By I. Kayor. University of Arkansas at Pine Bluff.
This section discusses these reporting requirements and their associated costs on small entities and is organized into two main subsections—those relating to covered short-term loans and those relating to covered longer- term loans—to facilitate a clear and complete consideration of those costs payday car loan. At loan consummation loan shop online payday loans, the information furnished would need to include identifying information about the borrower payday loan service, the type of loan, the loan consummation date, the principal amount borrowed or credit limit (for certain loans), and the payment due dates and amounts. While a loan is outstanding, lenders would need to furnish any update to information previously furnished pursuant to the rule within a reasonable period of time following the event prompting the update. And when a loan ceases to be an outstanding loan, lenders would need to furnish the date as of which the loan ceased to be outstanding, and, for certain loans that have been paid in full, the amount paid on the loan. Costs to Small Entities Furnishing information to registered information systems would require small entities to incur one-time and ongoing costs. One-time costs include those associated with establishing a relationship with each registered information system and developing procedures for furnishing the loan data. Lenders using automated loan origination systems would likely modify those systems, or purchase upgrades to those systems, to incorporate the ability to furnish the required 1059 information to registered information systems. Lenders with automated loan origination and servicing systems with the capacity to furnish the required data would have very low ongoing costs. Lenders that report information manually would likely do so through a web-based form, which the Bureau estimates would take five to 10 minutes to fill out for each loan at the time of consummation and when the loan ceases to be an outstanding loan, as well as other times when lenders must furnish any updates to information previously furnished. Assuming that multiple registered information systems existed, it might be necessary to incur this cost multiple times, although common data standards or other approaches may minimize such costs. The Bureau notes that some lenders in States where a private third-party operates reporting systems on behalf of State regulators are already required to provide similar information, albeit to a single reporting entity, and so have experience complying with this type of requirement. The Bureau also intends to foster the development of common data standards where possible for registered information systems to reduce the costs of providing data to multiple services. In addition to the costs of developing procedures for furnishing the specified information to registered information systems, lenders would also need to train their staff in those procedures. The Bureau estimates that lender personnel engaging in furnishing information would require approximately half an hour of initial training in carrying out the tasks described in this section and 15 minutes of periodic ongoing training per year. At loan consummation, the information furnished would need to include identifying information about the borrower, the type of loan, the loan consummation date, the principal amount borrowed or credit limit (for certain loans), and the payment due dates and amounts. While a loan is outstanding, lenders would need to furnish any update to information previously furnished pursuant to the rule within a reasonable period of the event prompting the update. And when a loan ceases to be an outstanding loan, lenders would need to furnish the date as of which the loan ceased to be outstanding. Costs to Small Entities Furnishing information to registered information systems would require small entities to incur one-time and ongoing costs. These include costs associated with establishing a relationship with each registered information system and developing procedures for furnishing the loan data. Lenders using automated loan origination systems would likely modify those systems, or purchase upgrades to those systems, to incorporate the ability to furnish the required information to registered information systems. Lenders with automated loan origination and servicing systems with the capacity to furnish the required data would have very low ongoing costs. For example, lenders or vendors may develop systems that would automatically transmit loan data to registered information systems. Some software vendors that serve lenders that make payday and other loans have developed enhancements to enable these lenders to report loan information automatically to existing State reporting systems; 1078 src="http://www. Lenders that report information manually would likely do so through a web-based form, which the Bureau estimates would take five to 10 minutes to fill out for each loan at the time of consummation, and when the loan ceases to be an outstanding loan, as well as other times when lenders must furnish any updates to information previously furnished. Assuming that multiple registered information systems existed, it might be necessary to incur this cost multiple times, although common data standards or other approaches may minimize such costs. In addition to the costs of developing procedures for furnishing the specified information to registered information systems, lenders would also need to train their staff in those procedures. The Bureau estimates that lender personnel engaging in furnishing information would require approximately half an hour of initial training in carrying out the tasks described in this section and 15 minutes of periodic ongoing training per year. Recordkeeping Requirements The proposed rule imposes new data retention requirements for the requirements to assess borrowers’ ability to repay and alternatives to the requirement to assess borrowers’ ability to repay for both covered short-term and covered longer-term loans by requiring lenders to maintain evidence of compliance in electronic tabular format for certain records. The proposed retention period is 36 months, as discussed above in the section-by-section analysis for proposed § 1041. The following section discusses the costs of the new recordkeeping requirements on small entities that originate covered short-term loans and those originating covered longer-term loans. Costs to Small Entities Originating Covered Short-Term Loans The data retention requirement in the proposed rule may result in costs to small entities. The Bureau believes that not all small lenders currently maintain data in an electronic tabular format. To comply with the proposed record retention provisions, therefore, lenders originating covered short-term loans may be required to reconfigure existing document production and retention systems.
