Category: Personal Finance

Federal Regulators to Rein In Payday Lending by Banks

Washington Post, printed in the St. Louis Post-Dispatch, April 24, 2013

WASHINGTON • Banking regulators are set to hand down tough new rules to govern short-term, high-interest loans that have been blamed for trapping some Americans in a cycle of debt, according to people familiar with the matter.

The rules, which are slated to come out Thursday, could radically alter the operations of the small but growing number of banks, including Wells Fargo and U.S. Bancorp, that offer loans tied to anticipated direct deposits of salary, government benefits or other income. Critics say these products carry the same abusive high interest rates and balloon payments as the payday loans provided by storefront vendors.

At least 15 states have banned the service, while several others have imposed strict laws to limit the interest rates and the number of loans that can be made. Federal regulators are taking cues from state authorities by proposing similar limits, but are stopping short of outright banning banks from engaging in the market.

The proposed regulation would institute a “cooling-off” period that limits borrowers from taking more than one deposit advance during a monthly pay cycle, according to the people familiar with the matter. Borrowers must also repay the loan before taking out additional loans and wait a month between loans. The proposal mandates that banks take a borrower’s ability to repay into consideration before making a loan, a standard underwriting practice in all other lending.

Regulators at the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. intend the rules to be “very restrictive,” said one person familiar with their thinking. But because a third major regulator — the Federal Reserve, which oversees some 850 banks — is not participating in the effort, the scope of the rules may be limited. Calls to the Fed for comment were not returned Tuesday night.

People with knowledge of the proposal say the OCC and the FDIC are concerned about the misuse of bank payday loans.

Banks market these products, with names such as “Early Access” or “Ready Advance,” as short-term solutions for emergencies. But borrowers often wind up taking multiple loans that keep them mired in debt.

Account holders typically pay up to $10 for every $100 borrowed, with the understanding that the loan will be repaid with their next direct deposit. If the deposited funds are not enough to cover the loan, the bank takes whatever money comes in, then tacks on overdraft fees and additional interest.

The perils of direct-deposit advances were a key focus of a new study conducted by the Consumer Financial Protection Bureau. The report, which will be released Wednesday, found that such loans are creating an expensive burden for consumers.

“Lenders may rely on their ability to directly debit the consumer’s account . . . rather than assessing whether the loan is affordable in light of the borrower’s income and other expenses,” CFPB Director Richard Cordray said Tuesday on a call with reporters.

Bureau researchers looked at more than 15 million payday loans over a 12-month period to analyze consumer behavior.

They found that more than half of direct-deposit borrowers took out advances totaling $3,000 or more. Of these borrowers, well over half paid off one loan and went back for another within 12 days. The average borrower took out 10 loans in a year and paid $458 in fees.

Proponents of alternative financial services welcomed the bureau’s study, but cautioned against using broad brush strokes to define the payday industry.

“It is important to underscore that this preliminary report is a starting point for further conversations rather than a set of definitive conclusions,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, an industry trade group.

The CFPB has supervisory and enforcement authority for storefront and bank payday lenders with more than $10 billion in assets. The report brings the CFPB a step closer to imposing its own rules to govern the industry.

People familiar with the matter say the bureau advised the OCC and the FDIC on the proposed regulations.

The proposed guidance is modeled after rules the OCC issued in 2000 that barred banks from engaging in direct payday lending. Banks circumvented that guidance by tying their short-term loans to direct deposits.

Officials at Wells Fargo insist that the bank is offering a vital service designed to help customers with unforeseen financial emergencies, such as car repairs.

“It is an expensive form of credit, and we are very clear and upfront with our customers about that. It is not intended to solve long-term financial needs,” Wells Fargo spokeswoman Richele Messick said.

The bank, which debuted the product in 1994, offers an installment plan for customers to avoid balloon payments. But it is offered only to people with at least $300 in outstanding debt who have been hit with balloon payments for three consecutive months. Messick declined to comment on the forthcoming guidance until regulators officially issue them.

Advocacy groups have long been concerned that federally regulated banks can sidestep stricter state laws that govern payday lenders. Last month, the Center for Responsible Lending issued a report urging bank regulators to ban direct-deposit advances before the practice spreads from a few banks to the entire system.

In addition to Wells Fargo and U.S. Bancorp, the other banks that offer such loans are Regions Bank, Fifth Third Bank, Guaranty Bank and Bank of Oklahoma.

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Bank Payday Lending Persists Despite Broad and Growing Opposition

Center for Responsible Lending, printed in the North Dallas Gazette, March 26, 2013

In today’s challenging financial times, the cost of living finds many consumers with an ongoing financial challenge to hold on until their next payday arrives. Even worse, when banks peddle predatory payday loans, they pose serious threats to their customers’ financial well-being. Marketed under names like “direct deposit advance”, these loans are easy to get; but hard to pay off. As consumers get ensnared by the debt trap, banks reap repeating cycles of quick cash.

