Changes in the White House usually mean a change in those who run the myriad departments that oversee our businesses and therefore our livelihoods. So, what should we expect now? With the promise of a very tumultuous mid-term election season, we may see a flurry of activity to get things passed that ordinarily might have taken more time and bipartisan discussion. This is typical politics. But how does that impact us? Let’s look at a few things that our industry should be watching to insulate themselves from needless pain and suffering.
First is the CFPB. The department has a new Director, Rohit Chopra, and he is coming out swinging. Prior to his appointment he was the Commissioner of the Fair-Trade Commission, where he pushed for more aggressive remedies against big tech companies. In an article penned by John R. Coleman for Buckley Commentary & Analysis on September 30, 2021, the first sentence says, “The CFPB under the leadership of Rohit Chopra appears poised to pursue an aggressive enforcement posture and test the limits of its authority in pursuit of broad market change”. To be clear, you do NOT want the CFPB looking in your general direction let alone doing a thorough examination of your practices. Keep in mind the department exists to make a fair and level playing field in the financial market for consumers. How many times can we say that folks accuse us of treating them unfairly? How about with the interest rates and fees we charge? Might this make us a target? Look at how much legislation is aimed at payday lenders that we frequently get lumped into.
There are three things to make sure you have right, so you do not risk getting to know the CFPB closely.
- Truth in Lending Act (TILA).
- Make sure that the wording on the back of your contracts matches federal and state laws.
- Make sure the APR stated on the contract is correct.
- If you are collecting mobile payments, consider how that payment affects the APR stated on a contract signed in advance. Does your practice of accepting those payments then put you in a position of ‘over-charging’ your customer?
- Military Lending Act (MLA)
- Make sure your contract does not mention ‘arbitration’. The MLA does not allow this, and it is a major component of the CFPB complaint against First Cash[1]
- Make sure you have proof you are providing a required verbal representation of the Military Annual Percentage Rate (MAPR) to your covered borrowers[2]
- Make sure your staff is fully aware of your company’s policies and procedures and that you fully understand your risk when it comes to not using the safe-harbor provision found in the MLA.
- Equal Credit Opportunity Act (ECOA)
- While not a leading cause of CFPB-induced heartburn, it is important that you have a statement in your policy manual about the fact that your loans are based on the collateral presented, its condition and ‘salability’ and the customers payment history and NOT on any other reason that could get you in trouble. Train your staff on this. Be mindful of the never-ending chatter about equality and how any infraction here can blow up in an ugly PR kind of way.
Second is the Fair-Trade Commission (FTC). This department also gets a new Director, and we are not sure what direction they will go, but there has been some recent saber rattling around the Safeguards rule according to the recent NPA Government Relations Committee’s webinar. The idea here is that you are tasked with keeping all of the non-public identifiable information of your customers in your possession away from prying eyes. These means secure storage at all times (digitally or otherwise) and then secure destruction when the time comes (digitally or otherwise).
If you use a cloud-based software program, have you asked what guarantees they provide that you will not be the victim of a data breach? Do you have any idea what to do in the event of a data breach? Do you carry a Cyber-Liability rider on your insurance policy? Make sure you talk to your providers about this important coverage, and make sure you understand the important differences between the levels of coverage. Data breaches are happening more…not less.
With the pending flurry of activity by Congress, all stakeholders should be carefully watching any proposed legislative action that could be damaging to our industry. We should all be paying close attention to what is going on in Washington. One way is to sign up for the weekly NPA e-mail update[3] (you do not have to be an NPA member to get the e-mail). Another is to get alerts about potential legislation as it is introduced and not after it is signed into law. There are many options available to do this but “GovTrack.us” is a good start.
One additional item that was mentioned in the January 27 NPA GRC webinar was the increased focus on functioning AML programs by banks and the Financial Crimes Enforcement Network (FinCEN). Our business has doubled almost overnight with banks like Truist actually referring their clients to us if they are found lacking in the AML department. This is a huge reversal from a few years ago where the banks were just casting pawnbrokers aside. While not all banks are taking this step, they are all being forced to perform due diligence of their clients. If you have an AML program, make sure it is current, you are doing your training, and you are getting the mandated annual reviews. If you do not have an AML program, well, what are you waiting for?
[1] https://www.consumerfinance.gov/enforcement/actions/firstcash-inc-and-cash-america-west-inc/
[2] https://www.burrellprinting.com/products/Pawn-Loans/MLA-Disclosure/MLA-MAPR-Disclosure
[3] https://www.nationalpawnbrokers.org/this-week-in-pawn/
