Payday Lenders begin to turn the Tide against Proposed CFPB Regulations

Payday lenders have been living with the pressure of a very real threat to their industry for some time now. The threat is the new regulations that the CFPB has cooked up for the industry. In the mainstream media and in some court hearings, the payday lenders have taken quite a beating from the CFPB so far. It looks, however, like the lenders have finally had it, and they have started to take action to push back against the CFPB and its proposed payday lending industry regulations.

Jennifer Sons is from Chino Valley Arizona and she is also a payday loan customer. She wrote a note that got delivered to D.C. via a Cincinnati group called Axcess Financial. Part of that note read, “These loans are life savers!! Do not change anything please!”

Another payday loan customer, Kathy Walsh of Shellsburg, Iowa wrote, “If I did not have the advantage of a payday loan, I wouldn’t be able to pay for things like my medicine when I run out, especially since I get paid twice a month!”

There have been so many personal notes and comments posted online that the federal government’s website, Regulations.gov, has them all listed under a section of the site called “What’s trending.” At last count, there were more than 22,500 comments and a minimum of 830 handwritten notes that were sent through via Axcess. This group runs the Check ‘n Go and Allied Cash Advance Locations. An additional 800 comments were posted by customers of Advance Financial in Nashville. Some of these notes had straight-to-the-point text, like “I have bills to pay,” and “Leave me alone!”

The correspondence was recently reviewed and it was determined that the letters were from consumers who were concerned about their access to lines of credit going away. Those types of letters and comments far outweighed the comments from critics of the payday loan industry. The critics, mostly consumer watchdog/advocate groups, believe that the lenders are leading consumers down the wrong path and they say that credit for working class people will not go away. They claim that new financial products will offer people the chance to borrow money with more affordable fees.

Providers in the payday lending industry, however, say that the rule will force legitimate lenders to close down their companies. They also say that the rule will prevent lower income consumers from having access to emergency cash and lines of credit. In this battle the lenders have found that the borrowers are their most powerful weapon.

Cullen Earnest is the VP of public policy for Advance Financial. He said, “This is just the tip of the iceberg!” The last day that the CFPB will accept public comments on the rule is October 7th. Earnest warns that there will be many more consumer letters and comments before that day arrives.

As things now stand in most states, payday lending companies can make shorter term, smaller dollar loans to just about any person who has a job. If borrowers are unable to pay back their loans on time, they can roll the loan over into a new one. Opponents of payday lending say that this process creates cycles of debt for poor people. They hope that the new rules will put an end to the creation of these cycles. It is important to know, however, that most people who take out payday loans do so with understanding of the fees and the loan terms. They also usually pay back their loans on time. Those who roll loans over often do so willingly, and fully understanding that it will take them additional time to pay the loans back. This is no different than if someone chooses to skip a credit card payment; except that the CFPB would rather target the payday lending industry with stiff regulations than it would larger providers of financial services, like big banks and credit card companies.

Governmental Agency is on a Mission to Shut Down Small Lending Companies

The Consumer Financial Protection Bureau (CFPB) has only been operating for about five years. But don’t let that relatively short track record fool you; this is a governmental agency that is out to get results. As to whether those results are actually good for consumers, though, is up for serious debated. According to the CFPB, new regulations that they are pushing are all focused on helping to protect seemingly “helpless” American consumers from lenders that are out to get them. If we were crafting a dramatic story out of this whole ordeal, the main nemesis of the CFPB would be payday lending companies. However, the new rules that the CFPB is proposing would have a negative impact on payday lenders and other financial service providers that consumers depend on.

Yearly, a wide range of companies provide lines of credit for small dollar, short term loans that traditional banks don’t want to provide. These types of loans include payday advance loans, car title loans and installment loans. All lenders that provide these types of loans are in a very real danger of being shut down, and that means that millions of U.S. consumers will lose what little access they have to emergency lines of credit.

A lot of the businesses that provide these types of loans have been doing so for more than a hundred years here in the United States. These businesses have remained viable because they provide services that really help people. Every day, consumers use small dollar loans to deal with a wide array of expenses, some of which are definitely emergency expenses. These types of credit lines range from small loans people take out to get appliances/furniture, to emergency loans to pay rent payments or to cover vehicle repairs. If the CFPB gets its way, millions of Americans will find themselves out in the cold the next time they need new furniture, have to get their cars repaired to make it to work or even trying to make rent if they are in between paychecks at work.

Even though the folks in charge at the CFPB know that this is a very stark reality, they continue to move forward with their new regulations. This government agency is using the premise (one that is fool of holes) that these types of companies are predators that take advantage of people who cannot make their own financial decisions and who will never be able to pay back the money that they owe. In fact, the CFPB recently outlined their latest proposal, and estimated that the new rules could reduce the revenue of the small dollar lending industry by as much as 84 percent. And you don’t have to be a math genius or financial guru to know that an 84 percent decrease in revenue is the death knell for any type of business. Small lenders are understandably scrambling with these new changes looming on the horizon.

When did it happen that being a small business was a crime in this country? How did it come to be that companies who have been successfully providing financial lifelines to consumers for years have suddenly become the bad guys? The narrative that the Consumer Financial Protection Bureau is pushing (with plenty of support from the Obama administration, mind you) is one that simply has no basis in reality. Millions of people are unable to get financial services from traditional banks. If the CFPB is successful in its bid to effectively shut the doors of small dollar lenders, where are these financially at-risk consumers supposed to turn?

