ALTERNATIVE FINANCIAL SERVICE PROVIDERS ASSOCIATION

Why The Final Payday Lending Rules Are Far From The Last Word

Last week, after five years of debates, discussions, arguments and waiting, the Consumer Financial Protection Bureau's (CFPB) final rules for payday lending dropped.

As one might expect after such a long and intense build-up, the reactions were also fairly intense from both sides.

Perhaps less expected is where opinions came together, because outside the standard reaction camps, a consensus is building.

No one will argue the point that regulation is not necessary or that abuses don't happen. But whether what is on offer from the CFPB is the set of regulations a multibillion-dollar-a-year industry that serves tens of millions of Americans who seem to desperately need its services are the right set of regulations is where there are differences of opinion.

The opinions get more nuanced, even in places where one might not expect to see them. Reading through the collective reactions of the financial services ecosystem over the last seven days makes one thing very clear:

The CFPB may have called its payday lending regulations a final draft, but this process is far from over.
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So, stay tuned. A lot of regulators, legislators, judges, consumer advocates, lobbyists and lawyers have an awful lot of arguing left to do.

It might have been the CFPB's final rule, but it will be far from the final word. 

Read more at PYMNTS.COM

Congress Should Roll Back New Payday Loan Rule

The hysteria in Washington around the release of the Consumer Financial Protection Bureau's final short-term, small-dollar loan rule has been immense as of late. With the final rule issued late last week, it largely lived up to the hype.

The content of a federal rulemaking, while devastating for the payday loan industry, wasn't all that was at stake. The CFPB's Director Richard Cordray has long been expected to run for Governor of Ohio once the rule was finalized. With reports flowing in that Cordray plans to make the announcement any day now, the speculation is well-founded.

The biggest dark horse, however, came from an unlikely source. The national bank regulator, the Office of the Comptroller of the Currency, rescinded regulatory guidance that made it more difficult for banks to offer deposit advance, a payday loan-like product, only hours after the CFPB released their rule. This sent those who follow financial regulation into a tail spin.

With all of that in mind, let's start from the beginning.

The final small-dollar rule is largely as predicted, with a few caveats. The final rule is applied only to shorter-term loans, exempting longer-term loans for further study. The rule also exempts community banks, credit unions and any other lenders that have less than 10 percent of their business in the loans.

But the crux of the final rule remains the same. It will force lenders to conduct an "ability to repay" assessment of customers to ensure that borrowers can repay the loans and fees within two weeks, it will cap the amount of times a customer can roll over a loan at three, and it will prevent lenders from charging a customer's checking account after two unsuccessful attempts.

These restrictions may seem well-intended, but as The Wall Street Journal editorial board reports, "they in effect allow loans only to unprofitable customers with good credit and prevent lenders from taking recourse against borrowers who don't pay their bills."

Consumer bankers say CFPB too hasty in finalizing payday lending rule

The Consumer Financial Protection Bureau's (CFPB) new payday lending rule, which requires lenders to determine upfront whether people can afford to repay their loans, has drawn criticism from the Consumer Bankers Association (CBA).

The rule covers loans that require consumers to repay all or most of the debt at once, including payday loans, auto title loans, deposit advance products, and longer-term loans with balloon payments. The bureau found that many people who take out these loans end up repeatedly paying expensive charges to roll over or refinance the same debt.

The CFPB rule aims to stop these "debt traps" by putting in place ability-to-repay protections. These protections apply to these small-dollar loans that require consumers to repay all or most of the debt at once.

"The CFPB whiffed at an opportunity to provide assistance to the millions of Americans experiencing financial hardship," CBA President and CEO Richard Hunt said. "It is hard to believe just days after the CFPB reported more than four in ten Americans were struggling to pay monthly bills - often because of unexpected or emergency expenses - the Bureau would drive Americans to pawnshops, offshore lenders, high-cost installment lenders and fly-by-night entities."

CBA said the CFPB should have worked with other regulatory agencies to examine the use of small-dollar lending programs, such as deposit advance products, so consumers can receive short-term, emergency loans from their banks. Read more at FINANCIAL REGULATION NEWS

Consumers Harmed By Consumer Protection Bureau - Again. by IAIN MURRAY

Yesterday, the Consumer Financial Protection Bureau issued yet another rule that will harm consumers. A new rule on small dollar loans will kill off about 75 percent of the existing small dollar loan industry, according to the Bureau's own figures. Yet the Bureau and its boosters like to talk about how much it is helping consumers, cracking down on wrong-doers and returning money to consumers. What they don't admit is that regulators are making life difficult for many consumers - especially those on the margins of the banking system. Or that regulators missed the biggest frauds and missteps, like the Equifax security breach, until many consumers were harmed. Taken together, these problems mean that the CFPB may be doing as much harm as good.

For many people, the biggest consumer financial decision they will make is buying a house. Yet in these days of stagnating wages, high student loan debt, and house prices as expensive as before the financial crisis, it is harder and harder to own a home. Interference by the Bureau has not helped. Its "Qualified Mortgage" requirements result in fewer people able to get loans. According to a 2013 study by the Federal Reserve, 22 percent of people who got home loans in 2010 - after the financial crisis made banks much more wary of lending - would not qualify for a home loan under the CFPB rules.

