August 7, 2018

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Online lenders, payment companies get a way to act more like banks

Online lenders and other so-called fintech firms - including the payment processor Square, the online lender Lending Club and the cryptocurrency exchange Coinbase - have pressed for regulatory routes that would let them cut through the thicket of state and federal laws that govern financial businesses.

The federal government began clearing a path Tuesday for online lenders and payment companies to more easily and directly compete with traditional banks, a change that one regulator said would allow innovative businesses to expand nationwide.

Online lenders and other so-called fintech firms - including the payment processor Square, the online lender Lending Club and the cryptocurrency exchange Coinbase - have pressed for regulatory routes that would let them cut through the thicket of state and federal laws that govern financial businesses.

Heeding those requests, the Treasury Department released a 222-page report laying out the Trump administration's view on how nonbank financial companies should be regulated. Hours later, the Office of the Comptroller of the Currency, a national bank regulator, announced a new kind of charter that would potentially free such companies from the state-by-state approvals they currently need to offer loans and other financial products. Read more Seattle Times

Treasury Releases Report on Nonbank Financials, Fintech, and Innovation

Washington -The U.S. Department of the Treasury today released a report identifying improvements to the regulatory landscape that will better support nonbank financial institutions, embrace financial technology, and foster innovation.

"American innovation is a cornerstone of a healthy U.S. economy. Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector," said Secretary Steven T. Mnuchin. "America is a leader in innovation. We must keep pace with industry changes and encourage financial ingenuity to foster the nation's vibrant financial services and technology sectors."

The report issued today is Treasury's fourth report in response to Executive Order 13772. Issued by President Trump in February 2017, this E.O. calls on Treasury to identify laws and regulations that are inconsistent with the Core Principles for financial regulation it set forth.

In drafting the report, Treasury consulted extensively with a wide range of stakeholders focused on consumer financial data aggregation, lending, payments, credit servicing, financial technology, and innovation.

Treasury's recommendations are designed to facilitate U.S. firm innovation by streamlining and refining the regulatory environment. These improvements should enable U.S. firms to more rapidly adopt competitive technologies, safeguard consumer data, and operate with greater regulatory efficiency. Read more at U.S. DEPARTMENT OF THE TREASURY

Bank regulator will now offer national approvals to financial tech firms

The Office of the Comptroller of the Currency (OCC) announced Tuesday that it would now consider bank charter applications from financial technology companies seeking approval to operate nationwide.

Comptroller of the Currency Joseph Otting said his agency will accept applications from online-only lenders, mortgage and loan servicers, and payment platforms to receive special-purpose federal bank charters. The OCC said companies that take and hold deposits from customers would not be eligible for the charter.

A federal charter would allow approved financial technology companies, known as fintechs, to operate throughout the country without seeking permission from each state. A fintech chartered as a national bank would avoid a costly state-by-state approval process, but would be subjected to federal banking regulations and inspections from the OCC.

Otting said the OCC's decision is intended to "provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America."

"Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank," Otting said.

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This map shows the states where payday loans charge nearly 700 percent interest

Some short-term loans cost over 20 times more in interest than the average credit card. And yet one in 10 Americans have used them.

These small-dollar advances, or payday loans, are available in most states: All you need to do is walk into a store with a valid ID, proof of income and a bank account. The balance of the loan, along with the "finance charge" (the service fees and interest), is typically due two weeks later, on your next pay day.

In the U.S. today, these loans are a $9 billion business. In the past two years, 11 percent of U.S. adults say they've taken out a payday loan, according to a recent survey of approximately 3,700 Americans that CNBC Make It performed in conjunction with Morning Consult.

But while payday loans provide quick cash, the national average annual percentage rate is almost 400 percent. In contrast, the average credit card APR in July was 16.96 percent, according to

That can add up fast. For example, if you take out a $500 payday loan with an APR of 391 percent, you'll owe about $575 two weeks later. The loan cycle rarely stops there, though. Many payday loan borrowers "roll over" the loan multiple times. Do that for just three months and the amount due is over $1,000. Read more at CNBC

Need a loan? Forget the corner payday lender - your boss has you covered

Your employer might contribute to your retirement account or help pay for health insurance. But will it help you set up an emergency fund? Or offer you a loan of a few thousand dollars when your transmission breaks down?

