NAFSA Lending Best Practices
The following Lending Best Practices outline the requirements NAFSA members must follow when creating and servicing consumer products. Because of these Best Practices, consumers can trust NAFSA members to honor their rights, protect their privacy, treat them fairly and constantly strive to offer them innovative alternative financial products. A tribal financial service company must:
- Operate as a legitimate tribal business; owned and operated by, and benefiting a federally-recognized sovereign nation.
- Ensure all consumers are afforded the same protections by following the principles detailed in federal financial services laws to the extent that they are applicable and honor tribal sovereignty. Laws to be used as guidance are:
- Truth in Lending Act: United States federal law aimed at promoting the informed use of consumer credit, requiring standardized terms and cost disclosure and other regulations that emphasize and protect consumer rights.
- Military Lending Act: United States federal law that limits the way short term loans, vehicle title loans and refund anticipation loans can be offered to military personnel and their families.
- Equal Credit Opportunity Act: United States federal law that makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); on the basis that all or part of the applicant’s income derives from a public assistance program; or on the basis that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.
- Fair and Accurate Credit Transactions Act of 2003: United States federal law requiring the secure disposal of consumer information. Additionally, it allows consumers to request and obtain a free credit report once every 12 month and includes other provisions to protect against identity theft.
- Fair Debt Collection Practices Act: United States federal law with the goal of eliminating abusive debt collection. The Act created guidelines for debt collectors and specifies the rights of consumers repaying debt.
- Electronic Fund Transfer Act: United States federal law that established the rights and liabilities of consumers and the responsibilities of the all parties in electronic funds transfer activities.
- Gramm-Leach-Bliley Act: United States federal law that includes the Financial Privacy Rule governing the collection and disclosure of consumers’ personal financial information and the Safeguards Rule requiring all financial institutions maintain safeguards to protect consumer information.
- Federal Trade Commission Act: United States federal law whose principal mission is the promotion of consumer protection and the elimination and prevention of what regulators perceive to be anti-competitive business practices.
- Meet or exceed the minimum standards for tribal and federal employment rights.
- Demonstrate the positive economic development impact tribal financial service providers can have on sovereign nations through social giving, education, employment and increased opportunity, both on and off reservation lands.
- Promote financial literacy tools and resources for consumers when possible.
- Constantly work with consumer advocates to provide the highest quality product to the American public.
- Always treat consumers with respect. Never garnish wages or engage in abusive collection practices.
Operational Best Practices
The following Best Practices outline the requirements NAFSA members must follow when forming tribal lending companies, including the operative documents to be completed. When carrying out the steps listed below, the tribal legislative body should adopt tribal ordinances, statutes, and/or resolutions pursuant to their respective Tribal Constitutions or other governing tribal laws to ensure the lending business is operating as an “arm of the tribe.”
Forming a Tribal Lending Company:
- Draft a business entity creation code (e.g., LLC code or corporation code) through which tribal business entities can be formed pursuant to tribal law.
- Adopt or issue a tribal ordinance, statute, or regulation enacting the Business Entity Code pursuant to tribal law.
- If a tribal corporation is to be formed:
- Choose an available business name that complies with the business entity code.
- Submit the Articles of Incorporation to the tribal legislative body pursuant to the Business Entity Code along with any application fees.
- Adopt or issue a tribal ordinance, statute, or regulation approving the Articles of Incorporation.
- Draft Corporate Bylaws and submit them to the tribal legislative body pursuant to the business entity code.
- Adopt or issue a tribal ordinance, statute, or regulation approving the Corporate Bylaws.
- If a tribal LLC is to be formed:
- Choose an available business name that complies with the business entity code.
- Submit the Articles of Organization to the tribal legislative body pursuant to the Business Entity Code along with any application fees.
- Adopt or issue a tribal ordinance, statute, or regulation approving Articles of Organization.
- Draft an LLC Operating Agreement and submit it to the tribal legislative body pursuant to the business entity code.
- Adopt or issue a tribal ordinance, statute, or regulation approving the LLC Operating Agreement.
- Draft an ordinance or statute establishing a Regulatory Agency for the purpose of regulating all financial service operations within the tribe’s jurisdiction.
