More Stupid Things Lenders Do

By | Feb 20, 2015

Stupid things payday lenders doMore Stupid Things Lenders do.

John Q. called me this morning. He owns a payday loan and car title lending store. He wants to “tighten up” his operation and open 3 more locations. I advised him to get a loan at “your biggest, baddest competitor in your market in order to copy and emulate their contracts, disclosures, licensing, and sales pitches.” In the past, this advice USUALLY helps. BOY DID I SCREW UP! Turns out John’s “biggest, baddest competitor” was CashCall operating in California. 

PRESS RELEASE DEPARTMENT OF BUSINESS OVERSIGHT

Lender CashCall to Pay Restitution, $1 Million in Penalties and Costs to Settle Case with DBO

SACRAMENTO – The Department of Business Oversight (DBO) announced a settlement with CashCall, Inc. that requires the lender to provide restitution to thousands of California borrowers, reform its business practices, and pay the DBO $1 million in penalties and cost reimbursement.

The DBO alleged CashCall used deceptive sales pitches and marketing practices to dupe consumers into taking out personal loans of $2,500 or more even though the customers didn’t need or want to borrow that much money. Here’s how the alleged scheme worked:

  1. In ads, CashCall said it provided personal loans of “up to” $2,600, $5,000 or $10,000. But when consumers called or visited CashCall’s website, they were told the firm did not make loans of less than $2,600.
  2. If consumers informed CashCall they wanted a loan of less than $2,600, CashCall told them they could just give back the amount they did not want in the form of a prepayment. That way, CashCall told consumers, they could net substantial savings on interest payments.
  3. However, CashCall failed to tell consumers that since the loan was for $2,600, the firm could charge unlimited interest rates. On loans of less than $2,500, in contrast, state law generally caps interest rates at about 30 percent. On the loans at issue, CashCall typically charged annual interest of 135 percent or more, and sometimes up to 179 percent.
  4. To make matters worse in these cases, the DBO alleged CashCall often failed to withdraw scheduled monthly payments from customers’ bank accounts. That had the effect of lengthening the loan term and reducing any interest savings.

“CashCall engaged in a large-scale predatory lending scheme,” said DBO Commissioner Jan Lynn Owen.

“This settlement holds the company accountable for its unlawful conduct and compensates the victims of these unscrupulous practices.”

The settlement resolves allegations filed by DBO last year that CashCall unlawfully deceived consumers, filed false reports with the Commissioner and made false representations to the Commissioner.

CashCall will pay wronged borrowers $125 each in restitution. The final number of eligible borrowers and the ultimate restitution total will be determined by a third-party auditor who will examine CashCall’s files.

CashCall’s preliminary review of its files indicates thousands of customers will receive restitution. CashCall must make the restitution payments within 90 days.

State law caps interest rates on consumer and commercial loans made by non-bank lenders. But the limits only apply to loans smaller than $2,500. The law imposes no interest rate restrictions on loans of $2,500 or
more.

To prevent similar violations in the future, the settlement requires CashCall to reform the way it conducts business.

In all ads that market non-mortgage and non-auto loans to Californians, CashCall now will disclose in a “clear and conspicuous manner” that the minimum loan amount is $2,600. Additionally, when customers say they want to borrow less than $2,600, CashCall now will have to tell them the firm does not make loans for less than that amount, that state law caps interest rates on loans of less than $2,500 at about 30 percent, and that the capped rate is lower than the rate CashCall charges. The firm will implement additional consumer protection reforms required by the settlement agreement.

Link to original press release: DBO

Guys, this is just plain stupid if true. Maybe CashCall decided it’s cheaper to pay the mickey-mouse fine rather than litigate. Who knows! Just don’t do stupid stuff!

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Two New Payday Loan Studies Reveal Merits

By | Feb 11, 2015

“Two new Payday Loan Studies Cast Doubt on Need for New CFPB Rules for the Payday Loan Industry.”

Two new payday loan studies were issued recently whose results “fly in the face” of the standard “muck” thrown about by the CFPB, the CRL and the DOJ .

