July 9, 2019

VIRGINIA: Online lender can charge 600% interest in Virginia because of ties to Indian tribe, court rules

The online lender Big Picture Loans can legally charge Virginians interest rates approaching 650%, a federal appeals court has ruled.

The U.S. Court of Appeals for the 4th Circuit held that the firm set up by a long-time operator in the payday loan business, Matt Martorello, was exempt from Virginia regulation of interest rates and fees because it operated under the laws of the Lac Vieux Desert Band of Lake Superior Chippewa Indians.

Under longstanding U.S. law, arms of a tribal government are immune from challenges in federal or state courts.

The appeals court rejected a lower court ruling that the real purpose of the loan company was to enrich the operator and that the Michigan-based tribe's return from the venture was too low to make it a real part of the tribal government.

The court held the income the tribe received made the loan business an essential element of tribal government. That income was 2% to 3% of loan revenue, which amounted to nearly $5 million or about a quarter of what Martorello's operating company received at the time borrowers sued to nullify their IOUs, the court said in an opinion written by chief judge Roger Gregory.
Read more at PILOTONLINE

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If you hate payday loans, come up with a better system. by Tim Worstall

It might seem a little odd to advise a closer attention to Maoist philosophy to an organization already as left-wing as the Center for Responsible Lending - who would ban payday loans just because they think people shouldn't get what the people want. Following their response to a column of mine seems necessary.

P.J. O'Rouke's telling of the tale is slightly rude, so I'll paraphrase: The way to get people to do something is to make it the best of their available options. The way to stop them from doing something is to offer them a better such option.

The cat bites the hot pepper we've made when not biting it is a much more unappealing option.

Translated into an annual percentage rate, these can apparently cost 400% and higher. This is obviously ghastly usury and financial trickery. But annual percentage rate isn't a good way of measuring short term credit. That offering such a small sum and short term credit, as I originally noted, costs over 200% APR to provide without any profit or even profit motive is also true. But, OK, this is a moral outrage, we wish it to disappear from our fair land.

Great. How do we do that? Ban people from charging what such loans cost to provide? That is the Center for Responsible Lending's answer, yes. Being the cynic - perhaps just experienced in the ways of men - that I am I would note this only stops the people who obey the law. Those who collect money with baseball bats might not take much notice and even welcome the increase in business. Read more at WASHINGTON EXAMINER

The Community Financial Services Association of America (CFSA)

CALIFORNIA: Loan interest caps take credit away from the poor

This week the California state Senate will debate Assembly Bill 539, a bill that would make half of consumer loans between $2,500 and $10,000 made in the state illegal. The bill's aim is to lower the cost of consumer credit, but history shows that interest-rate caps like the one AB539 would institute only work to reduce the supply of loans, especially to the most vulnerable.

The Golden State already has one of the most draconian payday loan laws in the Union: Borrowers may borrow at most $300 ($255 once fees are discounted) and they cannot roll over the loan at the end of its term. Loans between $300 and $2,500 may only happen under a special-purpose pilot program which in 2017 attracted a mere 16 participating lenders. As a result, there are fewer loans made under $2,500 than between $2,500 and $4,999. Furthermore, 57 percent of people who apply for credit under the pilot program are rejected.

The more than 2 million (17.6 percent of) California households who, according to the Federal Deposit Insurance Corporation, currently lack access to bank credit face very limited options for short-term borrowing. AB539 would only make the problem worse, by capping the annual interest rate on loans between $2,500 and $10,000 at 36 percent plus the Fed interest rate target, currently 2.4 percent.

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Postal banking, an idea whose time should never come. by Rep. Ted Budd and Tom Schatz

The United States Postal Service has lost $69 billion over the past 11 years and has $143 billion in unfunded liabilities. Its financial performance has not exactly been inspirational.

Yet some members of Congress, including those senators also running for president, such as Kirsten Gillibrand of New York, Bernie Sanders of Vermont, and Elizabeth Warren of Massachusetts, are still talking about expanding the scope and mission of the USPS to include banking services. It makes no sense for an agency that is so deep in debt to be given the responsibility to handle anyone else's money.

The president's postal service task force concluded that an agency with such limited expertise and capital should not expand into any new business, such as postal banking, where it does not have either competence or advantage, or where there is a risk of additional financial exposure. When the USPS inspector general suggested in January 2014 that the agency could provide financial services, the USPS responded by noting that its "core function is delivery, not banking." A postal bank would hurt consumers and taxpayers by undercutting well-regulated, private financial intuitions and undermining the fundamental role of the postal service.

