The 84th Texas Legislative Session gets underway in just over a month.  Session starts on Tuesday January 13th, 2015.  So far from what I can tell there have been (3) bills filed having to due with payday loans, installment loans, and/or auto title loans.

The Texas Legislature meets in a regular session every two years, convening on the second Tuesday in January of every odd-numbered year. These biennial sessions are limited to 140 days. The governor can also call additional special sessions as necessary, which cannot exceed 30 days. The 84^th Legislative Session is January 13, through June 1, 2015.

Here is a write up on the three bills out at this point:  SB 91, SB 92, and SB 121.

SB 91, Written by Senator Ellis: Proposes an APR Cap, the APR will include all interest and fees associated with the transaction, and the cap is set at 36% APR.

SB 92, written by Senator Ellis, the rules in this bill DO NOT pre-empt city ordinances, if there is a conflict, the more “stringent” rule would control. (Wondering who decides what more stringent is – the borrower, the City, or Ellis!) The contracts must be provided before signing, in the language in which the deal was negotiated, and must be read in its entirety! Must disclose info on Non Profits who may help the borrower, documents must be available in English & Spanish, PDL loan amounts no more than 20% of monthly income, title loans no more than 3% of annual income, max 70% of value of vehicle, must verify income, no more than 4 installments, 25% reduction in principal for each installment, no refinances on multipayment loans! Single payment loans cannot be refinanced more than 3 times. A new loan within 7 days of the last loan is considered a re-finance. Transfer or assignment of licenses is prohibited. Docs must be kept for 3 years instead of 25 months.

SB 121 has so much in it I decided bullet points are needed.  Last session we had the ugly baby bill, this one should be called the “kitchen sink” bill because everything is in it but the kitchen sink!  See below:

• Database.
• 7 day cool off or it’s a re-fi.
• Extended payment plans, and notices of extended payment plans.
• Fines of $2,000 per instance, plus damages up to $10,000 per violation
• Cannot evade the City Ordinance, cannot transfer loan to another sister location.
• CAB applications must have the Third Party Lender agreement included.
• Unsecured loans max 90 days, title loans max 180 days, $5,000 fines for this category.
• Spanish language contracts.
• Only one loan rule, customer has to sign a form stating they have no other CAB loans out, CAB must try to confirm this, $1,000 fine for violations on this.
• Must establish and verify income.
• Cap on loan amounts: unsecured is max 20% of income.
• No less than 10 days and no more than 35 days on a single payment loan, max re-fi’s is (3.)
• Extended payment plans must be offered if there has not been one in (12) months.
• Multi-payment loan payments cannot exceed 10% of the monthly income if less than $28k annually, 15% if they earn more, no more than 12 installments, max 180 days, must be fully amortizing.
• Single payment title loan amounts are capped at 6% of annual income if they earn less than $28k, if they earn above, then it goes to 8%, limit of 70% of vehicle value, no more than 3 re-fi’s.
• Multi-payment title loans cannot exceed 70% of value, each payment cannot exceed 20% of the gross monthly income if earn below $28k, or 30% if they earn above $28k, must be fully amortizing, no more than 6 installments, max 180 days, no re-po without extended payment plan default.
• Effective date: 9-1-2015

Michael Brown is President of the Texas Organization of Financial Service Centers, and President of CAB Consulting.  Contact information:  214-293-8676 or Michael@CreditAccessBusiness.com.

In today’s world of the smart phone, apps, and Amazon, every retail “brick and mortar” business needs to evolve around the newer consumer behaviors in the virtual marketplace.  As surprising as it is, many companies like Toys R’ Us and Sears with decades of brand loyalty just could not make their model compete and evolve in the fight against online shopping namely Amazon.  Things could have worked out much better for these two legendary American brands if they would have seen the writing on the wall much sooner.  

What would the writing on the wall have said?  Invest in online, get an app, decrease store expenses, close losing stores, have the best web site in all of your industry!  Be prepared if you were faced with having to operate 100% online. Could you?   

