Tag: payday loan industry

26
Sep

Payday Loan Convention – FISCA 2010

Just a quick note. If you can’t make it to this year’s annual Payday Loan Convention in Las Vegas, we’ll be there for you!

FISCA (Financial Service Centers of America), has their 2010 Annual Convention scheduled at the Mandalay Bay Resort and Casino in Las Vegas Oct 1 – 4, 2010.

We’ve been attending these payday loan and check cashing conventions since 1997. This year should be interesting in light of the new laws, proposed laws, evolving products, the current economy and more.

As usual, we’ll be networking, attending workshops and meeting many of our clients.

DON’T WORRY! If you’re not able to attend, we’ll cover it for you!

Simply look for our next several free Newsletters in your inbox over the next few weeks. We’ll help you remain up to date with the latest news and developments in our Industry.

And of course, we’ll be updating our training materials again as a result. (Our very popular Payday Loan Training Manual is currently Version 17.1.)

Later…

Jer@PaydayLoanIndustry.com

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02
Aug

Payday Loan Profits – Cash America Coninues to Grow and Prosper

The Associated Press ran another story this A.M. regarding the purchase of 39 pawn shops by Cash America International Inc.

Their headline reads:
Cash America buys pawn shop chain for $70M

They went on to write, “Cash America’s first-quarter profit rose 34 percent on a revenue increase of 17 percent, helped by higher revenue from its cash advance business.”

So… the big, sophisticated guys and, from what we hear, many of the small players operating under the radar, continue to expand to increase market share and to achieve record profits. It appears they’re certainly not sitting on the side lines at this juncture in the economy.

Read the original Article here:
Cash America continues to grow and prosper…

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28
Jul

The Future of the Payday Loan Industry Revisited Again – An Expert Opinion

The Future of the Payday Loan Industry Revisited Again – An Expert Opinion

Mr. Hilary B. Miller, an attorney with considerable payday loan and consumer finance experience, has been kind enough to share his wisdom with our 4000 plus readers regarding his expectations for our future and the impact of the Consumer Financial Protection Bureau (CFPB) which contains Title X, the Bureau of Consumer Financial Protection (“we all need to start abbreviating properly as BCFP”).

A majority of our readers will recognize Mr. Hilary B. Miller as a presenter at The Community Financial Services Association of America; a national organization dedicated solely to promoting responsible regulation of the payday advance industry and consumer protections through CFSA’s Best Practices. CFSA, in addition to FISCA and OLA are the three organizations we recommend all our readers become acquainted with and support with donations and membership. An additional resource you must investigate is: Consumer Rights Coalition

As previously discussed, our thoughts on the future of the payday loan industry are EXTREMELY OPTIMISTIC! So continuing in that vein, today we have additional expert opinion specific to the payday loan industry from an industry veteran!

By Hilary B. Miller

What, exactly, are the implications of the Dodd-Frank Wall Street Reform and Consumer Protection Act for payday lending? For those in the industry, how the Act will shape the future of short-term consumer loan products is this week’s “$64 question.” Some law firms, Wall Street analysts and others have summarized the Act and its possible effect on various other financial businesses, but commentary on payday has been lacking in the media – including, surprisingly, the blogosphere. For better or worse, I’m going to launch myself into this lacuna.

My views will surprise many readers and will appear at odds with the public statements of some industry professionals. (I’m going to be making a presentation on this subject at the ABA Annual Meeting on August 8; so if you think I’m all wet, please let me know right away before I embarrass myself.)

These thoughts come with some caveats: First, if you are not my client, this is not legal advice to you. Second, efforts at punditry of this nature are notoriously unreliable and subject to the vagaries of political winds that will blow and crack your cheeks – or possibly worse. Third, I propound this primarily as a thought experiment to elicit alternative or better theories, to which I am receptive; if you have a different view, I want to hear it.

President Obama signed Dodd-Frank on July 21, and it is now Public Law 11-203. Despite nearly contemporaneous public statements from adversaries that the enactment would be the death knell for payday lending, the Act doesn’t contain any substantive regulation of payday lending in any of its 848 single-spaced pages. If there is a deadly weapon in the Act, it is apparently has a silencer.

