Possible Regulation Regarding Access to Accounts at Financial
Institutions Through Payment Service Providers
These comments, written by the National Consumer Law Center(1)
are also provided on behalf of the Consumer Federation of America, as well as
the following national, state and local groups representing elderly and low
income consumers:
Community Legal Services of Philadelphia
Community and Economic Development Association of Cook County, Inc.
Consumer Action
Consumer Law Center of the South
Florida Legal Services
Gateway Legal Services in St. Louis, Missouri
Legal Aid Society of Dayton, Ohio
National Center on Poverty Law
National Consumers League
National Legal Aid and Defenders Association
North Carolina Justice and Community Development Center
Northeast Missouri Client Council for Human Needs, Inc.
Through the publication of this Advance Notice of Proposed Rulemaking, Treasury
has publically acknowledged the legal justification and the moral imperative
for regulating access to federal benefits through payment service providers.
This is a critical step that Treasury has taken. Although the publication purported
to be only a request for information regarding whether and how Treasury should
regulate the check cashers and other payment service providers in their delivery
of federal benefits, Treasury itself has answered many of the questions posed.
Treasury has perfectly articulated the law in a way that dictates that these
arrangements be regulated. Further, by outlining the details of some of these
arrangements, Treasury has sketched out the reasons why it is so important --
to both comply with the law and as good public policy -- for these arrangements
to be regulated.
The crucial question that remains, however, is the form of the regulation of
accounts using payment service providers. The above listed organizations, representing
low and middle income consumers throughout the U.S., believe that there is also
a simple answer to this question: these arrangements should be prohibited. Treasury
can accomplish this flat and complete prohibition of these arrangements in just
the same way as Treasury has proposed for ETA providers.(4)
Treasury has acknowledged that Congress has provided it with the authority
to regulate the payment service providers, and Part III of these comments will
address this legal mandate in more detail. The issue posed by the ANPRM seems
more to be whether Treasury should regulate in this way.
We believe the law not only allows, but compels Treasury to regulate payment
service providers. These comments are divided into three parts:
I. The activities of payment service providers in the low income communities
should compel Treasury to exclude them from the delivery of federal payments.
II. Factual examples from around the nation illustrate the current problems
federal recipients have receiving federal payments through payment service providers.
III. Treasury has a legal mandate to prohibit financial institutions from entering
into arrangements with payment service providers to deliver federal payments.
I. The activities of payment service providers in the low income communities
should compel Treasury to exclude them from the delivery of federal payments.
Treasury should prohibit financial institutions accepting electronic deposits
of federal payment from contracting with payment service providers to be conduits
for the delivery of federal payments. The form of the regulation should mirror
Treasury's prohibition for financial institutions offering the ETA.(5)
If Treasury refuses to limit the conduits of federal payments to regulated
financial institutions, unbanked federal benefit recipients will undoubtedly
be harmed. We can look at the historical activities of check cashers, pawnbrokers,
rent to own dealers and other unregulated fringe bankers and predict clearly
what will result if they are permitted to continue acting as conduits for federal
payments: high fees and onerous terms. These actors have made clear their business
practices.
Minimal regulation of the financial services provided in the low income community
has unequivocally resulted in high prices, abusive practices, and the loss of
property, choice and convenience to the poor. Fringe bankers, such as check
cashers, finance companies, and others, do business in the low income community
because of the enormous profits that they can make. They have no commitment
to the community, either by statute (as the Community Reinvestment Act requires
of banks) or by charter (as credit unions require of themselves) or by tradition
(their owners do not live in the community). Expensive services, extraordinarily
high fees, and abusive transaction terms are standard business practices for
these alternative providers. They have succeeded financially because of the
vacuum created by the absence of banks from these communities. These fringe
bankers make no reinvestment of their substantial profits back into the communities.
They charge as much for financial services as the regulatory structure, or lack
of regulation, allows. And the low income residents of the community gain little
benefit other than the specific service provided from their presence.
If this non-regulated industry is allowed to be a conduit of federal payments,
the financial problems in the low income communities will not only continue
to be ignored, they will be exacerbated. Low income advocates fear the use of
alternative financial providers as conduits for federal payments for four significant
reasons:
1) Other services. If recipients must go through the doors of the fringe
bankers at least one time each month to access their federal benefits, it is
very likely that they will fall prey to the expensive -- and unregulated --
other financial products of these fringe bankers, such as check cashing,(6)
payday loans,(7) high cost home equity loans,
even rent to own transactions. While recipients may always be able to opt for
these services if they care to, they should not be required to go through the
doors of these alternative providers every single month in order to obtain their
federal entitlement. If fringe bankers are allowed to sign recipients up for
the electronic receipt of federal payments, these recipients become captive
customers. It becomes much more difficult for unsophisticated, often illiterate,
recipients to exercise choice and do business with different, less oppressive,
financial services providers.
2) High charges for federal payments. The basic arrangements made to
deliver the federal payments to recipients by fringe bankers are uniformly far
more expensive than the cost for equivalent services directly through a bank.
Also, the arrangements often provide no additional service or convenience to
the recipient as compared to the continued direct receipt by the recipient of
a paper check.
3) No incentive to banks to offer ETAs. So long as banks are permitted
to make money from the delivery of federal payments through payment
service providers, rather than by providing services directly, they will have
no incentive either to provide the ETAs being pushed by Treasury, or even to
design their own accounts for low income recipients to access their federal
payments.
4) Perpetuates financial apartheid. If Treasury permits non-regulated
payment service providers to control access of federal benefit payments to those
in low income communities, the financial apartheid that already exists in this
nation will simply be extended. Already, middle and upper income Americans enjoy
the safety and convenience of a highly regulated banking industry that provides
competitive prices and is closely supervised to limit improper activities. Many
poor people, on the other hand, are relegated to fringe bankers who are unregulated,
unsupervised, and routinely charge exorbitant rates in the uncompetitive financial
services market that exists in the low income community. Congress and Treasury
originally envisioned EFT 99 as an opportunity to further the use of mainstream
banking in low income communities. Allowing fringe bankers to serve as conduits
not only fails to advance that admirable goal, it makes it more difficult to
achieve.
For once, let us learn from experience. The experience in the low-income communities
around the nation is that fringe bankers have developed sophisticated and ingenious
techniques for taking money from the poor.
"Fringe banking" is an entire industry devoted to doing business
in the low-income community, which has proliferated largely as a result of the
deregulation of interest rates and loan terms in many states since the 1980's.
