Common Payday Lending Compliance Issues

1. Common Payday Lending Compliance Issues Ronald D. Gorsline Michael J. McSunas Chambliss, Bahner & Stophel, P.C. 1000 Tallan Building, Two Union SquareChattanooga, TN 37402 www.cbslawfirm.com rgorsline@cbslawfirm.com mmcsunas@cbslawfirm.com 423.756.3000

2. NEW SHERIFF HAS COME TO TOWN

3. Equal Credit Opportunity Act � Reg. B Applications Adverse Action Notices Advertising Implications Generally a duty to inform customers of why they are denied credit. Also a duty to not discriminate against protected classes (i.e. race, gender, etc.) BIG RISK � Civil suits

4. Fair Credit Reporting Act � Reg. V FACTA Notice - Furnishing Negative Information Various Alerts � Fraud and Active Duty Generally a duty to accurately report information impacting a customer�s credit. Also a duty to notify customers the Company may report negative information. BIG RISK �

5. Red Flags - FACTA Companies adopt a Red Flag Policy Identify, Detect, Respond and Update Red Flag Policy must be approved by management Enforcement begins December 31, 2010. FTC link: http://www.ftc.gov/opa/2010/05/redflags.shtm. The FTC staff unlikely to recommend bringing a law enforcement action if entities know their customers.

6. Risk Based Pricing- FACTA Notice required when based on consumer�s credit report, creditor provides credit to the consumer on less favorable terms than it provides to other consumers.� Consumers who receive this �risk-based pricing� notice will be able to obtain a free credit report to check the accuracy of the report. Several methods for determining which consumers must receive risk-based pricing notices.� As an alternative to providing risk-based pricing notices, the final rules permit creditors to provide consumers who apply for credit with a free credit score and information about their score.� Enforcement begins January 1, 2011. FTC link: http://www.ftc.gov/opa/2009/12/rbpricing.shtm.

7. Furnishers Direct Disputes - FACTA Consumer gives notice of inaccurate information has furnished to Credit Reporting Agency, creditor must conduct a �reasonable� investigation, issue findings within 30 days, with one 15-day extension allowed. Disputes relate to: Consumer�s liability, for example, when the consumer has been the victim of identity theft or fraud. Terms of the credit account such as the principal balance, scheduled payments. BIG RISK � No Written Policy for Handling Disputes Enforcement begins July 1, 2010. FTC link: http://www.ftc.gov/opa/2009/07/facta.shtm FTC Action.

8. FACTA Compliance Blaming Software and Hardware Provider no Defense A restaurant that was sued for allegedly violating the Fair and Accurate Credit Transaction Act by failing to properly truncate payment card numbers on electronically printed receipts may not maintain a third party action against the firm that provided the credit and debit card transaction processing hardware and software used by the business Shurland v. Bacci Cafe & Pizzeria on Ogden Inc., N.D. Ill., No. 1:08-cv-02259, decision on the pleadings 9/24/10.

9. Gramm-Leach-Bliley Act � Reg. P Privacy Policy Privacy Notice Safeguarding Customer Information Customer Information Safety and Security Policy (CISSP) Generally a duty to safeguard Customer information, and Tell the customer how the Company is protecting the information. BIG RISK � No Written Policy for Handling a Loss of Customer Information Exposes Company to FTC Action.

10. Gramm-Leach-Bliley Act � Reg. P Federal Regulators Release Model Consumer Privacy Notice Online Form Builder � December 31, 2010 The model form is a standardized form, including page layout, content, format, style, pagination, and shading. To obtain safe harbor must follow instructions to modify it. The Online Form Builder is available at: http://www.federalreserve.gov/bankinforeg/privacy_notice_instructions.pdf

11. Gramm-Leach-Bliley Act � Reg. P Federal Regulators Release Model Consumer Privacy Notice Online Form Builder � December 31, 2010 The model form is a standardized form, including page layout, content, format, style, pagination, and shading. To obtain safe harbor must follow instructions to modify it. The Online Form Builder is available at: http://www.federalreserve.gov/bankinforeg/privacy_notice_instructions.pdf

12. EFTA, Reg. E, the NACHA Rules and Guidelines Cannot condition an �extension of credit� on a consumer�s repayment by preauthorized electronic fund transfers . . .. 12 CFR �205.10(e). Exemption for single installment loans. Cost incentives permitted to encourage electronic repayment of a loan. Customer must be given a non-electronic means of repayment. Must accurately identify the time and amount of the electronic debit of funds. BIG RISK � Civil Suit

13. ACH Transfers

14. Truth In Lending Act � Reg. Z Annual Percentage Rate and Finance Charge must be the most conspicuous. APR must also be accurate to 1/8 of 1%. Finance Charge accurate within $10 Also requires certain terms and disclosures in advertising. General purpose is to allow customers to shop for credit. Statute allows for civil and statutory damages BIG RISK � Class action claims and Agency actions can carry big dollar penalties.

