CFPB Accuses Online Payday Lenders of Exposing Customers to Hidden Risks

Jun 6, 2016 by

CFPB Accuses Online Payday Lenders of Exposing Customers to Hidden Risks

Dealing with emergency expenses is difficult for even the most affluent among us. Lower income households, however, can fact outright ruin when financial emergencies rear their ugly heads. And many low to mid income households in this country are either underbanked or unbanked, so they often have very few options when they need to borrow money to take care of these types of expenses. Often, these folks turn to alternative financial service providers, like online payday lending companies.

More often than not, people who take out payday loans run into no problems with repaying them, and they are then free to go about their normal routines. In some cases, though, people get hit with fees that they may not have expected. Some reports have shown that borrowers pay an average of $185 in penalties from their banks – usually overdraft or non-sufficient fund fees – when lenders go through the process of automatically deducting repayment for loans given. It is estimated that about a third of online borrowers who winded up with bank penalties had to deal with involuntary bank account closures.

This has happened to consumers when online lending companies repeatedly make debit attempts on their customers’ accounts. This causes extra bank fees to kick in for the account holders, even though these efforts usually lead to no payment being recovered on the part of the lending companies.

Of course, the CFPB is keeping tabs on online payday lending companies, so it comes as no surprise that the Director of the CFPB, Richard Cordray has a strong opinion on these types of issues. Cordray 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.

These findings come with the third analysis that the CFPB has done on the United States payday lending industry. Payday lenders provide unsecured loans to their customers, and typically the person who borrowers from one of these lending companies pays the lender back within a few weeks. It used to be that most payday lenders got paid back via a post-dated check. These days, though, online payday lenders usually automatically deduct the loan amount plus fees when the loan has run its term. The Obama administration has always had a disdain for this industry, and has supported the CFPB in its efforts to cook up new regulations that could potentially drive a lot of smaller lending companies out of business.

The CFPB analyzed about a year and a half’s worth of data from Automated Clearing House. This is the financial network used to put money into a borrower’s account and also to extract payment when the loan payment comes due. The data analyzed showed that some borrowers did not have adequate funds in their accounts when the loan repayment request happened, and that this – as one might expect – resulted in people getting hit with overdraft charges from their banks.

Here’s the thing, though – these fees are not charged by payday lending companies; it is the traditional banks that love to profit from imposing these fees. It is not the fault of a lender if a borrower does not live up to their end of the agreement by having adequate funds to cover the transaction in their bank accounts. No matter how much Cordray and his team want to twist these types of situations into being the fault of online payday lenders, the bottom line is that the fees are charged by the banks and happen because consumers fail to keep enough money in the bank to cover loan payments that they knowingly agreed to. End of story.

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Can Your Credit Score Influence the Upcoming Presidential Vote?

Apr 25, 2016 by

Can Your Credit Score Influence the Upcoming Presidential Vote?

You probably already know that credit scores can affect the kinds of loans you get, insurance rates and even the kinds of jobs you are eligible to fill. But is it possible that voters’ credit scores can have an impact on the upcoming presidential election?

People are angry – and have been angry – for having been kept out in the cold during this country’s slow financial recovery. And nationwide economics always figure into election season. Strange that as Obama is finally on his way out that the hope he promised to millions of America is still nowhere to be seen. The bottom line is that even though the economy may be in better shape than it was when the current POTUS took office, there are still millions of people who suffer from serious financial problems. Low credit scores around the nation are indicative of this very fact.

A recent survey indicated that a substantial percentage of voters with bad credit are throwing their support behind Donald Trump as their choice for the next President of the United States. This survey involved over 700 potential voters. The final numbers were crunched and it turned out that about 20 percent of the Donald’s supporters indicated that they had bad credit scores. By way of comparison, those who said that they support John Kasich and who had bad credit came in at only about half of that percentage. The number of Trump supporters with bad credit was also quite a bit higher than those who support Ted Cruz.

