May 23, 2019

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Federal Deposit Insurance Corporation Agrees to Settlement in Operation Choke Point Lawsuit

FDIC Will Implement Measures to Prevent Regulatory Pressure, Retribution against Lawful Businesses

Advance America  and Check Into Cash  announced today that they have reached a settlement with the Federal Deposit Insurance Corporation (FDIC) regarding Operation Choke Point , the FDIC program that pressured banks to cut ties with certain categories of lawful businesses, including payday lenders.

"Five years after taking the extreme and costly step of suing federal regulators, we are pleased with the FDIC's actions to address past efforts to cut off our companies' access to the U.S. banking system," said Jessica Rustin, Advance America's Chief Legal Officer. "We uncovered how some FDIC leaders and officials executed a campaign motivated by personal scorn for our industry, contempt for our millions of customers, and blatant disregard for due process. This settlement will help to prevent this disenfranchisement from happening again - to our business or any other legal, regulated business."

As a result of this settlement agreement, the FDIC will issue a statement to reiterate its policies. The FDIC previously acknowledged that certain employees acted in a manner inconsistent with FDIC policies and existing guidance with respect to payday lenders, creating misperceptions about its policies. These attempts have proven ineffective in resolving the issue.

The steps taken as part of this settlement are consistent with statements made by FDIC Chair Jelena McWilliams, who declared in a letter to members of Congress earlier this year that "[r]egulatory threats, undue pressure, coercion, and intimidation designed to restrict access to financial services for lawful businesses have no place at this agency."

"While the FDIC took steps to reinforce its policies with staff and the industry, the effects of Operation Choke Point linger, with banks continuing to terminate accounts and refuse services to payday lenders," said Greg Madson, Chief Legal Officer at Check Into Cash. "It is our hope that this settlement clarifies once and for all the FDIC's policies, so that banks feel free to provide services to lawful businesses operating in compliance with applicable federal and state laws, without fear of regulatory pressure or retribution."

The FDIC will conduct training of its examination workforce on these policies by the end of 2019 to ensure that its examiners adhere to the highest standards of conduct and respect the rule of law. The training will specifically include matters related to Operation Choke Point.

Lastly, the FDIC has established a robust complaint process through which information regarding potential violations of these policies may be investigated. If banks or customers continue to be concerned that FDIC personnel are not following the FDIC's policies regarding Operation Chokepoint, they may email the FDIC at

In June 2014, the Community Financial Services Association of America (CFSA), the national association for small-dollar lenders, joined industry partners and its largest member companies, Advance America and Check Into Cash, to file the lawsuit, Advance America et al. v. Federal Deposit Insurance Corp. et al., to end Operation Choke Point and the government's persistent regulatory overreach. Discovery exposing depositions and damaging emails of government officials, most notably at the FDIC, was released in October 2018 as part of the Plaintiffs' Motion for Summary Judgment in the lawsuit. The settlement is the result of court-ordered mediation prior to a judge's ruling on summary judgment.

"Certain FDIC officials operated well outside of the rule of law and disregarded due process when they targeted lawful businesses under Operation Choke Point,"  said Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA) . "Regulatory policy must never be predicated on personal preferences and this settlement should make clear that such abuses of power will not be tolerated." 

Regulators Should Rescind 'Small-Dollar' Loan Rule

The Consumer Financial Protection Bureau is one of the most controversial regulators in Washington, D.C. Since its founding in 2010 under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the bureau has faced relentless scrutiny for its unconstitutional structure, reckless spending, aggressive enforcement activity, and flawed rulemakings, to name a few.

Critics have pointed out time and again the dire need for wholesale reform at the bureau. Fortunately, there is no better time than now. In late 2018, the Senate confirmed Kathleen Kraninger to head the bureau for a five-year term. With a new, permanent director installed, Kraninger has a unique opportunity to champion wide-ranging reforms, including everything from rulemakings to hiring practices.

In her confirmation hearing, Ms. Kraninger assured the Senate Banking Committee that she would implement a free-market agenda at the bureau, focusing on greater competition and the rule of law. In this regard, Director Kraninger and her staff are off to a great start, implementing new initiatives to encourage innovation and competition. However, there is much more work that needs to be done.

This post is the first in a 10-part series that will look at reform ideas for the Bureau's new leadership to pursue. While all ten reforms may be out of reach for one administration, each particular recommendation is an important step towards creating a more fair and competitive consumer financial marketplace. Read more at Competitive Enterprise Institute

Compete in the data-driven lending era

Why the 'Loan Shark Prevention Act' Will Harm Consumers

Let's hop into the time travel machine this Monday morning and go back to the year 1973.

Here's why.
The proposed credit card interest rate cap legislation, courtesy of Democratic presidential hopeful Senator Bernie Sanders and Rep. Alexandria Ocasio-Cortez is in serious need of an almost half-century-old refresher course in the unintended consequences of price caps on the American consumer.

