Outcomes Won’t Match Intentions: The NCUA Needs to Keep It Simple With Payday Alternative Loans (PALs).

Payday Alternative LoansThe third agenda item for the NCUA’s May Board Meeting is a “Notice of Proposed Rulemaking, Part 701, Payday Alternative Loans” This discussion will focus on the following:

The NCUA is preparing an amendment to the NCUA’s general lending rule to provide federal credit unions (FCUs) with an additional option to offer Payday Alternative Loans (PALs). This proposal would not replace the current PALs rule, but rather would be an alternative, with differing terms and conditions, for FCUs to offer PALs to their members. Specifically, this proposal (PALs II) would differ from the current PALs rule by modifying the minimum and maximum amount of the loans, eliminating the minimum membership requirement, and increasing the maximum maturity for these loans. All other features of the current PALs rule would be incorporated into PALs II. The proposal would also pose specific questions to solicit comments and feedback from interested stakeholders on the possibility of creating a third alterative (PALs III), which could include differing fee structures, loan features, maturities, and loan amounts

While I’m happy to see the NCUA taking action on PALs, I’m equally concerned that our friends in Washington are making things a little too complicated.

Consumers are attracted to predatory lenders for a number of reasons, not the least of which is the simplicity of both the product and the process. If we want to pull members back from these lenders, we have to match them in simplicity. I can see no advantage to the member in creating multiple PAL options. In fact, I suspect having too many choices will drive members away from credit union short-term lending, back into the welcoming arms of the (very simple) predatory lenders.

Each small dollar loan tells a story that many of us have had to experience or can at least understand. If we can just take a moment to really understand the member journey and the use cases for when a small dollar loan is needed, the product requirements would be clear, simple and lead to common-sense regulation.

At QCash Financial we have seen credit unions confused on how to apply the PAL program in conjunction with the Military Lending Act (MLA) requirements. This confusion has led to lengthy compliance reviews and many legal opinions. Just imagine if we’re forced to reconcile multiple PAL options with the MLA. I predict that credit unions will opt out and not provide the service due to the risk of non-compliance. Credit unions will lose, and so will their members. This is exactly what happened to banks about 15-years ago when regulators were very prescriptive in their small dollar guidelines.

Let’s not add more complexity to a product that is clearly in the credit unions wheel house. I urge you to send a message to the NCUA to use a common-sense approach that is based on real feedback from those credit unions who are leaders in creating financial inclusion through their small dollar loan programs.

Vote for common sense regulation and make your thoughts known. Please join the discussion below.

May 30, 2018

by Ben Morales, QCash CEO

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How Do the New CFPB Regulations Impact the QCash Financial Platform and Credit Unions?

What are the new CFPB regulations for small dollar loans and payday lending for credit unions?

In late 2017, the Consumer Financial Protection Bureau (CFPB) finalized new regulations for small-dollar loans and payday lending.

QCash, a subsidiary of Washington State Employees Credit Union (WSECU), has engaged in conversations throughout the process, including WSECU President & CEO, Kevin Foster-Keddie who participated in the CFPB credit union roundtable. Foster-Keddie provided feedback to CFPB and shared the QCash experiences about short-term, small-dollar lending concepts as it applies to credit union members.

For QCash, the involvement in the new rule formation has been essential to understanding the impact on the platform and credit unions…

New CFPB Small-Dollar Loan Rule for Non-Covered Loans

The new small-dollar loan rule provides more regulatory guidance around non-covered and covered loans to borrowers who may be unable to pay the high fees typically attached with payday loans. CFPB cites that payday loans often force borrowers into another, short-term loan with an inability to pay, calling this process a “debt trap” for consumers.

Credit unions, however, have long provided members with Payday Alternative Loan (PAL) programs. These short-term, small-dollar loans are less costly for members than traditional payday lending.

The new CFPB rule provides a safe harbor for programs like the QCash financial platform and its non-covered loans, making it exempt from added regulatory burdens.

What is a Non-Covered Loan?

