There’s PANIC in the streets

 ONLINE payday lenders are running scared.  If you’re in a Storefront, and you don’t closely follow the news, you probably missed all the excitement.
On July 22, the FTC issued a ruling that even Indian Tribes are subject to FTC regulations on Payday Loans.
On August 12, New York Attorney General Eric Schneiderman sued an ONLINE lender for making Internet Loans to the people in the State of New York.
The BIGGEST impact was from a statement on AUG 9th that regulators and BANKS will cut off ACH access to Payday Lenders.  This is absolutely huge.
The ACH systems (direct deposit/ debit) allows many different industries to have AUTHORIZED access to peoples accounts.  This is actually a very nice system.  It’s fast.  If you make a deposit before 8:00pm, it will appear into the customers’ account the very next morning.  It’s almost as fast taking payments.  Usually  you have confirmation of payment within a few days.  They’re calling for a ban on ACH use by a specific industry (US!).
ACH transfers work well, have excellent reporting, and there is a low transaction cost.  RETURNED items cost very little.  Ten cents per transaction, maybe $0.75 for a bounce.
Few of the smaller storefronts use much ACH.  Mostly it’s used as a collections tool.
But if you’re ONLINE, this is massive.  The regulators are cutting you off at the knees.  There is no comparable service available that can do the same things.  Many operators are simply shutting down until they see what happens.  LEAD cost is PLUMETTING.
These lenders are calling me, and my consulting team.  “What do we do?”
First?  Relax.  Payment vendors are scrambling, and there are already a handful of viable options.  Large lenders, and especially the TRIBES are taking this on directly through the court systems.
The point of this article isn’t to address this specific crisis.
We are in an unpopular industry.  We are ALWAYS under attack from lawyers, consumer action groups, banks, politicians, and of course deadbeat customers.
We’re always under attack, and you should always be prepared.
 I worked with a smaller online operator.  My first day there, I STRONGLY recommended they open a second ACH account.  Just in case.  ACH vendors have rules and compliance issues.  If they get a bad audit, or one of their clients violated a rule, then they will close any high risk accounts.  That’s what happened to this group.  It was a newer operation, and they had a lot of returns.  With NO warning, their ACH was cut off.  As the management team scampered to establish a new vendor relationship, the portfolio went STALE.  It took 29 days to get going again.
An ACH account costs a few hundred dollars to setup and if not used much?  Maybe $80 per month.  To save this money, this group lost HUNDREDS of thousands of dollars.  PLUS, the customer relationships were corrupted.
KEY POINT:   You should have multiple product lines.  You should have multiple bank accounts.  Multiple ACH accounts.  You should have DOZENS of websites.   If you’re bigger, have operations in multiple States.
Let’s do a case study:
Western Sky is an online Payday Loan operator.   He just fired 150 employees and is closing shop.   What went wrong?
1:  He’s a MEMBER of a tribe.   A properly organized lending operation is actually owned by a TRIBAL entity.  Just being in the Tribe doesn’t give you the same protection.
2:  The operation was TOO visible.  He created a brand name with T.V. commercials.  Good for marketing, but you’re creating an easy target for yourself.
3:  He picked a fight with State Attorney Generals.  Remember, they’re fighting you with unlimited resources AND they have the “public” on their side.
When we work on crafting a new venture, or when our team goes into an ongoing operation, we always ask “what if?”
What if the State changes the Law?
What if your ACH provider drops you?
What if your bank drops you?
What if there is a major lawsuit?
What if your primary product goes away tomorrow?
What if your collections department is violating the law?
What if you have some Consumer agency after you?
What are your plans?  Can your business adapt?
Miro Posavec
Comments ( 13 )
  • Prineta says:

    As a well-connected and experienced payment consulting firm, we’ve been hearing about lenders getting cut off from ACH so we set out to find a solution. For our clients in the payday, signature, and title loan industry, they have to find an ACH alternative or they risk going out of business. Fortunately, we were able to find what we believe is actually even better than ACH. Clients are able to send and receive money same day or next day to and from nearly any US bank account using online portal that supports recurring billing for auto-pay plans. Hint – Payday Mailer and Shawn Noel are onto something. Details can be found here: http://prineta.com/new-ach-alternative-for-lenders/

    • Sam says:

      Prineta.com looks interesting.

