Posts tagged ‘payday loans’

How A Federal Interest Rate Cap Would Impact Your Credit Union

There is no statute which provides a better example of legislative mission creep than the Military Lending Act. It was originally passed in 2007 to cap the interest rates that could be charged to high cost payday loans, vehicle title loans, and refund anticipation loans involving members of the military and their family members.

In 2016 its regulations were extended to include most consumer loan products including credit cards. Crucially, these regulations were coupled with a new Military Annual Percentage Rate (MAPR) which capped interest rates on these loans at 36%.

Now, to the surprise of absolutely no one, Senator Sherodd Brown of Ohio is championing legislation which would extend the protections afforded by this legislation to the American public writ large by giving America a 36% MAPR interest rate. Earlier this week, the Senator used NCUA Chairman Todd Harper’s appearance before the Committee to underscore the fact that credit unions function just fine with a 36% cap and even have statutory authority to offer Payday Alternative Loans, albeit with a 28% interest rate.

As the debate unfolds, a few facts are being overlooked. Most importantly, the 36% MAPR is not the same (see appendix in link) as a 36% interest rate calculated under the Truth and Lending Act and regulation Z. For example, the MAPR includes credit insurance premiums and credit related ancillary products. In contrast, such charges are generally not considered finance charges under regulation Z provided certain conditions are met.

These and other differences may not result in dramatic calculation differences but if imposed across the board they would raise a new host of compliance requirements. The last thing we need is thousands of pages of additional consumer lending regulations.

I would love to live in a world where short term loans would not have to be provided. But the evidence is overwhelming that there is a pressing and real demand for these loans. After all, more than half of Americans don’t have savings to cover even moderately expensive financial surprises. To supporters of this legislation, this is evidence of why reasonable caps should be imposed so that desperate borrowers aren’t held up by legal loan sharks.

Conversely, it is awfully tough to make a profit on short-term small dollar loans, unless your business is specifically designed to do so, which is why a whole industry has sprouted up to meet this demand.  While it’s true that credit unions can provide short term loans, according to the preamble accompanying proposed changes to the PAL regulations in 2018, less than 45% of FCUs choose to do so. The reality is, that despite the demand for short term loans it is extremely difficult for financial institutions to cost effectively provide short term loans that are attractive to the people who need them.

Count me in the group of crusty cynics who believe that capping interest rates will simply make short term loans more difficult to get and result in a larger, underground economy.  This is yet another example of an appealingly simplistic solution to a highly complicated problem.

August 6, 2021 at 9:09 am Leave a comment

Previewing What Promises To Be A Wacky Week

To understand the New York State legislature in the closing week-and-a-half of the legislative session, you should think back to your school days. Deadlines which seemed to be in the distant future suddenly arrive and all that work you swore you had already done needs a lot of fine tuning. Get ready for the late nights.

So it goes for the legislative session this week as the legislature continues to consider a wide variety of bills that could impact your credit union operations. I will try to keep you posted as things unfold.

One of the bills I’ll be keeping an eye on, which has gotten the attention of the New York Law Journal, would effectively reverse regulations promulgated by the Department of Financial Services placing strict new limits on the marketing activities of title insurers in the Empire State.

Another reason this promises to be a wacky week is that economists, politicians, Presidents, candidates and talking heads of all political persuasions will continue to extrapolate prognostications about the future of the economy. If the economy does end up slipping into recession marking an end to one of the longest economic expansions in history then Friday’s job report in which an underwhelming 75,000 new jobs were created will be seen as a key moment.

Similarly, we have seen a dramatic decrease in bond yields as investors run for the safer cover of bonds. It will be interesting to see where and when this trend ends. It will also be interesting to see if and when quickly the fed decides that it needs to cut interest rates. Obviously all of this has an impact on your net interest margins.

This week will also give us more time to analyze how best to regulate payday lending. On Thursday the CFPB took the unusual step of providing a red line version of its regulations while announcing that it was delaying the date by which lenders had to comply with payday lending regulations.

I am also curious to find out if the FCC faces additional pushback now that it has rushed through regulations making it easier for telephone companies to block “robocalls.” I put robocalls in quotes because no one really knows what exactly will be blocked now that this regulation has been promulgated. This article in the WSJ summarizes the frustration that so many of us feel when trying to explain to people why the FCC’s action makes no sense. “America’s telecommunications regulator passed rules last week that will let phone companies automatically block more robocalls. It hasn’t yet said what, exactly, constitutes such a call.” That’s right. The regulation actually doesn’t ban robocalls. It bans calls made with equipment that can make robocalls.

