ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION

What We Learned About Alternative Finance In 2016

As often happens, the world we leave behind going out of 2016 is very different than the world we imagined 2016 would be going in.

There are, of course, a variety of ways to document that. A year ago today, you had never heard the word "Brexit," never seriously said the words "President Trump" and never once considered that you would have to make sense of a world where Brad and Angelina had fallen out of love. Wells Fargo was just a bank that was really good at getting its customers to sign up for credit cards, and Lending Club and its P2P counterparts were coming to eat mainstream banking's lunch.

As is the general rule with years full of surprises, there are all kinds of objective lessons one can learn from 2016. The chief among them being: Take all predictions people make about the forthcoming year in December/January with an appropriate grain of salt. If the last 12 months on this planet taught us anything, it is that, for every "sure thing" out there, there is also quite possibly a black swan lurking in the wings (pun fully intended) waiting to defeat that certain knowledge.

So, when it comes to looking back at the wide world of alternative financial services - and looking ahead to the year to come in 2017 - we're not making any predictions. Our crystal ball is broken. Instead, we're telling you what to watch for once we ring in the new year and what stories we think will get bigger before they get smaller. We can't say we know what's next for P2P lending, the CFPB or subprime borrowers - nor do we think anyone else can either - but we can tell you that how those stories unfold will make a very big difference to the shape of financial services yet to come and who will (and won't) be included as part of the mainstream financial system.

The CFPB

Saying the CFPB had a busy year is true, if a bit misleading. The CFPB has had a busy year every year since it was created in 2011. Still, the breadth of topics the Dodd-Frank consumer protection watchdog took on in 2016 was fairly impressive - even by the CFPB's aggressive internal standards.

Last year saw the agency offer up major revisions to regulation governing payday (and short-term) lending, arbitration in consumer contracts, car loans, marketplace lenders and prepaid cards. The agency also handed down the largest fine to a bank in its history - $100 million to Wells Fargo for creating an incentive system that pushed its employees to set up a series of consumer accounts without actually getting consumer permission. Wells was additionally hit with $85 million in fines from the Office of the Comptroller of Currency and the L.A. DA's office.

Wells was easily the agency's big win of the year. In a rare moment of bipartisan agreement, Republicans and Democrats on Capitol Hill came together to publicly bash the bank for abusing their consumers' trust and offered at least tacit praise to the CFPB for bringing the big deception to light. There was also a pretty active chorus encouraging then-CEO John Stumpf to resign - a wish that Wells Fargo's board of directors granted first by limiting Stumpf's compensation sharply and then by "coming to an agreement about his resignation."   Translation: They canned him. 

Read the entire report at PYMNTS.COM

Consumer Financial Protection Bureau monthly complaint snapshot spotlights debt collection complaints

WASHINGTON, D.C. (December 27, 2016) - Today the Consumer Financial Protection Bureau (CFPB) released a monthly complaint snapshot highlighting consumer complaints about debt collection. The report shows that the most common complaint about debt collection has to do with attempts to collect on a debt that the consumer says is not owed. This month's report also highlights trends seen in complaints coming from Arizona. As of Dec. 1, 2016 the Bureau has handled approximately 1,058,100 complaints across all products.

"Today's report shows that consumers continue to report being harassed about debts they already repaid or debts they do not owe," said CFPB Director Richard Cordray. "The Bureau will continue to work to ensure that consumers are not being wrongly pursued by debt collectors."

Read the CFPB REPORT

CFPB: A Federal Agency Gone Haywire

An estimated $525 million in civil penalty collections. Hundreds of millions of dollars spent on more than 1,600 employees.

According to the agency's recently released financial report, the Consumer Financial Protection Bureau (CFPB) is a Beltway bureaucracy unlike any other. Created by the Dodd-Frank financial reforms of 2010, the agency has ballooned in size and scope - all under a cloud of allegations of discrimination based on race, age, gender, and sexual orientation. In its first year of existence, the CFPB employed 58 people. Fast forward to 2016 and the agency has 1,648 employees - a 2,741% increase in less than a decade.

A closer look at the CFPB's budget is even more startling. The agency boasts an operating budget of $647.2 million this year - up from $559 million last year (a 15% increase). More than $290 million of the CFPB's operating funds was spent on personnel compensation and benefits paid to current and former employees. An additional $18.3 million was spent on "travel and transportation of persons" - more than $11,107 per employee in a single year. That's right: The CFPB spent over $11,107 on travel costs per employee in one year.

Worse yet, the CFPB has accumulated roughly $525 million in civil penalties - collected largely from financial institutions - which in part fund the agency's programs.

Irony aside - the CFPB claims to help people "make smart financial decisions" - the agency now transcends consumer protection to overwhelm lenders with backbreaking regulations. In 2014 alone, the total financial impact of regulations and lost revenue to credit unions surpassed $7 billion.

Payday lenders are especially targeted. The CFPB now requires payday lenders - the providers of short-term loans to low-income borrowers - to verify a borrower's income, major financial obligations, and borrowing history before issuing any loan. The agency has issued a long list of "affordability criteria" to lengthen the payday lending process.

Current financial regulations governing short-term loans already insure that customers know the terms and fees of their agreement, while the transaction itself remains quick and transparent. But the CFPB's most recent mandates jeopardize payday transactions by imposing unreasonably high standards, effectively eliminating the reason for choosing these loans over traditional bank loans.

The burdensome regulations are formed on the basis of the CFPB's disingenuous "debt trap" narrative. Arguing that short-term loans are "predatory" due to inordinately high interest rates, CFPB regulators are now seeking a greater say in the transaction process to ultimately rein in short-term loan arrangements, which the agency claims "often carry an average annual interest rate of over 300%."

That claim is more talking point than fact. An average two-week payday loan of $100 carries a $15 finance fee, which the CFPB equates to "an annual percentage rate (APR) of almost 400%."

Are they really one and the same? Read the entire article at Investor's Business Daily

Restrain runaway agency

With a Republican president-elect and congressional majority, President Barack Obama must be wondering how many of his "legacy" accomplishments will withstand review and corrective action. Despite its relative obscurity, the Consumer Finance Protection Bureau should near the top of the list for both.

The unique agency, the brainchild of Sen. Elizabeth Warren, D-Mass., was set up to evade normal political oversight. Its funding comes from the Federal Reserve system, bypassing Congress. Its director serves a fixed term and can only be removed for cause. It was designed to keep any elected authority from interfering with the decisions of the powerful agency.

But the courts can, and Congress can help.

The stage was set last October when a three-judge panel of the U.S. Court of Appeals for the District of Columbia agreed that the agency had overstepped its authority in 2014 when it unilaterally changed a long-standing rule of housing law and fined a mortgage lender accordingly. The lender was fined $109 million despite the fact that it had operated legally for 20 years under the old rule.

Writing for the 2-1 majority, Judge Brett Kavanaugh cited the CFPB's "enormous power over American business, American consumers and the overall U.S. economy." The majority agreed the CFPB is unconstitutional because it is not subject to the constitutional system of checks and balances.

Other independent agencies, Judge Kavanaugh then noted, were governed by boards in which a variety of views are typically presented. In contrast, the unelected director of the CFPB wields more individual power than any federal official other than the president, the judge concluded.

Read the entire article at THE POST and COURIER

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