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NAIC Report – 2020 Summer National Meeting | Eversheds Sutherland (US) LLP



The National Association of Insurance Commissioners (NAIC) held its 2020 Summer National Meeting virtually from July 28 to August 14, 2020. The meeting was originally scheduled to be held in Minneapolis, Minnesota, but was changed to an all-virtual meeting due to the COVID-19 pandemic. The Summer National Meeting was the first national meeting of 2020, with the Spring National Meeting having been cancelled. Notable developments from the Summer National Meeting include:

  • The Executive Committee established a special committee focused on race and insurance, and held a special session that examined the history of race in insurance and what state insurance regulators and industry can do to identify and address racially discriminatory practices.
  • The NAIC adopted principles for artificial intelligence (AI) in insurance that provide guidance to regulators and businesses regarding the use of AI, while emphasizing the importance of accountability, compliance, transparency and safe, secure, fair and robust outputs.
  • The Life Insurance and Annuities (A) Committee and its working groups discussed product illustration issues and state activity to adopt the revised Suitability in Annuity Transactions Model Regulation and related guidance.
  • Regulators and industry discussed updates on key regulatory initiatives, including the group capital calculation tool, macroprudential surveillance initiatives and international regulatory developments, including implementation of the insurance capital standard and the Holistic Framework for Systemic Risk.

The following are some highlights from the Summer National Meeting. We do not cover every meeting in this report; rather, we comment on select noteworthy developments and matters of interest to our clients.

  1. Issues of General Interest
  1. NAIC Increases Attention to Race and Insurance

A common theme throughout the Summer National Meeting was the need for increased attention to race and equality issues in insurance. The NAIC Executive Committee has established a special committee focused on race and insurance that is tasked with engaging a broad group of stakeholders on issues related to race, equity, diversity and inclusion in the insurance sector. The special committee will conduct research and analysis on the level of diversity and inclusion within the insurance sector, and is expected to report its findings by year-end, including insurance practices that potentially disadvantage minorities and recommend steps that regulators and industry can take to increase diversity and inclusion. The special committee is co-chaired by NAIC President Director Ray Farmer (SC) and NAIC President-Elect Commissioner David Altmaier (FL). Director Dean Cameron (ID) and Director Chlora Lindley-Myers (MO) serve as co-vice chairs of the special committee. The NAIC is also currently recruiting for a Diversity Officer and has formed a Diversity, Equity and Inclusion Council.

During the Summer National Meeting, the NAIC hosted a Special Session on Race and Insurance that examined the history of insurance and what state insurance regulators and industry can do to identify and address any racially discriminatory practices. The session was a listening session to inform further targeted NAIC activity to address ongoing, potential racially discriminatory practices in the design, pricing and sale/access of insurance products, and ways to promote diversity and inclusion within the insurance sector. Key issues that emerged include the need to promote diversity and inclusion in industry hiring practices, access to affordable policies for minority communities and concerns with big data.

The first panel, Historical Context on Racial Discrimination within the Insurance Sector, explored past racial discriminatory practices in insurance underwriting, rating, and sales, including “redlining” and its lasting effects. Panelists discussed how availability and affordability of insurance coverage continues to be an issue for minority communities. The panelists stressed that it is important for minority communities to have equal access to insurance products that are affordable and relevant, and the need for insurance companies and regulators to actively recruit, train and retain diverse candidates.

The second panel, Current Racially Based Challenges within the Insurance Sector, covered current practices that potentially disadvantage minorities, including the use of big-data and algorithmic-based underwriting models. Sonja Larkin-Thorne, a consumer advocate and chairwoman of the Consumer Data Subcommittee of the Connecticut Insurance Department’s Advisory Council on Technology, reported on the Subcommittee’s work in evaluating the use of big data in insurance. She reported that vendors are providing insurance companies with data on human behaviors that include shopping habits, driving patterns and demographics, such as occupation, education, voting history, marital status, salary history and social media contacts. Panelists noted concerns relating to the lack of transparency in insurers’ use of this consumer information, as well as data accuracy. As discussed in more detail below, during the Summer National Meeting, the NAIC adopted principles for the use of AI in insurance that are intended to help address some of these issues.

The third and final panel, Increasing Diversity and Inclusion within the Insurance Sector, focused on steps that both regulators and industry stakeholders can take to improve diversity and inclusion within the insurance sector. The panelists discussed their perceptions of discrimination and current issues of unfair discrimination in the insurance sector.

  1. Group Capital Calculation Working Group Makes Progress on Template and Instructions

The Group Capital Calculation (E) Working Group discussed comments submitted on the exposure of the proposed GCC template and instructions, which were revised to incorporate findings from the field test of 32 volunteer companies. Commissioner David Altmaier (FL), Chair of the Working Group, noted that the comments received by the July 21, 2020, deadline were extensive and thoughtful and had been consolidated into an NAIC staff “Comment Summary” outlining 13 discreet issues.

During the Working Group meeting, there was only time for the first seven of the 13 issues in the Comment Summary to be discussed. A number of concerns were expressed, including: the need to expose any GCC related changes in the Financial Analysis Handbook for public comment; the advisability of an Authorized Control Level (ACL) calibration level (300%) that is inconsistent with risk-based capital (RBC) reporting and industry’s current reporting of two capital calibration levels (100% ACL and 200% ACL); the application of the GCC to “financial entities” and how they should be defined; the definition of material risk; how affiliates should factor into the GCC; and charges for financial entities not subject to RBC charges.

As a result of the discussion, it appeared there was room for continued dialogue between NAIC staff and interested parties to attempt to resolve matters related to Issues 3 (scope of application), 4 (excluded entities/material risk), 6 (definition of financial entities), and 7 (treatment/charges financial entities) outlined in the staff Comment Summary. Chairman Altmaier asked interested parties to work with staff on a redraft of those issues. The Working Group’s next call is scheduled for September 2, 2020, when they are expected to discuss the remaining issues in the Comment Summary.

  1. Updates from the Statutory Accounting Principles (E) Working Group

The Statutory Accounting Principles (E) Working Group (SAPWG) exposed a number of proposed revisions to statutory accounting guidance, including a revision to SSAP No. 71 – Policy Acquisition Costs and Commissions to clarify existing levelized commissions guidance, which requires full recognition of the funding liabilities incurred to date for prepaid commission expenses. The revisions also clarify that the recognition of commission expense is based on experience to date. During the discussion, interested parties disputed the NAIC categorization of the revisions as “non-substantive” and made an appeal for additional time and a January 1, 2021, effective date due to the significant change to the guidance as currently applied.

The revisions, exposed for public comment until September 18, 2020, are consistent with the 2019 Fall National Meeting exposure, except that they include guidance to clarify that reporting entities that have not complied with the original intent shall reflect the change as a correction of an error, in accordance with SSAP No. 3—Accounting Changes and Corrections of Errors, in year-end 2020 financial statements.

Other significant exposures include a revision to SSAP No. 25 – Affiliates and Other Related Parties to clarify that a party with a non-controlling ownership interest greater than 10% is a “related party” for statutory accounting purposes

  1. Updates from the Valuation of Securities (E) Task Force

The Valuation of Securities (E) Task Force adopted its July 1 and May 14 minutes, which included the following action:

Adopted an amendment to the P&P Manual for principal protected securities (PPS), with an updated description, definition and instructions. This amendment removes PPS from filing exemption (FE) eligibility and requires all PPS, including those currently designated under the FE process, to be submitted to the Securities Valuation Office (SVO) for review under their Subscript S authority beginning Jan. 1, 2021, and filed with the SVO by July 1, 2021, if previously owned. This amendment was exposed for a 30-day public comment period ending March 5.

Also during the meeting, Charles Therriault (NAIC Securities Valuation Office (SVO)) reported on a situation he said the SVO is experiencing in which a few insurers were unwilling to provide documents that the SVO requested to analyze the investments they had submitted. He said, “The refusal was accompanied by an unusual challenge asking where, in the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual), the requirement for submission of the documents being asked for, appears?” Mr. Therriault said he believes, in the simplification of the Manual, some of the instructions may have inadvertently been omitted. Consequently, he asked for consideration of a proposed amendment to the P&P Manual intended to clarify and fill in the gaps that may exist in the Manual.

