limitations are not freedoms
Based on the to the Montana Deferred Deposit Loan Act, "A licensee may not charge a fee for making or carrying each deferred deposit loan authorized by this part that exceeds 36% per annum, exclusive of the insufficient funds fees authorized." All deferred deposit lenders are now legally able to charge $1.36 on every $100 they lend, eliminating the possibility of profits for most. In 2009, Montana licensed 113 deferred deposit lenders and in 2010 there were 102 licensed in 2010. As of 2011 34 licensed lenders remain in the state.
Mississippi Governor Haley Barbour allows payday lending to continue in the state by signing legislation that is expected to only decrease lenders profits by 10%. Although smaller businesses may have to close their doors, the state would be keeping over 3000 people employed.
The newly formed Consumer Financial Protection Bureau, aimed at recreating and enforcing the laws relating to consumer financial products and services, launches its website this month hoping to gather the opinions of consumers. Currently, the CFPB website focuses on gathering the feedback of consumers and encourages individuals to submit their comments, experiences and thoughts via various formats. The website is also dedicated to educating consumers by providing resources for a number of financial literacy subjects including bank accounts, budgeting, credit cards and counseling, credit reporting and much more.
Virginia has made several attempts to put further rate caps on loans in the state. Virginia already has strict regulations on short-term lenders including a mandatory extended payment plan that must be offered to borrowers after their fifth loan within 180 days and a database. Applicants must be entered into the database to determine loan eligibility and also alerts lenders when the applicant is eligible for an extended payment plan. With these laws already in place, Senator Mamie Locke and Senator John Miller of Virginia recently sponsored bills to cap all loans at 36% annual percentage rate. More recently, Senator John Edwards also proposed to cap loans at 36%.
The new Montana rate cap law went into effect in January, 2011. Last year, Montanans voted on a ballot initiative to limit the annual percentage rate on all loan products to 36%. The measure received 72% of the vote even though the Montana Division of Banking and Financial Institutions received very few complaints on the payday loan industry over the past several years. The Montana Division of Banking and Financial Institutions received one formal complaint in 2008 and two formal complaints in 2007. Once most of the non-traditional lenders leave the state, Montana residents will have to find other means in which to meet their unexpected expenses and emergencies.
The Federal Reserve proposes to lower debit card interchange fees. On December 16, 2010 the Federal Reserve announced that it was proposing a rule to establish debit card interchange fee standards which includes a maximum fee of 12 cents per transaction that a merchant can be charged. These standards would apply to issuers that have $10 billion in assets or more. According to a press release from the Federal Reserve, at 12 cents, the fees would be approximately 70 percent lower than the average fees for 2009. The new rule would take effect on July 21, 2011.
The City of Dallas tries to appeal to the unbanked by offering lower cost checking accounts. The goal of the Bank on Dallas program is to discourage citizens from using check cashing establishments and payday loan services. The program also stresses financial education by partnering with several non-profits to offer financial education resources to new account holders. The program began in July and despite the fact that the city has invested numerous resources into making it a success, their 19 participating banks and credit unions have only recorded 81 new accounts.
The FDIC created its Money Smart program almost 10 years ago in an effort to assist consumers in learning to manage their money by covering both basic as well as more difficult financial subject matters. It also helps to promote relationship building between consumers and federally insured financial institutions. According to the FDIC, more than 2.5 million people have benefited from a Money Smart education since inception. Check out the FDIC website for more information.
In October, our nation's largest banks extended a moratorium on foreclosures in order to conduct internal audits of their processes, procedures and documentation relating to foreclosures. Such banks as Bank of America, JP Morgan Chase, Wells Fargo and Citigroup were accused of maintaining inaccurate or insufficient foreclosure documents. After its own investigation was completed in 23 states, Bank of America contended that no errors were found during the review. According to CNN Money, the announcement was made one day before their third quarter earnings report.
Virginia becomes target of usury legislation once again. Critics of the short-term loan industry appeal to Virginia Governor Bob McDonnell to propose new legislation to end usury in the state. Based on the actions of other states, ending usury typically refers to outlawing payday loans. Their concern is that service members are being taken advantage of but we are confused as to why that is still an issue. The military is no longer subject to paying any fees over 36% annual percentage rate but states continue to use the military in order to push their own agenda.
Montana seeks to cap payday loan rates. We've seen this already in several states where either rates were capped, resulting in the short-term loan industry no longer being able to operate, or the complete abolition of the industry altogether. These states already include Arkansas, Connecticut, Georgia, Maryland, Massachusetts, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Vermont, and West Virginia. Montana is disregarding the integral role that alternative lenders play in the overall economic atmosphere in addition to the lives of the responsible individuals that are positively effected. Initiative 164, also known as I-164, proposes to reduce the annual interest, charges and fees (collectively) on all payday, title, installment and consumer loans in the state of Montana. As of October 7, 2010 Judge C.B. McNeil ruled that the initiative will stay in the ballot. The Responsible Lending Center is a firm advocate of education versus restriction in the financial services industry. Click here for the complete text of I-164.
New credit card provisions go into effect this week. In 2009 the 110th Congress introduced the Credit Card Bill of Rights which is meant to place more controls on credit card companies. The new provisions include but are not limited to;1)the elimination of penalties for early payment 2)the elimination of arbitrary interest rate increases, and 3)the creation of a minimum time period in which billing statements are sent to customers. Be sure to review and understand any disclosures and changes made by your credit card company.
If you need assistance with understanding and organizing your finances, attend our free financial literacy course this fall at Better Living Communities. In this five week course, we will review a number of subjects pertaining to your financial security including budgeting, saving and understanding the laws that protect you. The course is mostly based on the FDIC Money Smart Program. Download our financial literacy class brochure for more details.
The final results on the FDIC Small-Dollar Loan Pilot are in. We actually commend the FDIC for its efforts in creating a banking product that is less expensive than accumulating overdraft fees as well as attempting to accommodate those with short-term and temporary lending needs. But how does it really compare to the highly popular payday advance. Of course the perceived success of the program is most definitely relative, especially since the goals and focus were abruptly changed when the program was still in its infancy. There was no way that the FDIC would let the program fail by their own definition and thus recreated their descriptions relating to the Small-Dollar Loan Pilot. In the most basic sense, the Small-Dollar Loan Pilot was not profitable and seemed to be considerably higher maintenance than its traditional counterpart the payday loan. Instead of determining whether short-term profitability was possible, participants were encouraged to use the program to create goodwill in the community through CRA and build long-term relationships, which would, in the long run lead to profits. The pilot program is labeled as being safe, affordable and feasible but based on the requirements and approval procedures what it is not is convenient, practical or non-invasive.