Maybe it’s here: Title X of the Act creates the Bureau of Consumer Financial Protection (which we all need to start abbreviating properly as “BCFP”). The BCFP has amazingly broad powers to adopt and enforce regulations with respect to the conduct of “covered persons” – if you’re a payday lender, this means you.

The industry’s antagonists have pronounced that the BCFP’s first act will be to regulate payday lenders out of business (even though payday lending was entirely unrelated to the causes of the recent financial crisis, they assume that the BCFP will have no bigger fish to fry than payday lending). Some of my colleagues believe that payday lending is “low-hanging fruit” that the BCFP can use to put up a quick and easy “W” on the scorecard and, in the process, placate consumer groups. I think they’re all wrong.

A thoughtful analysis of how the BCFP will go about regulating payday lending needs to be multifaceted and nuanced. This process does not lend itself to facile, throw-away lines like “Liz Warren hates payday lending.” Rather, we need to look at the people who will promulgate the regulations, at the deliberative process mandated by the statute and at the guidelines the statute provides. Consideration must also be given to the effect on other BCFP constituencies of a perceived hasty and baseless proscription of payday lending. Finally, we need to think about timing and the likelihood that changes in the political composition of Congress will have occurred by the time the BCFP can get around to turning its guns on payday lenders.

The heavy lifting in the drafting of any regulations affecting payday lending will be done by staff of the BCFP. (The Bureau has no staff today but will acquire staff soon as a result of the combination of staffs of several federal agencies and outside hiring.) Staff are frequently the unsung heroes of Washington. Many of them are doctorally prepared career experts – economists, lawyers and psychologists – who could do better for themselves in the private sector but who choose instead to serve the public. No fooling. They work hard, and their work outlives the politicians to whom they report. And this factor is important for a critical reason: their primary motivation is to get it right, not to serve the ends of consumer groups or even of their more politically minded, but time-limited, bosses. The BCFP’s staff will be aware that consumers will be driven to inferior substitute credit products if payday loans become less available. They understand that eliminating supply does not eliminate demand. They will want to know what will replace the payday loans that are proposed to be outlawed. They don’t care about getting votes.

Staffs understand science. At the FDA, science sounds like this: “The effect of Diasporex was studied in a multicenter, prospective, randomized, double-blind, controlled trial conducted from 2002 through 2008 at 163 institutions, which enrolled 2,539 patients with type 2 diabetes without a history of atherosclerotic disease. A total of 34 patients in the Disasporex group and 38 patients in the control group died from any cause (hazard ratio 0.90, 95% confidence interval).” We grasp from this study that 10% fewer patients died with Diasporex than without it, a determination made using the gold standard of scientific inquiry in a large-scale, controlled experiment.

What is the analog of this for payday lending? For the CRL, it’s this: “Kym Johnson, a single mother working as a temp in Tempe, took out a payday loan when a friend told her about how she could borrow money easily. She quickly fell into the debt trap and had to pay a high fee every payday to renew the loan and avoid default. When she had trouble keeping up this cycle, she took out a second loan to pay fees on the first. It took Kym another eight months to shake free from the debt trap.”

Staff people understand that anecdotes are not science.

There is a significant existing body of real science on the issue of whether payday loans are welfare-enhancing for consumers. Most of the academic research shows that consumer welfare is enhanced by access to payday lending – although, in candor, a few studies are ambiguous or to the contrary. But there is no unambiguous research showing that payday loans are “bad” for a majority of borrowers. Likewise, there is no scientific evidence that the “right” number of rollovers at which to limit consumers is eight or six or zero. Think about all of the states with rollover limitations – there is no state in which a rollover limitation has been adopted based on a scientific study; such limitations have always been the product of a horse trade or something worse. That is not going to happen with the BCFP. Staffs are not going to make this stuff up. They are going to study it and get it right.

And this is precisely the process that Barney Frank intended. Despite numerous proposed amendments from the Left to impose specific interest-rate or rollover limits on payday lending, Frank pushed them all back and urged that these matters should be left to the agency’s expertise. They are going to study it and get it right.