A recent article on CBS News.com titled “Retail graveyard: More than 7,000 U.S. stores have closed this year” was posted and it was incredible to see the drastic number of store closures this year versus 2018. Check out these statistics:

• “Last year, the U.S. lost 5,864 stores, while 3,258 opened.
• So far this year, 7,062 have closed, while 3,017 have opened.
• All told, the retail closures in 2019 could easily double 2018’s total — extending beyond 12,000.

Here are some of the well-known brands who are closing locations: Payless Shoe Source, Gymboree, Family Dollar, GNC, Walgreens, Zales/Kay/Jared Jewelers, Rent-A-Center, Office Depot, Lowes, Kmart, CVS, JC Penney, Party City.”

Comment: The bottom line of this is that it is a reminder for all of us that we have to be fully involved in the online aspects of the payday industry.  The most commonly used software amongst our group is Infinity Software.  Infinity Software has every single tool that we need to go toe-to-toe with the FinTech’s who dominate the Texas market online.  Did you know that  about 15 out of state FinTech’s have a bigger share of the Texas market than the Houston region that includes all cities and towns around it?  That comes to more than 1/3 of the entire Texas market!  Embrace online lending capabilities and trim away the antiquated facets of your business.  This means – invest in SEO, market online, online applications, killer website, e-signatures, debit card payments, ACH funding (credits), text messaging, and more!  

Infinity Software: https://infinityels.com/

Online marketing, websites, SEO: https://hearstdms.com/localedge/tofsc

Link to the CBA article: https://www.cbsnews.com/news/more-than-7000-us-stores-have-closed-2019-final-tally-could-exceed-12000/

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.

A friend forwarded me an article today from the Associated Press. The article was titled “IRS head says budget cuts could delay tax refunds.” This could have a number of trickle-down effects on taxpayers expecting a their tax refund sooner than later. As well, many companies who serve those people can also be negatively impacted.

Here is the link: (http://hosted.ap.org/dynamic/stories/U/US_IRS_DELAYED_REFUNDS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2014-12-18-15-39-07)

Many Americans wait for their tax refund to pay off debt that has accumulated throughout the year. And the businesses who serve them (like many of you who are reading this post) have traditionally depended on their customers to payoff their obligations at tax refund time. Often, consumers are given the choice to wait until that refund comes in to do just that. It is a market dynamic that exists and over the years has become a give and take between consumers and businesses in a certain sector of the U.S. economy. So, a change in that balance brought on by a delay in tax refunds can be concerning.

The article also shows how government initiatives can have un-intended consequences and cause harm to Americans who have the least amount of financial cushion. It is suggested that Obamacare is the source of the delay because the Republicans cut down IRS funding as a back door technique to cripple its implementation. 2014 is the first tax year that the IRS will be tasked with the reporting of health insurance payments by taxpayers. The IRS budget cuts mean one more thing is added to the workload of smaller staffs causing slower tax return processing times, which in turn leads to a delay in when the refunds are issued.

Getting back to how these kinds of dynamics effect the short-term small dollar loan space – it is an example of what heavy government intervention can result in. Big government causes big problems! Many would agree that we should have stuck to a free market approach to health care and no government intervention. This minimizes un-intended consequences and creates fewer opportunities for politicians to make pawns out of hard working Americans who need to make every penny count. Many states have enacted heavy regulations on the short term small dollar loan industry that decimated businesses in those states while the consumer need remained the same. Where did the consumer go to get their needs filled?

Let’s keep these lessons in mind when it comes to the short term small dollar loan industry. Less restrictions and a free market model encourages competition, which is always best for consumers. Let the businesses decide…

Recently another new dynamic in our industry has surfaced and this is reminder that as a small business owner in the payday loan-cash advance-installment loan industry, everyone on your team needs to continually study and learn customer behaviors. 

What is this new dynamic? It is the borrower habit of switching their debit card “on” “off” by logging into their bank account, and with the click of a button, they lock out any charges from occurring to that card number.     

By switching off the debit card number, consumers are given a tool to protect themselves from unauthorized charges which is a good thing.  But it does lock out authorized charges as well.  Once the consumer has located a lost card or perhaps successfully evaded authorized charges (mostly during the pay-date starting early in the a.m. and going all hours that due date of the authorized charge) then they can switch the card back “on” begin using it again.   

