Author: Charlene Crowell

For many consumers, the New Year brings an annual effort to file taxes early enough to help pay off big bills, replace major appliances or tuck away a few bucks for the proverbial ‘rainy day.’

With a continuing federal shutdown, this year there are also an estimated 800,000 federal workers who have not had a payday since December. For these consumers, an early tax refund could cover basic living needs like housing, food, childcare and utilities. And across the country, advertising, particularly on urban radio, tempts listeners with easy ways to get a loan against anticipated tax refunds. But just like other predatory lending products, what is advertised is not quite what consumers receive. Convenient tax-related loans almost always come with a price that takes a big bite out of consumers’ money.

The bigger the refund, the more attentive and helpful “tax preparers” will be in helping with e-filing, the electronic processing that typically results in refunds in two to three business days. Once the size of the refund is known, these preparers encourage unsuspecting consumers to take out a short-term loan like a Refund Anticipation Loan (RAL). Depository institutions like banks sell a ‘service’ known as a Refund Anticipating Check (RAC) that is most appealing to consumers who lack a bank account.

Neither product is as helpful as they appear. RALs, are usually marketed as an “advance” instead of a loan. Instead of interest, many of these loans come with “fees” or a “finance charge.” Conversely, a Refund Anticipation Check or RAC is sold as a temporary bank account that exists exclusively to receive the IRS refund. Once the refund reaches the consumer’s bank account either a prepaid card, or a check is issued by the depository institution; and once again, fees taken out of the refund reduce the amount of monies that consumers actually receive.

The biggest target for both of these products are consumers with the largest refunds, especially those who are eligible for the Earned Income Tax Credits (EITCs), one of the few tax break programs available to low-to-moderate income consumers, and/or the Additional Child Tax Credit.

To be eligible for EITC, earned income and adjusted gross income can be as low as $15,270 for a single filer or head of household to as high as $54,884 for a married couple with three dependent children. This year, eligible EITC consumers could receive as much as $6,431 for families with three or more qualifying children to $519 for single filers. Similarly, the Child Tax Credit is available to eligible filers with children under the age of 17. For each dependent child meeting the age requirement, filers receive a $2,000 credit that like EITC reduces the amount of taxes owed. In 2017, 1.7 million RALs were sold, and another 20.5 million RACs valued at a half billion dollars were also sold, according to the National Consumer Law Center (NCLC).

“Tax-time is hard enough for most Americans, but they also face consumer protection challenges,” noted Chi Chi Wu, staff attorney at the National Consumer Law Center. “They need to avoid incompetent and abusive preparers and decide whether to choose financial products of varying costs.”

So how much financial sense does it make to purchase an ‘advance’ or open a temporary bank account when the Internal Revenue Service can deposit the full refund into a checking account within two to three business days?

Just because a refund-advance product isn’t called a loan, or doesn’t have an interest rate, doesn’t mean it’s free, said Scott Astrada, the Center for Responsible Lending’s Director of Federal Advocacy. “Carefully read the terms and conditions and ask plenty of questions.”

Everyone who works for a living should be entitled not only to a paycheck but 100 percent of their tax refunds.

Charlene Crowell is the Center for Responsible Lending’s Communications Deputy Director. She can be reached at Charlene.crowell@responsiblelending.org.

(NNPA) — A new federal lawsuit alleges that since at least 2009, two major players in the debt collection industry have illegally operated, harassed, threatened and deceived millions of consumers across the country – often for debts that were either inflated or not even owed. The scheme based in Buffalo, New York, also netted tens of millions of dollars in revenue each year.

The case seeks to shut down the illegal scheme, secure compensation for victims and assess civil penalties against the companies and its partners.

On November 2, New York’s Attorney General Eric Schneiderman and Richard Cordray, Director of the Consumer Financial Protection Bureau, filed charges against the scheme’s two principals, Douglas MacKinnon and Mark Gray.

“[W]e are taking action against the ringleaders of this operation,” noted Director Cordray, “so they can no longer prey upon vulnerable consumers.”

“Living with debt is difficult enough, without the added stress of being harassed and threatened by debt collectors,” Attorney General Schneiderman said. “These collection shops inflated debts, threatened victims and deceived them out of millions. This suit sends the message that debt collectors that employ abusive tactics will be held accountable.”

