CFPB Opens Fire On Industry


The honeymoon is over between the Consumer Financial Protection Bureau and the payday lending industry.

According to a CFPB report, payday loans and deposit advance products lead to a cycle of indebtedness for consumers.

“This study confirms that payday and deposit advance loans, while designed for short-term, emergency use, are leading many consumers into long-term, expensive burdens,” said CFPB Director Richard Cordray.

“For too many consumers, payday and deposit advance loans are debt traps. And 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.”

The report, which was released in late April, claimed that loose lending standards, high costs, and risky loan structures may contribute to the sustained use of these products, which can trap borrowers in debt.

The CFPB did recognize that there was a demand and usefulness for the small-dollar loans.

“These types of credit products can be helpful for consumers if they are structured to facilitate successful repayment without the need to repeatedly borrow at a high cost,” the report said.

“However, if the cost and structure of a particular loan make it difficult for the consumer to repay, this type of product may further impair the consumer’s finances. A primary focus is on what we term ‘sustained use’— the long-term use of a short-term high-cost product evidenced by a pattern of repeatedly rolling over or consistently re-borrowing, resulting in the consumer incurring a high level of accumulated fees.

Not surprisingly, the report was not well received by the payday lending industry. In a letter from Dennis Shaul, CEO, Community Financial Services Association of America to Codray, there was a definite sense of disappointment with the CFPB.

Shaul indicated the industry had cooperated with the CFPB over the last two years in sharing and providing information about the industry and CFSA’s members and customers, but was surprised the agency did not seek out more information for the report.

CFSA Strikes Back

“Given our history of collaboration, we were surprised that the Bureau did not attempt to learn more from the industry’s national trade organization to inform its report,” Shaul said.

“Not only are the data demonstrably incomplete and misleading, but the tone, conclusions, and specific language within the report seem aligned with the type of rhetoric that more often comes from advocacy groups that are not always driven by facts, but rather are driven by agendas and unsupported, anecdotal information.”

One of the criticisms was that there was a lack of dissemination of information to the consumer about payday loans and their costs. Shaul aid that was unfair to CFSA members.

“CFSA members adhere to a strict set of mandatory Best Practices, which serve as the industry standard and address many of the concerns raised by the Bureau in its report,” Shaul said.

“These include a right to rescind, a limitation on rollovers, and an Extended Payment Plan that allows customers to repay their payday loan over a longer period of time at no additional charge.

“Given that some lenders operate completely outside the law, and do not provide for the same important consumer protections that CFSA member companies do, it is exceedingly unfair and irresponsible for the Bureau to paint an entire industry with the same brush,” he added.

Still Open

Shaul indicated that CFSA would continue to work with the CFPB and provide information as requested.

“Despite our disappointment, let me make clear our industry’s continued interest in working collaboratively with the Bureau,” Shaul said.

“As we noted in our initial public response to the report, we appreciate the Bureau’s ongoing efforts to understand the role of small dollar credit products, and we share the mutual goal of protecting consumers and providing them with safe, responsible financial products.”

The Financial Service Centers of America also avoided burning any bridges. “We value our relationship with the CFPB and appreciate their efforts to understand the role of small dollar credit products and our members ,” it said in a statement, adding, “We are still reviewing the full report and plan to discuss the findings with the CFPB in the coming days and weeks, as we continue our dialogue with them.”

At the same time, FiSCA defended its members. “FiSCA members offering payday advances adhere to a rigorous Code of Conduct which can be viewed in detail on our Web site,” it stated. “FiSCA members are licensed lenders who comply with all federal, state and local regulations. Additionally, transparency is a key element of the payday advance product. Before entering into a transaction, the fees and terms of a payday advance are fully disclosed and posted in every store, and included in every contract.”

Cash Handling: The 24-Inch Frontier

By SAM BOSCH, President, Peregrin Financial Technologies

Information technologies have affected societies worldwide as significantly as the advent of electricity, wireless communication and manned flight. With the use of computers we can now land Curiosity on Mars, confirm the existence of the Higgs boson (“God’s particle”) and control the flight of unmanned drones any place in the world from an Air Force cubicle in the Nevada desert.