In its latest report on bank payday lending, the Center for Responsible Lending (CRL) found that although participating banks claim that their payday loan products are only for short-term emergencies and carry marginal risks, the real-life experiences were opposite. Instead, the typical bank payday borrower is charged an annual percentage rate (APR) that averages 225-300 percent; took out 19 loans in 2011, spending at least part of six months a year in bank payday debt; and is twice more likely to incur overdraft fees than bank customers as a whole.  In addition, over one in four bank payday borrowers is a Social Security recipient.

This last finding comes on the heels of a key administrative change for seniors on Social Security. As of March 1, all Social Security payments are issued electronically. And although seniors have specific protections from payday lending on prepaid cards, no comparable protection exists on checking accounts.CRL’s report also calls for regulators to take immediate actions to stop banks now offering payday loans from engaging in this form of predatory lending. Additionally, CRL calls for the following terms on small loan products:

  1. A minimum loan term of 90 days with affordable installments;
  2. An APR of 36 percent or less;
  3. Underwriting based on an ability to repay; and
  4. No mandatory automatic repayment from the consumer’s checking account.

Over a year ago, 250 organizations and individuals sent a letter to federal banking regulators expressing concerns with bank payday lending. Also last year, and in a separate action, over 1,000 consumers and organizations told the Consumer Financial Protection Bureau about elder financial abuse, including bank payday lending.  At that time, CRL advised, “More than 13 million older adults are considered economically insecure, living on $21,800 a year or less. Senior women in particular face diminished incomes because of lower lifetime earnings and therefore lower Social Security and pension benefits.”

As opposition to bank payday and elder financial abuse grows, banking regulators are continuing to hear from advocates, experts and concerned citizens. Fortunately, advocates are determined to press this issue in growing numbers: in a letter dated March 13, 278 organizations and individuals signed a second letter to regulators.  In part, the March 13 letter states, “Payday lending has a particularly adverse impact on African-Americans and Latinos, as a disproportionate share of payday borrowers come from communities of color. High-cost, short-term balloon repayments, and the consequent series of repeat loans, have long been identified by regulators as features of predatory lending.”

“Ultimately, payday loans erode the assets of bank customers” continued the letter, “and, rather than promote savings, make checking accounts unsafe for many customers. They lead to uncollected debt, bank account closures, and greater numbers of unbanked Americans. All of these outcomes are inconsistent with both consumer protection and the safety and soundness of financial institutions.”

Space will not allow for the full 278 signatories to be identified. But they do include many national and statewide organizations including: AARP, AFL-CIO, AFSCME, the Black Leadership Forum, NAACP, the Leadership Conference on Civil and Human Rights and CRL.

In closing the coalition of concern warns, “Please move quickly to ensure that payday lending by banks does not become more widespread and to ensure that those banks currently making payday loans stop offering this inherently dangerous product.”

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Groups Give Up Fight to Put Payday Loan Reform on Ballot

St. Louis Beacon, September 3, 2012

Legal challenges won’t go forward to get initiatives raising the minimum wage and restricting “payday” loans on the ballot, according to organizers of the two efforts.

Secretary of State Robin Carnahan’s office announced in August that initiative petitions to raise the minimum wage to $8.25 an hour and restrict interest rates on payday loans didn’t receive enough signatures in two St. Louis-based congressional districts. Spokespeople for the campaigns signaled they would pursue legal means to reexamine the decision.

But the two groups announced in a joint press release sent out on Monday morning that they would “suspend” their legal challenge, noting that the groups “reluctantly concluded that the legal hurdles erected by the payday lending industry, their allies and their lawyers are too high for us to cross before the Sept. 21 deadline for finalizing the November ballot.”

“The people of Missouri have the right to place important public policy issues on the ballot. Initiative petitions should be a matter of volunteer efforts and debate,” said Rev. Dr. Jim Hill, president of Missouri Faith Voices, in a statement. “Unfortunately, opponents have taken that right from the people, and subjected it into a battle of legal attrition.”

Added Martin Rafanan, executive director of Gateway 180: Homelessness Reversed: “We are sad to report that the payday industry and minimum wage opponents’ unprecedented legal challenges effectively disenfranchised thousands of Missourians. It is another example of big monied corporate interests displacing the people’s interests in the democratic process.”

The press release added that the groups would continue pursuing their efforts in the future.

The minimum wage item would have raised the state’s threshold from $7.25 an hour to $8.25 an hour. Among other things, it also would have adjusted the state’s minimum wage based on the Consumer Price Index. The “payday loan” initiative would have capped interest rates on such loans at 36 percent.

