NEWS: CFPB Rethinking Payday Loan Rule

ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION

June 27, 2019

CFPB Considers Repealing Payday Loan Rule

Under the rule's Mandatory Underwriting Provisions, payday lenders would have to confirm their borrowers' ability to repay short-term loans.

The Consumer Financial Protection Bureau (CFPB) is considering revision or repeal of an Obama-era regulation aimed at clamping down on some of the practices of lenders that provide small-dollar, high-interest, short-term loans.

The Payday Lending Rule finalized in January 2017 under former CFPB Director Richard Cordray was set to go into effect on August 19, 2019. The rule also targets single-payment car title loans, in which borrowers use their car or truck title for collateral, and loans requiring a single, large, balloon payment.

Further, under the rule's Mandatory Underwriting Provisions, payday lenders would have to confirm their borrowers' ability to repay short-term loans of up to 45 days without incurring late-payment penalties, such as higher interest rates, while meeting living expenses.

The CFPB has extended the deadline for complying with the 2017 rule until November 19, 2020, the bureau announced on June 6, giving the agency time to finalize the payday lending rule. The CFPB could issue a revision of the loan regulations at any time in the next few months.

Reducing Credit Access

Payday loans often have annual interest rates of 300 percent to 400 percent, and borrowers can fall into a "payday debt trap" in which they have to take out new short-term loans in order to pay off existing ones. Read more at HEARTLAND.ORG

MEMBER BEST PRACTICES

In addition to full compliance with all state and federal laws and regulations, CFSA requires its members to abide by a strict set of mandatory best business practices. These best practices are intended to cover all small-dollar loans provided by CFSA member companies, including payday advance, automobile title, and installment loans. Compliance with mandatory Best Practices is just one way in which CFSA member companies set themselves apart from others in the small-dollar lending industry. Read at CFSA

Postal Banking Amendment Passes
Measure would begin building system that would serve tens of millions underbanked Americans

WASHINGTON, DC - U.S. Rep. Bill Pascrell, Jr. (D-NJ-09) today offered a bipartisan amendment to the Financial Services and General Government appropriations bill that would provide $1,000,000 in funding to begin building a modern postal banking system. Cosponsored by Reps. Mark Amodei (R-NV-02) and Ayanna Pressley (D-MA-07), Pascrell's amendment was approved on the floor of the House of Representatives.

"Ninety percent of zip codes lacking a bank or credit union are in rural areas. Bank branches are also sparse in low income urban areas. Approximately 46 percent of Latino and 49 percent of African American households are underbanked," Rep. Pascrell said in support of postal banking. "Think about that. Democrats and Republicans alike could derive enormous benefit for their constituents. Talk about uniting America!"

Rep. Pascrell is one of the strongest supporters of the United States Postal Service in Congress and has loudly called for protecting the post office from attacks. In a heralded April 2019 essay in Washington Monthly, Pascrell outlined the history of the post, the origins of its decay, and his remedies to undue decades of institutional damage. Foremost among them is the creation of postal banking across the nation. Read more at INSIDER NJ

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California trails in regulating short-term lenders. This bill could finally rein them in

After years of failed attempts to rein in California's "small-dollar" lenders, supporters of a bill to cap interest rates are hoping that a wider coalition of backers and a governor who has spoken out against predatory lending will make a difference.

Assembly Bill 539, which would set an annual interest rate cap of 36% plus a 2.5% federal funds rate on loans of $2,500 to $10,000, is sponsored by the Los Angeles County Board of Supervisors and supported by Atty. Gen. Xavier Becerra, churches, unions, community organizations and even some lenders.

But with the industry spending heavily to lobby officials ahead of a key vote on Wednesday, supporters worry that California could fail yet again to stop lenders from charging triple-digit interest rates on loans that more than a third of borrowers fail to pay back on time.

"They're being pressured," said Assemblywoman Monique Limón (D-Santa Barbara), who introduced the bill. "They're being lobbied. Our members will have to decide if they are going to protect the profits of some businesses or if they are going to land on the side of consumers and the responsible lenders." Read more at LOS ANGELES TIMES

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Tech Giants Serve Underbanked Community, Rattles Banking Space

Fintech services are well-poised to deliver seamless banking experience to the underbanked world that accounts for a significant portion of the world population.

Increasing penetration of internet and smartphone usage are leading to rising adoption of mobile wallets, digital payment applications and virtual credit/debit cards especially among the people who don't have access to banking services.

Tech giants like Apple AAPL, Amazon AMZN, Alphabet's GOOGL Google and Facebook FB are aggressively leveraging advanced technologies including AI, blockchain, data analytics, Augmented Reality (AR/), IoT and ML to penetrate the underbanked.

Further, online payment software providers like Square SQ and PayPal PYPL are also leaving no stone unturned to expand their presence in the emerging economies in order to reach the underbanked customers.

