Payday Loan Times

On a busy Hampton street, a small, yet vocal group wants drivers to stop and pay attention.

“Shut ‘em down!” they yelled.

“We’re out here, trying to bring public attention to this atrocity which is called [no faxing payday loan] lending,” said Rev. Marcellus Harris, president of the Coalition for Justice for Civil Rights.

Members say their message is one everyone needs to hear.

“It is something we want to address because poor people are being victimized by the lending process that extends beyond the 36 percent interest rate,” Harris said.

Virginia legislators last year considered a plan that would cap the amount of interest short term loan companies could charge to 36 percent. Some faxless cash advance lenders right now charge as much as five hundred percent interest.

That plan was killed.

But, had it passed, it would have put providers of bad credit payday loans out of business. So says Jamie Fulmer, with Advance America Cash Advance Centers.

“We certainly believe consumers should have access to this product because it’s a product millions of Americans and thousands of Virginians have come to value,” Fulmer said.

These payday lenders are sending a message of their own, on television, on the radio, in newspapers.

“Our customer base is essentially hardworking middle income Americans who from time to time get caught with unexpected or unbudgeted expenses,” Fulmer said.

The General Assembly is also looking at another battle brewing, over the future of car title lending. That’s where a borrower hands over the title to a car in exchange for high-interest payday advance loans.

Cynthia Smith is a fan of payday cash loan outfits, despite interest rates 10 times what other lending institutions can charge.

“I think it’s wonderful for peo ple that need the money,” Smith told The Richmond Times-Dispatch as she left a payday loan branch on West Broad Street in Richmond. “A lot of people live day to day.”

Smith, a chef, was unmoved by arguments that borrowers paying an annual percentage rate of 380 percent often end up trapped in a cycle of borrowing and debt.

“The banks make it hard,” she said, “because you have to go to [payday advance lenders] to get what the bank won’t give you.”

However, the Virginia Partnership to Encourage Responsible Lending would challenge Smith’s view with stories from people who say payday lending has landed them in a financial hole that is hard to climb out of.

The partnership includes a diverse coalition from the communities of commerce, faith, civil rights and social activism. As the General Assembly convenes today for its 2007 session, the partnership again is supporting the efforts of Del. John M. O’Bannon III, R-Henrico, to repeal the Payday Loan Act of 2002, which legalized the short-term, high-interest same day payday loans.

Despite the opposition, repealing the law will be a tough job.

“The General Assembly is business oriented,” said Del. Dwight Clinton Jones, D-Richmond. “The General Assembly is not about to, in most instances, do anything to move against anybody making a profit. It’s very difficult once a business is established, no matter what the business, to dismantle it.

“The [cash loan online] lending business should not have been codified. But once it’s been codified, it’s been institutionalized.”

Jones said he has been working for three or four years without success to repeal the law, “and my prediction is it won’t be won this session as well. But I think the sentiment is strong that even if we don’t repeal it, we can do some things to limit it.”

According to the partnership, there are around 800 cash advance payday loan stores statewide - two for every McDonald’s and three for every Starbucks.

Payday lenders use a check as collateral for a two-week loan.

(Read on …)

Rev. Marcellus Harris, president of the Coalition for Justice, says the group will be in Richmond later today to protest instant payday loan and car title lending.

Harris and five others held a midday protest in front of the Cash-N-A-Flash lender on West Mercury Boulevard yesterday afternoon.

“It’s a quick fix at first,” Harris said. “And then the issue changes and the quick fix become a big problem when people try to pay back these high interest rate loans.”

Lawmakers are expected to debate the future of car title lending, a controversial business that critics say hurts the poor, in the upcoming General Assembly session. The rates involved make it similar to the cash loan online industry.

In exchange for a borrower’s car title, lenders will offer high-fee, high-interest loans. If a borrower fails to pay the money back the lender can take the car and sell it to pay off the debt.

Car title lenders are currently not regulated in Virginia, but state delegates have filed at least two separate bills that could change that. One bill would require lenders to get a state license to operate. A second would cap the annual interest rate at 36 percent - just like that on military payday loans.

Lawmakers originally regulated payday advance loan lenders in 2002, but they are expected to debate tighter restrictions on the industry in the coming session.

The following is a paraphrased Letter to the Editor from The Free Lance-Star:

I would like to respond to Lawrence Meyers’ letter defending payday loans ["Payday loans aren't a bad deal ," Dec. 26].

In order to defend the outrageous rates that payday advance lenders charge, Mr. Meyers states that banks have made much more on NSF and overdraft fees than payday lenders make on their rates.

The difference between payday loans and a checking account is that supposedly cheap payday loans are a predatory lending practice targeting low-income households and people who have to live paycheck to paycheck.

Banks hold money that is provided to them by their customers, and they charge NSF and overdraft fees as a penalty for spending more than is available, just as credit card companies charge an over-limit fee when you exceed your credit limit.

To defend the highly predatory practices of payday lenders, Mr. Meyers may as well be defending a loan shark, only instead of breaking a bone when you don’t pay them back, the pay day loan may be the straw that breaks a family’s financial back.

