February 26, 2019
Lending as a Service

Why Bans Will Not Encourage "Responsible Innovation"

Two recent announcements by the Consumer Financial Protection Bureau have proponents of increased financial regulation up in arms.

The first is the Bureau's expansion of its no-action letter policy to include a regulatory sandbox. A sandbox is a program which allows firms to offer new products under a modified regulatory regime and with oversight from financial regulators. No-action letters, for their part, are assurances from a regulator that it will not take adverse actions in response to a specific new practice by a regulated firm. Neither policy heralds the advent of a regulatory Wild West.

The second announcement involved changes to the CFPB's payday lending rule, which in its original form (published in 2017) would have made most high-cost short-term lending of this kind unprofitable, reducing loan volumes by more than 65 percent. The Bureau's modified rule removes an underwriting provision that would have made it very difficult for borrowers to access short-term credit, as they currently do in the 33 states where payday lending is legal. The Bureau has re-considered the costs and benefits of this provision, finding that the loss of access to credit would not be sufficiently offset by an increase in borrower well-being. This finding is bolstered by the fact that Professor Ronald Mann, author of an academic study on which the CFPB heavily relied in its original rule, strongly disavowed the Bureau's use of his work. Read more at Cato Institute

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CFPB makes historic move to support payday lenders

Each February, Black History Month commemorates the unique American experience of Blacks in America. This year marks the 400th anniversary of the Jamestown, Virginia arrival of captured and shackled Africans.

In the ensuing years, as slavery grew, so did the wealth of those who claimed our forefathers as "property." By April 1861, the wealth built on slave labor was forcefully protected with the Battle of Fort Sumter, considered by historians to be the start of the Civil War, which lasted until 1865.

Slavery's iron shackles that bound women, children and men may be gone. But in today's America, the iron has been replaced by a different kind of shackle, just as debilitating as iron: predatory debt.

Abundant research has shown that payday and car-title lenders trap people in incapacitating debt that can trigger a series of negative consequences: overdraft fees, the loss of a bank account, loss of personal assets and even bankruptcy. People struggling to repay these loans have been reported to forego daily living neccessities or needed medical treatments.

So it is indeed troubling that in 2019, under the Trump Administration, the federal agency with a designated mission to provide consumer financial protection recently made an about-face in order to protect predatory lenders instead of consumers. Kathy Kraninger, director of the Consumer Financial Protection Bureau (CFPB), announced the agency's plan to repeal a rule aimed at stopping the payday lending debt trap. Read more at The Philadelphia Sunday

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3 Questions: Prof. Paul Goldsmith-Pinkham on Payday Loans and Consumer Protection

On February 6, the director of the Consumer Financial Protection Bureau (CFPB), Kathy Kraninger, announced a major change to payday lending rules. The move weakened protections instituted by the Obama administration by no longer requiring lenders to confirm a borrower's ability to repay before making a loan. Critics fear the change will lead more consumers to get ensnared in loans they can never pay off, while proponents suggest it will unshackle the lending industry. We asked Yale SOM economics professor Paul Goldsmith-Pinkham about what this change might mean to financially strapped Americans.

What role do payday lenders play in the financial lives of lower-income Americans?

Payday lenders provide credit by holding customers' personal checks for a few weeks, and providing liquidity in the absence of other sources of traditional credit (e.g., credit cards). Research seems to find that consumers who find it particularly difficult to access traditional sources of credit are more likely to apply for payday loans. This may be for reasons beyond poor repayment history-they may just lack any credit history, or much formal lending. (See Morgan, Strain, and Seblani, 2012 and Bhutta, Skiba, and Tobacman, 2015.)

Will the changes to payday-loan regulations lead to borrowers getting trapped in debt, as some consumer advocates claim, or affect the availability of credit to low-income borrowers, as industry groups claim?

The answer is probably "it depends." The research on this topic finds conflicting evidence of the impact of payday loans. There are a variety of reasons for this, but it's probably due to heterogeneity in the usage of payday lending. Read more at YALE INSIGHTS

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States, consumer groups blast CFPB's fintech protections

But financial industry groups are rallying behind bureau's plan

State attorneys general, consumer advocates, community activists, and banking regulators are criticizing proposed legal protections for banks and technology firms that develop "innovative" financial products.

The protections would come from the Consumer Financial Protection Bureau, which in December unveiled what it calls a "regulatory sandbox" that will allow firms to develop untested fintech products and services without fear of reprisals from regulators. While the criticism rolls in, financial industry groups are rallying behind the plan, even asking the CFPB to expand the legal safe havens.

