May 21, 2019

The unintended consequences of interest rate caps

Last week, Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) introduced the Loan Shark Prevention Act amid a litany of references to executive compensation, payday lenders and credit card "rip offs."

They even invoked the Bible's admonitions against usury. The bill would create a nationwide 15-percent annual percentage rate (APR) cap on interest rates on all consumer lending and credit cards purportedly to put money back in consumers' pockets.

The concept sounds great. Frankly, no one likes high interest rates. Commentators of various political persuasions have applauded it.

Unfortunately, actions that politicize and regulate one aspect of a competitive market rarely have ever worked. More frequently, they have caused even greater financial pain and credit dislocation.

The sponsors highlight the apparent unfairness of a median credit card interest rate of 21.36 percent, while the economy is still comfortably nestled in a low-interest-rate environment.

In response, the bill adopts the provisions of another law already on the books that has limited the interest rate on credit union consumer loans and credit cards to 15-percent APR.
Read more at THE HILL

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Consumer Financial Protection Bureau Outlines Plan to Review Rules Under the Regulatory Flexibility Act

WASHINGTON, D.C. - Today the Consumer Financial Protection Bureau (CFPB) published a notice on how it plans to periodically review regulations under the Regulatory Flexibility Act (RFA) and to request public input. Additionally, the Bureau published a notice requesting public input as part of its first RFA review examining the 2009 Overdraft Rule.

In Section 610 of the RFA, Congress specified that agencies review certain rules within 10 years of their publication, and consider the rules' effect on small businesses. The purpose of the review is to minimize any significant economic impact of the rules upon a substantial number of small entities, consistent with the stated objectives of applicable statutes. At the conclusion of each review, the Bureau will determine whether the rule should be continued without change, or should be amended or rescinded. The RFA requires each agency to invite public comment on each rule undergoing review and to consider specific factors, including: Read more at CFPB

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Credit Unions meet with regulators on payday lending

NAFCU met with the CFPB and NCUA yesterday to discuss issues related to payday lending, including the bureau's proposal to delay and change some requirements of its payday lending rule and credit unions' payday alternative loans (PALs) programs. NAFCU's advocacy efforts led the bureau to take into account credit unions' concerns in the final 2017 rule and create a safe harbor for PALs.

NAFCU Director of Regulatory Affairs Ann Kossachev and Regulatory Affairs Counsel Kaley Schafer were joined by member credit unions at both meetings.

Earlier this year, the bureau issued proposals to remove the payday lending rule's mandatory underwriting requirements, including ability-to-repay (ATR) provisions, and delay those provisions' implementation date by 15 months. NAFCU offered its support of a delay as it would allow the bureau more time to expand the rule's PALs safe harbor.

The NCUA is expected to issue a final rule this year that would provide federal credit unions with additional options under PALs. NAFCU has recommended the NCUA allow even more flexible parameters than what the agency proposed and continues to urge the bureau to expand the safe harbor to all future iterations of PALs. By doing so, credit unions will be more likely to adopt PALs programs and consumers will have greater access to safe, short-term, small-dollar loans.
Read more at NAFCU

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You'll Be Surprised How Many Americans Have No Savings at All. by Christy Bieber, The Motley Fool

According to a recent survey from ING Group International Surveys, 27% of Americans have no money saved at all. That means more than a quarter of all Americans have nothing set aside for a rainy day, haven't saved up any cash for big purchases, and aren't saving for their senior years.

Saving money can seem hard when you have lots of pressing financial obligations -- but it's something everyone needs to do in order to achieve any financial security. If you're not sure how to get started, read on for some tips on how you can begin putting aside money for the future.

Why is it important to start saving today?
Saving money isn't something that can wait, as there are lots of reasons why you need to have money set aside right now. Here are a few big reasons why it's such a problem if you don't save and why you need to start today.