Mr. Therriault said the amendment reflects the long-standing expectation by the Task Force that insurers will provide the SVO staff with the materials necessary to analyze investments submitted to it and calls upon insurers to provide that documentation. He described the requested amendment as clarifications of existing guidance requiring insurers to provide items such as the financial statements, internal analysis, and agreements in any applicable form. Without the required information and the ability to request it, he said, the SVO would not be able to fulfill its responsibilities. He closed by stating that he does not think anything in the amendment is new but does clarify the SVO’s expectations of the information they will be looking for. The proposed amendment is exposed for comment until October 6, 2020.

  1. Updates on Macroprudential Surveillance Initiatives

The NAIC’s work on macroprudential surveillance is overseen by the Financial Stability (EX) Task Force, which received updates on the NAIC’s stress test initiatives and the International Association of Supervisors’ (IAIS) global monitoring exercise (GME).

  1. Liquidity Stress Testing Framework

Justin Schrader (NE), Chair of the Liquidity Assessment (EX) Subgroup, reminded the Financial Stability Task Force that in April 2020, due to the COVID-19 pandemic, the Task Force agreed to the Subgroup’s request to pause work on the 2019 liquidity stress test and instead address an American Council of Life Insurers (ACLI) proposal to focus on macroprudential information regarding how the insurance sector is navigating the current market conditions due to economic impacts of the current pandemic.

A study group held several conference calls between April and June 2020 to establish a data collection plan for the 23 life insurance groups originally in scope based upon the Subgroup’s revised scope criteria. The data collection plan consists of two phases. Phase 1 is a request for qualitative data based on first quarter financial information and was due to the lead state regulators by July 15, 2020. Phase 2 is a request for qualitative and quantitative data based on second quarter financials and was due to be submitted to the lead state regulators by August 31, 2020. NAIC staff will compile the results of both phases for presentation to the regulators and they will be used to help the Study Group refine its prior work to develop the 2019 liquidity stress test. Mr. Schrader said that while previously not considered, a pandemic in conjunction with economic stress will be considered for a stress scenario for the postponed stress testing.

  1. Update on NAIC Capital Market Stress Tests

Eric Kolchinsky, Director of Structured Securities and Capital Markets at the SVO, reported on equity and debt performance and the impact on insurance company publicly traded common stock. The SVO found that equity markets continue to stabilize and are far off their lows of March 2020 and that some debt downgrades have occurred, but they have had a minimal impact on insurer portfolios.

Mr. Kolchinsky also reported on the results of insurance company collateralized loan obligation (CLO) investment stress testing that the SVO ran in 2019 and updated through June 2020. Given the financial market stress expected to result from the COVID-19 pandemic, two additional scenarios were run. This testing demonstrated that COVID-19-related scenarios will have a minor impact on the vast bulk of CLO-holding insurers. However, it was reported that significant CLO exposures relative to capital and surplus, and concentrated exposures to “atypical” securities (i.e., those that have unusual payment promises, such as equity tranches) are potential risks (particularly in a stressed environment) for a several medium to small insurers. Based on these findings, the SVO continues to believe that risk from CLOs is highly concentrated and is not a systemic issue for the industry.

  1. IAIS Global Monitoring Exercise

Tim Nauheimer, a member of NAIC staff, provided an update on the IAIS Macroprudential Monitoring Working Group (MMWG), which oversees many of the IAIS’ holistic initiatives. Included among those initiatives is GME, which includes Individual Insurer Monitoring (IIM) and Sector Wide Monitoring (SWM).

In response to the disruption caused by the pandemic, the IIM exercise was reduced to a targeted COVID-19 IIM data collection at the end of April 2020. The IIM quantitative and qualitative templates must be completed by the 58 participating insurers (including 16 U.S. insurers) on a quarterly basis. The SWM exercise was launched in March 2020, but was also reduced to a limited COVID-19 sector-wide monitoring data collection exercise. The IAIS, in consultation with the Financial Stability Board (FSB), agreed that reporting to the FSB on the outcomes of the 2020 GME will be postponed by one year to October 2021.

The IAIS announced that the special topic for this year’s Global Insurance Market Report will be climate risk. The IAIS will collect data via a jurisdictional survey on climate risk. This aligns with the NAIC’s newly-formed Task Force on Climate and Resiliency (discussed below).

Finally, the IAIS Macroprudential Supervision Working Group (MSWG) recently completed and exposed the Application Paper on Liquidity Risk Management and is preparing for a second public consultation on the paper in November, 2020.

  1. Updates on International Regulatory Developments

The International Insurance Relations (G) Committee received updates regarding actions taken by the IAIS, including actions related to the insurance capital standard (ICS), the Holistic Framework for Systemic Risk (Holistic Framework) and the IAIS response to COVID-19, as well as updates on other international activities.

  1. Update on ICS

In November 2019, the IAIS adopted the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), which is a set of international supervisory requirements focusing on the effective group-wide supervision of international active insurance groups (IAIGs). ICS version 2.0, which is included in ComFrame and is a risk-based, group-wide global insurance capital standard for IAIGs, is being conducted in two phases: (1) a five-year “monitoring period”, which began in January 2020 and during which ICS version 2.0 is being used only for confidential reporting to the group-wide supervisor and discussion in supervisory colleges (and not as a basis to trigger supervisory action); and (2) implementation of ICS version 2.0 as a group-wide prescribed capital requirement.

In connection with the ICS five-year monitoring period, the IAIS is collecting data to assess whether the Aggregation Method (AM) (which is being developed by the United States and other jurisdictions and utilizes existing regulatory capital calculations for all entities within the holding company structure) provides comparable outcomes to ICS version 2.0. If the AM does provide comparable outcomes to ICS version 2.0, it will be considered an “outcome-equivalent approach” for purposes of implementation of ICS version 2.0. The IAIS released ICS and AM data collection packages to volunteer groups in April 2020 and has set an October 31, 2020 due date for reporting the data.

Regarding developing an AM that delivers comparable outcomes to the ICS, Committee Chair Gary Anderson (MA) noted the issue of “scalars” (i.e., adjustments that will need to be applied to capital requirements set by different jurisdictions to bring them to a globally comparable level). Scalars will be used in both the NAIC’s GCC and the AM and are of particular importance to IAIGs. The NAIC is seeking the assistance of the American Academy of Actuaries to conduct academic research to inform the NAIC’s consideration of the appropriate scalars methodology to use.

  1. Update on the Holistic Framework

The IAIS also adopted the Holistic Framework in November 2019, with implementation beginning in January 2020. The Holistic Framework is intended to assess and mitigate systemic risk in the insurance sector through a sector-wide, activities-based approach, rather than through the entity-based approach that results in additional policy measures being imposed on only a relatively small group of insurers identified as global systemically important insurers (G-SII). Implementation of the Holistic Framework is expected to provide an enhanced basis for assessing and mitigating systemic risk in the insurance sector, and to eliminate the need for identification of insurers as G-SIIs.

The Holistic Framework consists of an enhanced set of supervisory policy measures and powers of intervention, an annual GME, and a robust implementation assessment. For the implementation assessment, the IAIS is currently conducting a baseline assessment that focuses on relevant Insurance Core Principles (ICP) and ComFrame standards, which will help the IAIS assess the level and means of implementation by jurisdiction. Once the baseline assessment is finalized, the IAIS is expected to share the outcomes with the broader IAIS membership, the FSB and the general public in March 2021. In particular, the outcomes of this assessment will be reviewed by the FSB when determining whether to discontinue or reestablish an annual identification of G-SIIs.

Finally, upon conclusion of the baseline assessment, the IAIS will undertake targeted jurisdictional assessments in 2021 and 2022 to determine the consistency of implementation of the Holistic Framework. The IAIS is still working through the details of the targeted jurisdictional assessments, including the scope of the assessments, the jurisdictions involved, and how the assessments will be operationalized.

