BY: Jer Trihouse. Regarding the payday loan internet business model, I’ve been adamant for years that the “choice-of-law” licensing model is subject to major disruption.
Serious analysis of long term survival as a lender in the payday loan/small dollar lending space suggests legal application and compliance of your borrower’s “home” state residence loan rates and terms is the least aggressive course.
Lenders who insist on employing products, fees and rates that attempt to circumvent their borrower’s “home” state law, will suffer the wrath of the CFPB, UDAAP violations, Commerce Clause challenges, RICO charges (prosecution and civil penalties for racketeering), ad infinitum.
Suffice it to say, if your Team persists in avoiding complying with your borrower’s “home” state laws and you have any “scale,” you will eventually come to the attention of the FED’s. Your lawyers maybe happy with the process that proceeds but you likely will not.
Does this thinking apply to the tribe – sovereign nation model? Your regulator certainly thinks so. And she usually has the biggest budget.
The OCCC in Texas passed a “Clean-Up Bill” causing our Texas friends a lot of grief. (Read below for TOFSC thoughts on TX.)
Here’s a piece on this subject by the highly regarded Consumers Financial Services Group
The OCCC in Texas passed a “Clean-Up Bill” causing our Texas friends a lot of grief.
Read the Texas update here and the full story on our Payday Loan Industry Blog here:
The 2015 Texas legislative
session passed a “Clean Up Bill”, which authorized the OCCC to
review, repeal, and/or replace rules regulating CAB’s. Those new changes were
proposed in September for pre-comment and voted for approval by the Texas
Finance Commission Board to be published in the Texas Register on October 16,
2015 (last Friday) at the Texas Finance Commission meeting in Austin, Texas.
There are approximately 144 changes to TAC 7, Chapter 83, Subchapter B (the
code that outlines the rules CABs live by). This is the first time in 4 years
that any new rules for payday loan or auto title loan businesses known as
“CABs” have been put into place. It is time to get educated on
changes and make the necessary modifications to your documents, processes, and
other operating methods.
The changes affect a broad range of areas from; Definitions; Licensing Fees,
Notice of Delinquency of Annual Assessment, Denial, Suspension, Revocation
based on Criminal History, Examinations, Files & Records, Separation
Between Third Party Lender and CABs, and Case Hearing Procedures.
CAB Consulting has thoroughly reviewed the changes and put together a
compliance plan to ensure CABs, their software providers, and third party
lenders are compliant moving forward into 2016. We are told the first round of
changes are slated to be made effective in late December of this year or early
January 2016.
If you would like to learn more, please contact Michael Brown at 214-293-8676
or Robert Wheeler at 956-639-7162.
Hang in there Payday Loan Fans!!
Challenging times ahead = tremendous opportunities. Our customers are in need of our services MORE THAN EVER!
Jer@TrihouseConsulting.com
The Australian Government is reviewing two consumer credit markets that heavily impact on the lives of many low-income Australians – payday loans and consumer leases for household appliances and furniture.
Among other matters, the review, triggered by a requirement in the Credit Act is investigating whether the current regulatory regime strikes a “fair balance” between the need for these industries to remain viable and the need to protect consumers from exacerbating their risks of financial hardship.
It is a significant – and welcome – step in the right direction that the review’s Terms of Reference recognise the link between the payday loans (also known as Small Amount Credit Contracts) and household goods rental markets.
However, more is required to adequately understand how low-income Australians actually manage their money, the scope and scale of their credit market engagements, and why this is crucially important for regulators to consider.
A complex juggle of debt
In our paper published this week analysing trends in Australian small loans markets, we argue that two basic frameworks underpin the relationship between the credit practices of low-income households and the firms that provide various forms of consumer credit.
The first framework has been termed by University of Queensland researchers Greg Marston and Lynda Shevellar as the mixed economy of credit – the complex routines and resources used by many low-income citizens in exercising their constrained credit choices.
They describe how there are very different costs and calculations involved in making decisions about borrowing money from the private sector, the state, family members and friends, or through non-government microfinance schemes. There are pragmatic considerations such as the location of different credit providers, cost, eligibility, speed and knowledge of available options.
Emotional costs also need to be weighed, such as the potential risk of shame or stigma seeking credit from a parent or a welfare agency.
The mixed economy of credit also has a very strong temporal dimension, as low-income consumers tend to assess the affordability of credit by periods that conform to their fortnightly receipt of Centrelink payments.
Market responses – alternative financial services
Secondly, various credit products and services have been developed – particularly in the last three decades – as market responses to the economic, geographical and emotional calculus involved in the mixed economy credit that is occurring within each citizen’s debtscape.
Click Image to Start a PDL Company
An Alternative Financial Services (AFS) market has emerged – an economic framework comprising firms offering multiple lines of services and products to meet the needs of low-income and precariously employed households.
These firms provide payday loans, pawnshop services, rent-to-own household products and other forms of consumer leases, credit “repair” services, layby arrangements, debt collection services, in-house used car loans, “check-cashing” services (especially in the United States) and low-income insurance products.
Each AFS sub-market is highly complex. Firms in the small loans industry, for example, have specialised, multiline business models designed to offer particular products, such as pawnbroking and payday services, brokering services, or a suite of vertically integrated loan options that extend from low-margin, high volume and higher-risk small loans to higher-margin, lower-risk unsecured and secured credit valued in the thousands of dollars.
Each model takes a different approach to minimising default risk, encouraging repeat custom, sourcing new customer groups, leveraging value from consumer interactions, and instituting administrative and compliance efficiencies.
