September 4, 2018
2018 edition: 70/104
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FDIC Should Not Allow Banks to Make Payday Loans, says Coalition Letter

WASHINGTON, D.C. - The head of the Federal Deposit Insurance Corporation (FDIC), Jelena McWilliams, is "reviewing whether to rescind guidelines for 'deposit advance' loans," according to an interview she had with the Wall Street Journal. "Deposit advance" is a euphemism for bank payday loans, which - before the FDIC's 2013 guidance - had triple-digit interest rates, lacked an ability-to-repay standard, and trapped consumers in debt. For this reason, consumer, civil rights, faith, and community groups are urging the FDIC Chair to keep in place the agency's guidance advising ability-to-repay determinations on such loans. A copy of the letter is included at bottom and linked here.

Center for Responsible Lending (CRL) Senior Policy Counsel Rebecca Borné said, "Bank payday loans offer a mirage of respectability, but in reality, they are financial quicksand. The FDIC has a responsibility to protect consumers from being pulled into these debt traps and to protect banks from a race to the bottom."

The letter states, in part, that the "data on bank payday loans made indisputably clear that they led to the same cycle of debt as payday loans made by non-bank lenders.... [They] drained roughly half a billion dollars from bank customers annually. This cost does not include the severe broader harm that the payday loan debt trap has been shown to cause, including overdraft and non-sufficient funds fees, increased difficulty paying mortgages, rent, and other bills, loss of checking accounts, and bankruptcy.... Payday lending by banks was met by fierce opposition from virtually every sphere - the military community, community organizations, civil rights leaders, faith leaders, socially responsible investors, state legislators, and members of Congress." Read more at PAYMENTS JOURNAL

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BRITAIN: Households 'will still turn to payday lenders despite Wonga collapse'

Campaigners says economic pressures mean people will have to take out high-cost debt

British households will continue to seek out payday lenders despite the collapse of Wonga, campaigners have warned, as tough economic conditions force people to take out high-cost debt.

Wonga filed for administration this week after a flood of compensation claims. The company has an estimated 200,000 customers still owing more than £400m in short-term loans who are being told to continue making repayments.

Although one of the major short-term lenders has disappeared from the market, one leading debt charity believes more than a million people still need quick loans that carry high interest rates. Campaigners say government benefit cuts and austerity, sluggish pay rises, insecure work and the rising cost of living all meant households will face increasing financial pressure in the future.

Peter Tutton, head of policy at the debt charity StepChange, said the market for payday loans was not "done and dusted" in the wake of Wonga's collapse. "There is a constant stream of people having to use high-cost credit for essentials." Read more at THE GUARDIAN

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While Feds Loosen Payday Loan Regulations, Colorado Voters Could Clamp Down

In a year when the federal government is dialing back financial regulations, Colorado could become the 16th state to limit the notoriously high interest rates on payday loans.

As the federal government walks back historic regulations on payday lending, Colorado voters this fall will be asked to tighten them -- a sign that strong consumer protections are increasingly being left to the states.

Short-term loans, often called payday loans because they're due on the borrower's next payday, have average interest rates of 129 percent in Colorado. Nationally, rates average between 150 percent and more than 600 percent a year. A ballot proposal, which was certified as Initiative 126 by the secretary of state on Tuesday, would cap those rates at 36 percent. If passed, Colorado would be the 16th state, plus the District of Columbia, to limit payday loan rates.

The ballot initiative comes as new leadership at the Consumer Financial Protection Bureau (CFPB), which was created in response to the predatory lending practices that led to the 2007 subprime mortgage crisis, has been dialing back regulations on the lending industry. Earlier this year, CFPB Interim Director Mick Mulvaney, President Trump's budget director, threatened to revisit a recent rule regulating payday and car title lenders. More recently, the bureau has taken steps to weaken the Military Lending Act, which protects military families from high-interest-rate loans.

Now, two proposals in Congress could exempt some types of payday lenders from state interest rate caps. The bills would allow high-interest-rate loans to be transferred to lenders in other states, even if the latter state has an interest rate cap. Opponents worry that, if passed, the federal legislation would make consumer protections in place at the state level irrelevant. Read more at GOVERNING.COM



Workplace financial education helps lower employee stress, Prudential says

Do the financial wellness programs that companies often implement to help their employees better manage their finances actually work?

Yes, says Prudential Financial, one of the world's largest financial services firms.

In a recent study of its employees, Prudential found that fewer workers reported financial issues after the company implemented a series of financial wellness initiatives and tools. The survey covered a 10-year period starting in 2008.

Prudential was spurred to action a decade ago when it learned that its employees were experiencing more financial problems than its competitors despite being offered a relatively generous benefits package. Almost one in three employees (31%) in 2008 reported that they experienced financial stress, higher than WebMD's national benchmark of 28%, according to the report.