Saving is essential to keep you out of debt. Absolutely no one is immune from emergencies and unexpected expenses. If you have money saved in an emergency fund, you can cover surprise costs when they come up. If you don't have any cash saved and need some quickly to deal with a problem, chances are good you'll have to go into debt. This could mean putting money on a credit card at a high interest rate or, worse, taking out a payday or car title loan. Once you're in debt, it's much harder to get out and stay out, since a good portion of your income will have to go toward interest. The only way to avoid this fate is to save for emergencies.
Read more at YAHOO FINANCE

Compete in the data-driven lending era

Why creditors and servicers should care about the CFPB's proposed debt collection rules. by Ballard Spahr LLP

The Bureau's proposed debt collection rules, released last week, only apply to debt collectors, as defined under the Fair Debt Collection Practices Act. So, why should creditors and servicers be interested in them? Lots of reasons.

First, a number of provisions call for creditors (or by extension, servicers) to take action before a debt is assigned to a collection agency in order to facilitate the collection agency's use of electronic communications with the consumer. The various provisions that allow a consumer's consent to receive electronic communications to be transferred from a creditor to a debt collector either require the creditor to keep records of the consumer's prior E-SIGN consent, or require the creditor to make a disclosure to the consumer about placement of the debt with a collection agency, and then track any consumer opt-outs from receiving electronic communications from the debt collector. In several instances, we believe these options for transferring consent (which are likely to facilitate the debt collection process and help avoid the potentially large impact of the call frequency restrictions) will require new system development and new data communication streams to be supported by creditors and servicers. The long lead times associated with such system builds suggests that planning for them should begin in the near future. Read more at National Law Review

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Advance Financial CEO Hodges Wins Gold Award

NASHVILLE, TN - Nashville-based financial services company, Advance Financial, was recently named the winner of two Gold Stevie® Awards and one Silver Stevie® Award in the 17th Annual American Business Awards®. The company's CEO and CXO, Tina Hodges, won the gold award for Woman of the Year in Consumer Services and gold for Fastest Growing Company of the Year for organizations up to 2,500 employees. Advance Financial also earned a silver award for Corporate Social Responsibility Program of the Year for organizations up to 2,500 employees.

The Woman of the Year category recognizes achievements of women in the workplace in 2018. Under Tina Hodges leadership, 2018 proved to be an incredibly strong year for the company as it hit multiple growth milestones and elevated its tradition of giving back to the local communities it serves.

The Fastest Growing Company of the Year category recognizes outstanding revenue growth in 2018 compared to 2017. The company opened 16 new stores in 2018, eclipsing 100 stores total, and in five years the company's total revenue grew from approximately $73 million to more than $300 million - 226% growth - landing it on the Inc. 5000 list of the fastest-growing companies for the seventh year in a row. The company also welcomed hundreds of new employees, growing from 800 at the end of 2017 to more than 1,150 in 2018 - a meteoric 62 percent growth in just a year.
Read more at The Tennessee Tribune

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Trust Science chosen as a 2019 Red Herring Top 100 North America Winner

May 15, 2019, Pasadena, U.S. - Today, Red Herring announced the winners of its Top 100 North America 2019 event, and Trust Science has been chosen as one of the most exciting and innovative technology companies on the continent.

"I'm ecstatic for our team. To be acknowledged as a Top 100 Company by Red Herring's panel of industry experts, insiders and journalists is proof we are making a difference," said Trust Science CEO Evan Chrapko. "Our goal is to get deserving people access to affordable financial services they so desperately need, and this is another step toward making that happen."

He added, "To join the likes of LinkedIn, DropBox and DocuSign as previous Top 100 Winners is humbling, but incredibly energizing for our team."

