The New York Times ran a bit of an “expose” on “Earnin,” an online lending FinTech that may need to buckle up for a bumpy ride…

It seems like each week there is a new Silicon Valley FinTech anti-payday loan venture that is launched with millions in funding and all the slick PR you can buy. There is a formula to the launches, and most have the disruptor mindset but at first glance to many observers, it is clearly a well disguised online payday loan business. It was stated in the Post’s article that Earnin has an $800 million valuation – how much of that do you think came from being hyped by the media? Funny thing is, much of the media that promotes these startups don’t do their homework and would tell you they despise the payday industry if you asked them. Imagine that!

Earnin has been around for several years now and the “tip” model they use is now coming into question. They don’t charge a fee for the loan they just say “tip us if you liked it” or something along those lines. The New York Post says Earnin “has been scrambling to escape regulatory heat over concerns that it has been doing illegal payday lending in the Big Apple.”. It was surprising to read that the tips being collected were $14/$100 per week.  That comes to $28/$100 for two weeks. In Texas the average fee range per $100 borrowed is $20-$25/$100 so that tip is really popping up on some radars now. When you calculate the APR on $28/$100 that is getting into the 600%+ APR range which will typically cause a left leaning liberal with consumer advocacy on their mind to simultaneously combust.  
 
Now, the New York Department of Financial Services appears to be one of those who are very hot under the collar over Earnin doing transactions with New Yorkers. As well, 11 other states are investigating Earnin for violating usury laws. New York sent a subpoena to Earnin in March, shortly after that the tip feature was turned off for New Yorkers. Earnin is now having to explain the switch off, and that loan amounts were not driven down by poor tippers which looks very bad. There were some leaks from former employees apparently. In one of those leaks “Earnin also considered going after perceived enemies. One employee suggested the company hire a private investigator to look into The Post reporter who had written the story” about them. Whoa – this is getting good!

We’ll see how it all plays out, Earnin seems to be getting lined up for a major hit on the chin for other FinTech lending disruptors with similar shell game models. Those who are out in front as Earnin has been, often times are going to have to survive the legal battles to prove out the model while others who are not quite so visible, lay low and quietly ride out the process.

Here is a link to read more from the New York Post:

https://nypost.com/2019/09/01/cash-advance-app-earnin-changes-its-tune-amid-nys-probe/

This blog post was written by Michael Brown, President of CAB Consulting and the Texas Organization of Financial Service Centers. He can be reached at 214-293-8676, or Michael@CreditAccessBusiness.com.

Today invitations to the 5th Annual TOFSC Conference are being sent out to Members, Sponsors, and Vendors, requesting their attendance starting at 10am on Wednesday 9/14.

We have chosen the Hyatt Regency Lost Pines for the venue this year, which is situated 20 minutes east of the Austin Bergstrom Airport near an 1,100 acre nature park called McKinney Roughs.

It is going to be a great setting and as always a great occasion for us to build relationships and do some learning.  Members are already sending in their attendance forms.  See below for links to the forms:

For Members: TOFSC.Conference.Invite.2016.Members

For Vendors / Sponsors: TOFSC Conference Invite 2016- Vendors

If you have any questions call or email Michael Brown, President of TOFSC, at 214-293-8676, or email him at: Michael@CreditAccessBusiness.com.

CFPB Basics

If you have not already, many of you may begin to hear about the “CFPB.”  The “CPFB” stands for Consumer Financial Protection Bureau.  This is a federal agency that was created in the aftermath of the US Economic Meltdown in 2008-2009.  The government felt that it was necessary to create this new bureau to monitor a broad range of businesses that contributed to the problem by not behaving in an appropriate manner, violating the law, or taking advantage of consumers.

“The central mission of the Consumer Financial Protection Bureau (CFPB) is to make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.”The 3 priorities of the CFPB will to be Educate, Enforce, and Study.”

The scope of the CFPB will include the Payday Loan and Auto Title Loan industries.  It is a possibility that our industry will be faced with regulations on local, state, and federal levels.  The CFPB held a field meeting in Birmingham last week and has released an “Examination Procedures”document that illustrates how they plan to go about reviewing industry businesses.

If you would like to review the Examination Procedures document, it is available online, or you may request a copy from CAB Consulting and Brokerage.  Also, if you would like to view an intro to the Field Meeting last week, you can do so here: http://www.consumerfinance.gov/getting-a-complete-picture-of-the-payday-market/

Right now we are all focused on getting our new CABs off the ground and implementing new notices and disclosures.  Set your sights on the CFPB next quarter and take some time to become familiar with it.  CAB Consulting and Brokerage is gathering facts and will continue to provide information as it becomes available.

If you have questions, please feel free to call Michael Brown at 214-293-8676, or email cabconbrokerage@gmail.com

In an earlier blog the CAB license renewal deadline was addressed as it is coming on January 31st.  It is very much worth mentioning that each year when the CABs across Texas pay the renewal fee of $800 per location, that $200 of that goes to the Texas Financial Education Endowment Fund (http://www.tfee.texas.gov/).  It appears that 2,125 CAB licenses will be renewed this year and that comes to $425,000 in contributions to the fund!

