October 4, 2018
2018 edition: #79 / 104
Compete in the data-driven lending era.

Financial Markets in the Digital Era. by U.S. House of Representatives Financial Services Committee

The Subcommittee on Financial Institutions and Consumer Credit met today to examine new opportunities for technological innovation to develop new products and services consumers across the financial lobe need.

"The pace of technological development in financial services has increased exponentially and dramatically, offering both benefits and potential challenges to the U.S. economy and consumers," said Subcommittee Chairman Blaine Luetkemeyer (R-MO). "We can't address innovation and growth without addressing the security of that data. I'm glad the July Treasury report made that a priority. The Department has clearly outlined the need for a single federal data security and notification standard that raises the bar for all industries, and ensures a better outcome for all consumers. Outdated and problematic regulations need to be overhauled, and growth must be monitored but not unnecessarily slowed."

Key Takeaways
  • Modern developments in digital technology are changing the way many financial services are offered and delivered to consumers and businesses.
  • Congress and the federal prudential regulators must continue to examine this innovative marketplace to understand the opportunities and challenges it presents, and to ensure that financial services entities are allowed to use fintech to deliver new products and services while also protecting consumers.
Topline Quotes from Witnesses
"FinTech products and services, including peer-to-peer and consumer lending platforms, payment systems, and a myriad of other services are already in use and continue to be rapidly adopted by U.S. consumers... Many of the FinTech products on the market provide consumers with greater access, choice, and empowerment for financial planning and decision making. The US will miss out on opportunities to realize the benefits from innovative FinTech development if it fails to take measures to improve its current regulatory structure." - Aaron Cutler, Partner, Hogan Lovells LLP Read more at U.S. House of Representatives Financial Services Committee

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SOUTH DAKOTA: Dollar Loan Center appeals state ruling to South Dakota Supreme Court

The South Dakota Supreme Court is hearing its October term this week at the University of Sioux Falls.

Among the cases the high court heard today; was the state in the wrong when it shut down Chuck Brennan's 'Dollar Loan Center' business?

In September of last year, the South Dakota Division of Banking revoked the license of Dollar Loan Centers to do business in the state.

"When they're revoked they're not able to lend money whatsoever." Dollar Loan Center attorney Zachary Peterson says when they tried to go to court to remedy the situation, the court denied their case saying they had not exhausted administrative solutions....which would mean negotiating with the Division of Banking....the same entity which revoked their license in the first place.
Peterson says the banking division made a final decision without giving Dollar Loan a chance to state their case beforehand. "He made no attempt to conduct a pre-deprevation hearing rather he issued findings of fact and conclusions of law and revoked Dollar Loan's licenses and then made it incumbent on Dollar Loan to ask for a hearing."

But Special Assistant Attorney General Paul Bachand told the court there was a reason the banking division acted the way it did. "The fact that an entity is operating outside its license is something that can be utilized by the division for a revocation." Read more at KSFY ABC

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U.S. Bank Simple Loan 2018 Review

When to consider: In a true emergency after you've explored other options

U.S. Bank became the first mainstream bank to offer small loans as an alternative to payday loans in 2018. The Simple Loan is a short-term loan available to customers who have U.S. Bank checking accounts.

This loan carries much lower rates than traditional payday loans, but it is still an expensive form of credit when you need quick cash. NerdWallet recommends exploring your alternatives before taking it.

U.S. Bank makes short-term personal loans that cost less than what you'd find at an online or storefront payday lender. It is the first large national bank to bring back payday-style loans after the financial crisis, when most banks stopped lending to poor-credit customers.

The loan is designed for existing U.S. Bank customers who have trouble coming up with money for unexpected expenses or short-term needs, according to the bank's press release.
Read more at NERDWALLET

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US insurance regulation is unconstitutional

Insurance regulation in the United States differs markedly from other types of financial services regulation. While banks and securities firms must comply with extensive federal regulations, insurers are regulated primarily by the states.

In practice, however, the most important and powerful entity in insurance regulation is not a state at all. In fact, it isn't even a government entity. It is, instead, a private, nonprofit corporation known as the National Association of Insurance Commissioners (NAIC).

Comprised of elected and appointed insurance commissioners from across the country, as well as a roughly 500-person staff, the NAIC produces handbooks and manuals that have the force of law in every U.S. state.

These materials contain many of the most important rules of insurance regulation. For instance, they determine what pieces of information insurers must report to their regulators, how much money insurers must set aside to pay future claims and what accounting standards insurers must use when calculating assets and liabilities.

