Payday Loan Times

The House of Representatives voted unanimously Monday to restrict payday loan companies in New Mexico.

While the House has passed similar legislation in each of the past four years, this is the first time an agreement has been reached with the Senate.

The bill that will move over has the support of Sen. Bernadette Sanchez, D-Albuquerque, who had worked to reject House bills in past years because she did not believe they went far enough in regulating the faxless payday advance industry.

The bill would limit loan periods to a maximum of 35 days, with no renewals or rollovers. Those unable to repay their bad credit payday loan within the payment period would be able to enter into a payment plan of at least 130 days at no extra cost.

Charges would be limited to $15.50 per $100 borrowed, plus 50 cents to create a new verification database. Loans would be limited to 25 percent of a borrower’s monthly income, and consumers could not take out a new payday cash loan while in any payment plan.

Donna Childs is the president and CEO of the Dayton Better Business Bureau. She wrote the following, paraphrased piece for The Dayton Daily News:

It’s hard to turn on the television or radio and not see or hear ads for Ohio payday loans. The business of payday loans is booming. Lenders offer different deals to compete for your business. And, they’re succeeding.

If you’re short on cash, payday loans, also known as cash advance loans, check advance loans or postdated loans, may seem like the answer. You walk into a store, pick up the phone or click on a link, provide some information and $100 to $500 is in your account before the day’s end. But, payday loans are one of the most expensive ways to borrow money and could throw you into a vicious cycle of borrowing and debt.

If you use a storefront payday lender, you write the lender a postdated check for the desired amount plus the loan fee. In return, you’re given the requested amount, minus the fee. At the determined time, the lender deposits the check, gives you the check back for the cash amount or extends the no faxing payday loan for another fee.

With Internet lenders, the loan amount is electronically deposited into your bank account. At the end of the loan period, the lender automatically withdraws the loan amount plus fees from your account.

Whether you use a storefront or Internet lender, you must provide information including your name, address and Social Security number. You must also show proof of employment and have a bank account in good standing.

Payday advance loan fees can range from $15 to $50 for every $100 borrowed. If you’re strapped for cash, paying $115 to borrow $100 for two weeks may not seem like a lot. But, the loan cost in terms of annual percentage rate is around 390 percent interest.

Payday loans can be deceptive. The lender may deposit your postdated check before the agreed upon date, causing your check to bounce and forcing you to pay more fees. Plus, the high rates can make it difficult to repay the original fast cash loan causing you to extend the loan.

Online lenders may be hard to locate and can make loans without complying with state regulations. Plus, completing online applications can expose you to privacy and security risks.

The Better Business Bureau suggests some alternatives to payday loans including getting a small loan from your bank, family or friends; asking creditors for more time to pay your bills and finding out what fees are associated with this service; making a realistic budget and sticking to it; or creating a debt repayment plan with a consumer credit counseling service

A credit union that provided low-interest loans and financial counseling to help people pay off high-interest bad credit payday loans has been declared insolvent and taken over by federal and state regulators.

Regulators said Friday that the $2.3 million Communities United Credit Union had “no prospects of restoring viable operations” and would be dissolved.”

The Kansas Department of Credit Unions is overseeing the move, which will see the 1,900 members’ accounts moved to other credit unions in the area. This will assist those suffering from dangerous quick cash loans.

“Our goal is to find another credit union that will serve these members,” said John Smith, administrator of the state credit union department.

Members’ accounts are insured up to $100,000 by the National Credit Union Share Insurance fund. It is administered by the National Credit Union Administration, which will operate Communities United until it is dissolved.

That could take up to three months, Smith said. The news caught credit union member Mitzi Rivers by surprise.

Rivers used a loan from Communities United to retire payday advance loans that were costing her $600 a month in fees.

“I am tremendously grateful that they were there to come to my rescue,” Rivers said Friday. “Now, I’m just in shock. It’s like family.”

