Tampa, FL – CAB Meeting (PM Session) on 11/02/2017

Welcome back to the afternoon session of the
Consumer Advisory Board meeting. This morning, we heard from a number of Bureau offices about
a lot of the work that goes on behind the scenes to make the financial marketplace safe
for families and communities through education. We learned about two new, exciting reports
that highlight the risks of reverse mortgages and another report which summarizes a consumer
survey on financial wellbeing. We look forward to continuing to follow this work and hope
our earlier feedback was helpful. This afternoon, we will hear from CAB members,
with their views about opportunities and challenges in the debt collection marketplace. Following
that, we’ll hear from Bureau staff about the recently finalized Payday Lending Rule and
then launch into a discussion. During this discussion on the payday rule, we will hear
from CAB members, and then Zixta Martinez will then facilitate us hearing from members
of the public. So, to — to kick us off this afternoon, we
have CAB members Josh Zinner and Ohad Samet. Josh Zinner is the Chief Executive Officer
of the Interfaith Center on Corporate Responsibility, a leading coalition of progressive stakeholders
pressing for corporate accountability and economics, social, and environmental justice.
He was previously the Co-Director of the New Economy Project, an advocacy organization
that works with community groups to promote racial and economic justice in New York City
neighborhoods. Ohad Samet is the Co-Founder and CEO of TrueAccord.
Prior to starting TrueAccord, he served as Chief Risk Officer for Swedish pay-after — after,
um — and — I’m sorry. Earlier in his career, Ohad was Senior Risk Manager for PayPal’s
Risk Organization. So, Josh, we’ll turn it over to you. Thanks.
Great. Thanks, Ann, and thank you to the Bureau for allowing me to present on this topic.
Uh, so, um, my organization — I’m now with the Interfaith Center on Corporate Responsibility.
I’m going to talk today about, uh, debt collection and, uh, especially, uh, third-party debt
collection. Um, and much of the work that, um, I did on this issue was while I was the
Co-Director at New Economy Project, and I just want to give props to my colleague, Susan
Shin, uh, at New Economy Project, who’s done a lot of ground-breaking work on this issue
and has testified before, uh, at CFPB, a field hearing on this issue.
So, uh, there — there’s a few themes here before I get into the details, sort of big
themes. One is that abusive debt-collection practices siphon billions of dollars, uh,
from — from no — uh, uh, in wealth from low-income neighborhoods and communities of
color, um, particularly concerning, uh, coming on the heels of our discussion this morning,
um, and the implications, uh, around the racial wealth, uh, gap, um, and also follows on the
heels, um, and is affecting the same neighborhoods, uh, that were hit by high-cost, predatory,
uh, financial practices. Uh, and — and really, in — in our work at
New Economy Project, we very much saw this problem, uh, not only of — of — of — as
— as an issue that perpetuates economic inequality but also as a fundamental racial justice issue,
and I’ll — we’ll — we’ll get into, uh, that in a — in a minute.
So, uh, what — what I’m going to focus on today is, uh — are — are issues around debt
buyers, third-party debt buyers. Uh, these are large, uh, corporations, many of them
publicly held, um, that buy old, charged-off debts for pennies on the dollar. Um, the — the
— the — a huge bulk of these debts are — are charged-off credit card debts that are purchased
from, uh — from banks. Uh, the — the — the way that they’re purchased
is, uh — and the reason that they’re purchasing these, uh, debts for pennies on the dollar
is, they purchase, literally, spreadsheets, uh, with little more than, uh, a name, uh,
and — and a number, an alleged figure owed, um, and — and very little other information
in — in — in what they call media. Um, and there’s no documentation that’s attached,
uh, in any of these deals. They’re literally just spreadsheets, uh, that are sold.
And, uh, there — there’s a model, a — a very pervasive model, which I’m really going
to focus on, of debt buyers, uh, that are purchasing, uh, these — these spreadsheets
or these debts at pennies on the dollar, with the — uh, with the purpose of suing people
on the debts. Um, and — and this is really a model for generating billions of dollars,
uh, in — in, uh — in revenue. The problem is that in order to file lawsuits,
you need to have documentation and proof, uh, of the debts, and, uh — and — and again,
in these, um — in these debt sales and in these purchase and sale agreements, uh, there
— there’s typically little or no documentation. So, it’s a fundamentally, uh, illegal, uh,
model of collection. Uh, and so what — what we were seeing, sort
of — Uh, just to take one step back, um, what I want to talk about today is not just
the problem but also efforts that we took in, uh, New York City and New York State to
address the issue and — and to try and lay that out as a — as a — as a template, uh,
for possible action, not only, um, by the CFPB but also by other states.
Uh, and the reason that we got into working on this issue is that at New Economy Project,
we ran, um, now for — for well over a decade, a — a hotline for low-income New Yorkers
on, um, financial issues, financial justice issues. We didn’t take calls on mortgages
because many of our colleague organizations did that, and so the bulk of the calls is
on issues around debt collection, credit reporting issues, uh, payday loans, et cetera.
But our hotline was really, um, particularly overwhelmed, um, by these, uh, debt collection
cases, and we were getting them, often, uh, either when people got served with legal papers
or, often, when people’s bank accounts were — were — were frozen, and they couldn’t
get access to funds to pay basic necessities. Uh, and what we were finding is that there
was, sort of, a two-part model, and there was, sort of, two, um, aspects to fraudulent
behavior by these third-party debt — debt buyers.
The first was a practice called sewer service, um, and I’ll get into that a little bit later,
but essentially what was happening is that they were, uh, uh, affirming, uh, to the courts
that they had served people and actually not serving people. So, people routinely weren’t
getting notice of these lawsuits. Uh, and then, under New York law, uh, in order
to obtain a default judgment, uh, in court — in other words, in order to get a judgment
in court, where nobody appears on the other side, where the defendant doesn’t appear,
you have to file what’s called an Affidavit of Merit, and you have to lay out, um, the
— the facts of the case and attest to the fact that you have personal knowledge of the
debt at hand. Uh, and, uh, these — again, these debt buyers,
what was happening is that they were not having any information about the debt, other than
a name and a number from a spreadsheet, and yet, uh, affirming for the courts that they,
uh, had personal knowledge and getting default judgments. And we’re talking about the numbers,
when we really started in on this work, were 300,000 debt collection lawsuits in New York
State every year, the vast majority of them brought by third-party debt buyers.
And, uh, what was happening in obtaining the default judgments is, they would then freeze
people’s bank accounts, which was often the first that people ever heard about this and,
uh, ever realized, uh, that this was an issue, or wages were garnished. Also, it was destroying,
uh, people’s credit and creating real, fundamental problems for people who — who were living
check to check. And I just included a couple of the quotes
here, uh, from the Chief Judge of New York State. Um, fortunately, um, you know, we began
talking, uh, to — the courts in New York State. And once the Chief Judge really latched
onto this issue, he was really upset that, essentially, debt buyers were perpetrating
a fraud on the courts and using the courts to secure billions of dollars in judgments
from low-income people. So, the — the — you know, the judge himself,
in, um — in passing rules that I’ll talk about a little bit later, um, you know, said
just this, that people are getting default judgments for — you know, often, for — for
judgments when, uh — for debts where it’s the wrong amount of money, the debt’s already
been paid, it’s already been discharged, uh, the statute of limitations has expired, um,
and they’re often obtained, even, against the wrong person, uh, and then talked about
the consequences, which I just mentioned, which is really devastating for — for low-income
families. So, we did a study at New Economy Project,
uh, “The Debt Collection Racket in New York,” and there’s a few things I want to highlight
from it just to frame the problem a little bit. Um, there — there were a couple of key
findings. One is that communities of color in New York
State — and we’ve looked statewide — uh, disproportionately bear the brunt of these
debt collection lawsuits, uh, and another key finding was, in a — in a sample that
we did, uh, which — where — where, uh, several hundred, um, cases, uh, randomly selected
from throughout the state, no application by a debt buyer for a default judgment complied
with New York law. Um, and yet, default judgments were granted on 97% of the applications.
One other aspect of the problem that I should mention is that in these cases, only 2% of
the, uh, defendants had counsel. So, in 98% of the cases, uh, defendants, if they came
to court at all, were unrepresented. Uh, and we found, widely — this is anecdotal,
but amongst a broad network of advocates in New City and New York State, we didn’t find
one instance where we challenged one of these cases where the case wasn’t withdrawn. So,
once confronted, once these debt buyers were confronted by the fact that they had no evidence
to substantiate, um, the debt, they didn’t go forward with the lawsuit, uniformly.
So, just to highlight a few things from the report, because I think it’s a really critical
frame for this work — Um, if you look at the — the New York ZIP Codes where there
was the highest concentration of default judgments, it gives you a — a — a sense, uh, that — that
the problem is really focused in, uh — in communities of color, uh, in New York.
And here’s a couple of maps that I’ll just flip through. We — you know, we mapped the
— the default judgments and the, uh, neighborhoods that were 75% non-white, and you see what
it looks like in New York City, and here in — in, uh, Buffalo, and in Rochester, where
Ruhi works, uh, the same pattern, where there’s, overwhelmingly, a concentration of these default
judgments, uh, in communities of color. So, uh, what we did, then, uh — you know,
we were looking at this problem from a few perspectives. We were handling, uh, individual
cases, um, and, uh, we were looking for policy solutions, and we also followed — uh, filed
a class action lawsuit, uh, with, uh — with some colleagues. And, uh, this lawsuit, there
was some — some interesting things that we found.
Essentially, what was happening is that there was a, um, uh, uh — an agreement between
a debt buyer and a, uh — and an attorney, um, and they entered into a joint venture.
And the idea was to buy a bunch of charged-off debt, uh, and then to, um — to — to — for
the attorneys to go and — and aggressively collect.
Uh, and, um, one of the things we found is — you know, we looked at a whole bunch of
purchases to sale agreements, uh, and found that, uh, again, there — there — there was
— you know, at the most, um, they allowed for 5% of the debts to be substantiated. In
other words, they were buying spreadsheets of the debt — um, of debts, with the intent
of suing in the courts, but then having no — virtually no ability to actually prove
any of these cases in court or substantiate where — whether any of the debts were, uh
— were real. Another thing we found is that most of these
debts had been resold time after time after time after time, uh, at — with the documentation,
uh, getting, uh, you know, more and more attenuated, um, and less and less ability to actually
substantiate, uh, the debt. Uh, and, um, we also found that, uh, these
affirmations, uh, that the — that the attorneys were signing attesting to personal knowledge
of the debt, uh, were actually — there was — there was one person in there, signing
350 a week, and he would just look at batches of 50, read one of them, uh, and then, uh,
robo-sign on the rest of them. Um, and so, we — and — and I should say,
the plaintiffs in this case, uh, you know, they were in a variety of circumstances. Um,
uniformly, they — you know, they — there — you know, there was, um, one plaintiff
where there was a identity theft, uh, and they didn’t even, um, uh — they weren’t even
identified with the debt. The others — There was — you know, there was a debt that was
disputed long ago. Um, the — the amount of debts weren’t substantiated. Um, the names
were wrong. We had a whole range, uh, of plaintiffs, with
all different circumstances. Um, the uniform thing across all of them was that they — the
— the amount that the debt buyer alleged was owed and what, if anything was owed — there
was a huge disparity and no ability to substantiate. Uh, uh, we — we sued, uh, these parties under
the Fair Debt Collection Practices Act, under RICO for racketeering, uh, and for deceptive
practices. We reached a $59 million settlement, uh, that had, um, a — a — a consent decree
involved that really would change, uh, the practices. There was a class of, uh, 120,000
people that were, uh, eligible for monetary relief and 195,000 default judgments statewide,
uh, that we’re still in the process of vacating as — as a, uh, result of this class action.
I just raised, uh, this issue, and I wanted to talk about it just to give a sense of the
scope of this problem, uh, in — in New York. Um, we also, um, have worked on this — on
the, uh, advocacy side, pushing for stronger policy, and — and this is where I want to
sort of finish up and — and sort of leave for — for discussion. Um, this is a problem
— uh, you know, I want to add, this is not just a New York problem, I think, as the CFPB
is well aware and — and some of my colleagues here who — who work on this issue. This is
a — a — a national problem. Um, we attempted to address it at the state level, uh, and
there’s a few things that we accomplished. Um, one is that at the city level, we got
stronger licensing requirements for process servers and debt collectors.
And I should add, speaking of process servers, uh, what we found, uh, there was a process
server involved in that class action that we filed, uh, and we went and — and — actually,
we got the statistician to look at, uh, huge numbers of records and found, overwhelmingly,
uh, that there was — there was overwhelming proof, uh, that, uh, um — that these — uh,
large parts of these records were fabricated, including, uh, many records where the process
servers were in two places at the same time or were impossibly far apart.
We drew some of their routes and found that it was absolutely, physically impossible for
them to have, uh, served those two addresses, uh, and that there were so many in one day
that it wasn’t humanly possible — and we had an expert witness on this — for the process
server to have possibly served. So, uh, again, we found massive sewer services part of that
scheme and, uh, um, pushed for much stronger licensing requirements by process servers.
At the state level, uh, we — we — uh, uh, New York Department of Financial Services,
uh, New York State, was created, um, through a financial services law that was passed,
uh, in — in, uh, the early part of this decade, and it gave the — the regulator there — it
was sort of a mini Consumer Financial Protection Bureau — some rulemaking, um, uh, capacity
over the state Fair Debt Collection Practices Act and put strong rules in — in place. Um,
and really there’s — I won’t go into them in detail, but there’s, sort of, three key
stages, uh, that, um — you know, in the debt collection process that we really focused
on. The problem that we zeroed in on was the lack
of substantiation of the debt as — as, uh — as we’ve talked about, um, and then looked
at what requirements, um, were needed, uh, at the initial stage. And so, the Department
of Financial Services put rules into place that said, at the first stage, when a debt
collector contacts a consumer, within 5 days, they need to provide, in writing, the name
of that creditor and, most importantly, an itemized breakdown of the debt, interest and
fees, um, both pre- and post-charge-off, um, to — to — to — at — at — early substantiation
of that debt as long as a notice of different rights, which I won’t get into here.
Um, and then, also looked at a — a — a dispute rule. So, the second stage is really, um,
what’s required, uh, to substantiate at the dispute stage.
Uh and so, what — what — under these rules, what’s triggered when there’s a request for
substantiation by a consumer, um, which can be triggered at any time, is that a debt collector
needs to provide, in writing, um, that — uh, needs to provide in writing, um, uh, and to
the consumer the — the contract or the equivalent, so an account statement showing, uh, uh, purchase,
uh, of an item or — and — and if it’s a, uh, revolving credit, the most recent monthly
statement, um, and also, importantly, a chain of title, uh, showing, um, each — from the
original creditor, each, uh, subsequent, uh, um, date of transfer, uh, of the, uh — of
the debt. Uh, and then, um — you know, the other important
aspect is — as — is at the point of litigation. Um, the DFS, um, did not have authority over
that particular issue, uh, so we went to the courts with this. And, um, we began talking
to the courts, as I said before, in 2014, um, and they began really looking at — at
what had become a default judgment mill in the courts.
Uh, and they didn’t have authority, through rules, to require, uh, debt collectors to
attach to a complaint, um, certain documents; that had to be done at the legislative, uh,
level. And that was a campaign that we pushed and pushed and pushed, uh, in Albany for years
and ultimately, uh, failed. Um, but what the Office of Court Administration did do is,
they put in very strong rules, uh, for what happens when creditors — uh, when — when
debt collectors, sorry, um, get default judgments in the courts.
Um, and so, the — the key thing, uh, there for third-party debt buyers is, now, when
they’re seeking default judgments in the courts, uh, they actually have to submit affidavits
from the original creditor and for — from all intervening debt buyers, uh, executed
by people with, uh, personal knowledge, uh, and that they have to attach those key documents
to the affidavits: the credit agreement, most recent monthly statements, uh, final itemized
summary of the balance, and, again, critically, the complete chain of, uh, title, going back
to the original creditor. Um, and then, there’s other requirements around service, as well,
additional notices that need to be sent to prevent, uh, sewer service.
So, I want to finish up, uh, uh, and, um — and — and open it up to the group, um, but, ultimately,
we found, through all of these efforts, that debt buyer lawsuits and default judgments
have substantially gone down in New York State, um, and that, hopefully, this creates a roadmap
for — for reform at the federal level, because it’s shown that this can — this problem can
be addressed. Um, and just some — some stuff to throw out
for the CFPB, and I know the CFPB is, uh, um — is looking very extensively at this,
but really, critically, what we — what we’ve learned from our experiences in New York is
that the debt collector — and, again, I’m talking about third-party debt collectors,
uh, here — uh, must be responsible for the accuracy of all of the information, uh, really,
to prevent abuses. And again, there’s these three stages, which are really important.
So, initially, sufficient substantiation has to be required at the point of first contact,
uh, and it has to be account-level information, including, specifically, an itemized breakdown
of the debt, uh, and then, uh, if the debt’s disputed, again, there has to be very strict
requirements for individual, account-level information that has to be, uh, uh, provided,
including the chain of title, as these debts are resold repeatedly. Um, and finally, uh,
at the point of filing a lawsuit, uh, the — the — the, uh, debt collector should,
at that point, also be required to produce account-level information to file with collection
lawsuits, uh, and that this is really the way —
I mean, we’re not — we — you know, in all of this work, we — we’re not trying to push
the notion that people should not pay their debts, um, simply that there should be a debt
collection system, uh, that’s fair. Um, and what that means is that if a debt buyer is,
uh — is suing on a debt or collecting on a debt in the first instance, uh, that they
have to have specific information about a debt, and they have to be able to substantiate
it and, ultimately, provide information, if they file a lawsuit, to prove their case and
that this is a fair system, uh, and that it was clear, based on what we saw in New York
and others seen, uh, all around the country that the system had really been broken, and
it continues to be broken, uh, in many, many states.
Uh, and as a result, you had — have debt buyer mills, uh, where debt buyers are getting
default judgments against, uh — against consumers, many of them low-income consumers and people
of color, and real — creating real, serious financial problems for families and really
perpetuating this cycle, uh, of debt and, uh, income inequality. So, I’ll stop there.
Thank you so much, Josh. So, we’ll start with Judy and then Ohad.
So, I — I have presented this to the CAB before. I — I’ve done research similar to
Josh’s in Indiana and found very much the same kind of thing. Um, so I wanted to talk
about a little different issue on this, something that might be new that has the similar problems
that we’re seeing more and more of. Um, Indiana is one of those states where you
can get a deficiency judgment on a mortgage foreclosure, and we’re seeing a rising number
of debt collection cases on those, and if you thought the paperwork substantiation was
bad on credit cards, you should see some of these. Um, and so, I think it’s really important,
when we look at this, we think of the broad issues.
