Tag: Rulemaking

The CFPB seeks new rules for payday lenders, protecting consumers from unfair lending

Nobody likes payday loan shops, unless they are the one who owns it and gets rich off the people they prey upon. Many years ago when people borrowed money from the mob, they got hurt if they didn’t pay. Today, some folks under water with payday loan shops might prefer physical injury over the incredible fees and charges they pay for the convenience of a short-term loan. The Consumer Financial Protection Bureau (CFPB) focuses its latest in a series of efforts to give relief to consumers who suffer from the after effects of payday loans. The proposed rulemaking follows a 2014 CFPB study of payday lending practices which highlighted the frequency in which borrowers we able to extend their repayments, repeatedly, and owed more money in fees than the principal amount they originally borrowed. Meanwhile, payday loan industry representatives speak out against the CFPB and its proposed new rules.

Is there a significant trap in the payday loan process? The CFPB reports suggests so.

The 2014 payday study, CFPB Data Point: Payday Lending, conducted by the CFPB Office of Research, notes that more than half of payday loans are due within two weeks of the issuing date, with an annual interest rate of approximately 390 percent; most of the consumers repeatedly extend their repayments, incurring more debt and owing more fees than they borrowed. In 80 percent of the auto title loans, where borrowers secure the loans by putting their vehicles on line, the borrowers have to extend the loans because they cannot afford to pay them. Half of all the loans are renewed and the borrowers are in loans more than “ten loans long.” Key findings of the report also state that the majority of monthly payday loan borrowers are government benefit recipients.

The people who can least afford high interests rates are already facing financial difficulties that lead them to payday loans. These borrowers may not have the credit rating or access to affordable loans that others may enjoy.

The CFPB assesses data regarding payday loans to better highlight the realities of higher risk lending. The opening language of the study states that the CFPB is focused on “providing an evidence-based perspective on consumer financial markets, consumer behavior, and regulations to inform the public discourse.”

The CFPB proposed rules set forth objectives in counteracting predatory payday lending practices.

There are two main loan categories considered in the proposed rules, loans shorter than 45 days and loans longer than 45 days, that have more than a 39 percent all-in annual percentage rate, and are either secured by the borrower’s vehicle or the payments are automatically deducted from their account or income. For both these loan categories, the new rules would require the lender to independently determine whether the borrower can afford to repay the loan.

Abusive and unfair short term and payday loan practices would also be identified under the proposed new rules. In addition to identifying bad practices, the rules would restrict lenders from loaning money to borrowers who already have outstanding loans. Additional restrictions would prevent lenders from making multiple payment attempts, trying to draw the payment from the borrower’s account, after two consecutive payments that declined when processed, and this saves already unable-to-pay borrowers from additional fees and charges from the payday lender.

Lenders say the rules would cripple their industry and block the access to money that borrowers need, often in emergencies.

The negative economic impact of the proposed new rules on payday lenders could be significant. Recent news articles noted, ““Thousands of lenders, especially small businesses, will be forced to shutter their doors, lay off employees, and leave communities that already have too few options for financial services,” said Dennis Shaul, the chief executive of the Community Financial Services Association of America, a trade group for payday lenders. According to the group’s website, “More than 19 million American households count a payday loan among their choice of short-term credit products.”[i]

With an average fee of $15 on every $100 borrowed, payday lenders have significant fees at stake and as lender experts suggest, the new CFPB rules run some payday lenders out of business. Those with financial interests in the outcome of the proposed new rules may be keeping a close eye on the presidential election, as the Democratic presidential candidates generally support stricter consumer finance rules and restrictions.

The Zamparo Law Group follows several rulemaking propositions and developments with the CFPB and will frequently share news that affects consumers, in particular, the development of rules for better practices in the short term and payday lending industry.

The Zamparo Law Group, P.C. is a consumer protection law and litigation firm, representing consumer plaintiffs. Zamparo Law Group in the northwest suburbs of Chicago sues and wins against the companies who refuse to follow the law.

To learn more about consumer protection law and the Zamparo Law Group, please visit the firm’s website. You may also ask for a free case review. The Zamparo Law Group is connected on social media, please follow us and share our resources we share on our FacebookTwitter and LinkedIn pages. You may call the Zamparo Law Group with any questions by dialing (224) 875-3202.

