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WSJ Editorial slams CFPB regulations as “political assault” on short-term credit providers

WSJ Editorial slams CFPB regulations as “political assault” on short-term credit providers

A recent editorial penned on June 2, 2016 by the Wall Street Journal is very critical of the CFPB’s efforts to regulate the short-term lending industry.

“The Obama Administration has justified its regulatory assaults on for-profit education and coal mining with this nuanced legal reasoning: We don’t like you.  Now the Consumer Financial Protection Bureau is looking to wipe out a financial service that millions of Americans need thanks to the lousy economy of the Obama years.”

The article goes on to criticize its close ties with the center for responsible lending and the lack of consideration of how this policy  will effects on millions of americans.

To read the full article click here.

 

 

 

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OCLA Official Response to Proposed CFPB Regulations

OCLA Official Response to Proposed CFPB Regulations

 

June 2, 2016

If the rules go through unchanged, most of the industry’s lenders will go out of business. Ohio’s economy will take a $1 billion hit with more than 10,000 jobs in jeopardy. At first glance, it looks like the Bureau’s trying to regulate us out of business. What they can’t eliminate is the demand for short-term credit. We believe the CFPB should focus on broadening options for borrowers, not forcing existing market providers to shutter their doors.

The CFPB’s rules will greatly reduce or eliminate short-term lending options for more than 2 million underbanked Ohioans. That’s the opposite of the Bureau’s mandate in Dodd-Frank. The CFPB was created to protect borrowers and increase their access to credit options, not push them to unlicensed offshore lenders. Forcing every short-term lender in the country to close down doesn’t eliminate the need for short-term credit. It just puts more strain on the people the CFPB’s supposed to protect.

There’s a common misperception that the short-term lending industry is extremely profitably. Public earnings reports tell a different story. Profit margins are tight. Tight margins and risk are why there aren’t more options in the marketplace. Our model is the only private-sector solution that actually works. Every new regulation comes with a hidden cost, and eventually that cost forces our member companies underwater.

Patrick Crowley
Spokesman
Ohio Consumer Lenders Association
859-462-4245
pcrowley@strategicadvisesllc.com

 

About The Ohio Consumer Lenders Association
The mission of Ohio Consumer Lenders Association (OCLA) is to promote the common business interests of consumer financial services organizations operating in Ohio and to provide a forum for industry-wide consideration of the means for making credit available to middle class Ohioans on reasonable terms and conditions. OCLA works to promote laws and regulations that balance strong consumer protections while preserving access to a diverse credit market. All OCLA members abide by a code of Best Practices that provide appropriate safeguards for Ohio consumers. These Best Practices are intended to assist consumers in understanding the costs and responsibilities associated with short-term credit and to provide adequate and clear disclosures to allow consumers to make informed financial decisions. Furthermore the association promotes ethical transparent business policies such as easy to understand contracts, appropriate debt collection practices and honest advertising. OCLA members are held to the highest standards and pledge to provide quality financial products.

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Sign E-Petition to Oppose the Short-Term Lending Rules being considered by CFPB

Sign E-Petition to Oppose the Short-Term Lending Rules being considered by CFPB

Oppose the short-term lending rules being considered by the CFPB. These rules will limit our access to payday and other short-term loans and take away our financial freedom. Some of the rules would limit our ability to borrow money to 90 days a year and force us to wait 60 days between loans. This doesn’t work for us. If the rules become law, many of us will have no credit. The rules won’t apply to other forms of credit, so why are we being unfairly targeted? How we manage our money is our responsibility-not the federal government’s. We use these loans responsibly. Payday and other short-term loans are legal under state law and work for us. Regulation that makes it nearly impossible for us to obtain or to qualify for a small loan is the same as eliminating these loans.