Uh, one thing is, I think we really do need to focus somewhat on the sellers of these
debts. Um, the — the buyers don’t have the information if they can’t get it from the
sellers, and the sellers should really be required to pass on, uh, correct, accurate
information. Um, one thing I’m noticing in the — um, and
this is kind of where my mortgage foreclosure and my debt collection lives merge. Um, one
thing I’m really noticing with the mortgage-related collections: Um, servicers — and I’m seeing
enough of these to think that it’s a — it’s a — it’s a systemic kind of issue — don’t
seem to understand that once the bank owns the — the loan, or for that matter, once
there’s a judgment, they can no longer charge things like drive-by, um, inspections or — I’ve
even — I’ve even seen them where it’s a bank-owned property, and they’re billing the — the previous
homeowner for taxes and insurance. Right? So, I know that the new mortgage regulations
are going to require a charge-off, uh, statement to go out, uh, which — which, allegedly,
is the final amount owed. Um, it — it needs to be made clear to the servicers that — that
you can’t keep adding to that after you have foreclosed on the judgment, because they are
doing that, uh, and I’m seeing that pretty regularly, uh, with servicers.
Um, the other thing that we’re seeing — uh, I’ve seen it now several times, and it’s a
bit of concern — is homeowners that pay their PMI insurance. Um, the house gets foreclosed
on, and now they’re being dunned by a debt collector to pay back the PMI insurance, uh,
on the grounds that they weren’t the beneficiary, the bank was, uh, which may be a legal grounds,
but it sure doesn’t smell right, um, after you’ve paid that premium for — for all those
years. Um, uh, you know, debt collection continues
to be a — a problem. Um, I would say that some of the, um — in my recent experiences,
some of the documentation has gotten better, um, as — as the Bureau has been working on
regulations, but, you know, if you asked me what I’d like for Christmas, it would be that
debt collection rules could go . One thing, Judith — Uh, thank you for mentioning
sellers. I had meant to talk about that, uh, um, and — and missed that. So, um, it is
absolutely critical, as you say, not just to look at debt buyers but who’s selling them
the debt. The vast, uh — you know, there’s a whole raft of other issues, with medical
debt, um, but the vast majority of these consumer debts that we’re looking at are charged-off
credit card debts. Uh, and the OCC actually issued guidance in
2014 — uh, you know, a lot of us were really pushing for this — um, for banks and debt
sales — um, essentially, that banks, um, perform appropriate due diligence around their
debt sales. And I think, critically — and implement appropriate, um, oversight, but
critically, um, they were encouraged, through this guidance, to provide accurate and comprehensive
information regarding each debt sold, um, at the time of the sale.
Um, and I think one thing that, um, is — is, you know, uh — that the CFPB and other regulators
should look at, at what — is — is whether that guidance, um, can be made mandatory,
to ensure that when banks are selling debts to third-party debt buyers that they’re actually
selling, um, the — the information at the account level, um, of each debt sold, so that
these debts can be substantiated when the debt buyers, uh, turn around and — and, um
— and try and collect. So, that — that’s a really, really critical piece.
I was, uh — I was wondering whether the relatively recent Supreme Court decision about the Santander
case was defined, uh, debt buyer or debt collector — Has that impacted your efforts in any way?
Yeah, I think, um — I — I mean, it — it’s — it’s — uh, I mean, maybe, you know, the
Bureau can speak to that one, um, better than I can, but, um, uh, you know, certainly, uh,
you know, as I said in New York, um, we’ve seen a substantially — substantial reduction
in that. And I think what — the — the — the Santander case was, um — What was, uh, the
finding of that? Um, as I understand it, it, um, defined, in
some cases, the debt buyer is not subject to the FDCPA.
So, we — we can — we can speak to it, and, uh, we are now taking position in the lower
courts as the issues that were somewhat decided — loosely decided in Santander are now getting,
uh, raised in lower court cases. In Santander, in the case, the issue was trying
to define as between a first-party creditor and a debt collector, and, uh, unfortunately,
the Debt — Fair Debt Collection Practice Act, which was enacted 40 years ago, was enacted,
really, before debt buyers became a part of the debt collection market. So, it’s inherently
somewhat ambiguous in the statute how to treat debt — debt buyers, because they were not
contemplated by Congress at the time. And when courts decide these issues, they
use dictionaries, and they use, uh, canons of construction they developed over some time.
They’re not really looking with an eye to how the market operates and how it works,
uh, and there’s some clean-up that will need to be done in the wake of — of Santander,
uh, and there will be more issues that have to be decided.
I think, ultimately, the right answer will be that debt buyers and debt collectors get
treated the same, with the same types of obligations in the marketplace. First-party creditors
will be treated somewhat differently. There will be a few blurry lines between them, but
right now, there’s a big blur around debt buyers in the wake of that decision, and that’s
very unfortunate, uh, because the — it’s a more significant part of the market today.
Chi Chi and then Brian. Um, Josh, thanks very much for that presentation.
Certainly, the issues you talk about are national in scope, although there are state variations.
And — and putting on my Massachusetts hat instead of my national one, one of the ones
we see in Massachusetts that’s really lovely is, after the default judgment, there’s a
order issued to show up for the debtor’s exam, and if the debtor doesn’t show up, which the
debtor often doesn’t because of bad service, they can be literally dragged into court in
handcuffs. It’s called the capias. Um, back to my — Yes, and put in jail. Um,
back to my national hat — Um, just want to remind folks that every one of these, um,
bad judgments or questionable judgments, um, also, um, ends up in the consumer reporting
system, um, or can end up in the consumer reporting system. Um, now, thanks to the good
work of both CFPB and the state attorneys generals, the — the big three nationwide,
um, consumer reporting agencies will be reducing the amount of public records information because
of matching issues, making sure they’ve got the right person and that the information’s
up to date. Um, but what we are hearing is that, um, now,
uh, other consumer reporting agencies, such as LexisNexis, have decided they’re going
to fill that, quote, unquote, gap. Um, and so, uh, unfortunately, the harmful effects
of, um, these showing up on consumer reports may still continue.
Um, uh, these also show up as collection tradelines on consumer reports, and so I echo, uh, Judy,
that it’d be great to see, um, the — the proposed rule come out on debt collection,
because I think one of the — the, uh, things covered in there is, at least warn consumers
that information’s on their credit report, because the — Uh, the flip side of being
sued is that you hear no contact until you go apply for a mortgage, and all of a sudden,
you have this negative collection trade on your — your credit report that you didn’t
know about. Um, so, I — and, uh, finally, um, you know,
while we’re all waiting with great anticipation about the second stage of first-party collectors,
and that — that will also deal with the substantiation and the — the duties of the seller, um, you
know, there are — if, uh, folks, uh, are very eager beaver, we also have a model state
law, um, from National Consumer Law Center about mandating at the state level, uh, certain
levels of substantiation before you can file suit on
a debt. Thanks, Josh, and, you know, certainly, I
think the practices you cite are — are egregious, um, and illegal, and that’s why you won your
lawsuit and now further — further guidance coming out. Uh, I think that my — uh, at
least my interpretation of the current regulatory scheme is that if you — if you follow it,
the seller is responsible for the actions of — of the buyer, and therefore, I think,
there are companies, mine included, um, that — that don’t run into these practices.
And so, I guess, maybe, Director Cordray, some of the comments you made, it sounds like
there is a gap in the current — it — it sounds like, maybe, not everybody’s interpreting
the current regulatory guidance the same way and that there is a gap, because I would — I
would think that most of this activity would be illegal under the current regulatory scheme
and subject to, uh, enforcement and — and — and — and cleanup, but it sounds like
that must not be the case. There might be —
No, we’ve — we’ve taken enforcement actions against, uh, prominent debt seller, prominent
debt buyers. Uh, I think we have, uh, made clear our views as to what’s legal and illegal
in those areas in terms of the facts of those cases, but in terms of having broader, uh,
market-wide regulations, uh, uh, that — that remains to be done and I think is important
to be done, and it’s pending at the Bureau. If I could just add, Brian, Santander was
a very unusual case that you — Santander bought the debt, but it was not in the business,
regularly, of collecting — it was not a debt collector; its — its regular business was
making loans. And this created a — sort of, an anomalous case to fit within the language
of the FDCPA, which as the Director said, hadn’t contemplated that. Most debt buyers
are actually — they — they buy debt, but they also — their regular business is collecting
debt. And our view is that — that there is no ambiguity,
and that — that’s a question the Supreme Court expressly left open. We think the statute
is very clear, and that’s the position we are taking, both in amicus litigation and
in our own supervisory enforcement work. Lynn?
Thank you. I’ll — um, I’ll give this a try. I apologize for my voice. Um, I’m just in
awe of what you did. I’m in awe of what you did and your multifaceted approach. Um, Florida,
we don’t have anything like this, and we have a United Way report showing almost 50% of
Floridians in debt collection, um, so we’re in dire need of this, and we see, quite frequently,
um, debt that is out of date, is time barred, or debt naming the wrong person, um, ending
in default. And to show, sort of, the disparate impact,
uh, of this, um, we’ve had people come into the office, one in particular, who was deaf,
and he was being sued, um, and the name of the defendant was a female. And when he went
to court, he tried to write, I can’t talk, um, but he still ended up with a judgment
against him. The interesting thing that I wanted to point
out, um, about your — your 97% statistic and most of these cases, um, ending in default
— In Florida, there’s almost 100% non-risk in bringing a bad lawsuit, because the lawsuits,
rather than being brought as breach of contract claims, are brought as the type of claim for
which the debt collector bears absolutely no risk if somebody shows up on the other
side. All they have to do is dismiss the case, and they don’t have to worry about the ramifications
of bringing a bad lawsuit. So, you — the work that you have done is
very impressive and much needed in a lot of places, particularly Florida.
Can I make a couple, um, quick points? Um, yeah, thank you for that, Lynn.
Uh, you know, one — one, um — one aspect — and, uh, you know, Chi Chi was talking
about the — the — the impact on people’s credit reports. It’s sort of this, um — this
cascade, right? People get, uh, you know — people get caught
up, uh, in — often because of where they live — uh, predatory financial practices.
Um, it impacts their credit. Uh, it, uh, also creates, um, some of these debt collection
scenarios, um, and then people get caught up in — in — in, um — you know, with some
of these default judgments. It impacts their credit; they then, because it — their credit
history is damaged, uh, it then can impact their ability to get employment, because many,
uh, employers are using credit history, uh, as a proxy for — for — for, um, hiring.
And, uh, uh — and — and so, it really — it — it has a — a — a bad, uh, effect, and
it’s a — it’s kind of a vicious circle, and I think strong action to ensure that the debt
collection, uh, market is fair, uh, and to — uh, to make sure that these lawsuits are
not occurring, I think, will help to mitigate that cycle of debt that, uh — you know, that
is difficult for people to get out of. And then, the last thing — I just — I had
meant to give the CFPB props, um, when I was talking about our, uh, class action lawsuit,
because we had an issue that, um — for which the CFPB filed an amicus brief, uh, and, um,
we were ultimately successful, um, and that was the issue of whether, under the Fair Debt
Collection Practices Act, uh, a communication directly between, uh, an attorney and the
court, um, could be construed as — as, um, uh — as being deceptive towards the consumer.
And we won on that issue, um, and many thanks to the CFPB for supporting us with an amicus
brief. Judy?
Since no one else is jumping in line here — I did forget to mention one thing that,
um, I think is also important. We — we require servicers, when they change in the mortgage
foreclosure, you know, uh, field, to let the homeowners know that there’s somebody different,
uh, uh, taking care of the loans. We don’t do that in the debt collection.
Now, I tried very hard, in my research, to try to figure out why nobody shows up to court,
and I can say that, pretty much, nobody shows up to court. Um, sometimes, as Josh mentioned,
it’s because they didn’t get served, but I talked to enough consumers to know that sometimes,
they did get served, but they didn’t recognize the debt collector. They — they didn’t recognize
the name, and — and they make the bad assumption that, Well, this isn’t me; I’ve never — I’ve
never heard of this person. So, I think it would also be useful if the — if the person
who allegedly owes the debt, uh, would be notified when this is sold to — to — to
someone and who it’s sold to. I personally have tried to find out who, um,
some of my clients’ deficiency judgments — where they are and who they’ve been sold to, and
the only information you get is, We don’t have it anymore. And these are people who
would like to pay the debt. And years go by before they hear anything, and in that period
of time, interest is accruing on the debt. So, essentially, they’re punished by — by
owing more money, when they’ve actually been trying to pay the debt but can’t find out
who in the world owes it — owns it anymore. And so, I think it would be very helpful,
when we’re thinking of a regulatory scheme, for people to be given this information, so,
perhaps, they could make arrangements to pay these debts before they — they grow into,
you know, impossible debts that can’t be paid. Seema?
Thank you. Yeah, um, thank you, Josh. You know, I, um — I know the great work that
New Economy Project, um, does in New York and, um, really appreciate you sharing this
work. Um, I guess, similarly, I had a question about,
um, if you have a sense of, um, how many times the debt has been sold before. Is there a
standard, um, um, or a range that you can share in terms of the amount of time the debt
exists before it goes — gets to this point? And, um, did you think about, um, guidance
on how the consumer should be reached, knowing that a lot of consumers avoid calls and mail
at a certain point when they reach crisis moment? Um, just curious if there was any
thought around that. Yeah. I mean, it’s hard to give an average
of the number of times the debts are sold now, um, uh, under the current court rule,
um, in place since 2014, um, for default judgments that a chain of title is required. Um, and
so they may have records; we haven’t gone into it.
But I can tell you what we found in the course of discovery of that class action lawsuit,
that, you know, these debts were typically sold three, four, even five times. Um, they
go, you know — not all of them, but, uh, most of them go through multiple, uh, debt
sales, um, before, uh, ending up, in — in — in this case, with — with this particular,
uh, debt buyer. Uh, and there is a requirement in the New York court rules now that — and
the court has to make an additional mailing, uh, to the address of — of that, uh, uh — of
the — the defendant in the lawsuit just to guard against, uh, sewer service.
And it seems to have had some impact, because people now are getting, um, clearer notice
of the lawsuit, but, um, that’s — you know, that’s an ongoing problem, is — is getting
people — You know, as Judith was pointing out, there — you know, there are a lot of
problems with sewer service, but also, um, people are — don’t understand that they’re
better off responding to this lawsuit as opposed to ignoring it. So, even when they do get
served, there’s a — there’s a big problem there with education.
Thank you so much, Josh. That’s a very rich and thoughtful presentation.
So, now we’ll turn to Ohad. Thank you. Uh, thank you, Josh, and, um, there
you go. And as Ohad gets started, let me just note
that he’s pinch hitting for an ill CAB member, so this is something he — he put together
for us very quickly, and we appreciate it. Thank you.
Thank you. Uh, so thank you to Arjan Schutte for some of the, uh — some of the data I’ll
be using in this presentation, and, um, um, I’m Ohad. I’m CEO of TrueAccord conveniently.
TrueAccord is operating in the debt collection — third-party debt collection space, not
— not debt buying, not a debt buyer, but in the debt collection space.
Um, and I’m going to talk to you about using technology, how technology is and — is changing
and can change the debt collection experience for Americans in debt. Um, I’ll be focusing
on the time before the lawsuits, right, the time where there’s just, uh, post-charge-off
servicing, where we’re trying to communicate with consumers and get them to pay.
Just want to say, uh, as a disclaimer, um, we are operating in that space, so the majority
of the data I’m going to share with you today is based on TrueAccord operations. Obviously,
number one, this is not — this is our opinions and my opinions; this is not an endorsement
by the CFPB. And, also, even though I’ll be giving a lot of examples from TrueAccord,
this technology and — is not unique to TrueAccord. Uh, you know, our implementation is unique
to us, but the use of email, the use of other technologies, and so on is open to everyone,
and this is why we are so optimistic about the potential of technology to make a difference.
So, let’s start from something very clear. Oh, this is — I have effects here. Um, so
the — the slides themselves, easy to read. Feel free to read them. I won’t — I won’t
be reading them out to you. There’s something we all know, that consumer
behavior has changed. Our behavior has changed. Right? We don’t respond to phone calls that
much. We don’t respond to letters that much. We’re on emails; all of us are on our mobile
phones. Um, and that is also evident in debt collection. Okay? We can see numbers here.
Um, more than 50% of U.S. households only have a wireless phone. Um, consumers don’t
like debt collection phone calls. Surprise, right? Uh, the — the FCC’s Robocall Task
Force — we have anecdotal evidence — has reduced, uh, right party contact, the instances
of debt collectors actually getting the right — the right debtor on the phone, significantly
just by flipping a switch. Um, and we know that consumers prefer —
Sorry, what does that second bullet mean? Does that mean that debt collectors are only
reaching the right party 15- to 30% of the time?
It means that, um, the — the number of — the percentage of instances in which debt collectors
are able to reach the consumer has, anecdotally, been reduced by 15- to 30% in the last few
months after the FCC rolled out — started rolling out its, uh, robocall initiative.
So, let’s say, if they would reach a consumer 10% of the time, now they reach a consumer
7- to 8.5% of the time. And again, this — this is anecdotal evidence from inside our trade
association, but, uh, it — it’s instructive in my opinion.
Uh, we also know that consumers want — they’re used to be treated as consumers, they’re — they’ve
been educated about the online experience, and they expect it through the process. And
we see this on our platform, 70% of collection activity from mobile devices and tablets.
And one thing that we noticed is that low-income individuals — one of the last tools that
they’re going to have is internet on their mobile phone. They’re not sitting at home
with cable communication on their — on their laptop. Uh, they’re on their phone, and they
need that service. And second, they want to do it on their own
time. And you see here, more than 25% of traffic on TrueAccord’s website is after hours, meaning
they got a communication within the permitted hours, but then they chose to act on it on
their own time. So, these are important distinction — distinctions.
And we know that consumers want to be communicated using digital communication channels. This
is something that we’re all hearing. Now, we have not seen meaningful adoption
of technology in the debt collection space for various reasons. Predominately — um,
and I’ve been — I’ve been having conversations with — with CAB members over the last, uh,
few days — um, there is a lot of legacy in the debt collection space. Even the best-meaning
operators in the space, um, are married to a call center model. They have been collecting
the same way for years, decades, in fact. Uh, in their opinion, um, calling consumers
several times per day is the only way to get them to react and to actually make a payment,
and we see that a lot of the constructs in the debt collection process are focused on
phone-based collections. So, calling, for example — again, repeated
data call attempts. If you’re only basing your call — uh, your collection attempts
on phone calls, you’re going to have to call the consumer multiple times, because the consumer
sometimes doesn’t know who’s calling them. And this is not — I’m not even talking about
Call ID spoofing. And so, I’m just using the right number to call, and they don’t know
— they don’t recognize the number; they don’t pick up. You have to call them multiple times.
