CFPB Examination - Module 3: Payment Processing and Sustained Use

Over the last couple of weeks I’ve covered the details surrounding Module 1, Marketing, and Module 2, Application and Originations, of the Consumer Financial Protection Bureau.  And now it’s time to move on to Module 3, Payment Processing and Sustained Use.  The CFPB regularly reviews the procedures and accounts of payday lenders to ensure businesses are following fair and ethical lending practices. Online short-term lending falls under the scope of the CFPB, and one of the areas that will be reviewed is payment collections and processing. If you own an online short-term lending business, here are a few areas the CFPB is going to look at. Payment Processing and Posting The reviewer will want to see that you have fully disclosed your payment processing procedures. This includes whether or not you convert customer checks to electronic transactions and how much you may charge in returned check fees. The reviewer will also check to see that all payments are posted accurately and timely. It is essential that you have efficient account posting procedures in place and a QA check to ensure accuracy. Use of EFT If you use electronic funds transfers to accept payments in any way, you must follow local, state and federal guidelines for this practice. This includes disclosing all related fees, utilizing a secure portal and protecting consumer financial information. Sustained Use and Roll Overs Some online short-term lending companies offer roll over options for customers who cannot pay the loan off at the required date. This could involve the customer paying a fee to extend the due date or another online short-term lending transaction where the customer borrows money to pay off the first loan. These transactions may be illegal in some states, so the CFPB reviewer will want to see that your company complies with local regulations. In addition, the CFPB will review your online short-term lending roll over policies to ensure all extra loans comply with the Equal Credit Opportunity Act and fair credit procedures. It is important that you treat extensions and secondary loans with the same care you use on the first loan.