THE BLOG

18
Nov

Banks Close Payday Loan Bank Accounts

“Dear Trihouse Payday Loan Company,

Regretfully, we can no longer service your payday loan company. Although you’ve been a great customer for years and we’ve made a ton of money off of you, you have 30 days to find a new bank. We have no clues, ideas or suggestions for you. You’ve done nothing wrong. We just don’t like your industry.

Sincerely, Wells Fargo Bank.”

“Bank discontinuance” has been an issue for payday lenders, check cashers, and money service businesses for years. The first FISCA conference I attended in 1998 (actually it was then called The National Association of Check Cashers) had a workshop focused on “Bank Discontinuance.”

Funny thing is, Wells Fargo, in addition to CitiBank, Fifth Third and others, provide financing for the “big boys” in the small dollar lending industry!  Adam Rust, an opponent of the payday loan industry, has worked hard at documenting this. From Adam:

“Commercial banks, including Wells Fargo in San Francisco and U.S. Bank, are a significant source of capital for the country’s $48 billion payday loan industry, extending more than $1 billion to companies such as CashNetUSA parent Cash America, Dollar Financial and First Cash Financial.”

I recommend you signup for BankTalk.org. [No affiliation other than that he’s worth following.]

And, get this: Fifth Third bank has re-entered the payday loan industry as a LENDER while shutting down their competition – those of us in the PDL space. Revisions of Fifth Third Bank’s payday loan product called Early Access service include a reduction of the transaction fee from 10% to 3% of the amount of each advance, increasing the repayment deadline for each advance from 35 days to 45 days, and a reduction in the number of months a customer may advance the maximum credit limit from six to three months. Worse, this Fifth Third program gives no attention to a borrower’s ability to pay; an issue we are continually attacked for. The FCC and the OCC have made specific reference to this for pressuring Fifth Third Bank, U.S. Bank, Wells Fargo, Regions and others to shut down these payday loan styled products.

Banks are using “Operation Choke Point” , and every other excuse possible, to shut down the small fish in the payday loan industry. Again, not only are they offering competing products, but they provide capital to the incumbents.

Here is the official announcement from Fifth Third:

On January 17, 2014, Fifth Third Bank announced that it will no longer offer new customers its Early Access deposit advance service after January 31, 2014.

Effective January 1, 2015, Fifth Third Bank is making changes to its Early Access deposit advance service.

The following is a summary of the changes:

  • Lower Cost: Fifth Third is reducing the cost of the Early Access transaction fee from 10% of the amount of each advance to 3% of the amount of each advance. For example, if you advance $100 on or after January 1, 2015, you will be charged $3 instead of $10 for that advance. This will go into effect for each advance made after 9 p.m. ET, December 31, 2014.
  • More Time to Repay: We are increasing the repayment deadline for each advance from 35 days to 45 days. Therefore, any advance or portion of any advance that is still outstanding as of January 1, 2015, must be paid in full by the 45th day from the date the advance was drawn, or the amount will be automatically debited from your associated checking account. (Please remember that Fifth Third will automatically repay your advance from your next direct deposit of $100 or greater until the advance is paid in full.)
  • Reduced Maximum Advance Period: We are decreasing the number of months that you may advance your maximum credit limits from six months to three months. If for 3 consecutive months you have advanced the maximum amount of your credit limit, you will be ineligible for an advance for 30 days following the 3rd month. For example, if you advanced your maximum credit limit in October, November, and December of 2014, as of January 1, 2015, you will be ineligible for an advance for 30 days.
  • “”Fifth Third continues to proactively engage with key stakeholders to review new options for what the bank considers a clear and continued need for small-dollar, short-term credit solutions,” it said in a news release. “A primary objective is to serve customers within the traditional banking system, rather than having them access less-regulated providers outside the banking system.”

The gall!! The audacity!! The boldness!!! Astounding? No! Remember, I’m talking about A BANK. And let’s not forget these banks get money from the FED at discount rates that would cause a loan shark to blush, then loan it to consumer facing lenders such as World Acceptance, CSH, DLLR, Enova, QC Holdings at prime + 500 basis points.

Bottom line? If you have a bank, get a backup. If you lost your bank, SORRY! If you’re a small bank with aspirations to become much larger and collaborate with successful, licensed lenders with serious AML programs in place, call Jer at 702-208-6736 or shoot an introductory email to Jer@TrihouseConsulting.com

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12
Nov

PAYDAY LENDING MARKET INVESTIGATION

PAYDAY LENDING MARKET INVESTIGATION
Summary of a response hearing with Think Finance (UK) Limited held in July 2014

[I’ve always counseled that to understand what’s coming in the U.S. payday loan space, look to the U.K. for insight. A few highlights from The CMA (Competition & Markets Authority) in the United Kingdom does just that.]

“* Shortly after Sunny  launched [Think Finance U.K formed “Sunny”] it experienced a large spike in applications of low quality. Think Finance believe that this was driven by customers, who were already active in the market becoming aware of a new lender and applying after they had been rejected by other lenders or as a potential new source of funding. Sunny were currently issuing around [redacted] loans per month and at present the balance of new to repeat borrowers was skewed towards new borrowers as they sought to build up their customer base. Sunny was generating revenue of around £[redacted].”

