Category: CFPB

26
Mar

Richard Cordray CFPB Hearing on Payday Lending March 26, 2015

CFPB Hearing Payday Loans Read This and WEEP!

Prepared Remarks of CFPB Director Richard Cordray at the Field Hearing on Payday Lending

CFPB Payday Loan Hearing Virginia“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.”

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04
Mar

CFSA CEO on C-SPAN Discussing the CFPB’s Efforts to Regulate Payday Lending

Listen to the callers who are given the opportunity to share their use of payday loan products! Fascinating!! One lady calls in to say, ” I don’t NOT want some liberal having a lot of money tell me what’s good for me and whether I can borrow money from a payday lender for food.”

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22
Aug

Your Payday Loan Software Vendor Can Kill You

Richard Cordray with the CFPB stated, “Our investigation found that for three years First Investors had a flawed computer system –  purchased from a vendor – that provided inaccurate information to credit reporting agencies. When First Investors discovered the problem in April 2011, it notified the vendor but did nothing more. The company did not replace the system or take any steps to correct the inaccurate information it had supplied. Instead, it simply continued for years to use a system that it knew was flawed.”

“There were all kinds of inaccuracies reported by First Investors. The company frequently understated how much consumers were paying toward their debt. It overstated the amount past due. It misreported the dates when consumers became delinquent. And it inflated the number of delinquent payments… READ MORE

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10
Jul

“ACE used false threats, intimidation, and harassing calls to bully payday borrowers into a cycle of debt,” said CFPB Director Richard Cordray.

Ace Payday Loan Training Manual

Ace Payday Loan Training Manual

WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) took enforcement action against ACE Cash Express, one of the largest payday lenders in the United States, for pushing payday borrowers into a cycle of debt. The CFPB found that ACE used illegal debt collection tactics – including harassment and false threats of lawsuits or criminal prosecution – to pressure overdue borrowers into taking out additional loans they could not afford. ACE will provide $5 million in refunds and pay a $5 million penalty for these violations.

“ACE used false threats, intimidation, and harassing calls to bully payday borrowers into a cycle of debt,” said CFPB Director Richard Cordray. “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back. The CFPB was created to stand up for consumers and today we are taking action to put an end to this illegal, predatory behavior.”

ACE is a financial services company headquartered in Irving, Texas. The company offers payday loans, check-cashing services, title loans, installment loans, and other consumer financial products and services. ACE offers the loans online and at many of its 1,500 retail storefronts. The storefronts are located in 36 states and the District of Columbia.

Payday loans are often described as a way for consumers to bridge a cash-flow shortage between paychecks or other income. They are usually expensive, small-dollar loans that must be repaid in full in a short period of time. A March 2014 CFPB study found that four out of five payday loans are rolled over or renewed within 14 days. It also found that the majority of all payday loans are made to borrowers who renew their loans so many times that they end up paying more in fees than the amount of money they originally borrowed.

The CFPB has authority to oversee the payday loan market and began supervising payday lenders in January 2012. Today’s action resulted from a CFPB examination, which the Bureau conducted in coordination with the Texas Office of Consumer Credit Commissioner, and subsequent enforcement investigation.

Illegal Debt Collection Threats and Harassment

The CFPB found that ACE used unfair, deceptive, and abusive practices to collect consumer debts, both when collecting its own debt and when using third-party debt collectors to collect its debts. The Bureau found that ACE collectors engaged in a number of aggressive and unlawful collections practices, including:

· Threatening to sue or criminally prosecute: ACE debt collectors led consumers to believe that they would be sued or subject to criminal prosecution if they did not make payments. Collectors would use legal jargon in calls to consumers, such as telling a consumer he could be subject to “immediate proceedings based on the law” even though ACE did not actually sue consumers or attempt to bring criminal charges against them for non-payment of debts.

· Threatening to charge extra fees and report consumers to credit reporting agencies: As a matter of corporate policy, ACE’s debt collectors, whether in-house or third-party, cannot charge collection fees and cannot report non-payment to credit reporting agencies. The collectors, however, told consumers all of these would occur or were possible.

· Harassing consumers with collection calls: Some ACE in-house and third-party collectors abused and harassed consumers by making an excessive number of collection calls. In some of these cases, ACE repeatedly called the consumers’ employers and relatives and shared the details of the debt.

Pressured into Payday Cycle of Debt

The Bureau found that ACE used these illegal debt collection tactics to create a false sense of urgency to lure overdue borrowers into payday debt traps. ACE would encourage overdue borrowers to temporarily pay off their loans and then quickly re-borrow from ACE. Even after consumers explained to ACE that they could not afford to repay the loan, ACE would continue to pressure them into taking on more debt. Borrowers would pay new fees each time they took out another payday loan from ACE. The Bureau found that ACE’s creation of the false sense of urgency to get delinquent borrowers to take out more payday loans is abusive.