 

[i] New York Times, Payday Loans’ Debt Spiral to Be Curtailed, By Stacy Cowley, Jun 2, 2016.

Image Source Payday Loan Giant May Go to Prison for Racketeering http://bit.ly/1UkqCV8

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New CFPB rulemaking on arbitration clauses may be delayed by the House

The Consumer Financial Protection Bureau (CFPB) has a government block to the new rulemaking that would carve out specific language allowing consumers access to the courts, instead of otherwise being bound by mandatory arbitration agreements in contracts among consumers and financial institutions. The House Financial Services Appropriations Subcommittee is marking up the bill to fund the CFPB,[i] Until spending bills are passed, the CFPB is prohibited from issuing the final rulemaking language in its regulations regarding mandatory arbitration agreements.

As we reported in our article last week, THE CFPB ANNOUNCES NEWS OF POSSIBLE RULEMAKING TO GET AROUND ARBITRATION AGREEMENTS, the CFPB “was considering whether to ban arbitration agreements from being used to compel arbitration of consumer class actions and whether to require the reporting of certain information concerning consumer arbitrations to the Bureau to facilitate monitoring.[ii]

CFPB Rulemaking is on hold due to the House Appropriations Committee, its process and requirements.

In the draft of the Appropriations Committee spending bill, there are certain requirements the CFPB must satisfy before any proposed new rules can be issued. The Appropriations Committee also wants the CFPB to change its current form of governance, from a single agency director, to a board of directors, which has been previously proposed.

The proposed new rule would allow consumers to file lawsuits against financial institutions, including credit unions, if they engage in wrongdoing. The rule cures the current problem where consumers are limited to binding arbitration clauses, making litigation and class action lawsuits unavailable as stated in the arbitration clauses many consumers never read nor knew they were accepting.

Some challenge the CFPB and its motivation for arbitration rulemaking, opening the door for consumers to sue financial institutions.

There are disagreements among legal scholars as to whether arbitration is more or less helpful to consumers, when other options include joining class action lawsuits. While critics cite the smaller dollar amounts awarded to consumers when they join together in suing a financial institution, individual arbitration decisions are more like a cost of doing business, than they are a legitimate threat to a large financial institution. Class action lawsuits have the teeth to affect these big banks and can force them to change their conduct and policies.

The CFPB conducted its own studies and released them to Congress: Arbitration Study, Report to Congress, pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028 (a). The 728-page study examined data concerning the pre-dispute arbitration process, to determine whether consumer rights and remedies are unfairly restricted.

Critics of the CFPB’s proposed rules, suggest that its report to Congress is slanted to favor the CFPB in allowing more consumers to sue financial institutions through the Bureau, whose job is to enforce consumer rights laws and take action against predatory companies. Meanwhile, supporters of the new rules agree that allowing consumers to join class actions or individually sue financial institutions is the proper way to facilitate justice, as opposed to being restricted by arbitration agreements preventing individuals from having their day in court.

While the Appropriations Committee works on its markup of the spending bill and the requirements of the CFPB in arbitration rulemaking, financial institutions continue using arbitration clauses to block access to courts. The new CFPB arbitration rules are likely to take effect in 2017.

The Zamparo Law Group, P.C. is a consumer protection law and litigation firm, representing consumer plaintiffs. Zamparo Law Group in the northwest suburbs of Chicago sues and wins against the companies who refuse to follow the law.

To learn more about consumer protection law and the Zamparo Law Group, please visit the firm’s website. You may also ask for a free case review. The Zamparo Law Group is connected on social media, please follow us and share our resources we share on our FacebookTwitter and LinkedIn pages. You may call the Zamparo Law Group with any questions by dialing (224) 875-3202.

