Essay Reveals Payday Loans Not the Central Cause of Borrower Financial Calamity

Payday Loan Defaults

Do Defaults on Payday Loans Matter? Ronald Mann Columbia Law School

By: Jer Trihouse. The CFPB continues to attack the payday loan industry based on biased data collection and, quite frankly, the CFPB bureaucrats distaste for a financial product millions of consumers “vote” for by using. Thus, this essay by Ronald Mann at Columbia Law School will not be easily digested!

Jer Trihouse Consulting

Jer Trihouse

Mr. Mann’s findings reveal that consumer use of payday loan products is “at most a single step in a protracted experience, and by no means a particularly important one.”

In other words, payday loan usage is not the cause of catastrophe for consumers but rather their last gasp at the end of a 2 year path of never ending financial duress. After all, payday loan borrowers at this stage of “the game” are sophisticated enough to know that there is really very little a lender can do to them.

  • We don’t report them to the major credit bureaus
  • The borrower’s credit is already severely damaged
  • We can call them; but they don’t have to answer
  • We can email them
  • We can text them
  • In some cases we can draft their checking account via an ACH
  • Formal litigation is not cost effective
  • The most serious result of not paying us is their inability to return to us for another emergency loan
  • MANY borrowers in today’s world of online lenders plan to default immediately! It’s a “strategic” decision much like those made by underwater home owners in the last Great Recession
  • It’s a lot easier to blow off  a “big bad ass Internet payday lender”  than it is to tell their local payday loan store front owner Danny on the corner to pound sand.

From R. Mann’s essay:

“What is more interesting about the findings is how they situate the payday loan default in the timeline of the borrower’s financial distress. The premise of a regulatory regime [he’s referring to the CFPB]  that targets the payday loan as the central cause of financial calamity is that borrowers are slipping along in circumstances that are tight but manageable, but that the default on the payday loan tips them over the edge into unmanageable impecunity. The data analyzed here, albeit sketchy, undermine that vision in several ways. The first is that the payday loan is plainly not the beginning of serious financial problems.”

Here’s a link to R. Mann’s full ESSAY [via Bitly URL Shortener)

Here’s a link to R. Mann’s full ESSAY[via Google URL Shortener)

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Native American Sovereignty & Payday Loans

Payday Loan Lending via Native American Tribes

The Native American Financial Services Association (NAFSA) formed in 2012 to advocate for Native American sovereign rights and enable tribes to offer responsible online lending products appeared today before the House Financial Services Committee to defend the rights of tribes to employ e-commerce to offer consumers payday loan products.

Their efforts are directed toward the CFPB proposed lending rules about to be published. These rules appear to be a heinous attack against consumers in need of financial services choices and payday loan lenders.

“Sherry Treppa, Chairperson of the Habematolel Pomo of Upper Lake offered impassioned testimony on the struggles her tribe has overcome through the centuries from staving off existential threats to ensuring economic self-sufficiency. Chairperson Treppa said the tribe’s decision to enter into ecommerce short-term lending empowered her Nation to finally rebuild and transform its economy, education programs and the social services it provides to its most vulnerable members.”

“In contrast to our experience working with other federal agencies as well as state and local governments, the CFPB has refused to engage in a meaningful dialogue about our shared interests and so far has shown little interest to work together, where necessary, as co-regulators,” said Chairperson Treppa. I remain concerned that the CFPB is developing its proposed action in a vacuum without consulting with tribes to learn about the innumerable tools that we have developed to ensure that we conduct business in a manner that is fair, responsible, compliant and benefits our tribal members and the American consumer.”

Native American Tribes to Congress: Respect Our Sovereignty

WASHINGTON, Feb. 11, 2016 /PRNewswire-USNewswire/ — Appearing today before a House Financial Services Committee hearing examining the treatment of Native Americans by the Consumer Financial Protection Bureau (CFPB), a key Native American leader urged Congress to once again stand shoulder-to-shoulder with Indian Country to help ensure the CFPB respects the historic government-to-government relationships of federal entities…Continue Reading..


