Removing Safe, Regulated Short-Term Credit Options Does Not Protect Consumers

Sacramento, CA (June 2, 2016)

CFPB Proposal Could Push Consumers Toward Dangerous Credit Options

The payday loan industry in California provides important, legitimate small dollar credit to millions of Californians each year. For these individuals, these loans are often the least expensive and most convenient solution for managing a short-term cash flow problem. Customers’ needs are well served and their interests are protected by California regulations, among the tightest in the country.

New federal rules proposed by the Consumer Financial Protection Bureau (CFPB) could take this needed financial service option away from consumers … without offering any alternatives. Rules that are supposed to protect consumers, will actually leave many of them with few or no legitimate short-term credit options, and could force them to turn to dangerous, unregulated alternatives on the internet and elsewhere, where they have no protection at all.

Providing consumers more choice – not less – for safe, legitimate, regulated short-term credit should be the focus of CFPB. Imposing rules that make processing of small dollar loans too costly and unworkable, and creating arbitrary time limits for when consumers can access them, do nothing to help consumers manage personal financial situations.

For nearly 20 years, CalCFA members, who operate stores across the country, have worked under the State of California to offer a product consumers clearly understand, with strict cost and collection limits, and protections from compounding interest even if a loan can’t be repaid. It is a product that works for consumers with very low numbers of complaints to state regulators.

CalCFA members are ready to work with state regulators to update rules, as needed, to protect consumers. But, the national rules proposed by CFPB that take away a safe, regulated option from many consumers without replacement options are not a way to protect them. Consumers’ need for short-term credit to bridge cash flow shortfalls will certainly persist. And they will find somewhere to borrow the money … legitimate or not.


CalCFA Applauds DBO Action Against Unlicensed Lenders

February 24, 2015

The members of the California Consumer Finance Association (CalCFA) support the efforts of the California Department of Business Oversight (DBO) and Commissioner Jan Lynn Owen to crack down on payday loan companies that operate without licenses outside the reach of state regulators and subject consumers to exorbitant rates and financial risk.

Sacramento Bee Personal Finance Reporter Claudia Buck accurately documents the magnitude of the challenge faced by the DBO in the attached article.

Payday loans thwart regulators

The Sacramento Bee - February 22, 2015

Borrowing money at an annual interest rate of 2,320 percent? Hard to believe, but that’s what state officials say was charged to one California consumer who took out an online payday loan last year.

Charging excessive interest is just one of numerous illegal loan practices perpetrated by unscrupulous online payday lenders, who pop up almost as quickly as state officials try to squash them.

What that $34 overdraft fee is really costing you

The Washington Post - July 31, 2014

Here's an interesting factoid: People tend to incur overdraft fees on debit card transactions of $24 or less and repay the charges within three days, according to the Consumer Financial Protection Bureau.

But here's a scary thought: Take those same metrics and put them into lending terms. If a person borrowed $24 for three days from a bank and paid the median overdraft fee of $34, that loan would carry a 17,000 annual percent rate. Ouch.

Bank Fees: With “Protection” Like This, Who Needs Enemies?

Bloomberg - July 31, 2014

Whoever came up with the term "overdraft protection plans" was an evil genius. The plans don't protect against overdraft fees. They allow those fees to be assessed.

A new report from the Consumer Financial Protection Bureau (CFPB) shows just how much the plans cost many of the consumers who sign up for them. It also demonstrates how much banks rely on overdraft fees to cover their costs at a time when checking accounts are far less profitable.

Banks rake in overdraft fees on small debit card purchases, CFPB finds

Los Angeles Times - July 31, 2014

The majority of debit card overdrafts are caused by small purchases, resulting in many consumers paying more for overdraft protection than they spent on the transactions that triggered it, according to a study released Thursday by the Consumer Financial Protection Bureau.

The findings show bank overdraft coverage, which has come under tougher regulatory oversight in recent years, continues to be a problem for many consumers and might require additional regulation, bureau director Richard Cordray said.

Beware of large fees for overdrafts on debit cards, ATMs

USA Today - July 31, 2014

Overdraft services for debit card and ATM transactions can rack up huge fees on small purchases, according to a study out today from the federal Consumer Financial Protection Bureau.

The median amount on debit card transactions that leads to an overdraft fee is $24, says the study, which is based on checking account data from a set of large banks supervised by the bureau. More than half of consumers pay back negative balances in three days; 76% within a week, the report says.

Regulators Still Find Problems in Overdraft Fees

The New York Times - July 31, 2014

Four years after federal regulators passed new rules aimed at curbing overdraft fees, the Consumer Financial Protection Bureau is still finding problems with the high fees that banks charge customers when they overdraw their accounts.

In a new report released on Wednesday, the agency said overdraft fees continue to pile up for many bank customers, particularly among young people. The study found that the majority of debit card overdraft fees — which average about $34 each — involve transactions of $24 or less and are paid back within three days.

