- Created on 02 May 2013
The small-dollar loans that generate long-lasting debt for consumers and cost them billions of dollars each year are drawing the active attention of legislators and regulators alike. On April 24, the Consumer Financial Protection Bureau (CFPB) released a white paper on payday loans made by storefronts and by banks. Despite years of bank efforts to portray themselves as anything but payday lenders, the CFPB strips them of that cover.
According to CFPB Director Richard Cordray, “What we found is there is not much difference from the consumer’s perspective, between payday loans and deposit advance loans. They have similar purposes and, as it turns out, similar usage by consumers.”
At the same time, three members of Congress – Congressional Black Caucus Members Elijah Cummings D-(MD) and John Conyers (D-Mich.) were joined by Oregon’s Rep. Suzanne Bonamici in urging federal regulators to take actions on bank payday loans.
“We urge you to take meaningful joint regulatory action to ensure that no bank, regardless of its prudential regulator, traps borrowers in high-cost payday loans,” the members said in a statement. “Our constituents, and consumers everywhere, deserve better from our nation’s financial institutions.”
The following day, two regulators, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) announced new regulatory actions to address potential consumer risks associated with the products as well as the safety and soundness of operations. The two regulators’ actions are very similar, focusing on a borrower’s ability to repay while meeting ongoing expenses, safe and sound underwriting, and limiting the numbers of loans.
According to Thomas J. Curry, OCC Comptroller, “We have significant concerns regarding the misuse of deposit advance products.”
OCC supervises all national banks and federal savings associations with combined assets of $10.1 trillion, representing 71 percent of total U.S. commercial banking assets, according to its most recent annual report.
Similarly, FDIC Chairman Martin J. Gruenberg said, “The proposed supervisory guidance released today reflects the serious risks that certain deposit advance products may pose to financial institutions and their customers.”
FDIC insures deposits in more than 7,000 banks and savings associations.
According to CFPB’s findings these actions could benefit about 12 million households that borrow payday loans each year, a potential reduction in the $7 billion in annual fees that are generated by more than 18,200 payday storefronts across the country.
CFPB’s report examined 15 million payday loans made during a 12-month period, covering more than 90 percent of the market. Both storefront and bank versions exposed consumers to the risk of being caught in a revolving door of debt. What was sold as a short-term bridge became an expensive, long-term loan. Risky loan structure, loose lending standards, sustained usage and accompanying high costs were cited as characteristics of both products.
According to the report, 75 percent of storefront payday lending revenue is derived from borrowers taking out 10 or more loans a year. For 68 percent of these borrowers, their annual income is $30,000 or less.
Among the findings:
- Nearly one-in-four borrowers received government assistance or benefits such as Social Security, disability, unemployment or welfare benefits;
- The average borrower took 11 loans in the 12-month period, paying $574 in fees for $392 in credit; and
- Despite lender attempts to reject the use of an annual percentage rate (APR), a two-week loan with a $15 fee per $100 borrowed is actually a 391 percent APR.
On banks’ deposit advance loans, CFPB also found that:
Borrowers usually had much lower average balances than other bank customers, suggesting a smaller financial cushion to cover unexpected shortfalls;
- Nearly two-thirds of consumers also incurred additional fees such as overdraft or non-sufficient funds;
- The annual percentage rate (APR) of interest was 304 percent; and
- Most borrowers remained in debt for at least 149 days.
Commenting on these findings, Director Cordray said, “We want to make sure that consumers can get the credit they need without jeopardizing or undermining their finances. Debt traps should not be part of their financial futures.”
Earlier this month and in an effort to heighten Capitol Hill awareness of payday lending’s debt trap, Congressman Conyers convened a briefing that included representatives from the NAACP, Native Community Finance, Consumer Federation of America, Pew Charitable Trusts, and the Center for Responsible Lending.
Also this month, CRL and National People’s Action delivered to regulators more than 150,000 petitions urging the officials to crack down on high-cost payday lending. Also part of the petition drive were CREDO and Green America and Americans for Financial Reform.
