Gov't Acting Like Payday Lender or Credit Card Companies

[Annie]

Is the Government Acting Like a Payday Lender?: Banks want to pay back their bailout loans early, but Treasury doesn't want to let them go. - Reason Magazine

Is the Government Acting Like a Payday Lender?

Banks want to pay back their bailout loans early, but Treasury doesn't want to let them go.

Katherine Mangu-Ward | April 23, 2009

Everyone knows that you should read the fine print before taking out a loan, whether it's $100 from a payday lender or $100 million in bailout loans from the federal government. You'd think that no one would know this better than bankers themselves....

...Banks who jumped at the bailout money now seem surprised to discover that the fine print gave the government the right to buy stock in the bank at a specified price for up to 10 years, essentially retaining an ownership stake for that period. If someone showed up at my door and offered me an enormous sum of money on the condition that I take it right now! hurry! hurry! hurry! and sign here! I'd be a little suspicious. Doubly so if that person introduced himself with that age-old phrase "I'm from the government, and I'm here to help." Banks were led to believe the warrants provision was minor, and wouldn't be a problem when the time came to negotiate repayment terms. But if there's anything this financial crisis should have taught us, it is to be skeptical of lenders who casually promise that paying back enormous loans won't be any problem at all (ask anyone with an adjustable-rate mortgage).

Of course some banks didnt jump, they were pushed. Rep. Tom McClintock (R-Calif.) noted that fact this week as he proposed legislation to re-write the terms of repayment of TARP funds. "Banks which were pressured to accept TARP funding are now facing serious obstacles, uncertainty and continued government control in their efforts to return the funds to taxpayers," said a press released his office. McClintock said, “the Administration says it wants out of the banking business but when it is presented with that opportunity it seems to balk. When banks want to give us our money back we shouldn’t argue the point."

One of the banks that has paid back its loans is Centra Financial of Morgantown, West Virginia, which took $15 million at the beginning of the year. The bank's vice president John Fahey, told Fortune, "We're not TARP babies anymore." While his choice of words is troubling—is Treasury infantilizing our banks?—the sentiment is good. Want to get out from under your loan? Pay it back on the terms you agreed to, and have your lawyers do a better job of the fine print (and demanding clearer phrasing) next time. Of course, he is also trying to finagle a refund to the $750,000 his bank would have to spend to buy its warrants back from Treasury.

Among the bigger banks, Goldman Sachs has been the most vocal about wanting to return the TARP money ASAP in order to avoid government meddling. But recognizing the power of the "I'm rubber and you are glue" argument, they're not begrudging the feds a little profit on this transaction and not lobbying for a change in the terms: A spokesman for Goldman Sachs, said the bank "recognizes its obligation to U.S. taxpayers" to fully repay TARP assistance, including warrants."Taxpayers have the right to expect an appropriate return on investment."

Just as any lender does. When I took out a payday loan from ACE Check Cashing for an upcoming story defending under siege payday lenders in the print edition of Reason (stay tuned!), I got several large-print legal notices along with my pile of cash. One of them informed me that there would be no penalty for early repayment, others told me just how much I'd owe when the loan came due. Used to be, a major criticism of payday lenders was that once you had contracted with them, there was no way to avoid paying a large sum to extricate yourself. As the industry has become more regulated, and done more self-regulating to stave off government action, early repayment penalties have been abolished at most of the larger chains.

The Treasury department is making a habit of rewriting, or heavily reinterpreting the fine print. This is a luxury that private players like payday lenders don't traditionally enjoy. For those without political power, a contract is a contract.

So on some accounts, at least, it looks like Fine is wrong: Payday lenders are actually rather better behaved than government lenders.

 

[RodISHI]

Apparently four banks have already returned TARP money. They did not care for the restrictions.

4 Banks Become First to Repay TARP Money
March 31, 2009, 4:43 pm

Four smaller regional banks on Tuesday became the first financial institutions to return the federal money they had received under the government’s banking bailout, leaving a program that placed restrictions on their executive compensation and other spending.



It appears that four banks have already paid back TARP monies.

Barney Frank welcomes payback of TARP money...