In the last decade, computer technologies have become much more functional and much less expensive. If the automotive industry had enjoyed comparable advances, we could now purchase a Mercedes Benz for $2.50 and get 100,000 miles to the gallon.

The payday loan industry has already benefited from computers through improved accounting and email communication.

Computers and the Internet enable an employee at a payday loan store to enter data into a computer and receive — from multiple databases, in a few minutes — information about an applicant needed to decide whether to provide a loan.

But the last frontier for the industry is the handling of cash — the 24 inches between the cash drawer and the customer’s hand.

Store clerks manually count and recount banknotes a number of times before handing them to the customer. Now there is an affordable and simple information technologies solution for this task.

Utilizing the information technologies incorporated in automated teller machines, coupled with Internet connections and unique application software, management can track in real time all payouts and cash balances in addition speed up transactions for staff and customers.

Cash Handling Is Expensive

At this year’s CFSA Conference, John Hecht of Stephens Inc., stated that in 2012 the payday loan industry dollar volume for the 19,000 payday stores was $30 billion.

Assuming $20 notes, the total number of bills “touched” a number of times before being received by the loan applicant was 1.5 billion! This manual task is labor intensive and subject to errors and risks. Historically, there has been no real-time way to measure or control this activity.

Financial institutions have calculated that the cost of handling cash is 1 percent of sales — a small percentage, but the total cost is significant.

To improve the tasks of cash handling and to reduce its costs some banks have invested in the teller cash dispensers marketed by Diebold, Burroughs and NCR. These cash products can dispense four or more different denominations very quickly and often can be used by two adjoining tellers.

Financial institution TCDs can also be linked to the branch’s computer system, but they are not Web-enabled, and they are very expensive — $18,000 to $30,000.

Although some of the features of these products are attractive, their cost puts them out of the reach of payday loan storefronts.

Affordable Solution

But now, by utilizing the basic technology of ATMs plus innovative software such as the SeguraCash application from Peregrin Financial, payday storefronts can afford TCDs.

Here’s how it works. The clerk is issued a unique mag-stripe card that has a number of parameters assigned to it: the maximum amount of money that can be dispensed in one transaction, say $100 to $1,000; a time-delay between dispenses, say zero to 10 minutes, and the total amount that card can dispense in one day, say $1,000 to $10,000.

These parameters are selected when the mag-stripe card is issued to the employee and can be changed at any time.

At the beginning of the business day, the TCD’s cassettes are loaded with cash. When a payout is desired, the clerk simply swipes the special mag-stripe card into the machine, which is generally located right at his/her station.

Once he keys in the four-digit PIN assigned to that card, the TCD displays up to five pre-selected cash amounts, ones that are commonly used in the course of a day’s business, plus a sixth option that allows the employee to key in a different number if one of the displayed-values is not the desired amount.

If the card number, PIN, dollar amount, and the delay period are all valid, the TCD accurately and securely dispenses the bills at a rate greater than two bank notes per second.

It then prints a receipt with the TCD’s ID number, the date and time of the transaction, the card number and the amount dispensed. The employee counts the bills one time in front of the loan applicant.

Real-time Monitoring

In addition to dispensing banknotes at the storefront, a TCD has the important advantage of being Web-enabled. This means that all dispense transaction can be monitored in real time.

A payday loan company headquartered in Houston with hundreds of stores across the United States can with equal ease access transaction activities 24/7 for payday locations in Los Angeles and Boston, or in Vancouver and Montreal if some locations are in Canada.

ATMs are actually specialized personal computers: they have microprocessors, memories, keypads, built-in Internet connections, and displays. Their functionality also includes reading mag-stripe cards and dispensing cash.

Two decades ago, a dial-up merchant-ATM with limited features cost $10,000 or more. Now, because of the advances in technologies and the advantages of high-volume manufacturing, an entry-level ATM dispensing a single denomination can be acquired for less than $2000. Multi-denominational equipment tops out at less than $6000.

Using a TCD incurs a small per-transaction fee but avoids interchange fees, surcharge fees and bank sponsorship fees.

Like merchant ATMs, these TCDs are Web-enabled, which means all cash dispenser transactions are logged and can be remotely monitored from any Web-enabled device — a personal computer in a home office or even a smart phone on Waikiki Beach.