Click Here to Sign the Petition

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Why the working poor and banks are a bad match – An article by the American Banker

Why the working poor and banks are a bad match – An article by the American Banker

Click the link or picture below to listen to Lisa Servon, a professor at the New School in New York, discuss her experiences working as a teller at a check-cashing business.   This article and video was produced  by the American Banker’s Association

The Consumer Financial Protection Bureau is expected to draft rules governing payday lending this year. But the conventional wisdom that will likely guide it is based on false perceptions about the working poor and the best way to serve them.

So argues Lisa Servon, a professor at The New School in New York, who spent four months as a teller at a check-cashing business in the South Bronx and three at a payday lender in Oakland, Calif. Servon’s conclusion is that many low-income consumers fulfill their financial needs outside the regulated banking system by choice and in many cases are better off for doing so. The professor of management an urban policy explains why she believes bankers and policymakers are wrong in many of the conclusions they’ve drawn about underbanked and the types of financial services that would best cater to them.

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Wall St. Journal article – “Cracking down on payday lending will drive borrowers to less savory creditors.”

Wall St. Journal article – “Cracking down on payday lending will drive borrowers to less savory creditors.”

The following article was published in the Wall Street Journal on Nov. 26, 2013. This article discusses how British Chancellor of the Exchequer George Osborne is making a mistake by instituting new regulations on payday lending.  The article cites examples of “unintended consequences” in the U.S. in states such as Georgia and North Carolina.  Interesting read.

Osborne’s Next Bad Idea
Cracking down on payday lending will drive borrowers to less savory creditors.

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Updated Nov. 26, 2013 8:53 p.m. ET

George Osborne has spent much of the last three years decrying a lack of available credit for the little guy. But now the U.K. Chancellor has hit upon an idea to help hard-up people to whom banks won’t lend: crack down on the lenders that do.

Mr. Osborne announced Monday that bank reforms going through Parliament this week include instructions to the U.K.’s consumer-finance regulator to cap the cost of so-called payday loans—typically high-interest, short-term, three-figure loans to tide customers over until their next paycheck. As he explained to the BBC, the new rules will limit “the total cost of credit, looking at the whole package,” fees as well as rates, as “a way of making sure that hard-working people are served by the banking and the credit system.”

The government estimates that payday lending was worth roughly £2 billion in 2011-12, up from £900 million in 2008-09. The industry’s popularity since the 2008 crash has made it a pet bugaboo of the regulatory left. Wonga.com, an online lender that booked a £62.5 million profit last year, has had its ads banned by the Advertising Standards Authority. Headlines scream that Wonga and its peers charge four-digit annualized percentage rates. Wonga’s 1% daily interest rate would add up to an APR of 5,853%—if Wonga didn’t stop charging all interest after 60 days for its 30-day loans.

The government has so far resisted calls to cap the industry’s rates and fees, rightly warning that price controls would only restrict supply. They will also drive those who need money, but can’t qualify for loans under the new rules, to less savory credit channels.

Consider the experience of the U.S. states of Georgia and North Carolina, which banned all payday lending in 2004 and 2005. Borrowers instead went out of state or to less scrupulous creditors. The preliminary result, according to a 2007 study by the Federal Reserve Bank of New York, was that relative to other U.S. states, households in Georgia and North Carolina “bounced more checks after the ban, complained more about lenders and debt collectors, and were more likely to file for bankruptcy.” Some consumer protection that turned out to be.

People often turn to payday lenders because they have little choice, often on account of their credit histories. That’s why they’re often bigger credit risks. Barring lenders from charging enough to cover those risks can only result in less access to loans for people who need them.

