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payday loans: csr and regulation May 13, 2016

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Google’s new policy on payday loan ads which will be banned defines the relevant loans as follows:

We will no longer allow ads for loans where repayment is due within 60 days of the date of issue. In the U.S., we are also banning ads for loans with an APR of 36% or higher. When reviewing our policies, research has shown that these loans can result in unaffordable payment and high default rates for users so we will be updating our policies globally to reflect that.

The policy doesn’t just seem to apply to the worst sort of payday loans. The NY Department of Financial Services says that payday loans are typically repayable within 2 weeks and can carry an interest rate of 400%. The Google announcement doesn’t say how Google will think about issues such as roll-over of loans (where loans originally repayable within a two week period end up being outstanding for longer because they are rolled over into new loans) or high fees which might not be characterized as part of an APR. A study by the FCA in the UK published in 2014 found that payday lending consumers were frequently surprised by roll-over or extension of the loans and the fact that this would raise the cost of the loans.

Reactions (NYT) focus on whether companies like Google should engage in this sort of censorship. One article (by Danny Yadron and Maria L La Ganga) states:

What’s different now is that an increasingly small number of technology firms control what an ever expanding number of people see online. And they’re willing to go beyond what is circumscribed in law to make their own decisions – maybe shaping society in areas where governments won’t act.

This article, and the Google announcement, seem to suggest that what Google is doing here is engaging in corporate social responsibility (CSR). But in fact payday lending is an area where Governments are becoming more active: payday lending is already illegal in a number of states (such as New York, although the rules in different states do vary) and it has been targeted by the CFPB: just this week the CFPB announced that it had taken Action Against Check Cashing and Payday Lending Company for Tricking and Trapping Consumers and last month the CFPB published a report which shows that online payday lending customers are at risk of being subject to overdraft and non-sufficient funds charges imposed by their banks and even of having their checking accounts closed. New rules on payday lending are expected soon. And other jurisdictions, such as the UK and Australia, regulate payday lending. So it’s really about getting ahead of (or alongside) regulation rather than CSR, isn’t it?

critiquing consumer surveys May 5, 2016

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This article identifies some of the problems with the endless consumer surveys we are subjected to all the time:

Problems with surveys are two-fold, researchers said. First, too many surveys with too many questions turn off consumers. Second, results that are tied to employee bonuses — or jobs — prove inaccurate. Combined, these problems are turning a useful method of interacting with customers into a headache.

But there’s often an additional problem, as the surveys tend to focus on the performance of the people who are actually providing the services. If I book Sears to provide repair services for a washing machine the survey will ask me how happy I was with the service provided by the person who actually came to my home to work on the machine. The surveys control the service providers pretty well. They don’t tend to ask for feedback on how pleasant or unpleasant it is to interact with the firm as a whole rather than the particular individuals you deal with. And if the experience overall is horrible but the person you actually interact with seems to do a good job and is pleasant to deal with, of course you will give them the high score. But this may be misleading.

The article suggests that it can be a problem if customers are effectively “bribed” to give positive feedback. I am not so sure: asking your customers to speak to you before giving you a lower score than 10 so you can persuade them to give a higher score is in some sense about consumer satisfaction.

on not sounding too good to be true… November 13, 2014

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Investors who used the search term “secure investment” seemingly found their way to a website at secureinvestment.com which “acknowledged that currency trading was risky” – and it was.

how can we tell what is too good to be true? November 13, 2014

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Financial regulators try to help people make good decisions bout their money by encouraging them to focus on whether what they were being offered was too good to be true or not. I think any scheme that calls itself a “Profits Paradise” (a scheme operated from India, although designed to appear to be American) sounds too good to be true. It isn’t clear from the SEC’s announcement how many people responded to the rich promises by investing, although the SEC Order states that “By mid-January 14, 2014, the Website had more than 4,000 visits each day, including more than 200 U.S. visits.” The fact that the SEC published an investor alert alongside the press release suggests that the SEC thinks that people need to be reminded to be careful about investing. But if this scheme didn’t scream “too good to be true” what would?

wolterskluwer/aspen casebook petition May 7, 2014

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I just signed the petition here to urge this publisher to abandon its plan to require students to return their books at the end of the semester.

uk: payday lending plans November 25, 2013

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The UK government plans to cap the cost of payday loans in amendments to the Financial Services (Banking Reform) Bill. According to the Chancellor of the Exchequer:

It’s all about the government being on the side of hardworking people.

cfpb: payday lending enforcement and final rule on mortgage disclosure November 20, 2013

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The CFPB announced an enforcement action against Cash America International, Inc with respect to its payday lending practices which includes refunds to customers, a fine of $5m for the violation and for destroying records before the investigation and promises with respect to future compliance. I have been feeling grim because I will be discussing McKenzie Check Advance v Betts in class tomorrow, and this is a step in the right direction. The CFPB also announced new rules on mortgage disclosures. There’s lots of information about this rule on the CFPB website, including a blog post which explains how the final rule is different from the proposed rule, a report on the study of old and new mortgage disclosures, and a page for consumers. Much more user friendly than the usual sort of financial regulation rule announcement.

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payday loans – a policy problem on both sides of the atlantic November 6, 2013

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The CFPB invites the submission of complaints about payday loans starting today (and the Pew Charitable Trusts published a report last week on payday lending). Meanwhile, the UK Business, Innovation and Skills Committee yesterday held an evidence session on the regulation of pay-day loan companies (a follow-up to the Committee’s 2012 report).

but then felix salmon lost out with a bank too July 1, 2013

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Not just the poor. Felix Salmon describes his experience with costly “free banking” here. Perhaps we should make the CEOs of employers who pay their employees with prepaid cards pay themselves with those same cards? And subject the CEOs of large banks to the sort of consumer-friendly treatment described in Salmon’s article?

the poor lose out: nytimes on wages via prepaid cards July 1, 2013

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Jessica Silver-Greenberg and Stephanie Clifford have a great (but depressing) article in today’s NY Times. Banks and employers are increasingly paying hourly paid employees via prepaid cards which carry a range of fees which the payees have to incur to access their money. Employers are given financial incentives to use these cards. There’s a great quote from Chuck Harris, the president of NetSpend, the largest issuer of these cards:

We built a product that an employer can fairly represent to their employees as having real benefits to them

He doesn’t say that the cards actually have real benefits to employees but that employers can “fairly represent” that they do. Netspend’s mission is:

to provide products and services that empower consumers with the convenience, security and freedom to be self-banked

Of course this isn’t about empowerment at all, but about cynical exploitation of those with few choices and limited voice.