How the CFSA Best Practices Promote Ethical Payday Lending
Since 1999, the Community Financial Services Association (CFSA) has served as the national trade organization for companies that provide small, short-term payday advances, as well as the vendors and suppliers who partner with these lenders. Formed to promote nationwide availability of short-term credit backed by robust consumer protections, the CFSA now includes among its members more than half of all payday advance providers. Each of these member companies must make an annual pledge to adhere to the CFSA Best Practices, a set of requirements that safeguard consumer rights by upholding strong self-governance of the industry and the ethical operation of payday lenders.
CFSA’s board of directors and government relations teams work in close collaboration with legislators to develop sensible laws regulating the industry, and both federal and state policymakers have publicly acknowledged the organization’s Best Practices. Covering areas ranging from transparency and consumer awareness to proper procedures for handling late payments, the CFSA Best Practices ensure that customers engaging in transactions with a CFSA member company receive best-in-class standards of service.
Separating CFSA Members from Non-Members
The most basic of CFSA’s Best Practices requires member companies to display the CFSA Membership Seal in a clear and conspicuous location at all retail stores. The lenders who offer loan services online must also place the seal on their website. When used in this manner, the seal acts as a distinct, uniform marker by which consumers can readily distinguish CFSA member companies from unaffiliated providers, which may not guarantee compliance with the association’s high consumer protection standards and responsible business guidelines.
Regulatory Compliance and Full Disclosure
Various federal and state laws regulate the payday advance industry, and CFSA members are bound by the Best Practices to obey all of these statutes, including those restricting fees and rates that can be charged for payday loans. Among the federal laws affecting payday advance providers are Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission rules that ban false and deceptive acts, as well as the CFPB-administered Regulation B, which prohibits lenders from unfairly discriminating against consumer loan applicants on the basis of characteristics other than creditworthiness.
In states that sanction payday advance services, CFSA members comply with state licensing standards, fulfill thorough audits, and undergo consumer protection inspections. Generally, state laws dictate the various conditions of payday transactions allowable in their jurisdiction, from restricting the principal amount of a loan to limiting the number of times a borrower may renew an advance. Along with maintaining licenses in all states where they operate retail locations, CFSA members must obtain licenses and adhere to the laws in any state where they provide payday advance services online, except when the applicable registrations and rules are either superseded by federal law or not required by the state.
CFSA members also operate in accordance with disclosure mandates established by the states in which they do business and those set forth by the federal government, such as the federal Truth in Lending Act. Under these full disclosure requirements, contractual agreements between lenders and their customers have to completely describe all provisions of the transaction, and the dollar amount charged for the service must also be given as an annual percentage rate. Furthermore, the CFSA requires members to post their service terms on large, in-store displays, or for Internet providers, in highlighted sections of their website.
Returning an Unneeded Loan
Sometimes the recipient of a payday advance determines that they do not wish to use the loan they have acquired. Accounting for these occurrences, the CFSA ensures that all consumers who have borrowed from one of its member companies reserve the right to cancel their loan at no cost. Customers need only to return the full principal amount before the close of the first day after taking out their loan, and they may annul the agreement without any accrued interest or additional fees due.
Refinances, Collections, and Extended Payment Plans
Seeking to discourage the irresponsible use of payday advances, the CFSA also restricts its members from allowing customers to pay only a fee on the due date of their loan and put off full repayment. Known as a refinance or rollover, these deferred payments result in exorbitant expenses for the consumer, and CFSA affiliates are prohibited from engaging in this practice except in states where it is explicitly sanctioned. In those states, CFSA companies offer no more than four rollovers or, if it is lower, the state limit.
When a borrower has failed to meet the payment obligation of their agreement with a CFSA affiliate, the Best Practices bar lenders from threatening or advancing criminal prosecution against the customer. Similarly, member companies agree not to take recourse to illegal methods of harassment or intimidation to collect payment on past due accounts. CFSA companies instead pursue collections in alignment with the Fair Debt Collection Practices Act as it is implemented by the Federal Trade Commission.
As a means of preventing excessive rollovers or loan defaults that result in initiation of the collections process, CFSA members are obligated by the Best Practices to offer an extended payment plan (EPP) to customers who are unable to repay their advance on the original due date. This option is available to borrowers for no added charge, so long as they request the EPP by the end of the last business day preceding the date on which their loan payment is due. CFSA provides an EPP that extends full payment of the advance over four equal, periodic installments, but in states that have enacted their own EPP provisions, CFSA follows state guidelines.