LFA NEWSLETTER • JANUARY/FEBRUARY 2018 PAGE 1

LOUISIANA FINANCE ASSOCIATION

JANUARY/FEBRUARY 2018

Kimberly Hallaran – Executive Director lfassoc@bellsouth.net Kathy Boiteaux – Administrative Assistant 225.295.1300

11918 Bricksome Avenue, Suite A, Baton Rouge, LA 70816 P.O. Box 40183, Baton Rouge, LA 70835

AFSA’s first ever Law & Compliance conference closed last week with Ron Insana offering his unique perspectives on the economy, Washington and the global geo-political challenges facing the United States. Insana is a contributor to CNBC and MSNBC.

Insana recalled his time in the infancy of business news on cable TV in the early 1980s when networks like CNN and ESPN were starting. He had just graduated from UCLA’s film school program. He landed with the Financial News Network on cable TV as a producer in June 1984.The co-anchors, he said, had the tough task of being on the air eight hours a day and making sense of highly specialized business news coming from Wall Street and the stock exchanges.

“The anchors had to make business news understandable, explain why markets mattered to everyone and fill eight hours a day doing it,” Insana said.One day both anchors called in sick and Insana, then the show’s producer, jumped in front of the camera and into the anchor’s chair and never left. That was in April 1985.

He says the U.S economy is in good shape but faces risks of a

“runaway global economy that is completely outside of Wall Street.” But, he said, unemployment at 4.1 per cent is the lowest in 17 years and jobless claims are the lowest in 45 years. The U.S. is producing 10.4 billion barrels of oil a day, equal to Saudi Arabia. Plus, the U.S. is the largest producer of natural gas in the world. He said the U.S. has 6.1 million open jobs and the shortages are highest among teachers and nurses.

He said even though the stock market is at record highs, the value of the dollar is going down which is causing the “rest of the world to see U.S. bonds as less attractive.”He said the Trump Administration has “misperceptions about trade deals like the TPP (Trans-Pacific Partnership) which was signed just weeks ago and did not include the United States.” “China is now moving into Africa and Latin America as a trade partner,” he said. “NAFTA (North American Free Trade Agreement) resulted in $300 billion in trade when it was signed in 1993 and now is worth about $1 trillion in trade.” Despite what he says about the U.S. and trade deals, Insana remains very bullish on the U.S.

“Don’t sell the U.S. short,” he said. “We are the leaders in technology, the economy, and stock market,” he said. “We have the world’s largest economy at $20 trillion while China is a $12-$13 trillion.” He said as a result of the new US. tax code enacted in December, the country will benefit from $250 billion in one-time tax dollars coming back to the US economy from U.S. companies who relocated overseas to avoid the former U.S. corporate tax rate. n

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LFA NEWSLETTER • JANUARY/FEBRUARY 2018 PAGE 2

Starting Monday, Louisiana legislators will be back at the state capitol for the fifth special session since just 2016. However, the problem remains the same: the state budget.

In a tweet on Sunday, Governor John Bel Edwards said there is a “surge of momentum” to deal with the state’s $1 billion dollar budget problem. But should he be so optimistic?

“If Bill Murray were doing another movie, maybe ‘Groundhog Day 2,’ he’d play Governor Edwards, because its the same story every year,” said Jim Engster, WAFB’s political analyst.

In July, a penny of the state sales tax falls of the books, creating the projected billion dollar fiscal cliff. State colleges, the TOPS scholarship program, and state-backed hospitals all face potentially big cuts if lawmakers do not do

Special Session 2018: What to expect as La. Lawmakers head back to the capitolSunday, February 18th 2018, By Kevin Frey, Reporter, Baton Rouge, La. (WAFB) -

Continued on page 3

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something. The governor supports a series of tax ideas aimed at filling in part of the shortfall. They largely impact business and upper to middle income earners. But many Republicans are expressing skepticism, wanting to find potential cuts.

“The odds are really against the governor is getting the whole enchilada, but he may get a part of it,” Engster said.

Lawmakers on both sides of the aisle are already drawing lines in the sand. Many Republicans oppose changes to the individual income tax, while Democrats are dead set against boosting the sales tax again.