In doing so easy loan online payday, Australia would be joining the ranks of most developed economies in the Western world payday loan software, which do not permit the selling of high-cost short term loans short loan payday. Further arguments are set out below: An interest rate cap would have a targeted, measurable impact and carries little risk Properly crafted, the application of a national 48% interest rate cap need have no impact on the broader consumer credit market as the vast majority of the market operates at interest rates well below 48%. A cap would only affect a handful of fringe credit products and would primarily impact on high-cost short term lending - which is the purpose for its implementation. Although a cap would clearly distort the market for high-cost short term credit, it is apparent the market does not operate efficiently in any event and does not exhibit healthy price competition. It is notable that in the various jurisdictions in which interest rate caps have been introduced, both in Australia and elsewhere, there has not been a single case of popular support for its removal. Administrative ease and opportunity The implementation of phase two of the national credit reforms provides a unique opportunity to implement a national interest rate cap at a time of significant administrative change, lending administrative efficiency to the process. The only effective approach Industry advocates are likely to support some form of regulation for the high cost short term lending industry, but will resist the implementation of a national interest rate cap. Industry suggestions for regulation are likely to centre on the promotion of responsible lending requirements. The dynamics of the industry, which is driven by the financial distress of borrowers, means responsible lending provisions will have little to no impact. Further, attempts to mitigate the harm of high-cost short term lending by imposing cooling off periods, implementing extended payment plans, capping maximum loan amounts and limiting the number of loans, amongst others, have all been shown to be ineffective across various American jurisdictions. In Australia and elsewhere, high-cost short term lenders have exhibited a significant capacity to avoid or evade regulation designed to prevent high-cost short term lending. This is best illustrated by the need for recent enforcement action in Queensland and the need to close the „brokerage fee‟ loophole in New South Wales. If high-cost short term loans are an inherently harmful product, then they should be more than regulated - they should be prohibited. A comprehensive interest rate cap is the only proven mechanism to achieve that prohibition. This prohibition already exists across much of the eastern seaboard of the country and should be extended to form a uniform, national, comprehensive interest rate cap. Conclusion This report attempts to provide a comprehensive overview of the high-cost short term lending industry in Australia. The recent trend in America has been towards comprehensive interest rate caps, implemented as a direct response to harm caused by the industry. The American example also shows that alternative legislative approaches have been unsuccessful. In both Australia and America, lenders have been consistently creative in their attempts to avoid regulation designed to limit harmful payday lending. Only a comprehensive interest rate cap has been proven to have the desired effect. On that basis, this report takes a clear position in favour of a national interest rate cap as a positive and necessary consumer protection measure to shield consumers from harmful high-cost short term lending. High-cost short term lending is a form of „sub-prime‟ lending - it is the extension of credit to those who cannot afford to borrow. This creates the inherently unsustainable dynamic of increasing the cost of living for those who are already struggling to meet that cost. In the case of high-cost short term loans, any risk to the lender is mitigated by the repayment structure of the product. The risk of default is shifted from the lender to the borrower, so when loan repayments cause further financial stress, the borrower borrows again - and so commences the cycle of repeat borrowing. That this does not impact on the lender does not mean it is sustainable, or safe, for the borrower. High-cost short term lending creates the perverse situation where those with the least resources pay the highest price for credit. The collective drain, when applied to hundreds of thousands of consumers, can have a broad negative impact and prevents consumers from becoming stable, economically productive participants in the mainstream economy. It should be made clear that an interest rate cap will not solve the problem of financial hardship, nor is it intended to. A cap will merely act to prevent a particularly poor – and illusory – „solution‟ to that problem. A more genuine solution to the problem of financial hardship is likely to depend on a range of measures; from better income support for vulnerable consumers, to the provision of assistance in reducing debt, to the means to build assets – amongst many, many others. At some point, lenders should be prevented from extending credit to those who cannot afford to pay. If they are not, then the provision of credit becomes counter-productive and causes harm to the borrower. It is up to every society to decide for itself the point at which acceptable credit ends, and usury begins. In the meantime, the only certainty is that for as long as usury is permitted, desperate borrowers will continue to borrow – and lenders will continue to lend. Most Australians would be surprised, if not shocked, to hear that thousands of their compatriots regularly borrow money at interest rates that equate to 400% 1 per annum or more. They may be further surprised to discover such borrowers are often on very low incomes and generally use the money to pay for recurrent basic living expenses, such as food and electricity.
In addition payday loan debts, as discussed above credited com payday loan, the Bureau believes that there are meaningful advantages to providing flexibility both for consumers who a direct lender payday loan, in fact, have capacity to repay one or more covered short-term loans but cannot easily provide the income documentation required in proposed § 1041. In light of these considerations, the Bureau believes that it is appropriate to allow lenders flexibility to 400 src="http://www. Consistent with the recommendations of the Small Business Review Panel Report, the Bureau seeks comment on the cost to small entities of obtaining information about consumer borrowing history and on potential ways to reduce the operational burden of obtaining this information. The Bureau also seeks comment on not requiring lenders to verify a consumer’s income when making a covered short-term loan under § 1041. In particular, the Bureau seeks comment on whether lenders should be required to verify a consumer’s income when making a covered short-term loan under proposed § 1041. Furthermore, these proposed requirements would limit the harm to consumers in the event they are unable to repay the initial loan as scheduled. B, the Bureau believes that most lenders already have some processes in place to verify that applicants are not so lacking in income that they will default on a first loan. Proposed comment 7(b)(1)-1 cross-references the definition and commentary regarding loan sequences. Proposed comment 7(b)(1)-2 clarifies that the principal amount limitations apply regardless of whether the loans are made by the same lender, an affiliate, or unaffiliated lenders. Proposed comment 7(b)(1)-3 notes that the principal amount limitations under proposed § 1041. Proposed comment 7(b)(1)-4 gives an example of a loan sequence in which the principal amount is stepped down in thirds. The Bureau believes that the principal cap and principal reduction requirements under proposed § 1041. Absent protections, these consumers would be in the position of having to reborrow or default on the loan or fail to meet other major financial obligations or basic living expenses as the loan comes due—that is, the same position faced by consumers in the market today. As discussed in Market Concerns—Short-Term Loans, the Bureau has found that when that occurs, consumers generally reborrow for the same amount as the prior loan, rather than pay off a portion of the loan amount on the previous loan and reduce their debt burden. As a result, consumers may face a similar situation when the next loan comes due, except that they have fallen further into debt. The Bureau has found that this lack of principal reduction, or “self-amortization,” over the course of a loan sequence is correlated with 602 higher rates of reborrowing and default. The proposed requirements together would ensure that a consumer may not receive more than three consecutive covered short-term loans under proposed § 1041. Without the principal reduction requirements, consumers could reborrow twice and face difficulty in repaying the third loan in the loan sequence, similar to the difficulty that they had faced when the first loan was due. The Bureau believes that the proposed $500 limit for the first loan is appropriate in light of current State regulatory limits and would reduce the risks that unaffordable payments cause consumers to reborrow, fail to meet other major financial obligations or basic living expenses, or default during a loan sequence. B above, many State statutes authorizing 603 payday loans impose caps on the loan amount, with $500 being a common limit. In States that have lower limits on loan amounts, these lower limits would prevail. In addition, empirical 