Lending as a Service

The Advantages of Using Non-Credentialed Bank Account Ownership Verification

Successfully verifying the ownership of an applicant's bank account is crucial to mitigating fraud in your underwriting process. However, the problem that currently exists for financial service providers is creating a frictionless experience for their applicants. We will discuss the methods currently available and the advantages of using a non-credentialed, automated process.

Several options currently exist for verifying bank account ownership, including the use of physical bank statements, manual three-way bank calls and bank aggregation services. Though these methods all provide some level of confidence that the bank account supplied belongs to the applicant, they create friction and significant drawbacks.

Physical Bank Statements

The use of physical bank statements causes friction for consumers and opens the door for fraudsters. With the shift from brick and mortar to online lending, the convenience for an applicant to simply provide a paper copy of their bank statements is lost. Online lending requires applicants to locate a scanner and upload the document. This process can take minutes, hours, or days to complete. Once the applicant successfully uploads their statements, the opportunity for fraudulent behavior is presented. Using computer software to alter the statements to change the owner, balance, etc. is a common trend in the financial industry. Obtaining these types of doctoring services is as simple as searching the internet. Read more at VALIDIFI

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ARIZONA: High-interest car title loans would be banned in Arizona under ballot proposal

Signature gatherers are starting to fan out across Arizona in an effort to curb a type of high-interest lending in the state.

Roughly 20 community groups on Tuesday kicked off a drive to qualify a measure that would curtail auto-title loans that feature high interest rates and, critics say, trap borrowers in a debt cycle.

The year-long effort supporting the Arizona Fair Lending Act seeks to gather more than 237,000 signatures to place the measure on the November 2020 ballot. It comes 11 years after Arizonans defeated Proposition 200, which would have extended payday lending indefinitely. An enabling law expired two years later, ending payday loans here.

"We thought we had taken care of (predatory lending) in 2008," said state Sen. Lela Alston, a Phoenix Democrat who spoke at the kickoff rally across the street from a LoanMax title-loan store at 15th Avenue and McDowell Road, in her district.
Read more at AZCENTRAL

Alt Data is the key to compete effectively

Two Truths and a Lie: Payday Loans

Everyone loves the party game/icebreaker "two truths and a lie."

Can you identify which of the following is NOT true about short-term, high-interest loans?

A. Banning short-term loans, often called payday loans, will benefit poor people who are exploited by these lenders.
B. A pay day loan is sometimes the appropriate choice for some borrowers.
C. A short-term loan can bail a conscientious borrower out of a jam set her on a path to a better financial future.

A: Lie
Well-intended people, nonprofits, and legislators have long wanted to find a way to eliminate the short-term, high-interest loans known as payday loans.

Many short-term borrowers, however, would be seriously harmed by the loss of this resource.

In 2008 a New York Federal Reserve study compared how households managed in two states that allow payday loans and two that don't. The Wall Street Journal explained what the study found:

Redefining how financial service businesses measure risk and process payments.

Feds propose new limits on debt collectors

Consumer groups say rules not tough enough to curb abusive practices

Clara Gladue lay in a coma while thousands of dollars of her family's credit card bills piled up.
Roughly four months later, when she woke up from the coma, the Georgia nurse practitioner was greeted with the news that the debt had grown to more than $12,000 and that her husband, a professor in Augusta, had been sued by an Atlanta-based debt collection law firm."When somebody is laying there in a coma and can't pay their bills, everything should stop,'' Clara Gladue said.

Her husband quickly entered a settlement agreement and began making the payments as agreed upon. But 20 days before the final payment was due, the debt collector filed a motion for a default judgment for the full amount of the debt, court documents show.

A battle is now raging in Washington, D.C. over ways that Georgia consumers like the Gladues can be better protected from contentious lawsuits by debt collection firms. Federal law already prohibits consumers from repeated phone calls and threats, but there are fewer protections that ensure lawsuits against consumers are based on accurate information about the debts they owe.

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CFPB News: Kraninger Steers an Independent Path. Manatt, Phelps & Phillips, LLP.

CFPB Director Kathy Kraninger continues to chart her own course. CFPB developments include its settlement with a student loan management company, a public hearing on "abusive acts or practices, " and updated guidance on payday lending. Meanwhile, court developments (on constitutionality, with a new CFPB amicus filing) continued to make news.