Ballot items that will appear on November’s ballot include a tobacco tax increase, an effort to remove state control of the St. Louis Police Department and a constitutional amendment to reconfigure how the state’s judges to the Missouri Supreme Court and Missouri Court of Appeals are selected.

Voters will also decide on a measure barring the governor from setting up a health-insurance exchange through an executive order.

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Editorial: Failure of Payday Loan Reform Measure Bad for Missouri

St. Louis Post-Dispatch, September 6, 2012

Robbery with a pen will continue to be legal in Missouri with the announcement Monday that Missourians for Responsible Lending had abandoned its campaign to cap payday loan interest rates in the face of well-financed opposition from the industry.

What this means is that instead of capping the interest rates and fees for payday loans at a relatively reasonable 36 percent, they will continue to soar to their average rate of 445 percent annually.

What this also means is that deep-pocketed, out-of-state loan sharks playing a shell game with campaign finance won. Poor people lost.

The grass-roots petition supporters could have benefited from a payday loan to their campaign, but they wouldn’t have been able to handle the usurious interest rates and fees any better than the poor and working-class people who get the predatory loans.

The decision to suspend efforts to get initiatives on the state’s Nov. 6 ballot to cap the payday loans and to raise the state’s minimum wage has a wider impact than on just payday borrowers and underpaid workers. It also means that the ballot initiative — one of the last methods left for groups of average citizens to try to change the law — is endangered.

“This is a real challenge to participatory democracy,” the Rev. David Gerth, head of Metropolitan Congregations United, which worked on behalf of the two ballot initiatives, said Tuesday. “I wouldn’t say it’s impossible to get an initiative on the ballot, but it is very, very difficult to win.”

The organization fighting the payday loan industry, and Give Missourians a Raise, the group seeking to raise the minimum wage, had combined efforts. Each initiative needed about 95,000 signatures from across the state, and the groups submitted petitions with more than 350,000 signatures.

Various election authorities, including in the city of St. Louis, had questioned the validity of enough signatures to keep the initiatives off the ballot. Supporters thought they could challenge those ballot counts and get the signatures approved by the Sept. 21 deadline.

They said Monday that their well-heeled opponents had put too many legal hurdles in their way to overcome by the deadline.

“Since beginning this campaign more than a year ago, we have faced an opposition unrestrained by money, morality, truth or concern for the economic dignity of our neighbors and family members,” said the Rev. James Bryan, treasurer for the lending cap group.

Here’s all Missourians need to know about that process:

The payday loan industry spent more than $2 million fighting to keep this common sense measure off the ballot, knowing full well that if it made it there, it would pass. Nearly all of that money was funneled through a Kansas City non-profit that, to date, hasn’t revealed its donors.

What are they afraid of?

Supporters of the initiatives, meanwhile, spent $600,000, all of it accounted for, according to Missouri Ethics Commission reports.

Supporters put their names on the line. Opponents didn’t.

That Missouri law allows this is as unjust as charging poor people more than 1,000 percent interest on loans they’ll never be able to pay back.

Rev. Gerth said petition supporters had done their best to keep costs down, getting help from churches and synagogues across the state and using hundreds of locally trained volunteers to collect signatures, but they just didn’t have the money to keep fighting.

Of the 143 ballot initiatives submitted to the secretary of state this year, four have been certified for the Nov. 6 ballot. Two were referred by the Legislature, one was largely funded by the American Cancer Society and a coalition of health-care and education interests, and the last, on local control of the St. Louis Metropolitan Police Department, was largely funded by millionaire investor Rex Sinquefield.

State lawmakers need to do two things to make it easier for ordinary citizens to have a say in government. First, make it illegal for wealthy donors to hide behind layers of secrecy. If money is free speech, and corporations are people, then make the corporations put their names on their speech.

Second, pass a version of the bill that was supported last session by state Auditor Tom Schweich, a Republican, and Secretary of State Robin Carnahan, a Democrat, that would have added an extra step to the initiative process. Modeled after an Oregon law, it would require 1,000 sponsoring petition signatures to weed out those who aren’t serious about the process.

Those who want payday loan companies to stop preying on Missouri’s poor say they’ll get back to work passing a new law that merely would put the Show-Me State in line with most other states, with the same sort of interest limits Congress imposed on payday loan companies that were taking advantage of military families.

Missouri lawmakers should back their efforts by evening the playing field.

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Missouri Lenders Find Ways to Avoid Title-Loan Regulations

St. Louis Post-Disptach, August 1, 2010

Sandra Ahmedin, 65, was broke, and the rent was due. After deciding a car-title loan was her only option, the north St. Louis woman borrowed $800.

