By Maya Jackson Randall, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The federal government will be giving payday loans ?
much more attention,? Richard Cordray, head of the new Consumer Financial
Protection Bureau, said Thursday during the agency?s first field hearing.
At the hearing in Birmingham, Ala., a city that?s also grappling with how to
regulate the notorious consumer loan products, Cordray outlined a dual track for
regulating payday loans.
He warned that it will be using its powers to wipe out illegal payday lending
practices?such as unauthorized debits on a person?s checking account?while it
also gathers data necessary to hash out a broader regulatory framework for the
industry as a whole.
?There are some payday lenders engaged in practices that present immediate
risk to consumers and are clearly illegal,? Cordray said from Alabama, a payday
lending hotbed. ?Where we find these practices we will take immediate steps to
eliminate them.?
The agency also released guidelines that explain that its examiners will be
evaluating all companies that offer short-term, small-dollar loans in the same
light. That means that payday-style products offered by banks and credit unions
will be scrutinized in the same way as nonbank companies that offer payday
loans.
A handful of banks, such as U.S. Bancorp (USB), Wells Fargo Co. (WFC) and
Regions Financial Corp. (RF), offer products called direct-deposit advances,
which customers can obtain instantly through online or phone requests.
Typically, customers receive a credit line up to $500. When the customer?s next
paycheck is deposited, the bank repays itself by deducting the loan balance plus
fees.
?We will be paying close attention to deposit advance products at the banks
that offer them,? said Cordray.
President Barack Obama on Jan. 4 used a controversial maneuver to appoint
Cordray as the bureau?s first director. As a result, the bureau, which had
already started supervising large banks, gained powers to inspect payday lenders
and other companies that aren?t chartered as banks but still offer consumer
loans.
Payday loans are short-term loans that cash-strapped consumers can obtain
online or at storefront locations around the country to get cash quickly for car
repairs, for instance. The small-dollar loans typically amount to several
hundred dollars. However, the features of the loans?which can come with steep
finance charges and must be repaid quickly?have made them notorious in the
consumer finance world.
Localities across the country, including Birmingham, are grappling with how to
address the industry growth. In December, the Birmingham City Council passed a
six-month moratorium on new payday, check-chasing and title loan businesses.
Payday lenders say their loans help consumers out in a pinch.
Consumer groups, however, characterize payday loans as dangerous debt traps
because of their high fees and interest rates.
The fact that the federal government?s newest financial regulator held its
first ever field hearing in on payday loans indicates that the products are
high-priority. The hearing provided the first hints at how the agency, which
opened its doors in July, plans to go about overseeing payday loans?products
that have faced only light federal regulation given that many of the lenders are
not chartered as banks, and thus, don?t fall under other banking regulators?
purview.
The bureau?s examination procedures reference six laws that apply to the
loans, including The Truth in Lending Act that governs advertising disclosures
and The Fair Debt Collection Practices Act. Those laws apply to payday loans
regardless of whether the products are offered through ?a third-party lead
generator, online, through a brick and mortar location, by mail, or by
telephone,? it said.
The 2010 Dodd-Frank law that established the bureau also gave it authority to
assess whether firms are engaging in practices that are unfair, deceptive or
abusive. The latter category has sparked the most concern among industry
officials because it?s new and not yet fully defined. The bureau provided
greater details Thursday, noting that practices will be dubbed ?abusive? if they
interfere with a consumer?s ability to understand product terms or take ?
unreasonable advantage? of a consumer.
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-6687, maya.jackson-
randall@dowjones.com
(END) Dow Jones Newswires 01-19-121305ET Copyright (c) 2012 Dow Jones Company, Inc.
Article source: http://www.nasdaq.com/article/consumer-bureau-will-take-immediate-steps-to-end-illegal-payday-loan-practices-20120119-01048
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