February 21, 2019
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A Defense of Payday Loans

The CFPB and Payday Lending Regulations. Cato Institute

The Consumer Financial Protection Bureau (CFPB) recently proposed the elimination of new payday lending rules created under the Obama Administration and imposed in 2017. Payday lenders are frequently vilified-a recent New York Times editorial declared that the CFPB "betrayed financially vulnerable Americans last week by proposing to gut rules...that shield borrowers from predatory loans"-but recent evidence indicates that the predatory costs of payday loans may be nonexistent and the benefits are real and measurable. Thus, the original regulatory restrictions were unnecessary.

Most Americans take access to credit for granted, but many lower-income Americans have difficulty meeting the requirements to get a credit card or take out collateralized loans. With minimal approval requirements that are easier to meet-often just a bank account statement, a pay stub, and a photo ID-payday lenders offer short-term, uncollateralized loans. These loans are advances against a future paycheck, typically about $100-$500 per loan, and customers usually owe a fee of around $15 per $100 borrowed for two weeks.

Consumer advocates oppose these terms for two reasons. First, they argue the terms are onerous. They convert the loan terms into an annual percentage rate (APR) that would be disclosed by a conventional credit-card issuer, and the result is 391 percent. This number shocks the sensibilities of the average person and easily leads to the conclusion that the payday lender is ripping off the consumer. Read more at Cato Institute

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Bank Mergers Are Happening Faster Under the Trump Administration, But is That a Good Thing?

Bank mergers are occurring faster under the Trump administration, but that might not be the best news.

Mergers are moving quicker because federal regulators have changed some of the policies that deterred deals after the financial crisis, The Wall Street Journal reports.

Critics say that the mergers are not getting their due level of scrutiny and that some mergers could potentially hurt competition and make banks less available to those in rural areas.

Democratic presidential hopeful and Massachusetts Sen. Elizabeth Warren sent a letter to Fed Chairman Jerome Powell last week saying the "anemic scrutiny of applications for mergers and acquisitions raises concerns that [it] may oversee a wave of bank consolidation to the detriment of consumers and the financial system."

Typically bank mergers are reviewed by both the Federal Reserve and Office of the Comptroller of the Currency. Those reviews can often take a long period of time for mergers that involve stocks. When those reviews take a long period of time, the market can potentially move and make the deal less beneficial for one of the companies, prompting them to back out.
Read more at FORTUNE

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Cybersecurity for small business: Hiring a web host. Federal Trade Commission

Your website is the online face of your business. Some companies have the in-house capability to manage their web presence. Others hire a web host to handle it for them. When launching a new business or upgrading their site, savvy business owners comparison shop for web hosting services. At the top of your shopping list should be the security features built into what you're buying.

In our meetings with small business owners across the country, you asked for more advice on selecting a security-conscious web host. As part of our cybersecurity initiative for small business, the FTC has suggestions about what to look for and what to ask when hiring a web host.

Transport Layer Security (TLS). The service you choose should include TLS, which will help protect your customers' privacy. TLS helps make sure people looking for your business online reach your real website when they type your URL into the address bar. When TLS is up and running on your site, your URL will begin with https. TLS also helps make sure the information sent to your site is encrypted - an important feature if you ask customers for sensitive data like passwords or credit card numbers. Read more at Federal Trade Commission

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Mexico pushes mobile payments to help unbanked consumers ditch cash

MEXICO CITY/NEW YORK (Reuters) - Mexico's new leftist government is betting on financial technology to help lift people out of poverty.

The administration of President Andres Manuel Lopez Obrador recently announced measures aimed at making financial services more affordable in a nation where more than half the population is unbanked.

It is planning a digital payments system run and built by the central bank that will allow Mexicans to make and receive payments through their smartphones free of charge. A pilot roll-out for the platform, known as CoDi, is expected by March.

"In the future, it will no longer be necessary to have a bank in the sense of a traditional, established bank," said Arturo Herrera, Mexico's deputy finance minister. "Mobile phones will become banks."

Phone-based banking has proven a hit among the poor in other emerging markets such as China, India and Kenya. Those efforts have been driven by private sector companies that offer user-friendly, affordable apps. Read more at REUTERS

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2019 Predictions: Consumer Credit, Balance and Delinquency Rates

At the end of the year, lenders have an opportunity to review their portfolios, consider economic indicators, and understand changes in consumer credit. To help lenders prepare for 2019, we shared our annual consumer credit forecast for the auto, credit card, mortgage and personal loan markets in a recent webinar.

The forecast considers various economic factors - such as gross domestic product, home prices, personal disposable income and unemployment rates - to predict consumer debt and serious delinquency rates. Partly due to the strong performance of these economic indicators, we expect originations and consumer balances to increase for most credit products.

Looking at delinquency rates, we forecast delinquency rates to remain at either low or 'normal' levels as lenders have confidence to add slightly more risk to their portfolios. We anticipate lenders will continue to manage risk exposure through loan amount and line management strategies in 2019.