She’s paid back close to four times that much, but she hasn’t reduced the loan’s principal. Although she stopped making payments — “I’ve paid enough already,” she insisted — she fears the lender, Missouri Title Loans, will seize her 2001 Dodge Intrepid.

This wasn’t supposed to happen in Missouri, say consumer advocates and lawyers representing borrowers such as Ahmedin. Nine years ago, legislators changed the state’s title-loan law to limit how many times lenders can roll borrowers’ debts into new, expensive loans. The aim was to keep borrowers from being trapped in a cycle of high-interest debt.

But Missouri Title Loans and dozens of its competitors have avoided those restrictions by classifying what seem to be title loans as different types of consumer loans that have less burdensome rules. And they do this even when the loans are marketed as title loans and companies bill themselves to consumers exclusively as title lenders.

Lawyers seeking to stop this practice say they believe state regulators have allowed lenders to overcharge thousands of Missouri consumers to the tune of hundreds, even thousands, of dollars each.

When borrowers such as Ahmedin sign up for a loan, they surrender their vehicle’s title and a set of keys. If they don’t pay, Missouri Title Loans can take the car.

Yet Ahmedin’s debt, according to the lender and the state, isn’t a title loan. It’s a ‘small loan” — a different type of consumer debt that, under Missouri law, comes with fewer safeguards.

Missouri Title Loans isn’t unique.

More than 20 percent of Missouri’s 298 licensed title lending locations — lenders must obtain a separate license for each office they operate — are licensed to deal in small loans, and about a third of the licensed title lenders also peddle installment loans.

And there are 115 other lenders with the word “title” in their names — companies such as Title Cash of Missouri, Title Lenders of Missouri, Title Loan Co. and TitleMax — that aren’t licensed at all as title lenders. These companies deal exclusively in other, less regulated loan types.

According to Missouri regulators, there’s nothing wrong with this. They say lenders can dole out short-term, high-interest loans in exchange for vehicle title and keys — the common definition of a title loan — but classify the loans as something else.

Because the companies aren’t required to turn over annual lending data to the state, it’s impossible to know how they classify their loans.

And, for borrowers, it’s hard to recognize which loan type is being offered.

For instance, buried in the fine print of a Missouri Title Loans contract, there’s just one clue indicating the product isn’t a title loan: “This loan is being made pursuant to Missouri Revised Statute 367.100.” (That refers to state law covering pawnbrokers and small loans; title loans are governed by the 367.500 statute.)

Lawyer John Campbell, who represents three Missouri Title Loans borrowers, said the company shouldn’t be able to avoid restrictions on title loans by assigning them a different name.

“If it looks like a title loan, it smells like a title loan and it works like a title loan; it’s a title loan,” he said.

Part of Campbell’s suit to end the practice recently was argued before the Missouri Supreme Court, and a decision there could come down as early as this week. At issue is whether a class action — either in front of a judge or an arbiter — can be brought against Missouri Title Loans, despite a clause in the loan agreement requiring individual arbitration.

That, Campbell said, would be a first step toward either getting a court to close the regulatory loophole or making it too costly for lenders to avoid the Title Loan Law.

With 28 licensed locations, Missouri Title Loans is a subsidiary of Community Loans of America, an Atlanta-based company that operates short-term loan shops across the country.

Terry Fields, a vice president at Community Loans, said someone at the company would return a reporter’s call. No one did, and Fields’ boss — President Robert Reich — did not respond to a request for comment.

NO DROP IN PRINCIPAL

Ahmedin receives about $900 per month from Social Security. In March, she turned to Missouri Title Loans to catch up on her rent payments, which Ahmedin says she couldn’t pay because of medical bills.

She qualified for a one-month, $800 loan with a 300 percent annual interest rate. “They tried to get me to borrow more money, but I didn’t need more.”

When the loan came due a month later, Ahmedin paid $230 in interest but didn’t have the money to pay back the principal. So she renewed the loan.

“Every time I would pay, it was like the loan wasn’t going down at all,” said Ahmedin, who had to cut back on groceries and skip other bills to pay the interest on loan renewals.

In total, she made at least 15 monthly payments before she stopped, according to records reviewed by the Post-Dispatch.

If Ahmedin’s loan was a title loan — not a small loan — Missouri law would require the principal to shrink after the second renewal.

The principal of the third renewal — and any subsequent one — must drop by an amount equal to 10 percent of the first loan’s principal.

The reason is simple: “The General Assembly has clearly indicated that no borrower is to be indebted to a title lender for any great period of time,” the state regulations say.

But that’s exactly what happened to Ahmedin. Because Missouri regulators accept the lender’s classification of her loan as a small loan — not a title loan — she still owes Missouri Title, more than 27 months after first signing up.

Ahmedin’s records show she paid Missouri Title Loans at least $3,100 in interest. That’s more than Ahmedin said she originally paid for the car.