The argument can be made that, even if staff personnel are scientific and apolitical, the regulatory process can easily corrupted by a political director. Let’s take a close look at a couple of the current directorship candidates and how they approach consumer-credit ambiguities:

Elizabeth Warren’s approach to regulatory issues becomes clear in her law review article, “Bankruptcy Policy,” 54 U. Chi. L. Rev. 775-814 (1987) (you can pay for the full article and download it at http://www.jstor.org/stable/1599826). The article illustrates her struggle with some thorny policy matters. She resolves them by adopting an economic analysis, which she admits is imperfect – “a dirty, complex, elastic, interconnected view of bankruptcy from which I cannot predict outcomes nor even necessarily fully articulate all the factors relevant to a policy decision.” In short, she is resistant to elemental dogma and takes little on faith. She has spent her career as a scholar who will follow the data and who is willing to vary her position when the facts lead that way. If, indeed, Warren hews to this mold, she is precisely the kind of leader whom we might want as the head of the BCFP: a non-dogmatic social scientist who listens. FiSCA interviewed her last year for its members’ magazine, and she presented a balanced and thoughtful approach to the credit requirements of lower-income consumers. At the time, I thought she was merely being polite (and politic); on reflection, while there is much on which I do not agree with her,  I’m not so sure she’s the devil incarnate.

The same can be said of the other leading candidate, Michael S. Barr, although his writings are more often cited as directly antithetical to payday lending. While he was on the faculty of the University of Michigan Law School, he conducted a study of Detroit-area lower-income consumers. The analysis in the paper is thoughtful and not critical of payday lenders in isolation; it shows that users of payday loans often have been turned down for other forms of credit and use overdraft and pawn to equal, often detrimental, effect. The paper is cited by CRL frequently for the proposition that payday users have three times the rate of bankruptcy, double the rate of evictions and phone cut-offs, and almost three times the rate of having utilities shut off. Unsurprisingly for CRL, these statistics are absent from the paper. And, of course, Barr never claims causation; he merely observes coincidence. See, “Financial Services, Savings, & Borrowing Among LMI Households in the Mainstream Banking & Alternative Financial Services Sectors,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1121195 (2008). He is a pretty level-headed, data-driven analyst, as far as I can tell. He understands that people often use payday loans because they are in trouble; he has not asserted that they are in trouble because they use payday loans. Barr shows every indication of being, like Warren, an evidence-based scholar.

Are these folks arch-conservative, pro-business zealots? Of course not. But they’re certainly not as awful as the trade press portrays them.

The director’s term is five years. Control of Congress and/or of the White House seems likely change in that time. The director will need to be mindful of the likely changes.

I turn now to the specifics of the Act. The BCFP’s authority includes proscribing by rule any “unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service.” Sec. 1031. To be clear, if the BCFP is going to curtail payday lending, it can only be because the Bureau finds payday lending to be “unfair, deceptive, or abusive” – there is no other basis in the statute for a proscriptive regulation. Unfortunately, the Act doesn’t define any of these three terms.

So what, exactly, is it about payday loans that the BCFP could find to be “unfair, deceptive, or abusive”? The resolution of this question really consists of two parts, because “unfair” and “deceptive” are already well-established legal concepts with time-tested meanings (largely from FTC practice).  Indeed, the language used in the Act to describe an “unfair” practice is lifted nearly verbatim from the FTC Act (at 15 U.S.C. § 45[n]). An example of a “deceptive” consumer financial service is one that economists refer to as a “shrouded attribute” – like a critical deal term concealed in fine print.  Although the statute explains certain conditions that must exist for an act to be found “unfair” or “deceptive” for purposes of brevity, suffice it to say that payday loans do not meet either of the traditional standards of “unfair” or “deceptive” products, because they comply literally with the requirements of applicable state enabling statutes and do not shroud any of their material terms. There is abundant judicial precedent on this point, including the FTC’s own Policy Statement on Deception (http://www.ftc.gov/bcp/policystmt/ad-decept.htm). If this were not the case, the FTC would long ago have shut the entire industry down. To my mind, this argument entirely disposes of two of the three “bad conduct” badges in the Act. Even if it did not dispose of this issue, the BCFP is required to take into account “public policy” considerations – such as the fact that access to payday loans remains the legislative public policy of 36 states – although such considerations are not dispositive (again, this language is lifted from the FTC Act). The FTC Act and Title X of Dodd-Frank are manifestly in pari materia, and chaos would result if they were interpreted differently.

