limitations are not freedoms
education, consumer protection, financial reform
The Responsible Lending Center is an independent consumer advocacy group which rallies for freedom of product choice, consumer protection and consumer responsibility. There are a number of organizations that are created for the primary or sole purpose of protecting the average consumer against for-profit businesses in the finance industry. The Responsible Lending Center promotes the consumer’s right to choose in situations in which full disclosure is encouraged and provided by the lender. We’ll highlight payday loans, the controversy, pros, cons and proposals to address the most common concerns.
In several other countries lawmakers have worked with the lending industry in order to promote industry reform, consumer protection, validation of products, in addition to ensuring that profitability is still attainable. We challenge regulators to take into account all of the above conditions and work in tandem with the lending industry to produce results that will be favorable for all parties.
1. Complaint- Payday lenders have Annual Percentage Rates in excess of 400%.
Solution- The APR associated with payday lending is one of the greatest complaints from political figures and consumer advocates. Although the APR will still exist, it can become irrelevant by capping the fees on all short-term loans. Capped fees will protect the consumer in addition to ensuring the lender is able to make a profit. Please note that a 400% APR would require 26 consecutive bi-weekly loans in order to be valid.
2. Complaint- Borrowers get trapped into a cycle of debt.
Solution- There are a number of ways to allow customers to more easily pay off their loans. One option would be to impose a “4-pay and out” in which the consumer has an option to make four bi-weekly payments that will reduce the principle each payment. Another option is to mimic the new Illinois law which will put customers on an 8-pay amortized loan and the customer has the opportunity to pay their principle down significantly.
3. Complaint- Payday loan customers are uneducated.
Solution- Displaying financial literacy material and/or offering classes can be made mandatory for all lenders applying for licensure in their state. Consumers will then have access to information on all of their credit options. In addition to making material available, there could also be a brief state or federally approved payday loan education video that all customers would be required to watch and sign-off on.
4. Complaint- Payday loan customers don’t understand the terms of their loans.
Solution- Consider printing payment schedules or amortization schedules with all contracts.
5. Complaint- Payday lenders target the military.
Solution- By law, no lender can create a loan contract to any member of the military for more than 36% annual percentage rate.
6. Complaint- Payday lenders target the poor.
Solution- Create a state or federal minimum income conditions for loan requirements.
The Consumer Financial Protection Bureau has encouraged consumers to submit feedback and complaints relevant to financial institutions and individual products. The complaint data compilation includes: credit reporting, credit cards, student loans, mortgages, savings accounts, checking accounts, and other bank services and consumer loans. The Consumer Financial Protection Bureau is now sharing all complaint data with state regulatory agencies. The CFPB is doing so in a effort to make complaint filing a easier process for the consumer. This process will hopefully keep individuals from having to file multiple complaints with several agencies in the pursuit of resolution. Click here to visit the CFPB website for additional information on the complaint filing process.
The 112th Congress has introduced H.R.6139, also known as the Consumer Credit Access, Innovation, and Modernization Act, which would create a federal charter for national, non-traditional financial institutions that extend credit for 30 days or longer. The bill recognizes that individuals of all incomes use non-bank institutions for their short term and/or small dollar credit needs. In addition, the bill also recognizes that the FDIC and banking institutions have not been able to sufficiently meet the short-term credit needs of consumers. The establishment of a federal charter would essentially legitimize non-bank, non-traditional financial institutions and construct uniform federal guidelines for all consumer lenders to abide.
The Circuit Court of Missouri has ruled in favor of the plaintiffs in a recent lawsuit filed by citizens against the Secretary of State concerning the language which was approved for the ballot initiative. The ballot initiative, which would have capped the annual percentage rate on all consumer loans in Missouri to 36%, proposed language that would not specify the true impact of the law, nor would it have stated the annual percentage rate on the actual ballot. Missouri citizens argued that the language was deceptive and misleading.