  1. IAIS Response to COVID-19

IAIS Secretary General Jonathan Dixon reported on the IAIS response to COVID-19. The IAIS has focused on (1) understanding and analyzing the impact of COVID-19 and the risk it poses to the global insurance sector, and (2) providing guidance to member insurance supervisors about how to respond to the risks of COVID-19. Regarding understanding and analyzing the impact of COVID-19 and the risk it poses to the global insurance sector, the Holistic Framework GME was refocused to specifically collect COVID-19-related data. Regarding providing guidance to member insurance supervisors about how to respond to the risks of COVID-19, the IAIS has established a COVID-19 supervisory response information-sharing hub for members. Secretary General Dixon also noted that IAIS-COVID-19-related supervisory measures have focused on: (1) strengthening the operational resilience of insurers and monitoring business continuity plans, (2) providing operational relief to enable insurers to focus on assisting and managing exposures to the pandemic and ensuring uninterrupted services to their customers; (3) monitoring capital and solvency as well as adjustments to insurers’ risk management; and (4) market conduct.

  1. IMF Report on US Financial Regulatory System

Earlier this month, the International Monetary Fund (IMF) issued a Financial Sector Assessment Program (FSAP) assessment of the US financial regulatory system, including the US state insurance regulatory system. The FSAP report highlights enhancements and strengths of the US state insurance regulatory system since the IMF’s last report in 2015, including: (1) implementation of principles-based reserves in the life insurance industry (which addressed issues found on valuation in the 2015 FSAP); (2) implementation of the risk-focused surveillance and financial analysis; (3) the NAIC’s advanced framework for monitoring individual asset-side risks; and (4) that financial stability risk stemming from the insurance sector currently appears to be contained. However, the FSAP report also recommends certain improvements, including: (1) further development of risk-based supervision; (2) improving consistency of life insurer liability valuation methods; (3) enhancing corporate governance regulatory requirements; and (4) enhancing regulatory responses to the increasing risk and severity of natural catastrophes. Additionally, the IMF recommended developing a consolidated group capital requirement “similar to GAAP-Plus [ICS] for internationally active groups and optionally for domestic groups” as a way to address the current gap in insurance capital standard requirements in the US Justin Schrader (NE) stated that the NAIC is of the opinion that this statement is inconsistent with the current discussions at the IAIS, which has recognized the potential for the AM to provide comparable outcomes to the ICS. Further, the IMF recommended that the NAIC GCC, once adopted, be made a requirement, rather than a tool. Mr. Schrader said that the NAIC questions why utilizing the GCC as a tool is not equally as useful as a requirement.

The NAIC is expected to assign the FSAP recommendations to NAIC Committees and working groups, as appropriate, for consideration.

  1. Other International Updates

Director Bruce Ramge (NE) reported that the NAIC became a member of the Sustainable Insurance Forum (SIF) in February 2020 and has participated in several virtual meetings this summer on climate risk and sustainability. The SIF has worked jointly with the IAIS on an application paper that addresses the supervision of climate-related risks in the insurance sector, which is expected to be released for public consultation in the fall and published in early 2021. Director Ramge noted that examining issues related to climate, natural catastrophe risk and resiliency is central to insurance regulators’ mission of protecting policyholders and is the focus of the newly-created NAIC Task Force that will help inform the NAIC’s contributions to the SIF.

  1. NAIC Continues Focus on Innovation and Technology
  1. Principles for the Use of Artificial Intelligence Adopted

The Innovation and Technology (EX) Task Force unanimously adopted principles for the use of AI in insurance. The principles provide guidance to regulators and businesses regarding the use of AI, while emphasizing the importance of accountability, compliance, transparency, and safe, secure, fair, and robust outputs. For more information about the NAIC’s AI principles, see our Legal Alert: NAIC adopts principles for trustworthy artificial intelligence in insurance that support the avoidance of proxy discrimination against protected classes.

  1. Regulators Continue Close Look at Accelerated Underwriting and Predictive Modeling

Several different NAIC groups are continuing work focused on the use of accelerated underwriting and predictive modeling. The Big Data (EX) Working Group served as a regulatory town square during the Summer National Meeting, with regulators hearing reports and discussing the full range of these activities. The Working Group first received an update from the Casualty Actuarial and Statistical (C) Task Force (CASTF) on its drafting of a Regulatory Review of Predictive Models white paper. The white paper is intended to identify best practices for the regulatory review of predictive models and analytics filed by insurers to justify rates. In drafting the white paper, CASTF has identified four general best practices:

  1. Ensure compliance with state rating laws (i.e., that rates are not excessive, inadequate, or unfairly discriminatory);
  2. Review all aspect of a model including data assumptions, adjustments, variables, input and outputs;
  3. Evaluate how a model interacts with and improves the rating plan; and
  4. Enable competition and innovation.

CASTF’s draft white paper includes proposed changes to the NAIC’s Product Filing Review Handbook, as well as proposed statutory guidance. Of particular note, the draft whitepaper includes a list of 79 information elements that regulators should consider obtaining from insurers to support model review, as well as commentary on when and why those information elements may be useful to regulators.

The Chair of the Working Group, Commissioner Doug Ommen (IA), led an extensive discussion regarding the draft white paper’s previous recommendation that insurers could be required to identify a causal relationship between model factors and increased or decreased risk. While CASTF has now removed all references to a “causal” relationship, the white paper still specifies that regulators may require insurers to provide a “rational explanation” as to why a factor is actuarially correlated to risk. A number of regulators expressed support for the “rational explanation” language, noting that requesting this kind of explanation has been a common practice by some state regulators for decades. Rather, the intent is to empower regulators to further investigate factors in rate models where a particular correlation looks potentially spurious or driven by systemic bias and discrimination.

The most recent version of the CASTF white paper was exposed for public comment ending July 27. Nine extensive comment letters were received. CASTF members indicated they believe that the white paper is close to final, and have formed a drafting group to review this final round of comments and propose a white paper for adoption by September of this year.

The Big Data (EX) Working Group also heard an update from the Accelerated Underwriting (A) Working Group, which has largely been gathering information since its formation in October of 2019. The Working Group has met 16 times since then, hearing presentations from a range of industry and consumer representatives on the use of accelerated life insurance underwriting. One issue that has been of particular interest to the Working Group is the use of credit data as an input item. While industry representatives have indicated that the use of credit data is actuarially sound, with individuals with a high credit score having a lower mortality risk profile, regulators are somewhat skeptical of this association. During its own meeting at the Summer National Meeting, Director Robert Muriel (IL) noted that a high credit score does not shield an individual from illness. Accordingly, it is the view of the Working Group that credit scores generally should not be used in isolation, and must have checks to prevent against discrimination. In particular, the Working Group suggests that credit scores be used as a negative check in underwriting, but not a positive check (i.e., a bad credit score could increase the cost of coverage, but a good credit score should not be used to reduce the baseline cost of coverage).

Speaking more broadly, Commissioner Muriel also noted that it is not clear to the Working Group that all insurers appropriately test their accelerated underwriting programs, particularly since developing and implementing accelerated underwriting appropriately requires significant resources. Accordingly, he noted that regulators may consider challenging accelerated underwriting programs in upcoming market conduct examinations.

The Accelerated Underwriting (A) Working Group is now planning to begin drafting guidance for state regulators regarding the use of accelerated underwriting for life insurance with the goal of completing its initial draft by the end of 2020 and completing its work by the 2021 Summer National Meeting.

  1. Privacy Protection Working Group Gets Back to Work

The Privacy Protections (D) Working Group got back on task during the Summer National Meeting, with Chair Cynthia Amann (MO) acknowledging that the Working Group’s work had been pushed to the back-burner by COVID-19. Chair Amman committed to refocusing on the Working Group’s charge to review and suggest changes to the NAIC’s model privacy acts and regulations. During previous meetings, the Working Group began its task focused on making edits to the NAIC Insurance Information and Privacy Protection Model Act (#670), but consensus amongst industry and regulators quickly formed that the Privacy of Consumer Financial and Health Information Regulation (#672) would make a better base. Model 672 is the newer of the two models, drafted to address the requirements of the federal Gramm-Leach-Bliley Act.