Conversely, the third – “abusive” – is a standard created out of whole cloth for this legislation by Rep. Frank and his staff, without historic or judicial precedent, and without much in the way of legislative history in the Act itself. Here is what the statute says about “abusive”:

(d) ABUSIVE.-The Bureau shall have no authority under this section to declare an act or practice abusive in connection with the provision of a consumer financial product or service, unless the act or practice-

(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or

(2) takes unreasonable advantage of-

(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;

(B) the inability of the consumer to protect the interests of the consumer in  selecting or using a consumer financial product or service; or

(C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

Sec. 1031.

This is a strange way not to define a term. Note that the statute doesn’t explain what “abusive” is; it simply tells the Bureau what minimum conditions must be present for “abuse” to be found. And I would argue – persuasively, I think – that none of those four conditions is present in a traditional payday loan.

An argument could be made that hyperbolic discounting might lead a small subset of consumers to take on debt that, had they known better, they might have realized they would not be able to repay (a [2][B] violation). This argument is readily reduced to an absurdity because the same hyperbolic discounting leads to excessive use of mainline credit products, such as credit cards, which nearly everyone agrees are non-“abusive.” The possibility that some subset of borrowers, however small, might over-consume a credit product when they have not been deceived into doing so does not strike me as an abusive process worthy of a ban applicable to all consumers.

Perhaps ultimately some argument could be made that an egregious combination of high interest rates and rollovers is “abusive.” While this argument, too, might lend itself to a reductio ad absurdum analysis – no one objects when the consumer pays three times the principal over the life of a thirty-year conventional mortgage – the “cycle of debt” claim remains seductive for those who would do right by consumers. The problem with the “cycle of debt” is that there is no scientific support for its existence; it exists only in CRL anecdotes and screeds. The emerging science is actually to the contrary; higher interest rates do not cause consumers to be indebted for longer, even though a superficial and unstudied review tells us this “must” be true. Ultimately, the BCFP isn’t merely going to take CRL’s word for it.

There is another problem with even taking interest rates into account in determining a payday loan to be “abusive.” Very importantly, under the Act, the BCFP has no authority to set or limit interest rates. Sec. 1027(o). By logical extension, I would argue that the BCFP has no authority even to take interest rates into account in determining a consumer loan product to be “abusive,” simply because the power to do so is the power to ban a product because of its high interest rate – a power expressly denied the BCFP under Section 1027(o). Congress did not want the BFCP to be able to supersede otherwise lawful state interest rates. Under the statute, the BCFP might find a 16-week loan term to be abusive from some reason, but it cannot – without spurring litigation – do so merely because the loan bears a 391% (rather than 18%) annualized interest rate.

In summary: payday loans are not “unfair” or “deceptive,” under well established and longstanding FTC standards, and it will be a very long shot to find them “abusive.”

The Act recognizes the importance of access to small-dollar consumer credit and actually creates (at Sec. 1205) a Treasury-funded small-dollar loan program, as an “alternative” to payday loans. The BCFP’s rulemaking authority is to be exercised in a manner so that “all consumers have access to markets” (Sec. 1021[a]); and the BCFP is required to balance “the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule” (Sec. 1022[b]). It seems unlikely that a thoughtful and deliberate BCFP would eliminate consumer “access to markets” for small-dollar, short-term credit before the government’s own program catches on. Of course, it won’t ever catch on, just as the FDIC program flubbed. Banks don’t want these customers. And banks will have their hands full for years to come with the other provisions of the Act and don’t need to bother themselves competing with payday lenders.

