Birmingham, AL: Field Hearing on Payday Lending


For those of you that are visiting Birmingham
for this hearing, welcome and feel free to spend all of your money in our great city.
I’m sure the council members who are present and our mayor would be very excited if you
did. We have wonderful civil rights landmarks to visit and enjoy. As you know, the Dodd-Frank Wall Street reform
and Consumer Protection Act of 2010 created the Consumer Financial Protection Bureau,
a new agency designed for the sole purpose of protecting all of us, the consumers. This
agency has been charged with the responsibility of preventing fraud, deception, and unfair
business practices in the marketplace. It has seven divisions that are responsible for
carrying out these objectives. This agency is led by the very able director,
Richard Cordray, who was recently appointed, a few weeks ago, by President Obama, and as
many of you know, there is an ongoing debate about the timing of his appointment, but as
all of you know, the issues about consumer protection really require our immediate attention,
and we can no longer wait. [Applause.] We will leave it up to the lawyers and to
the courts to resolve that issue. President Obama and all of us are very excited about
Richard Cordray’s appointment, and I know that under his leadership, this bureau will
get down to the business of protecting all of us consumers. As our country continues to recover from this
economic crisis, we must not only provide incentives for businesses to create jobs,
but we must also provide protections for consumers that they serve. This cannot and should not
be an either-or proposition. But before I introduce Director Cordray, I would like to
introduce a very dear friend of mine, Attorney Joyce Vance, who is a U.S. Attorney for the
Northern District of Alabama. Attorney Vance is a top-ranking federal law enforcement official
in the Northern District of Alabama, and was one of the first five U.S. Attorneys nominated
by President Obama. Confirmed on August 7th, Attorney Vance serves
31 counties and more than 4 million people, approximately 60 percent of the Alabama population.
Attorney Vance has made it a priority to fight financial fraud, public corruption, terrorism,
environmental crime, child exploitation, violent crime, narcotics, and has a very impressive
record in returning funds to the public through asset forfeiture. I am very honored to have my friend on this
dais with me, to also welcome our bureau director and to welcome all of you. Attorney Joyce
Vance. [Applause.] I always have to adjust this down. I’m shorter
than the rest of the world. Good morning. I think it’s exciting to see so many people
here, interested in having an open exchange of ideas and learning information about a
topic that is new to many of us. As U.S. Attorney, one of my most important jobs is to ensure
that we have an important dialog on issues that affect all of us, and I’m eager to hear
the information that’s about to be put in front of us. As United States Attorney, finance sector
issues are one of my highest priorities, and my office works every day with agencies like
the FBI, the Federal Reserve, the Secret Service, TARP, and the FBI, to assure that we are appropriately
engaged and alert to issues that impact on citizens in this district, so that we can
enforce federal law. Those agencies do an important job and an impressive job of dealing
with problems that we can identify, but as we all know, the laws that exist were insufficient
to prevent the financial meltdown. Partially in response to that situation, Congress passed
legislation that created the CFPB, and we are eager to begin working them. We have seen, in this district, numerous instances
of financial fraud. We have prosecuted credit card fraud. We have dealt with identity theft.
We have seen an incredible increase in mortgage fraud issues. These issues involve individuals,
both inside and outside of the lending industry, and for some time now, we have begun to hear
these concerns about payday lenders. We’ve heard much expression of interest in exploring
the issue, so I am, as I said, eager to hear the information we’re about to hear today,
and I am extremely delighted that we have Rich Cordray here with us, that he has come
to Birmingham so that we can begin to have this educational opportunity. Some of the folks here today, and perhaps
many of the people who live in this district, may not yet fully understand the role that
Congress created the Consumer Finance Protection Bureau to play. Some understand the dangers
that exist in unregulated and under-regulated financial industries, but I think not all
people are aware of the large number of folks who live in this district, who are vulnerable
to financial fraud and to predatory lending practices. According to 2009 FDIC survey results, more
than 11.5 percent of all Alabama households did not have a checking account, or any sort
of savings account, and more than 20 percent of all Alabama households have had to turn
to a payday lender, a check cashing outlet, a pawn shop, or other sort of refund anticipation
product to make ends meet, at one point or another. These numbers make Alabama the sixth
most unbanked state in the nation, and Birmingham, for cities of its size, is the fifth most
unbanked city in the country. Our need to explore these issues here is very great. We understand that many alternative lending
resources and the businesses involved are good corporate citizens, but we do have concerns
about fraudulent or predatory practices. The lack of regulation and oversight in this industry
creates an opportunity for those who are unscrupulous to take advantage of those who are the most
vulnerable, and my job is to protect all of the citizens, including those who are vulnerable,
from problems. So I’m looking forward to the opportunity to hear both from impacted citizens,
but also from the industry, about where they believe there are problems and what they think
the solutions might be. We have people living in rural parts of Alabama
where services are hard to find. We have military populations who we have learned are vulnerable
in many of these situations. I welcome Director Cordray to Alabama. I hope that he will help
us find good solutions to the problems we identify here today, and I look forward to
working with many of you in the future, to ensure we take appropriate steps to protect
everyone in this community. Thank you. [Applause.] As all of you know, we’re here today to begin
the examination of payday lending industry. Given these challenging economic times, many
of my constituents in the 7th Congressional District, and families across this country,
rely upon payday loan industry to satisfy many of their everyday needs for short-term
cash. However, there are some bad actors in this industry, that operate outside the law,
and these actions are unacceptable, the predatory practices. These actions must quickly be addressed
by the Consumer Financial Protection Bureau. Ultimately, this industry must do a better
job of educating and providing more transparency about the products and services that they
offer. I applaud the state of Alabama and the city
of Birmingham for working hard to implement laws and regulations to protect consumers
from bad actors. It is my hope that the bureau will create and implement a balanced approach
to its regulations on these non-bank service providers, while punishing the bad actors
that only seek to take advantage of consumers. At this time, I’d like to introduce the Director
of this bureau, Director Richard Cordray. Richard Cordray was appointed by President
Obama on January 4th to lead the United States Consumer Financial Protection Bureau. The
Director has a long history of effectively protecting consumers. He most recently served
as the Attorney General of Ohio, and served as a treasurer of the state of Ohio. He served
as a member of the Ohio House of Representatives, and was Ohio’s first state solicitor. As the
Director of the Consumer Financial Protection Bureau, he will be an effective and strong
advocate for interests of consumers, and will work to make sure that families and communities
and consumers all around have the necessary tools to make the best possible choices. I found a little-known fact that some of you
might find quite interesting, about our new director. He was a Marshall Scholar at Oxford
University. He was Editor-in-Chief of the University of Chicago Law Review, and subsequently
served as law clerk for Supreme Court Justice Anthony Kennedy. Richard also was a 1987,
undefeated, five-time Jeopardy champion. He knows a little bit about financial literacy
as well as financial games and gamesmanship. Listen, I could not be more proud of the fact
that the bureau chose to come to Birmingham, Alabama for its first field hearing, and it
is with immense pride that I welcome to the state of Alabama and to the city of Birmingham
the Director, Richard Cordray. [Applause.] You never can escape your past. Thank you,
Congresswoman Sewell. I also want to recognize some of the other officials here. I know there
are many and I will miss a number of them, but we’re pleased to have staff from Congressman
Bachus’s office here today, as well, and we are pleased to have and to be joined by my
friend, your federal prosecutor for this part of Alabama, Joyce Vance. I also want to recognize the Alabama Superintendent
of Banks who is here with us today, John Harrison; the Alabama Director of the Securities Commission,
Joe Borg, whom I met a few moments ago; Steven Hoyt, the President Pro Tem of the Birmingham
City Council; and I know there are others that I’m glossing over. What I want to say
is, what we find, as we go around the country and it’s very important for us to get out
of Washington and hear from people first-hand, on all sides of these issues that there is
deep interest we find among federal, state, and local officials of all backgrounds, of
all experiences, in the issues that affect every one of the people in our community,
consumers, and there is a deep concern and desire to work with us to find the right approach
to these issues, so that we can improve the lives of the American people. That’s what
we’re all about, and that’s why we’re here today. We are in Birmingham, as was mentioned, to
hold the Consumer Bureau’s very first field hearing on any issue, and today’s field hearing
deals with the subject of payday lending. Many of the other events of the day for us
are being held at the Civil Rights Institute, so it’s fitting to refer to Dr. Martin Luther
King, Jr., who once said, “The dignity of the individual will flourish when the decisions
concerning his life are in his own hands, when he has the means to seek self-improvement.”