Poor understanding
Approximately 90% of online applications are rejected by SACC providers who nevertheless monetise these applications by on-selling the data as “lead-generators” to other lenders willing to take on higher-risk customers and to other markets such as consumer product retailers. One leading online industry stakeholder estimates that the lead-generation market is now larger in Australia than the small loan market.
An understanding of the AFS industry is very poor. We don’t know how many Australians use these services, nor in the ways these financial products are being incorporated into a low-income household’s mixed economy of credit.
Only partial insights are available due to the lack of industry-wide data on consumption patterns (or anything else). We know that the costs of consumer leases are highly polarised. On a total cost basis, consumer leases are the most expensive way to access a household appliance. However, on a fortnightly basis, they are one of the cheapest.
We know that over a million Australians are estimated to take out, on average, three payday loans each year. On the other hand we know that about 25,000 Australians took out a No Interest Loan Scheme (NILS) loan from a not-profit agency last year.
Tighter regulation?
The table below shows some stylised facts of what we have gathered so far about the relationships between the AFS market and consumers who are unemployed, casually/precariously employed, and those with regular paid income.
What are the implications of these insights for the current review? Should there be a national database where all credit providers are required to upload transactions in real time? Should the industry be more tightly regulated? While these are important questions we believe they do not address the fundamental problem: we do not clearly know why consumers access these forms of credit nor the scope, scale or patterns of their usage.
We do not know what specific (and overall) interactions with the AFS market may be contributing to low-income Australians becoming increasingly indebted.
While basic insights have been established, such as taking out multiple payday loans at the same time increases financial hardship, we do not know the welfare effects of more complex borrowing practices across the broader AFS marketplace. Further, we don’t know how environmental factors have contributed to the growth of the industry.
For example to what extent has government policy, changing labour market conditions, rising levels of income inequality and poverty, and the changes in the banking sector led to the growth rates we have observed? We strongly believe that unless these questions are explored any market interventions run the risk of being inefficient and unhelpful.
Any new regulatory regime developed from a review only examining one foot of the elephant (in this case certain aspects of the Australian AFS market) risks exposing low-income households to possibly greater financial hardship and emotional distress – especially when viable credit and welfare alternatives are not being seriously considered by the government.
Installment Loans are Unregulated? The Installment Loan Business.
Man, this is rich!
Is this the same ACORN; the group The New York Times reported on the verge of bankruptcy after a succession of scandals, most prominent among them the sting set up by young conservative activists in which ACORN workers were shown offering advice on concealing criminal activities? Video of the encounters resulted in the group’s government funding essentially drying up as conservative media organizations and lawmakers targeted it as corrupt.
“Money Mart’s move into unregulated installment loans leads ACORN to ask City of Toronto to explore ways to limit predatory lenders within city limits”
“TORONTO, ONTARIO–(Marketwired – Oct. 14, 2015) – ACORN Canada is sounding alarms due to Money Mart’s entry into the installment loan market, and will be working with Toronto City Council to do something about it.”
“ACORN’s Anti-Predatory Lending Campaign has successfully worked with several Canadian municipalities to use their zoning and licensing powers to limit the proliferation of predatory lenders, and are going to be working with city councillors in Toronto to do the same.”
“Next Thursday ACORN members will be visiting the payday and installment lenders during a march starting rally starting at a Cash Money location at Jane St. and Lawrence Ave. and ending at with a rally and speeches at the Money Mart at Jane St. and Trethewey Dr.”
WHAT: March and Rally for Fair Lending and Better Banking
WHEN: March starts at 12:45PM. Rally at 1:15PM Thursday, October 5th, 2015.
WHERE: March starts at 1682 Jane St.; Rally starts at 1553 Jane St.
“ACORN spokesperson (and installment loan victim) Donna Borden explains: “There are two tiers of banking in this country: One tier gets prime rates and no fee accounts, and the 2nd tier – the one for poor people – gets sub-prime rates and can’t get real banks to give them the time of day. This must stop. It’s why we are asking the City of Toronto to step in to do what the Federal Government is not – start putting an end to predatory lending.”
“Money Mart started offering installment loans at a few of its locations early in 2015, and due to the success of the predatory lending product, they offer installment loans at all of their locations in Ontario. Borden says, “Installment loans, a relatively new lending practice widely used in the USA, are unregulated in Canada and are becoming increasingly common in low-to-moderate income neighborhoods in Toronto. Installment loans, because they are over $1500, are not covered by payday lending laws, and because they are offered by companies that are not banks they are not covered by the Bank Act.”
Non-Depository Lenders – there are 599 physical locations in Utah.
A total of 53,777 deferred deposit loans were carried to the 10-week maximum in 2014, according to the report. Of those loans, 45,655 weren’t paid in full by the end of the terms. The Report FAILS to disclose how many payday loans were funded for the year in total!
There were a TOTAL of 13 consumer complaints to the Utah DFI in ALL of 2014! What? Really? Only 13 in total? 13!! Banks only wish they had as good a record!
TEDxNewWallStreet – Douglas Merrill – New credit scores in a new world: Serving the Underbanked
Wow! 12,000 payday loans funded every 11 minutes! Zest Finance entered the payday loan space when their founder got a phone call from his sister-in-law. She needed to borrow a few hundred bucks to purchase tires so she could get to work.
Luckily for her, Doug Merill, ex-Google honcho and founder of Zest Finance, had the cash.