In recent years, debt collection abuses have emerged as a growing consumer finance issue for communities of color. Both research and investigative news have found that consumers of color, along with low and middle-income communities are frequently targets of collection lawsuits that today represent a still-growing $13 billion industry.

According to the lawsuit, MacKinnon and Gray operate a network of at least 60 fly-by-night collection shops to collect on large debt portfolios purchased by three interrelated firms: Northern Resolution Group, Enhanced Acquisitions and Delray Capital, all based in Buffalo, New York. MacKinnon and Gray created, operated and oversaw the illegal operation.

Among the actions cited as illegal violations included:

• Falsely threatening legal action;

• Impersonating law enforcement officials, government agencies and court officers; and

• Inflating consumer debts and misrepresentations of amounts consumers owed.

These kinds of actions violate both the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Enacted in 1978, the Fair Debt Collection Practices Act protects consumers from abusive or deceptive fraud in debt collection practices. It applies only to the collection of debt incurred by a consumer primarily for personal, family, or household purposes. Two of its most important provisions are that a debt collector cannot phone a consumer’s residence before 8:00am or after 9:00pm; nor attempt to contact a consumer at their place of employment.

Similarly, the Dodd-Frank Wall Street Reform and Consumer Protection Act specifically bans unfair and deceptive acts or practices in the consumer financial marketplace in a variety of lending areas that include mortgages, student loans, debt collection and others.

Last year, CFPB returned $360 million to consumers wronged by unlawful debt collection practices and collected over $79 million in fines. In addition, the Federal Trade Commission separately received approximately 900,000 consumer complaints on debt collection.

In recent comments to the CFPB, the Center for Responsible Lending advised, “CRL strongly supports the concept that a debt collector must possess a reasonable basis for making a claim that an individual owes a debt . . . . The burden rightfully should be on debt collectors to establish that they have the legal right to collect the debts and are collecting from the right people, for the right amount of money.”

For Lisa Stifler, CRL’s deputy director of state policy, the joint action taken by New York’s Attorney General and CFPB is representative of what should happen more often to better protect all consumers.

“Consumers need the protection of both state officials and CFPB to rid the marketplace of bad actors and illegal debt collection practices. It’s an encouraging sign that one of our most populous states is working in concert with CFPB to end financial abuse. It’s an example worth emulating by other states.”

Charlene Crowell is the communications deputy director with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

(NNPA) — Within days of the October 7 deadline for public comment on the Consumer Financial Protection Bureau’s proposed payday rule, 104 Members of Congress from 32 states, the District of Columbia and the Virgin Islands together called for strong consumer protections, and an end to both regulatory loopholes and predatory debt traps.

Joining the effort were 31 of the current 43 House members of the Congressional Black Caucus (CBC), including its chair, Representative G. K. Butterfield from North Carolina. The Tar Heel State enacted strong laws years ago to end predatory payday loans. Additionally, many of these CBC members come from states that have failed to enact meaningful payday reform including Alabama, California, Michigan, Missouri, and Texas.

Led by California Congresswoman Maxine Waters, the Ranking Member of the House Financial Services Committee, their joint September 28 letter to CFPB Director Richard Cordray was as direct as it was timely.

“For years, some small-dollar lenders – offering products such as payday loans, deposit advances, vehicle title loans, and high-cost installment loans – have extracted billions of dollars in abusive fees and high interest rates from the very consumers and communities who can afford it the least,” wrote the representatives. “The result has left millions of consumers trapped in an endless cycle of debt…The CFPB’s final rule must close every loophole that is shown to harm consumers.”

Citing earlier CFPB research on other small dollar loans like car-title, the Congress members noted that 14 states and the District of Columbia have already enacted interest rate caps of 36 percent. In their collective view, federal regulation should complement these state protections.

“Though we applaud the CFPB for taking the necessary first steps to address predatory practices in the small-dollar credit market,” wrote the members, “we urge you to adopt a final rule with additional protections that will ensure responsible lending. Only a comprehensive federal framework, free of harmful loopholes, can supplement existing state protections and help stop consumers from becoming entrapped.”

This strong congressional appeal continues the calls for fair lending that has included clergy, consumer advocates, civil rights organizations and others.

For example in late September, Rev. Dr. Cassandra Gould, executive director of Missouri Faith Voices spoke to a September 27 nationwide call with concerned clergy and consumer advocates. “We have to pull the veil off unscrupulous lenders so they stop preying on people in our congregations and communities to make sure the Consumer Financial Protection Bureau puts forward and enforces a strong and effective rule,” said Rev. Dr. Gould.