At the Consumer Financial Protection Bureau, we deeply believe in empowering people so
they can make informed financial decisions and take responsibility for those decisions. Before we open this hearing, I’ll take a few
minutes to discuss the payday lending market and our role in overseeing it. Let me stress,
again, that this is a field hearing. We came here to listen, to learn, and to gather information
on the ground that will help inform our approach to these issues. We’re thinking hard about
these issues, and we do not have all the answers worked out, by any means. Let me describe the subject for today. Payday
loans are short-term, high-cost loans, made in exchange for a commitment to repayment
from the person’s next paycheck. According to reports from the industry, about 19 million
American households are currently choosing to borrow money through payday loans. Payday
lending, as we know it, has grown rapidly since the 1990s. Today, payday loans are readily
available online, and in many areas in storefronts, even in strip malls. Some traditional banks
are now offering a similar product called a deposit advance, or by similar rubric. Payday loan storefronts are scattered throughout
the country, in some places more than others. Alabama has one of the highest concentrations
of payday lenders in the United States. There’s been such a growth of payday lenders in Birmingham
that your city council, last month, passed a 6-month moratorium on any new payday lenders
setting up in the city. We knew that in coming here we would hear a robust debate on both
sides of this issue. So, just who is using payday loans? From what
we’ve seen so far, families who take out a payday loan tend to have less income, fewer
assets, and lower net worth than the average family. Surveys indicate that payday borrowers
are disproportionally people of color. People often are responding to an emergency that
requires quick access to cash. It appears that a significant share of payday borrowers
do not have savings or a credit card, and many like the payday option because it is
relatively anonymous, quick, and easy. A borrower can have the money in half an hour, and other
family members may not have to find out about the loan. Whatever their reasons may be for taking out
a payday loan, Americans are now borrowing billions of dollars this way. Lenders collect
over $7 billion in fees alone, annually. In a pinch, getting the cash you need can seem
worth it at any cost. Maybe you would never dream of paying an annual percentage rate
of 400 percent on a credit card or any other type of loan, but you might do it for a payday
loan. When you’re desperate, the terms of the loan seem to matter a lot less. You need
the money. You need it now. Rightly or wrongly, people faced with tough situations often think
these payday loans are their only options. It matters on this issue that we all look
to develop a more vibrant, competitive market for small consumer loans. At the bureau, we now have the authority to
examine non-bank payday lenders of all types and sizes, as well as large banks that offer
deposit advance products. We’ve already begun examining the banks, and we’ll be paying close
attention to these products at the banks that offer them. This month, we have launched our
examination program for non-bank financial firms, as well. Today we’re releasing our short-term, small-dollar
lending procedures, which is the field guide for our examiners across the country, who
will be visiting both banks and payday lenders to see, first-hand, how they conduct business.
Our examination authority is an important tool that will allow us to inspect their books,
ask tough questions, and work with them to fix any problems we uncover. This includes
looking at the materials and strategies that are used to market the loans. Before this
month, the Federal Government did not examine payday lenders. Some state regulators have
been supervising payday lenders for compliance with their state laws. We hope to use our
combined resources as effectively as possible. Now, the bureau will be giving payday lenders
much more attention. This is an important new area for us, as we see it, and the purpose
of this field hearing and the purpose of all our research and analysis and outreach on
these issues is to help us figure out how to determine the right approach to protect
consumers, and ensure they have access to a small-loan market that is fair, transparent,
and competitive. At the bureau, we hear from consumers all
across the country. One person from Michigan told us of having to use payday loans several
times, and wanting them to remain available because alternatives did not exist. So I want
to be clear about one thing. We recognize that there is a need and a demand in this
country for emergency credit. At the same time, it’s important that these products actually
help consumers and not harm them. A lack of supervision prior to this, at the
federal level, means there’s a lot we do not know about some of the inherent risks associated
with payday products. Through forums like this, and through our supervision program,
we will systematically gather data to get a complete picture of the payday market and
its impact on consumers. This assessment will allow us to better choose among the tools
we have available at the bureau, to balance the needs of consumers with the risks they
face. For example, we hear a lot about repeated long-term use of payday loans. We plan to
dig deep on this topic to understand what consumers know when they take out a loan,
and how they’re affected by long-term use of these products. For borrowers who are already
living paycheck-to-paycheck, it may be difficult to repay the loan and still have enough money
to pay other bills. Trouble strikes when they cannot pay back the money. That 2-week loan
rolls over and over, and turns into a loan that the consumer has been carrying for months
and months. Soon, they’re living off money borrowed at a rate of 400 percent. One consumer wrote a tell-your-story on our
website about borrowing $500 to pay for car repairs. In 9 months, $900 has now been paid
out, $312 more to go. The payday lender takes the money directly from the consumer’s checking
account and not enough is left to pay other bills. In addition to the things we need to learn
more about, we know that some payday lenders are engaged in practices that present immediate
risks to consumers and are clearly illegal. While we need to learn more about the prevalence
of this conduct, and what allows it to fester, where we find these practices we will take
immediate steps to eliminate them. One example is unauthorized debits on a person’s checking
account. These can occur when, unbeknownst to them, the consumer is dealing with several
businesses hidden behind the payday loan. When consumers are shopping online for a payday
loan, the person advertising the loan may not be the same person as the lender, and
may simply be gathering and selling the customer’s information. The highest bidder may be a legitimate
lender, but it could also be a fraudster that has enough of the consumer’s sensitive financial
information to make unauthorized withdrawals from their bank account. Another example is aggressive debt-collection
tactics involving payday loans, either by the lenders themselves or by debt collectors
acting on their behalf. These can include posing, as we’ve heard, as federal authorities,
threatening borrowers with criminal prosecution, trying to garnish wages improperly, and harassing
the borrower as well as their families, friends, and coworkers. These illegal practices are
outrageous. We want to root them out where we find them, and we want to work with responsible
parties in the industry to prevent them from spreading. Let me say to all of you that it is a privilege
for us to visit Birmingham, where so many people endured police dogs and fire hoses
in their pursuit of freedom. The fundamental principles of dignity and equality that powered
the civil rights movement also animate our work at the bureau. Dr. King showed the whole
world how determination and imagination and perseverance and service of a great cause
could move not only the course of institutions but the trajectory of an entire society. The work of the bureau is more modest. It
is not designed to redeem fundamental constitutional principles of American life, but we are here
to make sure that fundamental fairness for all consumers is assured when they need to
borrow money, and we can do that. Working with you, we can find and expose the hidden
risks. We can make sure that people are able to pursue their hopes and dreams by working
with responsible businesses to make informed financial decisions. In this field hearing, please share your thoughts
and experiences with us. If we don’t get to you today, orally, share them with us in writing.
Tell us what works and what does not. Tell us how we can do our small part to achieve
Dr. King’s vision of an America where we all have a chance to achieve our deepest aspirations.
Thank you very much. [Applause.] Good afternoon. I’m Raj Date. I’m the Directory
Director of the CFPB. As we move to the next phase of our hearing here, could I be joined
by our first panel and by the CFPB staff serving with me on the first panel? Okay, again, I’m Raj Date, and it’s very much
my pleasure to be able to chair this component of our hearing. Thank you all for being here.
I had not seen the room from this vantage point before, and I am very pleased that you’ve
made the time. And thank you, also, to our panelists, both for this first panel and for
the second panel. Before we get started, I’m going to run through
the format of how we’re going to move forward from right now. Our first panel, which consists
of civil rights and consumer advocates from Alabama, will provide testimony for about
3 minutes each, and then we’ll take questions from the CFPB staff at this table. Then we’ll
turn to a panel of industry representatives, which will follow the same format. Following both of those panels, Director Cordray
will come back up, and he will moderate the audience testimony component of the hearing.
Those wishing to provide comment during this portion should have signed their names at
the registration desk, and we will obviously make every effort to hear from everyone. I
think it is a mortal lock that we will not get to all of the comments, given the size
of the expo, so I’m just going to go ahead and guess that. However, over the course of
the next several days, we will put the transcript of this proceeding on our website, which is
consuemrfinance.gov, and when we do that, we’ll also enable folks to be able to provide
written comments and testimony at that time. If, in fact, we don’t get to everyone, I apologize
and want to make sure that there’s a way for us to hear from you. With that, why don’t I first introduce the
CFPB staff. Immediately to my right is Patrice Ficklin. Patrice is the Assistant Director
for the Office of Fair Lending and Equal Opportunity at the CFPB. To Patrice’s right is Gail Hillebrand. Gail
is the Associate Director for Consumer Engagement and Education, which includes, of course,
among other things, the important task of financial education, which is part of our
mandate. To my left is Peggy Twohig. Peggy leads our
non-depository supervision team. She serves as an Assistant Director for the CFPB. I will now turn to our first panel. Moving
from left to right, Shay Farley, who is the Legal Director at Alabama Appleseedl Marcella
Roberts, the CEO of Building Alabama Reinvestment; Stephen Stetson, who is the Policy Analyst
from Alabama Arise; and finally, on the end, Shirley Worthington, Vice President for Community
Initiatives at United Way of Central Alabama. Thank you all for being here, and why don’t
we begin with you, Ms. Farley. Sure. Just reiterating, thank you for recognizing
the urgency of the situation here in Alabama. We appreciate your visit. Very briefly, my
job is to give you the first course and fifth course, so I will start with a brief overview
of the Alabama law as it exists, and where we got, very briefly. Alabama’s first consumer
protection statute came in 1959 with the Small Loan Act. The legislative findings in this
law, there were many, about seven or eight, but I’ll summarize them in two: (1) the importance
of lending to high-risk, low-income borrowers; and (2) the interest of the state to protect
exploitations of said borrowers. Then came a special carve-out, almost a governmental
regulation, if you will, of payday loans, specifically. Is the called the Deferred Presentment
Services Act. There are four biggest fallacies, as I see them. (1) There’s no reporting requirements
of this industry. (2) There’s no centralized database; therefore, there’s no concrete data
and incomplete oversight of our superintendent of banks, and I’ll get to that in a second.
(3) There’s no private right of action that did exist in the Small Loan Act, as do the
other pieces in the Small Loan Act. (4) There are no steep penalties for compliance, again,
as there was in the Small Loan Act, or is. It’s important to note that the Small Loan
Act is a 36 percent interest rate, whereas the Deferred Presentment Services Act is 456
percent interest rate. The State Banking Department, while overseeing this, is also responsible
for many things, including the Small Loan Act, title pawns, so their auditors simply
do not have the time to do what is necessary without the centralized database. CRL projections have already been discussed
by the director for us, but just know here, in Alabama, we have approximately 1,069 storefronts,
and 80 of those are present within the city of Birmingham, specifically payday loan licensees.
