Archives

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.

Commentary

Payday loansPayday lenders (and other short-term lenders) along with their trade associations have spent more than $13 million on lobbying and campaign donations since 2013, according to a new report put out by the Americans for Financial Reform (AFR).

The report is particularly troubling because it comes at a time when the government is finally beginning to crack down on “quick-fix” lenders, who are known for trapping vulnerable cash-strapped borrowers in cycles of debt by charging obscenely high fees in exchange for an immediate payout. The Consumer Financial Protection Bureau is expected to announce a set of rules next year that could bring dramatic changes to the payday lending market. Additionally, the Department of Justice has been zeroing in on banks and payment processors that knowingly facilitate fraud. The only enforcement action brought by the Justice Department in this operation (known as “Operation Choke Point”) so far has been in North Carolina. The Four Oaks Bank & Trust of North Carolina in collaboration with a Texas-based payments company was found to have processed around $2.4 billion in illegal transactions including those benefiting payday lenders. Read More

Commentary

As reported earlier this week, a committee of the General Assembly will meet tomorrow to, by all indications, recommend legislation to loosen regulations on mortgage brokers. As also reported in the story, consumer advocates believe that the proposals to lower bonding requirements and do away with  the requirement of audited financial statements for regulated businesses is the direct opposite of what ought to be done. These facts remain beyond dispute.

Since the story ran on Tuesday, however, it’s come to my attention that another central premise — that tomorrow’s meeting was scheduled for the Friday before the Christmas holiday to help keep the matter flying under the radar of public scrutiny — may be in error (or, at least, an overstatement).

According to information forwarded to me last night, it does appear that various legislative deadlines and the limited availability of various members of the Committee on Banking Law Amendments on other dates played a significant role in the scheduling of the meeting for tomorrow. By all reports, the chairman of the Committee, Rep. Jonathan Jordan, has run an open process and allowed all parties and points of view to be heard as the committee has moved forward with its work.

And so, while is is clearly true that a) the proposed legislation is strongly opposed by consumer advocates as an unwise giveaway to a troubled industry, b) the scheduling of tomorrow’s meeting can’t help but minimize the public attention on what ought to be a controversial proposal and c) the best solution would have been for the committee in question to simply abandon its work on the subject (or at the least to have approached the process with greater foresight from the beginning so as to have been able to complete its work at a time in which its actions would have received a great deal more sunlight), it was incorrect to imply that tomorrow’s schedule was arranged for the sole purpose of evading public scrutiny.

Commentary

Payday loansThe Charlotte Observer hits a home run this morning with this editorial entitled “An industry that hasn’t been missed.” As the authors make clear, North Carolina elected leaders should continue to use all tools at their disposal to resist the efforts of “payday loan” sharks to reintroduce their predatory (and long banned) 400% loans into our state. The conclusion of the editorial sums things up nicely:

“Congress recognized the predatory nature of the industry and in strong bipartisan fashion in 2007 capped interest rates at 36 percent APR on loans made to active military members and their families. It was right for our armed forces, and it’s right for everyone else.

It’s not a partisan issue. Many Republicans and Democrats alike oppose the practice, and some in each party support it. Whether you’re morally offended by a 400 percent interest rate or just see the damage it does to those who can least afford it, there’s a lot not to like.

Congress should ban the practice nationwide. Until that happens, the Consumer Financial Protection Bureau should install rules banning some of the most nefarious practices. And North Carolina legislators should stand firm and tell payday lenders: We don’t want your money.”

Click here to read the entire editorial.

And click here to get the full skinny on this morally bankrupt industry.