MONEY Debt

Federal Consumer Agency Proposes New Rules for Payday Loans

New rules could require payday lenders to verify that customers can afford to repay their debt before allowing them to take out a loan.

Payday loan borrowers may finally be in for some relief. On Thursday, the federal Consumer Financial Protection Bureau released the outlines of new proposals that would impose restrictions on various high-interest lending products, including payday loans, which the bureau defines as any credit product that requires consumers to repay the debt within 45 days.

The proposals also contain new rules for longer-term loans, such as installment loans and car title loans, where a lender either has access to a borrower’s bank account or paycheck, or holds an interest in their vehicle.

The CFPB’s actions come as high-interest lending products have been receiving increasing scrutiny for trapping low-income borrowers in a cycle of debt. Payday loans, which typically last around 14 days, or until the borrower is expected to get his or her next paycheck, technically charge relatively low fees over their original term. However, many payday borrowers cannot afford to pay back their debt in the required time frame and must “roll over” the previous loan into a new loan.

As a result, the median payday customer is in debt for 199 days a year, and more than half of payday loans are made to borrowers who end up paying more in interest than they originally borrowed. Longer-term auto-title loans and installment loans have been criticized for similarly locking consumers in debt.

In order to protect borrowers from falling into such “debt traps,” the CFPB’s proposals include two general strategies for regulating both short- and long-term high-interest loans. For payday loans, one “prevention” alternative would require lenders to use the borrower’s income, financial obligations, and borrowing history to ensure they had sufficient earnings to pay back the loan on time.

Any additional loans within two months of the first could only be given if the borrower’s finances had improved, and the total number of loans would be capped at three before a 60-day “cooling-off” period would be imposed. Payday shops would also have to verify consumers did not have any outstanding loans with any other lender.

A second “protection” alternative would not require payday lenders to ensure their customers could repay their loan without further borrowing, but instead imposes a series of restrictions on the lending process. For example, under this plan, all loans would be limited to 45 days and could not include more than one finance charge or a vehicle as collateral.

Additionally, lenders would have offer some way out of debt. One method could be a requirement to reduce the loan’s principal to zero over the course of three loans, so nothing more would be owed. Another option is a so-called “off-ramp” out of debt, which would either require loan shops to allow consumers to pay off debts over time without incurring further fees, or mandate that consumers not spend more than 90 days in debt on certain short-term loans in a 12-month period. The “protection” alternative would also include a 60-day cooling-off period after multiple loans and a ban on lending to any borrower with outstanding payday debt.

The bureau has proposed similar “prevention” and “protection” options for loans that exceed 45 days. The former would require similar vetting of a borrower’s finances before a loan is given. The latter would include a duration limit of six months and either limit the amount that could lent and cap interest rates at 28%, or mandate that loan payments take up a maximum of 5% of a borrower’s gross monthly income, in addition to other regulations.

Apart from new regulations on the loan products themselves, the CFPB also proposed new rules regarding collection. One regulation would require lenders to give borrowers advance notice before attempting to extract funds from their bank accounts. A second would attempt to limit borrowers’ bank fees by limiting the number of times a lender could attempt to collect money from an account unsuccessfully.

Before any of the any of these proposals can become a bind rule, the bureau says it will seek input from small lenders and other relevant stakeholders. Any proposals would then be opened to public comment before a final rule is released.

The Consumer Financial Association of America, a national organization representing short-term lenders, responded to the proposals by stressing the need to keep credit available to unbanked Americans, even while increasing consumer protections.

“CFSA welcomes the CFPB’s consideration of the payday loan industry and we are prepared to entertain reforms to payday lending that are focused on customers’ welfare and supported by real data,” said association CEO Dennis Shaul in a statement. But, Shaul added, “consumers thrive when they have more choices, not fewer, and any new regulations must keep this in mind.”

The Center for Responsible Lending, a nonprofit organization dedicated to fighting predatory lending practices, released a statement in general support of the CFPB’s proposals.

“The proposal endorses the principle that payday lenders be expected to do what responsible mortgage and other lenders already do: check a borrower’s ability to repay the loan on the terms it is given,” said Mike Calhoun, the center’s president. “This is a significant step that is long overdue and a profound change from current practice.”

However, Calhoun said, the “protection” options were grossly inadequate, calling them “an invitation to evasion.”