Don’t let this portion of the survey results fool you, though. The study also reveals that people with great credit scores also support Trump. About 50 percent of those who said they will likely vote for Trump had credit scores higher than 720. This is an important demographic, as higher credit scores usually equate to more wealth and an older pool of voters.

So, how do things look on the other side of the fence? It turns out that the credit scores of supporters for both Bernie Sanders and Hillary Clinton were very similar in this study. The biggest difference was those with bad credit. About 26 percent of Clinton supporters reported that they had bad credit scores.

According to Gregory Wawro, a Columbia University political science professor, “This data is consistent with the argument that Trump is drawing … support from individuals who feel financially insecure, and … are supporting him because they feel like they have been economically marginalized.”

It is still too early to know how things will shake out with the current pool of potential presidential candidates. Regardless of the final two players standing in this race, though, the fact of the matter is that the American people – both those with low credit scores and those with higher credit scores – are certainly ready for a change. The economy, while improving, has yet to reach a place where wages have started to increase substantially across the market. And there are still plenty of people who are unemployed or underemployed.

It is clear that credit scores do impact the way that people think about politics and politicians. If the final two candidates in this race were to be picked by people with lower credit scores, it appears that it would be a battle between Trump and Clinton. With many experts already believing this is how the race will ultimately prevail, then the people with lower credit scores may very well have a chance to make a real impact on the upcoming presidential race.

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How to know if you are prepared to open up a Rewards Credit Card

Mar 15, 2016 by

How to know if you are prepared to open up a Rewards Credit Card

Reward credit cards have been popular for some time now. But they have really gone off the charts over the course of the past few years. Nearly every credit card issuer boasts some kind of rewards program now. Some will offer you the chance to earn gift cards. Some will give you airline miles or credits at hotel chains. Some even offer to give you cold hard cash back for every dollar you spend on certain types of purchases. These are all great incentives. And a rewards credit card can certainly prove to be beneficial to many consumers. There really is nothing like earning perks back for doing something that you would be doing anyway – spending money!

Despite the perks, though, these types of cards are not right for all people. Many rewards cards charge higher interest rates when compared to similar cards with no rewards offers. Some cards even charge high annual fee charges that may prove to be more costly than any rewards that you actually earn. However, like we said, rewards cards can be, well, rewarding. It’s all about making sure that you are in the right place in your financial life prior to getting one. So how do you know if you are ready to upgrade to a rewards credit card? Here are some key signs that show you can move on from a basic credit card to the rewards card of your choice.

You Are Ready for a Rewards Card if:

You Have the Household Budget Well Under Control

It is a great thing to earn benefits while you charge your expenses. However, you should not sacrifice your budgeting efforts in an effort to earn more, more, more. In other words, don’t start spending on your card like crazy so you can simply earn more rewards. If you have the ability to create a household budget, stick to it and you manage to put a bit of money into your savings every month, there is a good chance that you might be a good candidate to get a rewards card and to use it responsibly.

You always pay off Credit Card Balances in Full

The rewards that you earn are only really good for you if you carry a zero balance on your card. That way, the miles or cash bonuses that you earn actually outweigh any interest that you accrue on your purchases. If you are one of those people who always makes it a point to only charge as much as you can reasonably afford to pay off in full every month, and you always pay off every dollar that you charge when your bill comes through, then you may find that a rewards card is a great tool to help you get a little cash back or to earn miles for your next vacation.

You Have a Good Credit Score

There are tons of rewards programs available these days. The best, however, are usually reserved for people with good credit scores. It is also worth noting that if you do have a high credit score, you are probably pretty responsible with your credit, which is another plus. Before you fill out any applications to get a rewards credit card, make sure that you pull your credit report/score to find out where you stand right now.

Finally, only get a rewards card that offers you perks you will actually use. If you don’t travel frequently or perhaps don’t enjoy flying, then a card that offers airline miles is probably not right for you. Spend a little time shopping around and comparing rewards credit cards to find the card that offers the types of rewards that you will enjoy racking up.

