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Payday debt trapFederal regulators at the Consumer Financial Protection Bureau are moving ahead with the development of rules to regulate the predatory payday lending industry and this is excellent news for vulnerable consumers in dozens of states. One sizable potential problem with the effort, however, involves states like North Carolina that have already had the good sense to ban the predators outright.

According to consumer advocates, if the feds aren’t careful in how they draft the new rules, they might conceivably legalize payday loans in places like North Carolina even as they’re cracking down on it in other states. Recently, dozens of the advocates in the states where payday loans  are already illegal (including several here in North Carolina) wrote the CFPB Director Richard Cordray urging him to carefully tailor any new rules to avoid  this problem.

In the letter, advocates urged the CFPB “to issue final rules that build on, rather than undermine, strong state protections and that enhance our ability to enforce them.”

The groups continued: “Indeed, it would be unacceptable for the CFPB to issue weak payday lending rules, which would likely usher in a new wave of predatory lending in non-authorizing states and throughout the country.”

Let’s hope the agency sees the obvious wisdom of allowing states to enact and keep consumer protection laws that are stronger than the soon-to-be implemented rules and of keeping the federal standards as a basic consumer protection floor, rather than a ceiling.

Click here to read the letter.

And for more information on stopping the payday lending debt trap, click here.

 

Commentary

Opposition to abusive lending cuts across the political spectrum. In fact, it has been uniting people for thousands of years.

In North Carolina, we have a proud bipartisan tradition of protecting consumers. As Rob Schofield wrote recently,  a 2009 consumer protection law that is one of the strongest in the country prevents some of the worst types of debt buying practices.

But there are efforts to undermine this common-sense law.

A News & Observer editorial from yesterday offers a good capsule summary:

In North Carolina and elsewhere, some of those debt buyers got aggressive and deceptive in their collection techniques, including filing lawsuits that could keep consumers in court forever.

In response to such abuses, the North Carolina General Assembly in 2009 passed a consumer protection law that held the debt collectors to reasonable standards of behavior. For example, as of now those collectors have to present detailed information about the delinquent debt they’re trying to collect, including when and where it originated and the amount of fees and interest that were agreed upon by the consumer. The disclosure requirement and other consumer protections came in response to a surge in lawsuits from debt collectors targeting people who didn’t owe a debt or had resolved it.

Now a peculiar bill proposed by Sen. Mike Lee, R-New Hanover would do away with some of standards for collectors, making it easier for them to push ahead with suits. The collectors wouldn’t need to have that detailed information, for example.

The N&O describes this, accurately, as “sticking it to the average citizen.” We have a choice between protecting the people suffering from a tough economic situation, or changing the law in favor of the companies trying to extract capital from them.

The protections now in place are good ones. They help average people. They don’t change the obligation to pay true debts, or provide free passes away from legal action.

The rules simply require debt collectors to prove their demands are legitimate. That’s a fair standard and it should stay.

North Carolina’s simple but effective consumer protections are hard-won and effective. Let’s let them keep working by leaving them in place.

Commentary

Loan sharksState lawmakers have been taking a spring break this week and given the flood of disturbing bills introduced of late, it’s enough to make you wish they’d just stay away. Two new anti-consumer bills pushed by predatory industries make for classic cases in point.

As is detailed on the main NC Policy Watch site this morning by veteran bankruptcy attorney William Brewer, Number One is the proposal to introduce wage garnishment in North Carolina for general debts like credit card bills. As Brewer explains, this proposal would end a nearly 150 year-old rule in North Carolina that general creditors cannot seize money from people that is necessary to support their families.  It would also unleash a a bevy of predatory national profiteers that buy up old consumer debt for pennies on the dollar and, perhaps most disturbingly, spark a wave of bankruptcies. Here’s Brewer:

“As practical matter, the only refuge for such an unfortunate wage earner will be to file bankruptcy. But here’s the rest of the story: North Carolina has one of the lowest bankruptcy filing rates in the nation. For the first quarter of 2014, the national average for bankruptcies was 3.23 for every 1,000 people. North Carolina ranked 40th among the states with a rate of 1.82.

By contrast, the rates in our sister states in the southeast that allow with wage garnishment along the lines of Senator Brock’s proposal are the highest in the nation. Tennessee is first with a rate that’s 350% of North Carolina’s. Georgia and Alabama are second and third with three times the North Carolina rate. Virginia has a rate 70% higher than North Carolina. South Carolina, which has no wage garnishment, has a filing rate 13% lower.

The conclusion from all this is inescapable: if the General Assembly and Gov. McCrory enact a law that dramatically expands wage garnishment in our state, bankruptcy filings will soar by 200-300%.”

