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New CAB rules on the way – so how are we not regulated?

New CAB rules on the way – so how are we not regulated?

by The CAB Man Texas on November 20, 2015

Adversarial media and consumer advocate groups like Texas Appleseed like to continually throw legislators and regulators under the bus for “turning their backs on Texas consumers” by not regulating payday, installment, and auto title lenders.  So, first of all let me come to their defense by saying I have worked with many of the good folks at the OCCC and they are extremely capable and very experienced.

Also, many of our legislators put a lot of time into this discussion every session.  So far they have felt comfortable enough to leave things they way they are for the last two sessions.  I mean, after all CABs do have a 97% acceptable level of compliance in Texas.  And the complaints per loan % is something like .000153%.  Yes, it is a crazy small percentage that makes one have to ask – so what’s the problem again?  There are probably more people on the payroll of consumer advocate agencies in Texas than there were complaints last year!

Anyone who takes a minute to investigate these cries of injustice by industry opponents would disagree after reading a typical CAB agreement with its accompanying disclosures and promissory note.

In those disclosures and agreements a reader will find language on UDAAP, TILA, Military, FDCPA, FCRA, OCCC rules, and on and one.  Many document packages are 15-18 pages for a $100 loan!  So, again, how are CABs not regulated?

All of that was true up until the latest rule changes were released in September, and put on a path toward being made effective in late December or early January 2016.

What occurred on Friday, October 16, 2015?  For the first time in over (4) years new changes were made to the rules that govern Credit Access Businesses in Texas. The amendments to current regulations include clarifying changes regarding definitions, license applications, and fees. New regulations were created that outline examination authority and record keeping requirements, including a list of documents that CABs are required to maintain and relate to separation of CAB and Third Party Lender. Briefly put, the OCCC now been equipped with broader authority that will give them authority to dig further into businesses.

Here are some comments on the rule change areas from a broad perspective:

CAB Definitions: The OCCC has released changes needed to existing contracts, advertising materials, and software. These change areas will need to be located and adjusted within your documents and processes.

Updating Application, Company Credential, and Contact Information: consistency across all Texas regulatory filings and agencies will be a new area of focus. Licensee credentials and contact data are to be updated and accurate in the OCCC’s “Alecs” portal, the Credit Access Business reporting portal, Texas Comptroller account status, the Secretary of State “SOS Direct” database, and the Credit Services Organization Search database.

Denial, Suspension, Revocation based on Criminal History: There are approximately (31) changes to this section. Certain new risks related to business and personal activities of company ownership must be made clear.

Examinations: There are approximately (14) changes to examinations. Those changes must be adapted to and your company should be run through the new checklist to look for potential issues.

Files & Records: There are approximately (74) new changes in this section. File samples will need reviewing to ensure compliance with new rules. A checklist of items needed for each consumer file to meet the standards of the new rule changes will be needed. Recommended “Best Practices” for CAB ownership and employees will be developed so record keeping changes can be communicated uniformly.

Third Party Lender and CABs: It will be necessary to conduct and review of the Special Limited Agency Agreement between the CAB and the Third Party Lender. Accuracy of document to actual operating history will need to be assessed. Flow of funds and monies collected by each party will need to be scripted and the process will need to be cited in written form with accompanying reports.

License Transfers, Disclosures, and Reporting Requirements: This is slated for February 2016. There is a second phase of rules that will be presented for public comment prior to the next Finance Commission meeting in December 2015. This second phase of rules will cover “License Transfers, Disclosures, and Reporting Requirements.” CAB Consulting, as part of this CAB II engagement will continue to participate in the pre-comment / comment period for these matters on behalf of its clients so that feedback is given and precise knowledge on the second phase of rules is maintained. As this phase progresses, the information will be disseminated to clients and implementation will begin in same fashion as with Phase 1.

If this is not being regulated, then what is??  I would hate to see what the Texas Appleseed people would call “regulation” if this isn’t it!  They will not be satisfied until loans are free and guess who is the only entity out there that will make “free loans” or “loans” that lose money?  The U.S. government.

Thank you for taking a few minutes to hear a little truth about payday!  For additional information or further comment, please reach out to Michael Brown at 214-293-8676 or Michael@CreditAccessBusiness.com.

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Everything is bigger in Texas!