1) A Columbia Law School Professor, Ronald Mann, released a study entitled, “Do Defaults on Payday Loans Matter?” Professor Mann compared the credit score change over time of borrowers who default on payday loans to the credit score change over the same period of those who do not default.

His study revealed:

  • Professor Mann’s study revealed credit score changes for borrowers who default on payday loans differ immaterially from credit score changes for borrowers who do not default.
  • The fall in credit score in the year of the borrower’s default overstates the net effect of the default because the credit scores of those who default experience disproportionately large increases for at least two years after the year of the default.
  • The payday loan default cannot be regarded as the cause of the borrower’s financial distress since borrowers who default on payday loans have experienced large drops in their credit scores for at least two years before their default.

Professor Mann’s findings “suggest that default on a payday loan plays at most a small part in the overall timeline of the borrower’s financial distress.” He further states that the small size of the effect of default “is difficult to reconcile with the idea that any substantial improvement to borrower welfare would come from the imposition of an “ability-to-repay” requirement in payday loan underwriting.”

2)Kennesaw State University Professor of statistics and data science, Jebnnifer Lewsi Priestly, released a second study entitled, “Payday Loan Rollovers and Consumer Welfare.” Professor Priestley evaluated the effects of sustained use of payday loans.  She concluded that borrowers having a higher number of rollovers experienced more positive changes in their credit scores than borrowers with fewer rollovers.  She observes that such results “provide evidence for the proposition that borrowers who face fewer restrictions on sustained use have better financial outcomes, defined as increases in credit scores.” [My dear readers, this is HUGE!]

According to Professor Priestley, “not only did sustained usage not contribute to a negative outcome, it contributed to a positive outcome for borrowers.” She also notes that her findings are consistent with findings of other studies that because consumers’ inability to access payday credit, whether generally or at the time of refinancing, does not end their need for credit, denying access to original or refinance payday credit may have welfare-reducing consequences.

Professor Priestley also found that a majority of payday borrowers experienced an increase in credit scores over the time period studied.  However, of the borrowers who experienced a decline in their credit scores, such borrowers were most likely to live in states with greater restrictions on payday rollovers.   She concludes her study with the comment that “despite several years of finger-pointing by interest groups, it is fairly clear that, whatever the “culprit” is in producing adverse outcomes for payday borrowers, it is almost certainly something other than rollovers—and apparently some as yet unstudied alternative factor.”

Now the question for you, Reader: Will these two academic reports be considered by the fine regulators at the CFPB? Will these reports see the light of day? Or will our opponents: the banks, the credit unions, CRL, pawn, BHPH, RTO… overshadow our efforts with lobbying and political contributions that exceed ours? Will our 14M+ clients jump in the frey and tell the CFPB to “Let our people be free to choose?”

U.S.residents are hoping the CFPB gets this right. A loss of access to small dollar credit products would have a devastating effect on our economy. Families unable to borrow a few hundred dollars to buy medicine, fix the car in order to keep their job, or buy some groceries to last until the end of the week will not be better off than they are today.

We have little expectation that the CFPB will consider these studies.  It’s a shame the CFPB has not had the wherewithal to launch their own research studies.    A data driven regulator as our expectation. It appears this may not be the case. Too bad!

Jer@PaydayLoanIndustryBlog.com

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Car Title Loan Lenders Settle with Federal Trade Commission

By | Jan 30, 2015

Whatever your car title loan, payday loan, installment loan business… practices are, DISCLOSE THEM fully and simply. Do not deceive your customers or your employees.

Car Title Loan Stores  Settle Charges They Deceptively Advertised the Cost of Their Loans.  Businesses Failed to Disclose Qualifications for “Zero Percent” Loan Offers.

The Federal Trade Commission has taken action for the first time against two car title lenders, reaching settlements that will require them to stop their use of deceptive advertising to market title loans.

In administrative complaints issued against two title lenders, First American Title Lending of Georgia, LLC, and Finance Select, Inc., the FTC charged that “the companies advertised, both online and in print, zero percent interest rates for a 30-day car title loan without disclosing important loan conditions or the increased finance charge imposed after the introductory period ended.”