Um, shorter placement times and shorter payment plans dictated by work standards. What does
that mean? As a, uh, consumer in debt, I may be meeting a new debt collector every 3 months,
and that happens because of the way the humans in the call center treat the work on the debt.
They work to start calling the accounts. They call them over — for a few weeks, and then
they start getting tired of talk to the same people and the same people don’t pick up.
They stop calling; they trail off. And so, to get a new cohort of collectors
working on these accounts, after 3 months, usually, they get culled and placed with a
new agency. All good. But if a consumer wants to have a relationship, they want to have
— to be in touch with someone, that changes every 3 months, so it’s very confusing.
In addition, payment plans — administering payment plans via the phone is pretty expensive,
and so whenever a collector is on the phone with a consumer, their preference is that
the consumer starts paying early and starts paying a larger monthly payment, because there
is an assumption that they’re going to fail the payment plan at some point.
What we’ve seen, and we’ll talk about that very briefly later, is that when you can use
a technology platform to offer longer and more flexible payment plans, people stick
to them much longer, because it works well with their income and with their reality,
their day to day. And so, does — that assumption that the payment plan is going to fail dictates
that the payment plans need to be shorter. And finally, uh, I mentioned that, before,
um, I believe, we believe, that commission-based compensation, which is something that, uh,
to a large extent, is, uh, a must in the call center environment, um, it creates a negative
incentive in many cases. It sometimes encourages compliance violation. Uh, we — we like to
say the — the machine, our machine, doesn’t get tired, doesn’t fight with its significant
other, doesn’t get distracted. Uh, humans do. That’s who we are. So, it’s reasonable.
Um, and sometimes the — at the end of the month or when a collector doesn’t meet their
goals, the pressure, uh, takes its toll. And, again, we’re not talking about bad people;
we’re just talking about people who are in their — on their own, under a lot of pressure.
That puts them in conflict of interest with the consumer even with best intentions.
So, yes, I’m — I’m from Silicon Valley, and we come with a hyperbole, but, uh, let me
tell you, I — I stand behind this. I think we are on the cusp of a huge shift, potential
huge shift, in the way debt collection is done.
Okay, the maturation — you see here, the maturation of machine learning, digital communication
methods, marketing techniques, and so on, and the education of the market, the education
of consumers to expect digital communications, to interact with their banks, with their financial
institutions, online, through their mobile phones, through email and so on has matured
to a point where we can think about debt collection not as a transactional phone-based, um, short-term
experience but customer-focused, financial health-oriented activity that helps consumers
plan, pay for their debt, and end up being in a much better place at the end of the process.
That, to us, to TrueAccord, that is our long-term goal, becoming that platform.
Now, um, through tests, I can tell you — through statistically significant tests, I can tell
you that technology-based solutions pitted head-to-head against phone-based solutions
win, collect better, and significantly improve customer satisfaction and reduce the number
of complaints. So, on every reasonably measured key performance indicator, technology-based
solutions beat phone-based solutions. Uh, and you may think, uh, as — as we’ve
been told when we started a company, how can that be possible? Only humans collect from
humans. Well, that’s what we’ve been told about baseball
before Moneyball came. It’s true, and — and research shows us in many, many areas, that
machines, using data, using the right type of modeling, um, beats — machines beat humans
in the long term on the majority of cases. We are good at understanding each cases, we’re
— we’re good at responding to crisis, but, uh, using data, consistently, to provide a
personalized, consistent, and, um, effective treatment for people — machines do that better.
So, it’s plain and simple. And we are seeing the banks, lenders, issuers, debt buyers,
and so on that are voluntarily making that shift because they’re forward looking, they
hear the feedback from consumers, they, um, see the results, and very importantly, receive
direction from the CFPB given the proposed outline. Uh, and I think that’s — that — that
cannot be overstated. I’m going to touch on a few, um — a few areas
where technology really helps consumers, and I apologize, and one element here is very
— I didn’t time myself very well, so. Uh, so, first and foremost, improving consumer
protection and responding to preference — this is how technology enables that, okay? First
and foremost, emails and digital communication is prewritten and preapproved. This is not
someone on the phone, where you give them a — a script and you hope for the best. And
so, if everything is preapproved, you reduce the — the opportunity for — for violations.
I’ll tell you that at least Maine and Nevada will review every written communication that
we propose to be sent to consumers. Um, that’s the — that’s those states, but, uh, our clients,
of course, scrutinize everything that we do, um, and that’s — that’s a huge opportunity
to put disclosures in front of consumers and make sure that everything that’s said to them
is, uh — is, um, compliant. Two, and it looks for the right time and tone
to use in interactions. We’re talking about significant reduction in contact attempts
with consumers, from an average of four to six call attempts per day to about three contact
attempts per week. We make about one to two call attempts per month to consumers. Okay?
And again, when I say “we,” um, I believe this would apply to anyone using technology.
Incidentally, I only have our data, but I don’t think we’re unique. I think the application
of data for these use cases is something that, uh, a lot of teams can do, to — to Tim’s
point about banks having, uh, machine learning engineers.
Um, giving consumers a selection of contact channels puts them in control. I like to say,
uh, often, that the most — the easiest channel to penalize, if you don’t like the content
that you’re getting, is email; it is not phone. If you get a phone call and you don’t like
the phone call that you got — I — I don’t know how you — what do you immediately do?
What’s the immediate feedback if you look to say, I didn’t like that phone call? Maybe
you can block it on your phone. If you get an email and you don’t like it,
you click the spam button, and enough people click the spam button, that sender will be
kicked off their email service provider. Okay. It takes a lot less time. And even before
that, they might not be placed in your inbox. Okay? Inbox placement is a big deal. So, there’s
a lot in technology that has been — has been created to — to, uh, moderate and penalize
negative behavior, a lot more than phone calls. And we see a reaction. You see the numbers
here. More than 60% open at least 1 email in the first 3 months. Um, more than 25% click
a link. More than 6% click a link in an — in an individual text message sent to them. Of
course, one compliant — the compliance around text messages is complex.
And, again, we think communications are easy to audit, and, very importantly, code-driven
compliance is very easy to adapt to changes in regulations and in case law if, um — I
remember telling one, uh, large financial institution, I — I told them if, on Tuesdays,
between 2:00 and 4:00 p.m., you want us to give different disclosures, we can do that.
Okay? Because a technology-driven platform will change that. You — you — it’s very
difficult, in some cases, impossible, to retrain hundreds or thousands of agents. So, those
technology-driven platforms really constitute a step function in improving consumer protection
and responding to their preference. Next, improve the information, presentation,
and data, um, in the outline of proposal, as well. There’s, uh, a lot of discussion
of, um, presenting information to consumers. Josh has touched on, um, written payment terms.
Um, this is all written, right? So, first and foremost, document, uh, retention
and presentation through new platforms, um, is much easier to do, and we’re seeing solutions
out there that some of the major banks are using — um, Convoke is a company that comes
to mind — companies that provide, uh, platforms for document retention, chain of title, and
moving those documents between, um, the — the lender and the debt collector.
Um, too, e-disputes, uh, the ability to file a dispute, an FDCPA dispute, an FCRA dispute,
online, not sending letters, getting immediate feedback, getting information presented to
you online, um, whenever it’s available, and really supporting the whole concept of data
retention and retaining the fact that the debt has been disputed and transferring that,
going forward, to other servicers, uh, is much easier to do using technology, and it’s
something that we’ve seen. We’ve seen, uh, for intents and purposes, zero letters — zero
letter-based disputes. Uh, everything is done online.
And, finally, as I mentioned, written communications provide more opportunities for disclosures
and crisp, clear presentation of terms. Uh, you want to change a payment plan, you want
to, um, uh — you want to see other disclosures per state, per specific products, very easy
to do. Finally, something that, uh, we’re very excited
about is shifting focus to financial health. Um, the thing — So, first and foremost, by
having scale and having automation, we can adapt payment terms to consumer needs. If
you remember the point from earlier in the presentation, we don’t need short payment
plans anymore; we don’t need to assume that the payment plan is going to fail on its second
or third or fourth payment. And so, what we’ve seen, for example, is,
if you take a, uh, type of asset, uh, called suffering credit cards that you collect on,
and the standard payment-plan length is 6 months, and you — and you run an experiment
to see, What happens if I start offering, by default, 12 months on a payment plan. The
immediate concern is, Well, we’re going to get less payments; um, we’re going to collect
less. In reality, the number of people — because
people, at the end of the day, they want to make — they want to pay for their debt if
they can afford to pay for their debt. So, the amount of people who actually sign up
— the additional people who sign up for our payment plan, because it’s much more convenient
and much lower monthly payments, more than compensates for the lower payments, on average,
from each person. Kind of makes sense. Right? Uh, another example: helping consumers by
asking, Hey, when — when are — when do you get paid? You know, you — you don’t need
to — well, yes, we sent you a collection notice today. You don’t need to pay us today.
You want to set up a payment plan? Pay after your payday when you have money in your account.
That reduces payment plan breakage significantly. Um, we can use bank account information, now,
a little bit easier thanks to the guidelines from the CFPB on data sharing, um, to adapt
to consumers’ varying incomes. Okay? So, if a consumer wants to pay $25 this month and
$50 next month or every other week and so on, because they have 2 jobs and they have
different paychecks, it’s much easier to do using technology. It is much harder and more
expensive to do using a call center. Um, of course, improving cost structure can
eliminate fees, no convenience fees or anything like that, and finally, um, something that
we were delighted to hear: Once you treat consumers as customers and you give them the
experience that they expect, that they’ve experienced upstream with their financial
institutions, they start thinking of themselves as your customers, and they say, Oh, we like
the payment plan. Do you have some material on how I can improve my credit score or manage
my cash flow, which is really exciting, right, because, um, our experience is that we’re
dealing with — consumers in debt have a very low self-efficacy, so their perception of
what they can do is very low. So, you know, a few years ago, we said, Hey,
you’re out of a job. Just give us your resume and we’ll help you find a job. Nobody responds
to that, because their perception of how hard it is to do, uh, is — is, uh, humongous.
So, just, with baby steps is much easier to get them on board, to get them to actually
subscribe to this type of education programs, and very excited about the potential of using
some of the material from the CFPB for this purpose.
And, finally, what can the CFPB do? Um, I just want to say, the new rule, uh — or the
— the — the outline, um, signals a very positive development in that regard. Um, so
we are very happy to read it, and I think it’s a — it was a strong message to the whole
industry. It has a lot of other very important elements, of course, with data substantiation
and additional disclosures and so on. Um, if I were to highlight two things, I think
that, um, we — we still need to think about how to move away from the phone-based world,
move away from the letter-based world, and how we define requirements in the process
and think how those apply to technology. For example, what’s a live conversation, right,
if the consumer is not on the phone, but they’re emailing back and forth, right, over a few
hours or a day? Uh, what is a tear-off in the context of an email, um, and so on and
so forth. I won’t go too much into details. That’s it. I’ll open it up to questions.
Thank you so much, Ohad. Sylvia? Uh, I just wanted, first of all, to, uh — to
say to Josh, an awesome job that you did, uh, with the work, uh, uh, that you did in
New York. And to Lynn’s point, yes, we desperately need that in Florida and, I’m sure, other
states, as well, but Florida seems to be a place where a lot of scammers come and, uh,
take advantage of people. And, Ohad, I have just a couple of questions for you.
So, if you’re not a third-party debt collector, do you, uh, contract your services to other
creditors? Is that what you do? Oh, we are a third-party debt collector, just
not a debt buyer. Oh, you’re not a debt buyer. Okay, I got that.
Um, then where do you get your — the base of your work? Your — you don’t buy the debt?
We don’t buy the — we service debt, um, 150% of the —
Oh, you’re a servicer. Yes.
Okay. And how long has TrueAccord been around? We launched in 2014, so several years now.
Okay, thank you. Very interesting. Brian and then Judy.
So, thanks, Ohad, just a — a couple of comments. I, I think, agree, with the most part, to
your presentation. I think the digital experience on collections can be, uh, less intrusive
for the customer, uh, also less personal and thereby preferred by the customer. A debt
collection call is not a — a positive experience, and the impersonal nature of — of doing this
online or through — through email is — is clearly preferred, um, by segments of customers.
For the — for the — for the debt collector, the company that owns the debt, it’s also
— allows you — so, less risky from a compliance perspective, because it is entirely controlled
and pre-scripted, also less expensive. So, um, uh — and then, lastly, it could also
be a more fulsome solution. Uh, uh, to provide a customer help, you can provide a lot more
things digitally than you can over the phone, like, you know, links to local resources and
the like that, uh, might also be able to help that consumer.
Uh, so I guess I second your, uh — your call for — you know, for support, uh, regulatorily,
uh, to help, uh, further these solutions in the market.
Uh, but I also note that it isn’t — it isn’t the comprehensive solution for — for every
consumer, that there are some consumers that don’t engage digitally, and for them, it is
still important, uh, for, uh, the creditor to be able to reach them by phone to be able
to provide them the, uh — the assistance that they need.
Absolutely agree with the — with the last comment. Um, we do talk to people by phone.
Predominately, they call in, but, uh, consumers definitely sometimes want to talk to someone,
especially if they, uh, are having trouble with the online system. So, uh, it is all
part of a — it needs to be a holistic, omni-channel approach to provide, um, services to all types
of consumers and what they need. So, coming from the consumer side of this,
um, I also agree with — with — that — mostly, what you said. I think that we have to be
looking forward. Um, I’m the only person in my family anymore with a landline, um, and
— you know, so, um, if you’re a debt collector, you can find me, but, uh — but many people
can’t. I think, um, some of the — the key things
you mentioned — I just want to say from — from a consumer’s standpoint, I think one of the
frustrations people have when they’re dealing with debt collectors is the lack of flexibility,
where you have to pay us in 6 months. Well, then, I can’t pay you at all.
And I think providing some flexibility would get more people to pay. I mean, I have many,
uh, clients who say, Well, I can give them X number of dollars, but they say I have to
be able to pay it off in 6 months or not to give them anything. So — so, what they do
is, they don’t give them anything, whereas, I think your approach would actually meet
people where they can, you know, uh, deal with things, and people would end up getting
more money. I think the other important piece is that
the — that the industry needs to have systems that talk to each other. Uh, I think the current
problem now is, debt gets — are sold from one person to the other person — uh, I understand
you’re not a debt buyer, so it’s not as much of an issue, but — and they have computer
systems that don’t talk to each other. So, you know, some information gets translated
over, and some of it just becomes junk, because they don’t know how to deal with it.
So, I think, as a whole, the industry has got to accept the idea that — that — that
we have to have systems that can transfer and translate data more efficiently.
Seema and then Ruhi. Um, thank you for sharing. Um, I was just
curious if you’re monitoring at all, um, how this works with, um, individuals with limited
English proficiency, and, um, is it effective, um, to use an online, um, portal for — for
those who need language assistance. So, we use services to provide service in
multiple languages, um, but we didn’t necessarily — we’re still small and —
Yeah. — developing. Um, also, we don’t store any
type of protected class information or anything like that, so we don’t have that type of modeling.
So, I have a three-part question, and my first part was, um — What — what Seema and we’re
doing, a bunch of — some of us — I don’t know if people on this — in this — uh, uh,
on — you know, working with LEP borrowers around a number of issues, and, uh, we’ve
actually — well, I should say, we. Actually, it’s an NCLC — predominately NCLC issue brief
on language access and about providing documents and things which, I think, will definitely
get to you, um, uh, because, clearly, a lot can be done via documentation.
But this is kind of, um, like — like logistically, um, you know, my FDCPA lawsuit goes back to,
like, 30 years ago, so I am not up to speed. Like, how do you figure out — like, on the
phone, someone will say, Well, you know, how much can you pay? How do you figure out what
the person can afford to pay? And I know in New York — and Josh probably
knows this better than I do — that there are certain limits. Like, if you have a certain
amount of income, you can only collect a certain percentage of the income. So, how are you,
kind of, making sure that that — how is that logistically playing out for the, um — for
the — for the consumer? Yeah, so the — the great thing about an online
experience is that it can be continuous. Um, mostly, we let them tell us what they can
afford, because, again, if we can offer something very flexible and customized, um, then we
can respond to their needs. Uh, I — I just want to say, uh, Judy, to
your — to your point, some banks that we work with just say, If they — if all they
can pay is $1, you take $1, and that’s fine. So, I — I would say, banks are moving in
that direction, issuers are moving in that direction, of understanding that the relationship
is important. Uh, it’s not only about how many dollars I collect in the next 30 days.
Um, you — you know, just as — as a side note — I know many of you, the stories that
you’re — you’re telling, you’re obviously dealing with the downstream effects of the
debt having been sold and then the judgment and so on, and we’re upstream. Maybe it’s
easier for us to be optimists, uh, but I do think that, um, if — if we are — if — if
platforms like ours demonstrate better results and end up owning more of the upstream relationship
and have better data, uh, protection and better, uh, data capture, and the systems talk to
one another, and more consumers get on payment plans, then maybe we have less downstream
effects. That’s our hope. Josh and then Neil.
Um, thanks, Ohad. Uh, it’s a really interesting model. And just trying to think through, sort
of, how it fits together with some of the debt buyer problems that
I was talking about, can you talk a little bit about the type of debt, uh, that you guys
are collecting on, who your clients are, and also, um, what then happens if you — if you’re
unsuccessful in collecting? What, generally — what’s the next step?
Yeah, definitely. So, we definitely work with some debt buyers, a very, very limited list
of debt buyers, exactly because of these substantiation requirements. We just decided to adopt the
most, uh, stringent ones. Um, again, because we don’t sue, it’s less of, uh — of that
issue, uh, but definitely, uh, when we saw the requirements in the — uh, in the proposal
outline for warning signs for having, uh, the data, uh, in advance, you know, we just
nodded and said, Okay, that makes sense. You know, we — we do most of that, you know,
maybe not to the letter, but. So, that is, more or less, our perception.
