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Consumer Financial Protection Bureau (CFPB) Is Looking Into Payday Lending Reform

February 29, 2012 | Comments: 0 | Views: 74

What does a payday loan examiner do? The Consumer Financial Protection Bureau (CFPB) is looking into payday lending reform. The CFPB released examination procedures to be used by CFPB examiners who will review payday lending companies nationwide. When examining a lender, examiners will assess whether a client has been subject to an unfair, deceptive, or abusive acts or practices (UDAAPs) defined in the Dodd-Frank Act.

Payday loans are short-term or small-dollar loans. The CFPB's objectives are to protect consumers from unfair and deceptive conduct by lenders. There are four examination objectives: 1) access the quality of the company's compliance and risk management systems, which include internal controls; 2) identify risky practices that lead to federal consumer law violations; 3) fact find to determine if a company violates federal consumer laws; and 4) determine any federal consumer law violation. The third objective relates to the investigation phase. The fourth objective is decision phase. In the decision phase, the CFPB decides if it will take regulatory action against the lender.

The CFPB has notified payday lenders that examiners will look into five key areas of their businesses: 1) marketing; 2) loan application and origination process; 3) payment processing; 4) loan default actions such as collections, credit reporting; and 5) third-party relationships.

Payday lenders' marketing efforts must adhere to Truth in Lending Act and Regulation Z requirements. When examining the lenders' marketing programs, examiners will review advertising materials to examine incentive based compensation programs, and see if lenders act as a third-party lead generator for an affiliated company. An examiner will focus on marketing materials that push discounts or free incentives.

On the loan application process, payday lenders are subject to federal consumer statutes like the Equal Credit Opportunity Act, Fair Credit Reporting Act, and Electronic Fund Transfer Act. Examiners will be looking for violations of these statutes. If a payday lender offers products or services in addition to loans, such as cashing the loan proceeds check, the examiner will see whether the additional product or service has been prominently disclosed, whether the customer has the chance to affirmatively accept or decline the service or product, and whether the service or product was a condition for getting the loan.

On payment processing, the examiners will focus on roll over products offered to customers to modify the loan when default is imminent. These products may be offered for an additional fee. Default fees collected could be subject to the Electronic Fund Transfer Act.

Well-intentioned debtors often turn to predatory lenders for help in paying off their debts. The result is the rise of an unscrupulous new breed of lenders, engaging in deceptive practices, charging excessive fees, and abusing vulnerable consumers. To request a preliminary evaluation and information on options if you have been a victim of predatory lending or consumer fraud, contact Consumer Fraud Online.

Source: EzineArticles
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