The cash balances in the TCD’s cassettes can also be viewed in real time.

It’s an opportune time to consider modernizing a store front with new TCD technology. Because they are electromechanical devices the cost of TDCs are not expected to come down much further. Future improvements in the software will add functionality, but won’t require new equipment.

Forecasts are that in the near future more than 10 percent of payday loan and check-cashing storefronts will install TCDs that will not only improve the security and efficiency of getting cash handed that last 24 inches across counters, but will also provide important management tools for the payday loan and check cashing industries.

Sam Bosch is the founder and president of Peregrin Financial Technologies, a company that develops and markets merchant- and consumer-activated cash logistics products and services. Contact him at (503) 690 1111 or

My Epiphany or How I Wasted Half-an-Hour of My Life


For as long as I can remember, people have complained to me about banks. Being a large bank groupie, I have always defended them. I still do. But my thinking has evolved to recognize that some of the complaints I used to dismiss may be well-founded.

I began this journey by realizing that my viewpoint was influenced by my unique realities: (1) I am accustomed to preferred treatment, (2) I have never paid a bank fee, (3) I don’t borrow money, (4) I don’t carry credit card balances, and (5) I don’t use banks for small-scale and walk-in financial services typically provided by a neighborhood financial service center.

That said, I recently had an epiphany: (1) Banks are essentially incapable of delivering small-scale and walk-in financial services, and (2) people who live paycheck-to-paycheck (or thereabouts) can become victims in a bank.

The Story

So, here I am, in a small town, needing a $100 gift card. Sounds like a no-brainer, huh? Guess again.

Let me begin by telling you that I stupidly passed up buying that card at the checkout counter of the convenience store where I was getting lunch. All it would have taken was selecting the correct card off a rack and handing the clerk the cash. There would have been no conversation, no interrogation, no attempts to make me feel like a criminal or an idiot.

But I, being a genius, decided to go to a bank — a major bank — to get the card. After all, I have had an account there for more than 10 years, so it would be easy.

I walk in and quietly join the line. By the way, there is absolutely no reason for that line. It only exists because it is moving forward at a snail’s pace – if it is moving at all. Many bank employees are milling about behind the counter, and more are wandering the lobby, but only two are actually waiting on customers.

It immediately occurred to me that people stand on line in banks as if they have no right to expect or demand better service.

Watching the interactions with the tellers, I observed that the customers must accept being ignored, treated as if their time is valueless, treated as if they are stupid, treated as if they are trying to cheat the bank, treated as if they are anything but a customer.

That is, of course, unless they come in frequently, the bank employee knows that they have a lot of money in the bank, or their kids go to the same school.

I tell myself that I can handle the wait. I actually visualize getting to the counter, handing the bank teller $105, and getting the card and my change in only a minute once I reach the window — if I ever reach the window.

Minutes pass, and I eventually get to the front of the line. Almost done —not.

The Indignities Begin

With $105 in my hand, my lunch sitting on the floor, I politely ask for a $100 gift card.

The immediate response (spoken in the loud and scolding tone of a school principal from the 1950s who has just caught a pupil in the hall without a pass) is: “Do you have an account here?” I responded in a quiet tone, “Yes.” Do you have an ID? I again quietly responded, “Yes.” I hand over my driver’s license.

The teller walks to a computer terminal on the other side of the floor. After a few minutes of feverish typing, the teller returns and tells me that they cannot find me in their system.

Just to remind you, (1) I am trying to buy a $100 gift card for cash, and (2) I am an authorized signer on several accounts in this bank.

She then asks, “May I have your Social Security Number?” (Which she feels the need to shout to the entire branch as if to announce “I’ve caught another criminal.”).

Not wishing to announce my Social Security Number, and finding her inability to locate me in their system somewhat annoying — if not scary — I tell her “absolutely not,” and ask for the manager.

I end up with a more senior teller because the branch manager is out to lunch. After all, why should there be any on-site management at a branch of a major bank?

“What is the name of your company?” she asked. In a quiet tone, I told her.

Have you guessed what happened next? After a while, she told me, “I cannot find that company in our system.” By this point, I felt like Jean Valjean in Les Miserables. The silent alarms have been activated, and Inspector Javert will walk through the door at any minute.