Now, um, is — can some debts that we work on, if people don’t pay, go to a review by
a lawyer and then maybe, uh, go to courts? Absolutely — not by us, but taken from us
and, by the client, sent to litigation. That absolutely happens, I believe, based on the
guidelines that we’re getting. Um, but again — I mean, to my — to my point earlier, our
goal, starry-eyed goal, is that nobody needs to go there because they’re on — on a very
flexible payment plan with us or getting some other type of assistance.
I think you raised some early interesting insights in terms of the ability to, uh, think
about cash flow and where — where debt repayment fits into that. Uh, to that point, are you
using any, uh, specific customer information to craft repayment programs?
And then, also, assuming that, uh, some percentage of your population is also — you’re competing
with other debt collectors. How does that factor into your debt collection strategy
in terms of crafting repayment programs? So, we rely solely on self-reported information
from the debtors. Um, and so if somebody says they can’t afford something, they can’t afford
something. Um, we may, at some point, ask — So — so, asking people when they get paid
in order to align their payment plan to their payday is a way to reduce failure and fees
and assess fees and so on as far as an example of where we cooperate with the consumer in
order to do something that’s beneficial to them, but we don’t make them jump through
hoops. Um, the second — oh, uh, in terms of, uh,
how do — how do payment plans look when we’re competing — yes, we’re constantly competing,
although we’re winning, so, uh — thankfully, which means that we’re — we’re getting more
— more business. Um, I think I mentioned something along those lines.
We found that when giving consumers more flexibility, the number of consumers who then are able
to commit to a payment plan and a payment arrangement and stick to the payment plan
and payment arrangement more than compensates for the lower average payment. So, at the
end of the day, we end up recovering more from the consumers who are able and are willing
to pay than a traditional, uh, debt collection operation.
So, we have yet to find the limit in terms of how flexible we should be. We haven’t found
the limit, where we say, Oh, that’s too flexible. We may find one, but we haven’t yet.
Could you describe a little more detail, uh, if you’re comfortable doing so, about the
nature of the payment plans? Do you do things like set them on a schedule, but if they have
to miss a payment or two or something, that’s, sort of, uh, understood and — and accepted,
or what — what kind of flexibility do you actually provide?
Yes. We let them modify the plan as much as they need to, because we realize that, essentially,
they either change the payment plan or they fail the payment plan. There’s no — if they
don’t have the money, they don’t have the money.
Uh, in — in fact, we started from — if you’re on a payment plan, a monthly plan, you can’t
make a payment plan, you call in and we’ll change it, but now we’re experimenting with
just letting people get on their phone and move the payment or cancel the payment. And
it looks to be working even better. So, again, it’s our strong belief — and — and
again, we don’t think that’s unique to us. We look at our clients and we look at the
technology that’s available out there as that treating people like customers and giving
them the options they’re used to is just beneficial for them but also beneficial for our clients.
And, uh, it seems to be paying off, I would even say to the extent that when people — people
don’t have money, but then, when they do have money, we are the first ones they come to.
Um, so all in all, that works. There’s a virtual cycle.
Um, if you have enough data yet, can you tell us what the completion/success rate is for
individuals? In other words, what percent of individual actually complete their plan
with you? And then, my other observation is, have you
thought about whether they — that plan and the payments under the plan could be reported
as a tradeline so that people improve their credit by, uh, paying back?
Yeah, absolutely. So, to your first question, we’re going through that analysis now. Um,
it’s a little bit complicated, because a lot of people fail a payment plan, and then promptly,
in a few weeks, they come back and they say, Oh, set up a new payment plan. So, we kind
of need to decouple that and define what we — what we call a failure to stay on a payment
plan. Um, in terms of reporting, we’re definitely
thinking about that, but, um — well, you know better than me, reporting to credit bureaus
comes with a — with the baggage. So, we want to make sure that we’re ready for everything,
not only what we think is good. Chi Chi.
Um, well, I had my original question, but actually, your response to Gail raised another
question. Um, I mean, it — it sounds like, uh, you’re already reporting as a collection
tradeline — right? — because you mentioned your dispute platform, um, handles both FDCPA
and FCRA disputes. Um, no, sorry for, um — I — I mentioned
FCRA disputes as a potential. We only handle FDCPA disputes; we do not report anything.
Okay. Uh, all right. And then — so, my — my original question was, I — I don’t know how
— how much of your portfolio is, uh, medical debt, but, you know, the fact that you use,
uh, mostly a technology interface makes me think, you know, might — there might be potential
of integrating — you know, to the extent you’re collecting for a nonprofit hospital,
screening for financial assistance, or — or screening for some other benefits.
I mean, we’ve always had very mixed feelings about having debt collectors screen for that
kind of thing because the information could be used, um, against the consumer, but I mean,
if you are trying this, sort of, consumer-centric approach, with mostly technology interaction,
that — that might be a possibility. Yeah, absolutely. Um, we’re not in health
care yet; we’re still thinking about the complexities of digital services with HIPPA compliance,
with FDCPA compliance, um, but, yes, absolutely, to the extent that we can be at a point where
a consumer has a question and the question can be answered by a, uh — an authority that
is not us, be it the CFPB or a nonprofit or whomever, and we can integrate that into our
platform with proper, um, attribution, we want to do that.
I have a very basic question, which is, how do people know you’re for real with all the
frauds and scams and — and the penalties for clicking on links from providers you may
not know about? Yeah, so that was — that was definitely an
issue in the first year, where they would get a message and say, Oh, prove to us that
you’re real, and we would have to provide them with letters from the — from the creditors.
But, um, as it’s been a few years we were around, people have been writing about us.
Um, there’s — there’s reviews about us, even positive reviews, online, which is not usually
heard of for a debt collector. So, we’re at a point where we have enough brand recognition
where consumers are willing to accept that our communication is legit.
One follow-up question: Have you found that there are certain kinds of debt collection,
sort of, part of the collection process, that are best handled online and others that people
really want to talk to someone, or do you find that most of your customers are happy
having the full range of — of the interaction using electronic means?
More than 90% — close to 95% of accounts have reached some level of resolution — it
can be a payment or dispute and so on — are done online. Um, in some cases, they may send
an email that’s captured by our call — not call center but operations team and given
their response. Majority of people don’t call in. They don’t want to talk to someone, they
don’t want to feel judged. Uh, they can’t be bothered; they’re working.
Um, and, you know, I keep getting asked, Well, what about older Americans? First of all,
we don’t have demographic information, so I wouldn’t know.
Um, second of all, our — our goal is to — we’re seeing a shift, where everyone, slowly, has
email; everyone is used to online service. And we think it’s easier for consumers, even
older consumers, to go online. You can enlarge the font, you can read it just, uh, quickly,
as slowly as you want. So, we — we can’t say — I can’t say that, uh, we’ve detected
any changes, any difference in behavior between certain types of consumers.
Um, I’m kind of following up on Neil’s question, um, about competition. And, um, it’s great
that you’ve been so successful, and everything about this platform is really exciting to
me, um, but eventually — uh, and maybe this is cynical — um, I imagine people saying,
Oh, wow, uh, TrueAccord will let me just pay a little bit or let me put it off for a few
months, so I’m going to pay these other debt collectors who are hounding me first. Is that
a concern you have? That’s a really interesting question. Um,
I think — we had suspicion that this was the case early on, but at this point, over
the past 2 years, um, we’ve — just based on consumer surveys — okay? — uh, I think
it was in the deck, about 80% of consumers that we surveyed appreciated the experience,
had a positive experience with us. So, we hear people say, I — I’ve got a few people
chasing me, but I’m going to pay you because I like you.
So, uh, I don’t have qualitative — uh, quantitative data here, but qualitatively, uh, that’s — that’s
the opposite effect. It’ll be an interesting test of whether you
catch more flies with vinegar or with honey, isn’t it? So. Yeah, I think that’s a really interesting
approach, because I think people really do appreciate, when they’re in stress, to be
able to call and say, Can I pay next month? I — I think that the goodwill that you capture,
um, you know, may cause people to pay. It’s an interesting experiment.
Just a very quick, clarifying question. Did you — I think you said in your presentation
that — that the documents, substantiating documents, are in the portal. So, can the,
uh, customer, consumer that you’re collecting from go into the online portal and then click
and see the documents that, uh, substantiate the debt?
Um, yes, they — when they ask for them. I mean, don’t — you know, probably different
states and different situations, we — you know, the availability — They’re always available;
the creditor — they’re available from day one, or we have to ask the creditor for them.
Varies, but yes, they can go online, they can click a link, and they can say, I want
more information about the debt, and we say, Dispute accepted, and we bring them the documents
back, and we send them an email, and we say, Click here to see your documents. And there’s
no letter or anything like that, and, you know, they can report bankruptcy and identity
theft and so on, and it’s — The idea is that — is that — I don’t think
it’s that controversial. You make it easy for people, and, uh, the goodwill just trumps
everything else. And luckily — or happily, I can — I can report that the data support
that. It just does better. Well, thank you so much, Ohad, for a very
interesting and helpful presentation and very impressed with the amount of time you had
to pull it all together. So — so, thank you so much. And, Josh, we really appreciated
the conversation. So, our final session of the day brings us
to the recent announcement of the Bureau finalizing the Payday Lending Rule. As Director Cordray
mentioned, the Bureau finalized the first-ever rule designed to rein in abusive practices
in payday and auto title lending nationally. It’s an important step, and during this last
session, we will review the basic components of the rule and discuss implications for the
market and future research in the area. David Silberman, Associate Director for the
Research Division — or for the Division of Research, Markets, and Regulation, will provide
an overview of the recent proposal and then will have a discussion with the CAB.
David? Thank you, Ann. So, I’m going to try and do
two things. Uh, one is to walk you through the major provisions of the rule, and second,
to give you a very high-level overview of some of the findings and rationale underlying
the rule. There won’t be time to do that in any kind of depth.
If you have clarifying questions as you go, uh, ask them — interrupt me and ask me. It
will be easier to answer them in context than rather wait ’til the end, but there will be
time, as Ann indicated, at the end for the discussion that I look forward to in terms
of what comes next and what we did and didn’t do. Who has the clicker? So, we start with, this rule, uh, had a very
long gestation period, and I thought it’d be useful just to begin a level setting in
terms of the background. Uh, the very first field hearing the Bureau
had, in 2012, was in Birmingham, Alabama, on the subject of payday and short-term lending
products. Uh, when we launched our supervisory program for non-depository institutions, the
very first set of — of exams were around payday lending, and that was because Congress,
in the Dodd-Frank Act, specifically said that that was one of the industries where we had
plenary jurisdiction without having to define major participants.
Over the course of the past, uh, almost 6 years, we’ve issued 5 research publications
on various types of loans covered by the rule. In addition to the Birmingham field hearing,
we had two other field hearings, uh, and we’ve done extensive stakeholder outreach throughout
this period of time. In April of 2015, we issued an outline of
proposals under consideration and met with small-entity representatives to discuss that
outline and also made it public so that we could get feedback from stakeholders across
the spectrum. Uh, in June of 2016, we issued a notice of
proposed rulemaking, which we set forth the proposal, uh, and in, uh — we received 1.4
million comments with respect to that rule, which we have reviewed and carefully considered.
We also had the opportunity to engage in tribal outreach on three occasions, once before the
SBREFA process began, once after it began and before the notice was issued, and once
after the notice was issued, to get tribal input.
So, the final rule that we issued in October reflects lots of input, uh, from stakeholders,
uh, reflects the — what we learned from the comments. As — as is always the case, we
learned a great deal from the comments, and I’ll try, as we — I go through this, to note
places where the — we changed from proposal to final rule in response to some of the comments
we received. Oops, what’d I just do? There we go. So, at
a high level, there’ll be two parts to the presentation that reflect the two major parts
of the rule. The first part of the rule deals with loans
that require most or all of the debt to be paid back quickly or in a lump sum — and
I’ll talk a little bit more about what that means — and for those loans, the rule requires
lenders to determine whether consumers have the ability to repay the loan according to
its terms, and we’ll go into some detail as to what that means. That’s part one of the
rule. Part two is for those loans I’ve just described
plus certain high-cost installment loans and high-cost open-end lines of credit, and again,
we’ll talk about what that means. The rule places limits on lenders’ ability to make
payment transfer attempts, and we’ll discuss that, and requires advance notices before
certain kinds of payment attempts. So, that’s kind of the roadmap for what we’re going to
be covering and what the rule addresses. So, first, the ability-to-pay requirements.
So, the rationale underlying this, as set forth in the rule, starts from the premise
that consumers who live paycheck to paycheck and who do not have precautionary savings,
from time to time do have a need for emergency credit, uh, as a result of income shocks or
expense shocks. But what our research indicates to us is that when that credit takes the form
of a — of a loan that is due to be repaid over a very short period of time or with a
large, lump-sum payment, it very often means that the payments are not affordable for the
consumer. And when the payments are not affordable for
the consumer, the consumer can do one of three things, almost, uh, as logical necessity.
One is, the consumer can roll over that loan or reborrow in order to avoid having to make
the unaffordable payment. Two is, the consumer can default on the loan and enter into the
collections process. Or three is, the consumer can make the payment even though it is not
consistent with the consumer’s budget and means, and that will show up in distress elsewhere
in the consumer — consumer’s financial lives. They may fall behind on other payments; they
may simply not be able to eat, uh, or to pay some certain basic expenses. Thanks.
Now, the last of those behaviors is very difficult for a researcher to — to examine, where a
consumer is making a payment they really can’t afford, but the first two, the rollovers and
the defaults, those are things that our researchers can observe. And so, the research we’ve done
is focused on that. You see on the slide a number of research
findings. The Director mentioned a number of these, uh, in his remarks, as well. But
the research documents how common it is to either have the rollover or reborrowing phenomenon
and/or the default phenomenon as a result of these kinds of products.
And I’ll pause to just note that when we looked at defaults, we look at it at a sequence level.
Uh, by sequence, we mean loans that are strung together, close in time. We use the definition
of loans made within 30 days of each other, although the research we published looked
at sequences and using various different definitions: 1 day, 14 days, 13 days, 60 days. So, you
can see how the numbers change depending on what definition we’re using. But the basic
pattern holds, is that you have extensive reborrowing, extensive defaults, from these
types of products. So, that led us to reach the conclusion, uh,
applying the legal tests set forth in the Dodd-Frank Act, that it is both unfair within
the meaning of the statute and abusive within the meaning of the statute for a lender to
make one of these short-term loans or a longer-term loan with a balloon payment without reasonably
determining that the consumer will have the ability to repay the loans according to their
terms, and that’s a quote from the rule. So, to prevent that unfair and abusive practice,
the rule sets forth a set of requirements, uh, the basic — we — we colloquially refer
to as the full payment test. And the core requirement is, of course, that a lender must
make a reasonable determination that the consumer will have the ability to repay the loan according
to its terms. To meet this test, the rule imposes a number of specific requirements.
The first set of requirements are information that the lender is acquired to obtain. First,
the lender must get from the borrower a signed statement. Now the borrower can provide it
orally and then sign it, and the signing can be electronic or on paper, but a — a statement
from the borrower as to what the borrower’s understanding of the borrower’s income is
and major financial obligations, by which we mean debt obligations, rent, any required
child support or required alimony. So, legal obligations plus rent is essentially what
we’re talking about. Second, the lender must obtain records to
verify the income if such records are reasonably available. Now, those records can take the
form of payroll records — paper paystubs or access electronically to payroll records.
It can take the form of bank account or prepaid account records, transaction account records
— again, either paper or electronically accessed. But the rule recognizes that there are some
consumers who live, at least in part, in the cash economy. Now, payday borrowers typically
have to have a bank account in order to get a loan, but they may get paid part of their
income in cash, work a second job, if you will, not ever deposit that money, and so
the money never shows — cannot be verified. And the rule says, in that case, the — the
lender may reasonably rely on the consumer’s statements as to what that income looks like.
That’s a change from what we proposed. The proposal would have only allowed income to
be counted if it could be verified. We were persuaded by the comments that that was too
rigid a requirement, and although there’s a risk of abuse, we felt it was worthwhile
taking and allow — allow use of these, um, consumer statements with respect to cash income.
Third, the lender must obtain a credit report from a national consumer reporting agency
in order to verify major debt obligations. Now, obviously, rent does not show up on the
credit report, uh, and the rule allows the lender to simply rely on the consumer’s representation
with respect to rent, again because of the difficulties of verification. But the lender
must get a — a credit report every 75- to 90 days.
That’s less frequent than what we proposed, but, again, we were persuaded that, on balance,
the more frequent credit reports added more cost than was justified by the incremental
benefit. And, finally, the rule requires a lender to
obtain a report from a — what we call a registered information system, and let me just pause
on that for a minute. The kinds of loans we’re talking about are typically not reported to
national credit reporting agencies, so that if a lender only got a report from a credit
reporting agency, the lender wouldn’t know if a consumer had two, three, four other loans
from other lenders. Uh, so, we’ve created a process where, uh,
entities that want — that, uh, want to be in the business of doing credit reporting
with respect to these types of loans, can come to us and get designated as a registered
information system. And once so designated, lenders have an obligation to report information
to those entities and to pull information from those entities, so that when they’re
making these loans, they’ll have insight into the loans that would not show up on a national
credit report. So, that’s the information that the lender
must obtain. Those then become the inputs to the lender’s decision as to whether the
consumer has the ability to repay the loan. Now, what the rule says is that the lender
must reasonably project what the consumer’s income and major financial obligations will
be during the month when the consumer has the highest amount due on the loan. Now, for
a 2-week loan, obviously, that means — that’s easy to figure out. If — less — uh, it’s
whenever the loan and payment is due. If it’s a longer-term balloon payment loan — So,
you figure out the — what the — you go to the month where the big balloon payment is
due, and that’s the month to look at and project income and obligations for that period of
time. The lender must also reasonably estimate the
basic — consumers’ basic living expenses, which we define to mean, those expenses that
are necessary for the health, welfare, and production of income of the consumer and for
the health and welfare of anybody who’s financially dependent on the consumer. Those don’t have
to be verified. You don’t have to ask the consumer to bring in your utilities bill and
your child care bill or whatever. Those can be reasonably estimated, uh, but the lender
must make such an estimate for the consumer. And then, once you have those inputs, the
lender must reasonably determine that the consumer can make the major — can — will
be able to afford to repay the loan, to pay their preexisting major financial obligations,
and still have sufficient money left to pay basic living expenses during the loan term
and for a period 30 days thereafter, so that there won’t be the need for the immediate
reborrowing. Uh, the original proposal said that to do
that, the lender was required to do a residual income analysis or unrestricted cash flow
analysis, some call it. The final rule allows the lender to either use a residual income
approach or a debt-to-income approach, which is a more familiar kind of concept for lenders
than residual income, and we were persuaded that it made sense to provide lenders with
flexibility to use either approach while making this assessment.
