The Community Financial Services Association (CFSA) has established a set of Best Practices that members of its trade association must abide by to retain membership.
Here is a list of these best practices as listed on their website here and what they mean for the consumer:
Full Disclosure. A member will comply with the disclosure requirements of the state in which the payday advance office is located and with Federal disclosure requirements including the Federal Truth in Lending Act. A contract between a member and the customer must fully outline the terms of the payday advance transaction. Members agree to disclose the cost of the service fee both as a dollar amount and as an annual percentage rate (“APR”). A member, in compliance with CFSA guidelines where they do not conflict with applicable federal, state or local requirements, will further ensure full disclosure by making rates clearly visible to customers before they enter into the transaction process.
If the lending company is a member of the CFSA, the requirement to disclose the cost of the loan in both dollar amount and APR allows for much easier comparison between lenders for the borrower. Payday lenders are not normally required to comply with the Federal Truth in Lending Act (TILA) but members of the CFSA are. The TILA requires lenders to disclose information in a way that borrowers are far less likely to be tricked. This includes writing disclosures clearly, in a meaningful sequence in writing and the lender must allow the borrower to keep the disclosure.
Compliance. A member will comply with all applicable laws. A member will not charge a fee or rate for a payday advance that is not authorized by state or federal law.
Although one might assume that all lenders will comply with laws and not make illegal loans, many irresponsible lenders exist due to the relative ease with which they can make money. The CFSA attempts to ensure that it’s members follow all laws and regulations.
Truthful Advertising. A member will not advertise the payday advance service in any false, misleading, or deceptive manner, and will promote only the responsible use of the payday advance service.
This is yet another clause of the CFSA Best Practices which ensures a higher standard of conduct for its member companies in an attempt to increase the reputation of the industry.
Encourage Consumer Responsibility. A member will implement procedures to inform consumers of the intended use of the payday advance service. These procedures will include the placement of a “Customer Notice” on all marketing materials, including all television, print, radio and on-line advertising, direct mail and in-store promotional materials.
This is a very important section of the CFSA Best Practices. It moves the scope of the industry from being a predatory lending industry to being a responsible member of the larger financial services industry. CFSA members must refrain from using predatory lending tactics and instead accurately inform consumers of how payday loans should be used and how they should not be used.
Rollovers. Members shall not allow customers to rollover a loan (the extension of an outstanding advance by payment of only a fee) unless expressly authorized by state law, but in such cases where authorized the member will limit rollovers to four (4) or the state limit, whichever is less.
Rolling over payday loans is a way for consumers to get into a very damaging cycle of debt. These restrictions may limit the profitability potential of CFSA members but they go a long way to making the payday loans industry a much more responsible member of the financial services industry by restricting the potential for predatory lending.
Right to Rescind. A member will give its customers the right to rescind, at no cost, a payday advance transaction on or before the close of the following business day.
This allows borrowers some flexibility if they decide that a payday loans is not for them rather than be stuck in a loan that they have decided is not for them.
Appropriate Collection Practices. A member must collect past due accounts in a professional, fair and lawful manner. A member will not use unlawful threats, intimidation, or harassment to collect accounts. CFSA believes that the collection limitations contained in the Fair Debt Collection Practices Act (FDCPA) should guide a member’s practice in this area.
There are many horror stories of unscrupulous debt collectors calling friends and relatives, making threats, using deceitful collection techniques or just outright lying to collect a debt. The Fair Debt Collection Practices Act (FDCPA) severely restricts the use of these types of techniques by debt collectors. The compliance of to these standards by members of the CFSA does a lot to improve the image of payday lenders in the general public and indicates the desire of members to provide a financial service rather than engage in predatory lending.
No Criminal Action. A member will not threaten or pursue criminal action against a customer as a result of the customer’s check being returned unpaid or the customer’s account not being paid.
This is very similar to # 7 and the payday lending company itself cannot use such unscrupulous tactics in an attempt to collect from customers. This is another attempt to increase the overall perception of the payday lending industry.
Enforcement.A member will participate in self-policing of the industry. A member will be expected to report violations of these Best Practices to CFSA, which will investigate the matter and take appropriate action. Each member company agrees to maintain and post its own toll-free consumer hotline number in each of its outlets.
This provides a source of contact for consumers who feel they have been wronged or the company has breached the Best Practices of the CFSA. The Best Practices listed would be of no value if there wasn’t a way to report breaches to the CFSA itself without relying on member companies to do the reporting.
Support Balanced Legislation.A member will work with state legislators and regulators to support responsible legislation of the payday advance industry that incorporates these Best Practices.
This clause has little effect for consumers of payday loans. It shows that members of the CFSA will work as a lobby organization to their state legislature as a balance between the interests of the payday lending industry and the government’s responsibility to protect its citizens.
Extended Payment Plan.Each member will provide customers who are unable to repay a payday advance according to their original contract the option of repaying the advance over a longer period of time. Such an extended payment plan will be offered in compliance with any requirement in state law to provide an extended payment plan or, in the absence of such a requirement in state law, in compliance with the Best Practice “Guidelines for Extended Payment Plans.” A member will adequately disclose the availability of the Extended Payment Plan to its customers in compliance with any requirement in state law for such a disclosure or, in the absence of such a requirement in state law, in compliance with the Best Practice “Guidelines for Extended Payment Plans.”
The requirement of an extended payment plan can be a cheaper alternative to constantly rolling over their debt and helps keep borrowers out of a damaging cycle of debt while still providing disincentive for borrowers to default on their debt.
Internet Lending.A member that offers payday advances through the Internet shall be licensed in each state where its payday advance customers reside and shall comply with the disclosure, rollover, rate, and other requirements imposed by each such state, unless such state does not require the lender to be licensed or to comply with such provisions, or the state licensing requirements and other applicable laws are preempted by federal law.
Display of the CFSA Membership Seal.A member company shall prominently display the CFSA Membership Seal in all stores to alert customers to the store’s affiliation with the association and adherence to the association’s Best Practices.
This seal can be used as a very quick indicator that the lender a consumer is working with can be expected to comply with the Best Practices associated with members of the CFSA. This makes it a lot more simple for the consumer to compare payday loans lenders and know what kind of services they can expect from the lender.
The original article can be found here:
Payday Loans – CFSA
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