Her lawyer — Rob Swearingen, of the nonprofit Legal Services of Eastern Missouri — said that, had Ahmedin’s loan been subject to the principal-reduction requirement, it would have been paid off in one year’s time at a maximum cost of $2,606.

lenders ‘pick and choose’

Without offering her car title as security, it’s hard to imagine Ahmedin qualifying for a loan.

She doesn’t work, own her home or have any other collateral. After paying rent and utilities, she has about $200 — not enough to pay one month’s interest and stay current on other bills.

For both title loans and small loans, Missouri requires lenders to consider an applicant’s ability to repay.

Yet Missouri Title Loans boasts about how easy it is to qualify for loans. For instance, the company brags that it never performs credit checks. “Drive in today, and you’ll drive home with cash — it’s that simple,” says the company’s website.

Regulators require lenders to collect borrowers’ income information, but that’s about it.

“Risk assessment is up to the lender based on a number of qualifiers which they themselves must choose,” said Joe Crider of the Missouri Department of Insurance, Financial Institutions and Professional Registration.

Crider runs the department’s Consumer Credit Section, which regulates about 2,700 finance companies, including banks and payday, title and small-loan lenders. He said there was nothing unusual, or illegal, about a company’s marketing a loan as a title loan, taking a vehicle title as security and not being subject to the title-loan law.

“There’s four or five different (type of) loans that can be made on a car,” Crider said. “The lender can pick the license that it fits under.”

Crider said some companies only offer title loans, despite their more restrictive regulations, because the businesses can’t afford to maintain two licenses or because they specialize in loans less than $500, the minimum size of a small loan. He believes title loans — as classified by the state — generally are for between $300 and $500.

Missouri legislators legalized unlimited interest rates on small loans in the 1990s. Rates had been capped at 26.6 percent.

In 2001, just three years after Missouri established its title-loan law, then-Auditor Claire McCaskill issued a report criticizing it as ineffectual. The report said title-loan lenders “can pick and choose which statute serves them best without concern for consumer interests.”

While the audit was in the works, legislators were re-writing the title loan law to include new disclosure language and the principal-reduction requirement. Initially, the goal was to close the regulatory loophole, said David Klarich, a lobbyist who, at the time, was a state senator and a sponsor of the legislation.

In that regard, the bill was a failure. The strengthened safeguards didn’t mean much, because lenders still pick the regulatory regime they prefer.

COURT VS. ARBITRATION

Campbell, a class-action lawyer at downtown’s Simon Law Firm, says the state’s interpretation violates a basic legal principle: When something appears to be governed by conflicting laws, a newer and more specific statute trumps any older and more general provisions.

Just because a title-secured loan is large enough to qualify as a small loan doesn’t mean it stops being a title loan, he said.

“To believe that the Legislature went through all the effort of passing a title loan law just to regulate loans less than $500 … It’s nonsense.”

Campbell’s clients had experiences similar to Ahmedin’s. One made two loan payments totaling about $1,147, but found that she had reduced the $2,215 principal by just six cents. The company enrolled another of Campbell’s clients in a small loan that required him to pay $794 in one month, about $70 more than the borrower’s monthly income from disability payments.

Lawyers such as Campbell and Swearingen think they would have a good shot at winning in court and forcing regulators to treat title-secured small loans as title loans. The problem, they say, is getting in front of a judge.

That’s because loan agreements require borrowers to seek relief through arbitration, not the courts. Even if an arbiter rules in the borrower’s favor, the ruling doesn’t have the same power as one made from the bench. It doesn’t develop case law.

The risk of losing in arbitration isn’t much of a threat to a high-volume lender such as Missouri Title Loans.

That’s because the loan agreements prohibit class arbitration. Like class-action suits in court, class arbitrations encourage lawyers to take small-dollar cases because clients can be bundled into large groups. That means lawyers representing consumers can put more resources into the case, and means they can expect a big pay-off if they win.

Without a lawyer, individuals may be reluctant to pay as much as $125 to start arbitration.

Campbell has filed a class-action suit against Missouri Title Loans, and he believes the company has illegally classified more than 10,000 title loans as small loans.

In 2008, St. Louis Circuit Court Judge David Dowd handed down a split ruling in that case. He said it can’t move forward in court, as Campbell had pushed for; but he also ordered that the loan agreement’s ban on class-action arbitration must be thrown out.

An appeals court upheld that ruling, and on May 19, Missouri Supreme Court judges heard arguments in the case.

Missouri Title Loans wants the court to allow only individual arbitration; Campbell wants the court to affirm the ruling in favor of class arbitration or to throw out arbitration entirely.

The court could hand down a ruling as early as Tuesday.