If you work for Comcast Corp., yes.

The Philadelphia-based telecom and entertainment giant is rolling out those and other benefits to its more than 160,000 workers at NBC Universal and other subsidiaries through a new Comcast-backed benefits firm. It's the latest example of a big employer looking to involve itself in employees' financial lives by offering not just education and counseling but real money.

Founded this year by Comcast's venture-capital arm, benefits firm Brightside announced last month that it would offer loans through San Diego firm Employee Loan Solutions. The loans of $1,000 to $2,000 will be available to most employees, do not require a cccc check and are paid back through payroll deductions.

With an interest rate of 24.9%, the loans are more expensive than the typical credit card but are dramatically cheaper than other types of debt available to borrowers with bbb credit or little credit history. Payday loans in California, for instance, come with annual interest rates topping 400%.

Senate advances Financial Services and General Government appropriations bill

The FY 2019 Financial Services and General Government (FSGG) appropriations bill, which advanced in the U.S. Senate this week, includes full funding for two programs supported by the National Association of Federally Insured Credit Unions (NAFCU).

The appropriations bill included full funding for the National Credit Union Administration's Community Development Revolving Loan Fund (CDRLF) as well as the U.S. Treasury's Community Development Financial Institutions (CDFI) Fund.

The House had advanced its version of the FSGG bill, which included a slightly lower level of funding for the CDFI program. Both the House and Senate bills include full funding for the Small Business Administration's (SBA) 7(a) and 504 loan programs, which are also used by credit unions.

"NAFCU appreciates and supports the Senate's efforts to fully and appropriately fund the CDFI Fund, NCUA's Community Development Revolving Loan Fund and SBA loan programs important to credit unions," NAFCU Vice President of Legislative Affairs Brad Thaler said. "NAFCU also remains laser-focused on bringing about much needed regulatory relief to credit unions. In particular, we will continue to push for a delay of the NCUA's risk-based capital rule, among other provisions included in the House version." Read more at Financial Regulation News

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Why women feel more financial stress than men

Women feel more stress about their finances than men, according to the latest survey from Bank of America Merrill Lynch.

In its 2018 Workplace Benefits report, 47 percent of women say they are "less than financially well," compared to 29 percent of men.

Women's top worries include running out of money in retirement (71 percent compared to 58 percent of men), having to work longer than planned, (61 percent compared to 51 percent of men), becoming ill and being unable to work (58 percent compared to 52 percent of men), and needing to support family members (46 to 38 percent of men).

The BOA Merrill Lynch study also looked at the effectiveness of financial wellness programs in the workplace.

Overall, the study found, women have an average of $119,000 in investable assets compared to $196,000 for men. They also lag men when it comes to the amount they contribute to their 401(k).

Women have something to worry about, another Merrill Lynch survey shows. Women could have up to $1 million less in total lifetime earnings than men. Interruptions in their careers and higher healthcare costs make saving more imperative. Read more at BIZWOMEN BIZ JOURNALS

The CFPB's Innovation Lab Is a Bet on Online Lenders

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From its tumultuous origins in the wake of the financial crisis of 2008 to the uneasy stewardship of a skeptical Trump administration, the Consumer Financial Protection Bureau (CFPB) has stood upon the shakiest of foundations. Even the name of the agency has become a point of contention, with acting Director Mick Mulvaney changing its name to the Bureau of Consumer Financial Protection.

But one arena where the regulatory body has remained more or less consistent is in its championing of online lenders, with its recent establishment of an Office of Innovation as the latest bid to leave its mark on a growing segment of the financial industry. Although its name sounds lifted from a rough draft of "1984," the Office of Innovation serves as a digital sandbox where fintech companies can run new products and services aimed at consumers by the regulators first. In theory, this allows fintech companies to gain regulatory approval without having to jump through quite as many hoops, meaning everyone ends up a winner-again, in theory. Read more at NASDAQ

NEW YORK releases a report on online lenders.

