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?