This has the look and feel of a regulation that needs to be challenged on the grounds that the regulators have violated the Administrative Procedures Act. Perhaps we will see that happen this week as well.

June 10, 2019 at 9:16 am Leave a comment

Six Things To Know Before You Start Your Summer Vacation

You can tell everyone’s getting ready for a long summer hibernation with the amount of stuff that came out yesterday. Here is a list of the big news:

  1. The Association’s very own Michael Lieberman just informed me  that the President not only pulled out of the North Korean Summit today but he signed S.2155. This means that I have to start looking at all those effective dates. You’ll be hearing more about this in the days to come.
  2. I was beginning to think this day would never come. The NCUA yesterday filed a Notice of Appeal seeking to reverse the district court decision holding that the NCUA did not have authority to automatically qualify credit unions to expand communities comprised of combined statistical areas up to 2.5 million members. The ruling also changed the definition of rural community in a way that the court says was an abuse of discretion. There’s no sense understating the importance of this appeal. NCUA’s ability to define what constitutes a local community for purposes of permitting credit unions to expand to meet member needs.
  3. NCUA is proposing regulations that would give credit unions authority to offer new types of payday loan alternatives. These would be in addition to the PAL loans which credit unions can already offer. Among the new features in the proposed PAL II (that’s NCUA’s term) are: permitting loan amounts of up to $2,000 and loan terms as long as a year. The NCUA isn’t the only regulator looking to thread the needle by encouraging lenders to make short-term loans but discouraging them from making payday loans. Just two days ago the OCC created a minor stir when it “encouraged” banks to make responsible short-term loans. Let’s face it, short-term loans are the financial equivalent of needle exchange programs: In an ideal world, you wouldn’t need them but allowing mainstream lending institutions to provide short-term loans is a responsible alternative to the worst excesses of payday lending.
  4. NCUA clarifies vacation payouts for liquidating credit unions. Hopefully this is a bit of information that will never be relevant to you. At its Board meeting yesterday, the NCUA also harmonized two conflicting regulations to clarify when CEO’s of credit unions being involuntarily liquidated are entitled to a payout of their vacation time. The new regulation clarifies that such payments will not constitute a prohibited golden parachute so long as it is provided for in the credit union’s handbook and is consistent with payments provided to all employees who meet the eligibility requirements.
  5. As I’ve explained in previous blogs, Chairmen McWatters has never been a fan of the risk based capital rule which takes effect in January 2019. So it is not surprising that he wrote a letter in support of legislation that would push back the effective date until 2021. Hopefully McWatters can be joined by a board member who is also willing to acknowledge that NCUA’s risk based capital rules were and remain a solution in search of a problem.
  6. Finally, just how much does the Trump administration dislike New York and California? Remember that the tax legislation caps at $10,000, the amount of money that can be deducted for the payment of state and local taxes. Two days ago, the IRS released this memo explaining that: “some state legislatures are considering or have adopted legislative proposals” that attempt to circumvent the property cap limit by re-categorizing property tax payments as other types of payments. The stated aim of both New York and California is to minimize the impact that the new federal tax law will have in high property tax areas such as Westchester and Long Island. The IRS goes on to explain that “Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.”

On that note, enjoy your summer. If past readership trends are any indication, many of you will be taking a break from the nitty-gritty of reality for the next couple of months. I will be joining you on occasion.

 

May 25, 2018 at 7:53 am 2 comments

Will Payday Loan Proposal Impact State Regulation?

One of the interesting concerns I’ve heard about the CFPB’s payday loan proposal is that it might water down stricter state-level bans.  Legally, the CFPB is making it absolutely clear that states are free to impose tougher standards for payday loans than those outlined in these regulations.  Politically speaking, however, the establishment of these baseline standards may ironically make it less likely that states like New York will continue to effectively outlaw payday loans.

