Capitalism, The Fed and Economic Policy

mickeyrat · January 1

https://www.threads.net/@johnelsberry/post/DERAAF0PP03?xmt=AQGzKRiMyw3dEqEgPzTc2iG75tPxPaQ2UYgP9SmisqBOng

mickeyrat · January 3

https://www.propublica.org/article/tribal-lending-industry-federal-oversight?utm_campaign=propublica-sprout&utm_content=1735794241&utm_medium=social&utm_source=facebook&fbclid=IwY2xjawHk3pxleHRuA2FlbQIxMQABHbm3hIqS7Ud38iLaEsD7JitamXXvABNpepYpYOw_w8IXeMhaHfGIHcLAHg_aem_lOksbLDqvsdgJ_yXXqdegw

The Tribal Lending Industry Offers Quick Cash Online at Outrageous Interest Rates. Here’s How It’s Survived.
by Joel Jacobs and Megan O’Matz
Dec. 23, 2024, 5 a.m. EST
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Reporting Highlights

    Industry Clout: Lobbying efforts have thwarted attempts in Congress to rein in tribal lenders and their triple-digit interest rate loans.
    Regulatory Retreat: A decade ago, federal regulators had the tribal lending industry on the ropes, but their aggressive efforts faced pushback and then reversals under Trump.
    An Uncertain Future: The Consumer Financial Protection Bureau was hamstrung for years. The Supreme Court validated its legitimacy, but a second Trump administration may push for its demise.

These highlights were written by the reporters and editors who worked on this story.

More than a decade ago, loan financier Matt Martorello was worried that the golden days for his high-interest lending venture were over.

In an email to his accountants, he detailed how attorneys general in multiple states were sending cease-and-desist letters to the online enterprise he operated with a Native American tribe based in Michigan. Major banks wanted nothing to do with the business, which offered small-dollar loans at exorbitant interest rates far above limits set by many states. Federal regulators were suing his competitors.

The pressure was getting to be too much. Martorello feared the federal government seeking “every $ I have” in restitution, he wrote in the December 2012 email.

He was expecting his firm, then based in the Virgin Islands, to be audited by the U.S. Consumer Financial Protection Bureau and worried about the agency’s ability to put the tribal lending industry out of business. The federal agency was leaning hard on loan operations that formed alliances with tribes to claim sovereign immunity and bypass state laws that protect consumers.

“Bottom line is, this business will simply not exist in 2 to 3 years anything like it does right now,” Martorello wrote.

But none of that came to pass. In the 12 years since, the tribal loans kept flowing, fueling a multibillion-dollar industry built on punishing loan terms aimed at people who can least afford them.

How did the industry survive?

continues....

Gern Blansten · January 3

It is rare but I run across some business owners that resort to predatory lending. It's unbelievable.

I have never seen it end up well. Once they go down that road they can't stop.

mickeyrat · January 3

Gern Blansten said:

It is rare but I run across some business owners that resort to predatory lending. It's unbelievable.

I have never seen it end up well. Once they go down that road they can't stop.

accepting those loans? at that point they question if they have the knowledge to run a business, no?

Gern Blansten · January 3

mickeyrat said:

Gern Blansten said:

It is rare but I run across some business owners that resort to predatory lending. It's unbelievable.

I have never seen it end up well. Once they go down that road they can't stop.

accepting those loans? at that point they question if they have the knowledge to run a business, no?

It's desperation...they get in a situation where they need $20K to meet payroll and just don't have it. But yeah...they lack the proper knowledge and/or planning.

I had a client that did flood restoration...basements, etc., and they would be waiting on insurance companies to pay them instead of being properly capitalized. Bad credit so bank won't touch them. They see it as a quick fix but it ends up being a hole they can't dig out of.

mrussel1 · January 3

Gern Blansten said:

It is rare but I run across some business owners that resort to predatory lending. It's unbelievable.

I have never seen it end up well. Once they go down that road they can't stop.

So this is the law of unintended consequences at work. I have significant experience with lending, including sub/mid prime lending and its major growth that took place in the late 90s.