“There’s time, there’s four months,” Engster said. “But in the overall scheme, that’s not a lot of time when this problem has been around for two years and they haven’t resolved it.”

Republicans, meanwhile, have

their own ideas, which do not necessarily help fix the current shortfall. They are pushing for a new budget transparency website, plus new work requirements for some Medicaid patients.

The question remains, though: will lawmakers reach a compromise? Engster says if they don’t, “It’s going to be a chaotic situation that

probably will not reflect well on the governor or the legislature.”

Lawmakers gavel in Monday at 4 p.m., with the governor set to give an opening address around 5 p.m. Lawmakers must wrap up their work no later than the end of the day on Wednesday, March 7. n

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Companies under Consumer Financial Protection

Bureau (CFPB) oversight are urging its acting director

to roll back enforcement practices. In response to Mick

Mulvaney’s January request for input on how it conducts

investigations, the agency so far has received 18

comment letters on civil investigative demands (CIDs).

Issued to companies that may be subject to a probe

or to third parties with relevant knowledge, CIDs are

private — but comments for the request for information

are public. “If the CFPB were really interested in having

robust feedback, a better way to get that feedback would

be through the confidential bank supervision process,

where they can discreetly get examiners to get a

response to questions and put together a report,” notes

Jenny Lee, a partner at Dorsey & Whitney and a former

CFPB enforcement attorney. Moreover, while companies

that have been targeted by CFPB actions now have an

opportunity to help the agency reshape its operations,

it could all be for naught. Mulvaney will only be in office

until September, and his permanent replacement could

choose a different path. Before then, however, he will

also collect feedback on topics including adjudication

proceedings, supervision, and external engagements. n

LFA NEWSLETTER • JANUARY/FEBRUARY 2018 PAGE 5

Continued on page 6

Well, surprisingly, the next big threat to consumer finance companies comes not from plaintiffs’ lawyers, nor from state regulators, nor from the CFPB. In my opinion, the next big threat comes from banks and credit unions. It seems that the regulators of depository institutions may be doing an “about-face,” and beginning to encourage banks and credit unions to make small dollar consumer loans. With the publication by the CFPB of the Small Dollar Loan Regulation, the prudential regulators—the OCC, the Fed, the FDIC and the NCUA—are beginning to look more favorably at small dollar loan products.

The regulators know the fact that small dollar lending is a $30 billion per annum segment of the consumer loan market. And, according to research by the PEW Charitable Trusts, three-quarters of all households in the USA make use of small dollar loans. It is hard for regulated institutions to ignore such a fertile field. The PEW Study can be found at the following link:

http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2018/02/standards-needed-for-safe-small-installment-loans-from-banks-credit-unions

The PEW report states: “The nonbank options for credit are often poor, with high-cost loans dominating the landscape. Twelve million Americans use payday loans annually, and many others use different forms of high-cost credit. The FDIC has found that 20

percent of all American households are underbanked, meaning that they use alternative financial services in addition to using banks and credit unions.” While the PEW report is focused on payday and title loans, there is a lesson in it for traditional installment lenders.

Banks and credit unions would seem to have much going for them in entering this segment of lending. They have lower costs of doing business. They have sound compliance structures. They understand automation. They have a captive customer base with checking accounts. Consumer finance companies on the other hand, generally have higher costs of capital and higher costs of covering their overhead.

Bank and credit union lenders presumably have learned a lot since their regulators shut down most small dollar loan programs five or six years ago. That is, if they make more prudent small

dollar loans with fair pricing, affordable payments and a reasonable repayment schedule, they can more easily compete with consumer finance companies. The PEW study goes on to argue that banks and credit unions are very well situated to take a greater market share of small dollar loans.

So, what does the future hold for traditional installment lenders? Well, companies that can deliver their loans personally, efficiently and above all else, quickly, will stay competitive in this new market. The term “personal loans” has and always has had real meaning in the consumer lending space. The personal touch has accounted for the historical success of consumer finance companies. If and when banks and credit unions make a concerted effort to compete for small dollar loans, consumer finance companies will need to redouble their efforts to retain their market share. n

What is the next big threat to consumer finance companies?By Maurice L. Shevin • Tuesday, February 20, 2018