“If adopted in the final rule, they will undermine the ability to repay standard and strong state laws, which give consumers the best hope for the development of a market that offers access to fair and affordable credit,” Calhoun added. “We urge the consumer bureau to adopt its strong ability to repay standard without making it optional.”

According to the center, 21 states, including the District of Columbia, have significant protections against payday lending abuses. An interest-rate cap, which lending activists say is the most effective means to regulate payday lending, has been adopted by 15 states.

Earlier this month, MoneyMutual, a lead generator for payday loan products, was fined $2.1 million by the state of New York for advertising loan products with illegally high interest rates. According to New York law, unlicensed payday lenders cannot charge an interest rate over 16% per year, and licensed lenders are subject to a cap of 25%. MoneyMutual has acknowledged it advertised loans with an annual percentage rate between 261% and 1,304%.

 

MONEY Food

One Image That Shows Just How Insane the Kraft Heinz Empire Will Be

That's a lot of food.

Now you can buy your ketchup and Cheez Whiz from the same company.

On Wednesday, Kraft Foods Group and H.J. Heinz Co. announced they would merge to form the world’s fifth largest food company. In addition to creating a massive global food conglomerate, this combination will put an absurd number of household brands under the same roof. Below, we’ve compiled an image of all the brands the new Kraft Heinz Company will own.

If it seems like we’re missing a few Kraft staples, like Oreos, Ritz, and Tang, that’s because those products were consolidated into a new company, Mondelēz International, when Kraft spun off its snack business from its North American grocery business in 2012. Because of that spinoff, exactly who owns what is a little confusing. For example, both Kraft and Mondelez include Philadelphia cream cheese on their brand pages, possibly because of a royalty agreement between the two corporations. In compiling our image, we used any brand listed by Kraft or Heinz on their respective websites.

Heinz and Kraft brands
Money

Click here for the full-size image.

MONEY retirement planning

This Is the Best State for Retirement

Historic buildings on Lincoln Highway, West 16th Street in downtown Cheyenne, Wyoming
Ian Dagnall—Alamy Historic buildings on Lincoln Highway, West 16th Street in downtown Cheyenne, Wyoming

No, it's not Florida.

If you could choose any place in America to retire, which locale would be best? Florida perhaps? Or somewhere with a lot of culture, like New York or San Francisco? Not according to one new report, which finds the best U.S. state for retirees is…Wyoming.

According to Bankrate’s annual “Best and Worst States to Retire” ranking, released on March 23, the “Equality State” state is the best place for seniors to settle down. The ranking is based on six different factors—cost of living, crime rate, community well-being, health care quality, tax rate, and weather—and weights the importance of each using a national survey on what Americans value in retirement.

Arkansas comes in last, with poor marks in everything but living expenses, while Wyoming gets the crown for its top-10 low crime and good weather, low tax burden, and a cost of living and well-being scores in the top 20.

Wyoming’s biggest weak spot? Health care, where the state comes in a humble 37. Minnesota, the state ranked as has having the best healthcare in the country, is listed number 11 overall.

That might make some readers balk, but Chris Kahn, who has spearheaded the report for years, has become accustomed to criticism.

“I get a lot of letters saying this should be most important, that should be most important, there isn’t consensus there,” says Kahn. “I guess the one thing I’ve learned from all this is I’m never going to make a ranking that’s going to please everyone.”

Related: MONEY’s Best Places to Retire

If critics don’t like the list, they have only their fellow Americans to blame. Respondents to Bankrate’s survey ranked health care third on the list of retirement location priorities, behind crime and cost of living. In another surprise, more people (40%) said they would rather live near mountains, rivers, and other outdoor recreation than said they wanted access to a beach (25%), and only a quarter of respondents said being close to family was the most important factor in deciding where to retire.

“I consider this ranking a conversation starter,” says Kahn. “Don’t just go where you think you ought to go or where you had a good vacation. You should really be thinking about things like the cost of living, the health care system, the taxes—all that data is out there.”