Chair Amman committed to using Model 672 as a base going forward and discussed plans to begin a discussion with regulators, industry representatives, and consumer groups regarding what aspects of recent influential privacy laws, including the California Consumer Privacy Act and European General Data Protection Regulation, are missing from Model 672. Finally, the Working Group heard an update on state and federal privacy legislation, which has also been uneventful as state and federal legislators focus on the ongoing COVID-19 pandemic.

  1. Issues of Particular Interest to Life Insurers
  1. Suitability in Annuity Transactions Model Regulation FAQ Being Developed

Following Executive & Plenary (EX) Committee adoption of revisions to the Suitability in Annuity Transactions Model Regulation (#275) earlier this year, the Annuity Suitability (A) Working Group met to hear an update on state activities to adopt the revised Model and to discuss its work for 2020 to develop a frequently asked questions (FAQ) document. The purpose of the FAQ is to provide consistent guidance intended to promote greater uniformity across the states as they move forward with adopting the revised Model and implementing its provisions.

Director Dean Cameron (ID) indicated that his department had submitted legislation to update the state’s annuity suitability law as reflected in the revised Model for the session beginning in January 2021. Commissioner Jillian Froment (OH) said her department expects to file the revised Model through their state process this summer, which starts with an executive branch review before introduction of a legislative proposal. Efforts have also begun in Rhode Island, and Kentucky expects to submit language to the legislature in August. There was general interest among Working Group members in a bulletin being developed by the Iowa Insurance Division to accompany the best interest annuity rule the Division adopted on May 11, 2020.

A draft FAQ distributed with the meeting materials was discussed. With answers to some of the questions left to be determined, the Working Group decided to complete the answers before exposing a new draft for a 30-day public comment period. Comments received on the FAQ will be discussed at the next meeting of the Working Group, which is to be scheduled in mid-September 2020.

  1. Request to Lower the Minimum Guaranteed Interest Rate for Individual Deferred Annuities

Following the Life Insurance & Annuities (A) Committee’s approval of the Life Actuarial Task Force (LATF) Model Law Development Request to amend the Standard Nonforfeiture Law for Individual Deferred Annuities (#805), LATF conducted a brainstorming session during the first of its Summer National Meeting sessions. The objective was to determine the level of LATF member support for the ACLI’s request to lower the 1.00% minimum guaranteed interest rate for individual deferred annuities to 0% due to the historically low interest rate environment.

The brainstorming session was held in anticipation of the Executive Committee’s approval of the A Committee’s Model Law Development Request (a required step in the process that was completed on the final day of the Summer National Meeting). LATF can now decide to stay with its recommendation for a 0% floor or decide to set the floor at ½% or ¼%. The change to Model #805 will be re-exposed, then considered for LATF adoption around September 30, 2020, after which it will be forwarded to the A Committee for its consideration and adoption prior to the 2020 Fall National Meeting. If adopted by the A Committee, the change would then be considered for adoption by Executive/Plenary at the 2020 Fall National Meeting.

Led by New York, there appeared to be a lack of comfort among LATF members during the brainstorming session for reducing the interest rate to 0%. New York noted concern with high surrender charges, which can tie policyholders up while 0% is being credited. Consequently, New York said they think the rate should be something above 0%.

A representative for the Interstate Insurance Product Regulation Compact (IIPRC) pointed out that individual state adoption of revised Model #805 is not required for filings under the IIPRC. If Model #805 is adopted by the NAIC, it becomes immediately effective for IIPRC filings because Model #805 is incorporated into the uniform standard.

  1. Working Groups Consider Issues Related to Product Illustrations

The Life Insurance and Annuities (A) Committee granted extensions to two working groups addressing product illustration issues. The first, the Annuity Disclosure Working Group, has been working to finalize revisions to the Annuity Disclosure Model Regulation (#245) addressing illustrations of indices that have been in existence for fewer than 15 years. Regulators are concerned that consumers are being misled by unrealistic indexed annuity illustrations. Working Group Chair, Mike Yanacheak (IA), said the Working Group needs to decide if it wants to make a recommendation to the A Committee related to product approval standards for proprietary indices and also needs to determine whether standards surrounding the relationship between the hedging provider and the index provider are needed.

Second, the Life Insurance Illustration Working Group was granted an extension to continue its work to develop policy summary disclosures across various life insurance products. They are working on policy summary disclosure documents to be delivered with the Life Insurance Buyer’s Guide. Working Group Chair, Richard Wicka (WI), said that decisions remain to be made on the timing of delivery.

  1. NAIC Approves Amendments to Actuarial Guideline 49

The NAIC approved amendments to Actuarial Guideline 49 (AG 49A) with only New York voting against the change. The approved changes to the illustrations of indexed universal life insurance (IUL) products under the Life Insurance Illustration Model Regulation (#582) and Actuarial Guideline XLIX (AG 49) were developed over the past year and a half by the NAIC Indexed Universal Life Illustrations Subgroup of the Life Actuarial Task Force. The changes are designed to bring uniformity to the illustrations of policies tied to an external index or indices by providing a reasonable cap on the illustrated credited rate to help consumers more easily compare the policies of different companies. The NAIC adopted AG 49 on August 16, 2015. Since its adoption, product designs and company interpretations had evolved enough to warrant several changes to AG 49 in order to once again achieve consistency in illustrations for policies with index-based interest.

AG 49A was adopted over the objections of Birny Birnbaum, Executive Director of the Center for Economic Justice, and industry interested parties who had submitted an alternative proposal. When AG 49A was adopted by the A Committee on August 11, Chair Jillian Froment (OH), said that while she believed the IUL Subgroup and LATF had made incredible progress and that AG 49A will have an immediate positive impact on consumers, she recognizes that there may be a need to look closely at the current design and regulatory framework for life insurance and annuity illustrations and determine if any changes or additions are needed. Commissioner Froment is expected to schedule a follow-up call in the near future to discuss a possible charge in more detail, including where that charge belongs.

  1. Issues of Particular Interest to Property/Casualty Insurers
  1. Regulatory Activity Related to the COVID-19 Pandemic

A number of NAIC committees and working groups heard updates on recent regulatory activity related to the COVID-19 pandemic, and the NAIC hosted a Special Session on Lessons Learned from the COVID-19 Pandemic. Nearly every state has taken some action to provide relief to policyholders suffering hardship due to the COVID-19 pandemic. These actions include orders and bulletins requiring or requesting that insurers extend grace periods and impose moratoria on the cancellation, non-renewal or termination of insurance policies due to non-payment of premiums (and waive associated late fees), reduce premium payments to reflect a reduction in risk due to business closures and stay-in-place orders, and generally exercise leniency in enforcing deadlines for filing claims notices, proofs of loss, and other documentation. The scope and specific requirements of these orders and bulletins vary across states, with some states simply requesting that insurers provide policyholder relief and other states mandating it. Some of these orders and bulletins have begun to expire, but with transmission rates in a number of states still rising, the orders and bulletins in other states continue to be extended.

During the Special Session, three separate panels presented on the impact of the COVID-19 pandemic on insurance from the perspective of policyholders, industry, and regulators. The policyholder panel generally expressed positive views of industry’s reaction to the pandemic, but some panelists voiced displeasure with claims denials for business interruption (BI) coverage. Other panelists also expressed concern about the uncertainties surrounding workers’ compensation insurance coverage, particularly whether coverage would be dependent on companies implementing and enforcing mask policies.

The industry panelists discussed the impact of COVID-19 on the work environment and the various issues companies faced with the transition to work from home, including the need to protect employee and customer data, testing system capabilities, and quarantine requirements for traveling employees. The regulator panelists discussed a wide range of issues, including the policyholder relief initiatives noted above, the possibility of future rate increases, the inclusion of COVID-19 questions on policy applications, suspending retrospective audits, the possibility of granting accounting and RBC relief, and the future of on-site exams.