      • Prineta says:

        We do the eCheck21 processing but we also do high risk ACH accounts for lenders (brick and mortar, “choice of law”, and tribal).

        One of the strategies that we recommend to clients is to use eCheck bundled with a “Consolidated Returns” product that eliminates NSFs (so it doesn’t damage your depository banking relationship) and then after customers have proven to be reliable you can switch them to ACH.

        Then for larger clients, we help set up automated load balancing through a single front end gateway across multiple ACH accounts to hedge anything going bad at one processor and get around volume cap limits.

        Here is a link to our page about ACH processing.

  • Frank Denish says:

    I was shut down out the blue myself. I lost 2 weeks and half my hair trying to find a new ach alternative. I checked into of shore and tribal options but my accountants highly recommended I stay within US borders. I search day and night and no one would touch me. The few that would talk to me wanted huge percentiles I felt like I was being robbed with no options. Luckily a friend in a similar situation hooked me up with this site http://achpaydayloans.com/. two days later I was back up and running. They hooked me up with an ach provider in the US and they “claim” to have off shore ACH ready when its needed. I hope for the best
    Franky D

  • Franky D says:

    I received the ridiculous cut of letter and was out cold for over two weeks. I tried Google wallet and did not like it at all. I was recommended this site http://achpaydayloans.com/ and tried it they found me a US based ACH provider within 24 hours and they affordable. Most ACH options I found wanted 5-10%….Anyway I am still looking for a back up but it’s been 2 months now and I’m pretty happy with my current provider.

  • Payday Mailer says:

    Thanks for sharing the best insight and deep mechanical knowledge of the industry i have found online.

    Going through the August 2013 regulatory assault immediately made me think of the old paper draft check system. i quickly laughed it off and thought about the operational shift of printing stacks of checks to deposit as being prohibitive; plus the regulators would simply find another tact to attempt an industry shutdown. This whole ACH squeeze is like being attacked by Chicago mobsters.
    The CFPB, is waiting around the corner for round 2 against the industry. It’s a reincarnation of the EPA bureaucracy for the consumer finance industry that has been carefully crafted via Dodd Frank to not affect any of the big card issuing or depository banks that already own the country’s political and financial system.

    But really, what adaption is going to keep things going while the big boys go to battle in washington and NY for the regulation model?

  • Sam says:

    Joe. You make an interesting point. I think that the regulatory and compliance environment do create a barrier to entry. BUT, if you want to go ONLINE only. you have to have deep pockets anyhow.
    I’ve seen guys with $500k crash and burn in an online operation. They ran out of cash, just as it was picking up steam.

    If you’re small, you have to go store front. You can do a small store with $100k. EASY.

    I’m a HUGE advocate of a hybrid model. Some store fronts and online. The online expands the reach of the stores, the stores provide credibility and TRUST to the online.

    Nimble. We preach being ready. Being flexible. If you’re operating right now. One day a week should be spent doing research on “what’s next?!”


  • Joe says:

    This article shows that there is still an opportunity for existing and stable PDL businesses to thrive as the barrier for new entrants increases.

    The message I get from reading the first part of the article is “the industry is dying”. (I know…this is what’s been said for the past 10 years; The difference is that there people hellbent on making this happen). In my opinion, the only ones that can battle the constant regulation adds/changes are well-funded PDL lenders. The cost of compliance (or getting around them) for new entrants is just too high.

  • Shawn Noel says:

    Looks like we are going to have to go back paper drafts or Check 21.

    We printed millions of checks from 1990 to 2000 before NACHA allowed TEL and WEB entries.

    It has come full circle.

  • Frank says:

    Nice article Jer. Agree 100% with your recommendation of having multiple ACH providers as well as model types (Tribal, Offshore, etc). But, curious where that $.10 transaction fee is.

  • Jer - Trihouse says:


    WELL DONE!! Crystal clear! You must have read bank 3.0 :o) We’ve got an alternative to ACH, EFT, non-banked consumers… As you point out, lenders need visionaries – like yourself – and options for $$ delivery systems. Keep up the great work! Jer – Trihouse

    • Sam says:

      60 million AFS consumers in the U.S. 30 million unbanked consumers as well. The “game changer” is the answer. One more option to deliver $$ and place the lender at the front of the line to be paid.

The comments are now closed.