Many of these providers constantly push the envelope in terms of the legality
of their practices--they keep charging exorbitant fees until made to stop. All
too often, the abusive practices are not technically illegal, but exceed the
bounds of common decency.(8) Establishing any
one of the purveyors of this high cost credit as the conduit of federal payments
sanctions and stimulates these types of transactions. The federal government
should be in the business of discouraging high cost lending, not providing means
to facilitate it.
We do not propose that fringe bankers be prohibited from providing any
access to federal money, just not be the primary or sole access for any federal
recipient. It should not be the check casher that establishes the account, or
makes money off of the account, or markets the account for a bank. Nothing should
prohibit check cashers from establishing ATM or POS devices on their premises
and selling recipients all of the products and services that are now currently
offered. The key distinctions between this and allowing alternative financial
providers to be contractors with financial institutions for the delivery of
federal electronic payments are:
1) If recipients can only receive their federal payments through "financial
institutions" as currently defined by Treasury, they will be pulled into
the mainstream banking system, and thus provided with much less expensive means
to access their federal money, opportunities for savings, as well as alternative
(and less expensive) sources for credit.
2) Recipients who establish a direct relationship with a bank, but who nevertheless
choose to access their money through a check casher or a money transmitter,
will still have the choice every month of where to obtain their funds-- they
would not have to go to the check cashers to receive their federal payments.
3) The banks receiving the federal payments will have a greater source of funds
as a basis for community reinvestment back into the low income community, whereas
the check casher has no such obligation.
In support of a regulation of arrangements between financial institutions and
payment service providers, "commenters are asked to cite specific evidence
supporting their position . . ." We cite such evidence below, but before
delving into the details, there is merit to a discussion of how much evidence
is enough to justify such a regulation.
In previous comments submitted to Treasury on Proposed Rule 31 CFR 208, we
provided literally 14 pounds of paper documenting the unreasonable fees charged
and the often abusive practices engaged in by alternative financial service
providers throughout the nation. The appendix to our previous comments included
extensive examples documenting unconscionable fees and charges, abusive practices,
as well as the complete absence of consumer protections when there is no
state or federal regulation. These examples were provided in:
state and federal court decisions
published books
law review articles
scholarly analyses
statements of U.S. Senators
Congressional testimony
newspaper articles, and
magazine reports.
In the one year period since we filed the previous comments, numerous new cases,
studies, and news stories have appeared documenting the abuses to poor people
by the purveyors of high cost financial services. With the exception of one
study,(9)
the twenty six part appendix attached to these comments is all new, and supplements
the extensive documentation we filed on Proposed Rule 208. These new pieces
themselves illustrate the problem of allowing alternative financial service
providers to be the conduits for federal payments.
It is the intent of the parties submitting these comments, as well as those
previously submitted on Proposed Rule 208, to show that Treasury's failure
to prohibit unregulated financial services providers to be conduits of federal
payments would be illegal, and clearly at cross purposes with Congress' express
and clear design of the EFT mandate.
Comments of others(10) filed on this ANPRM
also include extensive analyses of alternative financial services and the high
costs imposed on poor people by these services. Combined, these comments, with
the appendices and the comments of others, extensively document(11)
the unfair business practices of check cashers, rent to own companies, and other
fringe bankers who might serve as payment service providers if such arrangements
were to be permitted.
Arrangements between financial institutions and payment service providers for
the delivery of electronic payments are still relatively new. While these arrangements
are legal now, clearly the existence of the ANPRM indicates that they may not
remain legal. As a result, many payment service providers may be waiting to
enter the business until all questions of legality and structure have been determined.
More to the point: the current arrangements of payment service providers
must be judged in light of the fact that these practices are ongoing now, while
their legality is still being evaluated. Therefore, the practices and fees
being charged now are but the tip of the iceberg: these are the practices and
fees that the payment service providers believe will withstand governmental
scrutiny. If there is no prohibition, or a lack of adequate regulation, undoubtedly
the practices will become even more unfair and the fees more onerous.
II. Factual examples from around the nation illustrate the current problems
federal recipients have receiving federal payments through payment service providers.
We have received information from legal services offices, community organizations,
and other groups working with low income people from dozens of communities in
twenty four states and the District of Columbia, including:
* Alabama
* Arkansas
* Arizona
* California
* District of Columbia
* Florida
* Georgia
* Illinois
* Indiana
* Hawaii
* Kentucky
* Maine
* Maryland
* Massachusetts
* Missouri
* Mississippi
* Nebraska
* New York
* North Carolina
* Ohio
* Pennsylvania
* South Carolina
* Texas
* Virginia
* Washington
In some communities, advocates were unable to find check cashers or rent to
own dealers who admitted to being involved in electronic deposits. We received
many comments from advocates who said the payment service providers were very
rude when asked the question of whether electronic deposit of federal funds
was available. More alarmingly, advocates found they were often unable to obtain
clear information. When they asked the costs of accounts, they were often provided
inconsistent information. Written materials were rarely available, and when
they were available they were generally not helpful -- even to the lawyers reviewing
them for basic information about the costs and terms of the accounts.(12)
In the situations described below, recipients who have signed up with the payment
service providers to receive their federal payments have gained only additional
costs and a lack of choice each month as to where to cash the check. These recipients
also become excellent prospects for the other high cost products of the payment
service provider, such as payday loans, rent to own contracts, pawn transactions,
sales of lottery tickets, and liquor. The result is that the federal payment
simply ensures that the recipient becomes a captive customer of that fringe
banker, without any realistic opportunity to go elsewhere if treated unfairly.
Payment services providers should not be supported by the federal government
and permitted to be conduits for federal payments.
Shelby, North Carolina
At one check casher, the electronic account has no up-front charge, there is
a $1 monthly fee to the bank, a $1.95 monthly fee to the check casher, and a
$1.05 distribution fee for the check. This totals $4 a month for the recipient
to receive a paper check at the check casher's office. Then the recipient must
pay 3% to cash the check. On a benefit check of $500, this would result in a
total fee of $19, or 3.8% of the recipient's income per month. On an annual
basis this mushrooms to $228.
Miami, Florida
Of the ten check cashers and rent to own dealers contacted in Miami, eight
currently have the capacity to set up electronic accounts. The terms vary. The
majority charge a percentage fee plus a flat monthly fee. The percentages vary
between 1% and 10% of the check amount. The flat fee is between $3 and $5 monthly.
In one example, the recipient's federal check is deposited in the store's own
bank which charges the recipient $1.50, plus $10 per $500 of the benefit check
amount. Thus, for no extra convenience or services, the recipient's total monthly
cost on a $500 benefit check is $11.50.