As we prepare for 2019, here are our five predictions for auto, credit card, mortgage and personal loans:

1. The percent of loans originated to subprime borrowers expected to mostly rise
Since 2017, lenders have deliberately offered more credit to subprime borrowers. We expect this trend to continue in 2019, but an increase in subprime borrowers should not be worrisome at this time. The percentage of subprime borrowers originating loans remains far below the onset of the last recession. Read more at TRANSUNION

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.

Payday lenders just scored a win in Washington - will they try again in Pennsylvania? by John L. Micek

So, here's another reminder that, when it comes to the Trump administration, it's more important to watch what the White House does, rather than what it says.

The payday lending industry scored a huge win this week when the U.S. Consumer Financial Protection Bureau proposed to weaken Obama-administration rules governing an industry that makes its money by exploiting people in desperate financial straits.

That's pretty much the exact opposite of what the agency was created to do. But, hey, this is Donald Trump's Washington.

If you don't know what one is, payday loans, sometimes known as paycheck advances, are short-term loans that you have to repay by the time you get your next paycheck.

As Mic reports, lenders charge prospective borrowers, who usually can't get a loan anywhere else, a fee plus punitive interest.

Though they offer the lure of quick cash, the loans are really a debt trap.

According to research by The Center for Responsible Lending, the APR offered by some payday lenders can range from a crushing 533 percent to 792 percent.
Read more at Pennsylvania Capital-Star

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The New Way to Deregulate

Offering exemptions from many consumer protection rules is meant to spur fintech innovation, but it could lead to abuse.

Sandboxes are the hot trend in financial regulation. Or rather, deregulation. China, Singapore, Australia, Canada, and more than 20 other countries have them. U.S. regulatory agencies are starting them. Arizona has one, and other states may follow suit.

Sandbox programs are supposed to be a kind of safe space to allow digital entrepreneurs to test products without regulators breathing down their necks. Governments are willing to stay their regulatory hand because the startups that emerge from such experiments might lead to new jobs and expanded access to financial services. They also provide competition to big banks. There's even a sandbox for sandboxes: Regulators in 12 countries have agreed to experiment with financial technology across borders.

But as sandbox initiatives proliferate, critics worry that the concept has become a covert effort to neuter consumer protection laws. "Why allow companies that aren't ready to provide financial services to the public to be permitted to do so?" says Maria Vullo, who on Feb. 1 stepped down as superintendent of New York's Department of Financial Services, the state's top financial watchdog. Lauren Saunders, associate director of the National Consumer Law Center, says the movement "has taken a wrong turn in this deregulatory era" under President Trump. In the U.S., she says, sandboxes aren't "framed as a way to help companies comply with the laws, but to get relief from the laws." Read more at BLOOMBERG

Alternative Credit Reporting

How High-Interest Loans to Desperate People Built a $90 Billion Industry

During the recent government shutdown, U.S. Secretary of Commerce Wilbur Ross wondered aloud why financially stressed federal workers didn't just "get a loan."

A wealthy private equity investor, Ross faced excoriation. But the underlying question remains, even with a second shutdown less likely to occur. For Americans with limited options and desperate for cash, this is where consumer lenders such as Enova International Inc., Curo Group Holdings Corp. and Elevate Credit Inc. step in.

They're part of a growing industry of online companies which specialize in risky borrowers. Enova, for example, offers loans with interest rates ranging from 34 to 450 percent, depending on the amount, date of maturity and borrower's credit score, according to its website. The expectation for the priciest kind of short-term borrowing, the "payday loan" of storefront fame, is that you will pay it back when your paycheck clears. Still, one could be forgiven for wondering how such sky high rates exist at all.

"Having no access to credit is worse for consumers," said Mary Jackson, chief executive of the Online Lenders Alliance, a lobbying group that represents fintech lenders. She said high interest, high-risk loans have a widely known parallel-the bridge loan-which struggling homebuyers sometimes use to close a deal. "Most of these loans would be considered bridge loans-for major car repairs and plumbing leaks." Read more at FORTUNE

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Total Household Debt Rises as 2018 Marks the Ninth Year of Annual Growth in New Auto Loans

Auto Loan Balances Continue Rising; Younger Borrowers Struggle With Auto Debt Delinquencies

NEW YORK-The Federal Reserve Bank of New York's Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit, which shows that total household debt increased by $32 billion (0.2%) to $13.54 trillion in the fourth quarter of 2018. It was the 18th consecutive quarter with an increase and the total is now $869 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008. Furthermore, overall household debt is now 21.4% above the post-financial-crisis trough reached during the second quarter of 2013. The Report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.

The New York Fed also issued an accompanying blog post, which examines trends in auto loan debt performance by borrowers' credit scores, age, and lender type.