The critics include 22 Democratic state attorneys general, 77 consumer and community groups, and the Conference of State Bank Supervisors. Last week, they sent disapproving comment letters to the CFPB over the bureau's plans to expand its "no-action letter" policies, in one case calling the plans a "Sahara desert parched of consumer protections." Read more at ROLL CALL

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INDIANA: New loan options weighed for those with xxx credit history

INDIANAPOLIS- A Senate committee voted 8-2 Thursday for a bill that adds new short-term installment loans for people with xxx credit history and those with low incomes facing financial stress.

Opponents, though, argued that what is being sold as a helping hand to borrowers are just risky loans that come with interest rates that are still too steep.

Sen. Andy Zay, the Huntington Republican who authored the bill, surprised those following this issue by filing a 70-page amended version of the bill late Wednesday, the day before the bill was heard in the Senate Commerce and Technology Committee.

"Most of the opponents of the bill didn't even get access to the bill till this morning," complained Sen. Mark Stoops, D-Bloomington. "Even legislators that were on the committee didn't even have access to the bill until late afternoon yesterday."

Zay said the payday loan industry needs more regulation in Indiana.

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What's the Average U.S. Credit Card Debt by Income and Age in 2019?

Credit card debt can be a silent household budget killer. Get the upper hand with credit card debt with some smart usage and payment strategies.

Credit card debt is high and getting higher, as Americans are growing more lax about accumulating credit card debt.

According to data from, the average individual credit card debt stands at $5,331 in 2019. Additionally, on a monthly basis, most Americans don't pay their credit card balance in full every month - 55% don't regularly pay in full.

What Is the Average Credit Card Debt in the U.S?
Here's a closer look at how credit card debt stacks up demographically (specifically in age and income) across the U.S. (data from Value Penguin's Average Credit Card Debt in America: February 2019).

Average Credit Card Debt by Age
First up is the average credit card debt by age. Notice how plastic-related debt starts out low and moves up, and tops out, and 45 to 54 years. Those are peak earning years for credit card consumers, and they can better afford the higher level of debt.

Credit card debt then slows down as Americans shift into retirement mode, with average debt declining from $9,096 at ages 45 to 54 to $5,638 at age 75 and over. At that point, retired Americans are living in fixed income mode, and spend significantly less using their credit cards.
Read more at THE STREET

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States Strengthened Fiscal Policies in 2018. PEW TRUSTS

More seek to improve incentive programs, reform rainy day funds, and support local governments

In March, Utah Governor Gary Herbert (R) signed a measure that requires the state to regularly conduct comprehensive budget stress tests and produce long-term spending plans that allow leaders to consider the future implications of current budget decisions.

House Bill 452, which received unanimous support in the Legislature, bolstered Utah's reputation as a national leader in fiscal management. Since 2008, the state has conducted regular analyses of revenue volatility that are used to inform reserve fund targets. The new law requires the generation of additional information on fiscal conditions and will enable policymakers to better anticipate potential shortfalls and avoid sudden adjustments to tax rates or program funding.

Utah was not alone in its efforts to strengthen state fiscal protections in 2018. Several other states also moved to enact policies to better prepare them for future ups and downs and to boost confidence that they are spending taxpayer dollars effectively.

Improving state tax incentive programs
Massachusetts took steps to evaluate whether government incentive programs were yielding the intended results. Like other states, Massachusetts commits millions of dollars to tax incentive programs, hoping to create jobs, attract businesses, and strengthen local economies. Whether these investments produce results is often an open question.
Read more at Pew Charitable Trusts

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New Study Finds College Debt Isn't Just Impacting Millennials

Student loan debt is keeping millennials and baby boomers from reaching financial goals, a new study shows. According to the Guardian's 6th Annual Workplace Benefits Study, seven in 10 working U.S. adults with college debt find their finances to be a major source of stress.

In their study, Guardian Life Insurance analyzed college debt's impact on workforce well-being and the growing interest in college education benefits in light of the nation's total student loan debt of $1.5 trillion.

Researchers found that few working Americans feel they're making progress in paying off their loan debt. Few also feel they've made progress saving for their children's college education in the last two years.

As a result, seven in 10 parents say they plan to use some of their investments and retirement savings to pay for their children's college education.