Debit Overdraft Fees Often Exceed Cost of Purchase

ABC News - July 31, 2014

The fees that banks charge debit-card users who overdraw their accounts usually cost more than the items being bought.

That's the result of a study that the Consumer Financial Protection Bureau released Thursday.

Big banks have been gaming your overdraft fees to charge you more money

The Washington Post - July 17, 2014

In case you didn't know, banks can maximize the number of fees you pay for overdrawing your account by processing transactions from largest to smallest, rather than in the order they occur. This so-called reordering can drain your account quickly and trigger multiple overdraft fees as small payments clear.

Half of the country's big banks play this game, but one has decided to stop: Wells Fargo.

Ouch! $30 is the New Average for Overdraft Fees

Fox Business - April 2, 2014

It only takes seconds to take out more cash than what is available in your account, and that mistake will cost you.

According to a recent study from Moeb’s Services, an economic services firm, the average overdraft fee is $30 in 2014. This is the highest fee in recent years, the report finds, up from $29 in 2012 and $26 in 2009.

Payday Lending Needs Transparency, Not Annihilation

American Banker - April 1, 2014

Payday lenders have often been called predatory, yet many financial services firms will acknowledge these lenders serve many of their customers and members. Why?

Paycheck-to-paycheck cash need is a reality for more Americans than one would think. About 40 to 50 million Americans are highly illiquid. Payday lenders are participants in the financial service marketplace because they fill the demand for short-term, unsecured loans that traditional financial service providers avoid making. This demand is powered by the small-cash market, which includes the unbanked, underbanked and/or people with credit scores below 600.

Overdraft Fees at Banks Hit a High, Despite Curbs

Wall Street Journal - April 1, 2014

Squeezed by falling revenue on deposit accounts, banks are turning to a familiar source of income: overdraft fees.

Nearly four years after regulators tried to curb the fees, banks are lifting them to new heights. The median fee for withdrawing more from a checking account than a customer has on deposit increased to an estimated $30 in 2013—a record—up from $29 in 2012 and $26 in 2009, based on a survey of 2,890 banks and credit unions by Moebs Services Inc., an economic-research firm in Lake Bluff, Ill.

The Surprising And Smart Reason Millenials Love Payday Loans And Prepaid Debit Cards

Forbes - February 22, 2014

What would tax season be without sobering news about the saving and spending habits of today’s twentysomethings? Recent survey results from Think Finance show that Millennials are turning to alternative financial services in large numbers. And we’re not talking credit unions or co-ops.

Think Finance surveyed 640 underbanked Millennials and found that reliance on convenient, on-the-spot financial products vs. institutionally-backed loans or credit cards is both widespread and independent of economic status. Half of both the highest and lowest earning groups had used prepaid debit cards in the last year. 34% of respondents earning less than $25K had used check cashing services in the last year, while 29% of those earning $50 – $74.9K had done likewise.

Payday Crackdown Creates More Problems than It Solves

American Banker - February 18, 2014

There are more payday loan stores in the U.S. than all the McDonald's and Starbucks stores combined. It's clear that tens of millions of consumers across the nation want and feel they need this product. It's equally clear that government policymakers believe they know what's best for consumers.

Recent actions taken by the federal government to eliminate a variety of short-term loan products suggest a strong bias against all such loans – period. If so, regulators need to reconsider before they destroy a critical source of credit for families and the economy as a whole.

Survey says: Payday loan users savvier than you think

Milwaukee Journal Sentinel- January 29, 2014

(BPT) - Read enough about the state of Americans’ finances and you might get the impression that the average consumer is fairly clueless when it comes to making good money decisions. But a new survey indicates that Americans are more credit-savvy than you might think about how and when to use one of the most-maligned types of credit: payday loans.

Recent research conducted by Harris Interactive on behalf of the Community Financial Services Association (CFSA) indicates that the majority of payday loan users know what they’re getting into and understand how best to use the financial vehicle. Ninety-three percent of polled borrowers carefully weighed the risks and benefits before taking out a payday loan; 95 percent said payday loans provide a safety net during unexpected financial difficulties; 97 percent agree that their payday lender clearly explained the terms of the loan to them; 92 percent said the short-term loans are a smart financial decision when one faces an emergency cash shortfall; and 89 percent said that the cost of the loan is worth it because it gave them the ability to avoid worse financial consequences, such as fees and the credit impact of paying bills late.

Payday lending ordinances harm consumers

Los Angeles Examiner - January 28, 2014

An increasing number of city councils, particularly in Texas, are passing misguided ordinances to restrict the number of payday lending stores permitted in any given city. The motivation is always the same – crusading politicians leap on an issue that polls well, to “save the consumer from predatory lending.”

A mercenary advocacy group is usually involved. Despite evidence that disproves that payday lending results in any actual consumer harm, the political forces ram through the ordinance, limiting any new payday lenders from opening their doors. The result is to harm the very consumers the legislation, and its purveyors, purport to be helping.