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Federal Trade Commission Fines Payday Lending Company for Alleged Deception

Feb 2, 2016 by

Federal Trade Commission Fines Payday Lending Company for Alleged Deception

Companies and individuals that provide financial services to the people of this country – whether big banks or individually owned lending shops – owe it to consumers to be transparent in all of their dealings. We all know, however, that this is not always the case. There are always lenders that will be deceptive. It can be a big bank or the smallest of title loan companies, and the deception can be purposeful or possibly an oversight. The thing is, though, that the Federal Trade Commission (FTC), and other government watchdog groups are making it their collective mission to crack down on deceptive financial practices. Sure, it does seem to happen to alternative financial providers more often than big banks, but it happens nonetheless.

To illustrate this point, the FTC recently settled charges against two different payday lending companies. These charges allege that the lenders charged consumers illegally via inflated and sometimes undisclosed loan fees. The two companies are SFS Inc. and Red Cedar Services Inc. Each company had to pay $2.2 million. By doing so, they were allowed to jointly wave an estimated $68 million in fees to people that did not get collected.

These charges, when totaled up with some previous settlements, add up to a whopping $25 million that the FTC has collected related to this particular case against Red Cedar, AMG Services Inc. and SFS, along with various related lending operations. The case also allowed for about $353 million dollars in debt to be waived. The combined efforts have made this the largest recovery that the FTC has pulled of so far. And there is still pending litigation against some other defendants that will likely bring the total higher.

The Director of the Bureau of Consumer Protection, when asked about payday lending practices, said, “Payday lenders need to be honest about the terms of the loans they offer. These lenders charged borrowers more than they said they would. As a result of the FTC’s case, they are paying a steep price for their deception.”

The charges that kicked all of this off date back to April of 2012. These charges, which were filed in federal court, allege that the lending companies made misrepresentations about how much it would cost consumers to borrow money. This is considered to be a direct violation of the FTC Act. An example from this case was a time when Red Cedar, MNE Services and AMG Services used a contract which told the borrower they would have to pay $309 for a $300 loan. However, the borrower ended up being charged $975.

The defendants have also been accused of failing to disclose the actual annual percentage rates of the loans, along with other terms. This is being handled as a violation of the Truth in Lending Act. To make matters worse for the lending companies, they made preauthorized debits from the bank accounts of borrowers. This is a violation of the Electronic Funds Transfer Act. SFS and Red Cedar operated as lending companies under the names One Click Cash and 500 Fast Cash.

Lending Companies Should Keep These Kinds of Cases in Mind!

This case, like many others that the FTC and CFPB have been behind recently, should serve as a stern warning to lenders that there is always someone looking out for deceptive financial practices. The majority of payday lending companies out there make it a point to be straight with consumers. But it appears that those who don’t will have a heck of a lot of explaining to do; along with a lot of money to cough up.

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Considering a Different View on the Payday Lending Industry in Utah

Dec 1, 2015 by

Considering a Different View on the Payday Lending Industry in Utah

Recently, the Utah Department of Financial Institutions – an agency that regulates Utah state financial services of payday lenders, banks and other financial service providers – published an annual report to the public. Those who keep track of these sorts of things are very happy to announce that the laws revealed in the report allow a measure of protection for consumers and provide borrowers with choices when it comes to credit. However, there seems to be some bad data with a topic that means a lot to many people.

The report from the DFI stated that there were more than 45,000 short term (payday) loans that were not fully paid off after 10 weeks. In reality, these 45,000 loans are just a drop in the bucket when compared to the hundreds of thousands of payday advance loans that are given in Utah every year. The majority of Utah citizens are able to fully repay their loans within 10 weeks. Those who cannot – who only represent about 7 percent of total borrowers – were able to make use of state sanctioned safeguards that allow them to enter into a two month repayment plan that prevents interest from accruing.

The 10 week safety cap is considered an important piece of state legislature, and was passed not because of government watchdog groups or angry letters to editors of local papers, but was passed because of urgings from actual payday lending companies. The payday lenders are the only financial companies that have regulated interest cap limits. These safeguards help to prevent consumers from getting trapped in cycles of seemingly never ending debt.