Charles J. Shumar
Stafford

Virginia’s biggest faith-based lobbying groups have mostly separate agendas for the 2007 General Assembly, with priorities that vary from tightening the state’s divorce laws to promoting renewable energy. So reports The Virginian-Pilot.

However, the goals of the Virginia Catholic Conference, The Family Foundation of Virginia and the Virginia Interfaith Center for Public Policy line up when it comes to opposing payday advance loan lending.

“We believe this is a terribly addictive and harmful practice that has been destroying families,” said Victoria Cobb, executive director of The Family Foundation, whose constituents include many evangelical Christians.

A state law lets licensed no fax payday loan lenders charge interest that can reach an annual rate of 391 percent for a two-week loan. Most short-term consumer loans in Virginia are capped at a 36 percent annual rate.

The three faith-based lobbies want legislators to repeal the law so that interest on payday loans would be comparable to other consumer loans.

“We want to make sure families aren’t trapped in a cycle of debt,” said Jeff Caruso of the Virginia Catholic Conference. The conference is the public policy advocacy arm of Virginia’s two Catholic dioceses.

“We have yet to find very many people who think that Virginians should pay more than 36 percent APR interest,” said the Rev. C. Douglas Smith of the Interfaith Center. The organization represents several mainline Protestant denominations as well as Jewish, Muslim and Catholic groups.

Proposed legislation includes HB1684, which would repeal the payday cash loan law in 2009. The bill is sponsored by Del. Jennifer McClellan, D-Richmond.

The House of Delegates recently killed legislation aimed at banning payday loan lending, the controversial storefront industry that makes high-interest short-term loans to thousands of Virginians.

But the debate is far from over, The Daily Press reports.

Lawmakers have been bombarded by complaints from consumer activists, pastors and former customers who said the business preyed on the working poor by promising quick money at interest rates that made it difficult or impossible to repay.

Tighter regulations will be considered during the 2007 General Assembly session. One lawmaker has resubmitted the bill that would effectively ban payday loans for good, hoping for a different verdict this time around.

“I think that they are predatory lenders that should be put out of business,” said Del. Jennifer McClellan, D-Richmond.

In 2002, the General Assembly decided to regulate providers of payday advance loans because the firms had moved into Virginia while contracting with out-of-state banks. The arrangement allowed them to charge higher interest rates than state law normally allowed for small lenders.

McClellan’s bill isn’t technically a ban.

It would repeal the 2002 regulations and require payday lenders to cap interest rates at 36 percent, the same as for other small cash loan lenders. Payday industry representatives said that would effectively drive them out of business. The average annual rate on payday loans in Virginia in 2004 was 373 percent.

According to state figures, more than 445,000 Virginians took out more than 3.3 million regular and/or faxless payday loans in 2005. The amount nearly topped $1.2 billion. The average customer takes out about seven loans a year, according to one estimate.

But formal complaints are relatively rare: 56 in 2005 and 33 through mid-August of this year.

(Read on …)

The Free Lance-Star has bought into the falsehoods about payday loans spread by the products’ opponents. So states Lawrence Meyers, a partner in Payday Loan Capital LLC, a firm that helps payday lenders obtain money to grow their businesses.

A recent editorial ["Payday loans are no bargain," Dec. 19] claims that “a payday loan seems like a quick fix. All too often that quick fix becomes a link in a chain that leads to bankruptcy.”

In truth, most payday loans get paid off; the nationwide default rate is 7 percent.

The FLS editorial asserts that “many [payday cash advance] lenders are clustered around military bases.”

However, a June 2006 study by the Consumer Credit Research Foundation found that only 1.3 percent of all payday loans are made to members of the military - and only 13 percent of military members in the immediate vicinity of a payday loan store took out a loan.

The editorial asks, “Why not limit payday lenders to 36 percent?”

The reason is that between a 7 percent average national default rate and a $9,000 average monthly operating expense, providers of no fax payday loans will lose money at that APR. A $14 fee per hundred borrowed is the minimum most lenders can charge and stay in business.

It is not time to shut payday lenders out of the state. If that happens, demand will not vanish. Borrowers will get personal loans on the Internet (which are more expensive) or bounce checks (at $50-$60 per check).

Strangely, the editorial does not come down on banks with their onerous NSF and overdraft fees.

While cash advance loans cost consumers only $4.2 billion last year and they received short-term credit in exchange, the banks made $52 billion on NSF and overdraft fees.

The Free Lance Star has something to say about that jingle-jangle you hear. It’s the sound of cash registers merrily ringing their way through the Christmas season.

Having bought into the idea that love is best expressed materially, it’s an easy time of year for some shoppers to overspend. That’s why it’s even sadder that a Virginia House of Delegates committee refused to lower the boom on payday cash advance lenders earlier this month.

Come January, Christmas cheer will become winter fear for many.

