First of all, bravo for staying on topic.
I agree with Ken that regulatory agencies want to license all lending so that they have something to revoke if/when there are complaints. Otherwise they will not “protect” the consumers. In the same way, they are going to be too busy to take any action until your customers complain.*
Predatory lending is definitely on the radar screen of both legislators (federal and otherwise) and regulators (ditto). But right now I think it is going to focus on the used-auto and pawn-shop type abuses. The fees & interest in these cases are sums that would make you and me ashamed, when stated as a percentage of the loan amount. On the other hand, dealing with people is expensive, so there is some hassle even if you’re lending $100. If you charge $5 for that hassle, suddenly that’s 5% bump in the interest rate. And, by the way that’s due in 2 weeks so multiply by 26. (26 2-week periods in a year).
My father went to Ken Rishel’s captive finance workshop and I think he learned a lot. We set up a captive finance company, my wife got her MLO license (it is really not that difficult – but you have to do your continuing education 8 hours or 40 or whatever it is per year) and we are trying to stay legal and offer “real” mortgages. If we get haled into court it will be a case of “if it smells like a dog and acts liked a dog, then it’s a dog.” “Sorry Judge, what did we do wrong?” **
UDAAP is on the brain when we decide how to treat our customers. Many of them will fail to meet our standards and/or requirements (like, paying on time and not being a menace). We want them kicked out. We have to be able to stand in front of a judge and say, “we’re the good guys in this situation” and point to defendant and say, “here’s why they’re the bad person.”
To me, RTO, L/O, and rent-credit abuses are all similar to mortgage abuses and the government rightly should lump all that together. But I really believe you only get in trouble if you abuse people. Otherwise you’ll get, at worst, a scolding.
On the other hand, if you want to split hairs and worry about the difference between disguised mortgages and whatever else you’re doing then fine, but it’s probably an academic exercise. Let me know when you’re in court.
Doing things the “right” way is always more expensive but it’s the right thing to do. How far you stretch in that direction is up to you.
- It might be your competitors that complain. Is what you’re doing fair to them?
** Ken talks often of the regulators because they’re the first line of defense and not a lot of this has been tested in court. The regulators are going to focus on the cases that they can win – to prove a point. Once they get it “on record” that what you’re doing is tsk-tsk-tsk not allowed, it’s supposed to scare everyone else into compliance.
Who knows who the regulators are going to chase after? It’s let-us-say impossible to be perfect. You can always be “picked on” if someone’s out to get you. So stay off their radar screen by conducting business in a way that doesn’t piss people off.
That’s my philosophy, anyway.
I should add, to be fair, that I understand what Ivan is reacting to. @RishelConsultingGroup is a business of telling people how to navigate the regulatory schema in the financing/lending area. Telling people to “watch out” is no bad thing, but that’s his business. So I take the urgency with some grain of salt. On the other hand, I can afford to sit back because I think we’re the “good” hats because we’re at least trying to be on the right side of things.