The trend is towards capping the interest rates or outright banning these. Seventeen
states have acted as such. Again, fifth course, many of the things that
the Director of the CFPB has mentioned in his opening comments will be reiterated, but
just like the IRS instituted a rule that protects consumers from refund anticipation loans,
or RALs, as they are known, colloquially, we ask that there be rules developed by the
bureau. A few things. As has already been said, they
are charged with looking at unfair, deceptive, abusive practices. I believe, as we’ll get
to in a minute, that these practices fall into those three categories. We can classify
them as such, and outright ban them. We’re not allowed to cap the interest rate, but
going from that, equalizing the playing fields. We know that traditional lending institutions
are already engaging in these products. To equalize the playing field, we will regulate
without regard to who is initiating these loans. Disclosures that mirror what we’ve done with
the credit card statements. Strict underwriting terms. There is no looking into the borrower’s
ability to repay. However, we can regulate that at this level. A national database that
CFPB has access to, filtering in these user comments to bolster those reports. Advertising
rules. Financial education, we know is insufficient alone. Steep penalties for noncompliance,
again, nationally. Ban waivers on trials and class actions, including mandatory arbitration.
Set minimum loan terms, so that by expanding the term of indebtedness, you therefore shrink
the APR. Cut off access to banks. Be a counter-voice and testify before Congress, as I know you’re
already doing. Cast the net to expand these military protections
to veterans. Alabama is home to 400,000 veterans that were not encapsulated in the protections
by Congress, the 36 percent rate cap. Stop electronic access. I think the director already
referenced those, online consumer kind of outreach. Adopt a rule much like the FDIC
and the NCUA have already looked at, with encouraging their entities to loan at a moderate
interest rate. That’s my introduction. Thank you. Thank you. Ms. Roberts? Good afternoon. I just want to thank Director
Cordray, the CFPB, and Congresswoman Sewell and others for having us today on this panel.
It’s definitely an honor to be able to share testimony on this topic today. Building Alabama Reinvestment is a statewide
CRA consortium that fosters dialog and partnerships between community and economic development
organizations, and financial services providers. As we partner to promote economic justice,
fair lending, and business development throughout the state, we’re concerned with the impact
of payday lenders on low- to moderate-income families, and neighborhoods that are negatively
impacted. Low- to moderate-income consumers are ones
that typically use payday lenders. However, they’re the ones that are less likely to be
able to afford these loans, so they’re less likely to be able to pay the exorbitant fees
and the high interest rates that are charged by the lenders. Due to unemployment, underemployment,
and other circumstances, many low- to moderate-income families are experiencing major financial
challenges, and they find themselves living paycheck to paycheck. As a result of these
financial challenges, some of these families turn to predatory lenders as a source of cash,
just to make ends meet, to pay household bills from payday to payday. All too often, when
payday rolls around, something else has occurred to prevent that family from being able to
repay the lender. This forces the family to go into another cycle and pay additional exorbitant
fees and high interest rates in exchange for the lender holding the check even longer,
possibly another two weeks, and thus, this never-ending cycle of poverty and perpetual
debt keeps families in bondage. If families are struggling and living paycheck
to paycheck, advancing a payday loan basically sets up an unrealistic expectation that things
will be better once payday arrives and money is going to magically appear and be available
to actually repay the loan. So, actually, when that happens, the family finds themselves
further and deeper in debt. A greater concern is now present for all of
us. If families are unable to repay the loan, what tactics might be used by the predatory
lender to actually collect on the loan? We’ve seen predatory lenders using scare tactics
and intimidation to force families to repay loans that they originally could not afford.
Families begin to fall further and further behind on their loan, which creates more stress,
depression, and desperation to get out of this situation. I personally witnessed a family, just afraid
and living in fear, because of messages and tactics that were imposed upon them by a lender.
These activities continue to lead families on the downward spiral to poverty and lack.
If families are faced with choosing whether they’re going to eat or whether to repay the
lender, because there’s not enough money to do both, we must intervene at this time to
help save those families from financial abuse, bankruptcy, and foreclosure. We all deserve
to live lifestyles where we have healthy money management and financial freedom. As Building Alabama works with its partners
around the state, it is definitely evident that communities are negatively impacted by
payday lenders. Payday lenders appear to be located primarily in low- to moderate-income
communities, or within a 10-mile radius of those low to moderate census tracts. Are low-
to moderate-income families, being wrongfully targeted by payday lenders because of the
locations? When speaking with consumers living in some of these neighborhoods where payday
lenders are located, families are concerned that their property values will decline, and
their neighborhoods will no longer be desired by growing families because of the negative
stigma of predatory lenders. Although a lender in itself is not harmful,
some low- to moderate-income families feel payday lenders bring a certain image to the
community that may not lend itself to the positive growth of that communities. If families
believe that payday and other predatory lenders bring a negative stigma, then those beliefs
could also hinder progressive business owners that desire to expand and provide positive
services in that community. If other business owners view payday lenders negatively, also,
this image can discourage positive economic growth in that community, and this image can
also lead to economic blight and contribute to abandoned buildings and foreclosed homes
in a neighborhood. So, how do we overcome these things? I believe
that education is the key, when it comes to protecting our families from predatory lenders.
Families must be educated on finances, the importance of banking relationships, budgeting,
debt elimination, savings, and more to break the cycle of abusive practices being used
on families that lack knowledge about finances. I do believe families use the knowledge that
they have and do the best that they can with what they know. So how do we stand up and
do the best that we can to educate and protect families so that they are equipped with the
knowledge and tools to make informed financial decisions when faced with a crisis? Building Alabama Reinvestment is definitely
proud to see the city of Birmingham stand up and take a stand against predatory lending.
I was also confident that we were moving in the right direction when I saw one of our
lenders announce a very favorable small-loan program. While these things are not perfect
in itself, they’re definitely moving us in the right direction, as we work to help families
and help them to balance their lives, and not live a downward cycle of debt. With that, I just want to, again, thank the
CFPB, and also Director Cordray for having this panel today. Thank you. Thank you. Mr. Stetson. I also just want to echo the thanks to the
bureau for coming to Alabama, and thank everybody who’s here. It’s really exciting to see people
engage with the process. That’s very heartening. We are a statewide membership organization,
and we work against poverty. As such, we hear a lot from grassroots folks about the effects
of poverty, and I’m talking about anxiety, family stress, the catastrophe that comes
from either medical bills and these unexpected expenses, and that’s big stuff like car repairs,
or little stuff like your baby has to go on a field trip and you don’t have the extra
money. We hear a lot about it, and one of the things I think that’s interesting about
this conversation that we’re having is that both sides of the debate claim to be representing
the best interest of those folks. The devil, as they say, is in the details. I also just want to acknowledge there are
a lot of folks who aren’t here today, not just because we reached the limit of the room,
but they’re out working their jobs, so they can repay the debts that they have, and, as
an unacknowledged thing, there’s a lot of stigma about the fact that people haven’t
maybe made all the right choices with their finances, and if they’ve taken out some payday
loans, there is stigma about that, and a shame associated with it. So we should acknowledge
there may be some unspoken concern about these products that people have to get comfortable
enough to admit that they’ve taken out some payday loans and gotten in underwater. I just want to say that I appreciate the comments
that have already been made about Alabama’s situation. Basically, state law allows lenders
to charge an extraordinary interest rate, one that we do not see in our fellow SEC states
like Arkansas, Georgia, North Carolina not SEC, but Southern, good pro-business, Southern
states have made these products illegal. I just wanted to acknowledge that they have
not seen any sort of catastrophic effects by getting rid of these folks. I just want to make a couple of brief points
here. I appreciate the comments already been made. I want to give an example. One thing
that the bureau is looking for is what the consumer expectations are when they go in
and they take out a payday loan. It’s very difficult to know, not only because of what
I just said, about the stigma and people not wanting to talk about the experience of getting
a payday loan, but there’s not a whole lot of useful data that we advocates can use in
zeroing in on the nature of the problem. But when people get up and they say that they
have successfully used payday loans, and it was helpful to them, I just want to remind
you that there are a lot of things that people claim that they have got totally under control
that are not necessarily good for you, and that ranges from the people who say that they
are excellent drunk drivers to the story of the people who say, “Well, my grandpa smoked
cigarettes, three packs a day, and died at age 95 with the lungs of a newborn.” Those stories may be true. People may use
payday loans, and they pay it off, and they bought their Christmas presents, and suddenly
they’re out from under it, but that is not the norm, and that is not what we see, because
people get churned back through the system, as has already been said, six, eight, ten
payday loans a year, taking out another one to pay off the one they just had, and that
is not the kind of situation that we, as an anti-poverty group, want to see people using
their money to build assets and get out of poverty. Payday loans, even if the industry
is correct that they’re an emergency Band-Aid, those are not the kinds of things that communities
need to help build wealth in communities. They’re not the kinds of assets that people
need to emerge from poverty. I just want to say two last things, and I’ll
pass it on to Shirley. One is about alternatives. I just encourage everybody to look at what
has happened in a lot of these states, where they do not have payday loans. You do not
see former payday loan customers going and burning down the statehouse because they’re
so upset that they no longer have access to payday loans. They have found other alternatives.