 

[i] Credit Union Times, House Bill Would Delay CFPB Arbitration Rules, By David Bauman, May 24, 2016

[ii] Consumer Financial Protection Bureau, Spring 2016 Rulemaking Agenda, Current Initiatives, Arbitration

Image Source: House Appropriations Committee http://1.usa.gov/1ptJEtv

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The CFPB announces news of possible rulemaking to get around arbitration agreements

Customers and banks do not always get along. When the customer feels wronged, they have few options to fight back to hold the bank accountable. A customer who believes the bank over charged them with fees for overdrafts and other charges could file a lawsuit against the bank but the cost and effort involved may outweigh the potential recovery. If however, the bank engages in over charging fees to a large group of customers, that group can join a class action lawsuit. Class actions can force banks to change their practices and the financial penalties the banks face are substantial. Before running to the nearest consumer law attorney to join a class action lawsuit, beware of binding arbitration clauses that may be a barrier to fighting for your rights. When you began your relationship with the bank, or afterwards if you accepted their notice of amended terms of service, you may have agreed to your disputes against the bank settled in binding arbitration, not a traditional court of law where you can join a class action lawsuit.

The Consumer Financial Protection Bureau (CFPB) proposes new rules to address arbitration in response to consumer advocacy efforts to help individual consumers who are being limited to access to the courts.

News of the injustice done to consumers by banks and financial institutions using arbitration agreements as shields from consumers, and a few U.S. Supreme Court Decisions urged consumer advocates to call for action to address the threat of harm and lack of legal options for consumers. In 2011 and 2013 the Supreme Court upheld the widespread use of arbitration agreements in the fine print of consumer and bank agreements, holding consumers to the decisions of the arbitration panel often provided by the very bank the consumer opposes. For more information, read our article, Arbitration clauses prevent consumers from suing in court, but might not end the fight.

The CFPB made an announcement on May 5, 2016, that it proposed making its own rules to limit the use of arbitration clauses in contracts for customers of banks and finance companies under the legal oversight of the CFPB.

Here are some excerpts of the proposed new rules:

  • “Arbitration could not block class actions without court action. First, the proposed rule “would prohibit providers from using a pre-dispute arbitration agreement to block consumer class actions in court and would require providers to insert language into their arbitration agreements reflecting this limitation.”
  • Companies would be required to submit arbitration claims filed and awards issued to the CFPB for review and possible publication. Second, “the proposal would require providers that use pre-dispute arbitration agreements to submit certain records relating to arbitral proceedings to the Bureau. The Bureau intends to use the information it collects to continue monitoring arbitral proceedings to determine whether there are developments that raise consumer protection concerns that may warrant further Bureau action. The Bureau intends to publish these materials on its website in some form … to provide greater transparency into the arbitration of consumer disputes.”[i]

The CFPB publishes a section of its website dedicated to its power to make rules to enforce federal consumer financial laws, “to ensure that all consumers have access to markets for consumer financial products and services that are fair, transparent, and competitive.[ii]” The CFPB states that the process through which rulemaking occurs, takes into account the experiences and needs of consumers. Policy making and advisory groups and panels review information and make reports to one another up the chain of authority. The CFPB outlines its rulemaking plans with respect to arbitration blocking consumers’ access to courts in their May 5, 2015 blog article, CFPB proposes prohibiting mandatory arbitration clauses that deny groups of consumers their day in court.

The proposed CFPB rule affecting arbitration with financial institutions is important news and The Zamparo Group will continue a review the new rule and news regarding its potential adoption and implementation in further consumer news articles on this site.

The Zamparo Law Group, P.C. is a consumer protection law and litigation firm, representing consumer plaintiffs. Zamparo Law Group in the northwest suburbs of Chicago sues and wins against the companies who refuse to follow the law.

To learn more about consumer protection law and the Zamparo Law Group, please visit the firm’s website. You may also ask for a free case review. The Zamparo Law Group is connected on social media, please follow us and share our resources we share on our FacebookTwitter and LinkedIn pages. You may call the Zamparo Law Group with any questions by dialing (224) 875-3202.

 

[i] Mondaq, CFPB Proposes New Rule on Mandatory Consumer Arbitration Clauses, By Lisa M. Ledbetter and Sanjay Narayan, May 18, 2016.

[ii] Consumerfinance.gov (CFPB website) Rulemaking.

Image Source: www.autoremarketing.com, Cordray Reiterates CFPB Rulemaking Process http://bit.ly/1NyvYj4

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