The rule does not establish a litmus test, or a, sort of, one-size-fits-all way of determining
this. We leave that to lenders’ discretion to determine, if they’re using debt-to-income,
how much — what’s an appropriate debt-to-income ratio, if they’re using residual income, how
much income, uh, is needed. That’s a — a lender judgment, and the judgment must be
a reasonable judgment. But the rule makes clear that we’ll be able
to — a — a way of looking at reasonableness will be to look at what happens — what the
outcomes are for consumers, so that if, for example, there’s a pattern of extensive reborrowing
or a pattern of extensive defaults or delinquencies, uh, or failed payments, payment attempts that
don’t go through, that’s indication that if that’s — that the lenders’ determinations
are probably not reasonable, and that will be grounds for challenging the reasonableness
of the determinations. We made clear, that can be done on a comparative
basis if you have an outlier lender, but also that the — this is not intended to say that
so long as you’re the best of the worst, uh, that’s — that’s sufficient. And so, therefore,
an objective standard can be applied, as well, in looking at these backend metrics.
As a backstop, the rule also provides that after there have been three loans in quick
succession, that is within 30 days of each other, there’s a mandatory 30-day cooling-off
period. Uh, and as I indicated, lenders must furnish information on their loans to each
registered information system. So, that’s the full, uh, uh — the major,
sort of, the core requirement of the full payment test. The rule, however, provides
an alternative means, a conditional exemption, from the full payment test for loans that
satisfy what we refer to colloquially as the — the principal-payoff option.
So, what this is about — this is very consistent with what was in the proposal for the most
part — is that we say that a lender can make an initial, closed-end loan of up to $500
without doing an ability-to-repay assessment, so long as a couple of conditions are satisfied.
One is that the borrower has not had a short-term or balloon payment loan outstanding within
the prior 30 days. Two is, the borrower has not had more than six such loans in the prior
twelve months or more than ninety days of indebtedness on such loans within the prior
twelve months. Uh, in those circumstances, we feel it’s important
that the lender go through the full payment or the ability-to-repay test before making
a loan. But if those conditions are satisfied, the rule allows the lender to make a loan
of up to $500. If the consumer, at the end of the period
— 2 weeks or 4 weeks, whatever — comes back and says, I cannot afford to repay that, the
lender can make up to 2 extensions of that loan, but each time, there must be a principal
reduction of one-third of the original amount. So, the loan steps down. If it was $300 originally,
the next loan can only be for 200, and the final loan only for 100. And that’s a way
to try and help the consumer repay the loan in affordable bites and not get stuck into
a long-term cycle of indebtedness. And at the end of that third loan, there then
is a mandatory cooling-off period. There’s also a requirement that before the first loan
is made and after the second loan is made, that there be a disclosure to let the consumer
know that this is going to be — at the initial end, that this is going to be a three-loan
sequence and that’s it, and after the second loan that this is the last one, so that the
consumer understands the terms of the — of this, uh, exemption.
Now, obviously, we recognize there’s some risk in allowing this exemption. Uh, some
consumers may not be able to — to repay. If it’s a $300 loan — the average payday
loan is about 350 — so that means each payment would be about $100 plus finance charges.
That still can be a large expense for these consumers. That’s a risk that we decided was
worth taking but with an important mitigant is because that — that risk, we’ve said that
these loans cannot include vehicle security. So, the consumer can’t be required to put
their auto up for — up as collateral, if you will, uh, in — as a condition of getting
one of these loans. Uh, these loans are only available if there
are registered information systems able to provide reports, so that the lender can know
whether the conditions are satisfied and reporting as mandatory as to these loans. Sure.
I took you up on your offer. Um, is an extension the same thing as a rollover?
Yes. Okay. All right.
It — it can be, yes. Great. Thank you.
The rule contains a number of other exclusions or exemptions, uh, some of which are new since
the proposal. First, we do not cover non-recourse pawn loans. That was true in the proposal;
it’s true in the final rule. Uh, those loans provide, in addition to the options of reborrowing
or default that I talked about, also the option of simply walking away. And so, we felt they
raised very different issues and were not appropriately covered as part of this rule.
Second, we created a new exemption for what we call accommodation loans or di minimis
lending. And the genesis of this is that our experience is that there are many community
banks and credit unions, in particular, who, when their customers come to them with a need,
find a way to meet that need. They don’t have a, sort of, on-the-shelf product that they
offer people, but they, instead, work on a case-by-case basis to meet a particular need.
Those — from all we can tell, those loans are not producing the negative outcomes that
we had, uh — we had observed with the loans we’re covering. And so, we thought it was
important to not disrupt that lending and create an exemption for it. The — the exemption
applies to lenders who are making 2,500 or fewer covered loans over a 12-month period,
and we look — we have a 2-year look-back period for that, and where the loans represent
less than 10% of their revenue over — again, for each of 2 years. Uh, so that — that defines
the accommodation loan exception. There’s also an exception for loans that meet
the parameters of what are called payday alternative loans, which is a product or program established
by the National Credit Union Administration, which, again, has had very good outcomes from
everything we’ve been able to see. And so, we’ve said that any — right now, the payday
alternative loan is a product that federally chartered credit unions can make, but we’ve
created an exemption from our rule for any institution that chooses to make a loan that
meets those terms. So, these are loans of between $200 and $1,000.
They’re minimum 30-days term. They have to have at least 2 equal, amortizing payments,
no more than 3 loans over a period of 6 months, and the NCUA has imposed a cost-cap on those.
Uh, it’s a 28% interest rate plus a $20 annual fee — or — I’m sorry, not annual fee, a
$20 origination fee. Uh, so the APR — and the APR on that depends upon the size of the
loan and the term of the loan. Uh, but, again, we felt the experience with this has been,
uh, favorable, and we have created an exemption for that.
There’s also an exemption which is new to the final rule for advances of accrued wages
by an employer or a business partner. So, this is an emerging product that is — that
technology is enabling, which enables, essentially, employees — essentially starts with the premise
that the concept of a payday — You know, getting paid once every 2 weeks, is really
an artifice of a paper-and-pencil world, where it was, really, too costly to write — write
checks to folks every day and make payroll records, uh, every day.
Technology makes that no longer true, so that there are some — some fintech companies who
are working with employers to enable an employee to access their wages as they’re earned. And
we’ve created an exemption for that, with the — so long as the, uh, products where
the — uh, which is the way they’re being structured, that the repayment comes out of
the next — they recoup from — from wages or wages of deposit into an account from a
check from the account, and there’s no collections opportunity on those, and that there’s no
fees on this other than, perhaps, an enrollment fee for the opportunity to participate in
this program to defray some of the costs. And the final exemption to mention here is
an exemption for no-cost loans. Uh, there are — these are — there’s various — these
come in various forms, but this is where there’s literally no cost, uh, no participation fee
and no transaction fee. As a condition of this exemption, there also can be no collection
and no credit reporting — uh, no negative credit reporting on these — on these loans.
So, that’s the parameters of the exemptions. Uh, as I’ve indicated, we — I’m going through
this — we made a number of major changes. Probably the most significant change, which
I haven’t yet discussed, is, the proposal would have applied essentially the same framework
I’ve just described, the ability to repay or full payment framework, to high-cost installment
loans, as well as to the short-term and balloon payment loans.
We have decided to limit coverage, for the time being, to short-term and balloon payment
loans and indicated that we will continue to consider how best to address longer-term
loans, payday installment loans, for example, where payments are required, again, coincident
with each payday, or other higher-cost, longer-term products, and we’ll certainly look forward
for feedback from the CAB about how we might think about that.
As I’ve indicated, we made a number of changes in the full payment test to make it more manageable
and practicable for consumers and for lenders. Uh, the proposal had a presumption of unaffordability
that applied after a first loan in a — or a second loan in a sequence. The logic of
that presumption was simply that if the consumer — if a consumer’s taking out a loan, comes
back 2 weeks later and can’t afford to repay that loan, and nothing has changed in the
consumer’s financial life, it stands to reason that the consumer is not likely to be able
to succeed with another loan. And while the logic makes sense, we were persuaded
by the comments that the challenges of implementing that and defining exactly how you know whether
something has changed in the consumer’s financial life created too much complexity. And so,
we eliminated the presumptions, although, as I’ve indicated, if there’s a pattern of
reborrowing, that will very much weigh in the balance in assessing whether the lender
is making reasonable determinations. And finally, as I’ve indicated, we added a
number of new exemptions and exclusions, such as the accommodation loan and the Salary Advance
Program. So, finally, on this part of the, uh — of
the discussion, just to give you our — we are required by statute to include in our,
uh — with any rule an estimated — uh, estimate of its benefits and its costs. Uh, our researchers
spent a lot of time working on that. Their estimate is, using the data we have, that
94% of current borrowers will be able to obtain an initial loan in using either the full-payment
or the principal-payoff option. So, when we look at how often consumers come back to borrow,
we think 94% will be able to still get the first loan that they would need.
At the same time, we, uh, uh — assuming everything were to stay the same, the rule would reduce
current loan volume by about 50% and current revenue by about two-thirds, and the reason
why loan volume is reduced by more than — by less than revenue is because that principal-payoff
option requires loans to be of smaller and smaller sizes. So, some of the loans that
can be made will have to be smaller than they are today, and that’s why the revenue impact
is greater than the loan volume impact. For title loans, vehicle title loans, where
there is no principal-payoff option, we’re estimating an impact in the 90% range, plus
or minus. Now, again, to emphasize that these estimates do not take into account any of
the other borrowing options available to the consumers or any of the adjustments that lenders
can make by offering any of those other options, so that there are a number of ways in which
the market can be dynamic. We did not attempt to model those. These are, sort of, static
estimates. So, let me just stop for one — So, that concludes
the discussion of the ability to repay, uh, part of the rule. I’m going to move to payment
protections, but if there are any questions, clarifying questions, let me just pause once
for — to invite anything. Okay, keep going.
Yeah, I — I’m sorry. Oops. Go ahead.
Just to be clear, when you say no collection activity on the no-cost loans, does that mean
no — no first party, no third party, no demand for payment once they default?
That’s right. They — they — uh, so, like, if — if this is a salary advance, the, uh
— a wage advance, it typically would come out of the paycheck, so the next paycheck
would be reduced. In some programs, you can go — the — the full paycheck goes into a
consumer’s account, and the consumer gives you access to take it out of the account,
but if it’s — if, somehow, the consumer doesn’t get paid or you don’t exercise it, that’s
the end of your collection rights. You might say to yourself, what kind of a
product is that, but it does seem to be emerging in the market to some degree.
Yeah, and actually, I would — uh, if you read the Book of Deuteronomy, the Book of
Deuteronomy says that you should pay the laborer at the end of the day because he needs his
wages, uh, and these are actually products that enable the Book of Deuteronomy to be
realized in real life. Uh, so I’ll move on, then, to the second part
of the rule, which I’ll cover more briefly: the payment protections provisions.
So, first, again, why the rule is needed, uh, and a — just a taste of what we say in
the — in the rule itself. Uh, lenders who make short-term — the kinds of loans we’ve
been talking about, the short-term or balloon payment loans, and also lenders who make high-cost
installment loans, often obtain authorization to debit a consumer’s checking account or
prepaid account, but more often — more commonly checking account, electronically or via post-dated
check. Uh, we at the Bureau did research to look at the outcomes from these kind of debits
and found a number of consumer harms. I just focused on the second bullet on this slide.
Uh, what we — one of the things we found is that after the payment failed two times
in a row, two-thirds of the time, the lender said, All right, uh, let me try that again.
It obviously cost the lender very little to try that again but, if it fails again, costs
the consumer a third NSF fee, and we found — So, two-thirds of the time, attempts were
made. In over 70% of the cases, the attempt failed.
Uh, and that, in particular, led us to the conclusion that it really is an unfair and
abusive practice within the meaning of the Dodd-Frank Act to continue the collection
after two consecutive attempts have failed, without obtaining a new authorization from
the consumer. And that’s the heart of what this part of the rule is all about.
Now, again, to prevent, uh, that unfair and abusive practice from occurring, the rule
establishes some requirements. And these requirements, as I’ve indicated, apply not only to the short-term
and balloon payment loans but also to higher-cost installment and open-end loans with account
access. And we defined higher cost, here, as an APR greater than 36% using the traditional
Truth in Lending Act, or TILA, definition of APR.
Now, again, that’s a change from the proposal. The proposal, we used a more inclusive measurement
of cost, uh, along the lines of what’s used under the Military Lending Act. We do continue
to believe that that’s probably a better measurement of the cost of a loan, but we — again, we
were persuaded by the comments that the complexity of using that in this context did not — was
not justified by the incremental benefits, and so we adjusted the rule to use the TILA
definition of, uh, 36%. This is now the traditional loan that’s — line that’s drawn in many state
usury laws to define what is a high-cost loan. Uh, and so what the rule says is, after two
consecutive debit attempts that fail, the lender cannot make further attempts to go
into that account without getting a new and specific authorization from the borrower.
Uh, now, two consecutive attempts means across any channel. So, there could be, first, a
check and then an ACH attempt or a check and a debit card, a remote — uh, a remotely created
check. Uh, any — any two attempts in a row that
fail, returned — uh, returned for insufficient funds, trigger this protection. The lender
— when the protection is triggered, the lender must notify the consumer, and that notice
must be given at or before the time the lender seeks new authorization, and the new authorization
must be specific as to what’s — how much is being authorized to be debited from what
account, by what means, at what time. Uh, in addition, the rule provides some prophylactic
rules regarding payment notices. So, for the loans that are covered here, before the first
payment is initiated, there’s a requirement to give the consumer a notice of when payments
are going to be taken out, again, for how much, through what account, and with some
lender contact information, as well, so that if the consumer has concerns, the consumer
knows how to contact the lender, which is particularly important in the online world,
where it’s often not clear how to get in touch with the lender or even who the lender is.
Uh, this — this first payment notice can either be given at the point of origination
or at some point prior to the first payment collection attempt, the first attempt to debit
the account. And then, if there is an unusual payment attempt,
that is, an — a payment attempt which is different from the amount that’s usually collected
in terms of the amount, the date, the timing of the collection, or the method of collection,
then an unusual payment notice is required, which will notify the consumer that a payment
is going to be attempted and what makes it unusual.
Uh, we created one additional exclusion here, and that exclusion is, if the lender is also
the depository institution that holds the account from which the debit’s going to be
made, the rule would not apply, so long as the lender’s terms are such that the lender
does not charge NSF fees when its own, uh, payment attempt fails and the lender does
not shut down accounts if an — if they make a payment attempt, and they actually put the
account negative. Uh, so, essentially, if the harms that we’re trying to prevent do
not occur in the context of this institution, the rule does not apply to those lenders.
So, finally, a few additional provisions just to call to your attention. Uh, first, as I
mentioned earlier, the rule establishes procedures and substantive requirements for a specialized
credit reporting agency, if you will, that wants to get into the business of reporting
on shorter-term loans to become designated as a registered information system. There’s
a application process, uh, initially would be a — they could — a preliminary application.
We would give a preliminary indication that if you can deliver on what you say you can
deliver, you will qualify. There’s then a final application and a final registration.
There’s a record retention requirement that’s part of the rule for 3 years. Uh, there’s
an anti-evasion provision that’s part of the rule that prohibits actions taken with the
intent of evading the requirements of the rule, and the rule becomes effective 21 months
from Federal Register publication, except for the provisions regarding registered information
systems, where the — In order to allow people — entities to become registered information
systems, those procedural provisions take effect 60 days after publication.
The 21 months, I should explain — first, that’s longer. We had proposed 15 months initially.
We were persuaded through the comment process that we needed — in order to allow enough
time to go through the process of creating registered information systems, and then enabling
lenders to onboard with the registered information systems so they could report, required more
time. And when we sort of added — we sort of added together all the pieces that had
to go — take place before you could get — we could go, we came to the conclusion that 21
months was the right amount of time that would be needed in order for this to be effective.
And so, there’s a 21-month effective date. So, uh, let me pause again and ask if any
questions on anything I’ve said about what the rule provides or its underlying rationale,
and if not, I’ll turn it back to Ann for the discussion.
Uh, David, is, uh — what is the consequence or penalty to a lender that, perhaps, doesn’t
comply with the, uh, full payment rule? So, the rule itself doesn’t speak to the remedial
consequences. That would be a matter for supervision and for enforcement. The rule also can be
enforced by state attorney generals, uh, and that would be so the — that would be determined.
Obviously, from a Bureau perspective, uh, we have the authority to require restitution,
uh, which could — would — how we’d have to figure out what that means, uh, and also
to assess civil monetary penalties. Uh, if attorney generals are enforcing it, that would
be up to the courts. Uh, clarifying, I think you — I understood
you to say that the payday alternative loans, part of the NCUA rules can be made by any
depository institution? So, for purposes of our rule, any depository
or non-depository institution, if they made a loan that met those terms, it would not
be a violation of our rule, and we would not be requiring them to first make an ability-to-repay
determination. Okay. Wow, that’s cool. Thank you.
Lisa, and then Jim. Um, such interesting and important work, and
I know it’s taken so long to do it. I’m curious about — I mean, one of the trickiest things,
I think, is the ability-to-pay thing, and I know you’re making a bunch of assumptions,
you know, that people can accurately predict — uh, actually report their income and their
debt obligations, et cetera, and I’m curious about whether there is, um — whether you’ll
come back around and kind of evaluate, at some point, how — how well that’s working
and if there’s room in the whole process for tweaking the rule at some point if you find
that, um, some of these, kind of, educated, um, assumptions are — are working the way
that you wanted them to in practice. So, two points, Lisa. Uh, first, just to make
sure we’re clear that, uh, for the most part, we expect income will be verified. We think,
uh, it’ll be the exception where there — uh, there’s income that cannot be verified either
through a checking account or through payroll records, and major financial obligations,
other than rent, will be verified through the credit report. So, hopefully, it’s not
as, uh, untethered as you’re suggesting. But with that said, uh, we have a statutory
obligation to do an assessment of every — every significant rule 5 years after the rule takes
effect. Uh, we certainly have, throughout our history, long before the 5 year — we
have not yet reached 5 years on any rule, but we have gone back and made adjustments,
where we thought that was necessary, on a number of rules. So, I would expect, uh, that
we would be continuing to monitor and make assessments as we go, and then do a 5-year
formal lookback when that time — when the time comes.
Uh, so the — the — the need for the registered information systems is — is understandable.
