Consumer Law & Policy Blog

A Pair of Payday Lending Pieces

Two new payday lending pieces: 

Amy Lavine

 of Albany has written Zoning Out Payday Loan Stores and Other Alternative Financial Services Providers.  Here's the abstract:

Payday lenders and similar alternative financial services providers are primarily regulated at the state level, but local governments have increasingly begun to impose restrictions of their own on these fringe financial services providers. While some ordinances have focused on lending restrictions and other consumer protections, most municipal payday lender regulations are found in zoning and other land use laws.

Zoning has long been used to restrict the siting of undesirable land uses – ranging from junkyards and landfills to tattoo shops and adult businesses – making it an ideal method for local governments to regulate payday lenders. Experience with other unwanted land uses has led to the development of various zoning techniques appropriate for controlling these businesses, such as separation and dispersal requirements, nonconforming use limitations, special permit procedures, and partial or total exclusions.

This article provides an overview of these and other approaches that local governments have taken to regulate alternative financial services providers. After providing some background regarding the general functions and characteristics of these businesses in the first section, the second section discusses state-level financial regulations and preemption issues. The third section covers the different types of municipal controls that have been imposed on payday lenders and similar businesses, drawing on actual ordinances as well as on case law discussing their use and validity. Finally, the fourth section mentions several alternative, incentive-based non-zoning approaches that have been used to improve financial literacy and extend traditional banking services to a broader population. An appendix listing and briefly describing more than 60 payday lender ordinances is also included.

And 

Jonathan Caleb Landon

 adds Usury and the Church: A Christian Response to Payday Lending. The abstract follows:

A recent study by Christopher Peterson & Steven Graves found that “payday” lenders are more prevalent in conservative Christian areas. This paper offers a supplement to Peterson & Graves findings by adding to the discussion the perspective of the Christian churches, located both inside and outside of the areas implicated in the study, on the issue of poverty and its connection to predatory lending practices. This paper’s study employed ethnographic research methods to uncover Christians' perception on these issues. The findings do not support the social/political stereotype that conservative Christians necessarily support conservative political positions regarding usury laws, but instead suggest a more fundamental issue with the Christian church actually accomplishing its mission of applying Biblical teaching to all areas of life, which include one's financial dealings and providing for the poor in one's community.

 

The Office of the Controller of the Currency Issues Final Preemption Rules; Consumer Advocates Cry Foul

As you may know, the Office of the Controller of the Currency (OCC) of the U.S. Department of the Treasury has claimed that its so-called "visitorial powers" give it very broad preemptive power to nix state-law efforts to regulate national banks. In 2004, OCC issued pro-preemption regulations to that effect. Consumer groups have long claimed that while the federal government was doing little or nothing to regulate, for instance, the core banking function of (predatory) lending, OCC unwisely and unlawfully prevented the states from filling the vacuum.

Last year, OCC was required by the Dodd-Frank financial reform legislation to revisit its preemption stance. Many people thought that Dodd-Frank greatly restricted the preemptive effect of federal law. Not so, according to final OCC regulations issued yesterday. The National Consumer Law Center responded quickly and critically, noting that "the Office of the Comptroller of the Currency (OCC), in its final rule implementing the preemption amendments of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, continues to thumb its nose at state efforts to protect consumers. The agency gives national banks immunity from state laws protecting consumers from abusive mortgage, credit card and overdraft fee practices." Go here  to see NCLC's comments on the proposed rules.

Wall Street Lobbying to Opt Out of Dodd-Frank

A Public Citizen report released today analyzes the efforts of 24 financial-services companies and trade groups to opt themselves out of Dodd-Frank's limits on incentive-based compensation. The report finds that, "[c]ollectively, the organizations have spent $242.4 million on lobbying since the beginning of 2010" and "have deployed 712 lobbyists, of whom 387 previously worked for the federal government, either as congressional staffers or in executive branch positions." Most of the organizations are seeking to be partially or completely exampted from rulemaking on Section 956 of Dodd-Frank, which imposes disclosure requirements and substantive restrictions on incentive-based compensation.  

In addition, the report finds that the organizations made $15.6 million in campaign contributions to congressional candidates during the 2010 campaign cycle. 

Fans v. Fans, or TicketBastard v. StubHub?

by Paul Alan Levy

New York Times reports on the battle over how tickets may be scalped between two groups claiming to represent fans, the "Fans First Coalition" and the "Fan Freedom Project," each of which is funded by rival companies that run major scalping operations.

Grand Theft Auto, or Preemption Run Amok

In a case now before the 4^th Circuit Court of Appeals, Chase Bank asserts that it may repossess an auto loan borrower’s car without complying with consumer protections in state commercial law.   The Maryland District Court found for Chase Bank, concluding that 1) the National Bank Act preempts state repossession notice law and 2) Chase was not bound by the mandatory loan contract term specifically incorporating Maryland repossession law, because as an assignee of the contract, Chase had not voluntarily agreed (!) to the choice of law provision. 