15. Truth In Lending Act � Reg. Z APR calculation from Consummation or when finance charge begins to be earned. Security Interest Disclosure Multi-Installment Lending Open-end credit Free APR Calculator: http://www.occ.treas.gov/aprwin.htm Although great care has been taken in the preparation of this APRWIN program, the OCC makes no warranty of complete accuracy. Further, the OCC does not recommend this program over other methods to calculate annual percentage rate.

16. Fair Debt Collection Practices Act Prohibits calling after certain hours. Prohibits certain �harassing� behavior. Generally does not apply to companies collecting debts in their own names. Some state payday advance statutes require compliance with the FDCPA. Provides civil and statutory damages. BIG RISK � If applicable, rogue employees and improperly written collection letters.

17. Federal Arbitration Act Companies generally use arbitration provisions to prevent customer class action lawsuits. Certain states prohibit the mandatory use of arbitration provisions (i.e. Alaska, Minnesota) Notice of Grievance Provisions require consumer to allow companies to remedy a claim before suit filed. Opt-out Provisions allow customers time to opt-out of an arbitration provision even after a transaction. Simple Language provisions are becoming more common. BIG RISK � Considered by some courts to be unconscionable and not enforceable.

18. Bankruptcy Act Procedural changes recently impacted Bankruptcy practice. If a customer enters bankruptcy companies must honor the �stay.� Companies are generally unsecured creditors and receive very little in payment of debt. Companies still have the right to participate in some portions of the bankruptcy action. BIG RISK � Violating the Stay.

19. Advertising Financing Terms TILA (Truth in Lending Act) Trigger Terms Number of payments or period of repayment (e.g., �up to 36 months�) Amount of any periodic payment (e.g., monthly payment) Amount of any finance charge

20. Trigger Terms Mean More Disclosure If use a Trigger Term in Advertising, then must clearly and conspicuously disclose Amount or percentage of the down payment Terms of Repayment (e.g.,monthly) Annual Percentage Rate, using that term or �APR� The fact that the APR may be increased after consummation of the transaction, if that is the case

21. Clear and Conspicuous? Close to the �triggering term� Readable and understandable Billboards may be out TV: should appear for at least 7 seconds Internet: can use hyperlinks

22. SMS (Text Messaging) Advertising Must be Opt In Give consumer no cost method of opting out of future of text message Each Text Message must provide an opt out mechanism (e.g. �Reply STOP to unsubscribe�) Opt out requests must be honored within 10 days

23. Opt In Requirement Requests for authorization cannot be sent to wireless subscriber�s wireless devices Consumer must not bear any additional costs to receive an authorization request Must be able to reply to request without incurring any fee Cannot be the form of a �negative option� Web site authorization must include affirmative action on part of subscriber, e.g., checking a box, clicking an �I accept� button

24. Required Disclosures User agrees to receive messages sent to their wireless devices from a particular sender User may be charged by its wireless service provider for receipt of these messages User may revoke authorization to receive messages at any time

25. E-Mail AdvertisingCAN-SPAM Act Can be Opt Out Must disclose e-mail is an advertisement (unless consumer has opted in) Must have an unsubscribe option in each e-mail (must honor within 10 days) Must have physical address of advertiser in each e-mail Must have relevant subject line

26. Social Media Advertising Review site�s terms of use - Facebook does not allow businesses to have profile pages; must have a business page Anything posted by business is an advertisement and subject to same rules Have a disaster plan

27. Robocalls FTC Rule � Marketing Calls Separate consent (check the box) Must be to a specific phone number Must disclose specific nature of calls Proposed FCC Rule � All Calls (including collection calls) Separate consent (check the box) Must be to a specific phone number Must disclose specific nature of calls BOTH APPLY TO SMS MESSAGING

28. Disclosures FOR MARKETING MESSAGES: � I would like to receive telephone calls with prerecorded messages from ABC Co. that provide special sales offers such as _______ at this telephone number: _______. _____Yes� ____No� FOR ACCOUNT INFO: I would like to receive telephone calls with prerecorded messages from ABC Co. that provide�payment, balance and collection information concerning my account at this telephone number: _______. _____Yes� ____No�

29. Disclaimer This presentation is provided with the understanding that the presenters are not rendering legal advice or services. Laws are constantly changing, and each federal law, state law, and regulation should be checked by legal counsel for the most current version. We make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the information contained in this presentation. Do not act upon this information without seeking the advice of an attorney. This outline is intended to be informational. It does not provide legal advice. Neither your attendance nor the presenters answering a specific audience member question creates an attorney-client relationship. www.cbslawfirm.com