- Adopt or issue a tribal ordinance, statute, or regulation enacting the Regulatory Agency pursuant to tribal law.
- Obtain a lending license pursuant to the Regulatory Agency’s licensing requirements.
The research speaks for itself. Sovereign nations need more economic development opportunity and Americans need better alternative financial solutions. Here’s what the experts are saying …
Advertising & Marketing Best Practices
NAFSA’s goal is to enhance the consumer experience and promote the industry’s reputation by establishing cohesive standards that ensure quality services, advertising and marketing. The Advertising & Marketing Best Practices are intended to provide Members, their Affiliates and any third party advertising a Member’s products or generating leads for a Member with guidance regarding basic legal and ethical requirements for the promotion of lending products.
It is NAFSA’s position that illegal, deceptive, or misleading communications negatively impact the industry as a whole and the customer experience.
By following these Best Practices we can ensure each Customer has the tools and information to make the decision best for their personal needs.
Actually Available Credit
For any advertisement of consumer credit, including a short-term loan, the advertisement must be accurate and only offer credit terms that are actually available. For example, if a Lender only makes Loans up to a dollar value of $1,000, then neither it – nor any Affiliate advertising on the Lender’s behalf – can advertise Loans in dollar values in excess of that threshold. The Lender also should make accurate representations regarding any repayment options that may be available to the Consumer. Given the nature of the marketplace, and our understanding of the credit offered by our Members, most NAFSA Members should not advertise credit in excess of $1,000. Those NAFSA Members who do advertise credit in excess of $1,000 should do so only if the Members will make loans in that amount to consumers.
Lead Generators and other third party entities that advertise Loans for multiple Lenders must also ensure that their advertisements describe Loan terms that are actually available from a participating Lender. [Again, if none of the Lenders working with a Lead Generator offer Loans in excess of $1,000, then that Lead Generator cannot advertise that product.]
Additionally, advertisements should accurately inform consumers regarding when credit will become available. Typically, this means that advertisements should reflect that cash will be available to the consumer the “next day.” Representation regarding cash in “one hour” or “same day” should [typically] not be made since Lenders will not be able to provide access to cash that quickly.
Finally, if a Lender will engage in a credit check before offering credit, then the advertisement must state that act. It is acceptable to advertise that Loans are available for consumers with varying degrees of creditworthiness, provided that the Consumer is made aware that the Lender will conduct a credit check. Note that a credit check can be offered by any entity that is a credit reporting bureau as defined under the Fair Credit Reporting Act, which definition is not limited to the “big three” credit bureaus (TransUnion, Experian and Equifax). Accordingly, advertisements should include a disclosure that Lenders will run credit checks via specialized credit bureaus. Advertisements should not include the phrase “No Credit Checks.”
To comply with the federal Truth in Lending Act, Lenders and their Affiliates must ensure that all advertisements contain all applicable disclosures. Thus, if an advertisement for a Loan contains a “trigger term,” then the advertisement also must contain certain required disclosures.
The trigger terms for closed-end loans under TILA are:
- The amount or percentage of any down payment.
- The number of payments or period or repayment.
- The amount of any payment.
- The amount of any finance charge.
Examples of trigger terms in advertisements include:
- Borrow now for just $10 per $100!
- Only [x]% interest!
- Get money now, pay back over the next 12 weeks!
Any advertisement that includes a trigger term must provide the following disclosures:
- The amount or percentage of the down payment.
- The terms of repayment.
- The annual percentage rate using that term.
- If the rate may be increased after consummation, the fact of that increase must be disclosed.
Different trigger terms and disclosures apply for Loans structured as open-end loans. If a Lender offers openend Loans, then it must provide the relevant disclosures in its advertisements for that product.
NAFSA recommends that advertisements inform consumers about the terms of credit available. Accordingly, the following topics should be addressed in all advertisements:
- Implications of Late Payments. Consumers should be made aware that making late payments could result in late fees as well as collection activities. As such, advertisements for credit should contain the following, or substantially similar, disclaimer: “Late payments of loans may result in additional fees or collection activities, or both. Each Lender has their own terms and conditions, please review their policies for further information.”