604 research has found that average loan sizes are well under this threshold. A loan with a principal amount of $1,000, for example, would be much harder for consumers to pay off in a single payment, and even with the stepdown features of § 1041. In contrast, on a loan with a principal amount of $500 (the largest permissible amount under proposed § 1041. For consumers who are turning to covered short-term loans because they are already struggling to meet their major financial 603 E. See Pew Charitable Trusts, Payday Lending in America: Policy Solutions at 53 (2013), available at http://www. The proposed principal reduction requirements are consistent with the guidance of a Federal prudential regulator and ordinances adopted by a number of municipalities across the country. For closed-end products, 606 loans should be structured to provide for affordable and amortizing payments. A number of cities in Texas, including Dallas, El Paso, Houston, 608 and San Antonio, have also adopted similar principal stepdown requirements. The Bureau also has given extensive consideration to proposing an “off-ramp” for consumers struggling to repay a covered short-term loan, in lieu of the principal reduction 609 structure. The Bureau identified this approach as an alternative in its Small Business Review Panel Outline. Under this approach, lenders would be required to provide a no-cost extension of the third loan in a sequence (the off-ramp) if a consumer is unable to repay the loan according to its terms. As specifically proposed in the Outline, the third loan would be repaid over an 605 See Market Concerns—Short-Term Loans. As discussed above in Market Concerns—Short-Term Loans and in the Small Business Review Panel Outline, similar extended payment plans are required to be offered in some States and are a feature of some industry trade association best practices.
The Bureau is concerned that a lender might be able to use such a “bridging” arrangement to evade the requirements of proposed §§ 1041 list all payday loan companies. To prevent evasions of this type internet loan payday, the Bureau is therefore proposing that the days on which a consumer has a non-covered bridge loan outstanding must not be considered in determining whether 30 days had elapsed between covered loans payday loan and payday advance. Many lenders offer both loans that would be covered and pawn loans; thus, the Bureau believes that pawn loans are the type of non-covered loan that most likely could be used to bridge covered short-term loans or covered longer-term balloon-payment loans. The Bureau believes that loans with terms of longer than 90 days are less likely to be used as a bridge between covered short- term loans or covered longer-term balloon-payment loans. The Bureau solicits comment on whether pawn loans can be used as a bridge between covered loans, and further solicits comment on whether other types of loans—including, specifically, balloon-payment loans with terms of longer than 45 days but that do not meet the requirements to be covered longer-term loans under proposed section 1041. For the purposes of defining open-end credit under this part, the term credit, as defined in proposed § 1041. The term open-end credit is used in various parts of the rule where the Bureau is proposing to tailor requirements separately for closed-end and open-end credit in light of their different structures and durations. The Bureau believes that generally defining this term consistently across regulations would reduce the risk of confusion among consumers, industry, and regulators. With regard to the definition of “consumer,” however, the Bureau believes that, for the reasons discussed above, it is more appropriate to incorporate the definition from the Dodd-Frank Act rather than the arguably narrower Regulation Z definition. Similarly, the Bureau believes that it is more appropriate to use the broader definition of “lender” contained in proposed § 2(11) that the Regulation Z definition of “creditor. Under this proposed definition, a loan is an outstanding loan regardless of whether the loan is delinquent or the loan is subject to a repayment plan or other workout arrangement if the other elements of the definition are met. The Bureau believes that if the consumer has not made any payment on the loan for an extended period of time it may be appropriate to stop considering the loan to be outstanding loan for the purposes of proposed §§ 1041. Because outstanding loans are counted as major financial obligations for purposes of underwriting and because treating a loan as outstanding would trigger certain restrictions on further borrowing by the consumer under the proposed rule, the Bureau has attempted to balance several considerations in crafting the proposed definition. One is whether it would be appropriate for very stale and effectively inactive debt to