Operation Choke Point victims, small business owners, decry government overreach
Today, we’re holding a field hearing on payday lending at 12 p.m. EDT in Richmond, Va. The hearing will feature remarks from Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.
Pro or con, YOU MUST view this field hearing. Pay particular attention to the Q & A portion!! Outstanding…
Hope you were smart enough to “short” these two publicly traded payday loan companies:
CFPB Hearing Payday Loans Read This and WEEP!
Prepared Remarks of CFPB Director Richard Cordray at the Field Hearing on Payday Lending
“Under our proposed framework, we define the short-term credit market as loans for 45 days or less. These are typically payday loans or vehicle title loans, but one important feature of our rules is that they would apply to any lender issuing similar short-term loans. The rules thus would cover all firms that offer competing products in this segment of the market through any channel, including both storefront and online lenders.”
“Specifically, the proposals under consideration would require the lender to make a reasonable determination that the consumer could repay the loan when it comes due without defaulting or re-borrowing. This requirement applies to the whole loan, including the principal, the interest, and the cost of any add-on products. Lenders would have to engage in basic underwriting by verifying the consumer’s income, major financial obligations, and borrowing history, and determining that the consumer can meet their obligations, cover basic living expenses, and cover payments on the loan.”
“In cases where the consumer takes out three loans in close succession, there would be a mandatory 60-day cooling-off period after the third loan to give the consumer enough time to recuperate financially before borrowing again.”
“We are considering two alternatives. Under the first alternative, lenders would have to decrease the principal amount for each subsequent loan so that after three loans the debt is paid off. At that point, a 60-day cooling-off period would kick in. Under the second alternative, when the borrower still cannot repay after two rollovers, the lender would have to offer the consumer an off ramp consisting of a no-cost extended payment plan. After that, a 60-day cooling-off period would apply. Under either approach, the lender could not lend more than $500 or take a security interest in a vehicle title, and the lender could not keep the consumer indebted on these loans for more than 90 days in a 12-month period.”
“The second part of our proposal today covers certain longer-term, higher-cost loans. More specifically, the proposal under consideration would apply to credit products of more than 45 days where the lender has access to the consumer’s bank account or paycheck, or has a security interest in a vehicle, and where the all-in annual percentage rate is more than 36 percent.”
“As with short-term credit products, the debt trap prevention requirements would mean the lender must determine, before a consumer takes out the loan, that the consumer can repay the entire loan – including interest, principal, and the cost of add-on products – as it comes due. For each loan, the lender would have to verify the consumer’s income, major financial obligations, and borrowing history to determine whether the borrower could make all of the loan payments and still cover her major financial obligations and other basic living expenses.”
“If the borrower has difficulty repaying the loan, the lender would be barred from refinancing the old loan upon terms and conditions that the consumer was shown to be unable to satisfy in the first place.”
“Alternatively, lenders could adhere to the debt trap protection requirements. We are considering two approaches here. Under both approaches, lenders could extend loans with a minimum duration of 45 days and a maximum duration of six months. Under the first approach, lenders would generally be required to follow the same protections as loans that many credit unions offer under the National Credit Union Administration’s existing program for “payday alternative loans.” These loans protect consumers by charging no more than 28 percent interest and an application fee of no more than $20. Under the second approach, we are considering limiting monthly loan payments to no more than 5 percent of the consumer’s monthly income. This would shield the bulk of their income from being eaten up by repayments, while the six-month limit also prevents the payments from extending in perpetuity.”
“We are also considering new consumer protections about when and how lenders are able to access consumer accounts. To mitigate the problems of racking up excessive overdraft and insufficient funds fees, we are weighing two measures: requiring lenders to notify borrowers before accessing their deposit accounts, and protecting consumers from repeated unsuccessful attempts to access their accounts.”
“The first provision would require lenders to give notice to consumers three business days before trying to withdraw funds from the account, including key information about the forthcoming attempt. The goal here is to protect consumers by giving them more information to help them plan how to manage their accounts and their overall finances.”
“The second provision would require that if lenders make two consecutive unsuccessful attempts to collect money from consumers’ deposit accounts, they could not make any further attempts to collect from the account unless the consumer provided them with a new authorization.”
Here’s the latest PEW Report on car title lenders and consumers.
Of course, PEW takes pot shots at the industry and embraces a cynical evaluation of the car title loan product. However, don’t dismiss the numbers behind their madness. (Be sure to review the bottom of this Post where I’ll reveal the number of participants PEW enlisted for this “Study” on a $3 Billion dollar industry and a link to the actual “Report.”:-) And, start here to learn more about starting a car title loan business.
Pew’s report, “Auto Title Loans: Market Practices and Borrowers’ Experiences” found:
- Title loan customers spend approximately $3 billion annually, or about $1,200 each, in fees for loans that average $1,000.
- The annual interest rates for title loans are typically 300 percent annual percentage rate (APR), but lenders charge less in states that require lower rates.
- The average lumpsum title loan payment consumes 50 percent of an average borrower’s gross monthly income, far more than most borrowers can afford. By comparison, a typical payday loan payment takes 36 percent of the borrower’s paycheck.
- Between 6 and 11 percent of title loan customers have a car repossessed annually. (Note from Jer: THIS IS NONSENSE! Closer to 3%)
- One-third of all title loan borrowers do not have another working vehicle in their households.
- Title loan borrowers overwhelmingly favor regulation mandating that they be allowed to repay the loans in affordable installments.
- One quarter of borrowers use title loans for an unexpected expense. 50% use them to pay regular bills. More than 9 in 10 title loans are taken out for personal reasons; just 3 percent are for a business the borrower owns or operates.
Focus group methodology
Hart Research Associates and Public Opinion Strategies conducted a focus group that was exclusively composed of title loan borrowers in Birmingham, Alabama, in September 2011. In May 2014, Pew also conducted four focus groups composed exclusively of title loan borrowers: two in St. Louis and two in Houston. All participants were recruited by employees of the focus group facilities. All groups were conducted in person, lasted two hours, and included eight to 11 participants. Several other focus groups of small-loan borrowers included one or more title loan borrowers as well.
So is my math correct? 4 focus groups with a max. of 44 participants? CRAZY!!!!!!!!!!!
Here’s a link to the original PEW “Report.” LINK