Also present at the gathering was Senator Elizabeth Warren of Massachusetts, who encouraged the White House in the aftermath of the housing crisis to create a financial regulator for America’s consumers.

“Payday lending is an enormous problem for far too many people,” said Warren. “Billions of dollars are flowing out of communities that can least afford it and directly into the pockets of some of the sleaziest lenders in America.”

For several years, payday lending reforms have been a prominent part of the research and advocacy by the Center for Responsible Lending. Among CRL’s key payday loan findings:

• Each year, $4 billion in excessive fees are drained from the pockets of payday borrowers;

• Over 75 percent of these fees are generated by consumers who are trapped into debt with 10 or more loans per year; and

• Nearly 1 in 4 payday borrowers rely upon public assistance or retirement benefits as a major source of income.

“To get it right, the CFPB must base its determination of whether a loan is affordable on whether a borrower has enough income, after the new loan payment, to meet basic needs like food, housing and transportation,” said Mike Calhoun, CRL President. “And the rule must be air tight: We are talking about an industry as notorious as any for exploiting loopholes in laws aiming to rein them in, and wreaking true financial ruin on working families in the process.

“Without meaningful upfront underwriting and strong protections against loan flipping, lenders can trap borrowers in high-cost debt for years on end,” Calhoun concluded.

Charlene Crowell is the deputy communications director with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

(NNPA) — The fight for fair lending got a big boost on August 31 when a federal court rejected a payday loan collector’s attempt to evade consumer laws. The decision against CashCall, a California-based online payday and installment lender, upheld the Consumer Financial Protection Bureau’s (CFPB) authority to investigate and fine lenders for unfair, abusive or deceptive practices.

The court ruling is a key step in a legal battle that began nearly three years ago.

In December 2013 and for the first time, CFPB sued to secure consumer refunds of illegally collected money. According to the filing, “defendants engaged in unfair, deceptive and abusive practices, including illegally debiting consumer checking accounts for loans that were void.”

CFPB charged that California-based CashCall, its subsidiary WS Funding LLC, affiliate Delbert Services Corporation, a Nevada collection agency were all the same ownership. Loans ranging from $850- $10,000 were sold with upfront fees, lengthy repayment terms and interest rates as high as 343 percent. CFPB charged that these loan terms violated state laws in at least 16 states that had in place licensing requirements, interest rate caps – or both.

As early as 2009, CashCall also partnered with Western Sky Financial, another company, to claim that tribal law rather than state law applied to their loans. Readers may recall a series of television ads promoting Western Sky’s quick and easy loans.

The federal court disagreed and dismissed challenging arguments, finding CashCall to be the true lender. The relationship with Western Sky was tantamount to a “rent-a-bank” scheme. In part the ruling stated affected states “have expressed a fundamental public policy in protecting its citizens.”

CFPB’s late summer court victory is similar to another recent enforcement action by the Maryland Commissioner of Financial Regulation. In that state’s court, CashCall was found to be a lender that tried to evade state usury limits by using the rent-a-bank scheme.

Today, there are 90 million people who live in the District of Columbia and 14 states where excessively-priced payday loans are not allowed. Collectively, these states save more than $2 billion a year that would otherwise be spent on payday loan fees.

That’s a good thing for consumers.

Consumer advocates are celebrating this important victory. It is one that upholds the importance of strong state laws and effective enforcement.

“This important ruling validates the right of states to protect their citizens from predatory loans, whether they are made online or at a storefront”, noted Diane Standaert, director of state policy and an executive vice president with the Center for Responsible Lending. “It reinforces the common sense concept that people should not be harassed for debts they do not owe. Both states and the CFPB must continue to enact protections against unfair lending and collection practices.”

The court ruling also comes when the deadline for public comment on payday lending approaches. CFPB will accept comments from citizens and organizations that have concerns about payday and high-cost, small-dollar loans. An online portal can accept comments at: http://stoppaydaypredators.org/crl/.

The deadline for public comment is October 7. If anyone doubts how these small-dollar loans cause so much financial harm, consider these facts:

• Over $3.4 billion in excessive fees are drained from payday borrowers each year.

• Nearly 1 in 4 payday borrowers rely on either public assistance or retirement benefits as an income source.

