NEWS: Hawaii fails to cap payday lenders

ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION

NEWS: March 27

NEWS is brought to you by AFSPA Endorsed SUPPLIERS

Hawaii payday lenders will continue to be able to charge an annual interest rate of 459 percent.

Advocates for capping annual interest rates for payday loans in Hawaii - which are now as high as 459 percent - will likely have to try again next year for legislative help.

Rep. Roy Takumi, the new chair of the committee dealing with consumer protection, has deferred a bill that sought to cap rates at 36 percent annually.

Senate Bill 286 sought to prevent consumers who turn to stores like Money Mart for short-term loans from getting caught in a cycle of debt.

Consumer protection groups view the current practice as predatory while the payday lending industry says the bill would put them out of business.

"When I walked into the Consumer Protection and Commerce Committee, my guiding principle was that if I didn't fully understand the bill or if it cries out for a more complex solution, I will defer," Takumi said.

The representative said he worried passing the bill out of the committee would be an "exercise in futility" because it would have gone next to the House Finance Committee. Chairwoman Sylvia Luke removed the interest rate cap on a similar bill two years ago. Read more at HONOLULU CIVIL BEAT

Will CFPB's pre-paid card rule increase consumer fraud

As it stands right now, reports of the demise of the CFPB have been greatly exaggerated. It is still diligently going about its business of protecting consumers from themselves even as it continues to insist that its primary goal is to simply insure that consumers are receiving adequate financial information about the products they are purchasing.

Take for instance the CFPB's final rule extending Regulation E protections to those prepaid reloadable cards that are becoming an increasingly common way for individuals to transact basic banking services without going thru the hassle or expense of opening an account. The basic idea of the Regulation is that consumers who registered their accounts with the institution that issued the pre-paid cards would receive Regulation E style protections in return for financial institutions being able to perform customer identification checks on these new members. The final rule was to kick in on October 1st.

One area of particular concern has to do with extent to which Regulation E's liability protection framework should be extended to the holders of pre-paid account cards. Under existing law a consumer who provides notice of an unauthorized use of a debit card within two business days of learning of the theft, or loss of the card can only be held liable of the lesser of $ 50.00 or the amount of the unauthorized transfer. If notice is received after two business days, the consumer's liability is capped at no greater than $500. Read more at CREDIT UNION INSIGHT

CFPB fines Experian $3 million for lying about consumers' credit scores

Told consumers that purchased scores were same ones that lenders used

Experian, one of the nation's three major credit reporting bureaus, misled consumers by telling them that the scores they purchased from the company were the same ones that lenders used to make decisions, the Consumer Financial Protection Bureau said Thursday.

And for that deception, the CFPB is fining Experian $3 million.

According to the CFPB, Experian developed its own proprietary credit scoring model, which it calls the "PLUS Score." Experian then took that "PLUS Score" and applied it to information in consumer credit files to generate a score it offered directly to consumers.

Experian then marketed and sold the PLUS Score to consumers. The issue? The PLUS Score is "educational" and not used by lenders, the CFPB said.

According to the CFPB, lenders and other commercial users consider a consumers' score when deciding whether to extend credit, but noted that no single score or scoring model is used by every lender.

The CFPB also notes that "in addition to the scores that are actually used by lenders, several companies have developed so-called 'educational credit scores,' which lenders rarely, if ever, use."

Those scores are intended to educate consumers on their credit status. Read more at HOUSINGWIRE

FIVE STEPS IN EXPLORING THE UNIVERSE OF ALTERNATIVE CREDIT DATA by Dan Richard

Gone are the days of traditional generic credit scores being the sole authority on prospective borrowers' perceived credit risk. Lenders today find augmenting these scores with alternative credit attributes greatly increases accuracy in predicting behavior of these consumers, particularly among underbanked or non-prime.

Alternative credit data continues to gain traction in the financial services industry. In fact, 44 percent of lenders are using alternative credit data in their current credit strategies. Example data points include inquiries, originations, balances and delinquencies on short-term loans, as well as application elements including bank accounts, email addresses, payroll types & frequencies, and employment stability.

Another 18 percent plan to explore it immediately and another 12 percent are testing it currently to see how they can apply it to their overall business practices. Yet, changing age-old systems and integrating new policies into business models can often be a lengthy and unnerving process.