Finally, the rulemaking process – collecting disparate views, drafting, giving notice and taking comments – will take time and is inherently deliberate and deliberative. All of this will happen only after the BCFP hires staff, finds office space and buys coffeemakers. It will therefore be many months, possibly 18 to 24 months, before the BCFP is effectively able to address these issues. During that time, control of Congress may change, and economic conditions are unlikely to militate in favor of further reductions in the supply of consumer credit.

There is every reason, too, why the BCFP would want to give the impression of being deliberate. It has other constituencies with far more economic and political clout than payday lenders. A perception by these other groups that payday lenders had been given hasty, incomplete or unfair consideration would lead to predictable howling and adverse consequences for both BCFP leadership and staff. There is simply nothing in it for the BCFP to throw payday lenders under the bus without at least careful research and a thorough, fair hearing.

In summary, I do not believe that the people who will lead the BCFP and who will execute the BCFP’s rulemaking process will regulate the payday loan industry out of business on the basis of prejudice, malice or politics, or that they will promulgate regulations in anything other than a near-plodding, diligent and fair way. I do not believe that a payday loan is “deceptive” or “unfair” within the common legal meanings for those terms, and I do not believe a payday loan can be shown to be “abusive” without the BCFP’s impermissible intrusion into interest-rate matters denied to it under the statute.

At the end of the day, heads-up against the BCFP, I believe the industry either wins outright, pushes or can negotiate an acceptable compromise.

As a consequence, at least a significant part of the “action” through at least mid-2011 is likely to remain at the state level. Continued diligence by trade associations, lobbyists and grass-roots organizations will therefore be required. This is especially the case because payday lending antagonists may flank the industry by pushing state legislatures to act early next year while the trade associations are focused on the BCFP.

At least as far as the BCFP is concerned, with apologies to Mark Twain, the rumors of the death of the payday loan have been greatly exaggerated.

Hilary B. Miller
hilary@miller.net

Read Part 1 here: Part 1

Law offices of Hilary B. Miller

Law offices of Hilary B. Miller | 500 West Putnam Avenue | Suite 400 | Greenwich | CT | 06830-6096

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19
Jul

Hang In There Payday Loan Fans! The Future is Ours!!

Hang In There Payday Loan Fans! The Future is Ours!!

Payday Loan, Car Title Lenders, Check Cashers and all the rest of us in the micro-lending niche will survive. In fact, we’ll thrive.

How can I say this? How can I be so certain?

First, let me share with you the catalyst for this rant.

I got into payday loans, car title lending and check cashing in 1997 when I opened my first store in Mission Viejo, Calif. It was the early days and nobody in my world even knew what a payday loan was. I attended my first National Association of Check Cashers Convention (now called FISCA), networked, attended the workshops and left feeling really upbeat about the future of the payday loan industry and micro-lending in particular.

Everything was going great. Sure, there were always rumblings about regulators in a few states getting their feathers ruffled after prodding by The CRL or some other anti-business, anti-capitalist, anti-financial choice group. But I came to realize we enjoy a huge demand by consumers for our products and services. And we have some really smart and creative people in our industry.

Then October 2003 came along. I was at the FISCA Convention (I think it was at The Broadmoor in Colorado) when the FDIC announced all federally chartered banks involved in payday loan lending would have to increase their reserves to 1:1. Additionally, the FDIC advised that banks should ensure that payday loans are not provided to customers who have had payday loans outstanding from any lender for a total of three months in the previous 12-month period. “FDIC-supervised institutions currently engaged in payday lending are instructed to submit plans detailing how they will address the revised guidance.”

This announcement swept like wild fire through the halls of the convention. Shares of publicly traded payday loan lenders and check cashers plummeted that day. Valuations of brick-n-mortars plunged! “There would be no financing available in the future for our industry.” Stephens Investment Bank dutifully reported M & A action in our market segment was “dead” for the foreseeable future. Fully a third or more of the convention attendees freaked out. It was they said, “The end of our industry.”

Many operators bailed. They sold out; some at fire sale prices. (I know that many of these sellers eventually came back to our industry. They couldn’t stay away :o)

And then a funny thing happened; our industry survived. Store revenues increased. Transaction volume increased. The Internet began to play a role. CFSA was formed and eventually the OLA .