The CFPB defines a non-covered loan with an annual percentage rate (APR) of less than 36% and repayment terms that are greater than 45 days. These non-covered loans are exempt from additional regulations.

Covered loans (parameters greater than non-covered loans) will require supporting documentation from the institution, mostly focused on the borrower’s ability to repay.

QCash Automation Provides Compliance Assurance

QCash, developed before new CFPB regulations, is based on the premise that automation is necessary to deliver short-term, small-dollar loans. QCash’s automated workflow provides flexibility for credit unions to establish the methodology they choose and configure the options they want to include. The QCash Financial platform also provides an all-in-one system for required documentation.

Although the new rule doesn’t impact QCash, the financial platform supports all applicable CFPB requirements. Credit unions have the assurance that QCash provides everything needed to continue to offer compliant, short-term, small-dollar loans to its members.

May 17, 2018

by Ben Morales, QCash CEO

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Does QCash Help Provide Military Members Payday Loans?

Credit unions that serve military members can be assured that QCash, the short-term, small-dollar lending platform, offers compliant loans that meet military and Consumer Financial Protection Bureau (CFPB) regulatory requirements, especially for the military select employee group (SEG). So if you want to provide Military Members Payday Loans, this post is for you.

CFPB requirements state:
1. Loans may not have an interest rate of more than 36%.
2. Payment terms must be at least 45 days or more.
3. Disclosures must adhere to the Truth in Lending Act (TILA).

The ability to make loans available to military members is an option of the QCash platform that includes two types of programs — QCash and QCash Plus. Both include CFPB requirements, however, QCash Plus extends the loan amount up to $4,000 without a credit report.

With the QCash platform, each credit union has the ability to configure fees based on its market and member base, allowing military members to receive payday lending and short-term, small-dollar loans.

The QCash financial platform provides an advantage for credit unions to serve the military market since not all credit unions offer these lending programs. When a credit union incorporates QCash as part of its system, military members will have access to instant funding with no credit report required and repayment terms of up to 36 months — features previously unavailable.

QCash is fully compliant with military and CFPB requirements, presenting credit unions with a program to welcome military members with access to short-term, small-dollar loans.

by Heidi Tinsley, QCash Director of Client Success

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How Do I Update My Payday Loan Truth in Lending Disclosures?

A question I often receive from credit unions involves regulatory concerns in operating payday loan truth in lending requirements. Credit Unions often want to know how small dollar loan Truth in Lending disclosures are updated and maintained in our Digital Lending Platform.   If you have this concern – then this article is for you!

First – what is payday loan truth in lending?   Lenders must provide a Truth in Lending (TIL) disclosure statement that includes information about the amount of your loan, the annual percentage rate (APR), finance charges (including application fees, late charges, prepayment penalties), a payment schedule and the total repayment amount over the lifetime of the loan.

With QCash Financial, our small dollar loan platform includes the ability to update and upload your own payday loan Truth in Lending disclosures. The Truth in Lending regulations guided much of the basis for QCash as a means of keeping the system legal and usable option for credit unions. For the sake of transparency, we make that information available to credit unions.

We offer the ability to loan to military borrowers, thus opening the door for QCash to be used for military borrowing and opening up an entirely new facet of the business we hadn’t tapped into prior. This additional resource allows for a wider range to be covered by what QCash offers. Offering payday lending to military borrowers lets QCash expand its business far beyond our previous limitations.

We also have e-signature compliance guidelines in place that we offer through our platform, along with automatic repayment set up when the loan is booked and funded to the member’s account. E-signature requirements provide a level of security within QCash transactions. This can further guarantee the convenience of using QCash for credit unions. Automatic repayments meet the regulatory requirements while also providing a level of convenience for credit unions. The automatic repayment system saves credit unions the trouble of organizing the repayment of small-dollar loans. With the automated QCash system, they no longer have to take time to set up these repayments.

By incorporating Payday Loan Truth in Lending documentation, we make it easy as we can for credit unions to follow the legal regulations set in place. QCash allows for credit unions to incorporate payday lending without any worry in regards to falling in line with regulations.

by Heidi Tinsley, QCash Director of Client Success

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Will My Credit Union Maintain CFPB Compliance with the QCash Short-Term, Small Dollar Lending Platform?