Payday Lenders out of the Crosshairs in Minnesota?

Recent moves by the Minnesota Legislature – moves that were dead set on imposing reform on the payday lending industry fell by the wayside at the end of 2014. In fact, the proposed reform actually failed to get going at all at the beginning of 2015. This turn of events represents a significant set back for a group of religious and community advocate groups that had their eye on demanding concessions from payday lending companies. These folks believe that when people get small dollar loans for a few weeks that the payday loan customers wind up in a never ending spiral of debt due to loan fees and late fees.

Last year, the Minnesota House, with the DFL pulling their strings, passed a bill that was backed up by the Minnesota Chamber of Commerce. Lobbyists and advocates for the payday loan industry, however, were not able to reach a place of common ground, so the Senate passed. Fast forward to this year and the different parties involved were not even talking about the bill, with no hearings being held to date.

Commerce Commissioner Mike Rothman said, “I’m still committed to this. This goes to my goals for building [family] financial capability. The dialogue [between the industry and consumer groups] got difficult when it came to the interest rate and the number of loans. Families do need affordable credit. It’s troublesome when they are caught in debt traps.”

The group of payday lending companies, led by the successful Payday America company, with 15 locations owned by the same family that owns Pawn America, have pushed back against changes that would effectively limited how many loans a borrower could take out and that significantly lowered interest rates to cap out at only 30 percent. A Payday America executive, Chuck Armstrong, along with Paul Cassidy, a lobbyist for the company indicated that the proposed bill would essentially destroy the Minnesota short term lending industry. The industry has put forth a concession that was to put a common reporting system into place, so that borrowers would not be able to successfully apply for loans if they had existing loans open with other lending companies.

Armstrong said, “We don’t want to keep people in a debt spiral. “Oftentimes it takes more than one loan cycle for a family to get out of debt. Our opponents are manufacturing hysteria.”

Payday lending companies always check to make sure that borrowers have a form of income. Currently, there are no caps in Minnesota to put limits on the volume of rollover loans that a person has, which can have an effect on compound interest rates. With the average payday loan being for roughly $300, the loan fees figure in somewhere around $26.50. Some critics say that this amounts to an APR of over 225 percent. However, it is important to note that most borrowers tend to pay off their loans on time, so the loan fees can only be considered a one-time charge and not a fee that compounds interest on an annual basis.

Even though there is not a lot of action taking place with regards to the proposed sanctions as of right now, payday lenders probably are not completely in the clear in Minnesota just yet. The CFPB still has its eye on imposing reform on the short term lending industry. However, perhaps alternative financial service providers, like payday lenders, can concentrate on simply offering their services to the people who really need them for the time being; instead of focusing on yet another legal fight with parties who seem to have nothing better to do than to limit the financial choices available to lower and middle income households.

Payday Loan Customers are Smarter Than Some People Think

If there is a subject that the mainstream media and some governmental bureaus love to harp on about it is the payday lending industry. All you have to do is go online, watch a news program on television or open up the newspaper to see some sort of article or story about how payday lenders are the worst kind of people in the world. We’ve all seen stories about these “predatory lenders” charging sky-high interest rates and other fees, all the while keeping their regular customers in bondage to a never-ending cycle of escalating debt.

That’s pretty heavy stuff, right? But is it true? Are payday lenders preying on the poor and pulling a fast one on people who need access to fast money? And perhaps more importantly, are payday loan customers just a bunch of poor, uneducated people who are constantly being scammed by short term lending companies?

To find answers to these questions we need to turn to the governmental bureau that has been tasked with monitoring financial misconduct – the CFPB. This bureau receives thousands of complaints from people all over the country. The question, though, is whether or not a large volume of those complaints are related to the short term lending industry. Guess what, they’re not!

Recent data posted by the Consumers Financial Protection Bureau indicates that payday lending is way down on the totem pole with regards to complaints from actual customers. This data, which analyzed the first three years’ worth of complaints to the CFPB indicates that only about one percent of the complaints received are related to payday lending companies. To put that in perspective, the vast majority, around 66 percent of complaints, were filed against mainstream banks, credit card companies, debt collection companies and other established financial organizations.

Stop to think for just a minute what the only alternative to payday loans is for many people. That alternative would be withdrawing money from a traditional checking account to the point of a negative balance. We all know this practice better as paying overdraft fees to our friendly neighborhood banks. If the APR on overdraft fees were calculated the same way that payday loan fees are the worst case scenarios would see people paying upwards of 1700 percent for overdraft protection. Compare that to the much lower calculated APR on some payday loans (around 350 percent) and it is easy to see that overdraft protection fees are far more predatory than any payday loan could ever be.

The CFPB has even done somewhat of an about face when it comes to the payday loan industry. The bureau now suggests that using overblown APR data to understand short term payday loans is not all that accurate. This is because payday loan customers actually understand what they are getting when they apply for these types of loans. The average payday loan customer evaluates these types of loans with regard to fees charged, rather than calculating the APR that they could potentially pay on a short term loan.

While no one expects the CFPB to back down from its mission to protect consumers from predatory financial practices, it is nice to know that the hard data collected by this bureau proves to vindicate the payday lending industry a bit. It may be too late for some smaller lending companies that were forced out of business due to Operation Choke Point, but the message is clear – payday lending companies are not preying on their customers, and those same customers understand the short term lending industry better than many so-called financial experts out there.