This store also allows recipients to establish Western Union accounts. For
each federal benefit deposited to one of these accounts, $14 is deducted from
the account. All the recipient gets for this fee is the ability to receive their
benefits in one lump sum at any Western Union outlet.
Fayetteville, Arkansas
Two check cashers have established electronic accounts through Western Union
Benefits' Quick Cash Program. There is an enrollment charge of $4 per benefit
and a transaction charge of $7 per benefit check deposited.
Payday loans are allowed on federal benefits, and the charge is $15 per $100
borrowed. This results in an APR of 391%. It should be noted that in Arkansas,
payday lending is clearly illegal. There is a state constitutional limit on
interest rates, and a recent federal court decision confirmed this limit on
interest rates.(13)
San Fernando Valley, California
Eight different check cashers and other payment service providers were surveyed.
Several do not accept electronic deposits, others do. A typical arrangement
is the Western Union program, in which $7.50 is deducted from each benefit deposited
electronically in the account. The recipient is provided a paper check, and
the check casher charges 1.5% of the face amount to cash its own check. If a
client receives a combination of benefits, both Social Security and SSI (a fairly
typical scenario), totaling $500, the client would pay $22.28 just to get the
cash from the federal benefit (a 4.5% fee). On an annual basis, these fees would
be $267.36, or more than one half of a month's income.
Another check casher accepts federal payments electronically, and only charges
1.75% of the check amount to cash the payment -- or $8.75 on $500. This store
also will allow the use of the scheduled federal deposit to secure a payday
loan. The fee for a payday loan on a scheduled federal deposit is 15% of the
amount borrowed for a two week period, plus a $10 processing fee. On a loan
advance of $200 for two weeks, this would be a 520% APR.
St. Louis, Missouri
The only fringe bankers that could be found that accepted federal payments
electronically were Western Union outlets. To use the Western Union ATM feature,
$19.95 is charged to establish an account, plus monthly charges of $9.95. Western
Union receives a .95 fee for each ATM transaction, and there do not appear to
be any non-foreign ATMs. Banks in the area charge between $1.00 and $3.00 to
non-customers for ATM usage. So there could be as much as a $3.95 charge for
each ATM withdrawal.
The result for a client with a $500 monthly income, ignoring the initial fee
to establish the account, assuming three withdrawals with a $2.95 fee each (the
average fee), would be a net cost per month of $18.80, or 3.8% of the monthly
benefit. On an annual basis these fees total $225.60.
Baltimore, Maryland
One retail store in this city kindly permits the recipients to establish electronic
accounts for free and only charges a monthly fee of $5.00. It cashes checks
for free with the purchase of goods, but encourages layaways.(14)
Another program in Baltimore operates through a liquor store which charges
a flat fee of $2.95 per month for the electronic deposit, provides a paper check
to the recipient, and then cashes the check for a fee of 1% for amounts of $800
or less, 1.5% for $801 to $2,999.
Grenada, Mississippi
A supermarket in this small town allows electronic deposit of federal checks.
Only $4.95 is charged for each deposit, and nothing is charged to cash the check
so long as a purchase is made.
Philadelphia, Pennsylvania
There are a number of alternative providers of electronic access to federal
benefits in Philadelphia. Each one seems to be vying to be the most expensive.(15)
At one check casher, opening the account is free, and the monthly service fee
is $10.95, plus $2.95 for each benefit deposited. A recipient who receives two
benefit checks, for example Social Security and SSI, would pay monthly fees
of 16.85, totaling $202.20 annually. For an additional $1 a month, recipients
can access their money through other ATMs. It is unknown what the ATM charges
are. There are no payday loans yet, but the company is working to establish
these in conjunction with the federal payments. This is despite the fact that
payday loans are illegal in Pennsylvania.
At another provider, there is also no fee to establish the account. The monthly
fee is 2.5% of each benefit deposit. The use of any ATM other than the place
the arrangement was entered into requires a surcharge of $1.50, in addition
to the foreign bank's fee (which are in the range of $1.00 to $3.00). Assuming
a recipient receives benefits totaling $500 a month, and has three withdrawals,
two of which are at places other than this check casher's (with a foreign bank
surcharge of $2.00), the cost per month would be $12.50 + $3.50 +$3.50 = $19.50,
or 3.9% of the benefit amount. Annual costs would be $234.00.
One program in Philadelphia is offered through both check cashers and pawnbrokers.
(The bank providing this program is believed to be PNC Bank.) This program provides
a cornucopia of high priced financial services, many of which appear to be illegal
under state law. Opening this electronic account is free. After the fixed monthly
charge of $2.50, the additional monthly charges vary based on the type of access
desired:
1) If the client only uses the payment service provider through whom the account
was established, the money can be withdrawn in increments at a cost of $1.00
for each withdrawal.
2) If the client wants an ATM card, the "silver" card costs $10.95
a month -- in addition to the $2.50 fixed monthly fee. In addition to the $1
to $3 surcharge imposed by the banks' ATM machine (there is no home bank ATM
for these customers), the check casher receives a fee of $2.00 per transaction.
Each ATM withdrawal will cost recipients between $3.00 and $5.00.
3) For the client who desires to borrow against the federal benefit, there
is a "gold" card at a cost of $20.95 a month, in addition to the $2.95
a month. The transaction fees are the same as for the silver card. But we do
not know the fees for the credit extension on the federal payment.(16)
Under this program, the client is required to sign a form stating that the monthly
statements required by Reg E to be provided by the bank are sent to the check
casher. No phone number is available to recipients who have questions about
their benefits or their accounts or the fees charged them.
The Outrage of Payday Loans Provided on Federal Payments
The hot new growth market for financial services in low income communities
at the end of the 20th century is payday lending. These small, short term, very
high rate loans go by a variety of names: "payday loans," "cash
advance loans," "check advance loans," "post-dated check
loans" or "delayed deposit check loans." Typically, a borrower
writes a personal check payable to the lender for the amount he wishes to borrow
plus the fee. Fees for payday loans are most often a percentage of the face
value of the check or a fee per $100 loaned. In a payday loan, both the lender
and the borrower know that sufficient funds to cover the check are not available
when the check is tendered. The check casher agrees to hold the check until
the consumer's next payday, usually up to two weeks. At that point, the consumer
can either redeem the check with cash or a money order, permit the check to
be deposited, or renew the loan by paying another fee. Payday lenders charge
the same fee to rollover the loan.
Payday loans are very high priced credit. The annual percentage rate -- APR
-- varies depending on the fee and how long the check is held before being deposited
or redeemed. For a $100 loan for a seven-day period under Iowa's law, the APR
is 780%; for a five-day period the rate is 1,034%.
