October 23, 2018
2018 edition: 84 / 104
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Hard Money Lending: A Deep Dive into Installment Loans

Two years ago, I took a payday loan to put the industry in context. There was no personal need, but it was worth a few dollars out of my pocket to see how the process works, how the service is, and how the retail experience was. Call me a payment geek, but there is no better way to see this than first hand.

The payment terms were unusual to a "credit card person". I spent $7, which I didn't even expense, in interest towards a $50 loan for two weeks. Frankly, I never experienced what a 365% APR would feel like and for less than a #12 value meal at McDonalds I was in for the experience.

Armed with my paystub and drivers license, I entered a local lender. The operation was as clean as any retail bank, though it lacked the dark-wood desks. Teller windows had what looked like 2" plexiglass separating them from the public, but the back-office looked like anything you'd expect at a local bank branch.

Other services, such as pre-paid cards, tax preparation, and money orders were offered, but absolutely no deposits. This is a private business, not an insured bank.

There is a shift going on in the payday lending business, in response to the rates mentioned above. Some banks are now standing in and while the market will likely improve, rates are still ugly because of the risks. Read more at PAYMENTS JOURNAL

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Ex-bank regulator: We don't understand 'how systemically broken the system is'

Carmen Segarra, a former New York Federal Reserve expert examiner who was embedded at Goldman Sachs between November 2011 and May 2012, believes that our banking system is "broken" because of institutionally weak oversight.

"I don't think that we have appropriately understood how systemically broken the system is," Segarra told Yahoo Finance's Final Round on Thursday. "I don't think that has been baked into the calculations that are made in Wall Street in terms of how the dollar is valued, how much systemic risk is being injected by the failure to supervise banks."

In her new book, "Noncompliant: A lone Whistleblower Exposes the Giants of Wall Street," Segarra argues that those who flout the rules are actually rewarded as opposed to being reprimanded.

"This is a culture that rewards bad behavior systemically," she said. "And so because the issue is so systemic, fixing it is going to take a lot of time and a lot of effort."

In 2013, Segarra filed a lawsuit against the New York Fed and her supervisors. Both the case and the subsequent appeal were dismissed. In 2014, she provided ProPublica and "This American Life" with 46 hours of recorded conversations with colleagues during her time at the Fed.
Read more at YAHOO

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Real-time payroll deposits would make a huge financial difference for strapped workers

Many workers are caught in a cycle of debt. Real-time payroll deposits would help them avoid high-interest payday loans and connect to banking services.

The fundamental structure of America's banking system has remained virtually unchanged since the 1950s. Yet one simple update could open the door to people who have been locked out of basic banking services for far too long.

Millions of Americans today get paid twice a month, often on the first and 15th. But why? That made sense when payroll was entered manually and checks were cut by hand. The reality is that digital financial technologies have made it possible for workers to get paid on their individual schedules instead.

Not only is this a more fair way to go, but it could also help workers stay in the banking system and out of the cycle of debt.

This is not science fiction.

Walmart, Lyft let employees cash out early
Walmart, for example, has partnered with a tech company that allows employees to access a portion of their wages as they earn them, instead of at the end of a pay period. And Lyft has a program that permits drivers to "cash out" their earnings before their regularly scheduled payday. Most of these programs charge a small fee for the service, and some companies have opted to pay that cost for their employees.

That makes a lot more sense than forcing employees to give American companies a two-week loan of their labor, which is what happens under the current system. Read more at USA TODAY

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Kathy Kraninger will reform the CFPB and bring consumers relief

President Trump's nomination of Kathy Kraninger to head the Consumer Financial Protection Bureau won't come anywhere close to the gut-wrenching sensationalism of the Supreme Court nomination process currently consuming Washington. But the battle lines being drawn in Washington are nearly as ominous.

It taxes one's memory to think of a hotter partisan turf war over an "alphabet soup" agency. This reality is punctuated by the fact that the CFPB, already outside the control of Congress, attempted to sidestep Trump's executive authority by choosing its own head to succeed former director Richard Cordray when he stepped down. This rogue-agency mentality is at the heart of why the CFPB must be reformed and why Kraninger is the ideal candidate to reform it.

In August, Kraninger won approval from the Senate Banking Committee by a 13-12 vote along partisan lines. Democrats, led by Sen. Elizabeth Warren, D-Mass., savaged Kraninger as both an unqualified minor administrator, and, contradictorily, a key figure behind Trump's controversial border policy. Read more at WASHINGTON EXAMINER

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

Pew Pushes Installment Loans As Regulated Payday Alternative

Short-term lending - specifically, payday loans - have attracted a lot of attention in recent years, from the media and from the regulators.

A little more than a year ago, the CFPB (now also known as the BCFP) dropped its final version of its new payday lending regulations - though, as it turns out, "final" was probably not the right word to describe them. They are currently being redrafted and are expected to re-drop in February.

For all the interest and attention that payday loans and other forms of very short-term lending draw, however, far less attention is paid to installment loans, according to new data released by the Pew Charitable Trusts.

Which, the research group notes, is perhaps a bit surprising, considering how large of a footprint installment lending already has in the United States - both geographically and in terms of funds loaned.

There are approximately 14,000 individually licensed physical storefronts spread across 44 states offering these loans, according to Pew. The largest lender in the category has at least one branch within 25 miles of 87 percent of the U.S. population. The products are used by approximately 10 million borrowers each year.