******************NOTE************************************
I don’t know the date you’re reading this. It doesn’t even matter. Just be aware that the regulatory and legislative issues discussed here are a universal theme, so keep reading. You’ll be glad you did! It’s very optimistic!!
**********************************************************

Now don’t get me wrong! There have been more bumps and grinds along the way. The payday loan advocates in Georgia were defeated by GILA . Oregon went down the tubes. Arizona and Ohio were tough battles. Virginia is edgy. And there were others! (By the way, don’t think the residents of these “dark” states are no longer getting their payday loans and car title loans; they most certainly are. They simply aren’t walking into a store in their state. Instead, they’re using the Internet,they’re driving across state lines, they’re calling 800#’s… meanwhile there are fewer jobs in their state. There is more crime in their state. Fewer taxes are being paid in their state. Vacancy rates for commercial buildings are higher in their state. And the fees that licensed payday loan and car title loan businesses were paying to their State are now non-existent. I guess that’s the subject of another rant!)

But it’s not all doom and gloom for us!

Here’s just a few reasons why we will overcome!

It will be 12 to 24 months before anyone in Washington even reads the 2300 page Consumer Financial Regulatory Agency Proposal. It will take months and months to form the committees and boards required to attempt to oversee our industry. There will be massive lobbying by the banks, the credit card companies, the automobile dealers, and our own organizations including OLA, FISCA and CFSA creating a lot of “give-and-take.” Who knows what the ultimate outcome will be. I’m certain we will evolve into whatever it takes. (For more on this read USA Today’s description of past failures of new financial regulatory reform out of Washington.

And there’s technology. Technology is in our favor. Technology knows no boundaries. Pay attention to Internet solutions. Get acquainted with “peer-to-peer” lending. Educate yourself regarding the origination of the Grameen bank and Muhammad Yunus who won the 2006 Nobel Peace prize for micro-lending. Do you know what he’s doing in New York and Pennsylvania today? Take a look at the Kiva Model and Prosper and Lending Club. Here’s a Business Week article offering some further insight into peer-to-peer lending:

Acquaint yourself with installment lending, open-end credit agreements, closed-end credit agreements, the Credit Services Organization (CSO) Model, collateralized and non-collateralized loans… (all of these are discussed in our Training Manual at PaydayLoanIndustry.com .

And don’t forget to learn what you can implement in your specific location/ model regarding setup fees, one time application fees, credit check fees (even if it’s simply Teletrack), referral fees, check cashing fees, connection fees…

MOST IMPORTANTLY, let us not forget about our customers! THEY NEED US JUST LIKE WE NEED THEM. They’re out there by the millions in the USA, the UK, Canada, Australia, New Zealand, Korea, Japan; they’re EVERYWHERE! And our customers DEMAND our product! They WANT our product! They MUST HAVE our product!

We simply have to organize better, support our industry organizations better, join forces with complementary industries, and prod our customers to support us with videos, email, letters and face book accolades. Most importantly, we must EVOLVE into whatever we need to be in order to SERVE OUR CUSTOMERS. No matter what the Regulators do, OUR CUSTOMERS WANT US! CUSTOMERS NEED OUR HELP! AND WE DESERVE TO MAKE A PROFIT SERVING THEM!!

So… with no end to consumer demand for our products and services in conjunction with an industry composed of some of the most intelligent and creative men and women on the planet, I’m 100% certain the payday loan, car title loan, check cashing …the whole micro-lending niche will not only survive but prosper in the coming decades.

Educate yourself! Read this PaydayLoanIndustryBlog.com . Read The Payday Loan Pundit . Read Nick’s stuff at PDLIndustry.com .

Consumer Financial Service Centers are our destiny! Evolve!! Adapt!! Create!!! You’ll prosper!!!!

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18
Jun

More on the Arizona Payday Loan Industry

There’s some interesting commentary going on over at Arizona’s Own Expresso Pundit regarding the Arizona payday loan industry. Be sure to read the Comments Section; very enlightening! You’ll gain insight into how various state political machinations behind the scenes affect our industry. Of course, no surprises there.

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