For more than a decade, payday lending has been a centerpiece of the Center for Responsible Lending’s policy efforts. The new CFPB findings strengthen earlier independent research by CRL.
Commenting on CFPB’s findings, Uriah King, CRL’s vice-president of state policy, said, “This white paper affirms our long-standing critique of payday lending. The debt trap of payday loans is now official.”
- Created on 01 May 2013
Although the dictionary calls it archaic, the "management of a household" is one of the definitions listed for the word "economy." Another definition is "a saving or attempt to reduce expenditures." Yet another is "a system of interacting elements, especially when seen as being harmonious." And still another definition for economy has to do with "the production and consumption of goods and services of a community regarded as a whole." As I look at those descriptions of an economy, only the last one partially applies to Black Americans collectively, and that's the "consumption" part.
Every five years, the U.S. Census does a survey to determine how many businesses there are in this country, who owns them, how many persons they employ, and what their annual revenues are. The figures for 2007, while lauded for the increase in the number of Black-owned businesses, revealed decreasing revenues for Black businesses, relatively few employees, a vast majority of them in the service industry.
The 2007 census revealed total receipts for Black owned businesses to be less than $136 billion that, when juxtaposed against an aggregate "Black buying power" during that period of approximately $850 billion, illuminated a lack of business growth and a glut of consumer spending. The average gross receipts for Black firms as a whole fell 3 percent, from $74,000 per firm in 2002 to $72,000 per firm in 2007. Furthermore, a whopping 87 percent of Black businesses had annual receipts of less than $50,000 in that time period. Other statistics disclosed a low savings rate among African Americans and a grossly disparate median income and net worth when compared to other ethnic groups.
The University of Georgia's Selig Center for Economic Growth estimates that the nation's "Black buying power" is rising from $1.038 trillion in 2012 to a projected $1.307 trillion in 2017. The 2012 U.S. Census data will likely reveal a bump in business receipts, but the total will probably be less than $175 billion. Median income, net worth, and savings disparities will likely stay the same and the mythical Black economy will trudge along like a brand new, 12-cylinder, state-of-the-art, top-of-the-line automobile running on only six of those 12 cylinders. We will definitely be looking good, but we sure won't be doing good (pardon my grammar).
That's essentially how we are as consumers. We look real good, but when it comes to how we are doing, that's another story. Maybe one of the reasons for that can be found in some of our consumption statistics. A few years back, the Selig Center reported that Blacks spend more on telephone services, children's apparel, electricity and natural gas, and guess what, footwear. Today, I'm sure hair (someone else's) is in the top five.
How do we measure up in business? In his classic book, Black Bourgeoisie, E. Franklin Frazier stated, "[Black] business enterprises come within the definition of small businesses; in fact, they fall within the lowest category of small businesses. When the first study was made of Negro business in 1898, it was found that the average capital investment for the 1,906 businesses giving information amounted to only $4,600.00. When the latest study of Negro business was made in 1944, it was revealed that the average volume of business of the 3,866 Negro businesses in twelve cities was only $3,260.00."
Was Frazier correct in his assessment of what he deemed the mythical nature of Black business? Was he correct when he suggested the Black middle class was also a myth? He made a lot of folks angry when he wrote, "Negro business ... has no significance in the American economy, [and] has become a social myth embodying the aspirations of this [Black Bourgeoisie] class." As we look at today's statistics we must reconsider Franklin's position, because the numbers reflect the same conditions he discussed in 1957.
Frazier was decrying our definition of "middle class" as one that embodies high incomes and material possessions, e.g., the mink coats, diamonds, and Cadillacs to which he referred, instead of business ownership and economic growth. While we consider the trappings of the good life as "wealth," sold to us by everyone else, of course, we are mired in a dysfunctional – and maybe even mythical – Black economy.
Much of our economic pain in the 21st century is the direct result of our failure to develop a real Black economy, our failure to take care of our collective "household," our failure to save more of our money, our failure to support our own businesses, and our failure to produce goods and services commensurate with our percentage of population and income. Additionally, we have failed to work together for the uplift of the masses, sharing our resources with one another and helping one another as we make our way individually.