Paying back something with something of less value of course probably is going to cut it.....Public Stocks of course is not the same as cash.

According to the Wall Street Journal Goldman may have looked to raise some cash through Chinese capital.

It is plausible that one can start rumors and get over a bump in the road.

 

[waltky]

Payday lenders a problem in England too...

Policing of payday lenders is timid
30 May 2013 > A regulator has been "ineffective and timid" in tackling rogue payday and door-to-door lenders, MPs have said.

Unscrupulous behaviour by the "shabby end" of the UK consumer credit market cost consumers at least £450m a year, the Public Accounts Committee said. It criticised the Office of Fair Trading (OFT) for failing to act quickly to stop lenders targeting vulnerable people. But the OFT said it had taken strong action while facing legal restrictions.

'Passive'

The UK's consumer credit market was one of the largest in Europe, the committee's report said, with £176bn lent to individuals in 2011-12. Credit card lending and personal loans still dominated the market, but door-to-door and payday lending had risen significantly since the financial crisis. These primarily offered customers short-term, high-interest loans. There are nearly two million payday loan customers, but there has been widespread concern that some lenders have been encouraging people to take on debts which then rapidly spiral out of control.

The committee was scathing in its view of regulation by the OFT, which has the power to grant or revoke the credit licences that allow these lenders to operate. "[The OFT] has been ineffective and timid in the extreme. It passively waits for complaints from consumers before acting," said Margaret Hodge, who chairs the committee. "It has never given a fine to any of the 72,000 firms in this market and very rarely revokes a company's licence."

'Legal constraints'

 

[waltky]

Feds seek penalties against retailer that caters to military...

Feds seek penalties against retailer that caters to servicemembers
December 19, 2014 — The Consumer Financial Protection Bureau and attorneys general from Virginia and North Carolina are seeking penalties and restitution from a Virginia-based retailer that caters to servicemembers, alleging it used illegal tactics to collect debts.

The complaint filed in federal court seeks $2.5 million in consumer relief and a $100,000 civil penalty be imposed on Freedom Stores Inc., Freedom Acceptance Corporation and Military Credit Services LLC. Freedom Stores is also known as Freedom Furniture and Electronics. The Virginia-based dealer has stores located near military bases, including in Newport News, and serves members of the armed forces. It offers credit to customers and transfers the contracts to Freedom Acceptance Corporation. The final company, Military Credit Services, provides financing.

In a press release, the consumer protection bureau said the allegations include illegally filing thousands of lawsuits in Virginia for out-of-state contracts, pressuring servicemembers by contacting their commanding officers, and taking double payments – from both paychecks and bank accounts listed for back-up payment. The bureau also alleged that Freedom Stores failed to properly disclose terms of pre-authorized transfers, and that Military Credit Services violated the Truth in Lending Act by improperly disclosing terms and interest rates on loans.

The proposed court order was filed in U.S. District Court for the Eastern District of Virginia and will not have the full force of law unless signed by the presiding judge. In response to the complaint, the Freedom Store issued a statement that announced a number of changes. Company officials have voluntarily agreed to forgive more than $2 million in loans and "provide more options regarding where default litigation will be conducted." It has offered a course in money management fundamentals for its customers. More than 1,000 completed it, receiving a $100 gift card. They want 5,000 customers to take the course next year.

They have set new standards to ensure customers are properly charged for loan payments and will create an internal commission of former military personnel and other experts to guide future policies. It also said the company supports the bureau's efforts to "to root out bad actors" but the complaint is not a ruling "that the defendants have actually violated the law."

Feds seek penalties against retailer that caters to servicemembers - U.S. - Stripes

See also:

Judge orders company to release servicemembers’, civilians’ vehicles
December 19, 2014 ~ A Defense Department subcontractor was ordered on Wednesday to release dozens of servicemembers’ and civilians’ vehicles seized in a financial dispute between the subcontractor and its partner company.

A U.S. District Court judge ordered Liberty Global Logistics, based in Lake Success, N.Y., to release 66 vehicles held as a lien against more than $3.6 million the company claimed it was owed by International Auto Logistics, the Defense Department’s contractor responsible for shipping Defense Department employees’ vehicles. Liberty is also enjoined from seizing any more vehicles unless given permission by the court.