Use of a personal check makes collection very easy for a lender. Consumers can
be frightened into paying up to avoid criminal prosecution for bad check charges
or civil litigation for triple damages. Use of the criminal process gives payday
lenders a collection tool that no other creditor enjoys.
Payday lending thrives because of peoples' desperation. A typical borrower might
need $200 to borrow two weeks before the next check is due. The fees will typically
be $40 for this two week loan. At the end of the two weeks, if the borrower
doesn't have $200 to make the check good, another $200 must be borrowed, at
a cost of another $40. The borrower thus begins a spiral of flipping very high
cost loans, because the alternative is unaffordable -- to do without the whole
monthly income or be criminally prosecuted for writing a bad check. A recent
study found that the typical payday loan is flipped eleven times.(17)
If this $200 loan were rolled over eleven times, the total fee would be $440,
double the amount of cash received, for an extension of credit lasting 22 weeks.
The fact that payday loans are currently being made in several states around
the nation secured by the guaranteed electronic receipt of a federal payment
should be adequate illustration for the absolute necessity to exclude payment
service providers from the delivery system for federal payments. Consider this:
Payday loans are being made now on federal deposits, at astronomical
interest rates, even while Treasury is considering whether to permit these
providers to continue as conduits for federal payments.
These payday loans are being made in states where they are currently, unequivocally
illegal.(18)
These payday loans are secured by the electronic deposit of Social Security,
SSI benefits and Veterans Benefits -- which is clearly illegal under the federal
law. Each benefit program specifically prohibits the assignment of these benefits.(19)
These payment service providers are thumbing their noses at state and federal
regulators, at consumer advocates, at the news media, and at Treasury. They
are anticipating that their effective lobbying techniques will again prevail,(20)
and despite their pernicious activities, they will be permitted to continue
bleeding low income people of their federal payments.
Banks Engaged in Arrangements with Payment Service Providers
We found that a number of national banks are engaged in these arrangements,
although in many cases we were unable to tie the check casher and retail store
arrangements to each bank sponsor.
Corus Bank, Chicago, Illinois, was formed by check cashers for check cashers,
mostly, but not exclusively, in Illinois. No fee to establish the account
initially is charged. The bank charges $1.10 for Illinois residents and $1.50
for out of state residents per withdrawal. There does not appear to be a limit
on what the check casher can charge.
Pacific State Bank has a program called Quick Access, which used to be run
by Beneficial National Bank. Access to funds is available through check cashers
and rent to own stores. The bank fee is $3 per transaction and recipients
can receive checks two to four days early. There is no limit on the payment
service providers' fees.
Republic and Trust Bank runs a program called Benefits Express which makes
funds available through check cashers, liquor stores, and rent to own stores.
They told us they were currently investigating payday loans. The bank fee
is $2.95 per withdrawal. No apparent limit on the payment service providers'
fees.
River City Bank has a program called Dollars Direct providing electronic
deposits through check cashers, pawnbrokers and tax preparers. The bank charges
the customer a fee of $2.95 per check. It is unknown what the payment service
providers' fees are.
Citibank has a program with the National Association of Check Cashers of
America which is currently only available in a few states. This is an ATM
card program which also allows POS purchases. Information on bank fees was
not available, although there is no limit on the fees charged by check cashers.
PNC Bank has a program through check cashers and pawnbrokers with a sliding
scale of fees described above in the entry for Philadelphia.
Delaware Bank has an ATM program that recipients sign up for at check cashers.
There is a $19.95 set up fee, $9.95 monthly fee and .95 charge from this bank
for all ATM withdrawals. This bank also offers what they call "overdraft"
protection for all federal recipients, including Social Security and SSI recipients.
For any overdraft incurred during the month, a flat fee of $19.95 is charged
for that month, in addition to all other charges.(21)
These arrangements are made available through check cashers in New York, Pennsylvania,
Delaware and other northeastern states.
As Treasury noted in the ANPRM, some of these arrangements involve the delivery
of a paper check, others use an ATM card. Some of these arrangements allow the
recipients' funds to remain in the individual's own account until withdrawn,
others apparently sweep the funds immediately into an account owned by the payment
service provider. The accounts are often combined with the opportunity to pledge
the federal payment to obtain a payday loan. The consistent feature among the
different accounts is the high prices. Again, it should be kept in mind that
these accounts are constructed with these onerous terms even while Treasury
is contemplating regulating them for cost. One can only imagine how high the
costs and how onerous the terms will be if these providers believe they have
free rein, if Treasury foregoes regulation.
It really does not matter whether funds are left in the account or swept, whether
there is a check delivered to the recipient or a debit card is provided. While
some of these programs are clearly worse than others, the costs and terms of
all of them are unjustified. A number of these arrangements are bank accounts
in many senses of the concept -- the money is left in the account into which
it is deposited until it is removed by the recipient at an ATM machine. Presumably
not all funds must be withdrawn every month, so that accumulation from month
to month is conceivable. However, these accounts (Citibank's, PNC's and Delaware
Bank) are perhaps the most pernicious -- because they are unjustifiably expensive,
and are exclusively marketed through check cashers and other payment service
providers. Because the payment service providers must receive a cut of each
withdrawal, the banks' costs of providing these accounts are unnecessarily swollen.
So long as these banks are permitted to contract with payment service providers
to provide access to federal benefits, they have absolutely no incentive to
make an ETA or another low cost account available to the unbanked. Allowing
this activity turns one of the primary goals of EFT 99 on its head: bringing
the unbanked into the banking mainstream becomes even less likely once an account
relationship has been established elsewhere.
III. Treasury has a legal mandate to prohibit financial institutions from entering
into arrangements with payment service providers to deliver federal payments.
Congress' mandate to Treasury is perfectly clear. First, all federal recipients
are required to designate a financial institution to receive the electronic
deposit of federal payments:
(g) Each recipient of Federal payments required to be made by electronic funds
transfer shall --
(1) designate 1 or more financial institutions . . . to which such payments
shall be made; . . .(22)
Treasury is then required to provide regulations to ensure access at a reasonable
cost, with consumer protections. These regulations must apply to all accounts
designated by recipients to receive federal payments electronically:
(I) Regulations under this subsection shall ensure that individuals required
under subsection (g) to have an account at a financial institution
. . .
(A) will have access to such an account at a reasonable cost;
and
(B) are given the same consumer protections with respect to the account
as other account holders at the same financial institution.(23)
(Emphasis added.)
For Whose Benefit Is This Regulation Intended? The first question is "which
recipients" of federal payments were intended to be covered by subsection
(i): all recipients of federal payments or only those recipients who would not
otherwise have an account at a financial institution but for the necessity
to have an account into which their federal payments can be electronically deposited.