They borrow from friends. They borrow from family. They understand that there’s no longer
a safety net for them at the end of the month, so they can’t go get a pocketful of money
to pay off those bills. They start planning a little more. But even if it’s true that some people may
want to still get a payday loan and they may cross the state line to get one, and, as has
been said, they may get one off the Internet that’s not a reason not to make them illegal
in Alabama. Just because there are loopholes in a law is not a reason that the law shouldn’t
exist. It’s a reason why those loopholes should also be closed. I just want to close with one point. I think
we all agree that we all have experienced what it’s like to be in a storm. I just came
back from New Orleans for a football game you may have heard about, but I was also on
my way to New Orleans right when Katrina hit, and if you all would just think in your minds
for a minute about what it’s like when a storm hits, and the disaster of what it’s like when
people are desperate and in need we have laws preventing you from charging $8 a gallon for
gas and $30 for a bottle of water. We have anti-gouging laws, and there’s a reason: because
it’s not right to take advantage of people when the stakes are down. Similarly, every day is like a hurricane for
somebody who’s living on the financial edge, and if we have laws against gouging for gas
and water, we ought to have laws against gouging for loans. [Applause.] Thank you. Ms. Worthington? Yes. I’d like to first say that I saw the
bureau and the appointment of Rich Cordray as the director, and I went, okay, it’s a
real thing, but now that it has become an acronym, I know it’s real, because the Feds
only deal with acronyms in their name. So now I’m convinced that this is a reality,
and I’m thrilled. I would like to have the audacity, at this
moment, to say I disagree a little bit with Director Cordray when he said that what this
bureau is doing is really not constitutional in its basis. I think that’s wrong because
when you go back to the development of our Constitution and the arguments that went back
and forth in the Federalist Papers, one of the key elements that both the federalists
and the states rights groups had was, we need checks and balances. We have got to have those
in place, to make sure that any faction does not exceed its role and authority, and impinges
on the rights and livelihood of other people. This is where I think we are looking, and
what we are looking to this bureau to help us do, is identify where the checks and balances
are not in place. I know a lot of this is going to be legislative
and regulatory, and I will leave that to attorneys like Stephen and Shay, and the Honorable Judge
Vance, but my sense of this, and my concern with this, is more on the ground, is more
looking at community, is more looking at the people who are affected and how we can begin,
as community, to make sure there are enough safety nets and resources and assistance and
information to help people get out of the trap they might be in, or avoid getting into
it in the first place. Alabama, we know we have a high poverty rate.
Poverty brings predatory practices. That’s inevitable. We see it every time we have a
natural disaster, and we happen to be sort of on the hurricane list and the tornado list.
So every time we have a natural disaster, we see predatory practices coming in, and
even though some of them are illegal, there are still others that occur. And what happens
to a state with a large percentage of low- to moderate-income people is that when we
have to encounter either a major natural disaster, like a hurricane or a tornado, or a medical
bill, or a car breakdown, or that sort of thing, we feel like the whole safety net has
been taken out from under us, and we don’t know where to go. We all know we’re in an economic recession.
The recession is affecting each and every one of us. I understand that. It’s also affecting
the community support systems. They are being depleted as much as our own bank accounts
are being depleted, and because of that, there is not as much available where people who
have questions, who may think there might be a better way to pay this bill or restructure
their debts or do something where do they go? The resources are dwindling by the day. One of the things that the United Way of Central
Alabama has done and we’ve been working on this for about 6 or 7 years is we have formed
what we call the United Way Financial Stability Partnership of Alabama. Our mission is financial
stability for all Alabamians. Now, that sounds weird coming from the United Way, because
we are seen as the group that looks at health and human service issues. But, you know what?
Financial stability underpins all of those health and human service needs, and resources,
and gives people the ability to be able to provide for themselves, to provide for their
families. So I guess I would like to encourage the panel
and all of us, as we think about this, there is not a silver bullet. When they leave, they’re
not going to go back to Washington and it’s all going to be better. There may be some
things that will improve, and some legislation or regulations that can be put in place. I
applaud the forensic audit. I think that’s absolutely essential for us to really know
the parameters of the problem. But, there is also a responsibility for all of us in
community, to help figure out how we can continue to support one another and find ways to provide
assistance, to provide resources, to provide help to individuals, so they do not have to
lose everything that they have worked for, and put their family through that type of
dismay. Thank you for all of your comments and for
the diversity, the breadth, and the passion that you have for these issues. As evidence
of the diversity, breadth, and passion that you have for these issues, I will note that
we are grotesquely off-schedule. That said, I would appreciate it if Patrice and Gail
could just spend a couple of minutes with any follow-up questions for the panel. Absolutely. Thank you, Raj. I wanted to throw
out the first question to Ms. Roberts, and I wanted to focus on impact, the economic
and family impact of payday or deposit advance products. You spoke rather eloquently about
that impact, particularly with regard to low-income families. But I wanted to delve a little bit
deeper and also invite other panelists to weight in after Ms. Roberts does, if they
would like to. I wanted to ask you, does the impact vary by the type of consumer? In other
words, who is helped and who is harmed by deposit advance and payday products, thinking
also about the relationship between fixed-income and these small-dollar, short-term products?
And also, does the answer vary, depending on whether or not the product is provided
by a storefront or a bank versus online? I think the impact on families, especially
in low- to moderate-income families, I think the impact is significant in that for a person
that may be a little more educated than that person is probably less likely to use a payday
lender or a predatory lender. So, when you talk about the impact on the communities,
the economic impact, there is definitely that stigma there for the community and for the
consumer when there is a payday lender in the community, and also a person that is using
it. So there is definitely a negative impact for many families. Now, in terms of the fixed-income families,
I think the impact is even more severe, because people can argue that everybody is fixed if
there is a set amount of pay coming in. But for many elderly people, they’re experiencing
similar challenges, where they are living on fixed income of Social Security, SSI, and
things of that nature, but they find themselves going to the payday lender as a source of
quick cash to remedy a situation, and you find that they, too, find themselves in a
never-ending cycle that they’re not able to get out of. For many of them, it’s very easy
for them to go to a predatory lender because it’s very accessible, it’s available, a lot
of them, 24 hours. You can get to them at any time and it’s available. So because of that, people use it. They may
not have to do a whole lot to actually take advantage of the product. So, yes, you do
see them being impacted in a negative way, more often than people that are educated,
and it impacts the neighborhood, it impacts the economic development, because those people,
too, are more likely to be the ones caught in that debt trap, and have to lose their
homes because they can’t pay, or you find them filing bankruptcy. So those are the types
of things that you are seeing happen. We really just have a minute or two left for
this panel. Gail? Thank you. I’d like to address my question,
particularly to the two panelists who spoke a bit about alternatives, Mr. Stetson and
Ms. Farley. The question is, for people who are in payday loan status, what do you think
would be valuable offramp to complete and come out of this type of debt, and for those
who are not currently in it, are there alternatives that you think are available and need to be
marketed and encouraged, or are there alternatives that you think need to be encourages and are
not yet available? So offramps and alternatives, please. I’ll answer the latter part, which is about
the need for alternatives and whether they exist or not. I just wanted to make two quick
points. One is that it’s important not to focus on the consumer. Although financial
literacy is important, it’s important not to focus on changing the minds of an individual
to not go into the payday loan store. It’s very difficult to compete with 24-hour, bright
lights, free Christmas ham, commercials on TV, and you talking them into a responsible
loan product is going to be extremely difficult, and, a case-by-case basis. So it’s very important
that we focus on political solutions and not on individual solutions. The second point I want to make is, I think
as far as alternatives to payday loans, we should look at the states and the places that
have gotten rid of them, and I think the presumption ought to be flipped. I think the presumption
ought to be, get rid of them and let the alternatives develop, and not have alternatives in place
now that can compete with the bright lights, the neon signs, because it’s very difficult.
It’s difficult to compete when payday loans are easy, and you can walk out of there with
a pocketful of money. So on the alternatives question, I think we should flip the presumption
and get them out and then let the alternatives develop. I’d like to just thank this panel again. It’s
terrific to get the breadth of your experience and your testimony. I know there are a lot
of other voices in the room that I hope to hear from, but I feel like this is a terrific
way to lay a foundation for our work here. So thank you very much. Please join me in
thanking the panel. [Applause.] If we could be joined up here by the second
panel, as the name cards are changed out, that would be appreciated. Well, welcome. Thank you all for being here.