- Implications of Non‐Payment. Consumers also should be made aware that non-payment of a loan could result in collection activities. Accordingly, advertisements should provide the following, or a similar, warning: “Non-payment of credit could result in collection activities. Each Lender has their own terms and conditions, please review their policies for further information.”
- Sustained Use. Consumers should be aware that Lenders may renew or extend existing credit; and advertisements should inform consumers that: “Every Lender has its own renewal policy, which may differ from Lender to Lender. Please review your Lender’s renewal policy.”
- Responsible Lending Policy. Each advertisement should advise consumers that NAFSA Members adhere to the NAFSA Responsible Lending Policy.
- Compliance with Applicable Law. Each advertisement should assure consumers that NAFSA Members promise to comply with all applicable federal law to qualify for Membership in NAFSA.
Federal and state law regulates the actions of telemarketers. As such, NAFSA Members must comply with applicable provisions of the Telephone Consumer Protection Act (“TCPA”), Federal Communications Commission rules implementing the TCPA, the Federal Trade Commission’s Telemarketing Sales Rule, and other federal and state laws governing telemarketing. Without limiting the foregoing compliance requirement, Members who are telemarketers must:
- Abide by federal and state rules requiring the use of federal, state, and in-house “Do Not Call” lists.
- Only solicit between the hours of 8 a.m. to 9 p.m., local time (or as otherwise specified under more restrictive state law).
- Provide their name, the name of the person or entity on whose behalf the call is being made, and a telephone number or address at which that person or entity may be contacted.
- Not make solicitation calls to residences with artificial voices or recordings except as permitted by law.
- Abide by Federal Communications Commission rules for calling cell phones.
- Not send any unsolicited faxes.
- Comply with other requirements as specified by law.
All marketing e-mails sent by an Advertiser must be fully compliant with the CAN-SPAM Act of 2003, Federal Trade Commission and Federal Communications Commission rules implementing CAN-SPAM, and applicable state laws. Although the federal CAN-SPAM Act preempts many aspects of state anti-spam laws, it does not generally preempt state laws that prohibit fraud or deception in email marketing practices.
All “commercial” messages sent by an Advertiser are subject to CAN-SPAM. CAN-SPAM defines a “commercial” email to include any message that has the primary purpose of advertising or promoting a commercial product or service, including content on an Internet web site operated for a commercial purpose.
There is no exemption for commercial messages sent to persons with whom the sender of the message has an existing business relationship. Members should consult legal counsel if you are unsure about whether a particular type of email message is subject to CAN-SPAM requirements.
CAN-SPAM compliance requirements are as follows:
- Do not use false headers. “Header” information includes source code, destination code, routing information and other information related to the transmission of the message.
- Do not use a deceptive or misleading “from” line.
- Include a relevant, non-misleading “subject” line that accurately describes the contents of the message.
- Include a postal address for the “sender” of the message. “Sender” refers to the party whose products or services are promoted in the message.
- Include a visible and functional “unsubscribe” mechanism that allows the recipient to request not to receive future commercial message from the “sender” of the message.
- Honor all opt-out requests within 10 days of receipt.
- Prior to sending an email campaign, “scrub” the distribution list against any list(s) of individuals who previously requested not to receive commercial messages from the “sender.”
- Advertiser opt-out lists may be used only for CAN-SPAM compliance purposes and may not be shared with or transferred to any third party for any purpose.
- Advertisers are responsible for ensuring that their own practices as well as the practices of their Lead Generators, and other third parties, are in compliance with the CAN-SPAM requirements, which includes the proper use and management of opt-out lists.
- All advertisements made on the Internet must provide for a phone number and physical address for the person responsible for the advertisement (the Website owner).
Publication of Terms and Conditions
Members who engage in advertising and/or marketing, or who use Affiliates to advertise or market on their behalf, must post on their websites clear and conspicuous terms and conditions that describe the services provided by the Member. No text, graphics, or other marketing materials used by the Affiliate should contradict any aspect of the terms and conditions. An Affiliate who is NOT also a Lender should also conspicuously state that:
- It does not actually provide short-term loans but refers Consumers to Lenders who may provide such loans.