A 46-Year-Old History Lesson
In 1973, the world's energy market was a hot mess. The price of crude oil went from $3 a barrel to $12 almost overnight, and the Organization of the Petroleum Exporting Countries (OPEC) imposed an embargo on shipments to the U.S. (and other countries) over political differences.

That year, President Nixon imposed price controls on both crude oil and gasoline to protect consumers from paying higher prices at the pump. Any station found selling gasoline at a price higher than the cap could be found guilty of fraud.

Demand massively outstripped supply at the capped prices by about 1.4 billion gallons of gasoline each day, economists found.
Read more at PYMNTS.COM

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House votes to rebuke Trump's efforts to rein in the CFPB

The House voted Wednesday to undo the Trump administration's reining in of the Consumer Financial Protection Bureau (CFPB) and prevent future directors from replicating those efforts.

The bill from Rep. Maxine Waters (D-Calif.), chairwoman of the House Financial Services Committee, passed the chamber along party lines in a vote of 231 to 191, with no Republicans supporting the measure.

Called the Consumers First Act, the bill aims to reverse actions taken by former CFPB Acting Director Mick Mulvaney to loosen the bureau's oversight of financial firms, rollback agency regulations, reorganize key departments and rebrand the polarizing watchdog.

"Putting Mick Mulvaney in charge of the consumer financial protection bureau was the epitome of a fox guarding the hen house, so we have to undo all of the damage he did while he was acting director of the CFPB," Rep. Carolyn Maloney (D-N.Y.) said in House floor speech ahead of the vote.

Republicans, who have long accused the CFPB of overreaching and being unaccountable, largely favored Mulvaney's moves to restrain the bureau and came out against Waters's bill. The White House announced Monday that Trump would veto the bill if it reaches his desk, dooming the measure in the unlikely event it cleared the GOP-controlled Senate.
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.

Credit Card Interest Cap Would Create Consumer Credit Bread Lines

Last Thursday Rep. Alexandria Ocasio-Cortez (D-NY), and Sen. Bernie Sanders (I-VT) teamed up to introduce a bill that only two democratic socialists could have dreamed up.
The proposal seeks to impose an annual percentage rate (APR) cap of 15 percent on all consumer credit products across the country-a "radical" proposal, to say the least. This is well beyond the standard APR cap commonly proposed by Democrats. As I wrote earlier this month when a similar proposal was introduced to cap the APR at 36 percent, "The legislation would destroy large swaths of the country's consumer credit market, especially for those living on the financial fringe."

The AOC-Sanders plan, however, would be far, far worse. While the 36 percent proposal is targeted at "alternative" forms of credit, such as payday and installment loans, it largely steers clear of traditional forms of credit, such as credit cards and personal loans. A 15 percent cap, however, would hamper even those mainstream products. Given that the average credit card APR is around 17 percent, it is safe to assume that anyone with a less than stellar credit score or without significant collateral to secure a loan would be denied credit. Indeed, the state of Arkansas, with a constitutionally imposed 17 percent interest rate cap, is a cautionary tale for being simultaneously a "credit desert" and the pawn shop capital of the nation.

The sheer economic illiteracy of capping interest rates so low is astounding. By now, it should be obvious that setting a price ceiling below the market clearing rate will create a shortage. The market for credit is no different than any other market-supply and demand still control.
Read more at Competitive Enterprise Institute

Lending as a Service


The Community Financial Services Association of America (CFSA) projects that tens of thousands of small-dollar loan customers will have submitted handwritten comments in support of the Consumer Financial Protection Bureau (CFPB)'s Notice of Proposed Rulemaking (NPRM) to rescind portions of its 2017 small-dollar lending rule - once all comments are received and uploaded to In comments already publicly accessible, customers describe their experience taking out small-dollar loans and the importance of protecting their access to short term, small-dollar credit.

"Under former Director Cordray's leadership, the CFPB ignored the very people who use small-dollar loans and who will be affected the most by its rulemaking and instead proceeded with a rule that was drafted based on a predetermined, partisan agenda unsupported by evidence," said Dennis Shaul, CEO of CFSA. "We hope that under the new leadership of Director Kraninger, the Bureau will engage in a more transparent and balanced rulemaking process that genuinely considers input from Americans who rely on this vital form of credit."

Commenters from around the country submitted letters during the NPRM comment period telling personal stories of how small-dollar loans helped them and their families:
Read more at CFSA

National Debt Holdings is a professional Receivables Management Company that partners with creditors to purchase and/or manage receivables at all stages of the account life cycle.

Loan Sharks? Interest rate cap would hurt those it's designed to help

U.S. Sen. Bernie Sanders, I-Vt., and U.S. Rep Alexandria Ocasio-Cortez, D-N.Y., have an idea they think would do the public a lot of good.

And it looks OK on paper. But the reality doesn't measure up.

Their idea is to put a maximum interest rate of 15 percent on credit cards. That sounds good in theory. Who wouldn't like to stick it to those greedy bankers and Wall Street types? But it's not that simple.