The Property and Casualty Insurance (C) Committee heard an update from NAIC staff on the ongoing NAIC data call on BI coverage. In May, the NAIC issued a data call to all US property/casualty insurers that wrote BI coverage in the United States in 2019 or 2020 to assist state regulators in analyzing “the financial condition of commercial insurers to understand which insurers are writing business interruption coverage, the size of the market, the extent of exclusions related to COVID-19, and claims and losses related to COVID-19.” The data call requires insurers to respond in two parts, with information on BI-related premiums due May 22 and reporting on BI-related claims due monthly from June 15 through November 19, 2020. As of July 2020, NAIC data indicates that approximately $48.7 billion in total premium had been written for policies with BI coverage. Of these policies, 83% of small business policies and 82% of medium business policies include an exclusions for viral contamination, virus, disease, pandemic or a similar exclusion, while approximately 78% of policies for large businesses include such an exclusion. In contrast, 98% of small business policies and 97% of medium business policies include a physical loss requirement, while approximately 85% of large business policies include a physical loss requirement.

The Producer Licensing (D) Task Force heard updates on actions states are taking to facilitate producer licensing during the pandemic, including allowing online testing and temporary licenses. It was reported that, as of July 2020, 15 states have adopted online testing for producer licensing exams, with an additional five states expected to adopt producer licensing during the month of August. Prior to the pandemic, only one state (Washington) allowed online testing. Despite these developments, it was reported that states are still experiencing significant backlogs in testing.

  1. Developments of the Surplus Lines Task Force

The Surplus Lines (C) Task Force is considering updates to the Nonadmitted Insurance Model Act (#870) to implement the provisions of the federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA). The Model Act provides rules governing state insurance company licensing requirements, including activity that constitutes “transaction of insurance” requiring licensing, and rules governing the placement and taxation of nonadmitted insurance, including surplus lines placements, independently procured insurance and other licensing exemptions. Enacted in 2010, the NRRA made significant changes to the regulation of nonadmitted insurance in the United States – most notably, streamlining eligibility requirements for surplus lines insurers and granting the “home state” exclusive authority to regulate and tax nonadmitted insurance transactions. Despite these changes, the NAIC has not yet amended the Model Act to align with the NRRA (in part, because, following the NRRA’s enactment, regulators were uncertain if states would implement a nationwide system for reporting and allocating nonadmitted insurance premium taxes (they have not)). Instead, in 2011, the NAIC issued the Nonadmitted Insurance Reform Sample Bulletin, which summarized the scope of and changes provided under the NRRA, but does not have the force of law.

During the Task Force meeting, Bob Woody, speaking on behalf of the American Property Casualty Insurance Association (APCIA), noted that some members of industry were concerned that reopening the Model #870 at this time might result in changes that no one anticipates, and encouraged the Task Force to proceed cautiously. Several commenters also noted that most states have already updated their laws to implement the NRRA. As a next step, the Task Force has directed NAIC staff to develop a drafting group to produce a summary document that outlines the significant updates needed to modernize the Model #870.

The Task Force also agreed to table a proposal to modify annual and quarterly financial statement Schedule T (Exhibit of Premiums Written) to add a new section for reporting the allocation of surplus lines premiums to each state based on the definition of “home state” under the NRRA. The proposal was intended to help regulators reconcile broker-reported surplus lines premium with company-provided information to ensure that states are receiving the proper amount of surplus lines premium taxes. The proposal was first exposed for comment in September 2019, but the Task Force deferred action while regulators considered the proposal and potential alternatives. Ultimately, Task Force members unanimously voted to table the proposal, following strong opposition from industry, including APCIA and the Wholesale and Specialty Insurance Association.

  1. NAIC Adopts Workers’ Compensation Insurance White Paper

The NAIC adopted the Workers’ Compensation Policy and the Changing Workforce white paper. The paper calls for a review of existing workers compensation insurance system, which the paper claims have become outdated with the passage of time, significant changes in the employer-employee relationship, and the growth of independent contractors and the gig economy. The white paper notes the increasing complexity of federal and state employment laws, the lack of coordination between the two regimes, and the gaps in regulatory oversight that have developed in recent years. The white paper concludes by proposing several alternative coverage models for workers’ compensation that regulators may consider.

  1. Briefly Noted
  1. The Impact of COVID-19 on ORSA

The ORSA Implementation (E) Subgroup is developing proposed revisions to the Own Risk and Solvency Assessment (ORSA) review guidance in the Financial Analysis Handbook and Financial Condition Handbook and is planning to hold a conference call to discuss the impact of COVID-19 on ORSA.

  1. Updates from the Financial Regulation Standards and Accreditation (F) Committee

The Financial Regulation Standards and Accreditation (F) Committee adopted (1) a referral to clarify that the 2019 and 2011 revisions to the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786) apply to risk retention groups as an accreditation standard; and (2) technical changes to the new accreditation standard for Term and Universal Life Insurance Reserve Financing Model Regulation (#787) consistent with a reference that was revised in 2020.

The committee also exposed the following for a 30-day public comment period ending September 11, 2020: (1) revisions to the Review Team Guidelines and the Self-Evaluation Guide for Part C: Organizational and Personnel Practices, which incorporate references to salary ranges in the Financial Analysis Handbook and the Financial Condition Examiners Handbook; and (2) revisions to the Review Team Guidelines for Part B1: Financial Analysis, which clarify that the section applies to all risk retention groups and not just those that follow GAAP.

  1. Update on State Adoption of 2019 Revisions to Credit for Reinsurance Model Law and Regulation

The Executive & Plenary (EX) Committee approved the 2019 amendments to the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786) as an addition to the Part A accreditation standards, effective September 1, 2022. The 2019 amendments implement the reinsurance collateral provisions of the covered agreements between the United States and the EU and UK by eliminating reinsurance collateral requirements for qualified EU/UK reinsurers, and extend comparable benefits to qualified reinsurers domiciled in “reciprocal jurisdictions.” Enforcement of the new accreditation standard is scheduled to begin January 1, 2023.

During the Reinsurance (E) Task Force meeting, it was reported that 11 states have adopted the 2019 amendments to Model #785, with legislation pending in an additional 7 jurisdictions, and only 1 state (Virginia) having adopted the amendments to both Model #785 and Model #786.

  1. New York DFS Issues First Enforcement Action Under Cybersecurity Regulations

The New York Department of Financial Services (NY DFS) has issued its first enforcement action under its landmark cybersecurity regulations. Those regulations, which went into effect in four phases over the course of 2018 and 2019, formed the basis for the NAIC’s own Data Security Model Law (#668). New York is the first state to bring an enforcement action consistent with Model #668, accusing a large title insurer of failing to safeguard mortgage documents that included bank account numbers. For more information about the NY DFS enforcement action and other cybersecurity and privacy enforcement actions, see our Legal Alert: No rest for the weary: cybersecurity and privacy enforcement actions heat up.

  1. Climate Risk and Resiliency (C) Working Group Hears Update on Climate Risk Survey

The Climate Risk and Resiliency (C) Working Group heard a presentation on the preliminary findings of the NAIC climate risk survey and steps being taken to compile and analyze company responses. The survey is administered by the California Department of Insurance (CDI) and includes approximately 1,000 companies licensed to do business in California, Connecticut, Minnesota, New Mexico, New York and Washington (representing approximately 70% of direct written premium in the United States). The eight-question survey asks insurers to provide a description of how they incorporate climate risks into their mitigation, risk management and investment plans. Insurers are asked to identify steps taken to engage key constituencies and policyholders on the topic of climate change. The Working Group’s final report is expected to be released during the NAIC Insurance Summit in September.

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Bad Credit

Inside the Highly Profitable and Secretive World of Payday Lenders



Illustration by Sarah Maxwell, Folio Art

When Bridget Davis got started in the family’s payday lending business in 1996, there was just one Check ’n Go store in Cincinnati. She says she did it all: customer service, banking duties, even painting walls.