ACE’s 2011 training manual has a graphic illustrating this cycle of debt. According to the graphic, consumers begin by applying to ACE for a loan, which ACE approves. Next, if the consumer “exhausts the cash and does not have the ability to pay,” ACE “contacts the customer for payment or offers the option to refinance or extend the loan.” Then, when the consumer “does not make a payment and the account enters collections,” the cycle starts all over again—with the formerly overdue borrower applying for another payday loan.

The ACE cycle-of-debt training manual graphic is available at: http://files.consumerfinance.gov/f/201407_cfpb_graphic_ace-cash-express-loan-process.pdf

Enforcement Action

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. The CFPB’s order requires ACE to take the following actions:

· Pay $5 million in consumer refunds: ACE must provide $5 million in refunds to the overdue borrowers harmed by the illegal debt collection tactics during the period covered by the order. These borrowers will receive a refund of their payments to ACE, including fees and finance charges. ACE consumers will be contacted by a third-party settlement administrator about how to make a claim for a refund.

· End illegal debt collection threats and harassment: The order requires ACE to ensure that it will not engage in unfair and deceptive collections practices. Those practices include, but are not limited to, disclosing debts to unauthorized third parties; directly contacting consumers who are represented by an attorney; and falsely threatening to sue consumers, report to credit bureaus, or add collection fees.

· Stop pressuring consumers into cycles of debt: ACE’s collectors will no longer pressure delinquent borrowers to pay off a loan and then quickly take out a new loan from ACE. The Consent Order explicitly states that ACE may not use any abusive tactics.

· Pay a $5 million fine: ACE will make a $5 million penalty payment to the CFPB’s Civil Penalty Fund.

The full text of the Bureau’s Consent Order is available at: http://files.consumerfinance.gov/f/201407_cfpb_consent-order_ace-cash-express.pdf

Jer@TrihouseConsulting.com
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25
Mar

NEW CFPB Payday Loan Report Issued Today

FOR IMMEDIATE RELEASE: March 25, 2014

 

Prepared Remarks of Richard Cordray

Director of the Consumer Financial Protection Bureau

Payday Field Hearing

Nashville, Tennessee March 25, 2014

 

 

Thank you all for joining us. And we thank Nashville for a warm welcome.

Today we are releasing a research study on payday loans. We chose this part of the country to release this study because of the prevalence of payday lenders both here and in many of the neighboring states.

Congress has charged the Consumer Financial Protection Bureau with the dual responsibility for assuring that consumers have access to financial services and making sure that the markets for those services are fair, transparent, and competitive. In particular, we envision a marketplace where both consumers and honest businesses can benefit from reliable small-credit lending.

Payday loans were developed to provide small loans to consumers to meet a short-term need. Consumers who take out these loans are usually required to repay them from their next paycheck. Payday lending as we know it originated in the 1980s and 1990s, when a number of state legislatures were persuaded to create a special exemption to their state usury laws that established a new framework for small-dollar lending. Under the protective umbrella of that new exemption, payday lending has spread and grown rapidly over the past two decades. Today, payday loans are readily available online and in many states through storefronts as well. According to reports from industry analysts, about 12 million American adults are currently choosing to borrow money through payday loans.

PLEASE forward, Tweet… this Alert to EVERYONE: New CFPB Payday Loan Report Issued.

For consumers in a pinch, getting the cash they need can seem worth it at any cost. Many consumers would never dream of paying an annual percentage rate of 400 percent on a credit card or any other type of loan, but they might do it for a payday loan where it feels like they can get in and out of the loan very quickly. People often are responding to circumstances they view as presenting an emergency that requires immediate access to money.

In fact, the core payday loan product was designed and justified as being expressly intended for short-term emergency use. But our study today again confirms that payday loans are leading many consumers into longer-term, expensive debt burdens. Our research confirms that too many borrowers get caught up in the debt traps these products can become. The stress of having to re-borrow the same dollars after already paying substantial fees is a heavy yoke that impairs a consumer’s financial freedom.

Today’s report is based on data drawn from a 12-month period that represents more than 12 million storefront payday loans. It is a continuation of the work we did last year in our report on payday loans and deposit advance products, which was one of the most comprehensive studies ever undertaken on this market.

In last year’s report, we studied the number of loans that borrowers take out over the course of the year and the length of time that borrowers are in debt over the course of that year. We found that too often payday consumers are getting caught in a revolving door of debt.