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Senator Warren Proposes Post Offices Take the Place of Payday Lenders

ThinkProgress, February 3, 2014

The Postal Service (USPS) could spare the most economically vulnerable Americans from dealing with predatory financial companies under a proposal endorsed over the weekend by Sen. Elizabeth Warren (D-MA).

“USPS could partner with banks to make a critical difference for millions of Americans who don’t have basic banking services because there are almost no banks or bank branches in their neighborhoods,” Warren wrote in a Huffington Post op-ed on Saturday.

The op-ed picked up on a report from the USPS’s Inspector General that proposed using the agency’s extensive physical infrastructure to extend basics like debit cards and small-dollar loans to the same communities that the banking industry has generally ignored. The report found that 68 million Americans don’t have bank accounts and spent $89 billion in 2012 on interest and fees for the kinds of basic financial services that USPS could begin offering. The average un-banked household spent more than $2,400, or about 10 percent of its income, just to access its own money through things like check cashing and payday lending stores. USPS would generate savings for those families and revenue for itself by stepping in to replace those non-bank financial services companies.

Those companies are among the most predatory actors in the money business. Payday loans with annual interest rates well north of 100 percent suck billions of dollars out of poor communities every year, with the average customer paying $520 to borrow $375. After decades of operating in a regulatory blind spot and ducking state-level reforms, the payday lending business now faces a crackdown from the Consumer Financial Protection Bureau. The threat of new rules for short-term cash loans in general has caused traditional banks to stop offering deposit-advance loans with similar features.

But while ending triple-digit interest rates and fine-print tricks is a good thing for consumers, it doesn’t reduce the demand for those financial services. The USPS could slide into that space and meet that need without preying upon those communities. “Instead of partnering with predatory lenders,” David Dayen writes in The New Republic, “banks could partner with the USPS on a public option, not beholden to shareholder demands, which would treat customers more fairly.”

America’s post offices are an ideal physical infrastructure for furnishing these services to communities currently neglected by banks. Roughly six in 10 post offices nationwide are in what the USPS report calls “bank deserts” — zip codes with either one or zero bank branches.

Doing business in those communities in more ethical fashion would still be profitable enough to inject about $9 billion into the struggling federal mail agency’s books. The USPS is dealing with a fiscal crisis, one largely manufactured by Congressional choices. The agency gets no taxpayer money for its operations but is still under Congress’s authority, and lawmakers have used that authority to impose arbitrary financial requirements and service constraints that have the post service on the verge of bankruptcy. USPS is legally obligated to hold assets in its pension funds that cover the next 75 years of projected pension costs, a unique and crippling requirement that Congress refuses to lift despite evidence that it is almost solely responsible for the agency’s financial woes.

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Report Analyzes Area Banks’ Adherence to Lending, Community Investment Laws

St. Louis Equal Housing and Community Reinvestment Alliance (SLEHCRA) is a coalition of non-profit and community organizations working to increase investment in low- and moderate-income communities, regardless of race, and in minority communities, regardless of income, by ensuring that banks are meeting their obligations under the Community Reinvestment Act and fair lending laws.

In August SLEHCRA released a report in conjunction with the 50th commemoration of the Jefferson Bank demonstrations.  Beginning onAugust 30, 1963, black and white community members and leaders demonstrated in front of Jefferson Bank and Trust to protest the bank’s lack of black employees as well as overall discriminatory employment practices in St. Louis.  The demonstrations were the largest act of civil disobedience in St. Louis and a key civil rights event in St. Louis history.

This report examines the state of bank reinvestment in St. Louis in the 50 years following the demonstrations. This analysis focuses on how the top twenty banks are serving the needs of low- and moderate-income communities and communities of color.  The report investigates the state of bank reinvestment by examining branch locations, home mortgage
lending, small business lending, community development lending, and employment diversity.

Click here to see the report.

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Consumer Financial Protection Bureau Now Taking Complaints on Credit Reporting

For the First Time Consumers Will Get Federal Assistance on Complaints

On October 26st, the Consumer Financial Protection Bureau (CFPB) began accepting consumer complaints about credit reporting, giving consumers individual-level complaint assistance for the first time at the federal level.

“Credit reporting companies exert great influence over the lives of consumers. They help determine eligibility for loans, housing, and sometimes jobs,” said CFPB Director Richard Cordray. “Consumers need an avenue of recourse when they feel they have been wronged.”

Consumer reporting agencies, which include what are popularly called credit bureaus or credit reporting companies, are private businesses that track a consumer’s credit history and other consumer transactions. The credit reports they generate – and the three-digit credit scores that are based on those reports – play an increasingly important role in the lives of American consumers.