The credit union had a net worth ratio - the difference between assets and liabilities - of minus-2.06 percent, Smith said. The average net worth ratio of Kansas-chartered credit unions in 2006 was 12.52 percent.

“They haven’t had a positive bottom line in the past three years,” he said.

The credit union has struggled with solvency issues several times in its 11-year history, several times needing hastily organized fundraising campaigns to keep going.

When several car loan/check cash advance borrowers recently went into default, volunteer directors tried two weeks ago to organize another campaign to raise $500,000.

Director Ed Poindexter said the campaign might have succeeded with more time, but added that trying to raise the money so quickly “was almost impossible and kind of overwhelming.”

The credit union has 15 days to appeal, but directors said it’s unlikely that would be successful.

“Without the working capital there’s no way we can win,” said Milford Adams, who has served on the board from the start. “That’s the bottom line. We just don’t have the financial stability to carry on.”

SOURCE: The Wichita Eagle

Last year, more than 2.8 billion Missouri payday loans were granted, translating to millions of dollars in interest money collected.

People who are in difficult financial situations or live paycheck-to-paycheck often turn to payday loans as a way of making ends meet or as a simple means of survival.

Jefferson City area residents David and Tracy Reames agree it’s a hard lesson and one they had to learn on their own.

“It’s easy. They make it way too easy to borrow money,” Tracy Reames said. “Borrowing money to make it through until the next payday seems harmless until you look at how much you’re paying back, and then it becomes ridiculous. It really is a viscous circle that seems as though it will never break.”

Calls to local no fax payday loan agencies were referred to corporate facilities that did not respond to repeated interview requests for this article.

Being married for 13 years, the Reames, like other young couples, struggle from month to month to pay all of the necessary bills and keep food on the table. David works full-time and Tracy stays home with their two children.

“It’s not like we borrowed the money to just have money to blow,” she said. “We didn’t spend it on silly things like telephone service or mini-vacations or trips to the local pizza place.

“Each loan we took out was for something we had to have like food, electric, water and so on.”

The number of families like the Reames, which felt the effects of a cash advance payday loan, has increased for the past several years.

According to a recent study by the Missouri Division of Finance, Missourians spent almost $320 million in payday loan interest fees last year. That is the second highest amount spent in the nation.

Once the bills start piling up, Tracy said, it’s hard not to reach out for help. And by taking out a payday loan, it doesn’t seem like charity.

But the Reames family was in a financial bind each week as paychecks seemed to stretch further and further apart.

“You start robbing Peter to pay Paul when the bills start to pile up, and then you start to panic,” Tracy said.

“The money has to come from somewhere. With two kids, you can’t afford to have the electric turned off and you need gasoline in the car to go back and forth to work and take the children to the doctor when they need to go.

“The next thing you know, you’re sucked in again and you feel like you’re never going to get out of debt.

“So, you borrow another [no fax payday advance] to pay off another loan and the cycle keeps going.”

Regardless of how hard they tried, the Reames constantly found themselves struggling to ease the financial pain.

Sometimes, the easiest way out was to just sign on the dotted line, take another cash loan online and hope for the best. However, the more they borrowed, the worse the situation seemed to get.

(Read on …)

Got an emergency and need a couple hundred dollars to get by? Don’t turn to fast payday loan lenders.

They aren’t the saviors they pretend to be. They charge an annualized rate of 391 percent interest and hope you can’t pay on time so you’ll keep renewing your loan and paying new fees.

Fortunately, claims that there aren’t any alternatives for consumers who need small, short-term loans are greatly exaggerated.

I called the South Carolina Credit Union League. Just as I anticipated, I found that credit unions — which can’t charge more than 18 percent interest — are a far better deal than the legalized personal cash loan sharks our state allows to prey on borrowers.

