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The Community Financial Services Association of America (CFSA) is a trade association in the United States representing the payday lending industry. [1]
The payday lending industry has been the source of ongoing controversy due to its lobbying tactics and business practices that The New York Times ' chief financial correspondent Floyd Norris bluntly calls "predatory lending". [2]
A central criticism of the CFSA member companies has been that payday loans are "designed to keep borrowers in debt". [3] [4] While payday loans are marketed as “one time” or “emergency loans”, the nonprofit Center for Responsible Lending has found that "borrowers who receive five or more loans a year account for 90 percent of the lenders’ business", and "lenders…collect 90 percent of their revenue from borrowers who cannot pay off their loans when due, rather than from one-time users dealing with short-term financial emergencies". [5] The U.S. PIRG has documented how payday loans create a “debt cycle” through high cost rollovers, additional fees, and debt collection. [6] Payday lending practices have fueled calls for increased governmental regulation, and several states have taken legislative action to cap interest rates or outlaw payday lending altogether. [7] [8] CFSA states that it is open to working with state regulators and disputes the negative impact of its lending practices. [9]
The United States Senate asked the U.S. Department of Defense to conduct a study on the impact of predatory lending on U.S. troops as a provision of the 2006 National Defense Authorization Act. When the Department of Defense submitted its report to Congress in August 2006, payday loan companies came under attack. The report found that the prominence of payday lending among U.S. servicemen and women was compromising U.S. military readiness and troop morale, and that payday lenders were specifically targeting U.S. military personnel. [10] The CFSA disputed these findings, claiming that it only looked into the research of payday lending opponents. [11] As a response to these and other charges, the CFSA initiated a US$10 million education and advertising campaign it claimed would help inform borrowers and improve the lending practices of its members. [12] The CFSA hired Eric Dezenhall, a public relations specialist, to improve its image. [13]
In 2007, the DoD created new regulations that placed a maximum limit of 36% on the annual percentage rates charged to U.S. servicemembers and their families for payday loans, vehicle title loans, and tax refund anticipation loans. [14]
In April 2018, CFSA, along with the Consumer Services Alliance of Texas, filed a lawsuit against the CFPB, seeking an order and judgment to hold unlawful, enjoin, and set aside the Bureau’s final small-dollar lending rule. [15] CFSA argued that the Bureau’s rule failed to demonstrate consumer harm from small-dollar loans, ignored unbiased research and data, and relied on flawed information. Additionally, the lawsuit alleges that the rule violates the Administrative Procedure Act (APA) because it exceeds the Bureau’s statutory authority and is arbitrary, capricious, and unsupported by substantial evidence.
The court stayed the rule’s compliance date – originally August 19, 2019 – while the lawsuit was ongoing and while the CFPB reconsiders portions of the rule. [16]
In 2014, CFSA and two of its members, Advance America and Check Into Cash, sued the Federal Deposit Insurance Commission (FDIC) and the Office of the Comptroller of the Currency (OCC). The plaintiffs alleged that federal regulators from these agencies pressured banks into terminating the accounts of lawful small-dollar lenders under the program known as Operation Choke Point, which targeted industries disfavored by the Obama administration.
The lawsuit subsequently unsealed more than 900 pages of emails and depositions demonstrating that government officials, including senior FDIC officials, targeted legal businesses including small-dollar lenders through Operation Choke Point. [17]
The parties reached a settlement on May 22, 2019. [18] As part of the settlement, the FDIC agreed to reiterate its policies to its staff, conduct trainings specifically related to Operation Choke Point and establish a process to allow for banks or customers to submit complaints regarding potential violations of FDIC policies.
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient incurs a debt and is usually liable to pay interest on that debt until it is repaid as well as to repay the principal amount borrowed.
ITT Technical Institute was a private for-profit technical institute with its headquarters in Carmel, Indiana and many campuses throughout the United States. Founded in 1969 and growing to 130 campuses in 38 states of the United States, ITT Tech was one of the largest for-profit educators in the US before it closed in 2016.
A payday loan is a short-term unsecured loan, often characterized by high interest rates.
A loan shark is a person who offers loans at extremely high interest rates, has strict terms of collection upon failure, and generally operates outside the law.
Predatory lending refers to unethical practices conducted by lending organizations during a loan origination process that are unfair, deceptive, or fraudulent. While there are no internationally agreed legal definitions for predatory lending, a 2006 audit report from the office of inspector general of the US Federal Deposit Insurance Corporation (FDIC) broadly defines predatory lending as "imposing unfair and abusive loan terms on borrowers", though "unfair" and "abusive" were not specifically defined. Though there are laws against some of the specific practices commonly identified as predatory, various federal agencies use the phrase as a catch-all term for many specific illegal activities in the loan industry. Predatory lending should not be confused with predatory mortgage servicing which is mortgage practices described by critics as unfair, deceptive, or fraudulent practices during the loan or mortgage servicing process, post loan origination.