If you are a Credit union interested in the QCash, short-term, small-dollar lending program, and want to make sure that you are meeting CFPB compliance or meeting Consumer Financial Protection Bureau (CFPB) regulations – this post is for you.

Here are the three requirements for the QCash short-term, small-dollar lending program to maintain CFPB compliance:

  1. Loans may not have an interest rate of more than 36%
  2. Payment terms must be at least 45 days or more
  3. Disclosures must adhere to the Truth in Lending Act (TILA)

QCash also provides the following assurances:

As a short-term, small-dollar lending program, QCash maintains ongoing compliance with CFPB regulations.

QCash ensures compliance by utilizing the necessary resources and staying aligned with compliance regulations.

QCash provides web-based features like TILA documentation and e-Signature capability.

With QCash, credit unions have immediate access to all TILA documentation to upload and print as required to provide borrowers. CFPB ComplianceThe built-in e-Signature feature provides an extra layer of security to protect members’ transactions, keeping private information and digital data safe.

QCash allows credit unions to offer short-term, small-dollar loans to military members and stay in compliance with CFPB regulations.

QCash provides credit unions the ability to offer loans to military members, increasing the service level for this important market segment.

Automated payment schedule

QCash initiates and automates a repayment schedule when the loan is funded, eliminating extra steps for the credit union and delivering members the convenience of automated payments.

QCash is CFPB compliant with its automated repayment processes and technology.

The QCash automated repayment process and technology for member loans is CFPB regulation compliant.

QCash technology and methodology follows CFPB regulations.

The QCash short-term, small-dollar lending platform technology and methodology are CFPB compliant.

May 7, 2018

by Heidi Tinsley, QCash Director of Client Success

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How QCash Made CFPB Lending Regulations Credit Union Friendly.

If you work for a financial institution and have concerns about both the public perceptions of payday lending and the CFPB lending regulations – this article is for you.

Although the CFPB or Consumer Financial Protection Bureau is in a state of flux now, just a few years ago the bureau was writing new payday CFPB lending regulations that had the potential to prevent credit unions from meeting their members’ small-dollar lending needs.

I personally wanted to get involved with the CFPB, because in my experience, if you have a seat at the table with the decision makers, you can be persuasive about your position and help influence regulation. At the end of the day, the regulation is going to happen. You have to be there if you want to influence its direction. That’s why I joined the CFPB’s Advisory Council, even though the bureau – any federal agency, really – didn’t have a reputation for being innovators. In fact, they had a reputation for writing regulations that prevented financial institutions, even good players like credit unions, from serving members the way they would like to.

Richard Cordray, who was CFPB director at the time, is a relatively open-minded person, and is also very technologically astute. Thanks to those qualities, payday lending regulation outcome turned out better for QCash and our product than I ever imagined.

The current regulatory framework supports regulators who believe technology can help solve consumer protection problems, if used effectively. The CFPB lending regulation is very open to technology, but they want it applied within certain constraints. If you can design a path forward, they are willing to work with you.

That’s what we tried to do with the CFPB and QCash.

While I participated in the CFPB’s Advisory Council, we talked about a lot of different things. But when we began talking about Qcash, I found it was really important to educate the CFPB not only with inspirational stories but also with data.

QCash’s digital lending platform made it easy.  Our members love QCash and are happy to share endless stories about the positive impact we’ve had on their lives. And, we can pull data out of the QCash digital lending platform to back up and quantify those stories.

It isn’t about making a buck off the member, but instead about the impact small dollar lending has on our members’ day-to-day lives. Small dollar lending is core to the mission and purpose of a credit union. QCash just lets us do that digitally, in a modern world with a modern cost structure.

As the CFPB began to write new rules for payday lending, I was sitting at the table and they asked me questions. I told them inspirational stories and also provided data. Through our involvement, we were able to create an environment in which they adopted a rule that is consistent with the QCash program.