What happened
Student Lending Enforcement Action -- According to the Bureau's complaint filed in Indiana federal court, a student loan management company - created in 2008 to fund, purchase, manage and hold private loans for students at a private, for-profit school - engaged in unfair acts and practices in violation of the Consumer Financial Protection Act (CFPA).

The CFPB filed suit against the school in 2014 for violations of the CFPA as well as the Truth in Lending Act; two years later, the school ceased operations and filed for bankruptcy.

But the Bureau continued to pursue the student loan management company, alleging that it was "actively involved" in the creation and implementation of the school's loan program. The defendant raised money for the loan program, ratified the loan criteria and oversaw the origination and servicing of the loans, the CFPB said.
Read more at Manatt, Phelps & Phillips, LLP.

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Robocalls are not only annoying - there's an entire dirty industry behind them, FTC reveals

The FTC announced last week a crackdown on robo-callers, giving one of the clearest pictures yet of the people and organizations behind the avalanche of nuisance phone calls to consumers.

The actions are important because they draw the connection between robocalls, which may seem like mere annoyances, to the fraudulent organizations or illegal mass-calling schemes behind them.

"We have a strong robocalling enforcement program, which is meant to protect wider consumers from abuse and abusive calls," said Ian Barlow, program coordinator for the Federal Trade Commission's Do Not Call program.

The most recent FTC action drilled down into organizations that tried to push fake products or multi-level marketing schemes, and those that sold real products but marketed them in illegal ways.

Here's what they found out. Read more at CNBC

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One-third of Americans have cut their spending this year, and some fear a recession is coming

Money may have potential, but there are only so many things you can do with a dollar.

Spend it. Save it. Donate it. Invest it.

Mostly we seem to want to spend it. Or do we?

Contrary to what you might think, the real minority is spenders. That's good news, since some people save so they can invest for their future financial stability.

At least, when answering questions for the Invest in You Spending Survey, more people described themselves as savers, at 54%. The national survey of 2,800 Americans was conducted June 17-20 by CNBC + Acorns in partnership with SurveyMonkey.

A diverse group of men and women were polled across the country, ranging in ages from 18 to over 65, on their money habits. The survey also looked at changes in people's money behaviors.
Read more at CNBC

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

Will Income-Share Agreements Be the Next Payday Loans?

Policymakers need to pay attention to the deregulation of these student loan-type products happening in Indiana.

This week, Indiana's Uniform Consumer Credit Code will be amended to exempt state higher-education institutions from having to comply with key consumer protections. The change is so subtle that it has not drawn much attention, but it has huge implications for Indiana students who sign up for "income-share agreements" (ISAs). These contracts commit a student to pledging a proportion of future income in exchange for money to pay for college. Schools like Purdue University, and the private lenders and investors that it partners with, will no longer be required to comply with many of the rules that apply to other lenders in Indiana.

People outside of Indiana should pay attention, too. Former Indiana Republican Governor Mitch Daniels, now president at Purdue, has been an enthusiastic backer of income-share agreements, and has advocated to Congress for their widespread adoption. And income-share agreement advocates, including Daniels, are pushing similar rollbacks of consumer protections at the federal level and in states across the nation.

They are using a familiar playbook: Just like payday loans, auto title loans, and other "alternative debt products" unveiled before them, ISA lenders are creating debt instruments and then convincing policymakers to roll back the rules that keep consumers safe from exploitation, based on immaterial or specious distinctions between their product and traditional loans. Lawmakers should heed the mistakes made in other areas of predatory lending before rushing to replace existing consumer laws covering ISAs with industry-friendly rules.

Alternative Credit Reporting

What Merchants Need to Know about Real-Time Payments

Everything in the technology world seems to be getting faster, and the payments industry isn't immune to the trend.

In recent months, the desire for faster or even real-time payments has been a hot topic in the industry. Last fall, new rules expanded same-day Automated Clearing House (ACH) capabilities, which enable electronic payments to be debited directly from a customer's account. In addition, at the end of 2018, Walmart and Target asked the Federal Reserve to implement a solution to help merchants get paid faster.

This corner of the payments ecosystem is rapidly evolving as innovations in real-time payments enable businesses to leverage these types of payments to their advantage.

The origination of real-time payments
Real-time payments, also known as faster payments, have been described by the U.S. Faster Payments Council as payments in which the transmission of the payment message and the availability of final funds to the payee occur in real time or near-real time.


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