The largest credit reporting companies issue more than 3 billion consumer reports a year and maintain files on more than 200 million Americans. The consequences of errors in a consumer report can be catastrophic for a consumer, shutting him or her out of credit markets, jeopardizing employment prospects, or significantly increasing the cost of housing.

Although a small number of large businesses dominate the credit reporting market, there are many consumer reporting agencies in the United States. The market includes: the three largest credit reporting companies that sell comprehensive consumer reports; consumer report resellers that repackage information they buy from the largest companies; and specialty consumer reporting companies that primarily collect and provide specific types of information like on payday loans or checking accounts.

For consumers who believe that there is incorrect information on their credit reports or who have an issue with an investigation, before filing with the CFPB, they should first file a dispute and get a response from the consumer reporting agency itself. There are important consumer rights guaranteed by federal consumer financial law that may be best preserved by first going through the credit reporting company’s complaint process. Once that process is complete, if the consumer is dissatisfied with the resolution or if the consumer reporting agency does not respond, the CFPB is available to assist.

A consumer can come to the CFPB if he or she, for example, has issues with:

  • · Incorrect information on a credit report;
  • · A consumer reporting agency’s investigation;
  • · The improper use of a credit report;
  • · Being unable to get a copy of a credit score or file; and
  • · Problems with credit monitoring or identify protection services.

Today’s announcement extends the kinds of complaints the CFPB already handles. The CFPB began taking credit card complaints when it launched on July 21, 2011. Since then, it has expanded to take complaints on mortgages, bank accounts and services, consumer loans, and private student loans.

Consumers are given a tracking number after submitting a complaint with the CFPB and can check the status of their complaint by logging on to the CFPB website. Each complaint will be processed individually and sent to the company for response. The CFPB expects the consumer reporting agencies to respond to complaints sent to them within 15 days with the steps they have taken or plan to take. Consumers will have the option to dispute the company’s response to the complaint.

In July 2012, the CFPB adopted a rule to begin supervising larger consumer reporting agencies that have more than $7 million in annual receipts. The CFPB’s supervisory authority extends to an estimated 30 companies that account for about 94 percent of the market’s annual receipts. The CFPB’s authority to supervise these companies became effective Sept. 30, 2012.

In September, the CFPB also released a study looking at credit scores, the three-digit numbers, based on a credit report that are assigned to consumers and used to determine credit worthiness. The study compared credit scores sold to creditors and those sold to consumers. The study found that about one in five consumers would likely receive a different score than the score provided to a lender.

Questions and answers on credit reporting are available on AskCFPB. A consumer advisory on credit reporting is also available.

To file a credit reporting complaint, consumers can:

  • · File online at www.consumerfinance.gov/Complaint
  • · Call the toll-free phone number at 1-855-411-CFPB (2372) or TTY/TDD phone number at 1-855-729-CFPB (2372)
  • · Fax the CFPB at 1-855-237-2392
  • · Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244

Consumers can receive free copies of their credit reports every 12 months fromAnnualCreditReport.com. This is the only authorized source that provides free disclosures from the three major national credit reporting companies – Equifax, Experian and TransUnion.

The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.

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‘Unbanked’ Economy Traps Many St. Louisans

St. Louis Post-Dispatch, September 13.2012

A growing number of American households don’t have a checking or savings account, a clear sign of much deeper financial instability.

The percentage of households in the St. Louis region that are ‘unbanked’ rose to an estimated 9.7 percent in 2011, according to a survey released by the Federal Deposit Insurance Corp. Wednesday, an increase from 7.6 percent in 2009, when the survey was last conducted.

The percentage of unbanked African-American households soared to 29 percent locally, among the highest rates in the nation, though down slightly from the last survey.

Nationally, 8.2 percent of U.S. households, or about 10 million, are unbanked, an increase of about 821,000 households since 2009.

For Wednesday’s report, the FDIC surveyed households across the country in June 2011, partnering with the U.S. Census Bureau.

The primary reason people surveyed gave for not having a bank account was a sense that they didn’t have enough money to open one, according to the report.

The increasing number of people without a checking or savings account alarms those who work with the region’s poor, who often rely instead on costly alternatives to cash checks or take out loans.

“All of these things take resources out of the households,” said Jacqueline Hutchinson, director of city services for the Community Action Agency of St. Louis County, an Overland-based nonprofit.

Without bank accounts and established credit, families can’t buy cars and homes or start businesses, Hutchinson said, dragging down the region’s economy. “It really impacts the entire community, not just the household,” she said.

Hutchinson also co-chairs the St. Louis Regional Unbanked Task Force, which formed in recent years to spur banks to increase services to low income households and minorities.

Since the task force formed, nearly a dozen local banks have developed new services and products for the unbanked and underbanked — which are defined as households that have a bank account but use costly alternative financial services. The FDIC’s survey found that the one in four households nationwide, or 28.3 percent, are considered either unbanked or underbanked.

