Today my good friend Max Wood at Borrow Smart Alabama shared the CFPB Blog of Ballard Spahr LLP, called the “CFPB Monitor.” Max and Borrow Smart are at the forefront of the CFPB issue and his compliance efforts via Borrow Smart alongside Ballard Spahr have been way ahead of the curve.

As the CFPB evolves we get clues along the way of what might be expected. On April 7, 2014 CFPB General Counsel Meredith Fuchs released some clues in reference to several of the industry areas the CFPB is looking at, and of importance to Credit Access Business.com visitors, she made reference to “payday lending.” See below for an excerpt from Ballard Spahr’s CFPB Monitor Blog:

“Turning to payday lending, Fuchs cited the recent CFPB report in explaining that the CFPB remains concerned with consumers’ sustained use of short-term, small dollar loan products, the amortization of these products and the use of these products by the elderly and others that depend on fixed government benefits. While Fuchs vacillated on the specific timing for payday lending rule-making, she did indicate that the CFPB would continue to aggressively police the ACH, lead generators and other “choke points” that payday lenders rely upon to reach consumers. Given that the CFPB does not intend to commission any further studies analyzing the benefits of payday loans, we anticipate that the proposed rule will impose rigid, arbitrary limits on numerous payday loan features.”

It will be interesting to see how these fundamentals are addressed in the rules that eventually get put into effect. Many operators I know would agree that balanced and reasonable regulation that address the named concerns above.

Contact Michael Brown of CAB Consulting if you have comments or questions. Call 214-293-8676, or email Michael@CreditAccessBusiness.com!

The Texas Organization of Financial Service Centers (“TOFSC”) is:

An Industry Trade Association mainly comprised of small and mid-size business owners in Texas who offer short-term, small-dollar loan services.  You may be more familiar with our industry and it’s more commonly referred to name “The Payday Loan Industry.”  In fact, that term is loosely (not really accurate) used to describe many kinds of financial services that exist in the U.S. market, such as Check Cashing, Auto Title, Payday, and Installment Loans.  Titles aside, it is most important to understand that our Association members are in business to provide a needed service to Texas citizens.

The “Payday Loan” in Texas:

Members of TOFSC are small business owners in towns spanning across the State of Texas.  We are licensed “Credit Access Businesses” and are legal business owners dedicated to maintaining the highest level of compliance with the Regulations of the Texas Office of Consumer Credit Commissioner.  Many of our Members sit across the desk from our customers and providing loan services them directly.  Our customers value us and we treat them fairly.  In fact, in 2015 over 1.6 million Texas consumers used our services.  Complaint averages each of the last two years have been under 500 per year.  That is a per loan customer complaint % of .0003125%.

Banks and Other Industries causing larger scale problems:

Banks earn a reported $30+ billion per year in Overdraft and NSF charges from the same customers the Payday Industry serves.  The Payday Industry earns less than $9 billion per year industry-wide.  Even though we are a much smaller industry in terms of revenue, banks have gotten a pass while the Payday Industry has taken the full brunt of the media and Consumer Advocate onslaught.  And, when the same APR% calculation methods are applied to bank NSF and Overdraft charges they can be as high as 1,600% which is 2-3 times greater than many Payday Industry products.  Many Consumer Advocates suggest the banks should be the saviors of what they call the “payday loan problem,” but the truth is the amount of money the banks earn from our shared customers should be more heavily scrutinized.

The Annual % Rate (“A.P.R.”) Issue:

The citation of the triple digit A.P.R. %’s that many of our products carry is the easiest and most frequent argument used against us by the media and Consumer Advocates.   It is very true that our industry’s products can be expensive for consumers – this fact is always disclosed to customers before and throughout the loan process.  However, opponents of our industry rarely if ever discuss the extremely high defaults and fraud %’s that must be absorbed to maintain profitability.  After subtracting bad debt, rent, payroll, and other basic operating expenses, our small business owners are focused on simply making a profit no different than every business in Texas.

Significant regulations are already in place despite suggestions otherwise by the News Media: 

The States have decades of experience in dealing with our industry and already have many helpful regulations in place.  In Texas, the Office of Consumer Credit Commissioner conducts examinations continually, where each licensed business is taken through an 80+ point examination checklist.  Consumer loan documents used in Texas include compliance with a long list of key Federal and State regulations such as: Truth in Lending Act, Military Lending Act, Fair Debt Collections Practices Act, Unfair and Deceptive Trade Practices Act, and Fair Credit Reporting Act.  Arbitration and dispute resolution is offered, Privacy Policies are in place, and customers are given the “Right to Rescind” for up to three days.

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.

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.

CAB Consulting and Brokerage is positioned to become the go to source of information and expertise for Texas CSO’s to transition to the new CAB, or Credit Access Business, model. CAB Consulting and Brokerage is reaching out to small and midsize payday loan operators to implement a transition plan so by January 1, 2012 their businesses are compliant and licensed. In addition, CAB Consulting is focused on creating an industry association for its clients to become a powerful voice in local, state, and federal arenas where payday loan ordinances and regulations are considered.

Why? Small and midsize payday loan operators must band together to become a faction strong enough to voice their specific needs, which are different than that of the larger companies who have extensive budgets for attorneys and lobbyists.

CAB Consulting and Brokerage knows all the details required by the Texas legislature to ensure compliance of CABs. A new CAB license will require a new application and thorough checks into your company in order to continue business. More detailed information than required on the CSO application is required to become a CAB and approval must be obtained in order for current businesses to operate legally after January 1, 2012. In addition, CABs must file quarterly reports, so by April 2012 all transactions will be under review by the state. CAB Consulting will organize and file the necessary paperwork prior to January 1, 2012, and will ensure that quarterly reports are filed completely and on time for its clients.

CAB Consulting and Brokerage principal, Michael Brown, has been in the payday loan industry since 2003. He has recently met with rule makers and legislators in Austin, and has partnerships with key players and attorneys to support your business transition.

Don’t get bogged down by the details. Contact CAB Consulting and Brokerage at 214-293-8676, or via email at cabconbrokerage@gmail.com and let them handle all the details so you can continue to do business in Texas.

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.

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/