The opening brief of the appellants is here and the lower court opinion is here.  The logic of the lower court opinion is remarkable.  It seems to suggest that even the repossession rules of Article 9 of the Uniform Commercial Code could be preempted by the National Bank Act and OCC regulations.  What is truly extraordinary, however, is the idea that a national bank could on the one hand invoke the privilege, created by the UCC and other state law, to repossess collateral without judicial process, while on the other hand disregarding the restrictions and consumer protections that accompany that privilege.  If the entirety of state commercial and debt collection law conflicts with the National Bank Act, then there was no state law basis for Chase to seize Ms. Epps' car, and the purported repossession was nothing more than grand theft.

Trying to Keep Up with the CFPB News

by Jeff Sovern

It's tough to keep up with the coverage of the Bureau this week, but here are a few noteworthy pieces.  Bloomberg reports: Republicans Target CFPB, Call Nomination ‘Dead on Arrival.’  A quote:

“It is unclear why the centerpiece of the president’s financial reform package has taken so long to materialize, but what is clear is that this nomination is dead on arrival because it does nothing to increase accountability or shed light on the operations of the CFPB,” Senator Jerry Moran said today at a Banking Committee hearing on consumer protection, referring to Obama’s selection of Richard Cordray to serve as the bureau’s director.

I love it when people opposed to the Bureau criticize the President for taking a long time to nominate a director, but putting that aside, how could any nomination increase (or decrease, for that matter) "accountability or shed light on the operations of" any agency? 

Here's another report, from Reuters: U.S. House to consider consumer agency bill. And here's an interview Elizabeth Warren gave on Rachel Maddow (about eight minutes in), in which she says that the reason she can't run the agency is because of its Republican opponents.  She added "we are not, not, not going to let the minority come in and dictate the terms of this agency – rip its arms and legs off before it is able to help a single family.”  Finally, the Wall Street Journal describes Richard Cordray as "Mrs. Warren without the charm."

Two Reports from the Consumer Financial Protection Bureau

The CFPB has issued two reports. The first -- entitled "Building the CFPB" -- explains what the agency has been up to in its formative months. Elizabeth Warren's cover note for the report -- entitled "A Strong Foundation" -- underscores that a key goal of the agency is assuring that consumers understand the financial deals they are offered:

The consumer bureau’s statutory obligations are designed to make markets for consumer financial products and services work in a fair, transparent, and competitive manner. This means, in part, creating a level playing field where all providers of consumer financial products and services are subject to meaningful oversight to ensure that they play by the rules. It also means creating a level playing field where both parties to the transaction – the customer and the lender – can understand the terms of the deal, where the price and the risk of products are made clear, and where direct comparisons can be made from one product to another. Americans aren’t looking for a free ride. They expect to be held responsible for their debts and purchases. And they understand that there are consequences to not keeping up with payments. When consumers are presented with a choice between two financial products, and they know the true costs, the actual benefits, and the real risks of those products, they will be better able to make good decisions for themselves and their families. A level playing field encourages personal responsibility and smart decision-making. Americans are looking for an honest marketplace. They want to know the costs up-front, so that they’re not blindsided by hidden fees, interest rate changes, or payment shocks. A properly functioning market relies on consumers’ getting the information necessary to make the best decision for themselves and their families. Consumers have the power to drive markets, but only if they’re provided with the basic information that lets them choose products that meet their needs and reject those that do not.

The CFPB also issued a report yesterday on credit scores. As the agency's press release explains, the report focuses on the differences between credit scores sold to consumers and scores used by lenders to make credit decisions.

Did President Obama Err in Not Nominating Elizabeth Warren to Head the CFPB?

In the LA Times, David Lazarus says yes and discusses the views of unnamed CFPB insiders and named consumer advocates. Still unexplained is why the President waited so long to make the nomination and, in particular, why he did not nominate someone shortly after he signed the legislation creating the agency on July 21, 2010.

Lazarus's piece also makes clear that Senate Republicans still will not vote for anyone to head the agency until the agency is changed to their liking, and Lazarus links that reality to his view that the President blinked on the nomination:

"Until President Obama addresses our concerns by supporting a few reasonable structural changes, we will not confirm anyone to lead it," said Alabama Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee. That's why I say Obama shouldn't have backed down. He's now in the same position as before but has sacrificed his first-choice pick to run the Consumer Financial Protection Bureau.

Elizabeth Warren in HuffPo on Richard Cordray and the CFPB

Here.  An excerpt:

Rich will be a strong leader for this agency. He has a proven track record of fighting for families during his time as head of the CFPB enforcement division, as Attorney General of Ohio, and throughout his career. He was one of the first senior executives I recruited for the agency, and his hard work and deep commitment make it clear he can make many important contributions in leading it. Rich is smart, he is tough, and he will make a stellar Director. I am very pleased for him and very pleased for the CFPB.

Is Defaulting on the Debt -- or Even a Congressional Threat to Default on the Debt -- Unconstitutional?

Tom Geoghegan says yes.