The company had been established two years earlier by her husband, Jared Davis, and was growing rapidly. There were 100 Check ’n Go locations by 1997, when Jared and Bridget (née Byrne) married and traveled the country together looking for more locations to open storefront outlets. They launched another 400 stores in 1998, mostly in strip malls and abandoned gas stations in low-income minority neighborhoods where the payday lending target market abounds. Bridget drove the supply truck and helped select locations and design the store layouts.

But Jared soon fired his wife for committing what may be the ultimate sin in the payday lending business: She forgave a customer’s debt. “A young woman came to pay her $20 interest payment,” Bridget wrote in court documents last year during divorce proceedings from Jared. “I pulled her file, calculated that she had already paid $320 to date on a principle [sic] loan of $100. I told her she was paid in full. [Jared] fired me, stating, ‘We are here to make money, not help customers manage theirs. If you can’t do that, you can’t work here.’ ”

Photograph by Brittany Dexter

It’s a business philosophy that pays well, especially if you’re charging fees and interest rates of 400 percent that can more than triple the amount of the loan in just five months—the typical time most payday borrowers need to repay their debt, says the Pew Charitable Trusts, a nonprofit organization focused on public policy. Cincinnati-based Check ’n Go now operates more than 1,100 locations in 25 states as well as an internet lending service with 24/7 access from the comfort of your own home, according to its website. Since its founding, the company has conducted more than 50 million transactions.

What the website doesn’t say is that many, if not most, of those transactions were for small loans of $50 to $500 to working people trying to scrape by and pay their bills. In most states—including Ohio, until it reformed its payday lending laws in 2019—borrowers typically fork over more than one-third of their paycheck to meet the deadline for repayment, usually in two weeks. To help guarantee repayment, borrowers turn over access to their checking account or deposit a check with the lender. In states that don’t offer protection, customers go back again and again to borrow more money from the same payday lender, typically up to 10 times, driving themselves into a debt trap that can lead to bankruptcy.

Jared and Bridget Davis are embroiled in a nasty court battle related to his 2019 divorce filing in Hamilton County Domestic Relations Court. Thousands of pages of filings and 433 docket entries by April 26 offer the public a rare glimpse into the business operations of Check ’n Go, one of Cincinnati’s largest privately-owned companies, as well as personal lifestyles funded by payday lending.

The company cleared $77 million in profit in 2018, a figure that dipped the following year to $55 million, according to an audit by Deloitte. That drop in revenue may have something to do with the payday lending reform laws and interest rate caps passed recently in Ohio as well as a growing number of other states.

The day-to-day business transactions that provide such profit are a depressing window into how those who live on the edge of financial security are often stuck with few options for improving their situations. If a borrower doesn’t repay or refinance his or her original loan, a lender like Check ’n Go deposits the guarantee check and lets it bounce, causing the borrower to incur charges for the bounced check and eventually lose his or her checking account, says Nick DiNardo, an attorney for the Legal Aid Society of Greater Cincinnati. After two missed payments, payday lenders usually turn over the debt to a collection agency. If the collection agency fails to collect the full amount of the original loan as well as all fees and interest, it goes to court to garnish the borrower’s wages.

That devastating experience is all too familiar to Anthony Smith, a 60-year-old Wyoming resident who says he was laid off from several management positions over a 20-year period. He turned to payday lenders as his credit rating dropped and soon found himself caught in a debt trap that took him years to escape.

Two things happened in 2019, Smith says, that turned around his financial fortunes. First, he found a stable manufacturing job with the Formica Company locally, and then he took his mother’s advice and opened a credit union account. GE Credit Union not only gave him a reasonable loan to pay off his $2,500 debt but also issued him his first credit card in a decade. “I had been a member [of the credit union] for just two months, and I had a credit rating of 520. Can you imagine?” he says. Smith says he is now debt-free for the first time in 10 years.

Consumer advocates say Check ’n Go is one of the biggest payday lending operations in the nation. But knowing its exact ranking is difficult because most payday lending companies, including Check ’n Go and its parent company CNG Holdings, are privately held and reluctant to disclose their finances.

Brothers Jared and David Davis own the majority of the company’s privately held stock. David bought into the company in 1995, but CNG got its game-changing infusion of capital from the brothers’ father, Allen Davis, who retired as CEO of then-Provident Bank in 1998. Allen sold off $37 million in stock options and essentially became CNG’s bank and consultant.

By 2005, however, the sons were part of a public court battle against their father. Allen accused Jared and David of treating his millions in CNG stock as compensation instead of a transfer from his ex-wife (and the brothers’ mother), sticking him with a $13 million tax bill. In turn, the brothers accused Allen of putting his mistress and his yacht captain on the company payroll, taking $1.2 million in fees without board approval, and leading the company into ventures that lost Check ’n Go a lot of money. Several years of legal fighting later, the IRS was still demanding its $13 million. CNG officials did not respond to requests for comment for this story.

Jared and David split $22 million in profit from CNG in 2018 and, according to the Deloitte audit, CNG’s balance sheet showed another $42 million that could be split between the two brothers in 2019. Jared, however, elected not to receive his $21 million distribution “in order to create this artificial financial crisis and shelter millions of dollars from an equitable split between us,” according to Bridget’s divorce filing.

Worse, she claims, Jared said they would be responsible for paying taxes out of their personal accounts rather than from CNG’s company earnings, making her personally responsible for half of the $5.5 million in taxes for 2019. She believes it wasn’t happenstance that $5.5 million was wired to Jared’s private bank account in December of that same year. Bridget has refused to sign the joint tax return, and Jared filed a complaint with the court saying a late tax filing would cost them $1 million in penalties and missed tax opportunities.

“For the duration of our marriage and to the present, Jared has full and complete control of all money paid to us from various investments we have made in addition to our main source of income, CNG,” Bridget wrote in her motion. She suspects that Jared, without her knowledge or consent, plowed the money for their taxes and from other sources of income into Black Diamond Group, the fund that invests in the Agave & Rye restaurant chain. Beyond the original restaurant opened in Covington in 2018, “they have opened four other locations in one year,” she wrote, including Louisville and Lexington. (The ninth location opened in Hamilton this spring.) Agave & Rye’s website touts its Mexican fare as “a chef-inspired take on the standard taco, elevating this simple food into something epic!”

In his response, Jared wrote, “We have very limited regular sources of income.” He says he isn’t receiving any additional distributions from CNG, the couple’s primary source of income, “and this is not within my control. The company has declared that we would not make any further distributions in 2020 given economic circumstances. This decision is based on a formula and is not discretionary.” Agave & Rye helped produce $645,000 in income for Black Diamond in 2020 but has paid out $890,000 in loans, he says. Through August 31, 2020, he wrote, the couple’s “expenses have exceeded income from all sources.”

The divorce case filings start slinging mud when the couple accuses each other of breaking up their 22-year marriage and finding new partners. Jared claims Bridget began an affair during their marriage with Brian Duncan, a contractor she employed through her house flipping business. Bridget, he says, paid Duncan’s company $75,000 in 2018 as well as giving him a personal gift of $70,000 that same year. Jared says she also bought Duncan at least one car and purchased a house for him near hers on Shawnee Run Road for $289,000, then loaned money to Duncan. Jared says Duncan has been late in repaying the note.

While Bridget says Duncan has been drug-free for several years, he has a rap sheet with Hamilton County courts from 2000 to 2017 that runs five pages long. It lists a half-dozen counts of drug abuse and drug possession, including heroin and possession of illegal drug paraphernalia; assaulting a police officer; stealing a Taser from a police officer; criminal damaging while being treated at UC Health; more than a dozen speeding and traffic violations; a half-dozen counts of driving with a suspended license; receiving stolen property; twice fleeing and resisting arrest; three counts of theft; two counts of forgery; and one count for passing bad checks.