• Payday borrowers are more likely to experience bank penalty fees, delinquencies on other bills, and delayed medical care.

All too often across the country, payday storefronts ply their trade in Black and Latino neighborhoods. The noticeable presence of payday lenders in our communities indicate that our people are being targeted to become financial victims. I would challenge anyone to identify areas dominated by high-income consumers have a comparable number of payday stores.

Starting now, choose not to become a payday victim. If there was ever a time to speak up or speak out on predatory lending, don’t miss the October 7 deadline for comments.

Charlene Crowell is the deputy communications director for the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

(NNPA) — It’s that time of year again when days are longer, temperatures are higher and auto dealers advertise some of the most tempting deals. And while there’s nothing new about new car fever or the annual ad blitz, there’s a good deal of news on how consumers are choosing and paying for their cars.

For example, new car sales increased more than 5 percent from a year ago. At the same time, the average credit score for a new car loan dropped to 710 and even lower to 645 for a used vehicle.

These data points provided by Experian, a major market intelligence firm, also recently reported that today the average monthly car payments are also at an all-time high: $503 for a new car and $376 for a used one. Car loan terms are also longer and the amounts financed are both larger too. On average, both new and used car loans are respectively 68 and 66 months. The average new car loan is now an all-time high at $30,032.

“The continued rise in new vehicle costs have kept many consumers exploring options to keep their monthly payments affordable,” said Melinda Zabritski, Experian’s senior director of automotive finance. “As long as vehicle prices continue to rise, we can expect leasing rates to grow along with them…The record highs we have seen in vehicle prices also have had a significant impact on the loan market.”

Consumers short on savings for a down payment, but anxious for a new or nearly-new car may opt for a lease rather than a purchase – a very complex transaction with pitfalls of its own. During the first quarter of 2016, nearly a third of all new car transactions were leases.

For consumers, the really ‘good deal’ is tied not only to the cost of the car, but also to the terms of the sale as well. Sale or lease prices, interest rates, length and other items are also important to the art of ‘the deal’.

Unfortunately, all too often consumers of color – especially Blacks and Latinos – consistently try to negotiate a ‘good car deal,’ but often wind up paying more than others. The practice of car dealers adding extra interest to a car loan has a long history of discrimination that has led to a series of multi-million dollar settlements with finance arms of major auto manufacturers and other ones with banks.

Fortunately, the Consumer Financial Protection Bureau (CFPB) recently developed a series of consumer resources that can better inform those making decisions. Topics included in the series cover: how to plan for a purchase; loan options and how to better negotiate a car loan. A consumer guide available for download can also serve as a handy reference, providing greater detail on the process from determining how much to borrow to closing the sale.

Most importantly, CFPB provides specific steps to take before going to dealers. The CFPB strongly encourages consumers to get an offer from a bank, credit union or other finance source before setting foot in the dealership.

The Bureau also urges caution when striking agreements with dealers. Consumers should carefully review loan paperwork to catch differences between what was verbally promised against what the paperwork requires borrowers to do. Consumers should never sign any loan with unclear terms, blank spaces or language they do not completely understand.

According to the Center for Responsible Lending (CRL):

• 80 percent of car loans are financed through dealers;

• At more than one trillion dollars, outstanding car loans are the third highest amount of consumer debt, surpassed only by mortgages and student loans; and

• Although borrowers of color report trying to negotiate loan terms more than other consumers, they wind up paying more for financing.

A fact sheet on how to avoid a predatory car loan is available on CRL’s web.

“Car prices are rising faster than incomes, so consumers are faced with taking on longer loans,” said Chris Kukla, CRL executive vice president. “The CFPB’s new guide rightly puts the focus on the overall cost of the car. Lenders are taking big chances when making loans for 7 or 8 years – borrowers should think long and hard before taking one.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

For more than a decade, civil rights organizations, labor, clergy, and consumer advocates have fought to end triple-digit interest rates on small dollar loans. Whether it was a high-cost installment, payday or car-title loan, the push has been to free America’s working families and consumers of color from fees that can double, or even triple the amount of money borrowed.

Now, after years of research, public hearings and advisory forums, on June 2 the Consumer Financial Protection Bureau (CFPB) announced a long-awaited proposed rule. Speaking before a public hearing in Kansas City, Richard Cordray, CFPB’s director, spoke to the ultimate consumer goal tied to the proposed rule.

