Posts tagged ‘Truth in Lending’

How Square’s Purchase of Afterpay May Impact Your CU

The announcement that Square will purchase Afterpay for a mere $29 B is more than just another business story. Look under the hood and the transaction shows: how the payment space is fundamentally changing; the way transactions are executed; raises questions about the continued utility of the existing regulatory framework; and demonstrates yet again that financial institutions, which do nothing more than hold money and keep consumer’s income safe, are becoming increasingly minor cogs in consumer financial transactions.

First, what is Afterpay and what does it do? As I explained in this blog, Afterpay is an online payment platform started in Australia less than a decade ago which specializes in facilitating buy-now, pay-later transactions. Merchants agree to pay a fee to facilitate in-store purchases; consumers agree to repay the purchase with a limited number of payments; and Afterpay agrees to purchase the sales installment contract.

What’s so clever about this arrangement? Merchants get their money free and clear even if the fee they pay seems an awful lot like an interchange fee. What’s in it for the consumer? Apparently, Millennials really do hate debt. Good for them. The installment plans give them reasonable payment flexibility without using a credit card. Afterpay avoids the federal disclosure requirements mandated by the Truth In Lending Act (TILA) by limiting payment to four installments. A fifth installment would trigger TILA. The model also gives Afterpay a huge volume of retail installment contracts to buy and sell. You can easily imagine these things packaged into securities.

Square is a more traditional peer-to-peer payment platform started way back in the teens of this century. It specializes in giving merchants easy access to payment platforms and of course, getting a piece of each transaction.

The amazing thing about all these developments is how little these entities are regulated. Afterpay did enter into a consent decree with California in which it agreed to comply with state level license requirements for retail lending. But one states licensing requirements do not level the playing field.

One more thought.  Recently the Biden Administration announced it was going to take a more aggressive view of mergers under our antitrust laws. In reviewing this proposed purchase, I’m assuming the Justice Department will be asking itself whether the real purpose of this transaction by Square is to buy up a potential competitor in a payment space it ultimately hopes to monopolize, as opposed to helping consumers by bringing resources to a company whose unique payment model expands choices for consumers.  Call me cynical, but I have my doubts.

August 3, 2021 at 10:34 am Leave a comment

It’s Time For The CFPB To Take A Breather

This morning I have to channel my inner Roberto Duran and say “No Mas!”  I pride myself on keeping up with the latest regulatory proposals, but like Roberto Duran who was getting so pummeled by Sugar Ray Leonard that he threw up his hands, proclaimed “No Mas” and walked out of the fight, I am officially pleading with regulators to slow down! 

In the past week, our good friends at the CFPB have issued proposals on preemption of gift card regulations, regulation of the servicing industry, high cost appraisals (this one was done jointly with the other financial regulators), and formally posted regulations on HOEPA loans to the Federal Register.  Mind you, this is just a fraction of the proposals the CFPB has out there on a wide range of issues. 

The CFPB will tell anyone who will listen that it is a model of regulatory oversight for this century.  But in its rush to get stuff done, it increasingly seems that the public input part of its responsibilities is the one it cares least about.  It is almost as if the behavioral economists who started up the Bureau knew exactly what they were going to do the day they began and aren’t going to let people get in the way of implementing regs that are in the best interest of the American consumer, whether she knows it or not.  For example, CFPB started the clock running on the comment period for its HOEPA amendments in mid-July with a due date of September 7, even though the proposal wasn’t entered into the Federal Register until a few days ago.  To be fair, the CFPB recognizes that this proposal, in conjunction with its other proposed amendments to Regulation Z, will have a big impact on the mortgage industry by redefining APRs in such a way that your mortgages are going to look more expensive than they do today. 

This is a big deal and the CFPB has indicated it is going to take this into account when determining when these new regulations should take affect.  But given what it perceives as its importance to consumers, it is trying to get this proposal finalized as quickly as possible.  This makes sense if you already have your mind made up, and in fairness to the CFPB, many of its most onerous proposals are mandated by the Dodd-Frank Act.  But the Bureau was given wide discretion in promulgating the regulations and in its rush to remake the mortgage industry before Richard Cordray’s recess appointment ends in January, it is making it impossible for industry stakeholders to properly scrutinize proposals that are going to have a huge impact on mortgage lending.

August 17, 2012 at 7:30 am Leave a comment

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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