And the Actual Retail Price Is …

I protested that that was impossible, but the insanity persisted. After another few minutes the senior teller was talking to me like I was trying to trick the bank into committing the capital offense of selling me a $100 gift card.

By the way, I still had no idea what the bank charge was for that card. They keep that a secret, because you are supposed to pay anything they ask you to pay (if they decide to grant you permission to pay).

A server in a fast-food restaurant has to tell you how many calories are in a Big-Burger with cheese, but bank fees and charges are a matter of national security.

One Heck of a Computer System

I then dug through my wallet and found a card for the account. I handed it to the senior teller, who after another minute, finally found the account. After 10 minutes of putting me into an orange jumpsuit and leg shackles, for the entire branch to see, she announced, “Ha, ha, ha, ha, you see, if I don’t type in the name of the company with the exact spaces and ‘Inc.’ exactly the right way, I can’t look it up.”

Can you imagine how they check the OFAC/SDN list? I can’t.

Never mind. I just need the gift card. She tells me that it will be $103.95 (by the way, that’s 3.95 percent for the privilege of their taking my cash and handing me a card, which is more than twice the permitted check cashing rate in New York and an effective APR of something close to infinity).

I hand her the money, she takes another minute at the computer, and to make change, and hands me the change and the card.

The only reason that I survived this experience was because (1) I am able to defend myself, (2) I don’t have a “lunch hour,” and (3) I don’t give a damn about my relationship with this bank.
Many people are not in the same position.

Most of you know me. My hair is less than traditional, and if you catch me heading to the farm, my clothes may be as far from Fashion Week (except maybe Ralph Lauren) as they can get.

And that’s who I was when I went to the bank for the gift card. Just an ordinary person seeking walk-in financial services. For many people, that’s who they are 24/7. And visualizing them brought me to my epiphany.

When you are insulated from a paycheck-to-paycheck life, it is hard for you to understand the vital role played by Financial Service Providers. If you qualify for a home mortgage, or an overdraft or business line-of-credit, have too much cash to keep in your mattress, and don’t need walk-in financial services, banks are a good place for you. But they may not be a good place for everyone.

My Conclusions

1. Banks are essentially incapable of delivering small-scale financial services.
They can’t provide them quickly.
They can’t provide them economically.
They work through disconnected employees.
Their average customer is just a number.
They cannot manage real-time risk (heck, they may not be able to look up an account).
They charge more for ancillary services.
They don’t want to serve people on a walk-in basis.
They cannot deal with anything that does not conform to their world.
2. Ordinary people can be victims in a bank environment.
If I act like an ordinary person, I get treated poorly.
If I have little money, I get treated poorly.
If I dress down, I get treated poorly.
If I don’t know enough to say “no” or “enough is enough,” I get treated poorly.
If I don’t have an account, I get treated poorly.
If I have an account but don’t produce enough fees, I get treated poorly.
If I don’t produce enough fees, I get charged more fees.

Banks cannot handle the transactions required by the portion of our society that banks don’t want to serve in the first place — they just pretend to because it is politically correct.

Part of that political correctness is to attack those who actually do it well, and to support banks who pretend to be making services available to the so-called “unbanked.” (They even created the name “unbanked,” because it implies a lack of something other people have and can’t live without.)

In reality, while television ads make banks look great, obtaining everyday financial services at a bank can be expensive and difficult.

Financial Service Providers actually understand their customers and care about them.

FSPs want to provide services, rather building roadblocks to access. FSPs want ongoing relationships, formed on good customer experiences. FSPs are willing to provide financial services that banks cannot, are unwilling to, or are unable to provide efficiently or economically. All with an amazing transparency — and, in most states, Financial Service Providers are regulated, subject to government audit and rates set by law.

Richard Kelsky is president of TellerMetrix, a provider of POS transaction, compliance, interface, electronic deposit and marketing software to check cashers, payday lenders and retail banks. He is also a New York and Connecticut Bar member, a Polytechnic Institute of NYU and NY Law School grad, a Certified Anti-Money Laundering Specialist and a frequent lecturer on business, legal, compliance, and technology issues. He can be reached at: This article is an expression of opinion by the author and not of any entity or organization.