The question for whose benefit the regulation should be promulgated can be partially
addressed by analyzing the necessary components of the two different regulations.
If all recipients are to be covered by the requirements of subsection
(i), then Treasury has the obligation to establish basic requirements for all
accounts at financial institutions into which federal payments will be deposited.
This regulation would have to establish a standard for regulators of financial
institutions to evaluate whether accounts which receive federal payments meet
the requirements of the federal law:
1) Account. As Treasury has recognized, an account at a financial institution
must have certain attributes, otherwise it is not an account as that term is
commonly known. These minimum attributes would include:
the ability to access the money in the account from the financial institution
itself (either through a teller or an ATM or both);
the ability to withdraw money from the account in increments;
the ability to leave money in the account, so as to accumulate funds.
2) Access. As Treasury has also recognized, the statutory mandate
for "access to such an account" must mean something. Only being able
to reach one's money through an intermediary, such as a payment service provider,
is certainly not access.
3) Same consumer protections. At the least, federal depository insurance
and full Reg E(24) protections to the recipient
must apply from the moment the federal money is electronically deposited in
the account until the moment the money is received into the hands of the recipient.
The ability to use debit cards at POS devices would also be required if other
account holders at the financial institution have this capacity.
4) Reasonable Cost. This is perhaps the thorniest issue. What is a
reasonable cost for an account at a financial institution? Should the reasonableness
of the cost be determined by the market? But if the market were to determine
it, then there would be no meaning to the statutory mandate for Treasury to
ensure "reasonable cost." "Reasonable cost" is not the same
as market cost, as is evident from the evidence provided in these comments.
Should the reasonableness of the cost be determined by its relation to the amount
of the federal payment? Or should it be determined in absolute terms, as Treasury
has proposed for the ETA: dollar limits for monthly fees?
Treasury has already rejected the approach of regulating all accounts established
by federal recipients to receive federal deposits:
Such a broad interpretation potentially would place Treasury in the position
of determining the reasonableness of prices charged by thousand of financial
institutions, for a wide variety of account services, to individuals who have
account relationships at institutions they have chosen voluntarily.(25)
Although fear of administrative burden cannot be the rationale for an agency's
failure to regulate as Congress intended,(26)
it does seem to be a more judicious use of regulatory resources to focus the
regulatory attention on the unbanked. Indeed, legislative history also tilts
in favor of special regulations to protect the unbanked. Moreover, once Treasury
begins to regulate all accounts at financial institutions used for the electronic
deposit of federal payments for access, cost and consumer protections, how is
such a regulation to be enforced? Congress clearly intended to protect the unbanked
by requiring access to bank accounts. The only rational reading of
the law and the Congressional history requires Treasury to ensure the usage
of financial institutions throughout the process -- from initiating the account
to withdrawal of the money.
Since this section will require participating beneficiaries to obtain a bank
account, Congress expects the Secretary of the Treasury to work vigorously
to accommodate the needs of the unbanked recipients through such means as .
. . implement through the private sector consumer owned bank accounts where
recipients access their funds by debit card or other means, rather than through
traditional account features, such as checking. (Emphasis added.)(27)
There is a simple way to meet the statutory mandate to regulate for access,
account, consumer protections and reasonable cost : prohibit payment service
providers from being part of an arrangement with financial institutions for
the electronic delivery of federal payments.
If payment service providers are allowed to insert themselves in the process
of electronically delivering federal payments to recipients, clearly they will
do so only to make money from it. The recipient then must pay two financial
service providers, which will double -- or worse -- the costs of the delivery
system. There is no way that Treasury can meet the statutory mandate of "reasonable
cost" and allow payment service providers to be a part of the delivery
system. Once banks are prohibited from using payment service providers to market
accounts to federal recipients they will find new ways of maintaining this source
of profit. But the prices should be lower, because they would not have to share
them with anyone else.
The statute clearly provides Treasury with the legal authority to regulate the
arrangements for the electronic delivery of federal payments through financial
institutions.(28) Indeed, the plain reading
of the statute indicates that Treasury must regulate -- one way or the other
-- to protect "individuals required under subsection (g) to have an account
at a financial institution . . ." Regulating to prohibit payment service
providers is the cleanest and simplest method of accomplishing this statutory
mandate. Such a regulation can be justified because of the lack of access to
accounts, the lack of consumer protections, and the clearly unreasonable costs
imposed upon recipients in the arrangements which are already in place.
Conclusion:
As advocates of low income people, and of consumers generally, we agree that
electronic transfers can be a more efficient and safer method of receiving payments
than the paper check based system. However, the additional advantages of the
electronic system quickly evaporate if recipients have higher costs, unanticipated
risks, and greater potential losses, as will clearly occur unless Treasury
prohibits financial institutions from contracting with payment service providers
for the delivery of federal payments.
Summary of Documents in Appendix
Federal check recipients who arrange for electronic delivery of pension, Social
Security or Supplement Security Income payments through accounts jointly provided
by banks and non-bank financial entities are at risk of abusive lending practices
and excessive fees. Rent to own transactions, payday loans, title pawns, and
small loans are relatively short-term credit transactions. These lenders want
monthly traffic by federal check recipients to pick up their Social Security
or Supplemental Security Income payments to provide a steady clientele for high-priced
credit. Federal check recipients who receive payments monthly are especially
vulnerable to quick and easy credit for lower income citizens who run out of
money before they run out of month. Check cashers whose bread and butter business
has been cashing government checks are scrambling to find other, more lucrative,
ventures to fill in the void left by electronic delivery of state and federal
benefits.
Set out below is a list of some of the reports and studies, court decisions,
editorials and news articles that describe the products and practices of check
cashers, payday lenders, and other fringe bankers. The materials in the Appendix
paint a graphic picture of fringe bankers evading usury and small loan interest
rate caps, threatening criminal prosecution for nonpayment of loans, and keeping
borrowers in perpetual debt. Some of the documents describe the growing political
clout, campaign contributions, and lobbying muscle of the fringe banking sector
that produces state laws that fail to protect vulnerable consumers.
Appendix 1 Fox, Jean Ann, "The Growth of Legal Loan Sharking: A Report
on the Payday Loan Industry," Consumer Federation of America, November
1998. (Report documents the high cost of payday loans made by check cashers,
the weak patchwork of state consumer protections, and catalogs private and public
litigation and law enforcement.)
