ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION

CFSA Releases Positive Payday Loan Testimonials Submitted to the CFPB

On September 6, the Community Financial Services Association of America (CFSA) released a 2,000-plus page document containing testimonials submitted to the CFPB regarding consumers' positive experiences with the payday loan industry. A CFSA representative uncovered the allegedly "buried" stories through a Freedom of Information Act (FOIA) request filed December 31, 2015. 

According to the CFSA, of the newly discovered 12,546 consumer comments regarding to the payday loan industry, 12,308 "praised the industry and its products and services, or otherwise indicated positive experiences." 

Among other things, the CFSA further noted that (i) since the CFPB implemented its consumer complaint portal in 2011, approximately 1.5% of all complaints received related to the payday loan industry; (ii) in an FTC 2015 summary of consumer complaints, the "FTC found that just 0.003% of more than three million complaints related to payday lending"; and (iii) at least two customer surveys reveal that payday loan borrowers are overwhelmingly satisfied with the product. Regarding the CFPB's proposed rules to address the short-term lending industry, CFSA CEO Dennis Shaul commented, "[i]t is clear that millions of consumers are satisfied with the payday loan product and services, and do not want the federal government to take this valued credit option away from them."       Read the story at Lexology

Missing the Boat with the Underbanked. by Greg Rable

50 million potentially viable loan recipients are being ignored.

National experts agree that a full 20% of U.S. households are underbanked-meaning they have a bank account but also use alternative financial services (AFS) outside of the banking system. But traditional banks often won't consider these consumers for needed loans, only because the banks aren't analyzing the right data. As a result, this population is the one that most often seeks out smaller short-term loans for emergency needs. That's unfortunate for the consumers-and a bit s hort sighted for banks, which are overlooking a large business opportunity.

Missing the boat.

The historical perception that the underbanked are risky clients has harmed both consumers and lenders alike. I believe that the underbanked are indeed striving for a better financial standing and, as such, deserve more credit options. Consumers who have proven their ability to repay (ATR) on short-term loans have earned access to the money needed for life's every day emergencies (new tires, ER visits, unexpected plumbing expenses, etc.). Bank marketers are missing the boat, as a result, by not offering loan services to nearly 50 million U.S. consumers who deserve a closer look.

Granted, lenders are continually faced with the challenge of how to efficiently manage risk while lending to the underbanked and the non-prime consumer. New regulations from the Consumer Financial Protection Bureau (CFPB) certainly won't make it any easier. Under the new proposed rule, for each short-term loan, vehicle title loan, deposit advance product, installment loan and open-end loan, lenders will need to make a "good faith, reasonable determination" of the consumer's ATR. The lender will not only take into account the consumer's self-reported income and financial expenses, but turn to resources that will help the lender uncover major financial obligations and borrowing history, validate the reported income and living expense, all while considering a 30-day "cooling off period" between loans. 

Read the entire article at ABA Bank Marketing

Ability to Pay Measures: The Good, The Bad, and The Ugly by Mike Morgan

It's official: the new CFPB rule will require high APR lenders to determine a borrower's ability to repay the loan - without refinancing as a means of repayment.

For finance companies that are lending at APRs below 36% (which is most of them), this won't mean a change; most of them have been doing this for years. Indeed, that's how they are able to keep their loss rates down in single digits despite lending to borrowers with blemished credit scores.

But for high APR lenders, this is something out of left field. Today there are dozens of lenders making installment loans ranging from 80% to 400% APR, typically at loan amounts from $800 to $1500.

Many of these lenders are in the midst of a gradual shift from payday loans to installment loans, and their installment lending strategies are basically copied over from their payday practices. To be fair, they couldn't get credit data for applicants until recently as credit bureaus were unwilling to work with them. That's changing. And that's good news for lenders!

Read the article at DM Metrics

The public comment period has begun and will continue through October 7th.

YOU need to get involved to protect

Protecting Loans for the Little Guy

It's pretty clear President Obama wants nationalizing small-dollar consumer loans to be part of his "legacy."

As this most intellectually slothful of administrations mercifully winds down, the president is stepping up efforts to drive out private lenders in these markets and replace them with a government-owned bank, run through the Postal Service.

It formalized this effort in June when the Consumer Finance Protection Bureau released its Small Dollar Lending Rule. The rule sets out to clean up the online and small-dollar consumer loan industry by ending harassment and requiring lenders to determine their customers can repay - as if they didn't do that already.

The industry largely has accepted the rule will go forward in some form. What it's asking now is that its customers not be required to do more to prove their fitness to borrow than do those who borrow far larger sums for houses, cars, etc.

If the rule goes forward as proposed, from 60 percent to 75 percent of lenders say they would abandon the business. The administration already has implemented rules on traditional banks that make it virtually impossible for them to participate in the small-dollar consumer loan market. In other words, the rule would eliminate another block of competitors to the administration's dream of a post office bank.

The industry well understands the politics involved and has attempted to head off criticism by establishing standards and best practices. Lenders also want a rule that addresses legitimate concerns but allows them room to innovate and continue to operate in the market.