Coming out of the financial crisis, there were two big changes to consumer financials services. First was the "Card Act" and second was the advent of the CFPB which is the most powerful regulatory industry in financials. The FDIC, OCC, OTS and other regulatory bodies now roll up underneath it. Between the Card Act and the actions of the CFPB through consent orders and other actions, they made it impossible for major banks to participate in subprime lending due to fee caps and other other actions. As a result, banks like Capital One exited subprime lending. So the market didn't disappear, the consumers still need access to credit. But they moved to tribal lending, payday loans and the like. And there are hundreds of these predatory lenders out there, many more than the CFPB can regulate. So rather than consumers paying moderately high fees with a recognized, regulated and professional bank like Capital One, the consumers are stuck going to these shit-bag lenders. The CFPB claims to help consumers, but they are actually screwing them. There are several more examples of the Bureau making these types of mistakes, which is why ofall of the Trump priorities, I'm good with this one.

Gern Blansten · January 3

mrussel1 said:

Gern Blansten said:

It is rare but I run across some business owners that resort to predatory lending. It's unbelievable.

I have never seen it end up well. Once they go down that road they can't stop.

So this is the law of unintended consequences at work. I have significant experience with lending, including sub/mid prime lending and its major growth that took place in the late 90s.

Coming out of the financial crisis, there were two big changes to consumer financials services. First was the "Card Act" and second was the advent of the CFPB which is the most powerful regulatory industry in financials. The FDIC, OCC, OTS and other regulatory bodies now roll up underneath it. Between the Card Act and the actions of the CFPB through consent orders and other actions, they made it impossible for major banks to participate in subprime lending due to fee caps and other other actions. As a result, banks like Capital One exited subprime lending. So the market didn't disappear, the consumers still need access to credit. But they moved to tribal lending, payday loans and the like. And there are hundreds of these predatory lenders out there, many more than the CFPB can regulate. So rather than consumers paying moderately high fees with a recognized, regulated and professional bank like Capital One, the consumers are stuck going to these shit-bag lenders. The CFPB claims to help consumers, but they are actually screwing them. There are several more examples of the Bureau making these types of mistakes, which is why ofall of the Trump priorities, I'm good with this one.

Interesting. But are these consequences more related to the CFPB having its legs cut off? It seems like the GOP attacked it every chance they got.

mrussel1 · January 3

Gern Blansten said:

mrussel1 said:

Gern Blansten said:

It is rare but I run across some business owners that resort to predatory lending. It's unbelievable.

I have never seen it end up well. Once they go down that road they can't stop.

So this is the law of unintended consequences at work. I have significant experience with lending, including sub/mid prime lending and its major growth that took place in the late 90s.

Coming out of the financial crisis, there were two big changes to consumer financials services. First was the "Card Act" and second was the advent of the CFPB which is the most powerful regulatory industry in financials. The FDIC, OCC, OTS and other regulatory bodies now roll up underneath it. Between the Card Act and the actions of the CFPB through consent orders and other actions, they made it impossible for major banks to participate in subprime lending due to fee caps and other other actions. As a result, banks like Capital One exited subprime lending. So the market didn't disappear, the consumers still need access to credit. But they moved to tribal lending, payday loans and the like. And there are hundreds of these predatory lenders out there, many more than the CFPB can regulate. So rather than consumers paying moderately high fees with a recognized, regulated and professional bank like Capital One, the consumers are stuck going to these shit-bag lenders. The CFPB claims to help consumers, but they are actually screwing them. There are several more examples of the Bureau making these types of mistakes, which is why ofall of the Trump priorities, I'm good with this one.

Interesting. But are these consequences more related to the CFPB having its legs cut off? It seems like the GOP attacked it every chance they got.

No, the CFPB has plenty of firepower and authority. They are self-funded through their consent orders. They are a regulatory body full of attorneys. All attorneys, both on Enforcement and Regulation. They misunderstand lending, fundamentally. Let's go back to the Cap One example because it's so easy to see. Cap One would lend $500 wiith a $59 AMF day one, and fees at $39. The charge off rate is so high that in order to make that loan, you have to get that $59 right away. When the CFPB killed that, it made the whole business untenable. You can't make enough in interest to overcome charge off rates at 10%. Doesn't work. So they exit the market. The Bureau never believed they would do it. But it's your only choice.

Gern Blansten · January 3

mrussel1 said:

Gern Blansten said:

mrussel1 said:

Gern Blansten said:

It is rare but I run across some business owners that resort to predatory lending. It's unbelievable.

I have never seen it end up well. Once they go down that road they can't stop.

So this is the law of unintended consequences at work. I have significant experience with lending, including sub/mid prime lending and its major growth that took place in the late 90s.

