February 28, 2019
Dreher Tomkies LLP
Dreher Tomkies LLP is a law firm concentrating in the areas of Banking and Financial Services law.

2019 tax refund size down nearly 17% on average, IRS reports

The size of the average tax refund continues to drop, according to the latest IRS statistics. The IRS has found that Americans filing returns are now likely to see 16.7% less money than they received last year.

According to the data, the average refund size received in 2018 was $3,169 - while this year's refunds have shrunk to $2,640.

Previous data released by the IRS showed that refunds had dipped by 8% on average. The refund size casts unfavorable light on the Tax Cuts and Jobs Act (TCJA), the Republican tax reform law championed by President Trump. The bill was criticized as an unnecessary win for large corporations and the rich, who saw their tax rates slashed and refunds increase.

While TCJA did lower individual tax rates and boosted standard deductions (nearly doubling deductions for single filers from $6,500 to $12,000), it limited the popular state and local tax deductions, also known as SALT. Taxpayers living in states and cities with high property taxes were hit hardest by this move. Read more at YAHOO FINANCE

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INDIANA Senate mulls measure that would allow 192 percent interest rate on certain payday loans

The Indiana Senate is poised to vote on a measure Tuesday that would allow payday and subprime lenders to charge interest rates on small loans at levels currently classified as felony loan sharking.

The payday loan industry has pushed for similar legislation for the past three years, only to be rebuffed amid concerns from social service organizations and others who see such high-interest rates as predatory.

But this year's legislation is getting some high-powered lobbying assistance from another group: subprime loan companies that specialize in installment loans with interest rates of nearly 100 percent.

That's far exceeds the 72 percent rate that Indiana law currently defines as felony loan sharking. Payday lenders can offer higher rates but only for smaller loans with shorter terms.

Installment loan companies have faced scrutiny in other states for high-pressure loan renewal tactics and aggressive collection efforts. They are currently limited in terms of what products they can offer in Indiana. As a result, many don't operate here. Read more at FOX 59

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Payday lenders' critics overstate case

In 2017, the Obama administration advanced regulations effectively designed to force most payday lenders out of business. Under the Trump administration, the Consumer Financial Protection Bureau has proposed eliminating those rules. Critics decry this effort as leaving the poor vulnerable to exploitation, but research indicates low-income citizens are smarter and service is more reasonable than payday lending's critics imply.

Writing for the libertarian Cato Institute, Peter Van Doren bluntly says evidence "indicates that the predatory costs of payday loans may be nonexistent and the benefits are real and measurable."

Payday lenders provide short-term, uncollateralized loans that typically range from $100 to $500 per loan. The lender makes money off a fee, usually about $15 per $100 borrowed for two weeks.

Critics call that $15 unconscionable, noting it converts into an annualized rate of 391 percent. But Van Doren says such comments are misleading because they ignore the true economics of payday lending. Research shows lenders' fixed and marginal costs run about $25 for a $300 loan if no one fails to repay the loan. But if just 5 percent of borrowers default, the lender's cost increases to $40 per $300 in loans, which comes out to $13.33 for every $100 provided as a loan.
Read more at THE OKLAHOMAN

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The Trump Administration Just Relaxed Payday Lending Rules. Is That Good or Bad for Borrowers?

When drafting the original payday lending rule, the CFPB believed these underwriting requirements helped prevent consumers from falling into a long-term debt trap. But the Competitive Enterprise Institute (CEI), thinks the underwriting requirements do just the opposite.

Consumers who take out multiple payday loans a year are often dealing with very difficult financial situations, wrote policy analyst Daniel Press, and procuring quick cash loans can help them get on their feet. A federal cap on how many loans they can get is essentially telling consumers how to manage their own finances.

"The newly proposed payday loan rule is a crucial fix to a regulation that threatened access to credit for millions of Americans who need to cover emergency expenses between paycheck," Press told InsideSources in an email. "The action by the Bureau today preserves consumer choice and access to credit, allowing individuals - not Washington bureaucrats - to decide what is best for themselves." Read more at Competitive Enterprise Institute

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CANADA: Payday loans drove 37 per cent of Ontario insolvencies last year: report

Payday loans are playing a role in a growing number of insolvencies in Ontario, according to bankruptcy trustee Hoyes, Michalos & Associates Inc.

Four out of 10 insolvencies in the province were driven by the short-term, high-interest borrowing practice last year, a report by the firm found. The increase flies in the face of legislative changes aimed at reducing consumer risk among heavily indebted Ontarians

"Regulatory changes to lower the cost of payday loans and lengthen the period of repayment are not working for heavily indebted borrowers who feel they have no other option but to turn to a payday loan," licensed insolvency trustee Ted Michalos wrote in a news release on Tuesday.

"And the industry itself has just adapted, trapping these consumers into taking out more and even bigger loans, adding to their overall financial problems."

The loans are designed to help borrowers bridge between pay cheques. Most are meant to be repaid in two weeks, however the terms can vary. Lenders typically hold a personal cheque from the borrower for the amount of the loan, plus fees, in return for cash.

The average insolvent payday loan borrower owed $5,174 on an average 3.9 different loans, the report found. They also owed two times their total monthly take-home pay, with interest rates ranging from 29.99 per cent to 59.99 per cent for longer term loans, and 390 per cent for traditional payday loans. Read more at YAHOO FINANCE CANADA

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INDIANA Senate passes bill allowing payday lenders to charge substantially higher interest rates

A bill that could expand loan products some critics consider predatory narrowly passed the Indiana Senate on Tuesday, despite opposition from advocacy groups and a bipartisan group of state senators.

If approved by the Indiana House, Senate Bill 613 would allow new loan products that would be considered criminal loansharking under current state law.