Red Herring chairman Alex Vieux led the ceremony, noting "What has excited me most is to see so many people forging niches in high-tech and cutting edge sectors," added Vieux. "Some of the technical wizardry and first-rate business models showcased here at the conference has been fantastic to learn about. We believe Trust Science embodies the drive, skill and passion on which tech thrives. Trust Science should be proud of its achievement - the competition was incredibly strong." Read more at TRUST SCIENCE

Lending as a Service

Labor, Consumer Groups Challenge CFPB Proposal to Ease Payday Loan Regulation

Coalition's comment calls new rule 'arbitrary and capricious' in reference to the Administrative Procedure Act

A coalition of consumer and labor groups is challenging the Consumer Financial Protection Bureau's proposal to ease an Obama-era restriction on payday lenders, using language that suggests there are legal grounds to block the new rule.

CFPB Director Kathy Kraninger in February introduced the bureau's proposed plan to effectively unwind regulation imposing underwriting standards on payday lenders, which was originally supposed to go into effect Aug. 19. The proposed rule has been championed by payday and auto title lenders but opposed by consumer groups.

The coalition, led by Americans for Financial Reform and the Center for Responsible Lending, submitted its 220-page comment Thursday, when the comment period on the CFPB's proposal closed. The consumer advocates called the proposal "arbitrary and capricious," a direct reference to the Administrative Procedure Act, which tells courts to invalidate agency actions that are found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."
Read more at Morning Consult

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Half of consumers are in fragile financial condition, study finds

Fifty-one percent would face hardship after missing one paycheck

The economy is humming, unemployment is near record lows, but the American consumer is in fragile financial condition, according to the latest research.

A University of Chicago study found 51 percent of working adults could not miss more than one paycheck and still cover basic necessities. Another 15 percent would experience hardship after two missed paychecks.

The smaller those paychecks are, the more they would be missed, researchers found. Two-thirds of households earning less than $30,000 a year would not be able to purchase necessities if they missed a paycheck.

"Even short disruptions in pay can cause significant hardship, as most Americans appear to be living paycheck-to-paycheck," said Angela Fontes, director of the Behavioral and Economic Analysis and Decision-making (BEAD) program at NORC at the University of Chicago. "The issue is particularly salient for Hispanic and for low-income households, where the vast majority of these households would need to begin depleting savings, if they have any, sooner."
Read more at ConsumerAffairs

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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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Payday lenders urge customers to comment on CFPB rule revision - WSJ

Payday lenders are mobilizing their customers to support a proposed federal rule that would roll back Obama-era regulations that would have imposed tougher new underwriting standards for small-dollar, high-interest consumer loans, often called payday loans.

A report by consumer watchdog group Allied Progress analyzing public comments on the proposed Consumer Financial Protection Bureau rule found that almost a quarter of the 16,761 comments submitted as of May 11 contained duplicated language supporting the revision to the regulation.

Some 2,364 comment included, "As you take a second look at the payday loan rule, please don't make it more difficult for me to get these loans ... Millions of Americans like me rely on payday loans, and the government shouldn't take away our access to credit."
Read more at SEEKING ALPHA

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

FCC Commissioner: 'Repeat After Me: "Robocall" Is Not a Bad Word'

What's the absolute easiest way to unify America today? Go anti-robocall.

Not exactly a brave and controversial stance to condemn the most annoying phenomenon of our time, is it? The English language has a few verboten words. Lately, it seems that "robocall" is creeping up the rankings, alongside "taxes" and "moist."

The numbers of robocalls grew an estimated 325 percent in 2018 to 85 billion spam calls, 26.3 billion of which were in America. The FCC itself recently cited a study saying half of all calls made to American cell phones this year will be spam. Put me on permanent silent mode, people.

Wait, hold on, not so fast, says Republican FCC Commissioner Michael O'Rielly.

"Repeat after me," O'Rielly said on Thursday. "'Robocall' is not a bad word."

O'Rielly spoke to an audience of debt collectors at ACA International. Debt collectors are one of the country's most zealous users of robocalls, a tool they deploy to hound people in debt about their bills. Read more at GIZMODO


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