Today’s study builds on our prior research and digs deeper into payday loans with even more analysis behind the numbers. We look at new payday loans and examine how often borrowers roll over the loans or take out another loan within 14 days of paying off the old loans. We did this because we consider these subsequent loans really to be renewals that are part of the same “loan sequence.” What we mean is that the subsequent loans are prompted by a single need for money – that is, the follow-on loans are taken out to pay off the same initial debt for the consumer. Maybe that consumer took out the loan to pay for a car repair. Or maybe she took it out to pay for an unexpected trip to the hospital. Or maybe she was just short some of the money needed to get by at the end of the month. Whatever the reason, the loan sequence comprises all of the renewal loans that the consumer took out to pay for the costs incurred from or made unaffordable by that initial need.

Our study today is the most in-depth analysis to date of this pattern. Another way of stating the matter is that our central concern here is not with every payday loan made to a consumer. Preserving access to small dollar loans does mean, after all, that some such loans should be available. Our concern instead is that all too often those loans lead to a perpetuating sequence. That is where the consumer ends up being hurt rather than helped by this extremely high-cost loan product. And it is well known that payday loans often lead to this damaging result. Our report today further documents this concern in much greater detail.

Our research found that for about half of all initial payday loans – those that are not taken out within 14 days of a prior loan – borrowers are able to repay the loan with no more than one renewal. However, we also found that more than one in five initial loans that are made result in loan sequences involving seven or more loans. With a typical fee of 15 percent for each payday loan, consumers who renew loans seven times or more will have paid more in fees alone than the amount they borrowed in the original loan. For these people, the piling up of fees eclipses the actual payday loan itself.

Moreover, when we looked at 14-day windows in the states that apply cooling-off periods to reduce the level of same-day renewals, the renewal rates are nearly identical to states without these limitations. This renewing of loans can put consumers on a slippery slope toward a debt trap in which they cannot get ahead of the money they owe. And this tells us that even if state law precludes consumers from taking out another payday loan immediately, the pressure of their circumstances – now intensified by the heavy expense of the payday loan itself – tends to force consumers to find their way back to the payday lender about as soon as the law permits.

As for the amounts that people are borrowing, we found that in four out of five loan sequences in which borrowers renew the loan, they end up borrowing the same amount or more, sometimes again and again. So because they rolled over their loans, they ended up owing as much or more on their very last loan as the entire amount they had borrowed initially. Tragically, these consumers find that they are simply unable to make any progress in reducing the debt over time.

Most telling, the study found that four out of five payday loans are rolled over or renewed within two weeks and that roughly half of all loans are made to borrowers in loan sequences lasting ten or more loans in a row. From this finding, one could readily conclude that the business model of the payday industry depends on people becoming stuck in these loans for the long term, since almost half their business comes from people who are basically paying high-cost rent on the amount of their original loan.

 

These are not just abstract numbers. They reflect the circumstances of people across the United States who are running into trouble with payday loans. Several thousand have submitted complaints to the Consumer Bureau because they have gotten caught in these spider webs of debt. Since we started taking payday loan complaints in November of 2013, just four months ago, we have already heard from thousands of consumers across the country.

Some consumers have told us about circumstances in which a payday loan proved beneficial to them. But others have told us a very different story.

Take Lisa from Pennsylvania, who submitted a complaint to us after taking out a payday loan. Lisa told us that she lost her job at a local hospital and went to a payday lender to help pay her rent. She meant to take out the loan for a short amount of time. She thought she would be able to get in and out of the loan quickly. But she ended up rolling it over. She also took out a second loan to pay for the first loan. In total, she says, she took out $800. Today, despite having paid back more than $1,400, she still has not entirely paid off the loans.

Now she is trying to turn her life around. She is taking classes, holding down two jobs, and moving in with her parents to save money. Yet the struggle continues. “It caught me totally off guard,” she said. “I got stuck in a cycle.” Her information eventually got sold to a debt collector and now she tells us she is getting called five times a day.

Lisa’s story is all too common. She thought she could get in and out of the loan but ended up spiraling downward in debt. She slipped on the steep slope and just kept on sliding.

Our study also looked at payday borrowers who are paid on a monthly basis. It found that many payday borrowers fall into this category, such as elderly Americans or disability recipients on fixed incomes. A fair number of them remained in debt for the entire year of our study, living for all practical purposes with a high-cost lien against their everyday life.

Indeed, of the payday borrowers who were receiving monthly payments, one out of five borrowed money in every single month of the year. These borrowers, which includes those who receive Supplemental Security Income and Social Security Disability or retirement benefits, are thus in serious danger of ensnaring themselves in a debt trap when they take out a payday loan. This fact is of great concern to us.