"Auto loan originations for 2018 reached an all-time high in our dataset and the growth has been driven by creditworthy individuals. Despite auto debt's increasing quality, its performance has been slowly worsening," said Joelle Scally, Administrator of the Center for Microeconomic Data at the New York Fed. "Growing delinquencies among subprime borrowers are responsible for this deteriorating performance, and younger borrowers are struggling most acutely to afford their auto loans."
Read more at Federal Reserve Bank of New York

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Federal Trade Commission Enforcement Actions Yield More than $2.3 Billion in Refunds to Consumers between July 1, 2017 and June 30, 2018

Total amount refunded to consumers is nearly eight times the agency's fiscal year 2018 budget

According to a report issued by the Federal Trade Commission today, between July 1, 2017 and June 30, 2018, the agency's law enforcement actions yielded more than $2.3 billion in refunds to defrauded consumers, including $122 million mailed directly by the FTC to 2.2 million people.

The total amount returned to consumers, which includes refunds distributed by defendants as a result of FTC actions against them, was almost eight times more than the Commission's entire budget for fiscal year 2018.

The 2018 Annual Report on Refunds to Consumers is the second annual report on money returned to defrauded consumers, and was issued by the FTC's Office of Claims and Refunds. During the period covered by the report, the FTC mailed checks in more than 38 cases, and more than two-thirds of those checks were cashed by consumers. In some cases, the Commission was able to administer additional mailings using money left over from uncashed checks. Administrative costs associated with mailing refunds accounted for five percent of the money collected in these cases.

The annual report outlines the process for identifying eligible refund recipients, determining how the money will be divided, mailing checks, updating names and addresses as needed, considering whether additional mailing are feasible, and sending any remaining money to the U.S. Treasury -- $12.5 million between July 1, 2017 and June 30, 2018.
Read more at Federal Trade Commission

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Treasury official doubts fintech needs payment system overhaul

A senior Treasury Department official is challenging the idea that rapidly evolving financial technology will require a sweeping overhaul of rules governing payment services and the electronic transfer of funds between consumers, banks, merchants and others.

In a recent analysis, Matt Swinehart, a senior counsel at Treasury, said a massive "regulatory rethink" of payment services won't be required because many rules and standards governing payments are what he called technology neutral. The analysis appeared on a blog about the intersection between financial technology and government policy. Swinehart and the Treasury Department declined an interview request about his statements.

According to Swinehart, government oversight of payment services is meant to protect consumers, enforce laws and keep the financial system stable. Regulators' approach to these goals doesn't depend on what technology is used to make payments, meaning that regulation is more "durable in the face of financial change than the conventional wisdom would predict," he said.
Read more at ROLL CALL

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

Millennials are alarmingly late on car payments

A record seven million Americans are more than 90 days late on their auto loan payments, and millennials are clearly leading delinquency rates, according to a report by the New York Fed.

The NY Fed found that the number of new auto loans and leases appearing on credit reports in 2018 reached a new peak - the highest level in the 19 years they have monitored the data - at $584 billion.

Looking at the number of auto loans in serious delinquency, the researchers noted that there was a "sharp worsening in the performance of the loans held by borrowers under 30 years old between 2014 and 2016."

And as seen in the graph below, borrowers between the ages of 18 and 39 - Pew Research identifies millennials as anyone born between 1981 and 1996 (ages 23 to 38 in 2019) - have the worst delinquency rates as compared to other demographics.

The researchers said that overall, the end of 2018 saw "more than a million more troubled borrowers than there had been at the end of 2010," when the overall delinquency rates were at their worst on record. Auto loans have also surged by almost 35 percent since the Great Recession according to additional data. Read more at YAHOO FINANCE

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5 Ways Companies are Keeping Employees Happy

For years, many American businesses have provided wellness programs dedicated to encouraging employees to improve their physical health and fitness. But a new work culture is emerging, as employers recognize the need to focus on the overall well-being of their associates in order to keep them at a company.

Recruitment is expensive, and an emphasis on retaining top talent through efforts to support their well-being can lead to a significant reduction in these costs. A recent Staying@Work survey revealed that within the next year, 64 percent of employers would adopt programs to address the overall wellness needs of employees in five areas:

1. Financial: Nearly 75 percent of people worry about their finances at least some of the time, reports the American Psychological Association. Concerns about house and car payments, child care and daily living expenses, and student loan debt can affect an employee's work performance. The World Health Organization calculates that financial stress costs employers $300 billion each year in missed work and lost productivity.

To address these concerns, nearly 84 percent of employers provide financial wellness programs, offering services like counseling to set up and maintain family budgets. However, only 4 percent of employers provide loan repayment assistance, such as the BenefitEd program, making this a benefit that would help many employers stand out from their competitors when vying for talented employees. With BenefitEd, employers can easily set up a monthly, quarterly or annual contribution, or matching payments, toward employees' student loans. Employers may provide BenefitEd for specific positions or to employees meeting certain criteria. Some employers are using BenefitEd's platform to let their employees take advantage of match dollars that have traditionally only been used for retirement. Read more at Imperial Beach Eagle & Times


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