Frankly, just about any alternative is better than payday lenders. Ask your family or a good friend for help. Some companies will extend advances on pay to help employees get out of tight spots. Using a credit card would be cheaper than going to a faxless payday advance lender, even if the interest rate is in the upper-20 percent range. It’s even cheaper these days to use finance companies.

The Credit Union League conducted a quick, one-day survey of some of its members recently. It asked about products credit unions offer that could be used as possible alternatives to cash loans. The results from 21 credit unions showed they offer small loans that average $250.

The minimum amount that can be borrowed ranges from zero to $500. The interest rates range from 9 percent to 18 percent. The average rate is 16.26 percent.

Some have programs to help people get out from under payday loans. Most have been making small loans for years, since well before quick cash advance lending became the scourge it is. The credit unions stressed that their primary goal is to help people do a better job of managing their finances and avoiding debt traps.

Here’s what I learned from the CEOs of a few credit unions:

• Carolina Trust Federal Credit Union offers micro-loans up to $500 and gives members up to six months to repay. There is no credit check, but borrowers must have been on the job for six months and have direct deposit.

The credit union once catered to employees at large industrial and manufacturing companies, but now has a community charter and serves residents in Horry, Georgetown, Williamsburg and southern Florence counties. “We do quite a few of these and we promote them in our branches,” said president and CEO Jerry Miller. The program began 10 years ago, he said.

• Family Trust Federal Credit Union has long offered loans aimed at helping families in need. In the late ’70s, it served thousands of employees at textile and industrial plants. People could get a line of credit to buy tires, pay taxes or even go on vacation, said president and CEO Lee Gardner. Family Trust will soon begin offering a new personal loan product similar to a payday loan, with one big difference: It won’t be more than 18 percent.

The program will have a savings feature: 10 percent of what members borrow would go into a savings account and can’t be withdrawn until the payday advance is paid off. “There’s a forced savings habit in there,” Mr. Gardner said.

• Founders Federal Credit Union offers a range of products and services to help customers. It has no minimum loan amount. “We make lots of loans for folks to pay electric bills. We make lots of loans to buy groceries,” said CEO Bruce Brumfield.

That said, Founders’ aim isn’t simply to get someone out of a tight spot. It prides itself on helping members understand their finances so they can better manage their money and avoid trouble, Mr. Brumfield said. Founders employs three full-time counselors who give free guidance.

At any given time, about 300 to 400 members are in the program, which has served thousands over the past 12 to 13 years. The idea is to help people learn why they are struggling so they can correct their habits. “We believe it is an investment in our membership,” Mr. Brumfield said.

Founders has locations in Chesterfield, Chester, Lancaster, York, Spartanburg, Cherokee and Union counties. The credit union has an occupation-based charter — members include landscapers, doctors, dentists, local government workers and others.

SOURCE: The State

By the Editorial Board of the Union-Bulletin

Often those who seek short-term, high-interest payday cash advances are desperate. Why else would they agree to pay 300 percent interest?

We, as a society, have an obligation to protect the most vulnerable among us from this legal loan sharking.

The federal government has taken action to protect those in the U.S. military and their families. A new federal law, which takes effect in October, caps annual interest rates [on military payday loans]and fees at 36 percent.

But what about the rest of us?

Washington lawmakers are now looking at several proposals aimed at protecting consumers from outrageous interest rates that too easily trap consumers in a vicious cycle of debt.

Establishing protections on payday cash loans is tricky. The regulations need to be strict enough to protect consumers but not so restrictive that payday lenders can’t make a reasonable profit.

Payday lenders do serve a legitimate need. However, payday loans are a rotten way to get your hands on cash. Other lower-interest avenues should always be pursued first.

Unfortunately, some people have limited options - all of them bad. Those with poor credit - or no credit - might find that cheap payday loans make the most sense for them. They might, for example, need $100 for a week or two and the cheapest way to get it is to pay $15.

At least with payday loans, consumers know up front what interest rate he or she will be paying.

Without that option, the desperate will be forced to consider even more expensive, even dangerous, options.