With us in the second panel, moving from, I suppose, left to right are Kim Gardner from
Cash USA; Daryl McMinn, who is the Chief Operating Officer at Listerhill Credit Union; John Owen
from Regions Financial; and Ted Saunders from Community Choice Financial. Ms. Gardner, if we could start with you, with
a brief statement. Absolutely. My name is Kim Gardner and I represent
a small family-owned financial services business. We are also CFSA members, and I represent
the small-member companies on that board of directors. I’ve been in the financial services
business for 16 years, 10 of which have been right here in Alabama. I would like to thank
Director Cordray and the staff of the Consumer Financial Protection Bureau for inviting me
to share some insight into the Alabama payday lending law, and I realize the importance
of this discussion. I’m proud to be a payday lender. Not everyone
can or will turn to a bank when they’re in need of credit. We provide critical access
to short-term credit for millions of American families each year, through affordable, reliable,
and transparent services. Payday loans are simple, they’re clear, and they’re easy to
understand. Let’s face it. Nobody really wants to go and borrow money, but when the urgent
need comes up, before their next payday, our customers know that they can turn to us. As a member of the Community Financial Services
Association of America, an organization seeking to ensure consumer confidence in the payday
advance industry, my company abides by a strong code of best practices. These best practices
offer consumer protections in addition to those required by state and federal law. Measures
include a commitment to full disclosure, truth in advertising, fair collection practices,
and extended repayment plans, which is something that allows the consumer more time to repay
their loan at no additional cost. Our services are effectively regulated at
the state level, under Alabama Deferred Presentment Services Act. Payday loans cannot exceed $500,
and through a state-managed database, lenders verify a borrower’s outstanding loans and
they do not exceed the $500 limit. Fees are capped, and we also have a term of 10 to 31
days. Loans can only be renewed one time. These measures help us to ensure that our
customers can be successful borrowers, and that’s our primary goal. Here in Alabama, approximately 1,100 licensed
lenders serve thousands of consumers. Loan examiners from the state banking department
regularly perform examinations for compliance, and the state collects and manages the consumer
complaints. In addition to these comprehensive regulations, lenders also comply with a number
of federal regulations, including the Truth in Lending Act and the Military Financial
Services Act, among others. As a lender and a small business owner, I
am committed to operating a viable business, and my employees and I are also dedicated
to our customers and to the communities that we serve. Our success belongs to the consumers
we serve, and without offering strong consumer protections, we would not be sustainable.
As storefront lenders, we are part of the neighborhoods that we serve, and are sensitive
to the needs and the concerns of the consumers. As I have found in our stores, communication
is key. You have to get to know the customer in order to know how to better serve them.
We contribute to the Alabama economy by providing reliable access to credit, but also by hiring
local employees, renting storefronts, doing business right here in the state. The core
of our business is really customer service. We treat our customers with respect and dignity,
and we always keep their best interest in mind. We know customers have options when
it comes to short-term credit, whether it’s a payday loan, a bank, a credit union program,
or maybe a credit card advance. Our job is to make sure they have the information they
need to make the best personal and financial decision for that individual’s situation. As the CFPB and other federal and state regulators
work together to look for the best ways to protect consumers, I urge you to create a
regulatory framework that allows consumers to compare financial services and products
similarly, regardless of their provider. It’s been my experience that customers are
best served when they can quickly and easily compare the different credit options. You
will hear many different perspectives on payday lending today. I would urge you to come see
for yourself. Come to our stores. Have a visit. Meet our employees and meet our customers.
We’ll be glad to share the information with you. You can listen to their stories and then
maybe you’ll get a better understand of actually how the product works, and how Main Street
America uses that product. I look forward to continuing to working with
the bureau and others to strike the appropriate balance between the regulation and reliable
access to a wide variety of financial services, including payday loans. I am confident the
bureau will come to see payday lending as I do, a valuable and legitimate service offering
consumers a needed short-term credit option with meaningful consumer protections, that
provides outstanding customer service. [Applause.] Thank you. Mr. McMinn? Good afternoon. My name is Daryl McMinn. I’m
the Vice President of Operations at Listerhill Credit Union, located in Muscle Shoals, Alabama.
Thank you for inviting me to be a part of this hearing on behalf of credit unions. Listerhill
Credit Union was formed in 1952, when seven employees of Reynolds Metals Company came
together with $5 each, to form a member-owned, member-focused financial institution. From
the original membership of seven men with $35, focused solely on the financial well-being
of our members, we have grown to serve over 63,000 members in Northwest Alabama. Listerhill Credit Union was born of necessity.
One of the major driving factors behind its formation was that working people, at the
time, could lose their jobs if wages were garnished by lenders. Unfortunately, many
good financially illiterate men at Reynolds Metals lost their jobs because of this. Our
credit union was created as an alternative to this serious problem. While being fired
over debt may no longer be a fear for too many people, today it does continue to be
a serious danger associated with some lending practices. Listerhill Credit Union remains true to our
roots. We continue to work every day to fulfill the vision and mission of our seven founding
members. Regardless of our size, we remain not-for-profit financial cooperative that
is owned and governed by our members and exists solely to serve our members. This includes
serving members in these small, short-term loans. Unfortunately, too many of our members were
utilizing loans from payday lenders. A few years ago, our board chairman, who is one
of our founding members, saw the same potential for harm as he saw many years before. Again,
we made a decision to provide an alternative. Listerhill Credit Union offers our members
a loan called Better Choice. The Better Choice loans offer short-term loans with 18 percent
APR. These loans are between $250 or $500, with 30-day repayment, and we work with each
borrower to provide flexible payment options. Under our current program, a borrower with
a $500 loan would repay $507.40. Compare this to a payday lender in Alabama that might charge
17.5 percent of the face value of the loan. That same borrower would have to pay back
$587.50. We do not allow these loans to roll over, as this can trap people in the ever-increasing
cycle of debt. We also realize that simply making loans does
not completely fulfill our mission. Too many borrowers we work with lack necessarily financial
literacy. Listerhill Credit Union offers free financial literacy programs along with our
Better Choice loans, including a free financial aid education program to help people learn
more about how to take control of their finances and avoid the need for short-term loans of
any kind. Our members who have taken advantage of these free education services give us rave
reviews about the benefits they receive. Please understand that Listerhill Credit Union
offers a Better Choice loan program solely as a way to help our members avoid pitfalls
associated with some payday lenders. This is not a moneymaker for us. At best, we break
even. However, it is an important way for us to continue our mission of financial services
to fulfill the need of people who need more options. It is important that we, as a credit
union, fulfill our mission of being not-for-profit, Thank you, Mr. McMinn. put out a voice to the customer effort, so
we could make sure we understood how we stacked up in terms of customer service. To do that,
we went out and hired Gallup, several years ago, and we asked Gallup to go out and talk
to our customers, and find out what we do well, what we don’t do well, and also talk
to customers about what products and services they think we should offer. Gallup reaches out to ten customers per branch
every month, and we’ve been doing that for years, so every month Gallup calls almost
ten customers for all of our 1,700 branches, every month, to get feedback. We correlate
that feedback and see how we compare to other financial industries, and we’re very happy
to say that we’ve moved from being in the middle of the pack in customer service several
years ago, to now we’re in the top 20 percent, as measured by Gallup, in terms of customer
service. One of the side benefits of that, other than
great service, it’s great for business, and it’s the right thing to do, one of the benefits
we get is we collect customer input, and the customers got back to us and said, “We need
you to offer some products and services that you’re not offering today.” Two of those products
we launched last year, one in May, and one in July of last year. Ready Advance is up
to a $500 loan. You have to be a customer with Regions for at least 9 months. You have
to be enrolled in online banking, and you have to be a customer in good financial standing.
If you meet those criteria, we offer that loan to our online banking customers that
qualify, and they could access that loan from the safety and convenience of their home,
any time they want to. The second product we launched, in July, is
a suite of products we call Now Banking, and Now Banking is made up of a prepaid Visa-branded
card. It’s the ability for Regions to cash any check for any existing customer, and any
new customer that wants to come in and enroll with us, and when I say any check, I’m talking
any check type at all two-party personal check, government payroll. We don’t care. We’ll cash
any check. The third component is the ability to do expedited bill payment. You can pay
over 4,000 billers, same day, with our service, and lastly is the ability to transfer money
to over 200 countries around the world, money in minutes, same day or next day. So that’s
what Now Banking is. How we got those products, that’s something
our customers asked us for. When we got that feedback, we sent out a survey to several
thousand of our customers and said, “If we launch this, will you use it?” We had 30 percent
of our customers respond back that only will we use it, but we use it today just with other
institutions, because you at Regions don’t offer it. So we felt very good about launching
it, because we had 30 percent of our existing customers say, “We need these services and
you don’t offer them.” So we launched them last year. We’ve got about 75,000 customers
who have already signed up for our Ready Advance product, and we have several thousand customers
that have enrolled in Now Banking. Our Now Banking suite, about half of the usage were
existing Regions customers, and about half the customers are new customers to the bank,
which we value very much. One of the things we look at with these products,
we view these as an onramp to get customers to other banking products that they need to
fulfill their life’s needs. So if you need checking or savings or money markets or educational
help with financials, we offer education, as well. So this is kind of our onramp to
get more people into the banking system. We’ve pushed a lot of education to these new customers.
We offer free online classes to a large number of customers, and it’s been very helpful.
Also, we think we can bring great customer service to this group, and we welcome them
into the bank. For those of you that bank with Regions, thank you. If you don’t, I wish
you would. [Laughter.] Thank you, Mr. Owen. Mr. Saunders. [Applause.] Wow. It’s great to be with you all today,
although I call Columbus, Ohio home. You can tell by my accent that I’m a little bit closer
to Alabama by my roots. Representative Sewell, Attorney Vance, Director Cordray, members
of the CFPB panel, I’m honored to be here. My name is Ted Saunders. I’m the CEO of Community
Choice Financial. We’re a multi-state provider of retail financial services in 14 states
across the country, where I can say that we proudly serve millions of Americans each year.
