Friday, March 22, 2013

Pressure Mounts on Payday Lenders

To the growing list of adversaries of payday lenders add JPMorgan Chase. The mega-bank this week announced a series of moves intended to make it tougher for payday and other short-term lenders to decimate borrowers’ bank accounts.

Chase said it wants to protect its customers from situations where a payday or similar type of short-term lender presents and re-presents checks or ACH payments repeatedly and deceptively for collection. So, beginning June 1 the bank will only charge a customer one return item fee in a 30-day period if it believes the lender is not acting “in the spirit of their signed agreement with the customer.”

The bank also plans to start working with NACHA, a private sector group that writes and enforces rules for the ACH payment system, to ferret out short-term lenders who make excessive presentments.

Chase also said it plans to make it easier for consumers to challenge payments when abusive collections techniques are suspected.

When a consumer with a bank account takes out a loan with a payday lender that borrower agrees to allow the lender access to their accounts to collect repayments. The thinking is that there should be sufficient funds in the account once the borrower receives their next paycheck (which, of course, may be an ACH Direct Deposit). The reality is that seldom is the case. In fact, the average borrower ends up indebted for 5 months and pays $520 in finance charges on loans averaging $375, according to a new report from the Pew Charitable Trusts.

The Pew Trusts has a Safe Small-Dollar Loans Research Project, which has conducted extensive surveying and analysis. Last month the group released its second in a series of reports on payday lending in America,titled How Borrowers Choose & RepayPayday Loans. Here are some additional data points presented in that report.

  • Only 14% of recently surveyed borrowers can afford enough out of their monthly budgets to repay an average payday loan;
  • 41% needed cash infusions to pay off their payday loans; and
  • 27% had experienced bank account overdrafts atleast once due to payments collected by payday lenders.

The report doesn’t stop at its condemnation of non-banks, either, arguing that “although bank deposit advances are advertised as two-week products, average customers end up indebted for nearly half the year." That’s why the move by JPMorgan Chase – which is home to tens of millions of consumer checking accounts – is good PR. It also makes good business sense.

At least a dozen states and scores of municipalities have under consideration, or already have passed, laws aimed at curbing payday lending, and a group of ranking Senate Democrats has called on regulators to crack down on banks that do business with payday lenders.

Even before this latest plea from lawmakers the Comptroller of the Currency, a federal bank agency with supervisory authority over Chase, had been making it clear that it’s not keen on banks having close ties to payday lenders. In September the regulator rapped a bank in Florida on the knuckles, contending that its relationship with a payday lender could “raise heightened risks to the bank.”

Sunday, March 3, 2013

Banking Giants Back Efforts to Boost Financial Inclusion

Piggy bank with silver coinBanking giant Citicorp and Visa Inc., the card network, are backing the micro-lender Accion in a worldwide effort to accelerate financial inclusion.

Financial Inclusion 2020 is a program of the Center for Financial Inclusion at Accion. Created in 2008, It unites public and private sector entities, along with NGOs and other relevant parties to create conditions that foster comprehensive financial inclusion.

Over 2 billion people worldwide lack access to basic financial services, missing out on opportunities to contribute to their countries' growth," said Elisabeth Rhyne, Managing Director of the Center.

"Expanding financial inclusion is both a development imperative for underserved communities and a forward-looking approach to unlockint the economic potential of new markets," said Pamela Flaherty, President and CEO of the Citi Foundation and Director of Corporate Citizenship at the bank.

Michael Schlein, President and CEO at Accion explained the effort this way: "Our vision is to build a financially inclusive world where everyone has access to financial tools that can improve their lives." And the best way to do that is to include all relevant parties. "If we can get a broader group of stakeholders to see themselves as part of the movement to build economic opportunity for all, this will be the moment when financial inclusion begins to be a reality," Schlein added.

Plans are for the group to present A Roadmap to Financial Inclusion in October during the Financial Inclusion 2020 Global Forum in London.

Saturday, March 2, 2013

Payroll Cards Gain with Rising Tide of Unbanked & Underbanked

Payroll cards have been available for decades, but the market is really taking off now, with employers expected to load nearly $69 billion on to the cards in 2017, up from $34.1 billion in 2012, says a new report from Aite Group. That works out to a compounded annual growth rate (CAGR) of 19.9%!

First introduced in the 1980s, payroll cards special purpose re-loadable debit cards used by businesses that want paperless payroll but for various reasons they can't get all employees to sign up for Direct Deposit.

A few years back, retailing giant Walmart made headlines, in fact, when it mandated payroll cards for all employees not being paid by Direct Deposit. Now the prepaid debit card company NetSpend is teaming with CompuPay, a leading provider of integrated payroll services, to support a new payroll card program, Skylight PayOptions, for CompuPay customers.

The Skylight PayOptions program is designed specifically for companies with unbanked and under banked employees, the companies stated. And it conforms with all federal and state regulations that govern prepaid debit card programs, including free access to money via ATMs, branch withdrawals and checks.

"The opportunity for payroll cards is far more significant than that for Direct Deposit," says Madeline Aufseeser, Senior Analyst at Aite.

In 2012 Aite conducted a consumer survey that revealed recently "debanked" Americans consider prepaid cards better and cheaper than checking accounts.