First, from a legal standpoint the CFPB makes crystal clear in its preamble to the proposal that its intent is to establish a baseline of payday loan protections not a ceiling.  For example, page 141 of the draft document (i.e. the one not published in the Federal Register) explains that Dodd-Frank authorizes the state laws and regulations that provide greater consumer protections than federal laws, provided they are not inconsistent.  It then explains that “it believes that the fee and interest rate caps in these States would provide greater consumer protections than, and would not be inconsistent with, the requirements of the proposed rule.”   It further explains in FN 414 that “The Bureau also believes that the requirements of the proposed rule would coexist with applicable laws in cities and other localities, and the Bureau does not intend for the proposed rule to annul, alter, or affect, or exempt any person from complying with, the regulatory frameworks of cities and other localities to the extent those frameworks provide greater consumer protections or are otherwise not inconsistent with the requirements of the proposed rule.”  As a result, states like New York that cap legal interest rates that can be charged by banks and credit unions would still be allowed to do so.

 

However, the Bureau’s regulations may have the political effect of undermining the argument for usury caps.  As far back as fifteen years ago, I remember payday lobbyists arguing that payday loans were being made to New Yorkers with or without the state’s approval.  This reality is even more important now that so much lending takes place over the Internet.  If and when the CFPB’s regulations get finalized, these same lobbyists will argue that so long as loans conform with federal requirements, why should businesses based in New York be prohibited from offering them?  After all, if they comply with the CFPB’s standards, then surly these loans should be authorized by state regulators.

Father Knows best

Here is a leave it to beaver morality tale with a bizarre twist.

Anselmo Tapia’s kids were reading an article about a bank robbery in Bridgeview, Ill., a suburb of Chicago, when they realized that the robber in the surveillance photo looked an awful lot like Dad.  The kids confronted him with their suspicions and instead of responding with “What?  Come on you crazy kids, you’re gonna be late for school” he admitted that he was, in fact, the offending party.  He went down to the Sheriff’s office and turned himself in.   I wonder how much time he’s going to get and if the kids will keep up with the news in his absence.

 

June 14, 2016 at 9:02 am Leave a comment

Credit Unions Keep Their PAL

With the unabashed caveat that yours truly has not yet plowed through all of the 1,300 pages of the regulation, it appears that credit unions will be largely untouched by the CFPB’s proposed payday lending regulation, which it is officially unveiling at a town hall meeting this morning in Kansas.

When the CFPB first raised the prospect of regulating payday loans, NCUA and credit unions pointed out that if the Bureau wasn’t careful, it could actually end up prohibiting credit unions from making payday alternative loans (PAL).  (See 12 CFR 701.21).  These loans authorize credit unions to make short term loans of between $200 and $1,000 provided they have a minimum term of at least one month and a maximum term of six months; a credit union does not make more than 3 such loans to a member in any 6 month period; makes no more than one PAL loan at a time to a borrower; and the credit union doesn’t roll over the loan.  The catch is that NCUA permits credit unions to charge an application fee of up to $20 for these loans and charge an interest rate of up to 28% (10% more than the interest rate otherwise authorized for federal credit unions).

In the regulations proposed yesterday, the CFPB used the PAL loans as a model of acceptable payday lending provided the loan term is for a minimum of 46 days.  Another issue that financial institutions were concerned about was how this regulation would impact overdraft lines of credit.  According to the Bureau’s summary, overdrafts are exempted from the regulation.

In his press briefings yesterday, Director Cordray analogized a consumer who takes out a payday loan to a person who wants to get a taxi across town only to be taken across the country.  The problem with this metaphor is that there are, unfortunately, people that desperate for a lift.  I don’t envy the CFPB on this one.  Much like its qualified mortgage regulations, it will be judged on how well it balances a desire for regulating payday loans against the reality that there is a market for these loans that can’t be regulated away.

Active Day for Credit Unions in Albany

Yesterday was the type of day that underscores that New York credit unions are getting plenty of return for their investment in the Association.  The Assembly Banks Committee advanced two bills that will help credit unions.  A774 (Rodriguez) would allow the Comptroller to place state funds in credit unions.  A3521-b (Robinson) would permit credit unions to participate in banking development districts.

Also yesterday, Tristram Coffin, CEO of Alternatives FCU, spoke on behalf of the Association at a Senate Banks Committee Hearing exploring ways to expand bank capital to minority and women owned businesses.  As luck would have it, one of the messages that came through loud and clear was that credit unions are looking for the authority to increase small business lending.  The two bills passed out of the Assembly Committee yesterday would help credit unions do just that.

Your blogger is headed down to God’s country for a long weekend to celebrate a family wedding.  See you Tuesday.