I serve them with over 2,000 customer service representatives. Our company operates more
than 20 financial service centers here in Alabama, and we serve hundreds of thousands
of Alabamans each year. Today, I’m on the panel courtesy of what I
believe to be one of the finest trade associations in the country, FSCA, or the Financial Service
Centers of America. It’s a national trade association representing more than 6,000 member
locations around the United States. At the core of FSCA was really the development of
regulatory compliance to met the strict guidelines imposed by, and on its members by state and
federal regulators, long before the creation of the CFPB. The second core value of FSCA
was to prescribe and demand a code of conduct for behavior, which we are all mandated to
follow. I have prepared remarks, and I’ll submit them
for the record, but what I’d like to do let’s get to the heart of the matter, because I
am proud of my employees. We are in the neighborhoods. I hire people in the neighborhoods to serve
the people who live there, to try to meet their needs, and to work with them through
life. Listening to some of the things I hear today, it hurts because it makes me feel as
though people would believe that my thousands of employees go to work every day to take
advantage of their neighbors. That’s not what this business is about. As the gentleman from Regions just said, this
is a customer service business. If we got up every day looking into how we might hurt
people, the door wouldn’t be open very long. The reality is, in America today, there’s
much more than just a payday loan customer. These are Americans. This is Middle America
trying to figure out how to run their life. Payday loan is one product amidst many other
products that they may choose to use. For example, in Alabama, I think I hold four
or five state licenses I have to check my fingerprint when I leave today 60 million
Americans rely on these services, 60 million in some form or fashion. They’re ordinary,
they’re known to all of us. You work with them. You probably go to church with them.
This is not a picture of a customer who is unable to make good adult decisions. Is any
financial service or product perfect? No. Do we have a crystal ball where we can predict
whether or not, if we make a loan to an individual, they’re going to be able to repay it? No.
What we can do is everything in our power to serve our customers to the best of our
ability and deal with the unfortunate circumstances when they come. I was in our stores in Alabama over the last
couple of days, because I wanted to hear from the people, because that’s what this is about.
This is about the consumers. Respectfully, it’s
not about the regulator or the provider. It’s
about the customer. The first gentleman I spoke with got out of a 5- or 6-year-old SUV,
was walking up to one of our windows, he borrowed $500. I said, “Sir, may I ask what you’re
using the loan for today,” because my customer service rep had already helped him some, and
I’m asking a second set of questions. He said, “Sure. I’ve got two daughters, both of them
in college. There’s a bad thing about that. One of them is at Auburn and both my wife
and I went to Alabama.” He told me he had a bankruptcy when the economy
hit the skids, but he told me, very proudly, in fact, that he’s back on his feet, he’s
working, his family is coming up from what was a landslide of financial problems, from
a whole fact of his life. But he told me he got good service in our stores, he appreciated
my service, and that every dollar he could scrape together, he was sending it to help
those two daughters prosper. That’s my customer. My customer is not uninformed, my customer
is not unintelligent, and I respectfully disagree that closing me down and letting the alternatives
flourish would be a good solution. If that were the case, maybe health care should’ve
been shutting down the hospitals and let’s see if the doctors can figure it out. [Applause.] I would respectfully also disagree that this
is an unregulated industry in the licensed context. I can personally tell you, on the
record, I’ve been called to the state of Alabama by its provincial regulator to answer for
times we made mistakes. It’s not the only state and we’re not perfect. We did over 11
million transactions last year. We’re going to make mistakes, but we do our best to do
the right thing, and when our state regulators call, I respond to them. They are there, they
are real, and they do care about the consumers in their states. I would also note that at the federal level,
we’ve been subject to federal regulation since the beginning of this industry. You may be
familiar with the Federal Trade Commission, which some of its powers, I believe, were
recently transferred to the bureau, but unfair and deceptive trade practices have been at
the core of the regulatory framework, which I’ve lived under, since the day I stepped
into this business. There is a laundry list of others, but that’s
not what’s important today. What’s really important today is how can industry work with
the CFPB. We need to share this dialog. This is important. We need to hear from the customers,
the providers, the people on the other side of the debate. This is what makes America
great. But at the end of the day, we have to distill it down to, as you aptly pointed
out, the data. Attorney Vance, in her opening comments, said that this should be an open,
sharing process. We are going after fraud. Fraud takes many forms and names, and there
are bad actors in any industry. But Attorney Vance also pointed out something very important.
We’re going after the illegal people. So how do we do that? I would respectfully
submit, and it’s been said today by members of the panels and by the CFPB, we start with
the state regulators. We’ve got a comprehensive framework for hearing customer complaints,
understanding what the problems are. They collect them and they’re not bashful about
calling us to resolve them. That exists. Let’s use it as a good tool. We need to look at all products and make sure
that we’re judging things equally. You hear a lot about rates and disclosure. I would
put forth that my customers look at life in a pretty straightforward way. I need to get
from here to here, and I need a certain amount of money to do it, and I can afford a certain
cost to have the use of that money. It’s dollars and cents. And I would have to point out that,
I went on Listerhill Credit Union and reviewed the product, and it looks like a really good
product. But we didn’t talk about the fact that there’s a $50 fee to open the account.
We didn’t talk about the fact there’s also a way to have an overdraft protection line
of credit to help you cover your NSS and your checking account. We need to lay all this stuff out. We need
to make it transparent for customers. It’s not about the payday loan product. It’s about
what does a customer see? What does an American see when they’re making their financial choices?
I follow all the rules. I give people a lot of paper. Let’s simplify it. Let’s help people
make good choices. But let’s recognize that our customers have the abilities to make those
great choices. Let’s be mindful of the law of unintended
consequences. As one of the panelists pointed out, short-term lending on a state-regulated
basis has existed in this country since the ’50s. It’s been around a long, long time.
We have a market. It’s not perfect, but it’s here to serve consumers. I would put forth
that consumers would never walk through our doors if all of these wonderful, less-expensive
alternatives existed. Think about it for a minute. Use a little common sense. Why would
a customer walk in our door if we are the worst choice? Food for thought. There are good actors and there are bad actors
in every business. Again, I’ll say it on the record we’re not perfect. We try. I invest
heavily in compliance. We have systems. We have people. We try to follow state and federal
law at every turn. There is an element in this discussion which you’ve got to recognize.
There are unregulated, offshore participants in the lending business. They’re unlicensed.
I’ve talked to customers in this state, during my visit, who have had experiences where they’ve
borrowed money from people who are not subject to state law. They operate much like the gaming
industry used to operate, from offshore domiciles, and they do business as they please in this
country. They do business in New York. Mr. Saunders, I want to be respectful of everyone’s
time in this session, so if would just wrap up. Yes, sir. I’m very passionate, too. I apologize.
So let’s focus on the bad actors. Let’s give the state regulators the help they need to
go after the people that they can’t touch. In closing, we understand it’s important to
make good decisions. It’s the beginning of what I think will be a long process, hopefully
a dialog, and I really appreciate you having me on your panel, sir. [Applause.] Thank you. We do have a few minutes for follow-up
with the second panel, and I’ll ask Peggy to lead things off. Thank you so much for your remarks. We want
to take our brief time here today to understand a couple of different aspects of your small-dollar
loan products. If you could just briefly address, to start with the start, in terms of the lifecycle
of the loan, how do you market your loans? Do you use Internet? TV? Radio? Do you use
lead brokers? Do you market only to your customers for the depositories? If you could briefly
address that, that would be very helpful for us to know more about. We actually use radio. We use some TV, depending
on the market, and it’s word of mouth by our customers who are so satisfied with the product
that they tell someone else that they know that may need money, maybe in a situation.
That’s basically how we operate. I don’t do anything on the Internet or advertising on
that broad of a scope. With being a small business owner, it’s not cost-effective for
me. So, like any other small business owner would do, your basics of TV, radio, word of
mouth advertising. Thank you. If we could just go down the panel,
that would be great. We, essentially, just have it on our website,
as far as the products we offer, and it
is word of mouth. People that use payday loans know other people who use payday loans, and
we are located on our main road in Muscle Shoals, where other payday lenders are, and
we’re just known that way. Membership in our credit union is $25 to become a member. You
have to be a member of our credit union for 60 days to take advantage of the product,
so you can’t just go in, plop down $25, and enroll in the program. But after that, there
is a $50 annual participation fee for the program, but out of that $50 you could borrow
12 times, and, like I said, you’re paying 18 percent interest annually, so you’re talking
about a much, much cheaper. We’re not in the profit end of this. We do
understand and agree that there are people who are hesitant to come in and speak to a
loan officer, or think that they have that ability to come in and do that, and since
they’re employees of Listerhill, sometimes we do say, “Hey, why don’t you look at this
other avenue?” So it’s sort of a luxury that we have more to offer this mainstream lending. Thank you for that information. Mr. Owen? Sure. For most of our loan products, we do
advertise. We have commercials. We have billboards. We have radio and advertisement for mortgages,
home equity lines, auto loans. Those we advertise. Ready Advance, which we just launched on May
1st of last year, we have not advertised at all. The only way a customer would know that
they qualify is when they log into their online banking session, they would see that they
are now eligible for that loan, and that’s the only way the customer would know for our
Ready Advance Product. Thank you. Mr. Saunders? The number one way to do business in neighborhoods
is by word of mouth, I guess, above all else, and we do participate in various forms of
traditional advertising. We do not purchase leads from any form of generation outfit online. Thank you. If I might, maybe I could just come back to
an issue that got raised in the first panel, and actually, a number of times in this panel,
as well, which is the notion of repeat usage. It goes by lots of different terms. This is
a business that sometimes doesn’t have the same sort of degree of public data availability
as some others, but because old habits die hard for me, I did spend some quality time
with Mr. Saunders, with your S-1 yesterday, just to make things a little bit granular. If I understand it, for the first 6 months
of last year so that’s 2011 you did something like 1.5 million payday transactions, not
in Alabama but broadly across the footprint. I haven’t spent any quality time on this one
lately, so I’ll trust you. The question is, if there were 1.5 million
transactions for a 6-month period, across your firm, how many unique customers would
that likely be? A couple of things. One, as you know, with
an S-1 on file, I can’t disclose anything competitive, other than what’s enclosed in
the document. I can refer you to each time we’ve tried to
get together and sort this out as an industry, it’s an average of six or seven times a year,
is what a customer would use the product. I think some of the best data available, combined
data that we’ve seen, is some of the regulatory authorities that do collect that data. Like
Florida is good example to put out an annual report, and off the top of my head, I’d have
to say it’s roughly 12 to 20 percent of the customers use a product once in a year, and
that the average was, again, around six or seven a year. And then in terms of customers that ultimately
default, would those customers, in general, have been more frequent or less frequent users
of the product, prior? This is anecdotal. Again, I don’t have perfect
information in front of me. As you can see in the S-1, the percentage of our total loan
volume every year, approximately 3 to 4 percent of loans are not repaid. That�s roughly
how it works, percentage of principal. My opinion and I would tell you my business belief,
without the numbers in front of me is actually first-time borrowers are the highest likelihood
of default that we have in the business. Can I ask a question that follows up on sort
of the repeat usage theme, which is, Ms. Gardner you mentioned the limitations on renewals.