The NAIC's handbooks and manuals determine these core rules of insurance regulation because each state has passed laws incorporating these materials "by reference." As a result, when the NAIC's members vote to update the materials, as they do on a regular basis, the effect is to change insurance laws and regulations in every state across the country. Read more at THE HILL

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CONNECTICUT: Stefanowski, Lamont take liberties in payday loan allegations

Republican Bob Stefanowski ran a payday lending company. The venture capital firm that employed Democrat Ned Lamont's wife as managing director invested in one. Both are facts featured in misleading television ads in Connecticut's gubernatorial campaign.

In his newest ad, Stefanowski reacts to a Lamont spot in which the Democrat asserts, "Bob Stefanowski profited from predatory loans to service members."

Not so, says Stefanowski. His ad claims, "What a hypocrite! Lamont's the one who personally profited off payday loans."

Both assertions are problematic.

It is true that Stefanowski's last job in the private sector was chief executive officer of DFC Global, whose checkered record includes allegations of fraudulent auto loans to U.S. military personnel. Stefanowski ran the company from June 2014 until January 2017.

DFC resolved claims arising from the auto loans in mid-2013, a year before Stefanowski arrived. It made $3.3 million in refunds as part of a settlement with the Consumer Financial Protection Bureau. It discontinued its auto business on Stefanowski's watch in 2015.

* CHICAGO area: Small Dollar Installment Lender
* TENNESSEE: 2 PDL-Title-Check Cashing-PrePaid
* SOUTHERN CALIFORNIA: 1 Payday Loan Store
* IOWA: 6 Payday / Check Cashing Stores

South African company buying 1-5 payday loan outlets
* International Lender seeking 2 or 3 U.S. locations

NEVADA can, and should, outlaw this industry

South Dakota is the most recent state to run off its payday loan industry.

In 2016, 75 percent of South Dakota voters overwhelmingly approved a ballot initiative that capped total interest, fees and charges on loans at an annualized percentage rate (APR) of 36 percent.

Evidently a 36 percent APR just doesn't pencil out for an industry with a revenue model that depends on a daisy chain of fees, late charges, rollovers, fees on the rollovers, interest, more charges and on and on until lenders are paying an APR well into triple digits. Since South Dakota voters said enough, the number of payday lender stores has dropped from more than 180 to a couple dozen, according to the director of the state's Division of Banking. And the number is expected to dwindle more this year, Bret Afdhal said.

"They pulled their stakes up and left," Afdhal said. Read more at NEVADA CURRENT
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NEW YORK: Candidate fails to return donation from payday lenders as promised

Letitia James' campaign for attorney general said it had returned a contribution. It hadn't

The front-runner to become New York's next attorney general hasn't given a campaign donation back to a payday lender, as her campaign said she had nearly a month ago.

On September 6, Crain's reported that an Oklahoma-based limited liability company belonging to the Otoe-Missouria Tribe, which owns multiple short-term, high-interest loan companies and had clashed with state regulators, had given $10,000 to Public Advocate Letitia James' bid to become the state's top law enforcement officer. At the time, a campaign spokesperson speaking on background claimed the donation had been returned but could not provide information on precisely when. However, when Crain's checked Tuesday, the campaign said it still had the money and would return it this week.

On Sept. 13, James defeated three rivals in the Democratic primary-and her subsequent disclosures to the state Board of Elections show she never restored the monies to RS, LLC, the entity the tribe used to bestow the gift. Her campaign did return two smaller, unrelated contributions it received from individuals after the donation from the Otoe-Missouria entity.

The campaign now asserts that it misspoke when it claimed it had given the contribution back, but that the next filing, due Friday, would show a full reimbursement. "The refund check was processed and mailed back," a spokesman said. Read more at CRAIN'S NY BUSINESS

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Charles Schwab Laments Image of Advisors as 'Used-Car Salesmen'

The chairman says that the industry needs to embrace a fiduciary standard that puts it on the right path to help Main Street investors.

Charles R. Schwab, 81, is a successful businessman and golfer. And the founder of the company that bears his names didn't mince his words about the advisory business or the Ryder Cup golf event during his talk at the annual Securities Industry and Financial Markets Association conference on Tuesday in Washington.

Speaking of the Ryder Cup, which he attended recently in France, Schwab said, "It's a deep, rough course."