This tool that consumers have been armed with is similar to the red flag behavior of withdrawing all of the recently direct deposited pay the moment it hits their bank account, which has long been a warning sign of a consumer who does not want to make their payments.

What Consumer Advocates rarely want to focus on is how many borrowers default, or who evade, outthink, and delay making on-time payments.  This problem is directly correlated to the higher APR’s in our industry which are set where they are, to offset defaulted loan costs.  Defaulted loans are not good for anyone and for the small business owners in Texas it is a constant concern.  Hoping that sharing this recent observation will assist you and your team in your ongoing education in our industry today!

Banks that feature the “turn card on / off function that we have tracked so far: 

• Chase.
• RBFCU.
• Abilene Teachers FCU.
• Austin Telco.
• University of FCU.
• Wells Fargo.

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.

I have touched on this subject before, and this morning I was reminded once again that banks are an easy target that the payday industry should exploit more.   Banks are lucky to have the payday industry – it deflects negative attention from the regulators and consumer advocates.  Some banks say they have launched innovative products that will compete with the payday or auto title loan.  Most who I speak to in the payday industry aren’t really concerned, the services don’t have the same flexibility or might not be enough to get the consumers fully taken care of.  And, banks aren’t really equipped to handle the short term loan needs of consumers.  Their mindset is much different, one based on volume and low servicing requirements.

About every month or two I see an article like this one titled “Fifth Third sued by payday advance loan borrowers” in the Cincinnati Business Courier.

Here’s the link:  http://www.bizjournals.com/cincinnati/news/2013/02/14/fifth-third-gets-hit-by-another.html

Basically, Fifth Third offers a payday product, they did a bunch of loans, and a class action lawyer sued them saying the bank really charged 900% APR on their payday product.  There are administrative fees on the service in addition to the APR % that spike the perceived APR of the entire agreement when days in the loan term are shortened due to early payoff.  That’s the argument, I have seen it many times in Texas with the Credit Access Business service fees, lien fees, and the 10% APR all being rolled into one finance charge and forced into an annual percentage rate.

So, industrious attorneys are realizing that banks are easy targets!  Banks are not equipped to operate in this sector of consumer need, so you can bet that they are going to have holes in their payday products that leave the door open for lawsuits. The payday industry needs to do the same and target bank liabilities in the same way.  Representatives of the industry should spend less time defending the payday products and more time highlighting the weaknesses of the banks.  So, let’s arm the readers of this blog with my all time favorite piece of data on the common bank NSF charge APR% a consumer will pay on a bounced check.

$100 Payday Loan (14 days) = $22.88 Fee (596% APR)
$100 Bounced Check = $54.87 Fees (1,431% APR)

Yes, a consumer will have to pay 1,431% APR if they write a $100 check that bounces at a local retailer, then have pay a $35 NSF fee to the bank, and the remainder in return item fees to the retailer.  In this case the bank is not even honoring the check and just charging a $35 overdraft fee!  The retailer is the one who ends up extending the credit to the consumer until they come back in and pay for the purchase, which is so much worse.  So, what is the bank’s purpose in that scenario?  The fact is that down deep, the banks do not want the middle and low income consumers who run into these problems, which is indicated by their decrease of deposit accounts and the increase in the size of the “non-banked consumer” market.

The payday industry is very pleased to offer the service and attention that consumers in this growing sector deserve.  Consumers who utilize Credit Access Business services in Texas have a 92% satisfaction rate.  JD Power and Associates’ 2012 Retail Banking Study arrived at a 75% consumer satisfaction rate in the sector.  So, Texas Credit Access  Businesses have 23% higher satisfaction rate, and in many cases charge fees that are 60% lower!  Whoa, let’s tell that story more…

CAB Consulting is headed by Michael Brown.  Please contact us anytime to discuss your involvement in the payday industry!   Email Michael@CreditAccessBusiness.com or call 214-293-8676.

