From POLITICO “Cash America makes its Washington pitch” March 24, 2014

From POLITICO “Cash America makes its Washington pitch” March 24, 2014
By Kate Davidson

While most of the payday lending industry steels itself for a showdown with regulators and consumer advocates, one of the industry’s biggest players is waving a white flag.

Make no mistake, Cash America International — the Fort Worth, Texas, company that took in $1.8 billion in revenue last year — is not surrendering. Rather its leaders have signaled that they are ready to talk, making more trips to Washington to meet with lawmakers, regulators and the press, and eschewing old arguments defending the traditional two-week payday product.

It has launched a new small-dollar loan product the company hopes will appease the Consumer Financial Protection Bureau, its new regulator. To make it worth their while, however, they want a federal charter that would let them to sell the product online in all 50 states — an initiative that faces stiff opposition in Congress, and among state and federal officials.

The payday loan industry, never popular with policymakers, is facing greater scrutiny as state and federal regulators try to root out products and practices they say are unfair for consumers. With new rules on the horizon, Cash America is trying to stay one step ahead of the crackdown and protect its business amid tighter restrictions.

But the strategy faces one significant hurdle: distinguishing itself as a responsible, established player in an industry that has generated negative headlines and faces deep skepticism from policymakers will not be easy.

“We’ve been tainted somewhat by a lot of the activity of others in this space,” Daniel Feehan, the company’s chief executive, said in an interview. “I think our company has got a responsibility to step into this debate and share our experience and our knowledge base of having dealt in this environment for the last 30 years, of trying to come up with innovative solutions that solve the problems that exist today in the provision of consumer credit.”

While consumer advocates declined to comment on Cash America specifically, they were skeptical that the industry can come up with a consumer-friendly product on its own without a strong state and federal regulatory framework, including new regulations from CFPB.

“We need to make sure that states still have the ability to protect consumers, and a CFPB rule builds on those state consumer protections,” said Tom Feltner, the director of financial services for the Consumer Federation of America.

Now that CFPB has finished many of the rules Congress required under the 2010 Dodd-Frank law, its focus is shifting back to payday loans. At the same time, lawmakers are revisiting the issue and state and federal officials are cracking down on lenders who make loans online in states where payday lending is illegal.

CFPB has been critical of payday lenders, arguing their products lock low-income borrowers in a “cycle of debt” that grows quickly due to the high interest rates that are charged on the loans.

“The stress of having to return every two weeks to re-borrow the same dollars after paying exorbitant fees and interest charges becomes a yoke on a consumer’s financial freedom,” Director Richard Cordray said in a speech in April.

The bureau is set to hold a field hearing in Nashville, Tenn., on Tuesday, and is expected to release a second study on the industry — the first came out in April 2013 — that would provide a blueprint for future rules.

The bureau has struggled with how to design new consumer protections that can’t be easily gamed by lenders, but also don’t take away access to credit for the most vulnerable consumers.

In its first report, CFPB said it found consumers routinely roll over payday loans or take out new ones, but the loans come with high costs and are not designed for sustained use. And it’s not clear consumers fully understand the risks — a key test for whether the product might be considered abusive.

The CFPB declined to comment for this story.

Cash America’s relationship with CFPB did not get off to a good start. The agency hit the company with a $19 million enforcement action in November, its first against a payday lender.

The company agreed to pay $8 million in restitution for consumers on top of $6 million that it already refunded voluntarily for problems with its debt collection practices. It also paid a $5 million penalty to CFPB, in part for impeding the bureau’s investigation, officials said.

Feehan said the company self-reported the violations, and said it was unfortunate that the bureau chose to fine the company but said “we’re prepared to deal with this new order to the world.”

Mary Jackson, Cash America’s senior vice president for government relations, said the company is trying to be proactive in Washington.

Company officials have pitched their new small-dollar loan product, called NetCredit, to the CFPB’s Project Catalyst, an initiative launched last year to collaborate with tech entrepreneurs and keep up with financial product innovation.

They’re hoping NetCredit, which they offer in 11 states through Enova Financial, their online lending arm, could provide a template for a small-dollar loan that’s available online and satisfies consumer advocates.

The company uses online underwriting to price the loans by risk, so each consumer has a different rate and different repayment terms, and payments are spread out over several months.

We have the proof that we can do what the policy folks are wanting us to do, I just don’t have a way to deliver it,” Jackson said.

To be able to offer the product on a wide enough scale to make it profitable, Cash America is pushing for a federal charter for payday lenders.

They’ve supported a bill, introduced by Reps. Greg Meeks (D-N.Y.) and Blaine Luetkemeyer (R-Mo.), that would give the Office of the Comptroller of the Currency chartering authority over the industry — a responsibility the agency has made clear it does not want. The National Association of Attorneys General is also opposed to the measure, warning that it could allow lenders to preempt state laws.

Bob Ramsey, an analyst with FBR Capital Markets, said it’s a smart business move for the company to move away from a single-payment product — it’s better for consumers and it makes regulators happy.

“They’re really much more on the front end of changes, versus some of the other lenders out there, and I think that that will position and serve them well,” Ramsey said. “I don’t know if they’ll get this national charter.”

Consumer advocates have warned that the national charter bill would simply help online lenders avoid tougher laws at the state level, where policymakers have the ability to cap rates.

“State laws are there to protect consumers,” said Gary Kalman, the director of federal policy at the Center for Responsible Lending. “If there’s anybody that has a problem with that they should try and go and convince the Legislature to repeal the laws.”

Can the payday industry evolve in a responsible way? Kalman said he’s not sure that they can afford to, but he added, “My concern is less about who’s offering the product and more about, ‘Are there responsible products to be had and are there entities that can offer them and still make money?’ And I think the answer is yes.”

Jackson acknowledges that the industry has “a credibility issue” that makes it difficult to pitch new ideas, which are often viewed skeptically by policymakers.

“We’re trying to build that trust back with lawmakers and regulators to say, ‘Listen, please take a look at what we’re doing, and then tell me if you still don’t like it,'” she said. “‘And if you still don’t like it, what are you doing about it?'”

The company will have a chance to make its case on Wednesday when Ohio Democrat Sherrod Brown’s Senate Banking subcommittee holds a hearing on alternative credit products. Stephanie Klein, the director of consumer lending for NetCredit, is scheduled to testify.

For now, most of the action in Washington is at CFPB.

Feehan said he expects CFPB will at some point put out rules that will force the company to redesign its products, even if not directly. The question now is how can they do it.

“Because if we’re not there doing it, there are not enough friends and family in the world who are going to do it,” he said. “And I just don’t see any way that the banks are ever going to get back to serving this consumer effectively.”

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