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New Harris Poll: 9 in 10 borrowers felt product met their expectations

  • 84% of Borrowers Say It Was Easy to Repay Their Loan

  • 95% of Borrowers Agree Using Payday Lending Should Be Their Choice, Not the Government’s

More than nine in 10 payday loan borrowers report their experience with the terms (96 percent) and cost (92 percent) of their payday loans was as expected or better than expected, while more than four in five borrowers (84 percent) say it was very easy or somewhat easy to repay their loans, according to a new national survey commissioned by Community Financial Services Association of America (CFSA) and conducted by Harris Interactive, an international and research polling company, by telephone among 1,004 respondents ages 18+, who are customers of store-front companies within the CFSA, and took out a loan which they repaid in the summer of 2013.Screen Shot 2013-12-16 at 10.17.05 AM

Harris Poll

As the first in-depth examination of borrowers’ motivations and rationale, the survey found an overwhelming majority of borrowers are very satisfied or satisfied with their recent payday loan experience (91 percent), carefully weighed the risks and benefits before taking out a loan (93 percent), and value having the option to take a payday loan (95 percent).

Notably, borrowers almost unanimously agree that it should be their choice whether or not to use payday lending, not the government’s choice (95 percent).

“The great majority of borrowers we surveyed said that, for them, payday loans are an important and valuable credit option that helps them overcome financial shortfalls,” said Humphrey Taylor, Chairman of the Harris Poll at Harris Interactive. “Our survey findings reveal almost all borrowers understood the cost of their loans and how long it would take to repay them.”

In contrast with common misconceptions about payday loans and those who borrow them, the poll reveals that borrowers fully understand their options and choose the service over a variety of other financial services offered by banks and non-bank lenders:

  • 97 percent of borrowers agree that their payday lender clearly explained the terms of the loan to them, including nearly nine in 10 (88 percent) who strongly agree.
  • 68 percent prefer a payday loan over incurring a late fee of approximately $30 (4 percent) or an overdraft fee of $35 from their bank (3 percent) when faced with a short-term financial crisis and unable to pay a bill.
  • Fewer than one in 10 (8 percent) said that a payday loan was their only option and they had no other resources available.

“The voice of the customer rings loud and clear, and the survey shows they not only understand the terms of their loans, they also value having this credit option and use it responsibly,” said Dennis Shaul, CEO of CFSA. “The results also reflect the integrity and commitment of our members who work with borrowers to ensure their experience with the payday loan is a positive one.”

 

Numerous studies have examined the economics and policy implications of short-term lending, but this Harris survey is the most comprehensive examination of payday loan borrowers’ experiences – specifically those who borrowed from regulated, licensed lenders:

 

  • 95 percent say payday loans can provide a safety net during unexpected financial difficulties.
  • 94 percent say they were able to repay their loan in the amount of time they had expected to.
  • 89 percent say they feel more in control of their financial situation because of this option when they need it.
  • 68 percent say they would be in worse financial condition than they are now without the option of taking out a payday loan.

“Credit markets are always evolving, but there remains a clear need for short-term, small dollar credit,” Shaul continued. “As an industry, we are always looking at ways to improve the customer experience and our products, and we look forward to working with regulators at all levels to ensure that credit – such as a payday loan – is available to all Americans.”

The full results of the poll can be found at www.harrispaydayloanpoll.com.

 

MEDIA CONTACT:

Amy Cantu, Communications Director

Amy Cantu (e) acantu@cfsaa.com (p) 703-842-2092

To see the release on the wire, please click here.

About Harris Interactive

Harris Interactive is one of the world’s leading market research firms, leveraging research, technology, and business acumen to transform relevant insight into actionable foresight. Known widely for the Harris Poll® and for pioneering innovative research methodologies, Harris specializes in delivering research solutions that help us – and our clients – stay ahead of what’s next. For more information, please visit harrisinteractive.com.

About the Survey Methodology

Harris Interactive conducted a telephone survey on behalf of the Community Financial Services Association of America (CFSA) from October 9 – 24, 2013, among 1,004 U.S. respondents ages 18+, who are customers of store-front companies within the CFSA, and took out a two-week payday loan of $700 or less which they made final repayment of in July or August of 2013. Data are unweighted and are a representative probability sample of the population who were surveyed.

 

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