Liberty seized the vehicles on Dec. 11 after it claimed International stopped making payments on “undisputed ocean freight,” according to court documents. The company also claimed — in a document opposing International’s motion — that International owed almost $20 million in other fees. International argued the two companies had been in negotiations and the seizure was nothing more than “self-help thuggery.”

Despite claims that service is improving, defense transportation officials have declined to say how many privately owned military vehicle shipments remain severely delayed, and customers claim deep problems with deliveries persist.

International and Liberty have had disputes about money reaching back to at least September, with Liberty citing a lack of payment and International arguing it was not receiving adequate shipping information to pay bills. Wednesday’s order requires International to pay ocean freight bills “that the parties have agreed are due and owing through Friday” to Liberty. International must also stay current on all future charges on a weekly basis and Liberty must provide “appropriate and adequate billing support.”

Liberty hopes to have “virtually all” vehicles they ship for International “to the final port of discharge by early January,” said Robert G. Wellner, executive vice president of Liberty, in an e-mail on Thursday. The judge ordered both sides to settle any outstanding issues by arbitration. International has faced heavy criticism for the late delivery of vehicles and failure to provide accurate tracking information.

Judge orders company to release servicemembers civilians vehicles - News - Stripes

 

[waltky]

Consumer Financial Protection Bureau proposal comes out against payday loans...

New CFPB proposal aims at 'payday debt traps'
June 2, 2016 - Lenders who offer payday loans and other small-dollar advances would have to assess whether borrowers could afford and repay the debts, according to a federal rule proposed Thursday.

The long-awaited Consumer Financial Protection Bureau proposal would also cut off repeated debit attempts that hit overdue borrowers with additional fees and charges as lenders seek repayment. The regulator also launched an inquiry into other high-risk loans and practices not covered by the new proposal, including open-end lines of credit and methods lenders may use to seize borrowers' wages, vehicles or other personal property.

The rule proposal followed a 2014 CFPB study that found roughly 62% of all payday loans — often due within two weeks and carrying an annual interest rate of approximately 390% — go to consumers who repeatedly extend their repayments and ultimately owe more in fees than what they initially borrowed. Half of the borrowers who got similar high-interest loans online later were hit with an average of $185 in bank penalties for overdraft and non-sufficient funds fees, another CFPB analysis found this year.

More than 80% of auto title loans, transactions in which consumers pledge their vehicles as collateral, are rolled over or extended on the day they're due because borrowers can't afford to pay them in full, the CFPB also found. "Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt, CFPB Director Richard Cordray said in a statement issued before a Thursday hearing scheduled on the issue. "By putting in place mainstream, common-sense lending standards, our proposal would prevent lenders from succeeding by setting up borrowers to fail."

A coalition of faith and community leaders planned to rally Thursday and urge the CFPB to enact the rule. Payday loan industry representatives scheduled a news conference before the hearing. Noting that millions of Americans live paycheck to paycheck, Consumer Bankers Association CEO Richard Hunt said the proposal could send consumers "to pawnshops, offshore lending, and fly-by-night entities that will be more costly." "The CFPB's proposed rule presents a staggering blow to consumers as it will cut off access to credit for millions of Americans who use small-dollar loans to manage a budget shortfall or unexpected expense," said Dennis Shaul, CEO of the Community Financial Services Association of America. "It also sets a dangerous precedent for federal agencies crafting regulations impacting consumers."

The proposed rule, open for public comment until Sept. 14, includes:

See also:

CFPB: Online payday loans hit consumers with hidden risk
April 20, 2016 - Consumers who turn to online lenders for payday loans face hidden risks of costly banking fees and account closures, according to a federal analysis released Wednesday.