I just about fell out of my Toyota Prius when I learned what the CFPB spends its money on.  Anyone who has been watching the CFPB has probably heard about how the expenses there are out of control, but this was a mind blower.  Come to find out, they have actually been getting looked at by the “Government Accountability Office” regarding the recklessness of their spending…

For starters – Advertising is the #1 expense at CFPB and this was discussed in a Wall Street Journal article awhile back.  Here’s that story: https://www.wsj.com/articles/report-on-government-ad-spending-highlights-pentagon-and-cfpb-outlays-1475691906

It is a shame to say that with all of that advertising budget they can only manage to give up 150 or so complaints per month from the entire country.  About 15 million people have a loan out at any given time during a month in the United States.  That’s a complaint % of .00001 (yes that is four zero’s on the right side of the decimal).  We have cited the statistics before from the CFPB Monthly Complaints report and the “Payday” Industry complaint percentages drop 15-2-% each month since they have been getting tracked!  So, needless to say the advertising dollars spent by the CFPB preying upon consumers and trying to coerce them into complaining have not been working.  Specific to our industry, this is particularly telling of the high level of satisfaction our customers actually have, and that the “payday loan” issue is highly politicized.

That brings me to payroll at the CFPB – it is incredible what these people are getting paid.  See below for some comments from an article that came out in The Washington Free Beacon on February 9th:

“Some of the larger salaries at the agency have eclipsed those paid to some of the country’s most influential lawmakers, such as Senate Majority Leader Mitch McConnell (R., Ky.) and House Speaker Paul Ryan (R., Wis.).

The Senate majority and minority leaders are paid $193,000 annually. Two hundred and one CFPB employees outdo Sens. Mitch McConnell and Charles Schumer in pay.

Speaker of the House Paul Ryan of Wisconsin receives $223,000 per year, but that’s less than what 54 CFPB employees are paid.

Another 170 CFPB employees earn more than the secretaries of defense and state, the attorney general, and the director of national intelligence. All Cabinet salaries are capped at $199,700, but not at the bureau. Thirty-nine CFPB employees earn more than the $230,000 paid to Vice President Mike Pence.

The in-depth analysis uncovered that over 449 CFPB employees make over $100,000 and 228 employees make over $200,000. Nearly 200 of these employees make more than their most senior boss, Federal Reserve Chairwoman Janet Yellin, who earns $201,700 a year.”

This information is eye opening needless to say.  I hope that President Trump is dialed in to the CFPB as he looks into Dodd-Frank!

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.

Dan Micawber at AF$PA / Payday Brokers has announced a Consumer Alert (and operator alert) regarding for a new round of Fake Debt Collectors circulating in our industry.  If you are a consumer who received a call from a debt collector that says you owe money to a “payday loan company” but will not tell you the name of the company or claims they are a member of the “Alternative Financial Service Providers Association” (“AF$PA”) – it is a scam.

All Debt Collections Agencies who comply with the Fair Debt Collection Practices Act “FDCPA” must follow a very long list of rules regarding how contact can be made with borrowers.  One very specific issue with the FDCPA that is not being followed by these current scammers is that they must be able to “verify the debt.”  If they will not say who the debt is from it is not likely they have a contract to collect on.  A collection agency must disclose the name of the company that the debtor owes money to.  If they refuse – it is a scam.  If they say they are sending the sheriff or police – it is a scam.  If they say they can have you locked up – it is a scam.

Our CAB clients and members should be concerned about this as well.  One of the biggest sources of complaints at the OCCC is this kind of problem.  As compliant CAB’s we often times are lumped in with unsavory characters out there who google their way into becoming debt collection scam artists.  A bad actor can simply google search for payday loan and run into the AF$PA website or maybe even grab larger CAB’s name off the internet and start calling people saying they owe them money.  It is only a matter of time before they trick an innocent consumer into running down to the corner store and loading some money onto a prepaid card that sends funds directly to them in an Indian call center.

I have helped consumers on this issue and even had one conference me in with the scam collections agent.  I was able to shut them down in less than 30 seconds and enjoyed it immensely.  Most TOFSC members have the TOFSC Comment / Complaint line posted in their store – if you have any customers telling you they are encountering this problem please have them contact me at 214-293-8676 and we will get them going in the right direction.

Also, the Texas Attorney General’s Office has a website complaint service – report anything that you see to them.  Go here to learn more information:

https://www.texasattorneygeneral.gov/cpd/file-a-consumer-complaint

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.