The so-called "middle-class" Blacks have distanced themselves, not necessarily physically but mentally, and as Frazier wrote, they have been obsessed "with the struggle for status." And many of the less fortunate among our people spend too much time being jealous and envious of our brothers and sisters who have achieved at higher levels. The result is an oxymoronic "Black economy."
Jim Clingman, founder of the Greater Cincinnati African American Chamber of Commerce, is the nation's most prolific writer on economic empowerment for Black people. He is an adjunct professor at the University of Cincinnati and can be reached through his Web site, blackonomics.com.
- Created on 30 April 2013
The stock market's drop in April, after the Dow Jones Industrial Average closed in March at its first new high since the Great Panic of 2008, has prompted a lot of conflicting predictions from analysts.
Some say it marks the end of an impressive bull market, while others say it's just the beginning of a much larger rally. These predictions may or may not turn out to be correct -- and they leave the investor confused.
However, as with the downturn four years ago, there are smart financial moves everyone can make to potentially take advantage when and if the market rebounds.
Rebalance -- Rebalancing is the process of correcting an asset allocation that has become over-weighted or under-weighted due to a
market fluctuation. In layman's terms, it is the process of bringing all your investments back into a predefined mix of equities and fixed
Donate Appreciated Securities – Anyone charitable minded may have a perfect opportunity to meet donation goals and double their tax savings using appreciated securities during a market high. Provided you have owned the security for at least a year, you can donate the asset and use the current market value as a deduction on your taxes.
Exercise Stock Options -- Stock compensation is an important tool of corporations today in attracting and retaining key employees. Many executives find a significant portion of their compensation being paid in the form of stock options. A market high may be an excellent time to exercise some of your vested stock options if your company stock participated in the market rally.
Net Unrealized Appreciation (NUA) strategy -- Withdraw company stock from your 401(k) and, instead of rolling it into an IRA, transfer it to a taxable brokerage account. There are strict rules to follow so consult a financial adviser who is experienced with this transaction before
Stop Timing the Market – The Great Panic in 2008 and 2009 scared many investors out of stocks entirely. The past four years may have been a missed opportunity as these investors waited on the sidelines for the right time to get back in. You will never know when the stock market is going to go down or when it will recover. The good news is you don't have to know.
Devise a solid financial plan using an asset-allocation strategy that divides your money between a diversified equity portfolio and fixed income.
Rebalance your portfolio periodically to take advantage of stock market volatility. The famous investor Peter Lynch said, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."
- Created on 30 April 2013
Supplier Diversity Manager Jacqui Wales of Staples attends a work session at the Billion Dollar Roundtable held during the Georgia Minority Supplier Development Council's (GMSDC's) Business Opportunity Conference and Expo (BOE) held last week. The special corporate-
member-only session covered strategic goals and supplier diversity best practices.
The BOE is the GMSDC's flagship small business development event, attracting more than 400 attendees from the nation's leading corporations and most promising minority firms.
- Created on 30 April 2013
The U.S. Business Group of Sun Life Financial Inc. has announced it is accepting Sun Life Rising Star Award grant applications from nonprofit organizations in the greater Atlanta area that advocate for youth from under-served communities. Applications are available at sunliferisingstar.com. The deadline for submissions is June 7. Sun Life will award two winning organizations with a $50,000 grant, who will each nominate an exemplary student to receive a $5,000 Sun Life Rising Star scholarship towards financing a college education.
To be considered for a Sun Life Rising Star Award grant, organizations must have 501(c) (3) tax-exempt status, promote skills that directly translate to educational success in high school to students under the age of 21 and be aligned with a secondary or post-secondary educational institution. In each city, a judging panel comprised of the foremost government officials, community, education and business leaders will evaluate the applications and student nominations.
Student nominees must be high school seniors actively involved in an organization that shares the Sun Life Rising Star Awards' mission; they must also plan to pursue post-secondary education, exhibit leadership qualities, and demonstrate a strong commitment to their communities.