It is better to have a regulated industry in which consumers have some protection.

“We’re not trying to put the industry out of business, just trying to make it fair for everybody,” said Rep. Sherry Appleton, D-Poulsbo, who has introduced two proposals aimed at protecting the public.

Appleton has proposed capping interest at 36 percent annually (the same rate as military families) and setting a minimum bad credit cash loan term of 90 days.

Lobbyists for the payday industry contend 36 percent interest rate - while very high compared to bank loans - is not high enough to keep payday lenders in business.

While it’s possible this might force a few of the payday cash advance lenders to consolidate or streamline their operations, it’s unlikley to drive them out of business. The business will still be profitable, just not as profitable.

In the end, it’s fair. After all, if military families are protected with a 36 percent interest rates, shouldn’t all families in Washington state have that same protection?

The House of Delegates passed a package of payday advance lending reforms today, even as opponents argued it still doesn’t do enough to keep borrowers from falling into a cycle of debt.

The bill would create a statewide database to keep track of Virginia payday loans and limit borrowers to three at one time. Individuals would have to wait 24 hours before taking out a loan after paying off another, and overextended borrowers could enter into 60-day extended payment plans, during which time they could not take out another loan.

The Senate must agree to changes made in the House to further protect instant cash loan borrowers before the bill can be sent to the governor.

Governor Kaine wants to limit the annual interest rate lenders can charge. Supporters have said caps would put the state’s nearly 800 payday lending stores out of business.

Kelly Griffith is deputy director of the Southwest Center for Economic Integrity; Don Carson is vice president of the nondenominational Little Chapel of All Nations.

The Arizona payday loan industry is under public criticism like never before, and the power of repeal or reform is in the hands of the Legislature. The question is whether House and Senate leaders will allow key measures to clear committees and receive a vote of the full membership.

A floor vote is the only way to take the issue out of the back rooms and make legislators publicly accountable to their constituents.

In recent years, the subject has been confined primarily to hallway conversations between fast payday advance lobbyists and legislators. Lobbyists have controlled any change because they were privy to and essentially part of the daily process.

In the seven years since the industry won exemption from the state’s 36 percent usury limit, the number of predatory storefront lenders has skyrocketed to about 775, many within blocks of each other.

The prize is a booming business catering to people desperate for small sums of money.

These customers are embarking on a cash advance path that often means an annualized interest charge of nearly 400 percent.

It’s time to shut down these predatory lenders. It’s time for our elected officials to take a stand for economic fairness and justice. For too long, industry lobbyists have guided backstage tinkering with the law to provide the appearance of reform.

Payday loans are short-term, usually for two or four weeks, and are backed by the borrower’s post-dated check. Because they are sought by people with limited means, they frequently cannot be repaid on time and must be renewed.

If they need the money this week, what is to suggest they can pay it off with their next paycheck?

Studies have shown that 90 percent of the borrowers enter a cycle of repeat borrowing. For some, there is no end. The New York Times recently told the story of a New Mexico man who pays $1,500 monthly to cover the interest cost of what he had intended several years ago to be short-term, online cash loans.

(Read on …)

A proposal to allow Georgia payday loan lenders to return to the state hit a snag Wednesday as it wound its way through the Legislature.

Committee members had scheduled a hearing on the contentious proposal, which would roll back the state’s ban on payday lending and replace it with a system to regulate short-term lenders.

Yet only the measure’s sponsors were given time to speak, leaving a packed room full of critics and faxless payday advance supporters with no time to talk about the measure.”This is an outrage! You ought to be ashamed of yourself. Shame, shame, shame,” said the Rev. Timothy McDonald, pastor of Atlanta’s First Iconium Baptist Church and longtime leader of the city’s Concerned Black Clergy.

“Sir, you’re out of order,” replied state Rep. James Mills, the committee’s chairman.

“I know I’m out of order,” he shot back. “God was out of order. Jesus was out of order.”