You could wrack your brain all day long and not be able to come up with any other financial institution that allows their loans to stop accruing interest, and extends payback periods, without imposing additional costs on consumers. The majority of payday lenders in Utah are more than happy to offer this option to their customers, and consider it a unique perk that other financial service providers are unable – or even unwilling – to provide to their customer base.

It is sad, then, to learn that the allegations of “debt cycles” is not quite as accurate as one might think. New legislation is trying to force payday lenders to verify whether or not a person is able to repay their loans prior to approving said loans. You would think, if you listened to the opponents of payday lending, that the lenders are actually looking for the types of borrowers who are unable to pay them back. This would be silly, of course, because lenders are giving loans from their own funds, and surely want to get paid back in order to stay in business.

No matter how many articles get written that paint payday lending companies in a bad light, and no matter how much certain liberal parties would like to attack payday lenders, the fact remains that this industry is in favor – at least in the state of Utah – of policing itself and doing all that it can in order to assist the minority of consumers who are unable to pay back their payday loans within ten weeks. Of course, you won’t read about this sort of thing on most liberal, mainstream websites. But the truth is the truth, and the truth is that payday lenders are taking more risk than other lenders, while still showing more compassion to their customers than any other financial service providers in existence today.

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Credit Scores: Highs,Lows and Averages

Oct 20, 2015 by

Credit Scores: Highs,Lows and Averages

Every person in the United States has a credit score. As can be expected from such a wide cross- section of people, those scores are going to vary; sometimes quite a bit. Many people are aware of what constitutes a low credit score and what makes a credit score favorable. What folks may not be aware of, however, is how the numbers are put together, or how they can actually take steps to improve their own credit ratings. With all of this in mind, it is important to understand that there are some areas where lower credit scores are more common than in other areas.

As of the spring of last year, the average credit score in the United States was 669. That is a score that is okay, but not good enough to help people qualify for the best lines of credit or the most favorable interest rates. As you might have guessed, though, the credit scores vary quite a bit from one state to another. For example, in Mississippi (the state with the lowest credit score average) the score came in at 638. This is not a great average credit score for a state. Minnesota came in at the top, with an average credit score of 704. That is the kind of credit rating that helps people to qualify for favorable loan terms and rates on most loans or lines of credit.

Why so many low scores?

A major cause of lower credit scores in some states is that consumers are not as aware of what goes into building a strong credit score as they ought to be. Educating consumers about financial topics plays an important role in helping people to have higher credit scores. Having extra cash, however, is another important factor that must be considered. In Minnesota, the median income is an impressive $61,000. That is almost 2/3 higher than the $38,000 median income level in Mississippi. The disparity in income levels, for better or worse, makes a big difference when considering the average credit scores and financial stability levels from one state to the next.

The president of the Mississippi Council on Economic Education Selena Swartsfager said, “You’ll hear people say it doesn’t matter what you make, you just have to manage what you’ve got. I’m afraid that until we’re able to do something about the level of poverty that we have in Mississippi, we can train people all day long on what to do with their money, but if they don’t have any, then that’s an issue.”

Examining the Big Credit Score Picture

The financial difficulties faced by people in Mississippi definitely showed through when comparing the state to nearby states that had their share of financial difficulties; states, like Georgia and Louisiana. These three states currently have the titles to 10 of the 20 lowest credit score averages in major cities. The upper Midwest, however, was the center of all but one of the top 10 credit ratings in large cities. This data includes Minnesota, Wisconsin, the Dakotas and Iowa. Only Montana came in as an outlier, according to a recent report.

As difficult as it may be, every household has to take its own steps to recover from low credit scores. The most important thing that consumers can do to improve their credit ratings over time is to continue to make on-time payments on all of their loans, credit cards and other financial obligations. We will likely always see credit score disparities across the nation, but it is comforting to know that individuals can take steps to make their credit scores more favorable than they are currently.

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