Are there — under the rule itself, are there any limitations on what that data could otherwise
be used for? Other than — Jim, the — the registered information
systems would be credit reporting agencies, so it would be subject to the limitations
under the Fair Credit Reporting Act as to how the data can be used. We considered imposing
other — other restrictions but felt that, uh, given that Congress had decided on what
was and was not permissible use of credit reporting information, we felt we should stick
with those limits. Neil and then Brian and then Josh.
So, having followed this from the beginning, from the original rule and all the free advice
that you got from the myriad of constituents, I think you’ve done a terrific job listening
and kind of folding in everybody’s thinking to come out with a rule that I — you know,
uh, I — I hope will, uh, actually lead to some innovation in terms of lower-cost products
that would actually benefit the — the consumer community.
Um, you — uh, what’s surprising to me is that the 94%, uh, people would still be eligible.
That was higher than I would have expected, and — but have you also set any default targets
that you would expect that would be, kind of, a good measure of success? And also, is
part of the ability to — or the — is — is there an ability to rotate that or refinance
that from one payday loan to another? Uh, so let me — Hope I get all these questions.
So, let me start with, the — don’t forget, for the terms of the 94%, the principal payoff
option is available to everybody, uh, without any ability-to-repay requirement, so that,
uh, for — for every consumer, at the start of any 12-month period, 100% can get the first
— first time, and that’s — uh, with 94%, it’s people who are coming back more times
than that would be available and who we assume couldn’t pass ability to repay. Uh, so your
second — remind me now. So — Default target, so —
We have not — we have — So, we discussed, we do not establish any default targets at
this point. We don’t yet feel we have enough experience to be able to, uh — to know what
— what those would look like. Uh, that’s something that I think, to Lisa’s point, we
will evolve towards, perhaps as a supervisory guidance matter as we get more and more experience,
uh, with what lending this is — what lending in this — in this market, uh, can — can
look like, when there’s, uh, serious underwriting going on.
And your third — Can, uh — can people just hop from one payday
loan to — uh, provider to another and kind of, uh, outflank you that way?
So, the — that’s exactly why the registered information system requirement is so important,
why we didn’t put the rule in effect until, uh, the — until we felt there was enough
time to have those in effect. The no more than 3 loans in a sequence and the 30-day
cooling-off period applies not just to loans by any given lender but to any loans that
were outstanding, uh, so that the lender was required to know that and know that they’re
up to a 3-loan limit or know that this is somebody who’s just had 2 other loans, and
if you see a pattern that, uh, Lender A has set up a business of taking somebody else’s
business after they’ve made 2 loans and pretending they’re a first loan, that would sort of be
— raise eyebrows at the very least. Who’s next?
Uh, thanks, David. Again, I — I’ll agree with Neil, I think, on — on good work done
in constructing the rule. I think in addition to providing a necessary and beneficial consumer
protection, it seems well constructed, particularly the repayment test, given its similarities
to what card companies have now been doing, uh, since the Card Act, over 5 years ago,
in terms of assessing repayments. And — and, uh, in part, it’s probably driven, um, the
industry’s historically low, uh, level of charge-offs.
I think, you — you know, the — the reduction in volume begs a question, you know, what
— what’s going to take its place, right? There’s still a need to borrow there, and
I would expect, given the nature of this product being both a high-cost but also high-convenience
product, and the density of retail distribution that you typically see with this product,
that it’s likely that — that the existence today of this business model probably is suppressing,
to some extent, innovation and lower-cost options from coming to market.
And I think it’s reasonable to expect, uh, that you would see innovation and probably
lower-cost options, either being delivered digitally or the like, uh, that would hopefully
take up, uh, some of the slack, uh, or some of the — some of the gap, I guess, made from
the — from the suppression of — And it’s quite foreseeable that this industry
itself will evolve products, so, uh, uh, you know, we — we don’t know the nature, as David
said, of — the dynamic nature of those reforms in the market, but just as the mortgage rule
spurred reforms in the mortgage market — people don’t do no-doc loans anymore — uh, likely,
this rule will spur reforms in this market, as well as, as you say, potentially new entrance.
And just a reminder that what’s being suppressed is mostly the long tails on these loans, not
the additional borrowing. So, whether — whether, then, in fact, they’ll — that’s a need that
needs to be replicated or not, uh, remains to be seen, but certainly as innovative products
develop, it should be less and less necessary to have those kind of tails.
Uh, yeah. I — I want to, additionally, complement the Bureau on a very thorough, uh, process
here. And I think, um, really, uh, it — it’s really important that the rule is really anchored
in ability to repay. Uh, we saw, uh, through the mortgage crisis,
that this is — that — that not having this kind of basic principle in lending, uh, can
be disastrous. And we’ve seen, through many years with this industry, that not having
an ability-to-repay standard has — has caused a lot of, uh, uh, difficult situations for
— for consumers, and especially low-income consumers, uh, getting caught in a — a cycle
of debt. Uh, and so that’s a really important, uh, piece, I think, that will, you know, as
others have said, um, push the market towards fairer and more affordable products.
Uh, also just, um — also to compliment you on the focus on the penalty fee prevention
requirements. Uh, that’s a really important piece, and — and, uh — and I’m glad that
that wasn’t lost in the shuffle. Uh, we — we’ve seen, in New York, where brick-and-mortar,
uh, payday, uh, lending is — is — is prohibited due to our usury caps. Uh, there’s been a
lot of online payday lending, and, um, that’s, uh, been accompanied with, um, these patterns,
where people are repeatedly, uh, hit — uh, their banking accounts are repeatedly hit,
and we’ve seen people who have racked up more than $1,000 — uh, quite a few — in, uh — in
NSF fees, uh, and — dramatically adding to the — the — the price of these loans and
pushing people out of the banking system. So, um, it’s — it’s heartening to see that
the — the Bureau is also focused on this problem, because it’s a big piece of it. Thank
you. Howard? Lynn and — and then Kathleen.
Thank you, and I apologize for my voice. Um, I think it’s interesting that you’re doing
this in Florida. One, thank you for what you’ve done. I — I
think it’s very impressive that you heard from over a million people and that you made
the changes that you did. Um, again, I do think it’s interesting that
you’re raising this in Florida, because Florida, I think, thinks it has a model payday loan
law. And, um, I think it’s anything but model based upon the impact it is having on low-income
people, the working poor, and in particular, our military families, um, of which we’re
very proud to have in Florida. Um, I think one reason why the rate in Florida
or the — the loan in Florida is perceived to be a model is because instead of using
interest rates, it uses the term fees, so it’s — uh, the fee is 10%, which makes it
sound very inexpensive when, in fact, the APR is probably around 300-plus percent. Um,
we also hear that the grace period that is provided by Florida law sort of makes up for
this ability-to-pay concept, but the grace period is very rarely offered and basically
a useless provision in the Florida law. Um, I wanted to also address, um, the provision
about the — the, uh, limit on the amount of debits that can be made on a bank account.
Um, I think that is extremely important, because, in particular with our military communities,
I have seen, um, members of the armed services whose accounts were debited 10, 11 times a
day, um, for — to make a — a payment for a payday loan, which is, in my mind obscene.
In Florida, we do have a relatively decent title loan law, um, where the interest rate
was reduced to a maximum of 30%. Before that law was passed — I think it was in 2000 — we
heard that — that — that, um, low-income people would have no other resources to obtain
credit, and the market for them would completely dry up. I think we have found that not to
be true, because the credit unions have moved into that space, and also the nonprofits.
Um, the other interesting thing about that is, we still see title lending in Florida
for rates in excess of 30%, um, because the lenders use other parts of Florida law to
get around the title loan law. So, it’s a — sort of a continuous game of Whac-A-Mole,
and I really appreciate the fact that this addresses the ability to pay rather than an
interest rate number. Um, um, so that — uh, I’ll end there. That’s
— Thank you. Uh, I’ll just say, we — we — we had a considerable
discussion back and forth with, uh, Florida officials over the last several years. When
we first put out our first report on payday loans and the problems that we saw with the
— the cycle — extended cycle of debt, nationwide, in the states that have payday loans — and
again, it’s about 35 states, not 50 — uh, there was an analysis done by a regulator
of how Florida payday lending stacked up, uh, in — by comparison.
And it was somewhat better than the average across the entire 35 states, uh, because of
some provisions in Florida law, but the gap was not all that — all that large between
them. There were still long cycles of debt, uh, and the same types of problems were exemplified.
So, that was one of the things that we considered as we thought about, uh, this rule.
Uh, I — I want to add to, um, the accolades that go to the Bureau for this really fabulous
rule. Um, I — I think many of us have been thinking about payday for years and how to
best address it, and having the affordability test is quite wonderful. And I — I know it’s
going to be something of a challenge for the payday lenders to, uh — to develop their
test, but I think it’s something they can do, um, and there — there are lots of good,
techy people who can help them with that. Um, and it’s nice that there’s so many different
angles that we’ve been talking about, about payday lending here, I mean, one being the
discussion of, um, uh, the role of NGOs in potentially providing payday loans. Some banks
are exploring, uh, products. We’ve talked a little bit about employer-based products.
Um, at the same time, we have the complaint line, which, from my experience — because
that’s — I’ve got student, pretty regularly, coming in to talk about payday lendings that
— payday loans they’ve taken out because they don’t get their student loan payments
until after school begins, so they don’t have money to buy their books and have had all
sorts of problems. And every single one of them has had it resolved through the complaint
line. So, it’s kind of — this is like the — the,
um — the holistic treatment here of payday loans, and I think you’ve done a great job.
I’m also, um, uh, really pleased that you have this post-hoc analysis of reasonableness
for the affordability of the loans. I think that, um — think it’s a, uh, uh — hopefully,
a model for us, as we go forward, in thinking about affordability and different products,
um, that — that using a — a — an analysis on outcomes can be very helpful and potentially
less expensive for, um — for creditors. So, thank you very much. Good job.
Julie and then Chi Chi. Um, I’ve been following this for many years,
and I’m very grateful for all the work that you’ve done. And I think you’ve done — how
you’ve integrated so many of the comments into the rules is very commendable and impressive.
So, I do have one clarifying question. Do these — does this new rule also apply to
online payday lenders? Yes, it applies to — Uh, yes, storefront,
online, uh, licensed, unlicensed, uh, anybody who’s making loans that meet the product type
it applies to. That’s great. My second one is, the word on
the street from payday lenders in Nebraska is, they’re going to do the bait and switch.
So, they’re going to change their licenses to be credit servicing organizations so the
rule does not apply to them any longer. Have you heard that? Um, what can be done if they
do that bait and switch? I am fairly confident that the way we have
defined a lender, we will be able — that — that will not be an effective technique.
Um, so I want to echo the compliments about, great work, um, by the CFPB on this rule.
Um, I know the tremendous amount of work you guys put in. It’s well-reasoned, it’s well-researched,
and it’s deliberative, and it’ll make a huge difference to the consumers in the 35 states
where there is payday lending. Um, I mean, ultimately, we hope that those
35 become like the other 15 and just ban it, um, but in the meantime, this is — the — the
— the best you can do for consumers is to have a rule like this, and, you know, really,
kudos on the ability-to-pay analysis. That should be the touchstone of all lending. All
lending should be on ability to pay. Um, the idea you make a loan to someone who can’t
afford it is just — is wrong. Um, so I commend you on that.
Um, I do have a — a small — just a clarifying question or point, um, to follow up on Jim’s
question about the registered information systems. Um, you know, the — the ability
to use that information for other uses is — is something that had raised our eyebrow,
and I hope you will, um, think — will look critically upon a lender who’s making firm
offers or using the information for prescreening for folks who already have taken out several
of these loans during a year. Brent?
Uh, it appears your staff has also watched what happened in Colorado, where we had some
progressive legislation, and, uh, a little way around that, a little detour, was, uh,
to stop the, uh, renewals, but that was done by, uh, a new focus on reborrowing or taking
out a new loan. So, it appears the registered information system helps plug that gap and
that concern. Thank you. We actually — I placed a call to the Colorado
Attorney General the day, uh, that the rule was issued because — because of the way,
uh, as — as David has explained, the rule evolved in the process of the rule writing.
Uh, it does not actually constrain the Colorado model, which is based on a longer term, uh,
of, uh, loans. And so, uh, I was able to let the Colorado Attorney General know that the
reformed, um, uh, framework that Colorado had developed is, really, unaffected, I think,
by this rule, so. It — it — and I appreciate that, because
it stretches out a payment period. But what is happening now is, people are popping out
new loans and restarting the clock, so. Well, I just want to echo the comments of
thanks, coming from the state of Texas, where these businesses have no meaningful limitations
on their charges, on the way these loans are structured, on refinances. It is so meaningful
to have something like this as a first step. And this issue has grown and grown and grown
in our state, driven by grassroots, community-based organizations, churches, nonprofits.
We — we surveyed and — and spoke with a number of churches and nonprofits, and between
a third and 75% of their clients coming in asking for rent assistance, food assistance,
other kinds of direct services, were in trouble with these kinds of loans, and it just took
them scratching the surface to — to realize it. And when some of the local lenders found
out that churches were paying off these loans, they actually told their clients who were
in trouble, Oh, why don’t you go to the local nonprofit; they’ll pay it off for you.
So, nonprofits and churches that were investing money in families, in building families and
getting people out of poverty, was — were finding that the money was being drained because
these short-term, easy sources of cash were pulling families into some pretty deep financial
hardship. So, it’s very real. In fact, just today, I got an email from a
North Texas woman who had been in debt to an auto title lender for 3 years and was asking
me what we could do to help. Under the current state of Texas law, there’s not much that
can be done, but if this rule goes into effect, it will make real, meaningful steps forward
for a lot of the families. I did want to talk to the, um, question about
additional research, and one issue of concern in our state is the other side of the rule
that didn’t happen, which is the high-cost installment lending. Because our laws are
very open and flexible, it’s quite likely that that’s a direction that these businesses
will take, and to the extent that — of what we’ve seen in the market at these 5- and 600%
APR, 6-month installment loans, we see similar problems for borrowers in that space.
And so, we’re really hopeful that this will be a first step and that you’ll continue to
study those markets, so that we can really create a market that’s based on the success
of the borrower and that helps families move ahead, because that’s really our goal.
Any final — Lisa? I’m still trying to wrap my mind around 1.4
million comments, and I’m curious about how you even, um, go about working through those
and, uh, you know, uh, getting wisdom from them, implementing it. But I — I can’t even
imagine, you know, what that would look like stacked up in paper.
Well, a lot of it’s email, but, uh, a lot — you know, essentially, a lot of people,
uh — a lot of people working on this, going through them. Uh, there’s some of them where,
you know, we were able to do computer analysis, and if they were essentially a petition with
multiple signatures, we didn’t have to read each one; we were able to analyze and say,
These are — these are really duplicates, but anything that had unique content — materially
unique content, somebody had to then review and consider what the implications were.
Uh, and, you know, many of the comments were — uh, while the vast — uh, in terms of the
vast number of comments, they would be short. Uh, there are hundreds of groups who would
submit 30-, 40-, 50-, 100-, 200-page comments that
had to be carefully analyzed, as well. Have you thought about enforcement? So, once
these law — these rules go into effect, how are these rules going to be enforced, and
who’s going to, kind of, be the watchdog to make sure that people are complying?
Well, as I indicated, we have supervisory jurisdiction over — and enforcement jurisdiction
— we have supervisory jurisdiction over any payday lender and enforcement jurisdiction
over any lender, uh, so the Bureau will have a job to do. Uh, the state attorney generals
have the — the authority to enforce this, as well. Uh, and we would hope to be working
with our state partners, uh, to — first of all, to apply our resources.
Ruhi? Really, quickly, I want to end on a positive
note. Uh, we have a payday alternative in, um — with a credit union in Rochester, and
we’ve been tracking it over a period of time. And without going into all the details, it’s
proved extremely successful. So, based on that, I, you know, will be sitting
down with our financial institutions in three different jurisdictions, MSAs in New York,
and essentially spending the not very — in the very near future starting to come up with
some products. And I hear, uh, a lender sitting quite close to me, uh, may be working on one
already. So, we will, uh, uh — we’re — So, I’m — I am really thrilled, and, uh,
I just want my — you know, our clients at Empire Justice Center of New York and, of
course, Josh’s New York City to have safe alternatives that build assets and equity
and wealth. I’m sick and tired of, you know, predatory practices that take money from the
most vulnerable in our communities. That is not good for our economy, it’s not good for
New York, it’s not good for the U.S., and I am sick of the transfer of wealth that’s
happening from these predatory practices. And I really laud all the work you’re doing,
not just on payday but all the other things that we will continue to work on until people’s
hard-earned wages aren’t robbed from them by abusive practices. Thank you.
Let me just add one note that I should have mentioned that occurred to me. This rule sits
on top of state laws, uh, so that to the extent there are state laws that are — have additional
protections, including interest rate caps or the like, uh, this law — this rule — So,
when I said, for example, that the payday alternative loan is exempt from this rule,
it would not be permitted in a state where it does not meet whatever the state usury
limits are, and that’s an important point to keep in mind.
Um, and those of us from New York and the — with the high bar states, the high — where
— where, you know, you are the floor and we’re the ceiling, uh, we’re always grateful
for that. That has been a long subject of contention for — for some of us.
Well, thank — thank you — thank you, David, and with these concluding remarks, I’d like
to — oh — um, I’d like to thank the Bureau staff, the CAB members, for today’s discussion.
We’ve had great conversations here, and we’ve learned a lot about the news ways the Bureau
is working to serve and — and protect consumers. I want to thank CAB members for providing
your feedback and your insights, and I know that the Bureau is going to take them back
and continue its necessary work of protecting consumers.
The formal meeting portion is now adjourned, and I’ll turn this meeting over to Zixta Martinez
to facilitate the public comment portion of the meeting. Thank you.
Thank you, Chair Baddour. My name is Zixta Martinez, and my role today is to facilitate
testimony from members of the public here today.
An important part of how the Bureau helps consumer finance markets work is to hear directly
from consumers, from industry, from our state and local partners, and from community advocates
across the U.S. One of the ways that the Bureau gathers public feedback is through events
such as these. Before I open the floor up for public comments,
I want to remind you that there are several other ways to communicate your observations,
your concerns, or your complaints to the CFPB. You can submit a consumer complaint with the
Bureau through our website, at ConsumerFinance dot gov — our website will walk you through
the process — or you can call 1-855-411-2372. The Consumer Bureau takes complaints about
mortgages, car loans or leases, payday loans, student loans, or other consumer loans. We
take complaints about credit cards, prepaid cards, credit reporting, debt collection,
money transfers, bank accounts and services, and other financial services.