June 2, 2016 at 8:43 am 2 comments

Matz to DOD: Don’t go Loco on Payday Loan Reforms

No one celebrates Cinco de Mayo like the Irish, so it’s only natural that NCUA Chairwoman Debbie Matz went to Ireland to ratchet-up her spot-on criticism of the Department of Defense’s well intended but ill-conceived proposal to cap most consumer credit at a military APR of 36%. The proposal sounds nice, but as she made clear in her speech before a gathering of the Defense Credit Union Council’s Overseas Subcommittee, it would do more harm than good when it comes to providing credit union services to members of the armed forces.

As I explained in a previous blog, the military is concerned about continued lending abuses. It argues that there are too many ways to get around restrictions on Payday loans, vehicle title loans, and refund anticipation loans. Its solution is to cap the APR on most consumer loans to active duty military personnel at a military APR of 36%. That means that there would now be a regular APR and a Military APR (MAPR). The MAPR would be calculated differently than the regular APR. It would include certain fees currently excluded from the calculation of APR under Regulation Z.

Just how restrictive is the proposed APR calculation? As Matz explained in her speech yesterday “We have done the math and found that when fees are included, many credit unions’ short-term loans would exceed the 36 percent Military APR limit. Unfortunately, the Military APR limit would be violated even using what we know are reasonably priced products designed to provide affordable alternatives to predatory loans.” This means that the payday loan alternatives offered by credit unions such as Pentagon Federal would violate these regulations. Is this a good thing? Only if you don’t want members of the armed forces to get access to reasonably priced credit.

Chairwoman Matz also used the speech to urge the CFPB not to implement payday loan protections that are so restrictive that they also inhibit the ability of credit unions to offer legitimate shorter term loans. She was commenting on what my colleague Mike Carter has described as the Bureau’s proposed proposal to impose ability-to-repay underwriting requirements on payday loans. I’m not as concerned about the Bureau’s proposal at this point. A formal regulation has not been put forward and the CFPB commented with approval on NCUA’s short term lending alternatives even as it proposed payday lending restrictions.

Chairwoman Matz deserves credit for forcefully criticizing the MAPR proposal first in a comment letter and now in yesterday’s speech. But I will take the criticism one step further. Even if credit unions are excluded from its grasp, establishing a two-tiered lending system with separate lending criteria for the military and the general public is a dumb idea that will make it impossible for all but the largest institutions to cost effectively offer consumer credit to military personnel.

Recently, the House Armed Services Committee narrowly defeated a proposal sponsored by Democrat Tammy Duckworth to delay any further rules in this area pending additional review. This is unfortunate. If the DOD goes forward with its MAPR regulation in anything close to its existing form, I’ll bet that Congress will have to overturn the regulation within two years. As soon as the best intentions of consumer advocates clash with reality, no one is going to be in favor of a regulation that makes it more difficult to give consumer credit to members of our armed services.

May 6, 2015 at 8:31 am 1 comment

CFPB Moves To Regulate Payday Loans

Today, our friends at the Bureau That Never Sleeps (AKA the CFPB) take their first formal but cautious steps towards regulating not only payday loans, but what I am going to describe as medium- term loans. If you’re thinking that your credit union doesn’t do payday loans, you may be right. But everyone who makes loans has an interest in understanding the parameters that the Bureau ultimately puts around lending products.

The basic approach is to impose ability-to-repay requirements on lenders making loans of 45 days or less, as well as certain longer medium-term loans with an APR of 36% or greater. Lenders would have the option of establishing that borrowers have the “ability-to-repay the loan when due – including interest, principal, and fees for add-on products – without defaulting or re-borrowing.” An alternative approach would relax the underwriting standards so long as a consumer’s income is verified and, among other things, the loan would not result in the consumer receiving more than three loans in a sequence and six covered short-term loans from all lenders in a rolling 12-month period. This approach also could not result in the consumer being in debt on covered short-term loans with all lenders for more than 90 days in the aggregate during a rolling 12-month period.

The Bureau is also considering imposing restrictions on lending and debt collection practices for what the Director describes as “high-cost, longer-term credit products of more than 45 days where the lender collects payments through access to the consumer’s deposit account or paycheck, or holds a security interest in the consumer’s vehicle, and the all-in (including add-on charges) annual percentage rate is more than 36 percent.” The good news is that credit unions making the short term loans authorized by NCUA regulations are already satisfying potential requirements. The CFPB wants to impose NCUA’s parameters on other lenders.

