Industry News Payday Loans

NAFSA (Native American Financial Services Association) is suing New York Department of Financial Services (DFS)  and Administrator Benjamin Lawsky in Federal court.

The complaint argues that tribes will suffer irreparable injury absent injunctive relief, as Defendant Lawsky’s intimidation tactics against banks and third-party processors have already led to significant harm to tribes’ business relationships.

New York is avoiding the situation by claiming that they are not going after the tribes.  Rather, that they’re going after fraud in the ACH system and it’s processors.  It’s pretty much a Mexican standoff at this point between Benjamin Lawsky, Online Lenders and the FDIC.

Raising capital is probably the most important and least discussed component of your lending operation.  Always glad to post for someone that’s offering credit to small lenders.   If you have an offer for lenders, please let us know.  We’ll be happy to post it.

You can learn more about this specific offer at the Micro Lender Master Mind Group.  Here are the details from the article:

Up to $200k.

This offer is predicated on your personal credit.  You will need a 680 credit score or higher.

Interest rates:  Depending on the individual credit strength and the structure of the deal.  In same cases, there is a loan at regular interest rates, lines of credit are usually prime +2-3, and the credit cards are often no interest no payment for the first year.

Fees:  There is a 12% fee to establish these lending facilities.  This is paid out from loan proceeds at closing.

“Every flight begins with a fall.”
― George R.R. Martin, A Game of Thrones

Philanthropist Cary V. Brown’s payday loan operation has sent about 400 workers home.  The major blow is the ACH system.  Brown used ACH Federal, which is a subsidiary of Brown’s operation.  It appears that the banks for that work with ACH  Federal turned the faucet off.  The NY regulators, essentially, are making the banks an accessory to the illegal loans.

So let’s put this in perspective.   If you’re offshore, you’re going to get shut out of the ACH system sooner or later.  Additionally, the NY regulator has created a blue print for every state to deal with lenders, that they feel, are operating illegally in their state.

What’s interesting about this operation is that they have quite a few subsidiaries, a combination of ACH processing, software development, call centers and a lead generator.

Ellis Smith of the Chattanooga Times Free Press has been following Cary Brown’s businesses for quite a while now.  You can read more about Cary Brown.

Chattanooga area payday lender Carey V. Brown lays off workers
Local companies tied to offshore payday lenders
Chattanooga-based payday lender LeadPile pledges to comply with law, ethical practices

Websites shut down by New York regulator:

• MyCashNow.com
• PayDayMax.com
• DiscountAdvances.com

Major Carey V. Brown holdings

• ACH Federal
• Arch Advantage
• Area203 Digital [Formerly Logic Marketing]
• Cloudswell [formerly Terenine]
• Credit Payment Services
• Eclipse in Action
• Firma8/Kingdom Site
• LeadPile
• Sovee
• SupportSeven

Date: October 16-18, 2013
Location: San Diego Marriott Marquis & Marina

You can register HERE.

The fall conference is the biggest OLA event.  The networking is great, strong educational component and it a lot of fun.

Can’t say enough about the OLA team.  There are some excellent people running the organization.

Online registration ends on October 8th.  You can use my promo code for $100 off: INTROXL100.

I’m very excited about Clarity’s  newest product, Clear Warning For ACH Presentment .  The product’s main purpose is to prevent unnecessary ACH returns and addresses some important issues:

1. Unnecessary NSF fees just piss off the borrower.
2. As a lender, excessive returns are more likely to receive complaints at the local and federal level.
3. Returns are part of the business, but why harm your relationship with your ACH processor?  Value your processor.  They’re sticking their necks out for you.

Clarity is constantly trying to solve problems and their timing could not be any better.  Clear Warning is going LIVE in September.

The benchmark for returned items is 1-2%.  The online lending industry is upwards of 20%.  Reducing that at any level would be great for the industry.  The best part is that it’s good for the borrower too.  The borrower does not have to incur unnecessary NSF fees.

Of course, the big question is, how does this work and is it accurate?  Personally, I would love to run it and ACH the accounts that are blocked.  It would be nice to gauge the accuracy of the product.

If you would like to learn more about this product, you can contact Clarity directly at:

Phone: 727-400-6777
salesdepartment@clarityservices.com

Jamie Fulmer, is a senior vice president at Advance America, one of the nation’s largest payday loan companies with operations in 29 states. He says,

96% of Advance America customers rate their customer experience good to excellent.

I’m not sure how they came up with this number, but the numbers do not lie.  People keep coming back and borrowing.  Good or evil, the demand is there.

The biggest problem is that the consumer watch dogs and the government agencies, for the most part, do not understand the payday customer.  They do not realize what the borrower is up against.