We also have a feature called “Ask CFPB,” where you can find answers to over a thousand
frequently asked questions about consumer financial issues, as well as additional resources.
We also have a Spanish language website, CFPB en Espanol, which provides access to essential
consumer resources, as well as answers to consumers’ frequently asked questions.
I encourage you to visit ConsumerFinance dot gov to learn more about the resources and
tools that the Bureau has developed to help consumers make the best decisions for themselves
and for their family. So, now it’s time to hear from members of
the public that are here today. Some of you have signed up to share comments and observations
about today’s discussions. The public comment portion of the meeting is also an important
opportunity for the Consumer Bureau to hear about what’s happening in consumer finance
markets in your community. Each person who signed up to provide testimony
will have 2 minutes to do so, and what we hear from you is invaluable, so I encourage
you to please observe the time limit so as many folks as signed up to deliver testimony
have the opportunity to do so. When I call your name, please come up to one of two mics
at the top of your aisle. Our first member of the public is J. Philip
Miller-Evans. Andrea Lowry ? Good afternoon.
Good afternoon. Um, I am a local pastor here. I’m here representing
the Cooperative Baptist, uh, Fellowship. Um, I appreciated, um, Ms. Baddour’s, um,
comments about, uh, Texas. Uh, that’s one of the major reasons that, uh, we have been
involved in advocacy work, uh, to control, uh, payday lending, um, because it is indeed
changing in terms of our work with people, the need.
Um, it used to be, people came and asked for help with the water bill or an electric bill.
Uh, in the last few years, almost all of the requests coming to me have been to pay off
payday loans. My deacon in my church, uh, had one of those
loans. Um, it took him 8 months to pay off that loan using his tax return. He was a 30-year
nurse. Um, and then, he took a second one and was not able to pay that off and came
to the church, uh, for help on that. Um, I appreciate the work of the CFPB, uh,
on this, uh, on these controls, and, uh, we certainly are working, here in Florida, to
put a 30%, uh, cap rate, uh, on all lending, uh, here in the state, which I think is an
important next step. And I understand that was not within your scope, uh, to be working
on that. Uh, so, thank you for your work. Thank you for your comment. Andrea Lowry?
Hi, um, I am against the proposed rule. Um, as a consumer, I feel like I have financial
freedom whenever I’m able to take a short-term loan, whenever I need it, um, and I don’t
have any issue with it, and I — I feel that it’ll be harmful to check my credit every
time I want to do so. Thank you for your comment.
Charity Waters ? Russell Meyer? Hello, I’m Russell, uh, Meyer, Reverend Dr.
Russell Meyer, uh, Florida Council of Churches, Executive Director, about a million people
on Easter Sunday in Florida and a pastor of two, uh, Lutheran congregations in urban Tampa.
Thank you for meeting in Tampa today. Your presence here recognizes the significance
of the economic challenges that we face in Tampa Bay.
Are you aware of the social mobility study Harvard and Stanford Research released last
year? In a deep analysis of the hundred most-populous counties in the nation, Hillsborough County
finished fourth from the bottom in social mobility. That study suggested that any child
reared their whole life in this county would make $3,500 less per year, according to the
national income average, over their lifetime. That’s house ownership. In other words, climbing
out of impoverishment is almost impossible for people in this county.
Payday lending keeps people impoverished. With the reality of how entrenched economic
disparity is in this region, I want to applaud what you are doing to rein in any and all
forms of predatory lending. We all know that access to liquidity, whether in assets or
credits, is fundamental to the quality of life in our society. When those with the fewest
resources in our community must pay the highest costs for loan expenses, then we as a society
are saying, the impoverished shall remain poor always.
As a person of faith, who has taught world religions and ethics in our community college
and other settings, let me say that all major religions and wisdom traditions consider it
immoral and unethical to knowingly take advantage of the impoverished in ways that aggravate
their circumstances. Thank you for citing Deuteronomy. God loves Scripture.
Thank you, Mr. Russell Meyer. Charity Waters?
Hi, I’m Charity Waters. I’m against the proposed rule.
Thank you, Ms. Waters. Pardon my pronunciation of this next name.
Um, Shantell Jennings , and then I’ll also call Christopher Daugherty.
Hello, good evening. I am against the proposed rule. Um, I heard you guys stating numbers
earlier. Ninety-four percent is, um, a big success rate, and, um, I just wanted to point
out that, um, there’s been millions of dollars spent on satellites and things like that to
— to where we are be able to basically predict storms and everything like that. So, basically,
the 94% that you predict will be a success rate.
Irma was predicted to be able to go one way, and at the last minute, she went another.
She went directly over where I live. It affected my family directly, because my mom is disabled.
She lived in a flood zone. She was unable to move quickly, because she cannot sit down
or stand up for long periods of time. I did not get paid until after Irma came, and I
was able to take out a short-term loan to where as I was able to get supplies, which
were almost gone. Had I had to wait until I got paid, there would have been nothing
left for my mom, my sister, and their children. I definitely oppose this rule, because it’s
very hard to be able to predict something, when life is always unpredictable, always
unpredictable. So, I am here today to let you guys know that I am against this rule.
Thank you. Thank you, Ms. Jenning, and our thoughts and
our prayers are with you and your family and the many others affected by the natural disasters.
Christopher Daugherty? Yes, my name is Christopher Daugherty, and
I wanted to share with you a couple of things, the first one being, 20 years ago — 20-plus
years ago, because I don’t want to reveal my age, because, you know. But 20-plus-some
years ago, had this option been available in the state of Michigan, it may have prevented
bankruptcy. I know you’ve talked about this putting people
into bankruptcy. Right now, here and now, in the state of Florida, let me tell you,
marriage is not cheap; divorce is not cheap. Right now, it is payday loans that have kept
me down — from going down that slope of ultimately filing bankruptcy and nobody getting their
money. And the other thing that I kind of want to
comment on is, you’re — you’re talking about this and looking out for the consumer, but
what it sounds like to me, personally, and it really offends me, because you’re not looking
out for the consumer; you’re trying to control the consumer. You’re lumping payday loans
with hundred-thousand-dollar mortgages, million-dollar mortgages, $70,000 car loans. They’re not
the same. While this proposal might help with car loans and different things like that,
payday loans are a big, big difference. And the other thing that I will say I’m highly
offended by is, in all the talking here — and, Lynn, you — you drove this point home with
me, and I apologize, I don’t mean to throw you under the bus. You’re talking like the
consumer’s not smart enough to figure this out. You stated you had respect for the middle
America, for the military, but you insisted on stating what the APR was on those loans,
as if we weren’t able to figure that out. So, a lot of what you’re saying is making
people feel that way, that — — we’re not intelligent as a consumer.
Thank you, Mr. Daugherty. Claudia Lawson and Alice Vickers ?
Hi, my name is Claudia, and I oppose the rule. Um, my daughter is now 14, going on 15 years
old. I was a single mother, and I liked the fact that I had the cash advance or the payday
advance to be able to rely on. I didn’t use it every payday. I used it what it was for,
for emergencies. When you have a kid, they get sick; you don’t necessarily have, you
know, savings as a single mom. So, um, when I moved to Florida, I — I used it as I needed,
and still, to this day, uh, maybe I don’t need it now, but I like the fact that I have
— that it’s available to me without my credit being ran if I needed it. So, I oppose the
rule. Thank you, Ms. Lawson. Thank you.
My name’s Alice Vickers. I’m the Director of Florida Alliance for Consumer Protection,
and we advocate for consumers here in Florida. And, um, I agree that consumers know what
they’re doing in many cases, and I’ve yet to hear from a Florida consumer who would
not like a payday loan that they could pay less for and who would not like — who would
appreciate a payday loan that didn’t put them into the debt trap. So, kudos to the Consumer
Financial Protection Bureau for implementing rules that will help us go in that direction.
I agree with what one of your CAB members said. What we tell our state legislators is,
we’d like to see a leveling of the playing field, because we believe these rules will
help bring a growth that we’re already seeing here in Florida around good alternatives for
these smart consumers, so they can have loans that will cost less for them.
And like I said, we’re seeing growth here in Florida among the low-income credit unions,
um, lending circles who charge nothing. Uh, there’s a big growth in that down in Miami,
particularly among the Hispanic communities, uh, the Navy and Marine Corps Relief Society,
no-interest loans to our veterans. Um, but there’s still a lot of work to be done.
And along those lines, here in Florida, we are seeking a rate cap. We have taken, um,
Director Cordray’s advice, saying that a rate cap is what all states need, and because we
know consumers would like loans that cost less — because who doesn’t — um, we have,
uh, been pushing rate-cap legislation here in Florida, and we are very excited, because
it has bipartisan support. So, we think, in combination with these rules and a rate cap,
we can have really good products here in Florida and across the country for our smart consumers.
Thank you. Thank you, Ms. Vickers.
Coy Permenter and Daylene Cosby? Hi there. Uh, my name is Coy Permenter, and
I oppose the rule as written. Um, little story I’d like to tell you, and
I’ll be very brief about it. I know of a couple who, um, last June, 2016, lost their son in
a fatal car accident. He was in, uh, Alaska. Um, they were able to use credit cards and
borrow, uh, the money to get to Alaska; uh, however, um, it came to the fact that they
had to bring the body home. Uh, when that came about, it’s like, you know, How are we
going to do that; how are we going to get the money to do that?
Um, during this period of time, uh, the, um — the wife took about 2 months off of work.
Um, so, uh, they were able to use the cash advance product several times in a row, not
together, not a rollover or anything like that, but, uh, use it and able to get back
to a point where they were able to pay the cash advance off and not use it again. As
the rule is currently written, if they had used it more than three times, they wouldn’t
have been able to. Um, again, I think, um, there — there are
a lot of — there’s a lot of talk about, uh, the, uh, APR. APR — we’re talking about,
uh, using it for a year. It’s not meant for that. It’s — you can’t use it for a year.
So, again, I think we throw out APR, triple digits. Well, nobody in Florida is able to
use it for a year. Again, um, I — I think there are a lot of, uh, misconceptions that
are — that are being thrown out here, so, um, I just want to say that I think it’s a
— it’s a good product, I think it’s a good foundation, uh, the way that it is in Florida,
and I think that’s the way that it was meant to be used. Thank you, Mr. Permenter.
My name is Daylene Cosby, and I’ve heard quote a few things here that are very good ideas
— I think, to protect the consumer, excellent ideas. But I find that in my experience with
payday loans with a certain company, who’s the only company I use for payday loans, the
rules that they have established really protect all of us. And for the blanket that you have
for those who might be abusing this rule, I think that’s unfair to certain companies
who don’t abuse it. So, payday loans are very instrumental for
me, because I have family members, and I’m — I’m middle America, got a great job, and
it pays decent, but there are those times when you need that help, and because of the
caps that this particular company puts on our loans, it — it makes it easy to repay.
And, also, the — what they have as far as the fees, they’re reasonable.
So, in my experience with payday loans from this company, I really think that you should
look at that on a case-by-case basis, if that’s at all possible, for companies who are not
abusive. Thank you, Ms. Cosby.
Wendy Ginburg and Darlene Lucas? Hi, mine has nothing, really, to do with the
payday loans. Um, I had to fight a bank for over a year. My house burned down, and the
bank took my $65,000 that I owed and still was foreclosing on me. So, if it wasn’t for
your cooperation, I would have lost it, and we won. So, I just wanted to say thank you
very much. Thank you for being here today. Hello, my name’s Darlene Lucas. Um, I don’t
agree, uh, with the way it’s written right now. I do oppose. I believe there should be
some more changes. Um, myself, as a consumer, I feel that it’s
my choice to make my own financial decisions. If I choose to do a cash advance currently,
the way it is, with a certain company, I pay $5 for every 50 that I borrow, plus a state
fee of $2. So, if I do a $500 cash advance, I pay $52. If I mistakenly make that same
mistake in my checkbook, I could potentially pay 10, 12 overdraft fees, which is $37 each.
I feel, as a consumer, it’s my choice. The other day, I had to go to Tire Kingdom.
I chose to go there. I paid $310 for 2 front-end tires. I was told I should not drive my car
any further. I had to be to work the next day. Luckily, I had the money, but I don’t
get paid until tomorrow. A cash advance would have helped me out, whereas a bank would not
have. Credit cards charge astronomical fees to the
— to the average consumer. I don’t feel that I should be forced to use credit cards or
pay extra fees to my bank, when I can go to my neighborhood cash advance company and borrow
money when I need it. You can’t determine what’s going to happen
in life. The 3 in a row and a 30-day cool-off period — what if that hits at Christmastime?
What if that hits when you have a couple of kids sick or the hurricane that came through?
Who are you going to turn to? You can’t turn to your neighbors. You can’t turn to your
banks. It’s the cash advance companies in the state of Florida, one in particular, that
you can always go to. They’re always willing to work with you, they’re always friendly.
And as far as the grace period goes with the credit counseling, they are predatory. If
you take that route, you’re paying them fees to do absolutely nothing for you. They take
a portion of your payment. They then pay a small amount towards whatever debt, whether
it’s a credit card, whether it’s a cash advance, whatever it is that you owe. Not only that,
but it reports to your credit as slow payment, so that negatively impacts your credit score,
as well. Thank you, Ms. Lucas.
Thank you. Thank you for your time. Bishop Zema Florence and Jennifer Bustegian
. Hi, my name is Jennifer. Um, I don’t think
you guys have really, um, explained the Florida market very well. Um, in the state of Florida,
you can only have one cash advance open at a time.
Um, what I feel is really predatory was my student loans. Um, my debt-to-income ratio
was so high that I could not get approved for any type of loan, and, um, when my roommate
moved out and I had to pay the entire bill myself, the only thing I could do was get
a cash advance. And so, by taking away, um, that ability to get a cash advance without
my credit being checked, um, would have probably put me on the streets. I probably would have
gotten evicted, and, um, I really do oppose this rule. Thank you, Ms. Bustegian.
I represent 12 churches between Florida, South Carolina, and Georgia, all with different
make-ups of people, with different career occupations, on down to those who don’t have
careers; they’re in, uh, some bad financial situations.
I oppose this ruling because I have members in my church who utilize these services to
help make ends meet, because when rent is due and pay scales are off with when rent
is due, it’s cheaper to go to one of these financial lending institutions in order to
receive, um, advances or — or some cash versus to pay the penalty to the landlord in other
corporations who they may owe. Individuals that are relying on these finances
to make life work, it is not, maybe, everyone’s situation, but it is the situation for these
that I do represent. Florida being one of the best states and model states regardless
of, uh, different opinions, um, that has this model program, um, in place for the consumers
who need it, bid you some differences in the other states where I serve as a pastor and
bishop to those individuals. But Florida, within itself, has a good plan in place that
is effective for the parishioners that I serve and, again, that are in different career paths,
different financial, um, situations. So, again, I oppose this ruling and hope that
something can be done about it. Thank you for your comments.
Kevin Bayden and Lauren Nelson . Hello, my name is Lauren Nelson. Um, I’m here
today because I, as a consumer, oppose this rule.
Um, firstly, I have been here for half of my life. Um, I’m a Florida resident, and I
am also a consumer of the payday loan. My mother used payday loans to be able to take
care of us and provide food on the table, and if this wasn’t available to her more than
10 years ago, I don’t know what she would have done. I would have been put in foster
care. So, personally, for me, I oppose this rule,
because you’re taking away ability of people in the lower, impoverished areas to make a
choice, a financial choice that affects them, to take care of themselves in times where
life affects you. And you don’t — I’m sorry, but you don’t know when that’s going to happen
or when these life events will affect you — Irma, you know, hospital, et cetera. So,
you know, three times back to back, maybe that’s how it happens, maybe four, and you
want to limit that and — Like you said, you know, most cash advances
are, what, 350 or less, or maybe more, so what happens in that point where you limit
it to the point where you’re saying, Okay, you can only do a hundred this time — But
my rent’s 850, right? How am I supposed to get the additional 300 that I don’t have if
you take that away? So, I oppose this rule. Thank you for your comment.
Hello. Um, I oppose this rule, mostly because I think, in the state of Florida — The one
size fits all does not work everywhere. You know, Florida has one rule; Texas has one.
You know, what works in Florida, I think, works in Florida, and it shouldn’t, you know
— One — one — the one size fits all does not work, you know, everywhere. If it works
in — What’s here in Florida should stay in Florida, and that’s why I oppose the rule. Thank you, Mr. Bayden.
Reverend Joseph , and I have only one name for the next individual, Sykes .
Hello, I’m against the rule, only the reason why, because we should have the choice to
make our own decisions. Um, it’s a short-term loan, not a long-term.
I’ve used it back, like, 2003, and I haven’t done a cash advance since, but I want it to
be there in case I ever need it. I should have that choice myself to walk in and do
the cash advance and not have to have my credit run. If I wanted my credit run, I would go
to a bank. And it takes too long for me, if I’m in need, to get that money, and it’s not
to say I’m going to get approved for it. So, I am against the rule.
Thank you for your comment. Good afternoon. Uh, I oppose this rule as
it is. As pastor, I’ve heard what some have said and how some have been dealing with having
the pay loans. Well, it benefits my parishioners in that they don’t have to come and ask the
church for money to pay their other bills. So, I oppose this, simply because, um, it
opens the floor to them to have that avenue to take care of their necessities versus coming
to the church to do what they need done, when they can actually get these advances on their
own. Secondly, we’re trying to prevent a cycle,
but we’re actually creating a cycle. When you do start ticking individuals’ credit reports
now, when they’re trying to come out the hole, these inquiries are downing their scores.
So, we have to help, not hurt. Thank you for your comment.
Essie, um, Mathis and Felicia Cruz . Good afternoon. I’m Essie Mathis, and I would
just like to say that I oppose the rule as stated, because, number one, it has been detrimental
to my livelihood. I am a disabled, um, ex-nuclear worker, and I’m not able to, uh, go out and
get a job now to make ends meet, and the income that I have is not sufficient, because I have
copayments and medical expenses. So, it helps me to meet my due dates, and I oppose the
rule. Thank you, Ms. Mathis. Jacqueline Baressi and Dr. Wayne Wilson .
My name is Jacqueline Baressi, and as a consumer, I also oppose this rule. As a consumer, I
feel that there are a lot . Thank you. It looks like the mics are not cooperating. I — I
would just make a note, on the microphones, that I think folks are accidentally turning
them off, so maybe don’t adjust them — the mic directly but, uh, adjust the stand.
Uh, Deanna Barker and Ernesto Orano Weiss .