[Much like the “new guy in town.” A new payday lender opens up for biz and all the regulars apply. They get approved and send their buddies over to the new lender who doesn’t have a clue.]

“*  In the US, Think Finance had significant flexibility in its risk based pricing which allowed customers to be offered rates from between 3% and 30% per month. Think Finance thought the FCA’s [UK regulator] proposed price cap would impact its ability to operate this model in the UK; by charging higher rates for new customers whilst it gathered a better understanding of the credit risk of those 3 customers (and those that defaulted) it was able to charge lower risk customers a lower rate. By restricting the ability to charge higher rates for higher risk customers, Think Finance could no longer afford to offer the steep price progression it currently offers.

“*  Think Finance said that speed of payment by a lender was more important to many customers than the offer of no fees, flexibility of duration and repayment of a loan and lower interest rates.”

[SO TRUE! Those of us who have worked behind the counter and talked with borrowers on the phone know this all too well.]

“*  Think Finance thought that there might be some validation of the market as a result of regulatory interventions that might lead to some growth in the market however because of barriers to expansion it was likely that this growth would be concentrated amongst the three largest lenders.

[We’re witnessing this in the US.]

“* Think Finance supported the cap on default charges as a good thing for consumers. It noted that at present some lenders were levying late/default fees in the order of £140.

[Roughly $220 US.]

“*  New entrants to the market faced the constraint of existing large lenders spending large amounts of money on advertising and brand awareness that new entrants could not match. Achieving any significant form of brand awareness was a long process and very costly, thereby raising the cost to the new entrant and limiting price innovation.

[The payday loan industry, including lenders, associations, lobbyists… is dominated by the incumbents. With a few geo exceptions, consolidation is the order of the day. The exceptions are Michael Brown and his team at TOFSC and Max Wood with Borrow Smart 

[Think Finance includes RISE, Sunny, and Elastic and Elevate.]

Send an email to Jer@PaydayManual.com for the entire CMA Summary with highlights.

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10
Nov

Banks Close MSB & Payday Loan Accounts

FOR IMMEDIATE RELEASE

November 10, 2014 MEDIA CONTACT: Steve Hudak
703-905-3770 FinCEN Statement on Providing Banking Services to Money Services Businesses

The Financial Crimes Enforcement Network (“FinCEN”), as the agency primarily responsible for administering the Bank Secrecy Act, is issuing this Statement to reiterate expectations regarding banking institutions’ obligations under the Bank Secrecy Act for money services businesses.

Money services businesses (“MSBs”),1 including money transmitters important to the global flow of remittances, are losing access to banking services, which may in part be a result of concerns about regulatory scrutiny, the perceived risks presented by money services business accounts, and the costs and burdens associated with maintaining such accounts.

MSBs play an important role in a transparent financial system, particularly because they often provide financial services to people less likely Continue Reading..

07
Nov

State Car Title Loan Laws

States Having Specific Car Title Loan Regulations and Laws:

Car title loans are legal in the following states, with caveats. Fee and interest rate limits are noted here, but some states also impose limits on the loan principal, the length of the repayment period, and how refinancing “reacts” are addressed. Car title loans are in a constant state of flux. DO YOUR HOMEWORK!

  • Alabama: 300% APR
  • Arizona (204% APR on first $500; 180% on the next $2,000; 156% on the next $2,500; 120% on the remaining balance)
  • California: loans over $2,501 are not subject to small-loan limits. You’ll need a CFL license.
  • Connecticut
  • Delaware
  • Florida: 30% APR [If you want strategies for offering car title loans in Florida, we know how to achieve 90%+APR’s!]
  • Georgia: 300% APR for the first three months; 150% thereafter; lien fee
  • Idaho
  • Illinois: loan maximum of $4,000 and monthly payments not to exceed 50% of the borrower’s gross monthly income
  • Kansas: considered open-end credit lines.
  • Kentucky
  • Louisiana: loan principals above $350 and exceeding 60 days are not limited.
  • Mississippi 300% APR
  • Missouri: a simple “merchant license” required.
  • Minnesota
  • Montana
  • Nevada
  • New Hampshire 300% APR; lien fee
  • New Mexico
  • Oregon
  • Rhode Island
  • South Carolina: title loans above $600 are not subject to small-loan limits
  • South Dakota
  • Tennessee (cost is limited to 1/5 of loan amount plus 24% APR)
  • Texas (120%+ APR)
  • Utah
  • Virginia (264% APR on first $700; 216% on next $700; 180% on remaining balance; lien fee)
  • Wisconsin

Want to know more about the car title loan business? Check out our 300+ Manual HERE

04
Nov

Operation Choke Point: Update-Payday and Car Title Loans

WILLIAM M. ISAAC is a highly respected advocate for the SDC (Small Dollar Credit) industry. His keynote speech at FISCA was a highlight! Here’s a link to the presentation. I HIGHLY recommend you invest a few minutes… Operation Choke Point keynote speech at FISCA by William Isaac.

 

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