Jan 12
30
Payday Loan Lenders & the Industry
Payday loan lenders must to adhere to a litany of regulations. Most notably, the truth in lending provisions and the USA Patriot Act are two major regulatory items that warrant additional discussion.
The Truth in Lending Act (TILA), Title I of the Consumer Credit Protection Act, implemented by Reg. Z, aimed at promoting the informed use of consumer credit by requiring disclosures about its terms and costs. Payday loan lenders follow the procedures for creating documents connected to this act, most notably the TIL, or truth in lending disclosure. TILA is intended to enable the customer to compare the cost of a cash versus credit transaction and the difference in the cost of credit among different lenders.
The regulation doesn’t just apply to payday loan lenders. It also sets a maximum interest rate to be stated in variable rate contracts secured by the borrower’s dwelling, imposes limitations on home equity plans that are subject to the requirements of certain sections of the Act and requires a maximum interest that may apply during the term of a mortgage loan. In addition to financial disclosure, TILA provides consumers with substantive rights in connection with certain types of credit transactions to which it relates, including a right of rescission in certain real estate lending transactions, regulation of certain credit card practices and a means for fair and timely resolution of credit billing disputes.
The credit provisions of the regulation apply to all payday loan lenders who extend consumer credit more than 25 times a year or, in the case of consumer credit secured by real estate, more than 5 times a year.
The USA Patriot Act is another critical law that is crucial to payday loan lenders. Congress passed the USA PATRIOT Act in response to the terrorists’ attacks of September 11, 2001. The Act gives federal officials greater authority to track and intercept communications, both for law enforcement and foreign intelligence gathering purposes. It vests the Secretary of the Treasury with regulatory powers to combat corruption of U.S. financial institutions for foreign money laundering purposes. It seeks to further close our borders to foreign terrorists and to detain and remove those within our borders.
In federal law, money laundering is the flow of cash or other valuables derived from, or intended to facilitate, the commission of a criminal offense. It is the movement of the fruits and instruments of crime. Federal authorities attack money laundering through regulations, criminal sanctions, and forfeiture. The Act bolsters federal efforts in each area. Payday loan lenders closely follow the requirements of this act to ensure that they are not violating any of its provisions.
Many payday loan lenders, by virtue of the fact that they are funded and clear transactions through major national retail banks, also follow several provisions within the Bank Secrecy Act. This act authorizes the Treasury Department to require financial institutions to maintain records of personal financial transactions that “have a high degree of usefulness in criminal, tax and regulatory investigations and proceedings.” It also authorizes the Treasury Department to require any financial institution to report any “suspicious transaction relevant to a possible violation of law or regulation.” These reports, called “Suspicious Activity Reports” are filed with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
When a customer opens a new credit account with a payday loan lender or any other new extension of credit, Customer Identification Program (CIP) regulations require lenders to:
• provide a disclosure,
• obtain information,
• verify identity,
• check a new government list and
• retain records of the process.
The purpose of the loan is irrelevant to this regulation – it is about documenting the borrower’s identity. These regulations are aimed at denying the use of the U.S. financial system to those involved in terrorist financing and money laundering. However, supplementary information accompanying the originally proposed regulation indicated a hope that the regulations would help reduce the incidence of the fastest growing crime in the U.S., identity theft.