A Missouri online payday loan company has been shuttered by The Federal Trade Commission (FTC). The firm allegedly bilked consumers out of tens of millions of dollars by trapping them into loans they never authorized and then using the supposed “loans” as a pretext to take money from their bank accounts.
The Federal Reserve Board has approved an interim final rule amending “Regulation Z” to require creditors to provide written notice to consumers 45 days before the creditor increases an annual percentage rate on a credit card account or makes a significant change to the terms of a credit card account; must inform consumers in the same notice of their right to cancel the credit card account before the increase or change goes into effect. (If a consumer does so, the creditor is generally prohibited from applying the increase or change to the account.); and, creditors generally must mail or deliver periodic statements for credit cards and other open-end consumer credit accounts at least 21 days before payment is due. The revisions are the first stage in the FRB’s implementation of the “Credit CARD Act.”
Payday loan lead generators We Give Loans and Aliyah Associates d/b/a American Advance have agreed to settle Federal Trade Commission charges that their Internet advertising stated payday loan costs and repayment periods without APR information as mandated by federal law. The settlements require the respondents to disclose APR information in similar payday loan ads in the future and to comply in all other respects with the Truth in Lending Act (TILA) and its implementing Regulation Z. APR information helps consumers compare the costs of these payday loans with others and with alternative forms of short-term credit.
Statistics show 43% of American families had a credit card in 1983, a sharp contrast to the 71% of families in 2004, mostly among lower-income families. During the same time period, families in the lowest income quintile with credit cards jumped from 11 to 37% while total charges on bank credit cards increased by about five times thanks to the substitution of cards for cash and the increased availability of credit cards to more people. In response, as reflected in the April 17, 2008 Testimony of Sandra F. Braunstein, Director, Division of Consumer and Community Affairs Credit cards before the subcommittee on financial institutions and consumer credit of the U.S. House of Representatives, the board is proposing substantial revisions to the credit card disclosures required under the Truth in Lending Act (TILA) regulations to ensure consumers have the information they need, when they need it. Included in this proposal, is the advertisement of introductory rates as just that, the advertisements of “fixed” rates restricted to rates that are truly never subject to change, an easy-to-understand summary table included with terms/conditions and a 45 day notice of a penalty rate change.
The FTC will collect up to $5 million in fines from BlueHippo Funding and Blue Hippo Capital for violating federal laws extending credit to consumers with poor or no credit. According to the FTC’s complaint, Blue Hippo offered to extend credit to consumers to finance purchases of personal computers and other consumer electronics with down payments of $99 to $124 and a year of weekly or bi-weekly payments ranging from $36 to $88. The defendants required consumers to agree to a series of automatic, periodic debits from their bank accounts to purchase their products, promising that they would deliver the product once the consumer made 13 weekly, or seven bi-weekly, payments. In many instances, the defendants debited consumers’ accounts without first disclosing that consumers could not get a refund even if they cancelled before delivery of the product, and regardless of the reason for cancellation. Many consumers did not receive the merchandise they ordered or refunds.
The Privacy Rights Clearinghouse recommends that consumers never use (or even carry) debit cards because of the risks and their limited consumer protections. In a new report titled “Paper or Plastic: What Have You Got to Lose?” the PRC says that a lost, stolen, or otherwise compromised debit card can result in a bank account being wiped out by a thief, without using your PIN number. Even if reported promptly, the bank can wait up to two weeks to restore the funds to your account and if too much time passes, the stolen funds may not be recoverable. The report then details the advantages and disadvantages of credit cards versus debit cards. The PRC report also covered other payment forms including prepaid cards.
National consumer groups banded together today to jump on the Levin hearing, the January Dodd hearing and the 2006 GAO report calling for legislation to change credit card lending practices. Consumer Federation, Consumers Union, Consumer Action, USPIRG, and National Consumer Law Center joined in the call for Congress to act. The groups want laws that would: require sound underwriting principles; restrict lending to youth without conditions; ban retroactive rate increases; ban universal default in all its forms; require credit card companies to accept the postmarked date as proof of on-time payments; end roll-over or repeat late and over-limit fees; and relate fees to cost. The consumer groups also want the 1983 disclosure law updated, “Truth In Lending Act” penalties toughened and an end to mandatory arbitration.
Consumer groups have banded together in asking Congress this morning to crack down on card issuers. Among some of the recommendations from the consumer platform: more sound underwriting principles; restrict youth lending; ban retroactive rate increases; ban universal default policies; ban pre-dispute binding mandatory arbitration; end roll-over or repeat late and over-limit fees; and toughen “Truth In Lending Act” penalties. The platform also calls for enhanced disclosure and an end to misleading or confusing credit card offers. The “Joint Credit Card Reform Platform” was created by ACORN, the Center for Consumer Finances, Consumer Action, Consumers Union, the Consumer Federation of America, Demos, the National Association of Consumer Advocates and the U.S. Public Interest Research Group.
The U.S. Senate Committee on Banking, Housing, and Urban Affairs heard an earful yesterday from consumer advocates, regulators and Senators as it opened hearings on credit card practices. Most of the criticism centered on penalty/default pricing and disclosure with a strong call for the industry to clean up its act before Congress does. Acting Comptroller of the Currency Julie Williams told the panel that there is room for improvement in credit card disclosure. However, she pointed out that the OCC does not have statutory authority to issue regulations defining particular credit card or practices or regulations setting standards for disclosures. The OCC has asked Congress to change this. Federal Reserve Governor Edward Gramlich yesterday testified that since the FRB began a review of “Reg Z” in December it has received a strong response during the public comment period. He said consumers believe there is not enough advance notice for changes in terms, and believe a much longer time period is needed to find alternative credit sources. For rate (and other) changes not involving a consumer’s default, a number of creditors support a thirty-day notice rule and a few support a consumer “opt-out” right under “Reg Z.” He also said the Board received suggestions for standardizing payment cut-off hours in ranges, such as between 3 p.m. and 5 p.m. for mail delivery and 6 p.m. and 8 p.m. for electronic payments. Gramlich noted that 39% of the 2,300 complaints against state member banks processed by the Board last year were complaints about credit cards.
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The Federal Reserve Board on Friday issued revisions to Regulation Z, which implements the Truth in Lending Act, and to the official staff commentary that applies and interprets the requirements of the regulation.
Regulation Z is revised to add an interpretative rule of construction to clarify that where the word “amount” is used in the regulation to describe disclosure requirements, it refers to a numerical amount. In addition, revisions to the staff commentary provide guidance on consumers’ exercise of rescission rights for certain home-secured loans.
The Board is also publishing several technical revisions to the commentary. The revisions are effective April 1, 2004. The date for mandatory compliance is October 1, 2004.
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The Federal Reserve Board issued a final rule which revises the official staff commentary to Regulation Z. The revisions state the rules for disclosing fees to expedite a payment or delivery of a card. The revisions also interpret the rules for replacing an accepted credit card to permit an issuer, under certain conditions, to replace an accepted card with more than one card. The FRB staff finds that expedited payment fees are not finance charges under TILA and Regulation Z because the consumer has a reasonable means for making payment on the account without paying a fee to the creditor. The FRB staff also plans to recommend the amending of the rules to allow the unsolicited issuance of additional cards on an existing account outside of renewal or substitution under certain conditions. Furthermore, the FRB staff may consider whether changes to Regulation E’s restrictions on the unsolicited issuance of additional debit cards on a consumer’s existing asset account are warranted. The revisions will be effective April 1st with mandatory compliance required by October 1st.