Appendix 2 Fox, Jean Ann, "The High Cost of 'Banking' at the Corner Check
Casher: Check Cashing Outlet Fees and Payday Loans," Consumer Federation
of America, August 1997, Updated September 1997. (Nonbanked consumers and convenience
users of check cashing outlets pay a high price for converting checks into cash
due to inadequate state laws and enforcement. Some check cashers and other entities
make short-term loans at triple digit interest rates by lending money on post-dated
checks.)
Appendix 3 Hudson, Mike, "Predatory Financial Practices: How Can Consumers
Be Protected?" AARP, Winter 1998. (Report describes the growth and wide
variety of predatory financial practices of rent to own stores, pawn shops,
small loans, check cashers and payday lenders.)
Appendix 4 "Cash, Credit & EFT '99: Reducing the Cost of Credit and
Capital for the Urban Poor," Organization for a New Equality, 1998. (Report
analyses the impact of check cashing stores, rent to own, and payday lenders
on low income communities. ONE states that fringe banking industry access to
the government funds under EFT'99 will open a Pandora's Box and waste the opportunity
to bring mainstream financial services to low-income communities.)
Appendix 5 Cardella, Ruth, "Wolf in Sheep's Clothing: Payday Loans Disguise
Illegal Lending," Consumers Union Southwest Regional Office, February 1999.
(Investigation of payday lending and other subterfuges such as "catalog
sales" and "sale-leaseback" show that fringe bankers ignore state
usury laws and seek to avoid state credit consumer protections.)
Appendix 6 Hudson, Mike, "Going for the Broke: How the 'Fringe Banking'
Boom Cashes in on the Poor," The Washington Post, January 10, 1993. (Dependence
on check cashers is more costly than using banks and a bad deal for consumers.
Car title pawn shops and check cashers making payday loans have been sued for
violating usury laws.)
Appendix 7 "Legal Loan-sharking," "Lifeline or anchor?,"
"Cashing in on the Poor," "Advance to quicksand," "Feeding
frenzy," "What will they do?", Editorial series, Orlando Sentinel,
March 28 - April 2, 1999. (Series of editorials in the Orlando Sentinel paints
a graphic picture of the "fleecing of Florida" by title loan companies,
check cashers, and payday lenders. Political influence, campaign contributions,
and public relations is paid for from the profits made on charging exorbitant
rates to low-wage consumers.)
Appendix 8 Order, "Turner v. E-Z Check Cashing of Cookeville, TN, Inc."
United States District Court, M. D. Tennessee, January 26, 1999. (Most recent
federal court decision on payday lending found that these loans are credit subject
to federal Truth in Lending Act contrary to claims by lenders to avoid state
usury laws. The order describes the use of threats to bring criminal prosecution
for nonpayment of the loan and found that a payday lender cannot prosecute under
the Tennessee bad check law.)
Appendix 9 Shinkle, Peter, "Payday loans - Critics call loans 'abusive';
but lenders say they're filling niche," "Legislation so far unable
to contain 'unbridled' lenders," The Advocate, Baton Rouge, Louisiana,
December 27, 1998. (Series of news reports described payday lending abuses by
check cashers in Louisiana, including padding the bill with extra fees, concentration
of high-cost lenders in minority neighborhoods, repeated roll-overs of payday
loans which regulators have been unable to stop, and campaign contributions
made to state lawmakers by the industry.)
Appendix 10 Timmons, Heather, "Fast-Growing 'Payday' Loan Business: Convenience
or Legal Loan Sharking?", The American Banker, March 10, 1999. ("The
U. S. Treasury's decision to directly deposit all federal payments this year
has check cashers spooked and angling to develop payday loan programs to protect
profits.")
Appendix 11 Robertson, Joe, "Consumers Needing Quick Cash are Easy Targets,"
Tulsa World, January 13, 1997. (Small loan laws provide an incentive for lenders
to "roll" or renew loans. In Oklahoma, lenders could charge acquisition
fees of 10 percent of the loan. One lender refinanced more than 80 percent of
its loans.)
Appendix 12 Baldwin, Amy, "Check Cashers Unchecked," Herald-Leader,
October 19, 1997. (News article describes the two-tier financial system where
affluent, well-educated consumers are served by insured, regulated banks and
low-income, less-educated consumers use check cashers and payday lenders at
much greater cost. One borrower paid $1,824 over a two-year period to renew
a $200 loan every two weeks.)
Appendix 13 Dembeck, Chet, "Check-cashing Fees Bleeding Customers,"
The Sunday Capital, March 7, 1999. (Check cashers in Maryland make payday loans
in violation of state small loan interest rate caps and deny that the advances
are loans.)
Appendix 14 Anderson, Mark, "Cash Poor, Choice Rich," Sacramento Business
Journal, January 8, 1999. ("An industry study found that the average payday
loan customer makes 11 transactions a year, which shows that once people take
an advance, they put themselves behind for quite some time.")
Appendix 15 Pressey, Debra, "Payday Loan Industry Proliferating,"
The News-Gazette, November 11, 1998. (A couple on disability due to mental illness
owed seven payday loans to four lenders at the same time for a total of $1,440,
more than their combined monthly income. One loan cost 1,825% APR.)
Appendix 16 "Biggest Little Rip-off in Texas," Austin American-Statesman,
November 13, 1998. (Editorial noted growth in Texas of small loan companies
that skirt the small-loan interest rate cap of 85% by claiming their deals are
not really loans.)
Appendix 17 Cheek, Duren, "Many Payday Lenders Skirt Law," Tennessean,
January 24, 1999. (Tennessee reported that more than half of the licensed payday
lenders violated state law on disclosures, fee caps and loan splitting. Regulators
ordered over $200,000 in refunds but levied no fines. In the nine-month period
covered by the Department of Financial Institutions report, 1.2 million loans
for over $200 million dollars produced the industry's return on assets of 22.72%
and its return on equity of 30.37%.)
Appendix 18 Ivins, Molly, "Banks Muscle In On Loan Sharking," The
Davis Enterprise, February 28, 1999. (Opinion piece notes that "bank fees
are so high that it's not worth having a low-balance checking account. Banks
will no longer cash a paycheck if you don't have an account with them even when
the check is drawn on that bank....So, it is now big banks underwriting the
lobbying efforts to legalize payday loans in 18 states.")
Appendix 19 Locker, Richard, "53% of check loan shops violated Tennessee
law," Commercial Appeal, January 30, 1999. (Tennessee payday lenders made
generous campaign contributions to state lawmakers to support legislation legalizing
payday lending. Contributions included $100,000 to the Republican National Committee
by the owner of one Tennessee-based company, and smaller contributions to the
Tennessee Governor and key legislators.)