Evelyn, an 81-year-old woman from Texas, had to deal with this very situation. Evelyn told us she had never taken out a payday loan in her life until she needed to pay for her dying daughter’s cancer medicine. She saw an ad on TV and on a Saturday morning went down to her local payday storefront to take out $380. She was hoping her daughter would get well and pay back the money herself. But the cancer took away her daughter just six months later. Evelyn, on a fixed income that combined her widow’s pension and Social Security checks, tried to pay back the loan bit by bit. But every time she hit her due date at the beginning of the month, she had to renew the loan because she did not have the full amount plus the new fees. As the many months passed, Evelyn’s outstanding balance grew to be more than $700.

These kinds of stories are heartbreaking and they are happening all across the country, even in states that have adopted mandatory cooling off periods and other regulations. They demand that we pay serious attention to the human consequences of the payday loan market.

In January 2012, we added payday lenders to our program of supervising financial institutions. It was, in fact, one of the first things we did after I took over as the Director of the Consumer Bureau. Almost immediately, we decided to hold a field hearing in Birmingham, Alabama, so that we could hear directly from stakeholders about the costs and the benefits of actual consumer experience with this kind of small dollar loan. And we began to undertake our first closer study of these issues, which led to last year’s report.

Through our supervisory work, we have become concerned about situations we have found where payday lenders have inhibited borrowers from using company payment plans that are intended to assist them when they have trouble repaying their outstanding loans. Moreover, we have found that some lenders use the electronic payment system in ways that pose risks to consumers. These practices can hinder consumers from getting out of debt or can leave them unable to prioritize the payment of their various debts in ways that would leave them better off.

Our examinations also show that a troubling number of these companies engage in collection activities that may be unfair or deceptive in one or more ways. These activities include using false threats, disclosing debts to third parties, making repeated phone calls, and continuing to call borrowers after being requested to stop. The same is true for debt collectors that work for payday lenders and that may fail to honor the protections that are afforded to consumers through the Fair Debt Collection Practices Act. As we uncover these problems, we are taking actions that require firms to comply with the law by changing their practices and to make consumers whole for any harm they have suffered as a result of legal violations.

The fundamental problem is that too many borrowers cannot afford the debt they are taking on or at least cannot afford the size of the payments required by a payday loan. In the end, consumers are at risk of using these products in ways that go beyond their intended purpose. This concerns us at the Consumer Bureau, and it should concern anyone who is focused on the payday market, because financial products that trigger a cycle of debt are likely to disrupt the precarious balance of consumers’ financial lives, leaving them worse off.

We have also taken further steps to protect consumers in this space. In an enforcement action against Cash America International, we ordered one of the largest short-term, small-dollar lenders in the country to refund consumers for robo-signing court documents in debt collection lawsuits. We ordered Cash America to pay up to $14 million in refunds to consumers and levied an additional $5 million fine both for these violations and for obstructing our examination team by destroying records in advance of our arrival.

We also sued a company named CashCall, along with its owner, its subsidiary, and its affiliate, for collecting money that consumers did not even owe. We believe the defendants engaged in unfair, deceptive, and abusive practices in violation of the federal consumer financial laws, including illegally debiting consumer checking accounts for loans that were void. The Bureau’s investigation showed that these high-cost loans violated either licensing requirements or interest-rate caps – or both – in at least eight states, which had the legal effect of either voiding or nullifying the loans.

Last fall, we released new guidelines to our examiners who are supervising payday lenders on how to identify consumer harm and risks related to Military Lending Act violations. And for the past year, we have been working directly with the Department of Defense and other agencies to revise the regulations implementing the Military Lending Act, with the goal of fulfilling the congressional objective of ensuring more consistent protection of our servicemembers in the consumer financial marketplace.

In sum, we are taking a variety of actions in this space that address serious harms to consumers. And as we learn more about this industry, we will remain vigilant to address other concerns as they are identified.

The purpose of all this additional outreach, research and analysis on these issues is to help us figure out the right approach to protect consumers in the marketplace for payday loans. We want to ensure they will have access to a small loan market that is fair, transparent, and competitive.

As we look ahead to our next steps, I will frankly say that we are now in the late stages of our considerations about how we can formulate new rules to bring needed reforms to this market. We continue to grapple with all aspects of these issues. We have always acknowledged that the American consumer has shown a clear and steady demand for small-dollar credit products, which can be helpful for the consumers who use them on an occasional basis and can manage to repay them without becoming mired in a prolonged and costly struggle. So we intend to make sure that consumers who can afford to take out small-dollar loans can get the credit they need without jeopardizing or undermining their financial futures. But we also need to recognize that loan products which routinely lead consumers into debt traps should have no place in their lives. Thank you.
Here’s a link to the CFPB Report: http://files.consumerfinance.gov/f/201403_cfpb_report_payday-lending.pdf

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