What is the distinction between a renewal versus I pay my loan back and then I come
back a few days later, before my next paycheck? How do you think about those two concepts
versus each other? A renewal would allow the customer to pay
just the service fee for using the product for the time that they had it, the 14 days.
A non-renewal would mean that they would bring you the full amount, including the fee, on
their payday, or 14 days, whichever their due date is set up on. We find that customers
use this short-term credit, as Mr. Saunders mentioned earlier, to get from Point A to
Point B, and they look at it as what is the fee going to cost me I’m in this situation;
what’s this going to cost me to get from Point A to Point B? and they make a very educated
decision on whether or not our product is cost-effective for them. So, for anyone on the panel, do you capture,
over time, the number of people who renew versus the people who immediately kind of
just get a new transaction? Actually, state law requirements are very
specific about whether or not the customer has the ability to pay just the fee and extend
the current loan transaction or whether or not they need to pay in full, and each state
mandates that. Here in Alabama, I believe you’re allowed to do one extension for a loan
transaction. Other than that, the customer has to pay the loan off in full. So it depends,
again, back to the patchwork of state regulation, where you’re doing business, as prescribed
to us by those regulators. And, in general, for the pricing on the product,
let’s say, for the sake of argument, Mr. Saunders, that you are a dramatically more credit-worthy
person than, say, me. Would it be the case that you and I would basically get the same
price, irrespective of that? You know, I think today, that would be the
case. Basically, the interesting thing about the way that this industry is regulated, that
being, again, defining the entire short-term loan industry, is the rules are promulgated.
The rates of acceptable fees are put to us, very specifically. I’d say, by and large,
that’s what people charge. I’m a recovering accountant, from a prior life, so I studied
business a little bit. I think, over time, to the extent we could get things to be on
a more comparable basis, like we’re all shooting for, I think you could see competition flourish.
I think you’re going to see that if more and different alternatives are available to the
consumer, that you’re going to force all purveyors of the product to compete. I hope that this
debate can do that, but today, in fairness, literally, we’re given a maximum rate chart
for the state, and that’s more or less what people charge. But, I will tell you, there’s a lot of variability
in there. If a customer walks into our establishment and is talking to our customer service representative,
and says, “I have a $300 problem. It’s 4 days until next payday ,” we’re not going to give
them a 4-day loan. We’re going to give them a 19-day loan, or a 21-day loan. We’re going
to attempt to time the loan with the next time they could reasonably have a chance to
repay it, which differs from other products you get an immediate service charge and then
an immediate repayment allocation with your next paycheck. The variability comes in, and
trying to meet people’s needs within the boundaries that the state regulators allow us to use. I see. So, in general, same pricing construct.
Obviously, there are exceptions. There’s flexibility around terms. But, in general, the same pricing
exists for people who are more credit-worthy, people who are less credit-worthy, and, in
general, the price that is charged is literally the maximum permissible one, under state law? Not in every instance. I would say, by and
large, trying to speak across the entire country, we do business in a couple of different other
states that have other types of longer-term lending statutes, and when we have availability
to create products that are more flexible, of late, one of our products, part of the
application process is sitting down with the customer and looking to see, on the first
and last day of their previous 2 to 3 months of their checking account statement, did they
end with a positive balance? But that’s a larger loan, longer term, and it’s available
to me underneath that state law, and we can price more flexibly. The deferred presentment product was designed
to be very easy to understand, was designed to be very clear and very homogenous, and
that’s one of the things people actually appreciate about it. They know that if a friend or neighbor
says to them, “Hi. I borrowed $200 over at a company that offers payday loans,” they
know when they walk in it’s going to be the rate on the wall, on a 20-inch by 30-inch
poster. There’s no confusion. You don�t have to go up and ask a customer service rep
what you’re going to have to pay. You can walk in and look at all the information on
the wall and never speak to anybody. You can see I’ve got a copy of the chart and
I can give you everything you can see the exact cost of every type and size loan available,
so you can make your decision right there in the lobby, and turn around and leave. So,
if we were to be super-variable with it, I think it would actually defeat one of the
strengths of the product. Can I just close with one question for everyone?
If it is, in fact, the case that, on average, customers in the market use the product six
or seven times, is this a product and again, you need not say anything that is competitively
valuable is this a product that is financially viable, with a single use? Maybe we could
just move left to right. I would honestly have to say that I’ve not
given that a lot of thought. I know how our customers use the product today, and being
a small owner, we don’t track all of the different times of usage and that kind of thing. I would
just have to defer to probably someone else on the panel. I think that, typically, the MSRs, the member
service representatives, if we’re knowingly dealing with somebody that wants this, and
they say this is a one-time thing, and I’ve never been in a place like this in my life,
or give us the cues that this is a one-time event, we’re going to try to put them back
into the credit union, because they’re already members, and they can apply for a consumer
loan with no application fee or anything else. So our first move would be that. I do think that, sadly, just through interviewing
and spending some time in our Better Choice location, they use the product several times.
I can’t say. I don’t know the industry average, whether it’s six or seven. I took it to mean
that when they sign up for a year, they use it for a year, pretty much every 30 days. Thank you. Just in the minute we have left,
Mr. Owen and Mr. Saunders. Just real quick, we launched our product in
May, and the way our product is set up, customers in good standing, have to have a checking
relationship. The price is the same for every customer. It’s the same amount, regardless
of the customer. We do have a cooling off period. If we have a customer that uses the
product for 6 consecutive months, at the maximum they’re entitled to draw, we do push that
customer into a cool-off period. We do offer education when somebody goes to
the cool-off period, on how to better manage your money, how to help with savings, how
to help with really understanding the financials better. We also surveyed all of our Ready
Advance customers, and the good answers from them said, “I like it because the price point
is cheaper than what I’ve been paying in the past,” so they like the price. It’s cheaper
than what they’ve been paying. And they liked the convenience and ease of online. What they
didn’t like is they didn’t like the cool-off period, and, again, that’s the negative feedback
we’ve gotten, is the cool-off period. Honestly, I’ve never run the numbers either.
I haven’t really thought about it. I can tell you, for the customer I met in our lobby this
week, that wouldn’t be a good answer. I think the more important question is, if a consumer
and this just gets to the heart of the issue again if a consumer has borrowed several times
from our company and comes into our CSR, on or before that due date, and walks up to the
window and says, “I can’t pay it back,” the trade association practice, what everybody
in our market is supposed to do is give that person, by our own free will, a payment plan
to break it up into four equal payments with no more fees and interest. We’ve heard a lot of clich�s, they have
an escape valve, an offramp, whatever it is. It doesn’t end well for me. If you go back
to your second question, what’s the best way the customers come in, well, they come in
by word of mouth. So, if a customer walks in and wants to do the right thing with me,
again, right there, at the point where the loan is due, I think that’s the answer. Let’s
encourage people to come in to us, and we, as a trade association, try to encourage that
sort of responsible behavior. Thank you. Thank you to the whole panel for
spending the time with us. [Applause.] We’re going to be joined by Zixta Martinez
and Director Cordray. Hello. I’m Zixta Martinez. I’m the Assistant
Director of the Office of Community Affairs, and now it’s time to hear from community leaders,
advocates, industry representatives, and residents. It’s an opportunity for the Consumer Financial
Protection Bureau to hear about what’s happening in your neighborhoods, with respect to payday
lending. This is a terrific turnout, but it means that
we’ll have to limit each person’s statement to 2 minutes. You will, however, have an opportunity
to share your views with the CFPB, even if you don’t get to the mic. In the next several
days, the CFPB will publish a Federal Register Notice, to request your comments. Everyone
who attended this hearing and RSVP’d by e-mail will get an e-mail letting you know that the
Federal Register Notice is now available. And even if you didn’t share your e-mail with
us, you can visit our website, consumerfinance.gov, and you can find the Federal Register Notice
on our website. Let me reiterate. This is an incredibly invaluable
opportunity for us to learn about what’s happening in your neighborhoods and communities, and
I want to thank you all for taking the time visit with us. So let’s get started with the
open mic portion of this field hearing, and please pardon my Texas accent if I mispronounce,
inadvertently, anyone’s name. Can we get started with Councilwoman Scales? Thank you. Thank you, Director Cordray, all
of the panelists, and I know if you all don’t mind to oblige me, I’m going to try to stick
within my two minutes. But, I, too, like that gentleman, I’m very passionate about this
issue. So let’s talk about a couple of things. I like the fact that you talked about Martin
Luther King, this being the civil rights era and movement, where it all began, but that’s
what brings me here, to be a voice for the voiceless. Number one, when you talk about you’re employing
individuals out of the community, well, I have a different take on that. Obviously,
there’s a level of comfortability with someone who apparently looks like me, they talk like
me, and they live in the community that I live in. But I ask the payday lenders, do
you live in our community, and the answer is no. The other thing that I want to share with
you we’ve given this to your assistant when we talk about the demographics of the city
of Birmingham, the reason why this moratorium was very important is because right now we
have 93 in the city of Birmingham. That means that outside of the McDonald’s, the Wendy’s,
any other good, family-owned product, this is what is taking control of our community,
and, most of all, our city. So this is the very reason why, when we talk about economic
development, since I chair economic development, when you’re talking about the Publix that
want to come to the city of Birmingham, all of these high-end restaurants that we know
that our people can afford, they don’t want to come here, because they’ve done a financial
feasibility study, and the poverty level of our community, according to statistics, is
the very reason why they’re not here. Moving forward, I wrote down a couple of things
that I’d like the bureau to look at, as well. One is to place a more strict regulation in
the interest rate applied to these payday loans. Obviously, the City of Birmingham can’t
do it. To some extent, the state can’t, but, more importantly, the Federal Government.
