Presented to

Payday Loan Bar AssociationPresented by

Ronald D. Gorsline, Esq.Walter E. Evans, Esq.Justin B. Hosie, Esq.

Multi-Product Applications and Lending

Multi-Line Operations and the Application Process

• Example Facts:

– A licensed deferred presentment company becomes licensed to offer title pledge transactions and installment loans.

– A customer would like a $300.00 advance, and state law allows all three transaction types.

Multi-Line Operations and the Application Process

• Should a multi-line operation use one comprehensive application or different applications for each credit-type?

• What are examples of issues that should be addressed for each possibility?

Application Techniques:

• Waterfall

• Stair Step

• Single Application

• Multiple Application Techniques

Waterfall Technique– Take one application and attempt to first qualify

the consumer for the “most consumer friendly” product first, then the second most consumer friendly, etc.• Uncertainty regarding the consumer’s desired product

• Employee Discretion

• Longer Application if it encompasses all product types– Title pledge applications require vehicle information

– Payday advance applications require checking account information

Stair Step Techniques

– Only offer one type of service to new customers.

– At least two possibilities:• Stair Step Based on Positive Payment

History

• Stair Step Based on Amount Requested

Stair Step Based on Positive Payment History

– Customers timely paying one type of transaction qualify for another type of transaction.

– Example: Customers with 4 timely payments on a payday advance transactions can apply for a title pledge transaction, customers with 4 timely payments on a title pledge transaction can apply for an industrial loan, etc.

Stair Step Based on Amount Requested

• Offer service types, based on the requested advance amount.

• The company delineates certain transaction amounts will only be provided in certain transaction types.

•Example: – $25-300 - Payday Advance

– $301-$2,000 - Title Pledge

– $2,001-$5,000 - Installment Loan

Other Single Application Techniques

• Offer one application, provide check boxes naming and describing each service type as well as providing fee poster type disclosures for each product type

• Offer one application, provide check boxes naming and describing each service type

• Offer one application, provide check boxes naming each service type

• Offer one application and then based on qualifications, verbally describe certain product types

Multiple Applications• Provide applications for all credit types and

allow the consumer to review fee posters and decide which application to submit

• Allows filing the application in the correct file for state law purposes

• Cumbersome to have numerous applications

• Employee steering

• Counteroffers

An Additional Issue:Bridge the Gap Transactions– An Alternative Credit Service During A Payday/Title

Pledge Cool-Off Period. The Consumer has reached the state mandated maximum and must “cool-off” under one transaction type, and would like to obtain an alternative credit service from the Company.

– A Short-Term Advance To Pay Off a Competitor and then Enter A Standard Transaction With the Company. The consumer would like a transaction from the Company secured by a motor vehicle, but the motor vehicle is encumbered by another lender, therefore the Company cannot enter a title pledge transaction. Therefore, the Company would like an alternative credit service to obtain funds from the Company, pay-off the competitor encumbering the vehicle, and then

enter a title pledge transaction with the Company.

The Equal Credit Opportunity Act and Regulation B• Any creditor who fails to comply with any requirement

imposed shall be liable to the aggrieved applicant for any actual damages sustained by such applicant acting either in an individual capacity or as a member of a class.

• Punitive damages in an amount not greater than $10,000, in addition to any actual damages, except that in the case of a class action the total recovery under this subsection shall not exceed the lesser of $500,000 or 1 per centum of the net worth of the creditor.

• Court of competent jurisdiction may grant such equitable and declaratory relief as is necessary to enforce the requirements imposed under this subchapter.

• Costs of the action, together with a reasonable attorney’s fee as determined by the court, shall be added to any damages awarded by the court under such subsection. …

The Equal Credit Opportunity Act and Regulation B– The Customer Application

• General Requirements and Necessary Disclosures– Safe Harbor for properly using the appropriate model

applications

» Secured and Unsecured Credit

» Community Property

• Joint Credit / Co-Applicants / Guarantor Disclosures» Requirement for jointly owned security

» Vehicle/title

» Checking account underlying a check or ACH authorization

• State Application Disclosure Requirements

Pricing, Steering and Underwriting

• Non-discrimination standards and protected classes under federal and state law

• United States Department of Justice Actions. See www.usdoj.gov/crt/housing/bll_01.htm

Pricing– Pricing Generally

• United States v. Long Beach Mortgage Company, Case No. CV-96-6159DT(CWx) (C.D. Cal. 1996).

• United States v. First National Bank of Vicksburg, Case No. 5:94 CV 6 (B)(N) (S.D. Miss. 1994).

• United States v. Security State Bank of Pecos, Case No. SA95CA0996 (W.D. Tex. 1995).

• United States v. First National Bank of Gordon, Civil Action No. 96-5035 (D.S.D. 1996).

Pricing• Pricing Via Employee Incentive

Programs. – United States v. The Huntington

Mortgage Company, Case No. 1:95 CV 2211 (N.D. Ohio 1995).

– United States v. Fleet Mortgage Corp., Case No. CV 96 2279 (E.D.N.Y. 1996).

Discriminatory Steering

• Lender refers members of protected classes to less favorable credit services.

• Johnson v. Equicredit Corp., 2002 U.S. Dist. LEXIS 4817 (N.D. Ill. Mar. 22, 2002).

Underwriting Discrimination

– Underwriting Discrimination Generally

» United States v. First National Bank of Dona Ana County.

– Underwriting Discrimination Via Override Policies.

» United States v. Deposit Guaranty National Bank, Case No. 3:99CV670 (S.D. Miss. 1999).