Hi, I’d like to thank you for having us here, and after listening to all the rules and regulations
— As a consumer, I understand that there have to be regulations, you know, to protect
us out there and everything, but I believe that we should have the right to make ends
meet when we need to meet. I believe we should have that right, without having our credit
dinged every time, which is going to force us into not being able to go to the banks
when our credit scores drop. Um, and life happens, and we actually need somewhere to
go when life happens, and it’s quick and easy for us.
Thank you, I oppose that ruling. Thank you, Ms. Barker.
Hi, I also, uh, oppose the rule, um, and it’s hard to, um — maybe, for you to understand,
like a working person like us, uh, the way we think, um, but I will ask you to put yourself
in our shoes. Um, I’m — uh, I would like to have the freedom to choose whether I want
to take a loan or not. Um, what if something happens — I have a daughter; I have a wife
— something happens to my daughter? I don’t have, uh, the money there, but I will have
the peace of mind that I work, and, um, I can go to a payday loan to, um — to get the
funds I need for, like, an immediate solution. I can repay it on my next payday.
Um, what — what if — what if I don’t have that option, okay? What if my credit is not
great? What if, um, um, I need the funds right now? Uh, what would you do, what would I do,
when you get desperate or you — something you can’t handle it right away?
So, uh, having that peace of mind that I can get, uh, funds available right away because
I work, I’ll get my next payday check, and, uh, um — and be able to resolve it right
away. It will be, like, a great help. So, try to put yourselves in our shoes, as
well. Thank you. Thank you.
Mary Banks and Roxanne Hernandez ? Hello, I’m Mary Banks. Um, I would like to
say that low income does not correlate to low intelligence. Um, I consider myself to
be a very intelligent person; however, I did find myself in a situation where I was low
income. I was sleeping on my — sorry — sleeping on my daughter’s couch, and in order to — to
get out of that situation, I did have to take a payday loan.
Um, I — had my credit score been checked, I would not have been able to — to get a
loan anywhere else. I could not use credit cards. I would not have, um, relied on anyone
else because I — I have too much pride to go to a church and ask for money or to ask
my family for money. A payday loan got me out of that situation and got me into my own
— own apartment. If you take that away from people, you take
away their pride, and I oppose this ruling. Thank you for the comment.
Hello, good afternoon. My name is Roxanne Hernandez, and I oppose this rule. Thank you.
Shermilla Bradley and Joseph Gibbons. Good afternoon. My name is Joe Gibbons. I’m
a former Florida State Representative. I served 2 years in the Florida House as Chair of the
Florida Conference of Black State Legislators. We obviously looked very carefully at our
law. We — because we felt that our communities were disproportionately affected. So, I oppose
this rule, because I am proud of the work that we did here in Florida.
We — we — a lot of the ills that you’re trying to — to solve, we’ve already solved
them here. You can’t take title loans in Florida; it’s against the law. If you take out a title
loan, you’re breaking the law. We have a fee of 10%. If it takes you 2 years
to pay, you pay no more than that 10%. We have a database. We don’t need a credit
check. We have a database. When you take out a loan, your name goes into that database.
You cannot borrow another — you cannot take out another loan, in the state of Florida,
until your name comes out of that database. So, there’s no slippery slope here. There’s
— there’s no APR. It’s 10%. That’s not a game. It’s 10%. There’s no rollovers.
So, I oppose the rule. I think it’s overengineered, and I think that some of the unintended consequences
that you’re going to put are going to, number one, increase costs and hurt people’s credit
ratings, which we’re trying to help to grow so they can become — they can do traditional
banking because they have increased credit scores, and they can buy a home and be really
productive members of our society. So, again, I oppose this rule. I mean, we
did a lot of hard work. And, you know, when this was in the legislature, it passed unanimously,
and all the stakeholders, some people that are here, were at the table. They all had
input. They all had input into making our law. And so, to — for us, it’s almost like
an insult, like we didn’t — You know, we did a lot of hard work, and it was not easy
getting consensus amongst everybody. But we have consumer protection built in,
because consumer protection is at the heart of our law. Limiting fees is at the heart
of our law. So, I really appreciate your work, but I disagree
with the young lady. I think the Florida law should be the model, and in fact, if the Florida
law were the model — Okay, no — no, if the Florida law were the
model, your work would have been a lot easier. Your work would have been a lot easier.
Thank you, Mr. Gibbons. Thank you. Hello, my name is Shermilla Bradley. Um, I
oppose this rule. Um, over a year ago, my son came to me, and
he actually, um, told me that he was going to be evicted; he had received a 3-day notice,
and he wasn’t able to take care of his household. He had just had a newborn and already had
a son, and, um, his girlfriend. Um, needless to say, I was not financially stable enough
to take care of his household and mine, as well, so I took out a cash advance for him
on his behalf. And I actually paid it back for him, but I
am not able, with this new rule, to try and support my family member, if need be, and
have my credit ran. I don’t see a necessity for that. I’m not willing to just have my
credit ran on behalf of someone else if I need to take care of a family member. I oppose
this rule. Thank you, Ms. Bradley.
Dr. Wayne G. Thompson? Did I get that right? Okay. And Travis Rose.
Took me a little while to get over here. I’m Wayne G. Thompson, and — pastor in Saint
Petersburg, Florida. A few years ago, when Walgreens started to
grow in our state, they operated on the corner of, uh, happy and healthy. Uh, almost 18 years
ago, our state legislature looked at the state of affairs in our state and decided to pass
legislation, uh, that would allow, uh, the state to operate at the corner of happy and
helpful. I think that what we have here in Florida
is helpful to our citizens and to our members that we serve in providing them opportunities
for access, uh, to emergency financial help. In most of our communities, where I live and
pastor and work, for over 45 years, um, financial institutions are drying up. There are no immediate
resources in our communities, no banks and credit unions nearby to provide access for
financial services. At the corner of happy and helpful, it prevents
any abuse by our folks who take out more than one loan at a time. It — it just does not
take place. One quick story: One of my members, who worked
for an investment cooperation, lost her job. She came to me and asked for some help, which
we did out of our emergency fund. And after she had done that, she was ashamed to come
back, and I learned that she had sought help through a local finance, um, uh, uh, product
that was available to her. Um, she did that, and it kind of carried her.
I asked about how she was doing. She told me she was doing — doing okay, and I asked
her if she had paid back her loan. She said, I’m just about done. But the idea is that
last Sunday, she came to me and she said, uh, Praise the Lord; I got a job at the sheriff’s
department. And I was grateful that she had had opportunity and access.
So, that opposition to what’s happening means that you have something that works, um, and
I think what’ll take advantage of what works and not kill it, throw the bathwater and the
baby out at the same time. Thank you, Mr. Thompson. Hello, my name is Travis Rose, and I oppose
the rule. From time to time, I get a loan to help with
my living expenses. My income can be inconsistent from time to time, and the availability to
quickly access funds when needed, without a credit check, is very important to me. There
have been times when I have needed to access money for more than — more than once a month.
It is — and I am extremely grateful that it is there, without a long waiting period
and no credit check or limit on the loan amount. I know, fully, what the terms are of the loan,
and I am readily available to pay it. Um, even more than my personal needs is that
I help out and take care of other family members, three of who are disabled, one of them being
quadriplegic with cerebral palsy. There are many times when they need financial help outside
of Social Security and disability, and they don’t get, um — they don’t get government
aid, and they don’t want a handout. The ability for me to borrow when needed has a direct
impact not only on myself and my household but other family members, as well.
I have 2, 4-year college degrees, and I do not feel the need for a long application drawn
— drawn-out process, a waiting period, or a cap on what I can borrow or intrusion of
my credit for me to aid my family when needed, to pay for an emergency vet visit for my pets,
or to borrow a little extra money if I happen to go out of town. Thank you. Thank you, Mr. Rose.
Vega Moore and Yolanda Sykes. Hello, my name is Vega, and I am against the
new proposed rule. Um, I personally feel that when institutions can develop a program or
product that is, um, responsible and structured, um, and that they truly believe the community
will benefit from, and, in return, the community does benefit, then that program or product
should stay readily accessible and available. Thank you. Thank you.
Lisa Delgado and Bill Mills. Hello, my name is Bill Mills, and I’m with
a group called Florida Prosperity Partnership. We’re a statewide nonprofit. It’s hundreds
of organizations, uh, around the state that are working on various financial stability
issues. Um, I see these pins on people that, um, say
to protect access to small-dollar loans. I want to first say that I hundred percent agree
with that, but I also agree with this, um, what you all are doing with the CFPB.
Unfortunately, the assumption is made that there are not alternative products. Uh, we
did an inventory across the state of Florida. There’s dozens of alternative, um, loan products
in the state of Florida, and I believe, with this, um, new ruling, that there will actually
be more, um, that do not have special carveouts in Florida legislation for the usury laws.
Unfortunately, our usury laws here in the state of Florida, um, which is a biblical
term — um, unfortunately, they have these special carveouts for this type of product,
and unfortunately, that’s how the costs end up so high for our individuals that are, um,
using these types of products. Thank you. Thank you, Mr. Mills.
Lisa Delgado? Shannon Nichols and Taweka Martin ? Hi, um, my name is Shannon. Um — Oh, I’m
supposed to go first? Go ahead.
Okay. I oppose the — the new rule. Um, I feel that it’s not fair to have your credit
checked for a small, short-term loan, and this will affect many of the consumers who
don’t have good credit or whose credit might be ruined from other parties in the family
— other family members, such as myself, um, and that’s it. Thank you.
Thank you. Um, hi, my name is Taweka Martin, and I oppose
this rule. Um, first of all, I wanted to say, with the
APR thing — I’m part of the working-class poor. I work two full-time jobs, so what that
picture looks like is, I am a mom that leaves my kids home without for the majority of my
life, so that I can go out and try to earn a living to pay — provide for my kids. Everything
go up every year except wages. Nobody helps us out. The lending agency that I’m able to
depend on and rely on late at night or early in the morning does not charge me a whole
lot of money to repay that loan. My, um — I don’t qualify for the APR to buy
a house because I don’t make enough money, but I don’t qualify for a student loan to
pay for my youngest son to go to LPN school because I make too much money.
So, it’s nothing out there to help out the working-class poor — — but, um, I go to work every day on two
full-time jobs. I don’t ask anybody for anything. What I get from that lending agency, I pay
it back when I’m supposed to, when I get paid, and the money is always there. My rent is
$1,511. My car insurance for 3 cars is $466. $5,896 what it costs for my son to go to LPN
school, and the state says I make too much money; they will not give him a loan.
So, I have to pay that additional money for tuition and gas for him to go to school so
that he can become something in this society, and because of that lending agency, I am allowed
to do that. So, when my son graduated, I was able to call that agency, sent them a picture
of my son in his cap and gown, and I said, Thank you for being a part of every milestone
in my life. And I have a daughter that’s a call center
supervisor — Thank you, Ms. Martin.
Mm-mm. I have a daughter that’s in, uh, Fort Riley, Kansas. I have a son that’s in Okinawa,
Japan. My daughter — other daughter, she’s, um, a Navy Reserve. So, I haven’t taken anything
from this country, but this country won’t give us anything either.
So, we have to get it the way we can get it, and I say thank you to the company that will
allow the working-class poor to be able to feed our families. Thank you. Thank you, Ms. Martin.
Toni Edme Wiggins and Reverend J.C. Pritchard .
Hello, I’m Toni Wiggins. I oppose this rule, because when I was using this program, how
I started to use the program was, I had something — I had wrote checks, and then I had, also,
something taken out of my account at the same time. And when I went to go check my account,
I saw that they took — took something out of my account, and I was like, Okay, I can’t
go run after the mail to say that, um, I can’t pay these bills. So, without that program
there, I would have accrued a whole lot of NSF fees.
So, I oppose this rule, because this program is — makes things available to you sometimes
that happens to you when life just happens. So, I oppose this rule. Thank you for your comments.
Uh, welcome to Tampa Bay. I’m glad that the Chairman and some others have lifted — lifted
up some sacred text. There’s a sacred text from Micah 6:8 that I want to lift up: What
does the Lord require of thee but to do justly? What is not just is that banks and credit
unions are not in my community. Those that are there do their business through a protective
glass or video teller or through a ATM, and many don’t make small loans.
Payday loans, predatory lending, and car titles across the country is not just. In Florida,
we don’t have that problem. Up to $500 in a 30-day — in 30 days is reasonable. It’s
not oppressive. It’s not abusive. A small business owner can buy inventory with
this system. A parent can send a care package to their child in college under this system.
A car that has too many miles can be serviced under this system, and a pastor can help a
parishioner in need under this system. Dark figures who lurk in alleys will come
and fill this void under this rule that you all are proposing. What is required is that
we do justly, and a community that does not have capital in loans and advantages of other
communities, will be treated unjustly under this rule. Thank you. Thank you for your comments.
Tina Newton and Tammy Hakes? Good afternoon, everyone. Um, my name is Tina
Newton, and I’m against the proposed rule. Um, I feel, as a consumer, you should definitely
have, um, freedom to make your own financial decisions, um, just like you wake up every
day and choose — and choose not to how you spend your money. So, I definitely oppose
this rule. Thank you. Thank you.
Hi, I’m Tammy Hakes, and I oppose this rule. In 2015, I got sick, and I did not expect
for my life to change so much, but if it hadn’t been for payday loans — because I started
having deductibles and, um, other costs for going to doctors — um, I would never have
been able to make it, even, here today because of my illness. And I feel that you guys opposing
this rule to only allow me to do this three times a year or to tell me that you’re going
to check my credit each time, when I could tell you right now, my credit’s not that great
with getting ill. You know, my — I wouldn’t be able to go to a credit union; they’ve refused
me. The bank refuses me. What is someone like myself supposed to do
when you guys put this in place? This is really — it’s going to harm me and my health, even
more. So, I just oppose this rule, and thank you for your time. Thank you for your time, and I’d just like
to correct — Uh, this rule doesn’t prevent, uh, only three loans a year. You could potentially
get more than three per year, um, although you would have to go through, again, a reasonable
determination of the ability to repay. Sarah Sterns and Clethen Sutton? Thank you for the opportunity to comment here tonight. I appreciate the work that the CFPB
does. You have done a lot for financial literacy. As a mother of two adult children, I know
that the school does not really prepare our kids today to make, uh, educated decisions,
and I think, uh, listening to, uh, a lot of the payday loan issues, it comes down to how
to use that appropriately. And, um, what you’re hearing, over and over and over again, is,
there are factions of this proposed law that says, um — that’s going to have unintended
consequences. And I think the core of it is pulling credit
report, because you are going to hurt the — the consumer’s credit score, and then also
limit their other opportunities for credit. So, you’re — you’re limiting their opportunity
for the payday loan, and you’re affecting their ability to get other loans. So, I think
that’s — that’s a problem. The other, um, thing mentioned here tonight
was about military families, and, uh, you are unable to get a payday loan, as a military
dependent, in the state of Florida. So, we — that — that has no impact on military
families. Thank you. Thank you for your comments.
Thank you. I’m Pastor Clethen Sutton. I got my button. I don’t want to put it — I wore
my good suit down here today, so I didn’t want to put it — mess my suit up. But, um,
I, um — Welcome to Tampa, by the way. I’m a retired Tampa police officer. I’m, uh,
27 years, and so, I get a pension once a month. Pretty good pension I retired as a supervisor.
And, um, I got two kids in college. This is a personal testimony. All the preachers
and everybody here said everything that I was going to say, but this is my personal
testimony. So, going from getting paid biweekly to once
a month, sometimes — I — I — I don’t know if anybody with me, but sometimes, you might
run a little short. My wife is a school teacher here in Hillsborough County.
So, I set it up with one of the companies that’ll remain nameless, um, here, and they’re
very prominent here in Tampa, throughout Florida. So, I haven’t used it yet, but it’s just nice
to know that if I do come up short — I don’t have a credit issue, but just in case — Uh,
life happens. I get that. But just in case something comes up —
I got two kids in Tallahassee, one at Florida A&M and one at Tallahassee Community, so just
in case — I just got my son’s car fixed the other day. I had the money. I was able to
transfer it in his account. Well, I heard something about they’re running
my credit report just in case I went to get some money, and, um, I have a problem with
that. I set it up because of that reason. Sometimes I can just run in and — if I need
to, to get it. Now, that’s how I use it. Everybody’s situation
is different. But I would hate — and — and I do — I pastor a church over in the West
Tampa community, and, um, I know some of my members have benefited from being able to
get payday loans or whatever they’re called. I do know, here in Florida, um, it’s a good
system, so there’s no need to reinvent the wheel.
I think I’m coming up on my 2 minutes here. I’m coming to a close. Yes. God bless you,
God keep you, and enjoy your stay here in our great city of Tampa, Florida. Thank you. Thank you for your comments, as
well. Lynette Gonzales and Rinaldo Moldrew .
Good evening. Hello, my name’s Rinaldo Moldrew. Um, I’m the Assistant Leader, um, for a financial
institution, and, um, you all would be surprised how much a $50 to $500 can make a difference
in someone’s life. Um, um, the cash advances have helped prevent
people from being evicted, as you heard before, um, and it provides emergency funds to customers
who are in quick need of cash. It even help, um, customers from avoiding to, uh — to get
them out of, um, uh, those desperate measures to avoid from doing them — anything else
illegal activities. So, um, you know, when you’re desperate, you know, and those cash
advances not available to you, you’re — you — you got to do what you got to do, so you’ve
got to avoid — so the cash advances help you — help prevent from — from doing that.
Um, um, I’m also kind of with my customers on — on a daily basis, that they’re grateful
of being, uh — of the cash advance being available to them. It’s — it is really a
blessing in disguise for them. So, um — so taking away their cash advance
would be devastating to our — to thousands of — of, uh, Floridians, as well as the state
of Florida. Um, I would love to continue providing services to our — to our community, and,
um — and for the people who don’t support cash advances, I would ask you to just, um
— just — just reevaluate what your views and put yourself in our shoes, people whose,
you know, shortcoming, and, um — and — and let’s — let’s continue to make this progress
with the cash advances and giving — continue to give that to the community, so. I thank
you. Thank you for your comment. That concludes
the — the line — uh, the list of folks that, uh, signed up to provide testimony today.
I want to thank everyone. Go ahead. Please tell us your name.
I’m Larry Jones. I forgot to sign. I didn’t even have a chance. But this is for you guys.
When I got a headache, I’m stressed about a bill or something, I don’t take Tylenol
or Advil; I get Amscot. Thank you to all that provided thoughtful
testimony today. Thank you to the audience and to all those watching via livestream at
ConsumerFinance dot gov. This concludes the CFPB’s CAB meeting in Tampa, Florida. Have
a great afternoon.

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