Consumers have coined this upcoming Saturday, November 5th as "Bank Transfer Day." In an effort to show banking institutions that the people hold the power and, in a sense, punish banks for their greed, the plan is to transfer money from big banks and into a local credit union or bank. Although the movement is independent of the Wall Street protests, it has gained much popularity within those groups and has even received a definition on Wikipedia. The movement is still scheduled to take place even though the big banks have announced the cancellation of their debit card fees.
Several weeks ago we caught wind of Bank of America's plan to cut up to 10,000 jobs to make up for lost fees from overdrafts, merchants, credit card interest and more. Although it may not have been a shock to the public, it was still unwanted news symbolizing more economic chaos and uncertainty. Shortly after, we learned that Warren Buffet had agreed to invest $5 billion into Bank of America to soften the blow of whatever anticipated financial woes were to come for them. Now, Bank of America is instituting a $5 monthly service fee for debit card users. It's certainly not news that the debit card is one of the most used modern day conveniences, but banks may be forcing customers to choose between convenience and disposable income. While $5 doesn't sound that hefty, when you think of it as $60 a year to spend your own money, it sounds more undesireable. But the jury may still be out as to whether consumers will view this new $5 fee as just the cost of services rendered or whether it's an act to be outraged by.
The Missouri office of the Secretary of State has approved for a ballot initiative for the 2012 elections which will significantly reduce the amount of interest that alternative lenders may charge. So much, that lenders will be forced out of business in Missouri if passed. While the Missourians for Responsible Living may have good intentions, they may also be missing the bigger picture; loss of credit availability, demolition of alternative finance in Missouri, elimination of approximately 10,000 Missouri jobs, disregard for consumer education and full disclosure, and the subsequent economic devastation. Two lawsuits have already arisen from this initiative.
Richard Cordray has been chosen by President Obama to head the new Consumer Financial Protection Bureau. Cordray is the former Attorney General for the state of Ohio and was originally due to be confirmed this month. However, the hearing has been postponed until September, when Congress returns from a break. There is a chance that Cordrays confirmation will be blocked if all Republican demands are not met.
Even as the CFBP has launched on July 21st, concerns are still prominent and the agency continues to be met with resistance - even from Capitol Hill. The House voted on moving forward with H.R. 1315 which would convert the CFPB's one person leadership into a five person authority. The assumed goal is to minimize the power of the agency, and many Democrats believe that it is an effort to reduce overall financial reform. We'll have to keep a close eye on what surfaces over the next couple of months as the agency contacts and communicates with the financial institutions in which it now has jurisdiction.
The Consumer Financial Protection Bureau initiated a timeline of occurrences, events and deadlines relating to the development of the organization. However, there has been a void in that timeline for the past five months which seemingly represents a halt in progress as no formal director has been named. Although the bureau's implementation team is large, there are still questions as to whether or not there will be an adequate launch on July 21. One thing is certain...the bureau will be limited without a confirmed director.
The Weldon Cooper Center for Public Service is a division of the University of Virginia which focuses primarily on demographics and workforce statistics. The organization's study on the use of alternative financial services concluded that steps toward economic security should include improved financial literacy for individuals and families in addition to the development of short-term loan products through mainstream institutions but doesn't mention whether or not alternative services facilities should remain in existence to continue to meet the needs of consummers.
The FDIC held a meeting on the state of economic inclusion and the lack of availability of financial products for low to moderate income families. While federal regulatory forces recognize the need to expand and modify financial services to meet the ever-changing needs of our communities, there's still a lack of resouces available in LMI communities. The FDIC challenged communnity banks to alleviate the dilemma by asking them to come up with tailored products that the underbanked, unbanked and banking challenged would be able to take advantage of to improve their overall financial wellbeing. The FDIC also recognized that access to capital may prove to be an obstacle for community banks, limiting the availability of loan resources. Check out the FDIC webcast for more details.
The truth is that lobbying is a necessary evil whether or not we agree with it or how it's done. We all have special interests even if we're not appealing to politicians to lean more towards our point of view. The unfortunate reality is that many groups that pick apart other special interest groups for lobbying are themselves very guilty of doing the same. Take a look at how much the Wall Street Journal says is being spent by big banks.
Contact your local and state elected officials and let them know.