Appendix 20 Hendren, John, "Cashing in on 'payday loans'," The Washington
Times, February 5, 1999. (Eagle National Bank of Upper Darby, Pennsylvania,
makes payday loans through Dollar Financial Group in states that outlaw payday
loans at triple-digit interest rates. State laws have not been effective in
curtailing loan roll-overs.)
Appendix 21 Manor, Robert, "'Payday lenders' draw regulators' attention,"
Chicago Sun Times, November 10, 1998. (A survey of payday loans in Illinois
found the average interest rate was 569%. Some lenders claim they are not making
"loans" although the paperwork clearly describes a loan.)
Appendix 22 Pyle, Amy, "Consumer Groups Attack 'Payday Loans'," Los
Angeles Times, February 11, 1999. (California's payday loan law treats companies
as check cashers. Payday loan volume in Colorado quadrupled in four years. Check
cashing businesses are scrambling to replace lost customers due to more government
payments deposited electronically.)
Appendix 23 O'Malley, Chris, "Payday Lenders Profit from Loophole,"
Indianapolis Star, February 21, 1999. (Payday lending in Indiana has grown from
$12.7 million loaned in 1994 to $287.7 million in 1998. One customer described
paying $903 for a $180 loan. Some payday lenders ask borrowers to sign a release
authorizing the lender to electronically deduct payments from their checking
accounts. A bankruptcy attorney noted that half the people who seek his help
have payday loans.)
Appendix 24 Wells, Rob, "Bank, Check Casher Alliances for Benefit Transfers
Stir Debate," Bloomberg News, February 25, 1999. (Direct Deposit Plus charges
"$2.95 to have the federal government wire Social Security checks to a
liquor store, using commercial banks as middlemen to exploit a loophole in federal
law, transforming beer stores and check cashing outlets into electronic distribution
centers for government welfare and benefit checks." Corus Bank NA and Community
Currency Exchange Association of Chicago handled social security check deposits.
The bank deducts a fee ranging from $1.10 to $1.60 before transferring the funds
into the account at one of the check cashers. One industry analyst estimates
that check cashers take in $1 billion annually in fees.)
Appendix 25 Secure Direct Deposit brochure, Community Currency Exchange Association
of Illinois, Inc. 1998. (Brochure for the Secure Direct Deposit service of the
Community Currency Exchange Association of Illinois, Inc. says Secure check
will help stores "Continue cashing checks for Social Security, SSI and
other government benefit recipients who choose direct deposit," "protect
and even increase your income," and "sell other services to your customers
when they come in every month to cash their government check.")
Appendix 26 Woodstock Institute, "Currency Exchanges Add to Poverty Surcharge
for Low-Income Residents," Chicago, Illinois, March, 1997. (Low income
people are paying significantly more for banking services through currency exchanges
than others are paying to banks.)
_______________________________
1. The National Consumer Law Center is
a nonprofit organization specializing in consumer issues on behalf of low-income
people. We work with thousands of legal services, government and private attorneys,
as well as community groups and organizations, from all states who represent
low-income and elderly individuals on consumer issues. (2)
2. The National Consumer Law Center, Inc. (NCLC) is a nonprofit
Massachusetts corporation founded in 1969 at Boston College School of Law and
dedicated to the interests of low-income consumers. NCLC provides legal and
technical consulting and assistance on consumer law issues to legal services,
government and private attorneys across the country. Cost of Credit
(NCLC 1995), Truth in Lending (NCLC 1996) and Unfair and Deceptive
Acts and Practices (NCLC 1991), three of twelve practice treatises published
and annually supplemented by NCLC, and our newsletter, NCLC Reports Consumer
Credit & Usury Ed., describe the law currently applicable to all types
of consumer loan transactions. - -- -- '
3. The Consumer Federation of America is
a nonprofit association of some 250 pro-consumer groups, with a combined membership
of 50 million people. CFA was founded in 1968 to advance consumers' interests
through advocacy and education. CFA's address is 1424 16th Street, NW, Suite
604, Washington, DC 20036.
Community Legal Services, Inc. is a legal services program
representing low income individuals and groups in Philadelphia, Pennsylvania.
Community And Economic Development Association of Cook County, Inc.
is the largest not for profit community action agency in the nation. It works
in the communities of suburban Cook County, Illinois.
Consumer Action is a California based consumer education and
advocacy organization, serving consumers since 1971.
The Consumer Law Center of the South is a nonprofit public
interest organization incorporated in Georgia. Established in 1995, its mission
is to advocate for consumer protection through consumer education, legislative
reform, involvement in the regulatory process, and litigation support.
Florida Legal Services, is a not-for-profit statewide public
interest law firm which advocates for the interests of poor people in Florida.
FLS is the state support center for legal services and legal aid offices throughout
Florida. FLS provides technical support, co-counseling, training, and educational
publications.
Gateway Legal Services in St. Louis, Missouri is a non-government-funded,
non-profit legal aid organization which provides legal services to lower-income
clients.
Legal Aid Society of Dayton, Ohio, provides civil legal services
to low income residents of Dayton.
The National Center on Poverty Law, formerly National Clearinghouse
for Legal Services, is a not-for-profit communications, advocacy, and policy
organization that fosters and develops creative approaches to policy research,
development, analysis, and advocacy on issues affecting low-income communities
located in Chicago, Illinois.
The National Consumers League is America's pioneer consumer
organization. NCL is a private, non-profit membership organization dedicated
to representing consumers.
National Legal Aid and Defender Association is the national
membership organization representing civil legal services and indigent criminal
defense programs.
North Carolina Justice and Community Development Center is
a non-federally funded non-profit organization advocating for low-income people
in North Carolina.
Northeast Missouri Client Council for Human Needs, Inc. This
organization monitors legislation impacting on low income people, and provides
consumer and welfare information through a newsletter and community legal education.
Oregon Law Center in Portland, Oregon, provides a full range
of civil legal services to low income Oregonians.
The Organization for a New Equality (O.N.E.) is a multi-racial
organization whose top priority is expanding economic opportunity to people
who have historically been excluded from the economic mainstream.
Texas Legal Services Center is the legal support project for
legal services programs in Texas. TLSC provides statewide assistance to the
elderly poor through its Legal Hotline for Older Texans and also administers
the EFT-99 public education subcontract for the Austin/Kansas City Region.
U.S. PIRG is the national lobbying office for state Public
Interest Research Groups. PIRGs are non-profit, non-partisan consumer and environmental
advocacy groups with offices around the country.
Virginia Citizens Consumer Council is a statewide consumer
advocacy organization, headquartered in Richmond.