Coming out of the financial crisis, there were two big changes to consumer financials services. First was the "Card Act" and second was the advent of the CFPB which is the most powerful regulatory industry in financials. The FDIC, OCC, OTS and other regulatory bodies now roll up underneath it. Between the Card Act and the actions of the CFPB through consent orders and other actions, they made it impossible for major banks to participate in subprime lending due to fee caps and other other actions. As a result, banks like Capital One exited subprime lending. So the market didn't disappear, the consumers still need access to credit. But they moved to tribal lending, payday loans and the like. And there are hundreds of these predatory lenders out there, many more than the CFPB can regulate. So rather than consumers paying moderately high fees with a recognized, regulated and professional bank like Capital One, the consumers are stuck going to these shit-bag lenders. The CFPB claims to help consumers, but they are actually screwing them. There are several more examples of the Bureau making these types of mistakes, which is why ofall of the Trump priorities, I'm good with this one.

Interesting. But are these consequences more related to the CFPB having its legs cut off? It seems like the GOP attacked it every chance they got.

No, the CFPB has plenty of firepower and authority. They are self-funded through their consent orders. They are a regulatory body full of attorneys. All attorneys, both on Enforcement and Regulation. They misunderstand lending, fundamentally. Let's go back to the Cap One example because it's so easy to see. Cap One would lend $500 wiith a $59 AMF day one, and fees at $39. The charge off rate is so high that in order to make that loan, you have to get that $59 right away. When the CFPB killed that, it made the whole business untenable. You can't make enough in interest to overcome charge off rates at 10%. Doesn't work. So they exit the market. The Bureau never believed they would do it. But it's your only choice.

Crazy...

So who is dropping the ball on regulating the predatory lenders? Congress?

Business owners would be better off going under immediately instead of allowing the predators to stretch it out.

mrussel1 · January 3

Gern Blansten said:

mrussel1 said:

Gern Blansten said:

mrussel1 said:

Gern Blansten said:

It is rare but I run across some business owners that resort to predatory lending. It's unbelievable.

I have never seen it end up well. Once they go down that road they can't stop.

So this is the law of unintended consequences at work. I have significant experience with lending, including sub/mid prime lending and its major growth that took place in the late 90s.

Coming out of the financial crisis, there were two big changes to consumer financials services. First was the "Card Act" and second was the advent of the CFPB which is the most powerful regulatory industry in financials. The FDIC, OCC, OTS and other regulatory bodies now roll up underneath it. Between the Card Act and the actions of the CFPB through consent orders and other actions, they made it impossible for major banks to participate in subprime lending due to fee caps and other other actions. As a result, banks like Capital One exited subprime lending. So the market didn't disappear, the consumers still need access to credit. But they moved to tribal lending, payday loans and the like. And there are hundreds of these predatory lenders out there, many more than the CFPB can regulate. So rather than consumers paying moderately high fees with a recognized, regulated and professional bank like Capital One, the consumers are stuck going to these shit-bag lenders. The CFPB claims to help consumers, but they are actually screwing them. There are several more examples of the Bureau making these types of mistakes, which is why ofall of the Trump priorities, I'm good with this one.

Interesting. But are these consequences more related to the CFPB having its legs cut off? It seems like the GOP attacked it every chance they got.

No, the CFPB has plenty of firepower and authority. They are self-funded through their consent orders. They are a regulatory body full of attorneys. All attorneys, both on Enforcement and Regulation. They misunderstand lending, fundamentally. Let's go back to the Cap One example because it's so easy to see. Cap One would lend $500 wiith a $59 AMF day one, and fees at $39. The charge off rate is so high that in order to make that loan, you have to get that $59 right away. When the CFPB killed that, it made the whole business untenable. You can't make enough in interest to overcome charge off rates at 10%. Doesn't work. So they exit the market. The Bureau never believed they would do it. But it's your only choice.

Crazy...

So who is dropping the ball on regulating the predatory lenders? Congress?

Business owners would be better off going under immediately instead of allowing the predators to stretch it out.

There are two problems. First, only LMPs are technically in scope. This stands for Large Market Providers. Now the CFPB has the authority to go deeper, but it's technically not their mission today. Second, this is a very disaggregated market. There are hundreds of them and the Bureau does not have the resources to manage them. It's much easier to regulate the Mercury Card, Mission Lane and other more national FinTech's that do this today, but frankly struggle to be profitable because they are not banks so their cost of credit is higher than a Cap One.

BTW, my commentary is all about consumer lending, not B2B. Sounds like you are seeing this on the commercial side. I have seen more problems with merchant cash advance in B2B.