"There is no reason a person should pay more than 15% interest in the United States," Ocasio-Cortez said last week.

Well, yes there is.

People need credit. Unfortunately, their credit records don't always work to their favor. Higher interest rates are the way banks control risk. Those with lower credit scores pay higher rates for access to credit. The higher rates make up for the risk of default.

Introducing AI Lift, the AI-powered credit risk web service that leverages uncorrelated alternative data to identify the 20-30% of today's thin-file and no-file borrowers ready to be creditworthy customers.

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With Payment Exchange Solutions you an offer your customers a means of trading in their silver, gold, unused gift cards, small electronics (cell phones, laptops, tablets) and other valuables and then have that value applied to an outstanding debt.

Here's how it works:
1. Consumers access the Payment Exchange Solutions website via a button placed on your web site.
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Read more at MICROBILT

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Servicemembers exhibit higher levels of financial well-being than the U.S. population overall

Recently, the Department of Defense (DoD) released its Annual Report on the Financial Literacy and Preparedness of Members of the Armed Forces, which shows that servicemembers exhibit slightly higher levels of financial well-being compared to the general U.S. population. Last month, the CFPB's Office of Servicemember Affairs (OSA) released a research brief on the financial well-being of veterans. The research showed that veterans, similarly to servicemembers, experience somewhat higher levels of financial well-being than non-veterans.

Individuals' financial well-being comes from their sense of financial security and their freedom of choice-both in the present and when considering the future. Following a rigorous research effort to develop a consumer-driven definition of financial well-being, the CFPB developed and tested a set of questions-a "scale"-to measure financial well-being. An individual's score on the scale is a number between 0 and 100, with a higher score correlating to higher levels of financial well-being.

For the first time in 2017, the DoD included the CFPB's financial well-being scale in the Status of Forces Survey. This scale enables the DoD and the CFPB to measure servicemembers' financial well-being over time and understand how the military population compares to the national population at large. Read more at CFPB

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Large US Banks See Credit Quality Decrease

Large U.S. banks are seeing a deterioration in commercial lending portfolios for the first time in three years, according to a report by the Financial Times.

The news is making some investors worried about whether it's the start of a trend, considering the relatively strong state of the economy.

Ten of the biggest commercial lenders saw non-performing loans rise 20 percent in Q1, or about $1.6 billion. The news showed a reversal from a steady improvement in the quality of credit, going back to 2016, when oil prices caused the crash of a large number of borrowers.

"What does it look like when the economy actually slows?" asked Brian Foran, a bank analyst at Autonomous Research. "It is a notable enough change that people have taken notice."

The bad loan level is low compared to banks' balance sheets: JPMorgan Chase's $1.9 billion in commercial non-performing loans is part of its $442 billion portfolio. The trend is raising eyebrows in investors, however, because it's happening during low interest rates and strong economic growth. Read more at PYMNTS.COM

Alternative Credit Reporting

Poll: About half of rural Americans cannot afford unexpected $1000 expense

Roughly half of rural Americans said they could not afford an unexpected $1,000 expense, according to research conducted by NPR.

The poll, NPR's second study in collaboration with the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health, found 40 percent of rural Americans struggle to pay routine expenses such as housing, food and medical bills and 49 percent said they could not handle an unplanned $1,000 bill. Along racial lines, more than 68 percent of black rural Americans and 62 percent of Latinos could not handle such an expense, compared to 45 percent of rural whites, according to the researchers.

About one in 4 respondents said they were unable to get needed health care at some point in recent years despite the fact that 87 percent now have some form of health coverage, due in large part to the Affordable Care Act and its expansion of Medicaid. Of these, 45 percent could not afford the care they needed, while 23 percent said the location was too far away or otherwise geographically difficult to access, and 22 percent could not spare the time when appointments were available, according to NPR. Nineteen percent could not find a provider who accepted their health insurance.
Read more at THE HILL

Redefining how financial service businesses measure risk and process payments.

Debt collectors don't love the FCC's plan to kill robocalls

Debt collectors make money based on their ability to bother people who don't want to be bothered, but how can you bother people if you can't reach them?

That's essentially the argument of ACA International-the trade association that represents the debt-collection industry-which is expressing concerns about a proposed FCC rule that would allow telecom companies to block unwanted robocalls by default. Although ACA wouldn't use the word "bother," the group said in a statement Friday that the proposal is problematic because it could prevent legitimate businesses from communicating with consumers.

"We strongly support tailored efforts to combat illegal and fraudulent robocalls which are a huge problem for all of us who are consumers," Leah Dempsey, ACA International's senior counsel and vice president of federal advocacy, said in a statement. "However, consumer harm results when legitimate business calls are blocked or mislabeled and people do not receive critical, sometimes exigent information they need. We have urged the FCC to provide guidance on how to immediately correct any faulty blocking or mislabeling of calls."
Read more at FAST COMPANY

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Alternative Financial Service Providers Association

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