Half of the borrowers who got the high-interest loans online later were hit with an average of $185 in bank penalties for overdraft and non-sufficient funds fees when the lenders submitted one or more repayment requests, the Consumer Financial Protection Bureau analysis found. One third of the borrowers who racked up a bank penalty ultimately faced involuntary account closures, the report also found. Online lenders made repeated debit attempts on borrowers' accounts, running up additional bank fees for the consumers, even though the efforts typically failed to collect payments, the study said. "Each of these additional consequences of an online loan can be significant, and together they may impose large costs, both tangible and intangible, that go far beyond the amounts paid solely to the original lender," said CFPB Director Richard Cordray.

The findings mark the consumer agency's third analysis of the U.S. payday lending industry that provides the typically 300%-to-500%-interest-rate unsecured loans that many low-income borrowers rely on to pay expenses between one salary check and the next. The CFPB plans to issue new regulations for the loans later this spring, an effort endorsed by the Obama administration. CFPB analysts studied 18 months of data from the Automated Clearing House. Online lenders often use the financial network to deposit loan proceeds into borrowers' checking accounts, as well as to submit subsequent repayment requests. If a borrower's account balance is low when the online lender sends a repayment request, the bank can return the request for non-sufficient funds or approve the request. Either way, the bank may charge the borrower overdraft or non-sufficient funds fees, as well as late fees or returned payment fees.

The study data showed that the $185 in typical bank fees for the online payday loan borrowers included an average $97 tacked on for a first unsuccessful debit request. The borrowers also faced an average $50 charge when online lenders made a second debit request after an unsuccessful effort, and an average $39 cost when a lender submitted multiple payment requests on the same day. In all, 23% of accounts held by borrowers who got loans from online lenders were likely to be closed by the end of the 18-month sample period, the analysis found. The outcome was far higher than the 6% likely closure rate for bank accounts generally, the report said. Somewhat half of all payday loan lenders provide funds and seek repayments online, the CFPB said. Payday lenders that don't offer online loan services were not included in the analysis.

CFPB: Online payday loans hit consumers with hidden risk

 

[RodISHI]

They need to go after banks that are dinging employee checks that are written on their banks too. It cost an employee $5.00 to cash a check if they do not open a bank account. It is illegal but the banks like WF encourage it by giving paybacks to the employers. In essence they are complicit in stealing almost an hour of work from the employee every payday.

 

[waltky]

Payday loans come under new regulations...

Lending Rules Could Shutter Some Businesses: Regulators
Oct 04, 2016 | Federal regulators expect some retailers and payday lenders who target military customers to close as a result of new lending rules that kicked in Monday. The new rules expand a 36 percent interest rate cap included in a 2006 law known as the Military Lending Act to almost every type of consumer credit.

Under previous rules, the law covered only a few types of loans, including vehicle title loans and payday loans. But those narrow rules made it easy for lenders to find ways around the regulation. "I think some of these outfits may fold up their tents and go away because they'll say they can't make money at 36 percent," Holly Petraeus, who heads the Consumer Financial Protection Bureau's military affairs department, said Tuesday.

Petraeus spoke at a forum at the annual Association of the United States Army meeting in Washington, D.C. "I saw firsthand that the [original rule] wasn't working when I went back to Fort Campbell a few years ago," she said. "We went out gate one and turned right drive down to Clarksville, and in four miles I counted 30 fast-cash lenders. It was very disturbing."

Petraeus, who said she plans to retire from the CFPB in January, has led the agency's military arm since its 2011 founding. Her office has been directly responsible for the development of rules protecting service members from predatory lenders. Her office has also worked with the Justice Department to prosecute retailers for abusive practices, including rent-to-own store USA Discounters. That company, which was found by CFPB to exploit service members through a fee scam and deceptive marketing, reached a $96 million debt forgiveness settlement with troops in 49 states and Washington, D.C., on Sept. 30.

Under that settlement, the company must write off all accounts with balances for customers whose last contract was dated June 1, 2012, or before. It must also credit accounts established after June 1, 2012, with $100; write off judgments not obtained in the service member's state of residence; credit judgments made against troops with 50 percent of the judgment amount; and correct impacted troops' credit reports. Under the settlement, the company, which declared bankruptcy in 2015, denied any wrongdoing.

Lending Rules Could Shutter Some Businesses: Regulators | Military.com