Part of that was because we were convincing in making our case. Our influence is apparent in the fee they allowed financial institutions to charge, the exclusion of the 36% rule, the exclusion of certain term lengths that perpetuate predatory lending structures … those were all things we advocated for, and the CFPB lending regulation group listened.

At the end of the day, because we were a part of the council, we were able to influence the CFPB’s regulatory framework. We created a huge lane for credit unions on the payday lending highway, and QCash is proudly driving down that lane, helping members along the way.

The rule gave credit unions and other financial institutions an advantage, and put payday lenders at a disadvantage. That sounds like a happy ending to the story, doesn’t it? Well, we’re not stopping there. We’re actually working with payday lenders to see if they can use our QCash product to continue to make short-term, small dollar loans that actually help consumers.

The CFPB lending regulation team wrote thoughtful regulation that didn’t completely eliminate small dollar lending. With our technology, our tools, the data analytics and mobile cloud technology, QCash can to provide great margins for institutions, and a great deal for members.

April 17, 2018

By Kevin Foster-Keddie, CEO of WSECU

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If Not Us, Who? Reacting to the Decision on CFPB Payday Lending.

CFPB Payday LendingThe Consumer Financial Protection Bureau recently released its finalized CFPB payday lending rule that will make it very burdensome for lenders to offer loans with an interest rate higher than 36 percent APR and with a loan term shorter than 45 days after July 2019, when the rule goes into effect. This ruling will have a profound impact on the current state of the payday lending industry and on the millions of consumers who rely on these loans to help them manage through often challenging financial circumstances. As payday loans become less available, consumers will need an alternate source for their small-dollar loan needs.

As a result of the new CFPB payday lending ruling, approximately 18,000 payday lenders will be directly impacted. According to the CFPB payday lenders will either need to drastically change their business models or leave the marketplace. As it stands, many of these payday lenders will not find their businesses profitable under the new regulations and will likely go out of business entirely; however, the consumer need for these products will not go away. Consequently, the tens of millions of consumers that regularly apply for payday loans in a single year will be forced to find alternative sources for their liquidity issues.

The potential impact of the sudden loss of access to payday loans could be devastating to consumers, but also to communities. As communities lose access to traditional payday lending products, those who will be most impacted are the large groups of consumers who fall into the working poor category: people who spend 27 weeks or more in a year in the labor force either working or looking for work, but whose incomes fall below the poverty level (Center for Poverty Research). These individuals, who may not have access to traditional lending services or may not have the credit scores to qualify for these products, will begin to have to make hard decisions about where to allocate limited resources.  For example, with limited budgets, consumers will have to decide where to spend money when faced with housing, healthcare, transportation and food expenditures that exceed their incomes. If a consumer puts off necessary car repairs, then suddenly has a broken-down car, this impacts his transportation for work, and jeopardizes his income. Similarly, if a consumer is forced to forgo buying healthy groceries in order to pay her rent, her long-term health may be impacted, and her ability to work. Without access to small-dollar loan products, these consumers may be forced to risk their long-term financial stability, which in turn impacts local economies when multiple families are unable to pay their day-to-day expenses.

In order to address the sudden lack of payday loans when the industry responds to the CFPB payday lending regulation, trusted financial institutions should offer compliant small-dollar loans to their communities. By leveraging automated technology for greater efficiency, financial institutions can become a trusted resource for inexpensive loans to their communities. Without access to instant liquidity options in the marketplace, many communities will begin to suffer as consumers are unable to stretch their budgets to cover their expenses. Replacing payday loans with compliant, reasonably-priced alternatives will help the working poor consumers thrive, instead of irrevocably weakening the millions of households that currently turn to payday loans for their needs.

If not us, who? If not now, when?

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By Ben Morales, CEO of QCash Financial [12.11.2017]

Ben Morales is the CEO of QCash Financial. QCash Financial is a CUSO providing automated, cloud-based, omni-channel small-dollar lending technology that enables financial institutions to provide short-term loans quickly to the people they serve. QCash Financial, a wholly owned subsidiary of WSECU in Olympia, Wash., started as a short-term loan solution for the credit union’s members in 2004.

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