Moreover, given that the new payday lending regulations under consideration - as well as many new state regulations - are somewhat friendlier to installment loan products for consumers looking for smaller dollar amounts, it may be the case that installment loans are about to become much more widespread, and perhaps in need of some additional scrutiny. Read more at PYMNTS.COM

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Financial illiteracy cost typical American nearly $1,200 last year. by Walt Wojciechowski

Financial literacy is independent of banking opportunity. In other words, just because someone has a savings or checking account doesn't mean he or she has a solid grip on what it takes to be savvy and measured when it comes to budgeting and expenses.

Case in point: Consider how much money Americans may have saved last year had they been a bit more adept in their financial prowess.

The average consumer spent nearly $1,200 in 2017 due to personal financial mismanagement, according to a recent poll conducted by the National Financial Educators Council. For nearly 18 percent of the 1,500 respondents in the survey, the average amount lost to financial illiteracy was in excess of $2,500. Forty percent said their monetary losses were closer to $500.

This means that of the 240 million adults in the U.S. - out of an overall population totaling 323 million, according to the most recent Census - $280 billion last year was unnecessarily frittered away due to insufficient financial comprehension.

Vince Shorb, NFEC CEO, stressed that the amount lost speaks not to Americans' limited understanding necessarily, but to how complex finances can be for families.
Read more at MICROBILT

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CFPB Fall 2018 rulemaking agenda

The Bureau's general purpose, as specified in section 1021 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), is to implement and enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive. Under the Regulatory Flexibility Act, Federal agencies must publish regulatory agendas twice a year. As an independent regulatory agency, the Bureau has been voluntarily participating in the Unified Agenda , which is led by the Office of Management and Budget (OMB).

The Bureau is under interim leadership pending the confirmation of a permanent director. The Bureau is also in the process of implementing various provisions in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) , which was signed into law in May 2018, and of conducting its first assessments of the effectiveness of prior "significant" Bureau rulemakings as required by section 1022(d) of the Dodd-Frank Act. In addition, the Bureau is analyzing more than 86,000 comments received in response to its "Call for Evidence" initiative seeking feedback on Bureau operations and regulations. Following consideration of these various initiatives, the Bureau expects to refine its rulemaking priorities no later than the Spring 2019 Agenda and will publish an updated statement of priorities at that time.
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COLORADO: Payday Loans Can Trap Borrowers In A Cycle Of Debt, But Should They Be Wiped Out?

Payday loans are in the cross hairs on this year's ballot.

Colorado's Proposition 111 would limit interest rates to 36 percent on loans that are often advertised as quick-fixes or one-time deals for emergencies.

But consumer advocates say that's often not the case. Borrowers can end up in a vicious cycle when, unable to pay off a loan, they extend it, which costs them even more. The average interest rate for payday loans in Colorado is 129 percent.

Nick Bourke has done extensive research on payday loans and Colorado's laws as the Director of the non-partisan Pew Charitable Trust. Bourke talked to Colorado Matters about the context and the POV from both sides of Proposition 111.

Full Transcript. Read the full transcript at COLORADO PUBLIC RADIO


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Reduced CashCall Penalty Would Set Bad Precedent, CFPB Says

A reduced, $10 million penalty CashCall Inc. faces for issuing loans that violated state interest rate caps tells companies they can violate the law with impunity, the Consumer Financial Protection Bureau told a federal appeals court on Oct. 19.

The CFPB said that a lower court judge in January incorrectly rejected the bureau's attempt to slap the payday lender with a $52 million civil penalty and a $236 million restitution order, with that money going to harmed borrowers.

Judge John F. Walter of the U.S. District Court for the Central District of California said the penalties sought by the CFPB were inappropriate and limited the recovery amount to a $10.3 million civil penalty and no restitution. The judge had ruled on summary judgment that CashCall violated federal and state law by issuing loans that it knew violated state interest rate caps.

Judge Walter's decision on penalizing CashCall would send a bad signal to the marketplace if it were allowed to stand, the CFPB said in its opening brief to the U.S. Court of Appeals for the Ninth Circuit.

"That result undeniably leaves companies with little incentive to follow the law-a result that the Supreme Court and this Court have disapproved," the bureau's brief said.
Read more at BLOOMBERG

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Court documents released last Friday showed evidence the Obama administration's now-defunct operation known as Operation Choke Point had top government officials struggling to find the legal basis to persuade banks to terminate their relationships with businesses that had not committed any crimes.

The never-before-seen document release happened as a result of a summary judgment from a lawsuit filed more than four years ago spearheaded by payday lender Advance America and other industry allies against the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC) and other federal regulators.

The effort was known as Operation Choke Point, where Obama administration regulators tried to limit access to banking services for businesses it considered "high-risk," like payday lenders. Emails show that FDIC administration officials struggled to figure out how to explain to banks why their institutions should be terminating their relationships with businesses that have not committed any fraud or other illegal activities.

Below is an email from Marguerite Sagatelian, a top lawyer at the FDIC's Consumer Enforcement Unit, to James L. Anderson, another FDIC lawyer, illustrating this conflict:

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FTC is Making Consumer Complaint Data More Accessible

The Federal Trade Commission hears from millions of consumers each year about fraud, identity theft, and other problems, allowing us to warn other consumers about scams they should watch out for, while also providing the agency with an important source of information to support our enforcement actions.

Starting today, the FTC will be making this information more accessible by releasing its aggregated consumer complaint data on a quarterly basis in a new interactive online format. Up until now, the FTC has released aggregated consumer complaint data collected through our Consumer Sentinel Network on an annual basis. Our new tool will provide a more timely snapshot of what consumers are reporting, while empowering users to explore the data by types of fraud, state, and a variety of other dimensions.

As part of this initiative, we are also introducing our first Consumer Protection Data Spotlight, which will take a deep dive into the data to illuminate important stories we are hearing from consumers. Read more at FEDERAL TRADE COMMISSION



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