The 69-page bill was unveiled Thursday after the original 14-page bill was amended, something critics say is evidence full study and discussion were impossible given the circumstances.

The 26-23 vote comes on the heels of the Senate's rejection of Senate Bill 104 that would have limited interest rates on payday loans in the state and was backed by religious, nonprofit and veteran's organizations.

"It's really ugly," said Jim Bauerle, retired U.S. Army brigadier general and vice chairman of the Military/Veterans Coalition of Indiana. "It's a terrible, terrible bill for the citizens of Indiana."

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Don't prevent poor from getting loans: Editorial

The Consumer Financial Protection Bureau is considering reopening a rule that would force payday lenders to determine whether their customers can pay back short-term loans. This would restrict access to capital for millions of Americans, including the half million Michigan residents who rely on these loans.

"The rule reinforces the institutional bias in our banking systems against non-prime rated consumers," says Mary Jackson, CEO of the Online Lenders Alliance. "As the rule stands, it likely will do more harm to the very populations it strives to protect by setting special standards for those individuals when they attempt to access credit."

Democratic presidential hopefuls Sen. Elizabeth Warren, D-Massachusetts, and Bernie Sanders, D- Vermont, deride payday lending because interest rates on these loans can be over 100 percent. And 80 percent of payday loans are taken out within two weeks of a previous payday loan.

Many call these loans predatory, but for low-income Americans access to payday loans is often essential for dealing with emergencies. For people who don't have good credit or who don't use banking services at all, these loans pay for unexpected expenses like hospital bills, car repairs or home upkeep.

But because borrowers do not post any collateral on these loans, they are high risk for lenders and have accordingly high interest rates. Read more at DETROIT NEWS

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Fintech and the Future of Consumer Finance

This post was adapted from remarks delivered at the CEI Summit in Savannah, Georgia.

Everyone understands the need for access to credit. No matter how well we budget, we occasionally come up short due to an unexpected circumstance or expense-a car repair, a sick pet, a friend's wedding. All kinds of things pop up and disrupt our financial plans, and this can be a real problem for millions of Americans. For example, a survey from the Federal Reserve recently found that 4 in 10 Americans would not have enough liquid savings to cover a $400 expense. In those situations, it helps to be able to borrow from the future in order to pay for urgent expenses today.

Beyond the unexpected, however, it often actually pays to purchase goods or services that we can't currently afford. Refrigerators, cars, or an education are products and services that provide an ongoing, future stream of benefits that we may not be able to purchase up front. In this way, buying consumer durable goods or services is similar to a capital investment for a business. It often makes more sense to buy a car now on credit and pay the loan off while you use the product, rather than to save up money for a car over a number of years while you take the bus. For example, a major reason why General Motors overtook Ford as the most popular domestic car manufacturer during the 1930s was that GM offered auto financing through the General Motors Acceptance Corporation, while Ford merely offered a layaway plan. It's obvious which financing option is best for consumers.
Read more at Competitive Enterprise Institute

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Lawmakers seek large financial institutions guidelines clarity

A group of lawmakers are seeking clarity with regard to the Federal Reserve's framework for consolidated supervision of large financial institutions.

Sens. Thom Tillis (R-NC), Mike Crapo (R-ID), David Perdue (R-GA), Mike Rounds (R-SD) and Kevin Cramer (R-ND) have forwarded correspondence to Government Accountability Office (GAO) Comptroller General Gene Dodaro as a means of determining if guidance letters issued constitute a rule for the purposes of the Congressional Review Act (CRA).

"This framework imposes substantive requirements relating to capital, liquidity, corporate governance, and recovery and resolution planning," the senators wrote. "Determining whether the LISCC Guidance is a rule under the CRA is particularly important because the Federal Reserve has never revealed the criteria by which certain supervised institutions become subject to the Large Institution Supervision Coordinating Committee (LISCC) designation and associated requirements."
Read more at Financial Regulation News

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What you need to know about using employer as a 'payday lender'

If you were in a financial bind, would you turn to your employer instead of a payday lender?

Coming up with cash quickly can be a costly endeavor for the 78% of working Americans who often live paycheck to paycheck. Many turn to payday loans because they're convenient. But they also carry high interest rates and allow rollovers, trapping many in a cycle of repeat borrowing and indebtedness.

In recent years, startups from Silicon Valley and beyond have stepped up to offer payday alternatives through the workplace. Some, including Earnin and PayActiv, have put a new twist on the two-week pay cycle to give people access to their wages as soon as they've earned them. Others, such as HoneyBee, SalaryFinance and TrueConnect, allow employers to offer low-cost emergency loans as an employee benefit.

These startups say that by providing solutions for the two main reasons people take payday loans - to manage cash flow or pay for unexpected expenses - they will eliminate the need for them.

Here's what you need to know about paycheck advances and emergency loans.
Read more at USA TODAY

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WASHINGTON, D.C. - Today the Consumer Financial Protection Bureau (Bureau) announced a streamlined electronic submission system for prepaid account issuers to submit their account agreements to the Bureau. Prepaid issuers can register for the system now before the April 1, 2019 effective date of the Bureau's prepaid rule.

The Bureau's prepaid rule includes a requirement that prepaid account issuers submit their prepaid account agreements, including fee information, to the Bureau. Beginning today, prepaid account issuers can register for Collect, the Bureau's online channel for submissions. All prepaid account agreements offered as of April 1, 2019 must be uploaded to Collect by May 1, 2019. After that, prepaid account issuers must make a submission to the Bureau within 30 days whenever a new agreement is offered, a previously submitted agreement is amended, or a previously submitted agreement is no longer offered.

Along with the opening of the system for registration, the Bureau is also releasing a variety of compliance materials for prepaid issuers including a user guide, a quick reference guide, FAQs, and a recorded webinar.

These resources are available at:

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