Tribe Payday Loans & Arbitration Agreements

It’s been legally established that federally recognized Native American Indian Tribes funding payday loans are entitled to their own laws and legal systems and generally don’t necessarily have to follow state or even federal laws. [There are exceptions such as TILA…]

The payday loan lender Cheyenne River Sioux stipulate in their loan contract:

“According to the contract, any dispute connected to loan collection would have to be submitted to an arbitration conducted by the tribe or an authorized representative in accordance with the tribe’s consumer dispute rules.”  Another provision said that, “At the borrower’s choice, the American Arbitration Association or Judicial Arbitration and Mediation Services could administer the arbitration.”

However, some courts have determined that the Cheyenne River Sioux did not create, nor employ, a consumer arbitration process nor have anyone assigned to perform these arbitrations.


Fourth District Judge Harvie Wilkinson reversed a previous court’s decision regarding Western Sky and Martin Webb. Payday loan lenders DO NOT WANT TO BE SUED in a class action. Typically, payday loan lenders insist payday loan borrowers to sign a contract that basically states they can’t bring one. Over the years, the Supreme Court has upheld such clauses. Legal opinions recognize that this agreement can result in “effectively vindicating” federal rights. So long as some remedy exists for a borrower, the courts have upheld this view.

Per Wilkinson’s, it would appear that any contract that rejects the application of federal law can’t be enforced. I take this to mean this decision maylikely reduce federally recognized Native Amenrican Indian tribes’ sovereignty rights.

We shall see. Here’s a link to the Court’s decision: Martin Webb-Delbert Services-Western Sky


Bank Accounts: Lenders, Check Cashers

Bank Accounts for Payday Loan, Installment Loans, Small Dollar Loans, Consumers…

The CFPB issued a “policy directive” suggesting banks and credit unions do more for consumers lacking bank accounts. This is a laudatory action. Those of us offering payday loans, installment loans, car title loans, line-of-credit, check cashing… know well how difficult this negative situation makes a consumer’s life.

BUT WHAT ABOUT SMALL BUSINESSES! How about bank accounts for lenders, check cashers, gun shops…? Who the hell creates ALL the jobs for these consumers in need of a bank account?

By now, we’re all aware of the devastation the small dollar loan industry has experienced as a result of “Operation Choke Point.” [Here’s a list of ALL the industries attacked by Operation Choke Point.] And everyone knows it wasn’t us who nearly brought down the financial system and then asked for bailouts from taxpayers.

So what’s up with Richard Cordray, head of the CFPB. Why not help consumers by helping all the small businesses who experienced “bank discontinuance?”


Here’s the CFPB’s opening salvo letter to banks and credit unions with a link to the entire letter from Richard Cordray:

February 3, 2016
[Address of financial institution]
Dear [CEO of financial institution]:

I am writing to you and your peers, as leading executives in the banking industry, to bring an important matter to your attention. This letter is not being sent in reference to any sort of regulatory requirement, but instead is simply a suggestion that I urge you to consider in serving your customers.

As you know, each year millions of Americans open new checking accounts, making them one of our most widespread financial products. Right now, much of the industry presents consumers with a binary result – either an applicant passes a standard screening process to obtain an account after identifying any credit risks posed by the applicant’s history of misuse or mishandling of some prior account, or the applicant is blocked from accessing the banking system altogether.

payday loan car title loan banks and consultingThere is, however, a third possibility, which is to offer all applicants a lower-risk account (whether a checking account or a prepaid account) whereby the applicant cannot pose the same level of risk to the institution. Accordingly, the same applicant need not be screened out of the banking system by applying the same risk thresholds that are used to determine eligibility for a standard checking account. Millennials, in particular, seem to be expressing great interest in the availability of such lower-risk products.

This is important because an estimated ten million American households are currently “unbanked.” You know very well that having a checking account or a reloadable prepaid account enables… Here’s the link.

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