The climate for advisors and others in the brokerage business today is similar, he suggested. "The general public still thinks we're a bunch of used-car salesmen," he said, adding that he harbors no ill will for those hawking autos.

How can the industry turn this image around? Schwab, who started the company he chairs in 1971 in San Francisco, points to the need to help investors retire securely and to embrace a clear fiduciary objective.

"As for the advice portion of the business, I worry about it ... We have a responsibility for people's savings. That's all important. People ... can easily be led down the wrong path," he said.
Read more at Think Advisor

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What is a big bank? Fed reconsiders standards: Report

The Federal Reserve may soon make it easier for some banks to generate profit by exempting them from rules promulgated in response to the financial crisis.

The Fed is reconsidering how it determines what is considered a large financial institution, according to The Wall Street Journal, which cited people familiar with the matter. That includes potentially redefining thresholds for capital and liquidity rules, as well as asset-size. The changes were reportedly discussed during a recent meeting between senior Fed officials and leaders from the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation.

Shortly after the crisis the Fed ordered the nation's largest financial institutions to operate more conservatively so they wouldn't be as vulnerable to future financial shocks. But the safety those new standards created also made turning a profit harder.

For several supervisory purposes, the Federal Reserve uses total assets of $250 billion or exposures of $10 billion in foreign assets to determine what constitutes a large bank. Many argue, however, that those thresholds are too low. Read more at FOX BUSINESS

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The next financial crisis will be brought on by inadequate regulation, top economist says

We haven't learned the lessons of the 2008 financial crash, a leading economist told CNBC on Monday.

Speaking on "Squawk Box Europe," Lawrence Ball, the Johns Hopkins University economics professor and author of the book "The Fed and Lehman Brothers: Setting the Record Straight on a Financial Disaster" spelled out his fears for today's economy.

While some economists believe that the improvements made since 2008 should prevent a similar crisis, and many market players lament what they see as over-regulation, Ball stressed what he felt was the necessity of robust rules in the banking industry.

Asked what his greatest fear was for financial markets, he replied: "Another crisis similar to or worse than what we saw 10 years ago because of inadequate regulation or unwillingness to have the government and Fed step in when they need to."

Some in Ball's camp have expressed alarm over Donald Trump administration's efforts to roll back Barack Obama-era regulations put in place in the wake of the 2008 crash, namely the Dodd-Frank Act. Read more at CNBC

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Feds to return $505 million to consumers duped by Scott Tucker's payday loan scheme

Scores of consumers swindled by former race car driver Scott Tucker's illegal payday loan businesses will receive refund checks worth a combined $505 million from federal agencies who investigated the disgraced Leawood businessman.

The Federal Trade Commission and the Justice Department announced Thursday that it is mailing out more than 1 million checks to consumers of Tucker's businesses from 2008 to 2013.

The agencies evaluated loan portfolios from seven of Tucker's brands under his company, AMG Services - 500FastCash, Advantage Cash Services, Ameriloan, OneClickCash, Star Cash Processing, UnitedCashLoans and USFastCash - to find consumers who took the short-term loans.

The FTC's refund from Tucker's businesses is said to be the largest in agency history.

Earlier this year, Tucker started serving a 16-year, eight-month prison sentence following his conviction on a number of federal charges related to his payday loan scam. Jurors found Tucker's businesses extended loans that had deceptive terms and illegally high interest rates. Tucker's attorney, Tim Muir, was also convicted of the same charges and sentenced to serve seven years in prison. Read more at THE KANSAS CITY STAR

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How to handle a 'phantom debt' collector

What should you do if a bill collector calls about a debt that you don't even owe?

Consumers have rights in such cases. Here are some tips from the National Consumers League:

If a caller asks you to wire money or provide information such as a bank routing number, credit or debit card number over the phone, hang up. It's probably a scam.
If you are unsure if you owe a debt, ask the caller to only contact you by mail and to provide written proof of the debt. The Fair Debt Collection Practices Act requires collectors to stop calling their targets if they are asked to do so.
If a debt collector claims to be from a government agency or official-sounding institution, hang up and call the organization directly.
If you are unsure whether you are delinquent on a payday loan, contact the lender directly.
Look up numbers or email addresses for lenders on your own or rely on your loan paperwork to find a contact number.
Consumers who receive calls from phantom debt scammers may have had their personal information exposed, raising the risk of identity theft. Check the Federal Trade Commission website for a step-by-step process on recovering from identity theft.
Be wary when applying for payday loans via the Internet. Read more at THE BUFFALO NEWS

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