College tuition costs have soared over the last few decades, rising faster than wages and inflation. But it isn't just millennials who are being buried alive under student loan debt. Baby boomer college debt has also been growing. Read more at The LaFayette Sun

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OHIO: Federal change in payday lending restrictions won't undermine Ohio law

WASHINGTON, D.C. - A Trump administration drive to relax regulations on payday lenders won't put the brakes on Ohio's newly adopted protections for payday lending customers, though it will reduce the protections Ohio consumers receive under federal law.

Payday lending regulations that Ohio adopted last year are more stringent, in many respects, than rules that the Consumer Financial Protection Bureau (CFPB) adopted in 2017 to keep low-income borrowers from being trapped in a cycle of debt, says former CFPB director Richard Cordray.

"Those measures will go forward regardless of what happens at the federal level," says Cordray, A Democrat who left the CFPB to unsuccessfully run for Ohio governor shortly after the federal payday lending rules he endorsed were finalized. "Our CFPB set up a federal floor and did not interfere with states doing more."

Danielle Sydnor, who heads the NAACP's Cleveland branch, views payday lending as a "necessary evil" that provides small short-term loans to individuals with thin credit who lack savings to pay for emergencies like car repairs. But she says the loans historically trapped customers in a cycle of debt. Read more at CLEVELAND.COM

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How will CFPB's payday rule changes affect Credit Unions?

The CFPB has issued two proposals related to its 2017 payday lending rule: One to remove mandatory underwriting requirements - including ability-to-repay (ATR) provisions - and one to delay the rule's implementation date by 15 months, to Nov. 19, 2020. NAFCU is seeking credit unions' feedback on how these changes would impact the industry and what other revisions the bureau should consider.

NAFCU sent two Regulatory Alerts to members Thursday covering each of the proposals.

In the Regulatory Alert for the proposal to rescind mandatory underwriting requirements, NAFCU notes that the current safe harbor for NCUA's payday alternative loans would be retained. The proposed rule retains the payments provisions, as well as the requirement of lenders to have a compliance program in place. The association would like to know if:

ATR provisions should be rescinded;
credit unions would be more likely to offer small-dollar loans that are considered "covered loans" under the payday rule; Read more at NAFCU

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FinTechs Continue to Drive Personal Loan Growth

Q4 2018 TransUnion Industry Insights Report features latest consumer credit trends
The FinTech revolution has propelled unsecured personal loans to another record-breaking quarter. TransUnion's (NYSE: TRU) Q4 2018 Industry Insights Report found that personal loan balances increased $21 billion in the last year to close 2018 at a record high of $138 billion. Much of this growth was driven by online loans originated by FinTechs.

FinTech loans now comprise 38% of all unsecured personal loan balances, the largest market share compared to banks, credit unions and traditional finance companies. Five years ago, FinTechs accounted for just 5% of outstanding balances. As a result of FinTech entry to the market, bank balance share decreased to 28% from 40% in 2013, while credit union share has declined from 31% to 21% during this time.

TransUnion also found that FinTechs are competitive with banks, with both lenders issuing loans averaging in the $10,000 range, compared to $5,300 for credit unions. Across all risk tiers and lender types, the average unsecured personal loan debt per borrower was $8,402 as of Q4 2018.
Read more at TRANSUNION

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Fiscal 50: State Trends and Analysis. See Where Tax Revenue Is Growing. PEW TRUSTS

State Tax Revenue Makes Biggest Gains in Seven Years

State tax revenue rose sharply in mid-2018 for the third quarter in a row, closing out most states' budget years with the second-strongest stretch of growth since the Great Recession. At least some of the gains, though, are expected to be temporary. As of the second quarter of 2018, tax collections in 36 states were higher than before receipts plunged in the downturn, after accounting for inflation. Read more below.

The spike resulted in a turnaround year for many states after they had slogged through the weakest two years of tax revenue growth-outside of a recession-in at least 30 years. Starting in late 2017, the surge propelled total state tax collections to 12.2 percent above the peak recorded in 2008.

The results mean that states collectively had the equivalent of 12.2 cents more in purchasing power in the second quarter of 2018 for every $1 they collected at their recession-era peak, after adjusting for inflation and averaging across four quarters to smooth seasonal fluctuations.

Revenue collections were boosted by favorable economic conditions, robust stock market returns in 2017 and the first half of 2018, and state policy actions. At least a portion of the growth also was due to short-lived effects on state tax revenue from the federal Tax Cuts and Jobs Act.
Read more at Pew Charitable Trusts

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