Google-Apple-Facebook-Amazon's (GAFA) Aggressive Stance

The GAFA group comprising the tech behemoths is gaining traction in the financial services market on the back of evolving customer behavior. Read more at YAHOO FINANCE

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Facebook's Libra cryptocurrency 'poses risks to global banking'

Facebook's plan to operate its own digital currency poses risks to the international banking system that should trigger a speedy response from global policymakers, according to the organisation that represents the world's central banks.

Although the move of big tech firms such as Facebook, Amazon and Alibaba into financial services could speed up transactions and cut costs, especially in developing world countries, it could also undermine the stability of a banking system that has only just recovered from the crash of 2008.

Echoing warnings from many tech experts, the Bank for International Settlements (BIS) said that while there were potential benefits to be made, the adoption of digital currencies outside the current financial system could reduce competition and create data privacy issues.

"The aim should be to respond to big techs' entry into financial services so as to benefit from the gains while limiting the risks," said Hyun Song Shin, economic adviser and head of research at BIS.
Read more at THE GUARDIAN

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CFPB Delays Final Rule's Amendments to 2017 Payday Lending Rule. Weiner Brodsky Kider PC

The CFPB recently announced a final rule delaying the August 19, 2019 compliance date for a regulation proposed in November 2017, governing Payday, Vehicle Title, and certain High-Cost Installment Loans. Compliance with the Rule is delayed to November 19, 2020. The Bureau's rule generally has two parts:

First, the Bureau identifies as an unfair and abusive practice when lenders offer short- or long-term loans with balloon payments without reasonably determining whether the consumer has the ability to repay under the terms of the loan. Under the rule, lenders must make the repayment determination before making such loans. However, there are exemptions for certain short-term loans if other consumer protections are in place.

Second, the Bureau identifies as an unfair and abusive practice when payment withdrawals are attempted from a consumer's account after two consecutive failed payment attempts, unless the lender obtains the consumer's new and specific authorization to make further withdrawals from the account. These provisions of the rule apply to the same loan types noted above, and for longer-term loans with an annual percentage rate greater than 36 percent that are repaid directly from a consumer's account. Read more at JD SUPRA

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Texas Amends Debt Collection Law to Add New Requirements for Debt Buyers. Ballard Spahr LLP

On June 14, 2019, Texas Governor Greg Abbott signed HB 996, which amends Chapter 392 of the Texas Finance Code dealing with debt collection. The amendments are effective September 1, 2019.

The bill defines a "debt buyer" as "a person who purchases or otherwise acquires a consumer debt from a creditor or other subsequent owner of the consumer debt, regardless of whether the person collects the consumer debt, hires a third party to collect the consumer debt, or hires an attorney to pursue collection litigation in connection with the consumer debt." Excluded from this definition is "a person who acquires in-default or charged-off debt that is incidental to the purchase of a portfolio that predominantly consists of consumer debt that has not been charged off." "Charged-off debt" is defined as "a consumer debt that a creditor has determined to be a loss or expense to the creditor instead of an asset." Thus, it appears that the "debt buyer" definition is intended only to cover purchasers of portfolios of charged-off debt rather than purchasers of portfolios consisting primarily of current debts. Read more at NATIONAL LAW REVIEW

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Robocall 'crackdown': FTC blocks more than a billion illegal calls, but problem festers

The Federal Trade Commission said Tuesday that it had blocked more than a billion illegal robocalls in a "crackdown" coordinated with the Justice Department as well as state and local law enforcement agencies.

The agencies collectively took 94 actions against robocallers touting bogus services such as credit card interest rate reduction and medical alerts. The actions included seven new FTC cases, including four settlements.

Consumers get "tens of billions" of illegal robocalls annually, according to the FTC.

So, the latest enforcement action is admittedly a "drop in the bucket," said Andrew Smith, the FTC's Consumer Protection Bureau director.

But the agency will continue its "coordinated effort to stem the scourge of illegal robocalls" by pursuing individual cases and coordinating with policymakers, he said.
Read more at USA TODAY

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CFPB News: Kraninger Affirms CIDs, Payday Rule Delayed
Richard Gottlieb, Scott Pearson, Charles Washburn, Jr. Manatt, Phelps & Phillips, LLP

Director Kathy Kraninger is in the news, taking a hard line on civil investigative demands (CIDs), backing two new settlements and issuing a further delay of the payday loan rule. Meanwhile, consumer groups criticized the CFPB's work to prevent discrimination in the student loan industry.

Payday Rule Delayed (Again)-One area where the Bureau won't be directing its enforcement efforts, at least not yet: the Payday, Vehicle Title and Certain High-Cost Installment Loans rule. Not only did the Texas federal court's hearing the challenge to the rule filed by two trade groups extend the stay of the compliance date, but the CFPB itself issued a rule to delay implementation of certain provisions.

The final rule pushes the compliance deadline for the mandatory underwriting provisions of the rule to Nov. 19, 2020. However, the rule did not extend the mandatory compliance date for the "payments" provisions of the rule, which remains August 19, 2019. But the entire rule, including the payments provisions, remains subject to the Texas federal court stay unless and until that is lifted.
Read more at JD SUPRA

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

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