Consumer protection laws are meant to shield the unwary from the unknown. For many, a no fax payday loan seems like a quick fix to a short-term problem. All too often, however, that quick fix becomes a link in a chain that leads to bankruptcy.

Typically, a consumer turns to a payday lender for small cash - less than $500. The loan is due at their next paycheck, generally two weeks away. The lender charges a fee of $15 per $100 borrowed, plus interest. For a two-week cash loan, that amounts to about 390 percent. If a borrower gets paid weekly, the annualized rate is 780 percent.

Many times, borrowers find their circumstances no better in the next pay period than they were in the last. They can’t pay off the loan and simply roll it over; soon, they find themselves mired in a quicksand of debt.

Last year, according to the State Corporation Commission, 445,891 Virginians took out 3,372,103 bad credit payday loans, totaling $1.12 billion. The Center for Responsible Lending has found that 60 percent of these loans go to those who take out 12 or more per year.

Translation: Some folks get hooked on payday loans.

Sadly, many payday lenders are clustered around military bases. A skyrocketing number of military personnel have had their security clearances yanked because of their debt, making them ineligible for deployment overseas. Officials attribute the problem to predatory lending and lack of financial wisdom among the troops.

In response, the FY 2007 Military Authorization Act has a provision prohibiting charging military members more than 36 percent interest.

(Read on …)

In response to a recent bill regulating payday loans being defeated, The Virginian-Pilot basically has the following to say: we’ll see about that.

Here is its recent, paraphrased take on the situation:

Maybe the three committee members who didn’t show - including Portsmouth’s Kenneth Melvin - will oppose payday advance lending when it resurfaces in the 2007 General Assembly.

That’s the most optimistic take on last week’s 10-8 defeat of a proposed repeal of the quick-fix lending practice that ensnares scores of Virginians in a sinkhole of debt.

If attorney Melvin, who missed the meeting because of a murder trial, and two other absent Democrats support repeal when the idea comes up again next month, then a repeal measure on instant payday loans can go forward to the full House.

Or if Virginia Beach Del. Terrie Suit, the only South Hampton Roads committee member to oppose the repeal, can be persuaded to change her mind, that would help too.

Perhaps Suit and other industry backers will be persuaded by a coalition of faxless payday loan lending critics so broad that it spans the conservative Family Foundation, the liberal NAACP, veteran s’ groups, faith-based organizations and consumer advocates.

All urged lawmakers to dial back loans on which annualized interest rates average almost 400 percent. Suit prefers a compromise bill that intends to curb the worst of the predators, but is likely to give no more than lip service protection.

Dismayed by the number of servicemen whose security clearances were being jeopardized by crippling debt, Congress already has decreed that interest on cash advances to military personnel can’t exceed a standard 36 percent annualized rate.

Virginia lawmakers should be no less concerned about the poor, the young and the elderly, who typically take out payday loans as a quick fix to a financial emergency. The problem for consumers, and the windfall for lenders, comes when a borrower winds up taking out a second or third loan to pay off the first, as many do.

According to Jean Ann Fox of the Consumer Federation of America, the typical user of such payday cash loans takes out 12 or more per year. According to the North Carolina-based Center for Responsible Lending, the typical payday borrower winds up shelling out almost $800 for a $325 payday loan.

No matter how convenient the loan may seem at the moment it’s received, that’s a Faustian bargain in the long run. Those who set lending rules have an obligation not to encourage enticements that are far too good to be true.

Darrin Andersen, President of the Community Financial Services Association, recently wrote in to The Daily Press. Here’s a summary of what he said:

The Dec. 1 article on payday loans lacked any perspective on costs to consumers (”Payday loans trap families, report says”). The article noted that consumers annually pay $4.2 billion in payday lending fees, but forgot to mention that consumers receive $40 billion in credit for those fees.

According to the Center for Responsible Lending, faxless payday advance loans should be banned because they cost consumers money. Consumers also spend $42 billion a year on books even though books are available free at the local library.

So, why not ban the sale of books?

Let’s put it in perspective. In 2006, consumers will also spend $4.2 billion in ATM service charges to withdraw their own money. They will pay an estimated $22 billion in insufficient funds fees to banks and credit unions and banks will collect an estimated $10.3 billion for overdraft protection services.

Businesses will charge an estimated $57 billion in late bill payment fees (more than 140 percent of the total estimated payday lending volume in the United States). And credit card interest will cost consumers more than $87 billion.

We have worked with policymakers in 38 states to support responsible regulation that protects consumers and their access to credit. In a state-regulated environment, an instant cash loan can often be the best choice for consumers.

Elimination of regulated storefront payday lending will only drive consumers to unregulated offshore Internet lenders or force them to choose between more expensive alternatives such as bounced check, overdraft protection, or late bill payment fees.

Unlike the Center for Responsible Lending, which is opposed to virtually every consumer choice when it comes to short-term credit and/or cash loans, we believe consumers are very capable of making decisions without self-appointed guardians telling them what financial products they can, and cannot, use.

The bottom line is that consumers spend $4.2 billion a year for a product they choose over the alternatives.