2009, the first year surveyed, the percentage of Americans without a bank account declined from 7.6% to 6.5% in 2017. Among those considered "underbanked," the percentage fell from 20% in 2013 to 18.7% in 2017. Read more at AXIOS

Auto Loans Shrink For Borrowers With The Worst Credit

Auto lenders have pulled back on loans to customers with the riskiest credit and as a result, the percentage of delinquent loans showed a decline in the second quarter, according to Experian Automotive.

For the market overall, affordability remains a concern. Interest rates and average monthly payments are on the rise, said Melinda Zabritski, senior director of automotive financial solutions for Experian.

The average new-vehicle monthly loan payment hit a record $525 in the second quarter, up $20 from a year ago, Experian said today in a report on auto loans and leases originated in the second quarter of 2018.

The average used-vehicle loan amount also hit a record for the quarter at $19,708, Experian said. The average new-vehicle loan was $30,958.

Consumers are staying with a strategy of taking out long-term loans, to try and offset higher sticker prices, higher interest rates and higher loan amounts. Longer terms mean consumers pay more interest over the life of a loan. The average term in the second quarter was just under 69 months. Experian said, "72 months remains the most common loan term for both new and used loans."
Read more at FORBES

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