The Welfare Law Center is a national legal and policy organization
located in New York City, which works with and on behalf of low income people
to ensure that adequate income support is available when necessary to meet basic
needs and foster healthy individual and family development.
Woodstock Institute is an organization working for residents
of low and moderate income communities in Chicago, Illinois.
5. In the ETA public notice, Treasury said: "financial
institutions offering ETAs, would be prohibited under the ETA Financial Agency
Agreement from entering into arrangements with non-financial institutions to
provide access to ETAs other than access through a national or regional ATM/POS
network. Treasury is concerned that such arrangements may be confusing or misleading
to recipients and, therefore, will not permit financial institutions to enter
into such arrangements with respect to the offering of the ETA." 63 Fed.
Reg. 64823 (Nov. 23, 1998).
6. According to a recent study of fringe banking in Milwaukee:
"Customers pay far more for services provided by a check cashing business
than they pay for the same services at a conventional bank. Fees for cashing
payroll checks nationwide generally range between one percent and three percent
of the face value of the check. For personal checks the range was generally
between 1.7 percent and 20 percent, averaging around 8 percent. In some instances,
however, fees and interest rates have been reported as high as 2000 percent.
Squires & O'Connor, "Fringe Banking in Milwaukee: The Rise of Check
Cashing Businesses and the Emergence of a Two-Tiered Banking System," 34
Urban Affairs Rev. 126 (1998). A study by the New York Office of the Public
Advocate found that a check cashing customer with an annual income of $17,000
will pay almost $250 a year at a check cashing business for services that would
cost $60 at a bank. The Federal Reserve Bank of Kansas City reported that a
family with a $24,000 annual income using a check cashing business will spend
almost $400 in fees for services that would cost under $110 at a bank."
(Citations omitted).
7. Payday loans are generally provided by check cashers
who agree to cash a post-dated personal check with the understanding that it
will not be deposited until the customer's next payday. See, e.g. Pressey,
Debra, "Payday Loan Industry Proliferating," The News-Gazette,
November 11, 1998. (A couple on disability due to mental illness owed seven
payday loans to four lenders at the same time for a total of $1,440, more than
their combined monthly income. One loan cost 1,825% APR.)
8. The legal standard applicable to judge these transactions
thus becomes one of "unconscionability." Unconscionability generally
refers to a transaction "which is so one sided that only one under delusion
would make it and only one unfair and dishonest would accept it." See,
Cobb v. Monarch Finance Company, 913 F.Supp 1164, 1179 (N.D.Ill. 1995).
9. Fox, Jean Ann, "The High Cost of 'Banking' at the
Corner Check Casher: Check Cashing Outlet Fees and Payday Loans," Consumer
Federation of America, August 1997, Updated September 1997. (Nonbanked consumers
and convenience users of check cashing outlets pay a high price for converting
checks into cash due to inadequate state laws and enforcement. Some check cashers
and other entities make short-term loans at triple digit interest rates by lending
money on post-dated checks.)
10. Notably the comments of the Offices of Attorneys Generals
from several states includes a scholarly analysis of the effect of fringe banking
on the low income community
11. See Summary of Appendices for a full description
of the documentation provided with these comments regarding the business practices
of fringe bankers.
12. The lack of availability of helpful, written materials
should not lead Treasury to conclude that requiring disclosures about the fees
and terms of these accounts would be sufficient regulation. The opposite is
the case. The population that is most likely to use payment service providers
is least likely to have the literacy skills necessary to process written disclosure
information. More importantly, even with full disclosure, low income recipients
generally feel they have little actual choice but to accept the onerous terms
of the financial services provided to them by fringe bankers. Disclosures more
often than not lead to feelings of helplessness, rather than empowerment. Disclosures
should always be required. But disclosures alone should not be considered adequate
regulation.
13. Nelson v. River Valley Bank & Trust 334
Ark 172 (1998).
14. Layaway is an arrangement with a retail store whereby
a chosen item is removed from the general merchandise and kept for the customer
to pay off the price. The customer must pay the full purchase price before the
merchandise can be taken home. Occasionally a fee is charged, and the programs
are generally unregulated. However, the cost to customers for layaways are almost
always less expensive than credit.
15. See the comments filed by Community Legal
Services of Philadelphia, Pa. for a more extensive discussion of some
of these programs.
16. Under Pennsylvania law the maximum interest permitted
for small loans is 23.57% a year. Under the PNC example, assume that the bank
allowed one half of the monthly deposit to be made available in the second half
of the month, and that the only charge for this would be the additional
$10 for the "gold card." Thus a $10 fee would be charged for a $250
extension of credit for 14 days (a relatively low priced loan compared to most
payday loans). The APR on this extension of credit equals 250%.
17. See Appendix 14, Anderson, Mark, "Cash
Poor, Choice Rich," Sacramento Business Journal, January 8, 1999.
("An industry study found that the average payday loan customer makes 11
transactions a year, which shows that once people take an advance, they put
themselves behind for quite some time.")
18. For example, in Arkansas and Pennsylvania, there are
caps on small loans of 17% and 23.57% respectively. Twenty states have specific
payday loan legislation including: California, Colorado, D.C., Florida, Iowa,
Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Nebraska, Nevada,
North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Washington, Wyoming.
19. See 42 U.S.C. § 407; 42 U.S.C. § 1383; 38
U.S.C. § 530; and 5 U.S.C. § 8346.
20. Although only twenty states currently specifically
permit payday lending, the National Check Casher Association announced at its
October conference that its top priority is to make it legal in more states.
Currently there are industry sponsored payday bills pending in Alabama, Arizona
and Hawaii.
21. If it walks like a duck and quacks like a duck, isn't
it duck? This overdraft protection sure sounds like a payday loan.
26. See Reed v. Reed, 404 U.S. 71, 76-77
(1971) (holding that administrative convenience alone did not justify a preferential
system of administering statutory benefits); Frontiero v. Richardson,
411 U.S. 676, 688-91 (1973) (same); Califano v. Goldfarb, 430 U.S. 199,
205-07 (1977) (same).
28. The statute itself says: "Regulations under this
subsection shall ensure that individuals required under subsection (g) to have
an account at a financial institution . . ." Further, the Supreme
Court has said that deference should be given to an agency's implementation
of a statute, Smiley v. Citibank, 517 U.S. 735 (1996) as well as to the
agency's interpretation of the statute it is charged with enforcing Chevron,
U.S.A, Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984);
United States v. Clark, 454 U.S. 555 (1982); Board of Governors of
Federal Reserve System v. Investment Company Institute, 450 U.S. 46 (1981).
and NCLC