Here’s the full list:

State Overall rank Cost of living Crime rate Community well-being Health care quality Tax rate Weather
Wyoming 1 19 5 20 37 1 8
Colorado 2 30 25 6 14 19 3
Utah 3 7 22 19 7 23 6
Idaho 4 3 2 27 21 27 7
Virginia 5 22 4 15 13 21 10
Iowa 6 11 12 4 5 22 39
Montana 7 27 19 8 24 13 9
South Dakota 8 26 11 31 15 3 29
Arizona 9 32 41 2 22 17 5
Nebraska 10 9 20 16 11 26 21
Minnesota 11 33 15 5 1 45 48
Maine 12 38 3 28 4 37 27
North Dakota 13 29 10 23 16 15 43
Kansas 14 10 32 13 25 25 17
Vermont 15 41 1 3 10 42 35
New Hampshire 16 39 7 17 6 7 49
Wisconsin 17 25 13 21 3 46 46
Massachusetts 18 43 21 22 2 40 11
Delaware 19 37 42 7 8 36 18
Michigan 20 18 29 14 17 30 45
Pennsylvania 21 34 16 36 23 41 22
Washington 22 36 36 9 19 24 40
Texas 23 14 38 37 41 4 23
North Carolina 24 28 33 30 30 34 19
South Carolina 25 24 48 26 35 (tie) 9 16
Illinois 26 21 24 32 32 38 36
Nevada 27 35 44 45 43 8 4
Florida 28 31 39 18 35 (tie) 20 28
Indiana 29 5 30 34 40 29 34
Tennessee 30 2 47 40 38 (tie) 6 24
California 31 46 31 10 34 47 2
Maryland 32 40 34 11 27 44 13
Georgia 33 15 35 33 42 16 20
Ohio 34 17 27 41 31 33 37
Alabama 35 12 43 35 33 10 41
Mississippi 36 1 23 44 47 11 42
New Mexico 37 13 50 38 48 14 1
Rhode Island 38 42 18 46 9 43 12
Connecticut 39 48 6 24 12 48 14
Oklahoma 40 4 40 29 49 12 26
Oregon 41 44 28 12 29 35 31
Missouri 42 16 37 39 38 (tie) 18 38
Kentucky 43 6 9 49 45 (tie) 28 33
Hawaii 44 50 26 1 20 31 32
New Jersey 45 45 8 43 18 49 15
Louisiana 46 20 49 48 45 (tie) 5 44
West Virginia 47 23 14 50 50 32 47
Alaska 48 49 46 25 28 2 50
New York 49 47 17 42 26 50 25
Arkansas 50 8 45 47 44 39 30

Read next: The Complete Guide to Retiring Abroad

MONEY Odd Spending

How Much Do Street Musicians Make? More Than You Think

Brass band, Jackson Square, French Quarter
Kylie McLaughlin—Getty Images/Lonely Planet Image Brass band, Jackson Square, French Quarter

A San Francisco duo earns over $21 an hour busking on the street. But it's not quite as good a business as that number makes it seem.

Ever wonder how much people playing music on the street pull in? Speculate no longer.

Over at Priceonomics, Mark Sandusky, one half of the music duo The Dirty Little Blondes, has made his financials public. During 12.5 hours of performing, the pair made a total of $532, which works out to $21.22 per hour each.

Assuming a 40-hour work week, that’s an annual salary of $44,137. But before you quit your day job, know that even the pros can’t hit the streets and pull in that much cash every day. (And as the Sandusky notes, you’re not going to make any money if your music isn’t good.)

Sandusky has learned to pick his spots, performing on the streets of San Francisco, where the band is based, almost exclusively on Friday through Sunday and generally in the evening. The above revenue came over the course of an entire month, meaning any aspiring 9-to-5ers hoping for similar results are probably out of luck.

“It’s also not as if I can walk out on the street and make $21.22 an hour whenever I want,” the guitarist writes. “The big numbers all came between the hours of 5pm and 10pm on days before weekends or holidays. Even out of those 10 prime hours, we could only comfortably play 6 of them (3 a day) before our voices, fingers, and general energy level started to break down.”

How important is good timing? On their least lucrative Friday night, the Blondes made $98 in two hours. On their worst Monday afternoon, the group made just $3 in the same time period.

Sandusky recommends picking areas where your type of music is going to get the best reception, and cycling through multiple spots to make sure you don’t overstay your welcome. He’s not the only performer to discover the importance of location. Joshua Bell, the renowned violin soloist and conductor, tried busking in a busy Washington Metro station and was rewarded with only $32.

The Blondes‘ preferred venue? Next to a crosswalk, which grants at least 20 seconds of a captive audience.

Check out Sandusky’s entire post here.