Bridget has fired back that Jared not only is hiding his money from her but spending it lavishly on vacations, resorts, and high-end restaurants with his new girlfriend, Susanne Warner. Bridget says Jared gifted Warner with $40,000 without Bridget’s knowledge, then declared it on their joint tax return as a “contribution.” Bridget’s court filings include photocopies of social media posts of Jared and Warner globetrotting from summer 2019 to summer 2020: vacation at Beaver Creek Village in Avon, Colorado; cocktails at High Cotton in Charleston, South Carolina, and dinner at Melvyn’s Restaurant and Lounge in Palm Springs, California; getaways at resorts in Nashville and at a lakefront rental on Norris Lake ($600 per night); in the Bahamas at a Musha Cay private residence ($57,000 per night), at South Beach in Miami, and at a private beach at Fisher Island; in Mexico at Cabo San Lucas; in the U.S. Virgin Islands at Magen’s Bay and on a private yacht ($4,500 per night); in California at Desert Hot Springs, the Ritz-Carlton in Rancho Mirage, and Montage at Laguna Beach; and in the Bahamas at South Cottage ($2,175 per night).

For her part, Bridget has gone through some of the top lawyers in town faster than President Trump during an impeachment—six in all, two of whom she’s sued for malpractice. She sent four binders of evidence to the Ohio Supreme Court, asking for the recusal of Hamilton County Judge Amy Searcy and claiming Searcy was biased because of campaign donations from Jared and his companies. Rather than deal with the list of questions sent to her by Chief Justice Maureen O’Connor, Searcy stepped down. Two other judges have since stepped into the fray, and in March Bridget filed for a change of venue outside of Hamilton County, arguing she can’t get a fair trial in her hometown. At press time, a trial date had been set for June 28 in Hamilton County.

The poor-mouthing in the divorce case has reached heights of comic absurdity. Jared claims he’s “illiquid” because he didn’t get his distribution from CNG in 2019. Bridget has received debt collection notices for the nearly $21,000 owed on her American Express card and a $735 bill from Jewish Hospital. There’s no sign yet that anyone is coming to repossess her Porsche, which according to her filings has a $5,000 monthly payment. Each party has received $25,000 a month in living expenses, an amount later reduced to $15,000 under a temporary legal agreement while the divorce case is being sorted out. Court filings show that Jared’s net worth is almost $206 million and Bridget’s is $22.5 million.

In the early 1990s, Allen Davis was raising eyebrows at Provident Bank (later bought by National City), and not only because of his very unbanker-like look of beard, ponytail, and casual golf wear. He was leading the company into questionable subprime home loans for people with bad credit and a frequent-shopper program for merchants, though the bank’s charter barred him from getting involved in full-blown predatory lending practices. With guidance and funding from his father, Jared, at age 26, launched Check ’n Go in 1994 and became a pioneer in the payday lending industry. Jared and his family saw there were millions of Americans who didn’t have checking or savings accounts (“unbanked”) or an adequate credit rating (“underbanked”) but still needed loans to meet their everyday expenses. What those potential customers did have was a steady paycheck.

Conventional banks share a big part of the blame for the nation’s army of unbanked borrowers by imposing checking account fees and onerous penalties for bounced checks. In 2019, the Federal Deposit Insurance Corporation estimated there were 7.1 million U.S. households without a checking or savings account.

The Davises launched Check ’n Go on the pretext that it would “fill the gap” for people who occasionally needed to borrow money in a hurry—a service for those who couldn’t get a loan any other way. But consumer advocates say the real business model for payday lending isn’t a service at all. The majority of the industry’s revenue comes from repeat business by customers trapped in debt, not from borrowers looking for a quick, one-time fix for their financial troubles.

Ohio’s payday lending lobbyists got a strong hold on the state legislature in the late 1990s, and by 2018 Democratic gubernatorial candidate Richard Cordray could rightfully claim in a campaign ad that “Ohio’s [payday lending] laws are now the worst in the nation. Things have gotten so bad that it is legal to charge 594 percent interest on loans.” His statement was based on a 2014 study by the Pew Charitable Trusts.

The frustration for consumer advocates was that Ohioans had been trying to reform those laws since 2008, when voters overwhelmingly approved a ballot initiative placing a 28 percent cap on the interest of payday loans. But—surprise!—lenders simply registered as mortgage brokers, which enabled them to charge unlimited fees.

The Davis family and five other payday lending companies controlled 90 percent of the market back then, an express gravy train ripping through the poorest communities in Ohio. The predatory feeding frenzy, especially in Ohio’s hard-hit Rust Belt communities, prompted a 2017 column at The Daily Beast titled, “America’s Worst Subprime Lender: Jared Davis vs. Allan Jones?” (Jones is founder and CEO of Tennessee-based Check Into Cash.) In 2016 and 2017, consumer advocates mustered their forces again, and this time they weren’t allowing for loopholes. The Pew Charitable Trusts joined efforts with bipartisan lawmakers and Ohioans for Payday Loan Reform, a statewide coalition of faith, business, local government, and nonprofit organizations. Consumer advocates found a legislative champion in State Rep. Kyle Koehler, a Republican from Springfield.

It no doubt helped reform efforts that former Ohio Speaker of the House Cliff Rosenberger resigned in spring 2018 amid an FBI investigation into his cozy relationship with payday lenders. Rosenberger had taken frequent overseas trips—to destinations including France, Italy, Israel, and China—in the company of payday lending lobbyists. In April 2019, Ohio’s new lending law took effect and, since then, has been called a national model for payday lending reform that balances protections for borrowers, profits for lenders, and access to credit for the poor, according to the Pew Charitable Trusts. New prices in Ohio are three to four times lower for payday loans than before the law. Borrowers now have up to three months to repay their loans with no more than 6 percent of their paycheck. Pew estimates that the cost of borrowing $400 for three months dropped from $450 to $109, saving Ohioans at least $75 million a year. And despite claims that the reforms would eliminate access to credit, lenders currently operate in communities across the state and online. “The bipartisan success shows that if you set fair rules and enforce them, lenders play by them and there’s widespread access to credit,” says Gabe Kravitz, a consumer finance officer at the Pew Charitable Trusts.

Other states like Virginia, Kansas, and Michigan are following Ohio’s lead, Kravitz says. Some states, such as Nebraska, have even capped annual interest on payday loans. As a result, Pew researchers have seen a reduction in the number of storefront lending op­erations across the country. Even better, Kravitz says, there’s no evidence that borrowers are turning instead to online payday lending operations.

Cincinnati is one of five cities chosen for a grant to replicate the success of Boston Builds Credit, an ambitious effort that city launched in 2017 to provide credit counseling in poor and minority communities by training specialists at existing social service agencies. The program also encourages consumer partnerships with credit unions, banks, and insurance companies to offer small, manageable loans that can help the unbanked and underbanked improve their credit ratings. “Right now, local organizations are all kind of working in silos on the problem in Cincinnati,” says Todd Moore of the nonprofit credit counseling agency Trinity Debt Relief. Moore, who applied for the Boston grant, says he’s looking for an agency like United Way or Strive Cincinnati to lead the effort here.

Anthony Smith is thankful that he’s escaped the downward spiral of his payday loans, especially during the pandemic’s economic turmoil. “I’m blessed for every day I can get paid and have a job during these difficult times, just to be able to pay my bills and meet my responsibilities,” he says. “I’ve always kept a job, but until now I’ve had crappy credit. That doesn’t mean I’m a bad guy.”

Can others worth millions of dollars say the same?

Inside the Highly Profitable and Secretive World of Payday Lenders Source link Inside the Highly Profitable and Secretive World of Payday Lenders

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Bad Credit

What’s Questionable Credit and Can I Get a Car Loan With It?



Questionable’s definition means that something’s quality is up for debate. If a lender says that your credit score is questionable, it’s likely that they mean it’s poor, or at the very least, they’re hesitant to approve you for vehicle financing. Here’s what most lenders consider questionable credit, and what auto loan options you may have.