Everything is bigger in Texas!

by The CAB Man Texas on October 27, 2016

Howdy folks – I saw this really great article in the Houston Chronicle titled “FDIC: Texas leads the country in ‘unbanked’ households.” This was another reminder that we are in one heck of a strong market.  Yep, everything is bigger in Texas!

This article tells me many things, but my first instinct is that it likely banks have made it so unattractive to work with them in Texas that many people (“unbanked” or “under banked”) simply prefer to go another route versus the traditional bank.  And, banks actually turn away many of the customers we serve for what I think are unfair reasons.  Many of our clients are very pleased to work with these customers and would like to ask for their business.  Whether the clients offer payday loans, cash advances, title loans, installment loans, or check cashing…it is quite likely they can suit the needs of the consumer.  Banks are lazy; customers in our industry typically need some above the norm assistance while carrying higher amounts of risk. Our clients understand this and will do the work with the customers seven days a week, in-store, online, via phone, email, or text!

Despite the fact that banks are being shunned for their unfair treatment (ahem, Wells Fargo) of U.S. consumers, and despite the fact that more consumers are saying “no thanks” to the local bank branch, the banks still make 4-5 times more revenue on overdraft / NSF charges than the entire “payday loan” industry makes in annual revenue last I checked.  Perhaps the CFPB should spend less time on our industry and more on the banks!

Using 2015 data, the FDIC measured “economic inclusion,” which is the term they use to label families who use mainstream financial institutions.

The study estimates how many households are unbanked, or don’t have bank accounts, and how many are under banked, or may periodically seek financial help from services such as title loans, payday loans and pawn shops despite having bank accounts.

Here are some statistics cited in the article:

  • 9.4 percent of households, or about 967,000, were unbanked in 2015.
  • 23.7 percent of Texas households were under banked.
  • Income of less than $15,000 per year: 25.6 percent unbanked, 29.5 percent under banked.
  • No high school diploma: 28.8 percent unbanked, 26.7 percent under banked.
  • Ages 25-34: 13.8 percent unbanked, 27.1 percent under banked.
  • Ages 35-44: 12.8 percent unbanked, 27.7 percent under banked.
  • About 16 percent of African American households were unbanked and 30 percent under banked.
  • About 18 percent of Hispanic households were unbanked, with 30 percent under banked.
  • In Texas, unbanked households logged the lowest savings rates at 17.7 percent.
  • Savings rates rose to 49.5 percent for under banked households and 59.5 percent for those considered “fully banked.”

What should business owners in our industry be thinking as they read the article?  What are the behaviors/traits of our customers?  How do we mold our services so they are in line with the behaviors/traits?  What services should we add and evolve into?

http://www.chron.com/business/retail/article/FDIC-Texas-leads-the-country-in-unbanked-and-10049320.php

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.

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El Paso December 18th City Council Meeting will no longer address Payday Loan Ordinance

El Paso December 18th City Council Meeting will no longer address Payday Loan Ordinance

by The CAB Man Texas on December 18, 2012

Looks like the Payday Loan ordinance conversation on the City Council in El Paso will potentially resume on January 2nd. Initially, it was proposed that City Attorneys draft a final version of the ordinance and have it ready for review today. However, that has changed since. Perhaps the El Paso City Council has spoken its opinion and now they are ready to let the Legislature address the matter…

Since the December 6th news came that El Paso was now supporting local ordinances, I have been speaking with many operators about how to participate in the upcoming legislative session. The State of Texas should be the one who governs Payday and Auto Title Loans, not individual cities, and that point needs to be made in a new bill or amendment to an existing one. So, let’s all show our support and get involved in Austin. I am considering a plan to get involved and if you would like to know more, please contact me!

Last week I spoke with Cindy Ramirez at the El Paso Times and she quoted me effectively. We offer a much needed service, consumers respond to convenience, we intend ntend to operate legally and fairly. Here is the link to the El Paso Times article from yesterday: “Title-loan lenders will fight efforts of El Paso City Council to regulate”

http://www.elpasotimes.com/news/ci_22205745/title-loan-lenders-will-fight-efforts-regulate

As always, I am pleased to take your phone call at 214-293-8676. Or, email Michael Brown at Michael@CreditAccessBusiness.com.