- It will share Application information provided by the Consumer with one or more Lenders.
- It cannot guarantee that it will match a Consumer with a Lender, or that the Consumer’s Application will be approved by a Lender.
- It cannot guarantee the amount of funds that may be extended to the Consumer if any Lender approves the Consumer’s Application.
- The Lender may perform a credit check. Consumers should be informed that Lenders may perform a credit check or otherwise verify the Consumer’s social security number or other information.
Payments Best Practices
|1||Lenders, processors and their agents shall develop and maintain timely postings of returns information|
|2||Lenders shall provide consumers an alternative to ACH debiting. These alternatives shall be provided both when the customer is current and in collection stages. Such alternatives may include paper check, debit card, money order, or other means|
|3||All customers must have the right to rescind the loan and the ACH authorization within one (1) business day of the loan approval so long as the customer returns the funds within 24 hours of the rescission|
|4||Lenders will follow all NACHA presentment rules – one original presentment plus only two re-presentments|
|5||Lenders will not process multiple ACH debit attempts to an individual loan on the same effective date (No ACH Split Payments) unless expressly authorized by (expressly requested by) the customer|
|6||Lenders shall charge only one NSF fee per original loan payment|
|7||All authorizations for recurring debits shall be secured in accordance with NACHA rules, the Electronic Funds Transfer Act and Regulation E. This shall include securing authorization for recurring debits in writing and signed or similarly authenticated by the consumer:|
|7.1||1. Authorization can be electronic|
|7.2||2. Authorization must be retained and a copy provided to borrower|
|7.3||3. Must include the five essential elements defined by NACHA rules|
|8||Lenders shall transfer PII data using TPS and TPP security protocols to ensure no inappropriate passing of data|
|9||All parties will comply with the new NACHA Rule 2.3.4 which requires the ODFI to ensure that originators and third-party senders do not share account/routing numbers for the purpose of initiating debit entries that are not covered by the original authorization|
|10||Lenders shall not ACH debit a consumer unless they have a valid authorization with the proper ABA and account information. Lenders shall not use new bank account information that the merchant sourced from the marketplace on the consumer, or in other words, Lenders shall only debit consumers for the account listed on the valid authorization|
|11||Lenders shall not use RCCs and RCPOs in their normal course of business unless formally requested and proper consumer authorization has been secured|
|12||Lenders shall provide their payment processors and the sponsoring ODFI signed payment authorizations for all R10’s and R29’s returns within 24 hours of the request for such documentation|
|13||Lenders shall provide Proof of Authorizations to be delivered to TPP within 24 business hours of the request|
|14||Lenders shall provide all Proof of Authorization for all unauthorized transactions are segregated and held, ready to be delivered to TPP within 4 business hours, upon request|
Testing: Lenders/Merchants shall at a minimum test their portfolios monthly to generate the results of the previous month using the following tests. In the event that any merchant is out of the best practice realm they should work closely with their processor(s) and internal staff to correct lack of compliance swiftly. Regulators, Processors and other payment experts recommend daily and weekly review of these thresholds. They feel that not only will it make the relationship better with processors and ODFI but also make the product better for consumers and in some cases reduce default and fraud.
Test 1: Best Practice #15 - The total count of all returns (all codes) shall not be greater than 30% of total debits processed as computed by the effective dates of the corresponding debits.
Test 2: Best Practice #16 - The total count of all NSF Returns (R01 & R09) shall not be greater than 25% of total debits processed as computed by the effective dates of the corresponding debits.
Test 3: Best Practice #17 – Lenders shall have an administration return code less than or equal to 4.0% of total debits processed as computed by the effective dates of the corresponding debits. Admin <= 4% (R02, R03, R04)
Test 4: Best Practice #18 - All R05, R07, R10, R29, and R51’s (negative chargeback returns) shall not to be greater than 0.5% of total debits processed as computed by the effective dates of the corresponding debits. (It is understood that NACHA’s current requirement is 1.0% or less than)
Test 5: Best Practice #19 - Lenders shall have a corrections (C Codes) of less than or equal to 0.40% of total debits processed as computed by the effective dates of the corresponding debits. Corrections <= 0.40% (any C code).