“Our proposed rule is designed to ensure more fairness with these financial products by making systemic changes to steer borrowers away from ruinous debt traps and restore to them a larger measure of control over their affairs,” said Director Cordray. “Ultimately, our objective is to allow for responsible lending, while making sure that consumers do not fall into situations that undermine their financial lives.”

For Rev. Dr. Cassandra Gould, a hearing speaker, pastor of Quinn Chapel AME Church in Jefferson City, Missouri, and executive director of Missouri Faith Voices, “all financial products are not equal” and payday lending is “a scourge on minority communities.”

“Families need credit but not all products help despite filling that need,” testified Rev. Gould. “I am reminded of the people in Flint. They needed water because we need it to survive, but the water they received was deadly. Payday lending is toxic; it equates to the water in Flint, it does more harm than good.”

“Instead of finding ways to help people in desperate economic times, predatory lenders trap them with systematic callousness and cycles of debt for their own gain,” added Rev. Gould.

The centerpiece of the CFPB’s proposal establishes an ability-to-repay principle based on income and expenses, covering both short-term and long-term loans – but with exceptions.

Early reactions to the proposal were as swift as they were strong.

“Low-income people and people of color have long been targeted by slick advertising and aggressive marketing campaigns to trap consumers into outrageously high interest loans,” said Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights. “That’s why the civil rights community wants to see predatory payday lenders reined in and regulated. The power to lend is the power to destroy.”

Recent research by the Center for Responsible Lending (CRL) found that payday loans drain $4.1 billion in annual fees from consumers living in one of 36 states where the loans are legal.

Similarly, car title loans offered in 23 states account for another $3.9 billion in fees each year according to CRL. For these borrowers, car repossession, not repayment, is a common result that ends mobility for working families. Depending upon available alternative transportation options that can jeopardize employment.

Nearly half of these combined fees – $3.95 billion – come from only five states: California, Illinois, Mississippi, Ohio and Texas. Each of these states loses a half-billion or more in fees each year.

“These loans often come with outrageous terms, such as interest rates that can top 1,000 percent, and trap millions of Americans a year in a cycle of debt that many of them are never able to exit,” said Congresswoman Maxine Waters. “I applaud the CFPB for their proposal and I will continue to work with the CFPB and consumer advocates to stop the debt trap once and for all.”

Similar reactions came from Latino leaders. “Payday loans might sound like a good option, but they are intentionally structured to keep borrowers in a cycle of borrowing and debt that causes millions of hardworking Americans extreme financial difficulty,” said Janet Murguía, National Council of La Raza President and CEO.

For Illinois Congressman Luis Gutierrez, tying the ability-to-pay standard to payday lending is long overdue. “These lenders are taking a big bite out of low- and medium-income borrowers, exploiting their lack of choices and shaking down hard-working men and women,” said Gutierrez. “I have tried to address this through legislation, but I was always up against a very powerful and well-funded lobby and they work on politicians at the state and federal level in both parties.”

Many advocates, including the Stop the Debt Trap Campaign, viewed the measure as an important first step that still needs work. This broad coalition of more than 500 advocacy organizations from all 50 states spans civil rights, clergy, labor, consumer issues, and other groups is among the largest groups advocating for consumers.

This coalition applauded the removal of a large loophole in last year’s preliminary proposal. It would have permitted lenders to avoid an ability-to-repay test by limiting loan payments to 5 percent of a borrower’s gross income. CFPB rejected that approach in part because evidence does not support that such loans would in fact be affordable for many lower-income borrowers.

According to Mike Calhoun, president of the Center for Responsible Lending (CRL), “As currently written, the rule contains significant loopholes that leave borrowers at risk, including exceptions for certain loans from the ability-to-repay requirement, and inadequate protections against ‘loan flipping’ – putting borrowers into one unaffordable rule after another.

For CRL, the final rule should:

1. Apply ability-to-repay requirements to every loan;
2. Increase protections against loan flipping;
3. Ensure lenders must determine that borrowers have enough income left over to meet their basic living expenses; and
4. Be broadened to cover any loan that enables lenders to coerce repayment from borrowers.

Often consumers have opinions but wonder if anyone is listening. The proposed payday lending rule is a time when CFPB not only is listening, but is relying on consumers and organizations to weigh in by September 14. All interested groups or individuals can learn how to have their concerns count by visiting CFPB’s web.