For instance, the test for determining a consumer's ability to repay should be proportional to the size, duration and complexity of the loan. If I lend you $10, I don't need to know all that much about your ability to repay - your access to future such loans is your largest motivation to keep current. But if I lend you $10 million to be repaid over 30 years, then more documentation is appropriate.       Read the entire story at BREITBART

Underwriters: Are you using Instant Bank Verification tools? by Philip Burgess

Assessing a person's capacity to pay back loans is arguably one of the most challenging steps of the loan underwriting process. You need to corroborate every source testifying to a borrower's monthly income and employment history.

To reduce the time and resources you have to dedicate towards scrutinizing borrower capacity, you have the option of using bank account verification and aggregation tools. These solutions register real-time bank account transactions, providing not only information about a borrower's employment but also insight regarding his spending behavior - a key detail underwriters need to assess.

How does Instant Bank Verification work?

MicroBilt's Instant Bank Verification solution gathers real-time transactional data from more than 15,000 financial institutions across the U.S. and 20,000 throughout the globe. Compliant with security standards specified in the Payment Card Industry Data Security Standard 3.0 and Safe Harbor regulations, Instant Bank Verification corroborates the following details:

*A person's ability to pay back loans

*Income and direct deposit accounts

*Current and available account balances

*Social security numbers

*Address and telephone number details

All the information within the bank account verification and aggregation solution enables you to make an accurate assessment of an individual's financial responsibilities. Is he currently paying off a car loan? Does he pay his utilities, credit card and internet bills on time and in full? Does the borrower regularly receive deposits separate from his primary income such as bonuses, commissions, or payment from additional part-time employment?    Read the article at Microbilt

Ohio payday lenders could face new federal restrictions

When Lancaster resident Justin Russell needed $100 to fix his fiance's van, he paid $55 to get the money he needed.

Russell borrowed from a payday lender, a type of company that charges relatively high interest rates to typically poor borrowers with few other options for extra cash. Similar short-term, high-rate lenders include those that make installment loans, and companies that lend against car titles. Such companies can charge an annual percentage rate of 300 percent or more and enjoy a higher rate of use in Ohio than is seen in most other states, according to a 2014 study by The Pew Charitable Trusts, a nonprofit policy advocacy group.

But the Consumer Financial Protection Bureau, a federal regulator created to safeguard consumer financial dealings, has proposed new restrictions that the short-term lending industry says could squash many such lenders in Ohio and across the nation. The proposed changes for the industry come amid a long-running debate that is reflected by Russell's experience.

On one hand, such lenders charge too much for their loans, and probably shouldn't even be allowed to operate, said Russell, 31, who gets his income from the federal government's Supplemental Security Income program, which pays a stipend to the disabled and others. But on the other hand, when money is tight and an emergency arises, such lenders can be a godsend, he said.

"If they weren't here I'd be screwed," he said. Read the article at Telegraph-Forum

Research paints bleak picture about employee finances

The majority of people are not confident about their financial future, according to research from Fidelity Investments, but plan sponsors are well positioned to help determine what individuals need and what their next steps should be.

More than a quarter of a million people have completed Fidelity Investments' Money Checkup tool since it launched in June, giving the company insights into how people save and how they feel about their finances.

The online tool collects demographic information and asks users a list of questions about their debt, how much they have saved and what their monetary goals are. It also asks if they are close to reaching their goals.

From that data, Fidelity found that more than half of those surveyed do not have healthy savings and spending habits or behaviors, and only 38% have more than three months of expenses saved in their emergency fund.

Financial wellness isn't a one-size-fits-all story, says Meghan Murphy, director of thought leadership for Fidelity Investments. You can't just look at millennials, men or women to see how people are doing financially, she says. Read the entire article at EBN

How much does financial fraud cost your business? by Walt Wojciechowski

It's a question that warrants an answer: How much does financial fraud cost your business? The Association of Certified Fraud Examiners estimated the average organization loses 5 percent of its revenues to fraud, but your business could be losing more depending on the risks it needs to mitigate.

Different types of fraud pose distinct losses. For example, identity theft does not affect your business in the same manner as money laundering schemes. In addition, you may lack background screening tools and bank verification and aggregation solutions that help you identify fraudsters.

Costs to U.S. merchants

For all intents and purposes, the best you can do is reference industry research detailing the costs of particular financial crimes and then weigh the likelihood of your organization falling victim to such schemes.

The retail sector is no stranger to fraud, whether it involves fake checks, stolen payment card details or some other kind of identity theft. Unfortunately, B2C enterprises are encountering higher rates of fraud now than they were in years previous.

A study from LexisNexis confirmed this, discovering fraud accounts for 1.47 percent of revenues - up from 1.32 percent in 2015. For every dollar a merchant loses to a financial scam, it actually incurs $2.40 in fees, chargebacks and merchandise replacement.

The research also noted the number of attempted fraudulent transactions have been increasing steadily since 2012. For example, in 2013, retailers encountered 276 fraud attempts per month on average, 32 percent of which were successful. This year, merchants experienced 648 financial scams on a monthly basis, and 31 percent of those behind such efforts achieved their goals.

Read the article at Microbilt

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