By the end of 2016, after gradually rolling out of a variety of financial wellness measures, the company saw the percentage of employees experiencing financial stress drop to 16%, falling below the WebMD national benchmark of 19%. Read more at EMPLOYEE BENEFIT ADVISOR

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House hopes to tame student loan crisis with financial literacy bill

The House next week will try to fend off a growing pile of student loan debt - now at $1.4 trillion - by passing legislation requiring families to learn more about what it means to borrow tens of thousands of dollars for college.

Republicans have scheduled a vote on legislation from Reps. Brett Guthrie, R-Ky., and Suzanne Bonamici, D-Ore., called the Empowering Students Through Enhanced Financial Counseling Act.

The bill doesn't restrict borrowing, but it's aimed at forcing students and parents to understand the extent of the loans they're taking on. It's a first step at putting a check on the growing pile of student debt that some say could spark the next financial crisis.

"Our country is facing a student debt crisis," Guthrie said last year when he introduced his bill last year. "Part of fixing the problem is ensuring that student borrowers grasp the extent of their financial obligations."

Next week's vote may help Republicans tame another potential problem - that Democrats will argue Republicans are doing nothing, and use the crisis to win votes in the midterm elections in November. Several Democrats, including socialists like Alexandria Ocasio-Cortez of New York, have responded to rising student loan debt by proposing tuition-free college for all.

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"Postal banking" becomes part of the payday-loan conversation

You have no doubt read that Sen. Kirsten Gillibrand, D-N.Y., has introduced legislation that would essentially turn our nation's 36,000 post offices into quasi-banks, a move she thinks would squash payday lenders and provide more affordable financial services to consumers along the way. In her words: "Literally the only person who is going to be against this is somebody who wants to protect payday lender profits."

The reaction to just about anything Gillibrand says tends to be pretty predictable. Those with left leanings swoon at the Democrat's every idea and those leaning right will write her off as a Lib-Kook. But setting aside any gut-level reaction about the senator or her claim that opposing her legislation is the moral equivalent of a Facebook "like" for payday vultures, is Gillibrand's proposal a good idea? Well, it's exactly half of a good idea.

Sen. Kirsten Gillibrand, D-N.Y., has introduced legislation that would turn post offices into semi-banks - part of her plan would bode well for the financial services industry, while another part of the plan is just silly. Bloomberg News
Where Gillibrand loses me is with her idea of U.S. Postal Service locations taking deposits and mimicking bank branches as a result. That is 100% a terrible idea. Anyone in the financial services industry knows that the last thing we need is more bank branches. Seriously, even the most optimistic head of retail banking would be unable to suppress giggles at the wisdom of potentially 36,000 more bank branches across the country. Read more at ECOMMERCE DAILY NEWS

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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.

TransUnion: Compete in the data-driven lending era

Lenders are facing numerous challenges: Increased fraud, high growth goals, rises in delinquency, lower direct mail response rates and heightened consumer expectations.

In this environment, robust data unlocks insights on consumers' history, behavior and preferences, allowing you to serve them better.

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

This credit card payment mistake costs Americans more than $1 billion

When used responsibly, credit cards can earn you hundreds of dollars in rewards, offer luxurious travel perks or simply build your credit score. But when misused, they end up costing you, big time.

A common way people misuse their cards is paying bills late. Just over 20 percent of Americans say they've made a delinquent credit card payment, meaning they were at least 30 days overdue, according to NerdWallet's 2018 Consumer Credit Card Report. In the first quarter of 2018 alone, $23 billion worth of all credit card debt in the U.S. was delinquent.

Your first late payment fee is at most $27 but, if you continue paying late, the penalties can get as high as $38, depending on your agreement with your credit card issuer. For the 21 percent of Americans who have made a delinquent payment, the first-time late fees alone add up to more than $1.4 billion, NerdWallet points out.

"Being delinquent on your credit card can have a huge negative impact on your finances. Not only do you have to pay late fees, but the interest can grow over time and in some cases your credit score drops, too, making future loans more expensive for you," says NerdWallet credit card expert Kimberly Palmer. Read more at CNBC



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Installment loans are loans that are repaid over time with a pre-determined number of payments. Many installment loans, such as personal loans, are shorter term loans. Consumers borrow an initial lump sum of money and repay the debt over time through a contracted payment schedule. Installment loans can be an economical option for many borrowers as they typically offer lower interest rates than revolving credit, based on credit determination. Paying off the loan on-time and without extensions can also help to boost an individual's credit score.

What Is the Difference Between Installment Loans and Revolving Credit?
While installment loans have a specified monthly payment for a finite duration, revolving credit is considered a more dangerous way to borrow than an installment loan. Revolving credit, like credit cards, is a line of credit that is automatically renewed as debts are payed off. Revolving credit allows a borrower to borrow as much additional money as desired as often as desired, as long as the borrower does not exceed a specified credit limit. Payments are open-ended and any funds repaid are available to be reborrowed the following month. Carrying too large a balance can drag down a credit score, interest rates are often high, and lenders can also change interest rates at any time. While revolving credit is convenient and flexible, it can be financially crippling. Conversely, installment loans provide a fixed monthly payment and regardless of the market, the interest rate and payment stay the same. Read more at NDH
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