Traditional lenders wanting to dip their toe into this unchartered water, should begin by conceptually exploring the universe of alternative credit data with five steps:

Get educated about the predictive, supplemental, non-traditional data available today, by visiting websites and reading blog posts or white papers, like the one on Assembling a Comprehensive Consumer Profile; Identifying New Opportunities with Alternative Credit Data.
Learn what providers exist to offer such data. Research and compare what sets the providers apart, in all areas-the data they provide, the resources they have to support that data, their reputation among their clients and within the industry, and cost.
Once lenders have learned about the alternative credit data providers, they can begin to narrow down the best-fitting solutions that can help achieve or exceed performance goals.
With this in mind, the next step is to evaluate the power of alternative credit data through retro tests on historical portfolios. Such tests on traditional credit data can be conducted with the help of the Big 3 bureaus; and alternative credit data bureaus provide the same robust retro-scoring capabilities of alternative credit data. From testing, lenders will be able to determine:

What's the lift, or return on investment?
How does the new data fit within the existing system? Read more at FACTORTRUST

1 in 3 Americans can't come up with $2,000-here's how much you should be saving

One-third of Americans would not be unable to come up with $2,000 to deal with an emergency like an urgent home repair, medical crisis or car accident.

That's according to a new study released this week from The New York Fed. The survey of consumer sentiment surrounding access to and demand for credit was conducted in February.

While 32.5 percent of survey respondents feel they might need $2,000 to cover an unexpected expense in the next month, almost exactly the same number, 32.8 percent, admit they could not come up with that sum in the next month if faced with an emergency. That percentage has held steady since October 2015.

One of the most common emergencies is a medical expense. Currently, one-third of Americans would not be able to handle a $100 medical bill without going into debt . That's according to a February poll conducted by health-care information firm Amino.

The financial vulnerability of Americans is a reminder that, despite historically low unemployment rates, many in the U.S. are still living paycheck to paycheck.

In February, the unemployment rate was 4.7 percent, according to the Labor Department. In October 2010, the unemployment rate was more than twice that at 10 percent. Read more at CNBC

Judge Dismisses CFPB Lawsuit Against Payment Processor Intercept Corp.

A district court last Friday dealt a blow against the Consumer Financial Protection Bureau (CFPB) by dismissing the CFPB's lawsuit against the payment processor, Intercept Corp., arguing that it failed to present sufficient evidence in the case.

The CFPB filed a lawsuit against Intercept, a North Dakota payment processor, claiming that it processed fund transfers for payday lenders in states where payday loans are illegal.

Judge Ralph Erickson of the U.S. District Court for North Dakota issued a blistering opinion criticizing the CFPB for failing to present enough evidence to file suit against Intercept.

Erickson wrote in his ruling, "Although the complaint need not contain detailed factual allegations, it must contain 'more than an unadorned, the-defendant-unlawfully-harmed-me accusation." He continued, "Formulaic recitations of the elements of a claim or assertions lacking factual enhancement are not sufficient. The facts alleged in the complaint must be plausible, not merely conceivable."

The Consumer Financial Protection Bureau argued that the payment processor ignored warnings from financial institutions of possible illegal activity by clients about unauthorized debits. The agency also alleged the company and its executives did not adequately monitor or respond to consumer complaints and high return rates for insufficient funds or unauthorized charges. Read more at BREITBART

3 ways to optimize your commercial lending department by Philip Burgess

What's the quickest way to assess a business credit applicant's creditworthiness? How can you ensure validity of the information you have at your disposal? How can you reduce the time associated with the loan approval process?

All of the questions revolve around optimizing your commercial lending operations. Here are three ways you can achieve this goal.

1. Automatically copy documents to a compliance system

Regulations often introduce additional costs, causing many financial institutions to refrain from pursuing other business ventures.

For instance, HousingWire commented on a client note from Kroll Bond Rating Agency, which found most commercial lenders pulled out of the residential mortgage space in early 2015, citing high compliance costs as one of the leading causes.

Audits distract your staff from focusing on identifying low-risk, high-return business loans, forcing them to spend time digging up documents on previous agreements or open accounts. To resolve this problem, introduce a system that automatically copies and stores documentation associated with loans throughout the approval process. This reduces the disruption compliance obligations often introduce.