MONEY payments

Facebook Will Lose Money on Mobile Payments—And Like It

Facebook on mobile phone
Anatolii Babii—Alamy

The payments business isn't very lucrative by itself, but Facebook has bigger plans.

This week Facebook became the umpteenth tech giant to enter the payments game, adding a feature to its messenger app that lets users send money the same way they would a send text. The move follows Snapchat, Apple, Samsung, and Google, all of whom announced new payment offerings over the past few months.

Digital transactions aren’t exactly a new idea, of course—Venmo launched in 2012, Google has let users send cash “attachments” since 2013, and Paypal was doing payments as far back as the 1990s.

But the flurry of new offerings suggests something’s afoot. What’s behind the sudden obsession with transferring cash?

If you’re thinking “Obviously, these companies all want to skim a little cash from every transaction in the universe and get even richer by doing so” you’re wrong—or at least mostly wrong.

The thing about running a payments service is that, even though a lot of money flows through your hands, it’s not easy to keep much for yourself. That’s because card-issuing banks, credit card companies, and other transfer services rely on minuscule transaction fees and turn a profit by doing so on a massive scale. “Making money on moving money requires volumes that are truly astounding,” says James Wester, a research director at IDC specializing in payments. “You have to move hundreds of billions of dollars and have millions and millions of transactions.”

So much so that many of the recent entrants in this business aren’t even trying to make money on transactions. Venmo, Square, and Snapchat don’t charge users a fee for sending funds and cover all the behind-the-scenes transaction fees themselves, which means they literally lose money on every transfer. (“They’re not generating revenue,” confirms Jordan McKee, a senior analyst at 451 Research.) Samsung, too, will forgo any fees on its own payment platform.

Due to its unique market power, Apple appears to be the exception to this rule, having convinced banks to share a cut of each Apple Pay transaction. But the fees will add up to a rounding error for the tech giant.

So if payments are a bad business, why does everyone want in?

The answer is that mobile payments are essentially a value-add that can make other products more desirable. Apple Pay was never meant to generate money but to help sell more iPhones.

The same logic applies to Facebook, and the company has been relatively open about how its payment service is primarily intended to make Messanger more popular. “We’re not building a payments business here,” Facebook’s payment product manager told TechCrunch. The goal is simply to make Messenger “more useful, expressive and delightful.”

Ditto for Snapchat, Samsung, et al, which “couldn’t care less about generating money off interchange,” says McKee. But by getting in the center of each transaction, he argues, their respective eco-systems become much “stickier” and thus better able to generate revenue other ways. “Once the consumer is comfortable using a particular payment network, you have other things you can then do,” explains Wester.

Those things could include getting data on how users spent their money, or even selling goods directly. Facebook already makes nearly $1 billion through e-commerce, and while most of that money comes from microtransactions in games like Candy Crush, the Times notes the company has been dabbling in a system that also lets merchants sell products on the Facebook platform.

That leaves just one more question: Why now? That is, why have all these companies pulled the trigger at the same moment? It may be that businesses have detected some kind of e-payments tipping point.

“I’ve been surprised it’s taken this long,” says Wester. “Now consumers are seeing the mobile device as part of their fiancial lives. We’ve reached the point where paying with your phone is completely normal, or normal to enough people.”

MONEY Federal Reserve

Is the Federal Reserve Talking Too Much?

Janet Yellen, chair of the U.S. Federal Reserve
Andrew Harrer—Bloomberg via Getty Images Janet Yellen, chair of the U.S. Federal Reserve

The Federal Reserve has become a model of transparency. Not everyone likes that.

The paradox of Wednesday’s Federal Reserve release is that good economic news has actually made Janet Yellen’s job harder than ever.

Since the housing crash, the U.S. economy has steadily climbed back (if frustratingly slowly) under the central bank’s policy of ultra low interest rates. The stock market and bond markets have surged and employers are finally hiring in large numbers again.

But eventually a strong economy means rates will have to come up in order to avoid inflation. And although inflation is very low now, most observers are betting that Yellen at least wants “lift off” from today’s near-zero short rates. So now the Fed faces the tricky task of telling Wall Street and businesses how and when it will “take away the punch bowl”—that is, bring monetary policy back to normal.

So far the market has reacted positively to the Fed’s latest signal, which dropped the all-important “patience,” but tempered that move by indicating any rate increase would be slower than previously expected. That said, interest rates will have to rise sometime, and when they do, Yellen and company will have to deliver a less-friendly message.