“This type of loan is risky for consumers because if they fail to pay, they could lose their car – an asset many of them can’t live without,” said Jessica Rich, director, FTC’s Bureau of Consumer Protection. “Without proper disclosures, consumers can’t know what they’re getting, so when we see deceptive marketing of these loans we’re going to take action to stop it.”

Car title loans are high cost installment loans with payments due over several months. The annual percentage rate of a car title loans easily exceed 300 percent. Fees add up fast and failure to pay on a timely basis results in a “repo;” forfeiting the vehicle.

The FTC charged that First American Title Lending, operating 30+ locations in Georgia, advertised a zero percent offer (in English and Spanish) and failed to disclose that the borrower had to meet specific conditions to receive that rate.

  • The borrower had to be a new customer
  • Repay the loan within 30 days
  • And pay with a money order or certified funds, not cash or a personal check.
  • If a borrower failed to meet those conditions, the offer did not apply, and he or she would be required to pay a finance charge from the start of the loan.
  • The company’s advertisements also failed to disclose the amount of the finance charge after the introductory period ended.

The FTC alleged Finance Select, doing business as Fast Cash Title Pawn, failed to disclose that:

  • Unless a loan was paid in full in 30 days
  • The zero percent offer did not apply
  • And that a borrower would have to pay a finance charge for the initial 30 days of the loan in addition to any finance charges incurred going forward.

Fast Cash, which has five locations across Georgia and two in Alabama, also failed to disclose how much the finance charge would cost a borrower after the 30-day introductory period was over.

As part of the proposed settlements with First American Title Lending and Fast Cash Title Pawn, the respondents are prohibited from:

  • Failing to disclose all the qualifying terms associated with obtaining a loan at its advertised rate;
  • Failing to disclose what the finance charge would be after an introductory period ends;
  • And misrepresenting any material terms of any loan agreements.

In addition, First American Title Lending is also prohibited from stating the amount of any down payment, number of payments or periods of repayment, or the amount of any payment or finance charge without clearly and conspicuously stating all the terms required by the Truth in Lending Act and Regulation Z.

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Bank Accounts for Payday Loan, Check Cashers and MSB Lenders

By | Jan 28, 2015

Great news today for consumers and small dollar lenders regarding bank accounts:

Financial Institution Letter
FIL-5-2015
January 28, 2015

Statement on Providing Banking Services

The FDIC encourages insured depository institutions to serve their communities and recognizes the importance of the services they provide. Individual customers within broader customer categories present varying degrees of risk. Accordingly, the FDIC encourages institutions to take a risk-based approach in assessing individual customer relationships rather than declining to provide banking services to entire categories of customers, without regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk. Financial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customer operating in compliance with applicable state and federal law.

The FDIC is aware that some institutions may be hesitant to provide certain types of banking services due to concerns that they will be unable to comply with the associated requirements of the Bank Secrecy Act (BSA). The FDIC and the other federal banking agencies recognize that as a practical matter, it is not possible for a financial institution to detect and report all potentially illicit transactions that flow through an institution.1 Isolated or technical violations, which are limited instances of noncompliance with the BSA that occur within an otherwise adequate system of policies, procedures, and processes, generally do not prompt serious regulatory concern or reflect negatively on management’s supervision or commitment to BSA compliance. When an institution follows existing guidance and establishes and maintains an appropriate risk- based program, the institution will be well-positioned to appropriately manage customer accounts, while generally detecting and deterring illicit financial transactions.

Any FDIC-supervised institution concerned that FDIC personnel are not following the policies laid out in this statement may contact the FDIC’s Office of the Ombudsman (OO) at the following dedicated toll-free number, 1-800-756-8854, or dedicated email address, bankingservicesOO@fdic.gov. Communications with the OO are confidential. The FDIC also has an independent Office of Inspector General (OIG) that is charged with addressing allegations of waste, fraud, and abuse related to the programs and operations of the FDIC. Individuals or institutions may contact the FDIC OIG through its Web site at www.fdicoig.gov by using the “Hotline” button, by phone at 1-800-864-3342, or by email at ighotline@fdic.gov.