The other thing is to work with Alabama State Legislature, so that they can give us home
rules. The City of Birmingham doesn’t have home rule, and that deals with zoning, about
the penetration, saturation of all of these different businesses, in one location. For
example, if you go to any part of the inner city of Birmingham, you probably may have
four or five payday loans within one shopping center. They don’t even have to compete with
one another because the demand is so great. The other thing is about the banking institution.
I’d like to see the Federal Government force these banks to have to become more flexible
in their lending practices, so that we can teach our people about credit worthiness,
and so that they can be able to go to the bank, but they don’t have to have a 700 credit
score. The other thing is, talking about the Community
Reinvestment Act. We like to see these banks, like the fine Regions bank gentleman, we’d
like to see them abide by that. It was revised in 1995, and we’d like to see it done and
put into practice right here in the city limits of Birmingham. Thank you, Councilwoman Scales. Thank you, ma’am. Representative Oliver Robinson. Please raise
your hand if you are here. Thank you very much, Director Cordray. I’ve
been a member of the Alabama Legislature since 1998. I was part of that group that passed
the restrictions on payday lenders in 2003. But let me say this. The thing that I want
people to understand is that the people that live in my district don’t have an alternative.
They don’t have other places to go to get financing that they need to go from week to
week, or 2 to 3 weeks at a time. That’s why I say and I stand with you all today, to have
this dialog between this industry and the consumers and the Federal Government, because
unless we have that dialog, then my constituents will still be in a position to where they
need every single day. I also want to say that the Alabama Legislative
Black Caucus, for the last 10 years, have worked and talked to larger financial institutions
about creating these products for our consumers, and in doing that, you can see that some of
that is occurring now. But I just don’t want we need to sit down and have this dialog.
We need to talk about what’s the best practices for both sides. That’s what’s going to make
it work, not all of these buzzwords that we [Applause.] collaboration of nonprofits, financial institutions,
both banks and credit unions, some government agencies, individuals that have come together
to empower the low-wealth individuals in Alabama, to make and hope that we can help raise self-sufficiency. What we did is to have a survey, where we
went around the state and asked, because we really believe, from a policy perspective,
we need more asset building policies here in Alabama. So we asked them, “What should
the Alabama Legislature do, in terms of asset building policies? Which are the policies
that you would like to have?” The survey was 300 individuals from around the state, from
the top of the state to the bottom, and the number one response, overwhelmingly, was payday
lending legislation, that there was a need for that. We believe that the payday lending model is
really a bad lending model as it exists today. It needs some improvement, to do some things
to help our people. People are having problems all over the state. We hear this. Those that
are representing the payday lending industry, you see all these people that are in here?
They’re hurting, and we need to fix it, and what we want you to do is to help us fix it.
If you don’t fix it, then maybe you guys can fix it. Thank you. Thank you, Mr. Milner. Reverend Marcus Singleton,
please? LaDonna Banks? Hello. My name is LaDonna Banks, and I’m here
on behalf of actually needing a payday loan at one time, and when the gentleman said it
has a lot to do with education or lack of, that’s not true. My situation was an emergency
situation. I had a brother on life support that was very sick and needed a kidney, and
preparing and pre-planning was not an option. Donating my kidney was, and that’s what I
did. I donated a kidney to my brother, and in the process of waiting for my short-term
disability to kick in, I had a bridge of 2-1/2 weeks that I had to get money to keep from
having $210 in bank fees. I borrowed the money, I paid the money back in 2 weeks. It was perfectly
fine, and it was a need and a necessity for I hope that you and your brother are in good
health. Tanzy Bonner. My name is Tanzy Bonner and I’m a resident
of Birmingham, and I used the payday loan industry, as well, for my 6-year-old’s birthday
party. I couldn’t tell her that my hour had been cut at work and that Mommy couldn’t give
her a birthday party, and that’s where the payday loan came in for me. I paid it back
in 2 weeks, and I understood the fees, so I was prepared to pay it back on my next payday.
Thank you. [Applause.] Thank you. Steven Hoyt? Let me say good evening and thank you, Director
Cordray. We really appreciate you being here, and Congresswoman Sewell and Attorney General.
I don’t think I could’ve said it any better than what Councilwoman Scales has said, but
I do want you to know that this is fleecing by any other name. It’s fleecing. When folks
have to struggle to pay their prescriptions, going to get a loan, you’re fleecing our seniors,
and I think they’re the ones who are most affected by this process. I’m glad you’re
here today, because I work for an agency where They are already struggling to pay for their
housing, their standard and quality of life, that are in the industry that they let off
today, so I’m not alarmed about the applause that some get. But I want you to know that
it’s something we have to deal with, and we must deal with, and there ought to be some
alternatives, and I’m glad that you’re going to be regulating these folks, because that’s
what needs to happen. Property value goes down. I know I’ve got
at least 20 or more in my district, that I represent, some 23,000 people, and I tell
you, enough is enough. Leigh Osborn? uneducated. I have a bachelor’s in divinity
from Stanford University. I made a conscious jobs, going to another one, and I got stuck
in that 3-week rut before you get your new paycheck. Well, the bills don’t care. You
know, if you’re in that rut, you need your money, you pay it, and it’s a lot cheaper
for me to go and get a payday loan than three So I went in. I was fully educated. On the
wall, everything was disclosed to me. It was explained to me very easily, I mean, at a
low level, so I could understand it. Anybody could understand it. Nobody drug me in there.
Nobody signed the papers for me. I made a conscious decision about my financial future.
I went and I paid it off. It was a great experience. Thank you, Ms. Osborn. Tangie Thomas? a payday loan once before, and it was because
of a family emergency. Yes, I did have the What I did was I actually called first. I
called them and asked them what information
1:54:47.960,1193:02:47.295
so I didn’t have any other way to come up
with this extra money for this family emergency. would I need, and they provided me with that
information, very kindly, and it was the accurate information. I went in, and, actually, they
explained those fees to me, and the fees that I accrued from the payday loan were actually
cheaper than me getting a cash advance on my credit card, so it actually benefitted
me, and I was really glad that it was there, an option available for me. And I would like
to know that in the future it would be there in the event that I needed it, also. Thank you, Ms. Thomas. Quinn Callens. For me there’s a difference between making
a profit and making a killing. Payday loan almost killed my sister, my little sister.
She’s 21 years old. She needed money to get books, so she took out a loan. She didn’t
let us know, and about 2 months later she still hadn’t paid it off. In order to pay
that payday loan, she went and got a car title loan, so she put up her car. It was about
$15,000. My mom had died 2 years before. She took about 25 percent of her funds from that
to pay for a car. So she put that car up. She ended up not being able to pay that off.
Three months later entirely during this time, the family doesn’t know about it and she decided,
out of desperation, which caused her to get the first payday loan, to go and steal a check
from the family, and she spent $10,000 in 2 days. A payday loan of $500 ended up costing
my sister a $15,000 car, the $500 there, plus $5,000 that she paid on the loan, that didn’t
go to the principal. I haven’t seen my sister in 2 Christmases,
because there’s so much shame that she has with the family right now, and the struggles
and the trust. So I hear a lot of nice stories right now, but I don’t hear the painful stories
that I see. I’m a community organizer. I meet with about 1,000 people a year. I’m part of
one of the largest national networks in the country. It’s called PICO, Improving Communities
Through Organizing. But we hear the pain that families are going through, and there are
some nice stories, that are beneficial, but there are also some really painful stories,
destroying families, and I’m glad you all are here today. But there are some stories
that aren’t being told today, and they’re [Applause.] Hi. My name is Talitha Warren and I actually
took advantage of two types of payday loans, oh, and I am also a graduate of the University
of Alabama with a human environmental sciences degree. I did the online thing, and I ended
up paying back almost as much as I took out, plus more. I did this because I couldn’t go
to a bank. I have student loans and my credit is not that good. I mean, I’m a working single
mom. I have a child and I have bills, so I 1

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