For the people who benefit from low interest rates—and that’s quite a large group, including investors who have bet on rates staying low—such a message will be hard to hear. When Ben Bernanke signaled that he would taper off another Fed stimulus, the bond-buying program called quantitative easing, would be scaled back, the market flew into a tizzy. The “taper tantrum” caused a big spike in long-term bond rates, which meant bond holders lost money. As The New Yorker‘s John Cassidy notes, the market’s overreaction even created international turmoil when investors, believing the Fed was radically changing course (it wasn’t) pulled their money out of emerging markets.

Events like this have led commentators like Cassidy to ask whether there’s such thing as too much transparency from the Fed, especially when unpopular decisions—like rate hikes—must be made. There’s certainly precedent for this line of thought. Paul Volcker, the Federal Reserve chair who famously fought choked off inflation in the early 1980s, essentially operated in secret while putting the economy through a series of painful interest rate increases. Wouldn’t it be easier if Janet Yellen could do the same, and avoid any unnecessary confusion?

James Paulsen, chief investment strategist at Wells Capital, certainly thinks so. “I would long for those days,” he says, referring to the pre-Bernanke era of a less open central bank.

Paulsen says the Fed’s primary method of influence is making people feel confident, and transparency has undercut that mission.

“They’ve gone overboard with all this mumbo-jumbo communications that is allowing everyone to see how the sausage is made,” Paulsen explains.

Ed Yardeni, president of Yardeni research, won’t go as far as endorsing complete secrecy, but agrees the Fed’s transparency efforts have gone too far. “I think there’s got to be some happy medium between no information and too much information, and right now we’ve got too much information and too much focus on the Fed,” says Yardeni.

He’s particularly concerned with the propensity for members of the Federal Open Market Committee to undercut the Fed’s official line. That kind of uncertainty can occasionally move markets, and Yardeni specifically referenced the so-called “Bullard Bounce”; a market rally that resulted from James Bullard, President of the St. Louis Federal Reserve, telling Bloomberg Business that he supported a delay in ending the Fed’s bond buying program.

“I’d be in favor of putting a gag order on members of the FOMC,” said Yardeni.

But while some experts decry an open Fed for creating chaos, others see transparency as the only way to avoid uncertainty and turmoil during a policy shift.

“They [the Fed] don’t want to shock the market,” says James Hamilton, a professor of economics at the University of California, San Diego. “People can over-react to a change and the Fed doesn’t really want that.” He believes Bernanke’s “taper tantrum” was not the result of too much openness, but rather proves the Fed needs to indicate its intentions even farther in advance.

And while the economist acknowledges that Volcker’s lack of transparency may have been beneficial when the situation required extreme measures, he maintains current rate hikes are minor by comparison, and don’t require such a dramatic lowering of the boom.

Tim Duy, an economics professor at the University of Oregon, goes even further, arguing a more transparent Fed is better in all cases. “I am at a loss to think that the Fed would ever find itself better off being opaque,” Duy told MONEY in an email. “Volcker, in fact, may have been better able to convince the public of his intentions, and thus speed the inflation adjustment, with greater transparency.”

But if there’s one thing everyone agrees on, it’s that the Fed’s penchant for publicity provides some decent entertainment value—at least for the people who follow it for a living.

“It’s great reality television,” says Paulsen.

MONEY

This One (Missing) Word From Yellen Could Change Your Finances

Federal Reserve Board Chair Janet Yellen
Alex Wong—Getty Images Federal Reserve Board Chair Janet Yellen

How less "patience" could change everything.

The news is in: The Fed dropped “patient” from its most recent statement, and that’s got financial pundits talking. Why is that one word so important?

Well, contrary to the impression you might be getting from the headlines, the Federal Reserve didn’t actually do much of anything today. Instead, the world is excited because the word “patient”—or in this case, the lack thereof—is being read as a coded signal about what the Fed will do some months down the road.

Specifically, everyone wants to know how patient Janet Yellen and her Fed colleagues will be before raising interest rates in the face of mounting positive economic reports. The conventional wisdom said that if the Fed dropped that word from today’s statement, it would mean that a rate hike could come as soon as June. And, indeed, “patient” was conspicuously absent from today’s statement.

