Woodstock Blog

From the President: Bank payday rules show what can be done with strong regulatory ...

dfair@woodstockinst.org (Dory Rand) — Thu, 16 May 2013 14:16:56 GMT

We haven’t seen strong rules like these from prudential banking regulators in a long time. It’s not a coincidence that it comes at a time when these agencies have strong leaders at the helm. Woodstock staff met with three different regulatory agencies while in Washington in March, and I can say that the level of understanding and engagement is higher than we have seen in many years.

We’ve enjoyed an effective Consumer Financial Protection Bureau—with Elizabeth Warren, Raj Date, and Rich Cordray at the helm—for not even two years now. Millions of dollars have been returned to victims of unfair lending practices, and many prevented from becoming victims. Without a confirmed director, however, the CFPB has limited authority to rein in some of the worst actors in the financial industry—such as payday lenders, auto title lenders, and others.

We’ve also seen the damage ineffective leadership can do at a federal agency. Current Federal Housing Finance Agency (FHFA) acting director Ed DeMarco has refused to include principal reduction as a strategy for mitigating foreclosures on mortgages serviced by Fannie Mae and Freddie Mac, depriving thousands of the relief they desperately need to save their homes and avoid financial ruin.

Fortunately the President has nominated North Carolina congressman Mel Watt to replace DeMarco as director of the FHFA. Watt is an extremely qualified candidate whose nomination was welcome news for fair housing advocates.

It is imperative that the U.S. Senate—including Illinois Sen. Mark Kirk—confirm Richard Cordray to continue leading the CFPB and Mel Watt to lead the FHFA. Continuing strong leadership at the CFPB, and introducing it to the FHFA, will go a long way toward fairness and recovery.

Comment today on CRA guidance

kbuitrago@woodstockinst.org (Katie Buitrago) — Wed, 15 May 2013 15:42:37 GMT

Your comments matter. Regulators will be hearing from legions of bank representatives, and we need to make sure that they hear from advocates as well. Here is a sample comment letter that we encourage you to personalize and send to regulators:

http://www.woodstockinst.org/document/130515_cra_qa_signon.docx

The letter includes instructions for submitting the letter to regulators. The letters must be separately sent in to the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency. Alternatively, you can send us your letter on your letterhead to kbuitrago@woodstockinst.org and we can submit the letter to regulators for you.

I’m happy to answer any questions at kbuitrago@woodstockinst.org or 312-368-0310.

Regulators bring necessary reform to bank payday lending—now it’s time to reform all ...

kbuitrago@woodstockinst.org (Katie Buitrago) — Tue, 14 May 2013 13:54:00 GMT

The Consumer Financial Protection Bureau released a market analysis of payday loans, both bank- and storefront-based, the day before the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) announced the proposed guidance. The CFPB report confirms that many features of bank payday loans are detrimental to consumers.

Bank payday loans are not affordable. The CFPB found that bank payday loans often have annual percentage rates of more than 300 percent. Banks rarely assess borrowers’ ability to repay the loans in the context of their other financial obligations, such as living expenses and other debt.

Bank payday lenders frequently claim that their products fill emergency credit needs. The CFPB report demonstrated that, in reality, these products generate their own demand by ensnaring borrowers in a cycle of debt. If a borrower cannot afford to repay the full loan amount when it comes due, he or she must take out another loan to repay the balance. The CFPB found that bank payday borrowers take out a median of eight loans per year, while more than a quarter of borrowers take out at least $6,000 in loans per year, translating to more than 15 loans. On average, bank payday borrowers were in high-cost debt for seven months out of the year. Clearly, these loans are not primarily used for emergencies.

Since bank payday lenders have access to borrowers’ bank accounts, they can debit the loan repayment as soon as the next direct deposit clears—prioritizing payday loans over necessities such as rent, groceries, and utility bills and potentially triggering overdraft fees. The CFPB found that bank payday borrowers were, on average, more than four times as likely as non-borrowers to incur overdraft fees.

The bankers did get one thing right: there is insufficient oversight of the myriad non-bank payday lenders, from those at the corner store to those available at the click of a mouse. Consumers need a strong set of minimum, uniform protections that will ensure that, no matter where they access credit, they will not be saddled with predatory, high-cost loans. States with stronger consumer protection laws than a federal minimum should be able to enforce them in their jurisdictions. The Protecting Consumers from Unreasonable Credit Rates Act (S. 673), sponsored by Sen. Dick Durbin (D-IL), would enact a national usury cap of 36 percent annual percentage rate across all consumer credit transactions, ensuring reasonable costs for all types of credit. We urge Senators to take a stand against the payday loan industry and support S. 673.

The CFPB has authority to promulgate consumer protection rules for all payday products, but the Dodd-Frank Act prohibits the CFPB from imposing a rate cap. We urge the CFPB to draft strong rules for all payday products that would end the cycle of debt by requiring sound lending based on ability to repay the loan while covering existing needs and debts, limiting roll-overs and the amount of time borrowers can be in debt, prohibiting balloon payments, and ending the practice of triggering loan repayment as soon as a deposit comes in.

The writing is on the wall: payday loans harm consumers who can least afford it, and it’s high time to reform them across the board. Every day that goes by without strong rules perpetuates a toxic cycle of debt for consumers.

Help us make CRA work better for communities

kbuitrago@woodstockinst.org (Katie Buitrago) — Thu, 09 May 2013 20:23:52 GMT

We have an opportunity today to let bank regulators know that it’s high time to update CRA for the modern era. Federal regulators released proposed changes to their documents that implement CRA (called Interagency Questions and Answers). We have until May 17 to comment on these proposed changes and let regulators know that they don’t go far enough.

Please join us for a call this Monday, May 13 at 11am to go over the issues in the new Q&A. We will provide you with a sample letter that you can modify and send to regulators.

A better CRA means more badly-needed investments in communities at a time when the federal government is cutting spending. We hope you can join us in this campaign!