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Hilary B. Miller
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Very good question, and good comments by others. In this brief note, I raise two issues: (1) what, exactly, is an "assignment of wages," and (2) what did Congress mean by "indirectly"? The former question is the more interesting in this context. First, a wage assignment is not an economic principle; it is a well-settled legal (or illegal) arrangement as a result of which a third party (i.e., other than the employer or employee) obtains rights *as against the employer*. Those rights include the notion that no other person may, by non-judicial means, cut off the assignee's ability to obtain payment once the employee has earned his wages. Quaere whether either of these elements is present in a payday-loan transaction. As others have pointed out, at most the creditor obtains a right to charge the employee's checking account (which, under the U.C.C., doesn't constitute an "assignment"), if the employee has funds in it, and if the employee hasn't stopped payment, and if the employee hasn't directed his paycheck to another bank. This doesn't seem much like an "assignment," even in economic substance. A related and more academic question is the meaning of "indirectly." While Adam has thoughtfully suggested a possible meaning of "having similar economic effect," I think it means something else: effectuated by deceit or ruse. I think what Congress had in mind was a practice whereby creditors could require a debtor to have his wages paid to a third party under the creditor's control or in privity with the creditor who would pay the creditor first and then disburse to the debtor. The legislative history is not helpful here but these kinds of practices were common in the past. This is now actually an interesting scenario if a payday lender requires, as a condition of making an advance, that the borrower designate a particular prepaid card, over which the lender has control, as the destination for the borrower's wages. There's a lot going on here. Thanks for raising the question.
Ethan -- I think your reading of 1021 and 1022 is misplaced. The authority of the Bureau is essentially limited to making regulations that enforce federal financial laws; it lacks the power to make new laws. So, unless the regulation serves to enforce a specific substantive power created in Dodd-Frank or already existing under another federal law (such as TILA), the Bureau is without authority to regulate. (It really is easy to confuse what the "framers" originally intended with what Congress ultimately passed!) I agree with you that 1031(c) is broad, but it's not as broad as 1031(d). Both of these sections have "reasonableness" standards that are an invitation to lenders to beef up their disclosures in order to avoid precisely the kinds of curtailments you propose.
Ethan -- I think you need to go back and take another look at the BCFP's powers under Title X. It is entirely true, as you suggest, that the original "idea" for the Bureau was similar to that of the NHTSA or CPSC, with ability to ban "unsafe" products, or to regulate the precise form of products. However, as the legislation emerged from the congressional compromise process, the powers of the Bureau were sharply curtailed and are essentially limited to determining that a particular product is unfair, deceptive or absusive. The Bureau does not have the power to impose capital requirements or meaningfully affect pricing. Even the "abusive" standard allows a lender to take "reasonable" advantage of a consumer's imperfect understanding. It's worth actually reading the statute, or as computer geeks say, RTFM. HM
The rate on accounts not assessed interest is the stated (contract rate) APR. Reg Z requires the disclosure of this rate even if no finance charge is assessed due to the application of a grace period, or because the finance charge only applies to balances in excess of the account balance.
Where are the damages? I see the outrage, but where's the evidence that: (a) any beneficiary failed to receive a full benefit to which he or she was entitled, or (b) lost any money on a non-insured account, or (c) received a rate of return on such an account less than that provided by banks and money-market funds on comparable funds?