• Getting your electricity cut off costs money in fees and penalties.
• If you’re car breaks down, how do you go to work?
• Over drawing an account has expensive NSF fees associated with it.

For the payday customer, it’s not the interest rate.  It’s the opportunity cost of not having $500 dollars.  This opportunity cost can be equal or larger than the fee on these loans.

Also, the payday loan detractors think the borrowers are stupid.  That’s unfortunate.  Maybe you say bad decision makers or financial undisciplined, but they know the cost of these products.

If people really wanted to help the payday customer, they would find ways to help build their credit.  Unfortunately, it’s hard to get positive payment data back to the big three credit bureaus.

There is NOT a lot of competition out there for unsecured loans charging between 36% and 99%.  Increase the rate another 400% and lenders are tripping over each other to get to these borrowers.  The reason is that the triple digit rates allow the lender to take the losses that are typical of the payday loan industry and be profitable.

Here comes Avant Credit.  They offer larger loan amounts (starting at $1,000) and cap their rates at 99%.  The rate can be as low as 35%.

So is Avant crazy?  Or brilliant?  I think they’re brilliant and Avant just raised another $20 million from some reputable VCs.

I’m not sure who they are targeting.  Are they looking for really good payday borrowers or really sketchy credit card borrowers?

According to Demos, over the past three years, 39 percent of households have experienced tighter credit, such as having cards canceled, credit limits reduced, or being denied a card when applying.  This is based on a survey of about 1,000 people, so we really don’t know how many low and middle class people are out there.  If it’s 40% of 100 million, then that’s a lot of people.

The New York district attorney is going for the jugular on Native American lenders.  Now, they’re instructing 117 banks to prevent the flow of money through the ACH system.  Let’s face it the lending business starts and ends with the money.  You take this away and it cripples the targeted lenders.  The big questions now are:

• Will the Federal Government step in and stop the NY District Attorney?
• Does a state have the authority to prevent internet commerce?
• Will the participating banks listen or fight?
• What’s plan B?  Are there other methods are there for moving money in and out of consumer’s accounts?

In response to this action, NAFSA (Native American Financial Services Association) released the following statement in Reuters.

 

“The actions from the New York Department of Financial Services unfairly target Native American tribes and violate our rights as self-governing entities. We are disappointed that years of precedent set by the federal government are being thrown out the window by overzealous regulators looking to further oppress tribal nations and breach our sovereign rights.

“The claims made in the letter from the New York Department of Financial Services are inaccurate, untrue, and not rooted in fact or reality. The lending companies operated by our members are wholly-owned arms of our tribes, bringing significant economic development to our reservations. They are licensed and regulated by tribes according to our ability to self-regulate. In addition, NAFSA’s Best Practices provide yet another failsafe to protect consumers, ensure that lenders honor consumer rights, protect consumers’ privacy, treat them fairly, and constantly strive to offer innovative alternative financial products.

“We encourage all consumers to become informed about our industry-leading best practices, learn about our role in providing crucial services to unbanked and underbanked consumers, and continue to stand up for Native American sovereign rights.”

More information on the Native American Financial Services Association, including updates on this ongoing dispute, is available at www.mynafsa.org.

FDCPA (Fair Debt Collection Practices Act) does not apply to the primary creditor.  The primary creditor is the original business of record on the obligation, so you would not break federal law as it pertains to FDCPA………but your state may have a law that mirrors FDCPA and may include rules that apply to the primary creditor and the CFPB expects creditors to follow FDCPA.

With the CFPB, creditors’ rights have become even more grey.  Paul Edwards, president of Alliance Asset Management, says “the CFPB has stated that they expect the original creditor to follow the FDCPA guidelines and that FDCPA does not take into consideration the new technologies that consumers use.”   Working with a licensed, reputable collection agency with a track record is a good way to protect you from frivolous law suits.

Want to know your states collection rules.  Here is a good resource to start out with.  It lists states that have supplementary collection acts on their books.

Avant Credit is the brain child of CashNetUSA founder Al Goldstein, former Enova V.P. John Sun and former CTO of Debtye – Paul Zhang.  Avant wants to add a new credit approach to online lending by using big data.   Currently operating in about 15 states, with Colorado and Texas coming soon.

The portfolio is around $10m, with $27.5m in funding according to Cranes Chicago Business.

Want to learn more about Al Goldstein?  He cashed out of CashNetUSA back in 2007 for an estimated $265m where he personally reaped $70m.   This year he was named Earnst and Young’s Entrepreneur of the Year for his work in Pangea properties.   It’s been a meteoric rise for the 32-year old Goldstein.