The proposal has enraged consumer watchdog groups, the AARP and many Democrats, who say fast cash loan lenders were banned three years ago because they trapped the neediest Georgians into high-interest loans that kept rolling over.

Supporters said the ban went too far, pushing out of the market reputable companies that require customers to prove they hold a job and a bank account and leaving a void filled by illegal lenders or murky Internet sites.

“We probably did something we probably should never do in the legislative process,” said state Rep. Earl Ehrhart, R-Powder Springs. “We passed a piece of legislation for one segment of the industry to eliminate competition.”

The proposal would create a system of “cash advances,” two-week loans prohibited by law from accruing interest. Instead, operators would take a service fee of $15 per every $100 borrowed. It also limits customers to borrowing the equivalent of 25 percent of their monthly income and bans lenders from rolling over loans from month to month.

Ehrhart, the bill’s co-sponsor, also suggested adding an amendment that would fine media companies and businesses that run advertisements for online lenders.

After the hearing was abruptly called to a close, both sides held impromptu press conferences in the crowded halls.

James Josey, a 23-year-old from Bainbridge, said he was the victim of a cash advance online scam and billed more than $450 on a loan of $250.

“They don’t need to let them back in,” Josey said. “It’s a cycle you get pulled into.”

Jabo Covert, a lobbyist for Check into Cash, a Cleveland, Tenn.-based lender, overheard the conversation.

“Our point is that we’ve got to put an end to abuses like that,” he said. “This bill would stop that from happening.”

SOURCE: The Columbus Ledger-Enquirer

Here is a paraphrased East Valley Tribune editorial …

A bill that would have created a registry in which every cash advance payday loan made in Arizona would have to be recorded with the state died in committee Monday. This was the correct result, even though there is room for some limited and reasonable regulation of the payday-loan industry.

House Bill 2224 called for a statewide registry of all such transactions as a means to prevent consumers from getting several loans at once they couldn’t afford to repay.

But if the widespread failure to use local registries of sales of overthe-counter drugs that could be made into methamphetamine — the subject of recent revelations by the Tribune — serves as any guide, it is doubtful the state would oversee a similar Arizona payday loan registry with any degree of reliability.

Under current law, a payday cash loan borrower may extend his or her loan to a new lending period up to three times. Monday’s defeated legislation called for a maximum of only once. Perhaps that was too strict a measure for members of the House Committee on Financial Institutions, who rejected HB2224 on a 5-4 vote.

It is true that some people take out too many very short-term loans and can suffer significant financial woe. The North Carolinabased Center for Responsible Lending said in a November report on its website that 90 percent of payday-loan borrowers take out at least five such loans in a year’s time, and 62 percent take out 12 or more annually.

But government acting as nanny, telling people how many loans they can take out rather than have that be a function of the private sector, can actually harm the interests of borrowers.

As has been pointed out in this space previously, many low-income people lack the credit to obtain any other kind of loan to pay for rent or groceries or, even more important, have no other means to establish good credit in order to borrow money at lower interest rates in the future.

A majority of the Mesa City Council realized this in October when it turned down city regulation of faxless payday advance stores. The Tribune reported Councilman Scott Somers as saying that last fall’s proposed crackdown wouldn’t stop people from going into debt.

“We’re not banning credit cards,” he said.

Another, potentially more reasonable measure has been proposed in the Legislature, but has been unable to get a hearing, the Tribune’s Dennis Welch reported Sunday. Instead of a registry, state Sen. Chuck Gray, R-Mesa, has proposed a cap on interest rates for such same day payday loans at 36 percent, a figure used by about a dozen other states, the Center for Responsible Lending said.

The payday loan industry says this change, combined with an existing state limit on payday loans to $500, would drive them out of business.

Gray’s proposal deserves formal debate so lawmakers can examine experiences in other states versus the possible negative effect on an enterprise for which there is obvious demand.