In years past there have been as many as 3,500 CABs so that would have meant that $700,000 was contributed for that given year.  CABs have been contributing to the fund since the CAB law went into effect in 2012 so 2017 will be the 6th year.  CAB renewals fluctuate but it is safe to say that $2-$3 million has been put in to this fund by Texas Credit Access Businesses.

“The Texas Legislature established the Texas Financial Education Endowment (TFEE) to support statewide financial capability and consumer credit building activities and programs. The endowment is funded through assessments on each credit access businesses and is administered by the Finance Commission of Texas.”

This program is 100% funded by the licensed CAB operators in Texas.  As a group we should all be pleased to make contributions towards the kinds of programs that have been given grants through the fund.

One bit of irony worth mentioning is that many of the programs who have received money from CABs are located in cities where ordinances were passed.  Goodwill Industries has been strongly opposed to our industry however they gladly received $32,000 from us in Austin!  I have personally seen them testify at City Council meetings in support of the ordinance.  Their testimony is typical in that had a very narrow, negative, and uninformed set of talking points.  Not only does Goodwill support the city ordinances but they join the argument that CABs take advantage of low income citizens.  Well in the case of the $32,000 grant, they took money money from low income citizens.  And, the participated in a movement that caused businesses to close (about 1,300 across Texas), people to lose jobs (2 per store would be 2,600 jobs gone), and after all of that the rates in ordinance cities went up 12% because of burdensome regulation.  Less competition hurts the consumer, once again…

For more information on market changes related to ordinances please go to the OCCC’s website and review the MSA reports for the last several years: http://occc.texas.gov/publications/activity-reports#cab

As for the good news – Texas Credit Access Businesses should get more positive attention for the impact they have on programs that do good for others, see below for some of the grant recipients:

K-12 Financial Education & Capability:

Texas Council on Economic Education – $32,000.00

Financial Coaching:

Family Pathfinders Tarrant County – $32,000.00

Community Development Corporation of Brownsville – $32,000.00

Adult Financial Education & Capability:

Goodwill Industries of Central Texas, Inc., Austin – $32,000.00
Easter Seals of Greater Houston, Houston – $32,000.00
Texas State Affordable Housing Corporation, Statewide – $32,000.00
El Paso Credit Union, Inc., El Paso – $25,000.00
Family Service Association of San Antonio, Inc., San Antonio – $32,000.00

This blog post was written by Michael Brown, President of CAB Consulting and the Texas Organization of Financial Service Centers.  He can be reached at 214-293-8676, or Michael@CreditAccessBusiness.com.

The Austin American Statesman put out an article this week (“Senate votes to limit city regulations on private businesses.”) that discussed two bills in the legislature that were about to be passed by the Senate.  The bills, SB 2486 and SB 2488, will limit local government control over private businesses.  It appears the bills are directly focused on employer issues like hiring practices and break times.  

After hearing some very familiar talking points that support the authority of State law over local ordinances, it stands to reason that the passage of bills like these could lead to better days for Credit Access Businesses offering payday loans, installment loans, and title loans in Texas. 

Of course, an Austin City Council Member testified at a hearing against one of the bills.  Greg Cesar said one of the bills “disgracefully” preempted local regulations.  Let me remind Councilman Cesar of what a disgrace the attempted enforcement of the Payday Loan City Ordinance has been for the City of Austin.  They have been involved in two lawsuits for 2+ years against Speedy Cash and Advance America.  It has been a back and forth legal battle that has consumed City of Austin resources for far too long and even with all that money and time spent, no victory for Austin.  I am sure the residents of Austin would rather have their tax dollars spent on more meaningful subjects.  That is the disgrace! 

Now that I got a good swipe in against the Austin City Council, I will get back to two strong talking points I saw used. Each of them can be used almost as a mirror image in the argument for preemption of the Payday Loan City Ordinance by existing Texas law.

“One comment dismissed concerns over water breaks and work environments, stating that the Occupational Safety and Health Administration already regulates workplace safety.”  (This is exactly the same scenario with Credit Access Businesses – we are already regulated by the Office of Consumer Credit Commissioner).

Senator Creighton said: “I believe in uniformity across the state for the applicant and also for the employer, and it should happen in this building.” (This really applies to any business in Texas with more than one location.  Operating Credit Access Businesses in a City with an Ordinance and one without an Ordinance causes operational confusion and customer inconvenience).

At this point I believe that many Cities in Texas no longer look at passing the Payday Loan Ordinance because they know if they pass it and enforce it they will be looking at allocating several years’ worth of time in lawsuits over it.  So that addresses the further spreading of the Ordinance.  In terms of rolling back existing Ordinances across Texas, perhaps there issome opportunity ahead where the passage of these two bills creates the precedent for leaders in our industry to get that done!

This blog post was written by Michael Brown, President of CAB Consulting and the Texas Organization of Financial Service Centers.  He can be reached at 214-293-8676, or Michael@CreditAccessBusiness.com.