Customer and Loan Numbers: The survey showed that far more individual customers than business customers received loans from the survey respondents, indicating that it is not small businesses that are mainly being served by online lenders. The 35 companies that provided information in response to the Department's Survey reported that in 2017, the total number of New York customers, both individuals and businesses, was 235,320, up approximately 79% from their 2015 level. Of that total, 8,664 were New York business customers, and 226,656 were New York individual customers. The total number of loans to New York individual and business customers was 352,171, up approximately 118% from their 2015 level; and the total dollar amount of all loans to New York individual and business customers was $2,981,118,348, up approximately 42% from their 2015 level. These growth rates reflect several influences, including an increased level of activity by the existing participants, new participants that commenced activity in 2016 and 2017, and the fact that some of the respondents provided data only for 2017 and not for 2015 or 2016.

Notably, non-mortgage lending to individuals and small businesses by New York State chartered and licensed banks, credit unions and other lenders exceeded $51 billion in 2017, which is more than 17 times the lending by the 35 online lenders that responded to the survey. As the report notes, unlike online lenders, state chartered banks and credit unions hold substantial assets, which allow them to continue lending through differing economic and credit cycles. Read more at DFS.NY.GOV

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Will the CFPB Consumer Complaint Database Survive? Stakeholders Weigh In. by Baker Donelson

The CFPB's acting director Mick Mulvaney made headlines a few months ago when he told the audience at an American Bankers Association meeting that he does not believe Dodd-Frank mandates making the database of consumer complaints publicly available. The CFPB does not have to run a "Yelp for financial services" sponsored by the federal government, Mulvaney argued.

The Dodd-Frank Wall Street Reform and Consumer Protection Act created the Bureau and required it to establish a database to collect and monitor complaints regarding consumer financial products and services. While Dodd-Frank does not specifically state that the complaints must be made public, former CFPB director Richard Cordray took the position that the database should be publicly available. Since 2011, more than one million complaints have been submitted.

When a customer complains to the CFPB, the Bureau sends the complaint to the financial institution in question for a response. If there is no response within 15 days, the CFPB publishes the complaint as-is. If there is a timely response, the CFPB publishes both the complaint and the response. According to the Bureau, 97 percent of complaints receive timely responses.

In April, the Bureau initiated a public comment period, requesting input on potential changes to the consumer complaint and inquiry handling processes. Among the questions asked were whether and what data should remain public and how the Bureau can meet its "objective of reducing unwarranted regulatory burden on companies." The comment period closed on July 16. Read more at JDSUPRA

Study: How Financial Regulation and Innovation Vary Across the World

Pew Charitable Trust researchers find differing approaches to regulation and financial innovation across the world, including "fragmented" policies in the U.S. due to requirements at the federal and state levels.

Regulators in the U.S. and internationally are adopting common strategies to promote financial innovation while maintaining rules in financial services industries, but the policies in the U.S. are often divided between state and federal oversight, according to new research from The Pew Charitable Trusts.

Researchers for the report, "How Can Regulators Promote Financial Innovation While Also Protecting Consumers?," note that "U.S. efforts to foster innovation are fragmented, characterized by a patchwork of state and federal initiatives that lack a common organizing strategy, exposing markets to regulatory uncertainty and consumers to potentially harmful products and services without adequate protections."

At the same time, investment in technology is strong and can be a factor in how regulators are able to keep up with innovation in industries they oversee.

"From 2015 through 2016, investors poured nearly $40 billion into U.S.-based financial technology companies, and experts expect that market to grow rapidly in the next few years. The emergence and proliferation of these nonbank companies in the financial services marketplace present new challenges for regulators that are only starting to be understood and addressed," Pew reports.
* AFSPA Members own over 64,000 locations and online operations
 Members own over 64,000 locations and online operations

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