Doreen R. Eberley
Director
Division of Risk Management Supervision

Here’s a link to the FIL and the “Letter:” https://www.fdic.gov/news/news/financial/2015/fil15005.html

 

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PDL and Car Title Lenders: Tired, Outdated and Destined for the Junk-Heap

By | Jan 27, 2015

Man, there’s always something. Guess I could get a job at a nice Subway sandwich shop and get on O’Bama Care. Have a bunch of kids and qualify for an Earned Income Tax Credit of a few grand. Add some food stamps, Section 8 housing, a few cash deals selling cannabis on the side. Hell, I’m allowed 99 plants in Calif according to MyPotGuru.com.

Think I’ll sell some books! A lot easier. “How to Grow Cannabis in Your Closet Tax Free.” Better, “RENT-TO-OWN Cannabis Grow Pots!”

We just completed a 1 month survey of payday loan stores and car title lenders.

Total stores involved 767 in Calif., Nevada, Arizona, and Washington.

Total approved 1st time transactions: 97,409

Consumers who physically visited a store OR emailed/faxed/called and eventually were approved found the lenders via:

  • Signs 55% = 53,575 loans
  • Referred by friend/family: 14% = 13,637 loans
  • Referred by auto mechanic, tire shop, radiator repair…9% = 8,767 loans
  • Online search with an immediate call/text to the store: 19% = 18,508 loans
  • Direct mailer: 3% = 2,922 loans
  • Yellow pages: Ha Ha

So… does your loan management software reveal these stats to you? Are your employees trained to input this data accurately and consistently?

Do you review it and make adjustments monthly?

Do you check your Yelp ratings and respond to input?

Facebook?

You gotta a Twitter guru in your store?

What’s your sign look like? No, I don’t mean are you a Scorpio like me!

Gotta website? How’s it look on your phone? Got a click to call button? A Map button? Ah… you gotta at least have a text button?

Sponsors

 AutomobilePawn.com

 PaydayManual.com 

No? You’re screwed! You’re tired, outdated and destined for the junk-heap. Don’t waste your money on the CFSA convention. Take what meager cash you have left and get a Juicery Franchise. At least you won’t have CFPB headaches coming at you like a freight train!

Oh wait! Probably some kind of health dept. already looking for you. And the firemen inspectors will be paying your juice shop a visit real soon. Don’t want any expired fire extinguishers at $5000 per infraction on the premises.

Need a bank while we’re at it? Forget it. Guns, ammo, payday loan, gaming, porno, multi-lvel marketing are all OUT of banking thanks to operation “Choke Point.” Even the cannabis industry is trying to figure this out.

I got an idea? How about growing cannabis on tribe lands? The FED’s just stated they won’t bother the federally recognized tribes. They’re a sovereign nation! Grow it and deliver to the dispensaries via DRONES! That’s it!! Bet I know a few tribes that would create/pass a marijuana growers economic development board. Issue some licenses… I know a great Northern Calif. grower who would be happy to be their grower Guru: MyPotGuru

Oh, shit! We’re gonna need a bank! Wait! I gotta a tribe owned credit union. Would that work?

OK, where’s all the lawyers and compliance guys when I need them?

Gotta get an app made to hookup with my local budtender… A Hemp Exchange to bring growers and dispensaries together. Form a testing lab to guaranty consistency. Then I’ll need a packaging company to create adult compliant, kid safe, dog safe sealed packaging. Shucks, I’ll probably need the FDA to approve my packaging. And the Bureau of Indian Affairs may want a meeting.

Guess I’ll just eat an edible chocolate night train brownie, analyze my loan management software stats and relax knowing the CFPB is protecting me from myself.

Got an idea? Want to talk? Jer@TrihouseConsulting.com or I’m an advisor at MyPotGuru@MyPotGuru.com

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