Why does that matter to the average Joe? Because an interest rate hike is likely to have wide-reaching effects on your finances—some good, some bad. And even though the Fed won’t raise rates today, the market is likely to respond if it thinks an increase is incoming. So far the market has reacted positively because, while the Fed did remove the patient language, it also appeared more dovish about the economy, and signalled any rate change would be more gradual than previously expected. That said, higher rates are still really a matter of time, and it’s worth thinking about effect that would have.

Here’s what higher rates could mean for you:

  • Bond prices will go down and yields will go up. Higher interest rates mean higher bond yields, and a corresponding drop in bond prices. That’s good for anyone who is about to buy bonds and for those living on savings, who want their investments start throwing off more income. On the other hand, higher interest rates will decrease the value of current bond holdings.
  • The stock market may take a hit. Interest rates near zero have meant easy money for investors, and some argue this has inflated the stock market beyond justifiable levels. A rate hike would signal loose monetary policy is coming to a close, and that could put a chill on equities.
  • Savings and CDs will look better. If more risky investments are hurt by higher rates, the opposite is true with the really safe stuff. Savings accounts and CDs should start giving higher returns, and the difference between a checking and savings account may start to actually matter again.
  • Mortgage rates. Because the federal funds rate affects the price banks can borrow at, higher rates mean it’s more expensive for you to borrow as well. With interest rates near zero, mortgage rates are currently close to a historic low. If the Fed decides it’s feeling less patient, expect buying a home to get more expensive. And if you have an adjustable rate mortgage, you could see the size of your monthly payments start to increase.

One could be forgiven for wondering why the Fed would ever raise rates if it could cause this much turbulence. The truth is the Fed can’t let things run hot forever without causing even more problems. Low interest rates combined with a strong economy is a recipe for inflation.

The Fed also wants to make build up some ammunition to fight future economic battles: If interest rates remain are close to zero, they can’t be easily be lowered to spur a recovery if another crisis comes along. That’s why, ultimately, rates will have to go up at some point, and that will certainly require some getting used to. And when that does happen, patience will be a virtue.

MONEY Economy

Why This Fed Meeting Could Be a Game Changer

dollar sitting on fan of Euros
Dado Ruvic—Reuters

On Wednesday, the Fed may hint at raising interest rates for the first time in almost a decade. These three major issues will affect their decision.

Employment is up and economic growth is stronger, but that hasn’t made Janet Yellen’s job any easier. The Federal Reserve chair now has to decide how she’ll shift monetary policy out of crisis mode—the Fed has kept short-term interest rates near zero since 2008—and into something more like normal. All without breaking anything in the process.

That problem is the backdrop to the Federal Reserve’s Open Market Committee meeting on Tuesday and Wednesday. If early predictions are correct, the big news from the meeting may be that Yellen removes her pledge to be “patient” about possible interest rate hikes. If so, based on what Yellen has said about how she’ll signal a coming policy shift, the Fed could start raising its benchmark interest rate as early as June. That would ripple through the economy as lenders raise their own interest rates on loans.

But even before the Fed actually raises rates, any hint that it could raise rates will itself have an effect on markets, as investors and businesses try to get ahead of the trend.

In making this decision, the Fed faces three tough questions:

  • We have stronger economy—but is it strong enough to withstand higher rates? By many measures, the U.S. economy is doing quite well. Job growth has topped 200,000 per month for 13 straight months, and the unemployment rate has now fallen to 5.5%—four and a half points lower than at the height of the financial crisis. Yellen has previously promised to keep interest rates low until unemployment improved. Will she finally decide her job is done?
  • Does the rallying dollar change the game?. While a strong economy might make Yellen more comfortable about raising rates, an increasingly valuable dollar might push her in the opposite direction. America’s (relative) prosperity combined with Europe’s stagnation—and now looser money from the European Central Bank—has caused the euro to crash in value against the greenback. The EU’s currency recently fell to a 12-year low versus the dollar, making U.S. exports more expensive and potentially hampering future growth. Will the Fed decide to keep interest rates low for longer in the hopes of keeping the dollar competitive with the euro, or will the desire to normalize monetary policy win out?
  • Where’s the inflation? The reason to raise rates is to prevent a hot economy from igniting higher inflation. It might seem silly to worry about inflation when the dollar is the strongest it’s been in years and wage growth is all but nonexistent. That’s what economists like Paul Krugman and Lawrence Summers are arguing. On the other hand, lower unemployment suggests wages could rise in the near future, eventually pushing up prices. Although there is very little inflation right now, so-called inflation “hawks,” including some Federal Reserve regional bank presidents and members of the Fed’s rate-setting committee, think the central bank should act early to nip it in the bud.