Why do I describe the CFPB’s approach as cautious? Because it didn’t announce proposed rules yesterday or technically even propose an Advanced Notice of Proposed Rulemaking. Instead it released a 30 page outline of what it is thinking about proposing and why. I’ve never seen anything quite like it and I love it. It enables stakeholders to quickly understand the general direction of where the Bureau is headed and comment on it without having to delve into hundreds of pages of mind numbing detail – that can come later. What we have now is a proposed proposal.

Incidentally, the CFPB stressed in the outline that it is not seeking to regulate overdrafts with this proposal.

March 26, 2015 at 9:18 am 2 comments

ACH System Scores Crucial Victory

Financial institutions and advocates of a vibrant electronic payment system won a crucial early victory in a federal courthouse in New York last week. Specifically, a federal judge dismissed a lawsuit seeking to sue Bank of America for honoring ACH debit transactions to pay for payday loans. The court ruled that the bank did not violate its account agreement or engage in unfair or deceptive practices when it followed electronic clearinghouse rules.

Why is this ruling so important? Because the lawsuit is an outgrowth of an attempt by New York’s Department of Financial Services to brow-beat banks and credit unions into refusing to process payday loans. To understand the importance of this case, look at the number of ACH debit transactions your credit union will process today. Imagine if you could not rely on the representations made by the bank originating the transaction that the debits are legally authorized. Conversely, imagine if your member could hold you responsible for every ACH transaction, even if they have contractually agreed to let a merchant pull money from their account. My guess is that the ACH system would grind to a halt, and quickly.

In Costoso v. Bank of America (14-CV-4100), a plaintiff took six payday loans with out-of-state lenders. As is common with almost all payday loans, when she entered into these agreements, she agreed to authorize the payday lenders to request that payments be electronically debited from her account over the ACH network. The plaintiff argued that the bank violated its own account agreement and various New York laws by processing payments for loans that violated New York’s interest-rate cap on non-bank lenders of 16%. She pointed to language in the account agreement stipulating that the bank would strictly adhere to NACHA operating rules, which governs ACH transactions. These rules require financial institutions to block ACH transactions that it knows to be unlawful or unauthorized.

The court rejected this argument. In a crucial passage that all NACHA members should memorize, the court held that even if the defendants were obligated to comply with NACHA rules with respect to debits on consumer accounts, “defendants may rely on the representations of the original depository financial institutions, the bank that processes the ACH debit for the payday lender.” This sentence reaffirms one of the most important lynchpins of the ACH network.

I can already hear consumer groups bemoaning this decision. So, let’s be clear on what it does not do. It does not legalize payday loans in New York. Perhaps future plaintiffs should sue banks that knowingly hold accounts for out-of-state payday lenders who offer such loans in New York. In addition, the ruling means that credit unions and banks don’t have to hesitate before honoring a member’s request that payments to their health club, for example, be automatically debited from their account. This is good for consumers.

March 2, 2015 at 8:36 am Leave a comment

What Chris Brown, Anger Management, T-B-T-F Banks and Payday Loans Have In Common

One charge that makes the Lords of Finance angrier than Chris Brown in an anger management class is the suggestion that Too-Big-to-Fail (TBTF) banks enjoy an unfair advantage over their smaller financial counterparts because they can make more aggressive loans and investments secure in the knowledge that in a worse case scenario, they will be bailed out by the American taxpayer.

The latest evidence for this hypothesis was released recently by that bastion of left-wing extremism – the Federal Reserve Bank of New York. Specifically, a paper by two of its researchers concludes that “Too-Big-to-Fail banks engage in riskier activities by taking advantage of the likelihood that they’ll receive government aid.”

In previous work, the same researchers demonstrated that T-B-T-F Banks have lower borrowing costs because people know that, the protestations of the political class notwithstanding, if these mega-behemoths can’t pay their bills the federal government will.

It’s one thing to have advantages because of your economy of scale – Capitalism is supposed to work that way – it’s quite another to be so big that the free market can’t discipline a bank’s conduct and the political class is too dependent on campaign contributions and too nervous about tanking the economy to step into the breach by building real firewalls.

Credit unions should be calling for the breakup of the banks too, not because there is any chance of this happening anytime soon, but because it underscores how hypocritical it is for the banking industry to call for the end of the credit union tax exemption while getting as much if not more government protection as any industry in America.

A less dramatic but also informative piece of research comes from the CFPB, which released a report on Wednesday analyzing a year’s worth of data on payday loans. The findings are hardly surprising but they provide a good indication of where the Bureau is headed as it gets ready to propose national payday lending regulations.