The situation is even worse for the "underbanked" - people at the margins of the banking system. Many of them prefer to get their earnings on a prepaid debit card, which acts like a portable bank account. CFPB rules aim to make such cards much more difficult to use. Piling on, the new small dollar rule will likely kill off financial service centers that provide services to people who, surveys find, feel already frozen out of the banking industry. With banks too expensive for them and the alternative access to debit cards and loans regulated out of existence, they may have nowhere to turn to except illegal loan sources when they need hard cash and quickly (something the Bureau simply asserts will not happen). In other words, the CFPB's regulatory powers are a double-edged sword. Read more at NATIONAL REVIEW

Overcoming Regulatory Barriers to Serving the Underserved. by Iain Murray

How many people are pushed to the fringes of the banking system by Dodd-Frank regulations? How will the CFPB's new regulations prevent the underserved from accessing financial services? Iain Murray discussed these issues and more as the keynote speaker at the Financial Service Centers of America Annual Conference and Exposition held October 5, 2017 in Las Vegas, Nevada. Read an excerpt below or view his full remarks here.

Our research tells us that the overall burden of regulation on the American economy now reaches $1.9 trillion annually. That's almost $15,000 per household, and a quarter of the average household expenditure budget of $56,000. We spend more per household on regulation that we do on health care, food, transportation, and entertainment.

Those costs translate into real problems. Households face hardship. Jobs are not created. Businesses are not started.

Worse, jobs can be eliminated, services closed off, and businesses shuttered when regulation increases - leading to yet more hardship for the people affected. You know this, because you are all under threat from the regulation the Consumer Financial Protection Bureau finalized yesterday.

It's all the more ridiculous when we consider the good work you do. As I mentioned before, I used to find it hard to get cash when I needed it. For a variety of reasons, the number of people underserved by traditional banking arrangements has increased since then - about 80 million people, as Joanne noted.

One important factor besides immigration and unemployment was the Dodd-Frank Act of 2010. According to work by Todd Zywicki and colleagues at George Mason University, up to a million people may have been pushed to the fringes of the banking system by regulations introduced by Dodd-Frank. The law increased fees and reduced eligibility for services. Banks drove away marginal customers. Such simple features as checks and overdrafts became too expensive for them.

It was entrepreneurs like you who filled the void. Financial Service Centers have become the go-to places for the underbanked to handle their financial needs. Nor is it just the presence of ready cash - I am sure you all know about Lisa Servon, a professor of city planning at the University of Pennsylvania, who wrote in her book "The Unbanking of America," about how financial service centers fill a vital community and human need.

Read more at COMPETITIVE ENTERPRISE INSTITUTE

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Payday lending rule may lure in lurking loan sharks. by Bert Ely

The Consumer Financial Protection Bureau (CFPB) published its final rule addressing so-called payday loans as well as certain other extensions of credit to consumers on Thursday. These loans are usually small, very short-term (often just a few weeks) and carry a very high effective interest rate after all fees are taken into account.

Troubles can arise for those borrowers who pay off a payday loan and the related interest and fees by taking out a subsequent loan for an even larger amount, trapping the borrower in a debt cycle they often can escape only through a personal bankruptcy.

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The great unknown is what will the short-term, small-dollar-amount consumer lending marketplace look like once the CFPB rule takes full effect. In particular, what distortions will emerge that are harmful to borrowers, and how will lenders lawfully try to sidestep or game the rule, to their advantage?

Almost certainly, the costs imposed on lenders by the new rule, which must be passed through to borrowers, will reduce the amount of small-dollar loans taken out by consumers.

Those effects will not be known, though, for several years. Undoubtedly, the CFPB will be forced to tweak the rule to try to deal with the perceived negative effects of these unintended consequences, which could trigger other unintended consequences.

What the rule cannot address is what will occur outside the regulated marketplace for short-term consumer loans. One perverse and undesirable effect of the rule may be to stimulate the growth of unofficial and unregulated small-dollar lending where effective interest rates are much higher, but where the borrower faces less hassle in obtaining a loan.

Carried to an extreme, the CFPB rule may spark an increase in outright loan sharking, with extraordinarily high interest rates and questionable loan collection techniques.

In various meetings over the years where rules regarding small-dollar consumer lending have been discussed, I have expressed concern about the potential that the CFPB rules may lead to increased loan sharking. I have even joked that perhaps among the advocates for these rules is the (non-existent) National Association of Loan Sharks.

My concerns about the potential for increased loan-sharking as the CFPB rule takes effect were quickly dismissed. Time will tell if that was wise.      Read more at THE HILL

CFPB's Title Lending Rule Has Limited Scope in Auto

The Consumer Financial Protection Bureau released its final rule on payday and title lending on Thursday and largely limited the rule's scope to short-term loans of 45 days or less.

The final rule requires financial institutions offering these short-term, single-payment loans to determine whether the consumer has the ability to repay the loan and places a cap on the number of loans lenders can make to a borrower.

Under the earlier proposed language of the rule, medium- to long-term vehicle title loan lenders - such as Westlake Financial Services' subsidiary Wilshire Consumer Credit - would have been regulated by these restrictions. However, the final rule's 45-days-or-less limit excludes Wilshire, which offers loan terms as low as 18 to 24 months, the company's compliance department confirmed to Auto Finance News.

"The final rule does not apply ability-to-repay protections to all of the longer-term loans that would have been covered under the proposal," the CFPB wrote in its condensed fact sheet. "The CFPB is conducting further study to consider how the market for longer-term loans is evolving and the best ways to address concerns about existing and potential practices."

Especially when it comes to short-term loans, the bureau found there is an incentive to sign up consumers who can't repay, thus trapping them in a cycle of debt repayment. Because it is actually more profitable for the lender when a consumer is unable to pay, many financial institutions in the space ran no checks on the consumer's ability to repay.  Read more at AUTO FINANCE NEWS

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