We’ll know more about how the Fed is answering these questions on Wednesday, when the Fed announces it rate decision. Until then, “patience.”

MONEY payday lending

Payday Loan Company Endorsed by Montel Williams Is Fined for Misconduct

Television personality Montell Williams
Danny Johnston—AP

MoneyMutual will pay $2.1 million by State of New York for marketing illegal high interest loans to local customers.

MoneyMutual, a payday loan lead-generator endorsed by former talk show host Montel Williams, will pay a $2.1 million penalty for marketing illegal, high-interest online loans to New Yorkers, the New York State Department of Financial Services (DFS) announced on Tuesday.

Payday lending, the practice of issuing short-term loans at extremely steep interest rates, is illegal in New York State. Unlicensed payday lenders cannot charge an interest rate over 16% per year, and licensed lenders have their annual interest rates capped at 25%. In 2013, the state sent cease-and-desist letters to 35 online lenders making allegedly usurous loans, the majority of whom, authorities say, stopped doing business in the state.

MoneyMutual has acknowledged it advertised loans with an annual percentage rate (APR) of between 261% and 1,304% in New York. According to the DFS, the company also sold “leads” with the personal information of roughly 800,000 New York consumers.

In addition to marketing illegal loan products, MoneyMutual was criticized by the DFS for its use of Montel Williams as an endorser for the firm.

“Using Mr. Williams’s reputation as a trusted celebrity endorser, MoneyMutual marketed loans to struggling consumers with sky-high interest rates – sometimes in excess of 1,300 percent – that trapped New Yorkers in destructive cycles of debt,” said Benjamin Lawsky, New York’s Superintendent of Financial Services, in a statement.

According to the department’s investigation, media and sales representatives of Selling Source, which does business as MoneyMutual, “at times assured New York consumers that the lenders to whom it was selling leads were legitimate because ‘Montel Williams has endorsed MoneyMutual and would not do so if it were not a legitimate company.'”

Montel Williams has previously come under fire over the high interest rates of the payday loans he endorses. Two weeks ago, when confronted by a Twitter user who noted MoneyMutual loans had annual interest rates of 261% and above, Williams replied, “a 14 day loan has an ANNUAL percentage rate? Maybe get a grip on reality.”

As the Department of Financial Services noted in its sanction of Selling Source, payday lenders frequently “target” borrowers who cannot afford to pay off a short-term loan on time, trapping them in a cycle of debt. The federal Consumer Financial Protection Bureau found the median payday customer is in debt for 199 days a year and pays an effective interest rate of 130%.

A former Selling Source CEO told the department at least 55% of MoneyMutual customers are repeat clients. One study by the CFPB found four out of five payday loans are rolled over or renewed.

The DFS claims MoneyMutual’s “false and misleading advertisements” did not adequately warn consumers that the policies of its “network of trusted lenders,” including interest rates and payment schedules, hurt the ability of borrowers to repay their loans on time, resulting in customers either rolling over their loans or paying off prior loans with new ones.

The department’s investigation not only found MoneyMutual’s ads to be misleading, but discovered Selling Source targeted repeat clients, referred to as “Gold” customers, who the former Selling Source CEO stated could be more valuable if they took out new loans to pay off prior borrowing.

In a lengthy statement released to the press, Jonathan Franks, a spokesman for Montel Williams, emphasized his client’s innocence.

“The DFS has made no finding of a violation of law by Mr. Williams, and the agreement does not require him to pay any fines or penalties,” the statement reads. “Mr. Williams and his staff have cooperated fully with the DFS throughout the course of the investigation.”

Despite the DFS’s sanction, Franks says Williams has not withdrawn his support for MoneyMutual.

“We stand by his overall endorsement of Money Mutual, with the exception, pursuant to the Consent Order, of the State of New York,” wrote the spokesman.

Franks also maintained that while “Mr. Williams is not blind to the problems of the industry,” most customers were happy.

“As to New York, we note that during the period of time in which Mr. Williams has endorsed MoneyMutual, Mr. Williams has received less than 10 complaints directly from consumers,” wrote Franks. “All but one of those complaints was resolved to the consumer’s full satisfaction.

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