The number of unbanked households would have been higher had community groups not prodded banks to increase their financial literacy efforts and outreach to underserved communities, Hutchinson said.

“The economic downturn was happening at the same time (the task force formed), and a lot of people got in trouble financially,” she said.

CATALYST FOR ACTION

The FDIC’s study found wide discrepancies among racial groups’ banks usage. In 2009, the St. Louis metro area had the highest percentage of unbanked black households in the country, at 31 percent. In the newly released report, St. Louis had the third highest percentage. Nationally, 21.4 percent of black households are unbanked.

By contrast, just one percent of St. Louis households identifying as white in 2009 reported a lack of bank accounts. That figure rose to 3 percent in the St. Louis region in the latest report.

The Minneapolis metro area ranked highest nationally for unbanked black households at 37.5 percent, followed by Cleveland at 31.6 percent.

The FDIC’s 2009 study served as catalyst for community organizations to work with banks to increase access to financial services, said Rance Thomas, president of the nonprofit group North County Churches Uniting for Racial Harmony and Justice, which works with other local nonprofit groups to increase access to financial services.

“We made the community aware of the FDIC’s study and the need to do something,” Thomas said. “There had been a great need for some time. But I think many banks just ignored it.”

Thomas believes the lack of traditional banking perpetuates a cycle of poverty, driving poor families to high-interest short-term loans.

Accessing a cash advance through a car title loan company, for example, can come with triple-digit annual percentage rates. At a car title loan outlet, a person with no bank account can borrow cash in exchange for a vehicle’s title, jeopardizing their transportation and ability to work.

“People get trapped,” Thomas said.

Several banks in the St. Louis area have increased services and products aimed at poor people, prompted by the nonprofit Metropolitan St. Louis Equal Housing Opportunity Council (EHOC).

EHOC’s staff began focusing on the lack of access to financial services in 2009. The council began prodding local banks to open more branches and expanding financial services in low-income neighborhoods to reverse the unbanked statistics.

“I feel like a lot has changed in the banking culture,” said Elisabeth Risch, education and research coordinator at EHOC. “There has been a lot of positive collaboration with banks, but this kind of thing takes a long time.”

In a report slated to be released today by the St. Louis Equal Housing and Community Reinvestment Alliance, EHOC and other local groups cited progress on access to financial services.

Three new bank branches are opening in St. Louis County as a result of the groups’ efforts, including a Midwest BankCentre branch slated to open in Pagedale in November.

Additionally, local banks have committed to spend $14.5 million on community development activities and $550,000 on financial education targeting low income communities.

MAKING PROGRESS

Several banks also have developed new checking accounts and small-dollar loan programs specifically geared to the unbanked, including First National Bank of St. Louis.

First National Bank of St. Louis opened a branch in Ferguson in March, following an unfair lending complaint against the Clayton-based bank. In 2009, EHOC filed a complaint with the U.S. Department of Housing and Urban Development, alleging First National failed to provide banking services in black neighborhoods in violation of the federal Fair Housing Act.

“Most of us in the banking industry were embarrassed by the high FDIC numbers,” said Rick Bagy, president of the bank.

Since opening, the Ferguson bank branch has had smaller average deposits than the bank’s other branches spread throughout the metro area, he said, but home loan volume has been strong.

“I’ve been very happy with our home mortgage volume there,” Bagy said. The bank has also rolled out new products geared to attract the unbanked. One of them, Easy Choice Checking, doesn’t allow users to overdraft their account and rack up high fees.

Hefty overdraft fees are among the reasons people moved away from banks during the economic downturn.

“There’s so much distrust in the industry,” said Rose Eichelberger, founder and executive director of Ready, Aim, Advocate, a Jennings-based nonprofit that offers job readiness training to the poor.

Eichelberger also has worked with banks to expand their financial literacy efforts.

“Financial education is not an option; it’s a requirement,” she said about her group, which pairs classes on creating a budget and savings account with job placement assistance.

New efforts are underway to reverse unbanked trends. The St. Louis Regional Unbanked Task Force will kick off a program called Bank On Save Up next year with the goal of assisting 20,000 households to open checking or savings accounts within two years.

The Federal Reserve Bank of St. Louis also plans to hold a two-day conference in late October with speakers from across the country discussing access to financial services as part of the Fed’s new research effort on the state of American household’s balance sheets.

“Access is the very first step to household financial stability,” said Bill Emmons, an economist with the St. Louis Fed. At the Fed’s conference, speakers will present advances in technology, such as mobile banking, that could help increase access to financial services.

“Technology is going to be the real game changer,” Emmons said. “There’s a feeling that this is a unique time to make a lot of progress very quickly.”

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