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CFPB Payday Rule lawsuit regarding the payments provision takes another turn

CFPB Payday Rule lawsuit regarding the payments provision takes another turn

by The CAB Man Texas on September 2, 2020

On August 28th, CFSA and CSAT filed “Amended Complaints” that were focused on the payment provisions of the CFPB rule.  I read a thorough summary from Jeremy Rosenblum at Ballard Spahr.  This is some good stuff! I mean, who doesn’t love when someone uses the terms “arbitrary and capricious?  That’s when us laypersons really know there is some serious lawyer-ing going on!   

The amended complaints have some teeth which were good to see strike home and sink deep.  And, the inclusion of debit card debiting in the payments provision got its fair share of attention.  I for one hope that continues, maybe even gets put at the top of the list.  Without thinking deeply, I can say that if that facet were removed from the rule I would be breathing easily on the entire topic.  I know that others with a different business model may differ, but it is by far ours and our customer’s favorite payment method for convenience reasons, and also because it does not cause NSF charges if the payment returns.  It does not seem likely that the industry will have to “go live” with these provisions as they are now, by November.  There is still much to be worked though in this legal process which has been long and winding. With all of the questions at this point how can it be known what the rule will look like anytime soon?  Operators still need fair time to install the proper procedures and notifications and that window is now far too tight for a November go live date. 

 
See below for some takeaways from Jeremy’s blog post:

“Trade Groups File Amended Complaint In Texas Lawsuit Challenging CFPB Payday Loan Rule.

In the Amended Complaint, the plaintiffs (our industry) allege that the Rule violates both the Constitution and the Administrative Procedures Act (the APA).  Starting with the Supreme Court’s decision in Seila Law that the Director of the CFPB who adopted the Rule was unconstitutionally insulated from discharge without cause by the President.

The Amended Complaint argues that a valid Rule requires a valid notice and comment process from inception and not mere ratification of the final result by a properly serving Director.

It further asserts that ratification of the payment provisions is arbitrary and capricious because the payment provisions were based on a UDAAP theory expressly rejected by the CFPB in its revocation of the underwriting provisions of the Rule and the CFPB has failed to explain how a lender can commit a UDAAP violation, consistent with the theory of the revocation of the underwriting provisions, when the consumer is free to eschew a covered loan based on a generalized understanding of the risk of multiple NSF fees.

The Amended Complaint takes issue with the payment provisions based on a number of additional alleged infirmities, including the following:

The CFPB provided a lengthy period for the industry to comply with the original Rule but failed to provide any compliance period for the ratified Rule.  Thus, the current Rule differs from the original Rule it purports to ratify in a key respect.

The 36% APR trigger for covered installment loans is fundamentally at odds with the provision of the Dodd-Frank Act explicitly prohibiting the CFPB from establishing usury limits.

The alleged harms the payment provisions are designed to forestall are caused by the banks holding the consumers’ deposit accounts and not by the lenders who initiate payments declined due to insufficient funds.

The Bureau acted arbitrarily and capriciously in extending the payments provisions to multi-payment installment loans, where consumers have lengthy periods of time between installments to respond to failed payment-transfer attempts (and where, we would note, consumers are already free under the Electronic Funds Transfer Act to decline to authorize loan payments through recurring electronic fund transfers).

The Bureau also acted arbitrarily and capriciously in extending the payments provisions to debit and prepaid card transactions, where failed payment-transfer attempts typically do not, if ever, result in fees.  (We have repeatedly expressed the view that this key aspect of the Rule is indefensible.)

The CFPB evidence supporting the payment provisions was insufficiently robust and reliable, especially with respect to storefront and installment loans since the CFPB relied upon evidence about online single-payment loans.

The timing requirements for notices under the Rule arbitrarily prevent consumers from scheduling earlier payments.

The CFPB did not consider whether enhanced disclosures could have adequately prevented the perceived consumer injuries.

We believe that the Amended Complaint represents a powerful attack on the payment provisions of the Rule.

We have only one point we would emphasize to a greater extent:  There is no apparent link between the UDAAP problem identified in Section 1041.7 of the Rule—consumers incurring bank NSF fees for dishonored checks and ACH transactions after two consecutive failed payment transfers—and the burdensome notice requirements in Section 1041.9 of the Rule.

To our mind, these elaborate notice requirements are arbitrary and capricious for this further reason.”

Here is a link to the article – thank you Ballard Spahr! https://www.consumerfinancemonitor.com/2020/08/31/trade-groups-file-amended-complaint-in-texas-lawsuit-challenging-cfpb-payday-loan-rule/

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