– See Also:

» www.usdoj.gov/crt/housing/bll_01.htm

» http://www.ffiec.gov/pdf/fairlend.pdf

Adverse Action and Counteroffer– Adverse Action Requirements

• ECOA and FCRA Requirement; Model Notices

• Notices for Co-Signors, Guarantors and Joint Applicants

• Counteroffer – Regulation B Commentary: “No adverse action occurs in a

credit transaction where the creditor makes a counteroffer that is accepted by the consumer.”

– See also: (1) Harper v Lindsay Chevrolet Oldsmobile, 212 F Supp 2d 582 (ED Va 2002); (2) FTC Staff Opinion Letters Keller, July 14, 2000 and Brinkerhoff, May 31, 1996.

• Different Fair Credit Reporting Act definition for Adverse Action.

The Fair Credit Reporting Act and Regulation V

• Reporting Negative Information– Model Notice B–1. We may report information about

your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.

– Model Notice B–2. We have told a credit bureau about a late payment, missed payment or other default on your account. This information may be reflected in your credit report.

The Fair Credit Reporting Act and Regulation V

.

• Risk Based Pricing Notice. According to the FCRA, as amended by FACTA 15: – If any person uses a consumer report in connection with an

application for, or a grant, extension, or other provision of, credit on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers from or through that person, based in whole or in part on a consumer report, the person shall provide an oral, written, or electronic notice to the consumer in the form and manner required by regulations prescribed in accordance with this subsection.

Federal Truth in Lending Act and Regulation Z

– Advertising Requirements. Triggering Items and Triggered Disclosures.

– Conversations with consumers explaining products

– In Store Posters

– Application Contents

– TILA Disclosures. Itemization of Amount Financed --Paying One Transaction type with the other transaction type.

– paying off a payday advance with the proceeds of a title pledge

– State law filing requirements - - properly filing such title note.

Gramm Leach Bliley Act and Regulation P

Privacy and Sharing– Corporate Relationship Between

Different Credit Providers

– Privacy Policy or Policies

– Affiliate and Non-Affiliate Sharing.

Unfair and Deceptive Acts and Practices and the Federal Trade

Commission• Inability to Repay Examples:• Uniform Consumer Credit Code (Colorado, Idaho,

Indiana, Iowa, Kansas, Maine, Oklahoma, South Carolina, Utah, Wisconsin, Wyoming): Section 5.108(4)(a) In determining unconscionability, one factors, among others, includes: belief by the lender at the time a transaction is entered into that there is no reasonable probability of payment in full of the obligation.

– Opportunity Management Co. v. Frost, 1999 Wash. App. LEXIS 336 (Feb. 16, 1999).

– D.C. Code § 28-3904(r)(1) and Wiliams v. First Government Mortgage & Investers Corp., 225 F.3d 738 (D.C. Cir. 2000).

Unfair and Deceptive Acts and Practices and the Federal Trade

Commission• Omission of Material Information Examples:– Mississippi UDAP Regulations: Prohibit omission of a

material or relevant fact where this has the tendency to mislead a consumer acting reasonably under the circumstances. Code Miss. Rules 24 000 002 Rule 9.

– Missouri UDAP Regulations: Prohibit omission of material facts. 15 Mo. Code State Regs. §§ 60-7.030, 60-9.110, 60-9.090.

– The consumer should not be deceived about the credit service applied for and how to obtain the various services offered.

– Bait and Switch.– Misleading Advertisements.

State Requirements– Separate Location Requirements – Separate Record Requirements. If one application

is used for all types of credit products, but the statue requires separate records for each operation, then how does the Company document a multi-product application? Which file does the Company store a counter offer adverse action notice in, the credit applied for, or the credit offered in response?

– State Application Disclosures for different industry types, inapplicable to other industries

– Using a device to charge more than allowed by state law

Banking Agencies and the Credit Card Industry

– Interagency Fair Lending Examination Procedures: http://www.ffiec.gov/pdf/fairlend.pdf

• Overt Discrimination• Transactional Underwriting • Potential Disparities in Terms & Conditions• Discriminatory Steering • Redlining • Pre-Screening• Marketing• Credit Scoring • Disparate Impact Issues

– Anti Tying Precedent. Under 12 U.S.C. 1971 et seq., banks are prohibited from conditioning the extension of credit upon the borrower’s obtaining some additional credit, property, or service from the bank or certain affiliated entities.

– OCC Advisory Letter AL 2004-10 (Sept. 14, 2004), www.occ.treas.gov/Advslt04.htm . Regarding credit card marketing practices prohibits banks from certain activities, such as:

• Advertising maximum credit limits more than most consumers receive• Providing most applicants with default credit lines significantly lower then the amount advertised,

without noting the possibility in advertisements

Contact InformationWalter E. Evans, Esq.

ACE Cash Express, Inc.4424 Hanover

Dallas, TX 75225-6750Phone: 972.550.5039

wevans@acecashexpress.com

Ronald D. Gorsline, Esq.Chambliss, Bahner & Stophel,

P.C.1000 Tallan Building, Two Union

SquareChattanooga, TN 37402Phone: 423.756.3000

rgorsline@cbslawfirm.comwww.cbslawfirm.com

Justin B. Hosie, Esq.Chambliss, Bahner & Stophel, P.C.

1000 Tallan Building, Two Union Square

Chattanooga, TN 37402Phone: 423.756.3000

jhosie@cbslawfirm.comwww.cbslawfirm.com

DisclaimerThis presentation is provided with the understanding that the presenter is not rendering legal advice or services. Laws are constantly changing, and each federal law, state law, and regulation should be checked by legal counsel for the most current version. We make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the information contained in this presentation. Do not act upon this information without seeking the advice of an attorney.

This outline is intended to be informational. It does not provide legal advice. Neither your attendance nor the presenters’ answering a specific audience member question creates an attorney-client relationship.