July 7, 2022
Paving the Payments Future
Millions turning to family and friends for financial help

InvestigateTV - More than 25 million people relied on loans from those close to them to meet spending needs, according to the Census Bureau’s latest household pulse survey on finances. That figure is up from 19.1 million people from the same time last year.

Kaben Clauson, the CEO of Pigeon Loans, said a big reason could be that a third of all Americans are in a group called “credit invisible”. The “credit invisible” either have no real credit history or have a credit score that’s been damaged, and they can’t get a favorable rate.

“The Americans come predominantly from black and Hispanic communities,” Clauson said. “To be frank, it leaves them with few options because traditionally a lot of them have to go to payday lenders or take loans that have really high interest rates and can be predatory.”

Clauson created the app and website, Pigeon Loans, to give families an option to make a legal promissory note that does the bookkeeping for them. The app automates payments and even lets users decide how much, if any, interest to charge.

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CFPB terminates Payactiv’s sandbox protection

  • The Consumer Financial Protection Bureau (CFPB) said in an order Thursday that it terminated earned wage access provider Payactiv’s sandbox protections.
  • The company told the CFPB last week it wanted to make changes to its fee model without review by the bureau, according to an agency press release issued with the June 30 termination order. The changes would have required the CFPB to amend its sandbox approval order with Payactiv, the CFPB said. Instead, Payactiv requested the order be terminated so the changes could be launched quickly and flexibly, according to the agency.
  • The CFPB’s enforcement office notified Payactiv last month that it was considering recommending that the bureau terminate the order over “public statements the company made wrongly suggesting the CFPB has endorsed Payactiv or its products,” the bureau said Thursday.

Good jobs are out of reach for many 20-somethings in the U.S.: BROOKINGS

Bettors wouldn’t like the odds facing many young people as they enter the labor market seeking decent-paying employment. New research from Brookings Metro and Child Trends finds that nearly 60% of adults who were socioeconomically disadvantaged in their teens continue to struggle economically at age 30—facing low earnings, high poverty rates, and many barriers to employment.  

Based on annual earnings and employment-related benefits, Brookings and Child Trends researchers segmented adults from disadvantaged backgrounds into four groups. One of the groups, accounting for 22% of the study population, had average annual earnings of $4,200 at age 30 and no employment-related benefits. Another 36% had average annual earnings of $19,000 and one benefit. The two other groups were more economically comfortable: 34% had average annual earnings of $42,000 at age 30, and the last 9% had average annual earnings of $97,000.  

FTC Report Warns About Using Artificial Intelligence to Combat Online Problems: Federal Trade Commission

Agency Concerned with AI Harms Such As Inaccuracy, Bias, Discrimination, and Commercial Surveillance Creep

Today the Federal Trade Commission issued a report to Congress warning about using artificial intelligence (AI) to combat online problems and urging policymakers to exercise “great caution” about relying on it as a policy solution. The use of AI, particularly by big tech platforms and other companies, comes with limitations and problems of its own. The report outlines significant concerns that AI tools can be inaccurate, biased, and discriminatory by design and incentivize relying on increasingly invasive forms of commercial surveillance.

“Our report emphasizes that nobody should treat AI as the solution to the spread of harmful online content,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Combatting online harm requires a broad societal effort, not an overly optimistic belief that new technology—which can be both helpful and dangerous—will take these problems off our hands.”

Rethinking the approach to regulations: CFPB

Markets work best when rules are simple, easy to understand, and easy to enforce. The CFPB is seeking to move away from highly complicated rules that have long been a staple of consumer financial regulation and towards simpler and clearer rules. In addition, the CFPB is dramatically increasing the amount of guidance it is providing to the marketplace, in accordance with the same principles.

Regulators have historically issued overly complicated and tailored rules for the existing regulatory landscape, as opposed to providing basic bright-line guidance and rules that can withstand evolution of the marketplace over time. The CFPB aspires to more clearly communicate the agency’s expectations in simple and straight-forward terms, which will produce more durable guidance and rules, in addition to numerous other benefits. While this task is difficult, we believe it is important to move away from the failed approach of the past.

First, unnecessarily complex guidance and rules impede consumer protection, and instead simply increases compliance costs, which benefits larger market players and their high-priced lawyers. Unnecessary complexity places new entrants and small firms at a disadvantage compared to their larger competitors. 

A Digital Dollar for the Unbanked? Banks, Consumers See Pitfalls

The debate over whether the Fed should roll out a digital US dollar has led to a rare alignment among banks, consumer advocates, and lawmakers who are skeptical of claims that the currency would boost financial inclusion for lower-income Americans and minorities.

Federal Reserve officials have suggested that a digital dollar would reduce barriers and transaction costs to “unbanked” consumers who lack access to traditional financial services such as checking accounts or loans. It’s an argument that cryptocurrency enthusiasts have been making for years about bitcoin and other private digital offerings.

But skeptics say a Fed-issued digital dollar would potentially deepen existing economic and technological divides, especially in communities where access to broadband and smart devices is limited and mistrust of banks runs deep.

Additional concerns have mounted over whether the Fed would use mainstream banks as intermediaries to distribute digital dollars to the public. Such a system has the potential to add fees and other barriers to financial inclusion, and could favor larger banks over smaller competitors.

Prepared Remarks of Director Chopra on Credit Card Late Fees ANPR Press Call: CFPB

Good morning. Today the Consumer Financial Protection Bureau is taking a critical step to address the billions of dollars that Americans pay in penalties to credit card companies. We are publishing an Advance Notice of Proposed Rulemaking to review provisions originally developed by the Federal Reserve Board that allow credit card companies to sidestep Congressional mandates on reasonable penalty fees. Our effort is particularly timely, given that the rule currently allows credit card companies to hike late fees by the rate of inflation.

As always, my remarks reflect the views of the CFPB and do not necessarily represent the views of any other part of the Federal Reserve System.

Credit cards are central to our financial lives. They are the most commonly-held and widely used lending product in America – more than 175 million Americans hold at least one credit card. They are convenient and play a vital role as a payment method to facilitate transactions, enabling us to pay for goods and services in person, online, or with autopay.

While they are a critical payment mechanism, they are also the basis of small dollar loans in America, being an essential tool for people and small businesses. At the CFPB, we know that life creates emergencies and expenses, and many Americans have to live paycheck to paycheck. Access to small-dollar credit lets Americans make better decisions about purchases, buying things that make financial sense in the long run. When used properly, credit cards allow people to carry some short-term debt for the sake of future financial health.

Targeted legislative tweaks can help contain the harm of debt crises

It’s a cardinal principle of private enterprise: A business that stumbles into the deep end on its debt deserves a second chance—an opportunity to “start afresh” after a financial misfortune. For more than a century, that tenet has enabled businesses to take the financial risks they need to succeed. Today, the right to a second chance is enshrined in the corporate bankruptcy laws of most leading economies.

Yet the same indulgence is denied to governments—with predictably grave consequences for the poorest citizens of the poorest countries. At the end of 2021, governments in low- and middle-income economies owed an estimated $9.3 trillion—a record—to foreign creditors, mostly to private creditors and bondholders scattered across multiple countries. For them, no bankruptcy court exists to ensure a prompt and orderly restructuring if a debt crisis approaches. Instead, they must pick their way through a procedural maze that is governed more by quaint conventions than by statute.

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