Questionable Credit and Auto Lenders

Many auto lenders may consider questionable credit as a borrower with a credit score below 660. The credit score tiers as sorted by Experian the national credit bureau, are:

  • Super prime: 850 to 781
  • Prime: 780 to 661
  • Nonprime: 660 to 601
  • Subprime: 600 to 501
  • Deep subprime: 500 to 300

The nonprime credit tiers and below is when you start to get into bad credit territory and may struggle to meet the credit score requirements of traditional auto lenders.

This is because lenders are looking at your creditworthiness – your perceived ability to repay loans based on the information in your credit reports. Besides your actual credit score, there may be situations where the items in your credit reports are what’s making a lender question whether you’re a good candidate for an auto loan. These can include:

  • A past or active bankruptcy
  • A past or recent vehicle repossession
  • Recent missed/late payments
  • High credit card balances
  • No credit history

There are ways to get into an auto loan with questionable credit. Your options can change depending on what’s making your credit history questionable, though.

Questionable Credit Auto Loans

If your credit score is less than stellar, it may be time to look at these two lending options:

  • What Is Questionable Credit and Can I Get a Car Loan With It?Subprime financing – Done through special finance dealerships by third-party subprime lenders. These lenders can often assist with many unique credit situations, provided you can meet their requirements. A great option for new borrowers with thin files, situational bad credit, or consumers with older negative marks.
  • In-house financing – May not require a credit check, and is done through buy here pay here (BHPH) dealers. Typically, your income and down payment amount are the most important parts of eligibility. Auto loans without a credit check may not allow for credit repair and may come with a higher-than-average interest rate.

Both of these car loan options are typically available to borrowers with credit challenges. However, if you have more recent, serious delinquencies on your credit reports, a BHPH dealer may be for you. Most traditional and subprime lenders typically don’t approve financing for borrowers with a dismissed bankruptcy, a repossession less than a year old, or borrowers with multiple, recent missed/late payments.

Requirements of Bad Credit Car Loans

In many cases, your income and down payment size are the biggest factors in your overall eligibility for bad credit auto loans. Expect to need:

  • 30 days of recent computer-generated check stubs to prove you have around $1,500 to $2,500 of monthly gross income. Borrowers without W-2 income may need two to three years of professionally prepared tax returns.
  • A down payment of at least $1,000 or 10% of the vehicle’s selling price. BHPH dealers may require up to 20% of the car’s selling price.
  • Proof of residency in the form of a recent utility bill in your name.
  • Proof of a working phone (no prepaid phones), proven with a recent phone bill in your name.
  • A list of five to eight personal references with name, phone number, and address.
  • Valid driver’s license with the correct address, can’t be revoked, expired, or suspended.

Depending on your individual situation, you may need fewer or more items to apply for a bad credit auto loan. However, preparing these documents before you head to a dealership can speed up the process!

Ready to Get on the Road?

With questionable credit, finding a dealership that’s able to assist you with an auto loan is easier said than done. Here at Auto Credit Express, we want to get that done for you with our coast-to-coast network of special finance dealerships.

Complete our free auto loan request form and we’ll get right to work looking for a dealer in your local area that can assist with many tough credit situations.

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Bad Credit

Entrepreneur Tae Lee Finds Her Fortune



By Jasmine Shaw
For The Birmingham Times

Birmingham native Tae Lee had plans last year to visit the continent of Africa, the South American country of Columbia, and the U.S. state of Texas.

“I was going to stay in each place for like four to six weeks, and then COVID-19 happened,” she said. “So, I just was like, ‘You know what, I’m just gonna go to Mexico and stay for six months.’”

Once home from Playa Del Carmen, located on Mexico’s Yucatán Peninsula, the 33-year-old entrepreneur put the final touches on “Game of Fortune: Win in Wealth or Lose in Debt,” a financial literacy card game for ages 10 and up.

“We created ‘Game of Fortune’ because we realized there was a gap in learning the fundamentals of money,” said Lee. “We go through life not knowing anything about money and then—‘Bam!’—real life hits. Credit, debt, and bills come at us quick!”

Lee believes the game “gives players a glimpse of real life” by using everyday scenarios to teach them how to make wiser financial decisions without having to waste their own money.

“I feel like [financial literacy] can be learned in ways other than somebody standing up and preaching it to you over and over again,” she said. “You can learn it in ways that are considered fun, as well.”

Which is why “we want the schools to buy it, so we can give students a fun way to learn about financial literacy,” she added.

Lee, also called the “Money Maximizer,” is an international best-selling financial author, speaker, coach, and trainer who is known for her financial literacy books, including “Never Go Broke (NGB): An Entrepreneur’s Guide to Money and Freedom” and the “NGB Money Success Planner High School Edition.” The Birmingham-based financial guru focuses on creating diverse streams of income in the tax, real estate, insurance, and finance industries.

For Lee, it’s about building generational wealth, not debt.

Indispensable Lessons

Lee got her first glance at entrepreneurial life as a child watching her mother, Valeria Robinson, run her commercial cleaning company, V’s Cleaning. Robinson retired in 2019.

“My grandmother had a cleaning service, too,” said Lee. “So, even though I didn’t start out as an entrepreneur, watching my mom and grandma do it taught me a lot.”

Lee grew up in Birmingham and attended Riley Elementary School, Midfield Middle School, and Huffman High School. She then went on to Jacksonville State University, in Jacksonville, Alabama, where she earned bachelor’s degree in physical education. She struggled to find a career in her field and became overwhelmed by student loans.

“My credit and stuff didn’t get bad until after college,” she said. “I was going through school and taking money, but nobody told me, ‘Oh, you’re gonna have to pay all of this back.’”

Before embarking on her extensive career in money management, Lee had not learned the indispensable lessons that she now shares with clients.

“‘Don’t have bad credit.’ That’s all I learned,” she remembers. “Financial literacy just wasn’t taught much. I learned the majority of my lessons as I aged.”

In an effort to ward off collection calls and raise her credit score, Lee researched tactics to strategically eliminate her debt.

“I knew I had to pay bills on time, and I couldn’t be late with payments,” she said.

Lee eventually began helping friends revamp their finances and opened NGB Inc. in 2017 to share fun, educational methods to help her clients build solid financial foundations.

“People were always coming to me like, ‘How do I invest in this?’ and ‘How do I do that?’ So, I said to myself, ‘You know what, people should be paying to pick your brain.’”

Legacy Building

While Lee enjoyed watching her clients reach milestones, like buying a new car with cash or making their first stock market investment, she was also designing “Game of Fortune” to teach the value of legacy building.

“The game gives players the knowledge to build generational wealth, not generational debt,” she said. “It gives you a glimpse of life, money, and what can truly happen if you mismanage your coins.”

Using index cards to create her first “Game of Fortune” sample deck, Lee filled each card with pertinent terms related to debt elimination and credit and wealth building. She then called on a few friends to help her work through the kinks.

Three of her good friends—Barbara Bratton, Daña Brown, and Sha Cannon—were just a few of the people that gave feedback on the sample deck.

“From there I met with Brandon Brooks, [owner of the Birmingham-based Brooks Realty Investments LLC], and four other financial advisors to fine-tune the definitions and game logistics,” Lee said.

Though Lee was unable to land a job in physical education after graduating from college, she now sees her career with NGB Inc. as life’s unexpected opportunity to teach on her own terms.

“Bartending and waitressing taught me that working for someone else was not for me,” she replied. “In order to get the life I always wanted, I had to create my own business.”

In her entrepreneurial pursuits, Lee strives to be an open-minded leader who embraces the need for flexibility.

“COVID-19 has shown me that in entrepreneurship you have to maneuver,” she said. “When life changes, sometimes your business will, too. You may have to change the path, but your ending goal can be the same.”

“Game of Fortune: Win in Wealth or Lose in Debt” is available and sold only on the “Game of Fortune” website: To learn more about Tae Lee and Never Go Broke Inc., visit and or email [email protected]; you also can follow her on Facebook ( and Instagram (@nevergobrokeinc).

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