Today's Headlines

    Will Installment Loans Get Painted with CFPB's Payday Brush

    American Banker, Kate Berry (July 6, 2016)

    Installment lenders fear that they may be getting lumped in with payday lenders in the Consumer Financial Protection Bureau’s (CFPB) proposed rule governing small-dollar lending, despite the fact that the product is entirely different.

    "These are really two different markets -- they're like apples and oranges," said Bill Himpler, executive vice president of legislative affairs at the American Financial Services Association, the trade group for installment and auto finance lenders. "It would be akin to lumping a hamburger joint like McDonald's and Morton's Steakhouse into the same category just because both are restaurants."

    Though both payday and installment loans are offered by some lenders, there are key differences, mostly in the annual percentage rates charged and in state licensing requirements. The interest rate on many installment loans range from 36% to 100%. Payday loan APR’s can be as high as 350% or more.

    "Installment loans are a much safer structure," said Martin Eakes, the co-founder and chief executive of Self-Help Credit Union and the Center for Responsible Lending, who has fought battles with payday lenders in Arizona, Colorado, North Carolina, Ohio and Washington.

    California's Department of Business Oversight released a report last week that showed 55% of all consumer loans valued at $2,500 to $5,000 carried APRs of 100% or more, compared with 58% for those below $2,500. But roughly 40% of the state's 252 payday lenders have dual licenses to offer both types of loans, department spokesman Tom Dresslar said. Unsecured consumer loans in California jumped 40% jump to $5.6 billion in 2015.

    The centerpiece of the CFPB's plan is a requirement that encourages lenders to verify a borrower's ability to repay a loan and not have to reborrow within the next 30 days and still meet living expenses. But that is where the options provided to both payday and installment lenders end.

    Installment lenders could opt to originate loans under the option that allows for an all-in cost of 36%, Himpler said, but the total loan amount would have to be $2,500 or higher to justify the costs.

    "The CFPB plan is based on data that is pertinent to payday lenders with APRs in excess of 200% and no underwriting, and default rates of 30% to 40%," Himpler said. "That's not us. Our guys want to stay in business."

    Payday Loan Overhaul May Have Big Impact on Credit Reporting

    American Banker, Kevin Wack (July 6, 2016)

    The big three credit bureaus compile information on millions of mortgages, vehicle loans, student loans and credit cards. Under rules proposed by the Consumer Financial Protection Bureau (CFPB), they may have to begin collecting information on small-dollar loans, specifically payday loans, as well.

    The CFPB is proposing that private-sector firms establish new information systems that lenders would have to report to and check before giving a payday loan. The bureau would also mandate reporting to the three big bureaus. The result, says the CFPB, is that more individuals would be drawn into the mainstream credit reporting system. Nearly 45 million, or 19 percent, of adults do not have a credit score or report.

    The CFPB argues that because payday lenders do not report credit history, customers are unable to build their profile. However, when a loan is sold to a debt collection company, they typically are reported. Thus, the consumer’s credit report is being dinged without the ability of the consumer to improve it.

    One key unanswered question about the CFPB's plan is how private-sector firms will respond to the call for industrywide reporting. The proposal states that the new information systems will have to register with the bureau and comply with the Fair Credit Reporting Act. But companies will have to make their own decisions about whether to participate.

    AFSA Comments on Proposed Changes to Uniform Consumer Compliance Rating System

    On July 5, AFSA commented on proposed changes to the Uniform Interagency Consumer Compliance Rating System published by the Federal Financial Institutions Examination Council (FFIEC). While, in general, AFSA supports the FFIEC’s longstanding policy of seeking uniformity in the examination of financial institutions, the addition of the Consumer Financial Protection Bureau as a member on the FFIEC raises unique issues about the applicability of examination standards to non-depository financial institutions whose primary state regulators often have no direct voice on the FFIEC. AFSA is also concerned that additional clarification is need to ensure that the proposed changes are consistent and transparent.

    New Member Welcome

    In last week’s edition of Newsbriefs, there was an error in the New Member Welcome which caused some additional characters to appear in the Preferred Credit paragraph. The corrected version is below.

    Preferred Credit, Inc. (PCI), based in St. Cloud, Minn., was founded in 1982 to provide financing to one of the largest in-home consumer sales distributorships in the world.

    AFSA Launches #OurLoansWork Campaign; Restyled

    Today, the American Financial Services Association (AFSA) is launching the #OurLoansWork campaign, which includes a restyled and revamped along with the hashtag #OurLoansWork for social media. We want the site to serve as a place where consumers, policymakers and members can go to find up-to-date information about traditional installment loans and what they can do to ensure that access to safe, affordable credit is maintained.

    The site features a variety of sections to help traditional installment lenders and their customers get educated about the value of traditional installment lending and advocate directly with elected officials:

    • TAKE ACTION: Get involved by encouraging employees and customers to contact their lawmakers directly.
    •  LEARN MORE: Ensure that employees and customers are well-informed on traditional installment loans, their structure, and how they’re different than other small-dollar lending products with infographics and educational documents.
    • BLOG: Check out the latest blog posts on traditional installment lending, the value it brings to the consumer and the US economy, and a new educational series examining a traditional installment loan to highlight the product’s positive features.
    • CONTACT US: Are you a traditional installment lender? What are you doing to ensure customers are pleased with their experience? How are you helping your community? Let us know in the Contact Us area. 

    Our goal is to get as many traditional installment lending customers and employees as possible to participate in the campaign. They will be the most powerful voices in defending traditional installment lending from the excessive overreach of proposed federal regulations. The most important part of the campaign is amplifying these voices. If you are a traditional installment lender, encourage your customers and employees to visit our website and send us their experiences. Forward us great stories you hear around the branch. AFSA will be able to use these testimonials and stories in our advocacy efforts.

    If you would like to receive the campaign materials or have any questions, please email us at with ‘#OurLoansWork Campaign’ in the subject line. As we progress in this campaign, we will keep you informed about how you can help protect traditional installment lending.