The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.
A debt buyer is a company, sometimes a collection agency, a private debt collection law firm, or a private investor, that purchases delinquent or charged-off debts from a creditor or lender for a percentage of the face value of the debt based on the potential collectibility of the accounts. The debt buyer can then collect on its own, utilize the services of a third-party collection agency, repackage and resell portions of the purchased portfolio, or use any combination of these options.
A title loan is a type of secured loan where borrowers can use their vehicle title as collateral. Borrowers who get title loans must allow a lender to place a lien on their car title, and temporarily surrender the hard copy of their vehicle title, in exchange for a loan amount. When the loan is repaid, the lien is removed and the car title is returned to its owner. If the borrower defaults on their payments then the lender is liable to repossess the vehicle and sell it to repay the borrowers’ outstanding debt.
Moneytree, Inc. is a retail financial services provider headquartered in Tukwila, Washington, with branches in Washington, California, Colorado, Idaho, Nevada, and British Columbia. Moneytree offers payday loans, installment loans, prepaid debit cards, money orders, bill payment, Western Union transfers, auto equity and title loans. In 2013, Moneytree won "Best Place to Work in Colorado" in the small business category.
The Center for Responsible Lending (CRL) is a nonprofit organization research and policy group based in Durham, North Carolina. Its stated purpose is to educate the public about financial products and to push for policies that curb predatory lending. On its website and elsewhere, CRL describes its mission as that of "protecting homeownership and family wealth by working to eliminate abusive financial practices." CRL is affiliated with the Center for Community Self-Help.
The Consumer Financial Protection Bureau (CFPB) is an agency of the United States government responsible for consumer protection in the financial sector. CFPB's jurisdiction includes banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors, and other financial companies operating in the United States. Since its founding, the CFPB has used technology tools to monitor how financial entities used social media and algorithms to target consumers.
A payday loan is a small, short-term unsecured loan, "regardless of whether repayment of loans is linked to a borrower's payday." The loans are also sometimes referred to as "cash advances," though that term can also refer to cash provided against a prearranged line of credit such as a credit card. Payday advance loans rely on the consumer having previous payroll and employment records. Legislation regarding payday loans varies widely between different countries and, within the United States, between different states.
Payday loans in the United Kingdom are typically small value and for short periods. Payday loans are often used as a term by members of the public generically to refer to all forms of High-cost Short-term credit (HCSTC) including instalment loans, e.g. 3-9 month products, rather than just loans provided until the next pay day.
Payday loans in Canada are permitted under section 347.1 of the Criminal Code, so long as the province of the borrower has enacted sufficient provincial legislation concerning the provisioning of payday loans. In the event that no such provincial legislation exists payday loans are limited by usury laws, with any effective (compound) rate of interest charged above 60% per annum considered criminal. However, so far this has not been enforced by Newfoundland and Labrador.
LendUp was an American online direct lender. It offered payday loans, installment loans, and credit cards to consumers with low credit scores using publicly available data to assess creditworthiness. The company referred to its customers as “the emerging middle class.” LendUp also issued credit cards in partnership with Tom Steyer's Beneficial State Bank.
Check Into Cash is a financial services retailer with more than 1,100 stores in 30 states. The company was founded in 1993 by W. Allan Jones in Cleveland, Tennessee, where the headquarters are located today.
Operation Choke Point was an initiative of the United States Department of Justice beginning in 2013 which investigated banks in the United States and the business they did with firearm dealers, payday lenders, and other companies believed to be at a high risk for fraud and money laundering.
The Mortgage Choice Act of 2013 is a bill that would direct the Consumer Financial Protection Bureau (CFPB) to amend its regulations related to qualified mortgages to reflect new exclusions made by this bill. The CFPB released new regulations regarding the definition of a Qualified Mortgage that took effect in January 2014, a definition that this bill would modify.
Navient is an American corporation based in Wilmington, Delaware that services and collects student loans. Managing nearly $300 billion in student loans for more than 12 million debtors, the company was formed in 2014 by the split of Sallie Mae into two distinct entities: Sallie Mae Bank and Navient. Navient employs 6,000 people at offices across the U.S. As of 2018, Navient services 25% of student loans in the United States.
Keith A. Noreika is an American lawyer who specializes in the regulation of financial institutions. He served as Acting Comptroller of the Currency from May 5, 2017, to November 27, 2017, following the 30th Comptroller of the Currency, Thomas J. Curry, and preceding the 31st Comptroller of the Currency, Joseph Otting. Noreika rejoined the law firm of Simpson Thacher on January 8, 2018. He joined Patomak Global Partners as Executive Vice President and Chairman of its Banking Supervision and Regulation Group on July 5, 2022.