Sadly. debt buyer lobbyists aren’t the only ones pushing lawmakers to soak struggling consumers. The high-interest finance companies are back with yet another bill to jack up rates on small consumer loans — i.e. the ones they succeeded in raising just a couple years ago.

As Raleigh’s News & Observer explains this morning, the new bill would send effective interest rates on these loans into the stratosphere: Read More

Commentary

Payday loans.jpgThe federal Consumer Financial Protection Bureau is unveiling some long-awaited proposed rules targeting the predatory payday lending industry at a big hearing in Richmond, Virginia today and you can follow along on Twitter at the hashtag #StoptheDebtTrap. Generally, the proposed rules amount to a promising start. There are, however a few worrisome potential loopholes. The good people at the Center for Responsible Lending explain:

Consumer Financial Protection Bureau to Limit Payday Loan Debt Trap; Curb 400% Interest Rate Loans

The Consumer Financial Protection Bureau will offer a first look at where the agency’s efforts to rein in the abusive practices of payday and car title lenders are headed at a Thursday hearing in Richmond, VA. The consumer agency will release information outlining their deliberations and take testimony from a panel of consumer and civil rights advocates as well as industry representatives.

Mike Calhoun, President of the Center for Responsible Lending, will present testimony at the hearing.

Calhoun comments on the proposal:

“The proposal endorses the principle that payday lenders be expected to do what responsible mortgage and other lenders already do: check a borrower’s ability to repay the loan on the terms it is given. This is a significant step that is long overdue and a profound change from current practice. If made mandatory, the ability to repay standard will help millions of borrowers avoid dangerously high-cost payday and other abusive loans. The requirement would prevent debt traps, an all-too common practice where a lender flips loans over and over and the consumer ends up paying double the amount borrowed in interest and fees. And the Bureau appropriately applies the standard to both shorter and longer term loans, including vehicle title loans.

At the same time, we are deeply concerned about provisions in the proposal, the so-called “debt trap protection options,” which would in fact permit payday lenders to continue making both short- and longer-term loans without determining the borrower’s ability to repay. The industry has proven itself adept at exploiting loopholes in earlier attempts to rein in the debt trap. The consumer agency can look to necessary revisions to the Military Lending Act after widespread abuses were found, dragging active service members into debt so damaging that a Defense Department report found it undermined military readiness.

These “options” are an invitation to evasion. If adopted in the final rule, they will undermine the ability to repay standard and strong state laws, which give consumers the best hope for the development of a market that offers access to fair and affordable credit.

We urge the consumer bureau to adopt its strong ability to repay standard without making it optional.”

Let’s hope the regulators are listening.

Commentary
Photo: MoneyMutual

Photo: MoneyMutual

There is another small ray of good news today in the long-term battle to rid the nation of the predatory scalawags in the payday loan racket. After years as serving as the well-compensated barker for the sharks at MoneyMutual, TV pitchman Montel Williams has announced that he will stop endorsing the company. The announcement came just a day after the New York Department of Financial Services announced a settlement with owners of MoneyMutual that prohibits the company from doing business in New York and requires it to pay a $2.1 million penalty. Give you any ideas, Attorney General Cooper?

This is from the settlement announcement:

Superintendent [of Financial Services Benjamin] Lawsky said: “Using Mr. Williams’s reputation as a trusted celebrity endorser, MoneyMutual marketed loans to struggling consumers with sky-high interest rates – sometimes in excess of 1,300 percent – that trapped New Yorkers in destructive cycles of debt. The company made special efforts to target the more than 55 percent of their customers who were ‘repeat clients’ – including so-called ‘Gold’ customers who took out a new loan to pay off a previous loan. We are pleased that they have agreed to resolve this matter and stop marketing these illegal, usurious loans to New York consumers. Our investigation into the lead generation industry continues.”

Today’s MoneyMutual agreement is the first successful enforcement action against a payday loan “lead generation” company penalizing it for its unlawful conduct. Lead generation firms do not typically make payday loans directly, but instead set up websites marketing those illegal loans. Through promises of easy access to quick cash, the lead generation companies entice consumers to provide them with sensitive personal information such as social security and bank account numbers, and then sell that information to payday lenders operating unlawfully in New York and other states. In December 2013, DFS issued subpoenas to 16 online “lead generation” firms, including Selling Source/MoneyMutual, which were suspected of deceptive or misleading marketing of illegal, online payday loans in New York.

Let’s hope state officials keep Selling Source (aka “MoneyMutual”) on the run and that, at some point, Mr. Williams offers a public apology to the thousands upon thousands of vulnerable Americans he’s helped connect to these sharks. We won’t get our hopes up, though, that he returns the gazillions of dollars he’s no doubt been paid or, better yet, donates it to a worthy cause.