Most importantly, the Bureau confirmed that payday loans are typically not used as an isolated financial tool to help consumers through unexpected rough spots, but rather can best be seen as high-priced, medium-term loans that are great at getting people further in debt. According to the Bureau’s research, 82% of all payday loans are renewed within 14 days.

As Director Richard Cordray concluded in a speech accompanying the report’s release:

“Our research confirms that too many borrowers get caught up in the debt traps these products can become. The stress of having to re-borrow the same dollars after already paying substantial fees is a heavy yoke that impairs a consumer’s financial freedom.”

The question is what can be done about it? Even if the Bureau has the authority to establish national payday lending standards that apply not only to states but to Indian reservations, the reality is that loan sharking is the world’s second oldest profession. If payday loans are made too restrictive they simply won’t be cost-effective enough for many credit unions or other lending institutions to offer; if the restrictions are too lenient then we could end up with a classic race to the bottom with institutions having to choose between foregoing needed revenue and taking a stand against loans that are in no consumer’s long-term interest.  

Let’s continue to outlaw these predatory loans but recognize that for better or worse people need short-term loan options. A good place to start would be with NCUA’s own “short-term, small-amount lending program.” I would love to see the program fine-tuned to attract more credit unions.

 

 

March 28, 2014 at 7:42 am 5 comments

Clamping Down On Payday Loans, Cont’d. . .

The extent to which states can block payday lending activities and the role financial institutions, including credit unions, should play in this effort continues to be an issue that is vexing regulators, law enforcement and the judiciary.

An article in this morning’s New York Times demonstrates why the issue is so confusing. On the one hand, it highlights how the Justice Department is targeting financial institutions as the choke point of payday lending activities. However, the same article shows that legislators, such as Darrell Issa of California, are critical of such efforts complaining that the Justice Department is trying to deter perfectly lawful lending activities. Who’s right and who’s wrong? The truth is that there is no definitive answer to either one of these questions and that how you answer it depends on where you live.

First, some basics. The Internet has made it incredibly easy to export financial products across state lines. New York, with its usury limits, has always effectively banned payday loans. However, federal law contains no such prohibitions as applied to banks. It has always been possible for a federal bank located in a state with no usury limit to offer payday lending options to New York State residents. However, the growth of the Internet has greatly expanded the marketplace for such offers.

There are two separate paths that have been taken to deter payday lending. One approach is to make financial institutions utilizing the ACH system more closely scrutinize payment requests coming from payday lenders. The other is to have the Court issue injunctions against payday lending activity.

Under the first approach, when a member enters into a payday lending agreement, these agreements typically include authorization for the lender to electronically pull money from the borrower’s account. Generally speaking, when an originator such as a payday lender originates such a payment request, the primary obligation to assess whether the payment is in fact authorized is on the institution with which the business has a banking relationship (the Originating Depository Financial Institution). Rules being proposed by NACHA would generally lower the threshold after which originators are obligated to further scrutinize such payment requests. On Friday, the FTC weighed in favoring NACHA’s approach.

But according to New York State’s Department of Financial Services, which has also commented on the proposal, NACHA’s proposal is a step in the right direction but does not go far enough. According to the Department evidence “that illegal payday lenders continue to use the ACH system to effectuate illegal transactions demonstrates that there are insufficient consequences for exceeding the return rate threshold. More effective enforcement of NACHA rules is necessary to prevent originators from engaging in illegal conduct through the ACH network.”

The problem is that what might be illegal to New York State’s Department of Financial Services is a perfectly legitimate business activity when viewed from the perspective of a Californian congressman. A federal district court judge in New York has ruled that the state has the authority to regulate payday lending activity when conducted over the Internet even when such activity is originated by a financial institution on an Indian Reservation. In contrast, California state courts have reached the exact opposite conclusion. A recent decision ruled that California’s financial regulator did not have the authority to impose fines on payday lenders controlled by Indian tribes. See People v. Miami Station Enterprises, 2d District, CA Court of Appeals (January 24, 2014).

If all this sounds confusing, it’s because it is. Ultimately, Congress or the Supreme Court, will have to decide if states have the ability to regulate payday lending and if so, under what conditions. The use of NACHA rules to regulate unseemly but arguably legal activity is destined to be an ineffective way of dealing with payday lending.

January 27, 2014 at 9:12 am 4 comments

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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