prevent the consumer from accessing credit, even if so much time has passed that it seems relatively unlikely that the new loan is a direct consequence of the unaffordability of the previous loan. Another is how to define very stale and effectively inactive debt for purposes of any cut-off, and to account for the risk that 158 collections might later be revived or that lenders would intentionally exploit a cut-off in an attempt to encourage new borrowing by consumers. The Bureau notes that this would generally align with the policy of the Federal Financial Institutions Examination Council, which generally requires depository institutions to charge-off open-end credit at 180 days of delinquency. Although that policy also requires that closed-end loans be charged off after 120 days, the Bureau believes that a uniform 180-day rule for both closed- and open-end loans may be more appropriate given the underlying policy considerations discussed above as well as for simplicity. Proposed comment 2(15)-2 would clarify that a loan ceases to be an outstanding loan as of the earliest of the date the consumer repays the loan in full, the date the consumer is released from the legal obligation to repay, the date the loan is otherwise legally discharged, or the date that is 180 days following the last payment that the consumer has made on the loan. Additionally, proposed comment 2(15)-2 would explain that any payment the consumer makes restarts the 180 period, regardless of whether the payment is a scheduled payment or in a scheduled amount. Proposed comment 2(15)-2 would further clarify that once a loan is no longer an outstanding loan, subsequent events cannot make the loan an outstanding loan. The Bureau is proposing this one-way valve to ease compliance burden on lenders and to reduce the risk of consumer confusion. The Bureau solicits comment on whether 180 days is the most appropriate period of time or whether a shorter or longer time period should be used. The Bureau solicits comment on whether a loan should be considered an outstanding loan if it has in fact been charged off by the lender prior to 180 days of delinquency. The Bureau solicits comment on whether a loan should be considered an outstanding loan if there has been activity on a loan more than 180 days after 159 the consumer has made a payment, such as a collections lawsuit brought by the lender or a third- party. The Bureau also solicits comment on whether a loan should be considered an outstanding loan if there has been activity on the loan with the previous 180 days regardless of whether the consumer has made a payment on the loan within the previous 180 days. The Bureau further solicits comment on whether any additional guidance on this definition is needed. This definition is similar to the definition of prepayment penalty in Regulation Z § 1026. The Bureau believes that this broad definition of prepayment penalty is necessary to capture all situations in which a lender may attempt to penalize a consumer for repaying a loan more quickly than a lender would prefer. As proposed comment 2(16)-1 explains, whether a charge is a prepayment penalty depends on the circumstances around the assessment of the charge. The Bureau solicits comment on whether this definition is appropriate in the context of this proposed part and whether any additional guidance on the definition is needed. In general, the Dodd-Frank Act defines service provider as any person that provides a material service to a covered person in connection with the offering or provision of a consumer financial product or service. In these transactions, one entity will fund the loan, while a separate entity, often called a credit access business or a credit services organization, will interact directly with, and obtain a fee or fees from, the consumer. This separate entity will often service the loan and guarantee the loan’s performance to the party funding the loan. In the context of covered longer-term loans, the credit access business or credit services organization, and not the party funding the loan, will in many cases obtain the leveraged payment mechanism or vehicle security. In these cases, the credit access business or credit services organization is performing the responsibilities normally performed by a party funding the loan in jurisdictions where this particular business arrangement is not used. Despite the formal division of functions between the nominal lender and the credit access business, the loans produced by such arrangement are functionally the same as those covered loans issued by a single entity and appear to present the same set of consumer protection concerns. Accordingly, the Bureau believes it is appropriate to bring loans made under these arrangements within the scope of coverage of this part.
9 of 10 - Review by I. Kayor
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