Payday Loan Times

California Corporations Commissioner Preston DuFauchard has determined that Margaret Diego (dba The Cash Center Inc., The Loan Center Inc. and TLC) willfully violated the California Deferred Deposit Transaction Law (CDDTL).

Diego has been ordered to desist and refrain from violating the law, ordered to pay penalties, and the personal loans in question have been declared void. Diego has operated The Cash Center Inc., a payday lender in the city of Reseda in Los Angeles County, without the required license from the California Department of Corporations.

The investigation by the Department found that Margaret Diego willfully violated sections 23024, 23036, and 23037 of the law by entering into eighty seven (87) deferred deposit transactions with at least 13 separate consumers, in some cases while existing faxless payday loans were still outstanding with those same consumers.

The Commissioner also determined that Diego failed to preserve necessary records of transactions and that The Cash Center Inc., The Loan Center Inc, and TLC were operating without a license from the Department as required under the CDDTL.

The Cash Center was ordered to stop operating a payday advance loan lending business without a license. Additionally, as part of this action, the Commissioner ordered that 87 illegal deferred deposit transactions arranged by Diego, totaling $21,870, be voided. Furthermore, the Commissioner has determined that Diego shall be required to pay a penalty of $35,000 ($2,500 per citation) to the Department.

The Cash Center’s main office is in the city of Reseda in Los Angeles County. The violations occurred at the Reseda location and were discovered by a Department of Corporations examiner.

As defined by state law, a deferred deposit transaction is a written transaction whereby one person gives funds to another person upon receipt of a personal check and it is agreed that the personal check shall not be deposited until a later date. These loans are sometimes referred to as “payday advances” or “payday loans.”

Sawbucks closed two of its three Klamath Falls locations in anticipation of the new state regulations that cap interest rates for payday loans.

The stores closed the last week of June.

There was previously no cap for loans, said Melissa Johnson, Sawbucks manager. “We’ve tried to work with our customers that used to have those higher loans.”

She is concerned about the impact on personal cash loan customers, saying many have no other lending options because of their credit histories.

Interest rate cap
The new law caps the interest rate at 36 percent, but also allows an origination fee of $10 per $100 loaned, though no more than $30 for any instant payday loan amount. Previous annual interest rates reached 520 percent.

Some stores, like QuickCheck are still open and have made changes to comply with the new law. Rent-A-Centers in Oregon closed all their financial services departments. Other stores, such as the Check ‘N’ Go chain, have closed several quick cash advance locations in Oregon. All three had locations in Klamath Falls.

“It was a fatal blow that the Legislature gave us,” said John Rabenold, corporate spokesman for Check ‘N’ Go.

Eventually, all 21 Check ‘N’ Go locations in Oregon will be closed. Some remain open while customers’ accounts are settled.

Jobs lost
About 60 employees of Oregon’s Check ‘N’ Go will lose their faxless payday advance jobs with the closures.

It’s unfortunate that the Legislature did not take into consideration the effect the new law has on employees or offer an incentive for retraining, Rabenold said. Closing two Sawbucks stores in Klamath Falls required laying off two employees. Both had been with the company for four years.

Johnson said because Sawbucks offers other services such as check cashing, Western Union, money orders and utility payments, the final store will probably remain open. Streamlining expenses will help, she said.

Meanwhile, she is researching impacts of a check cashing law that limits excessive fees of $5 or varying percentages from 2 percent to 3.5 percent, depending on what type of check is being cashed.

Payday advance lenders dodged a legislative effort to reduce their usurious interest rates at this year’s General Assembly session. But Gov. Timothy M. Kaine signaled last week he hasn’t given up on leashing the industry.

The payday loan industry and its lobbyists survived a measure that would have capped interest rates on their loans at 36 percent - the same cap that applies to other lending institutions in the state.

It sounds, however, as if the governor and lawmakers are ready to take another shot at lowering those no credit check payday loan lending interest rates. Speaking at a ceremony to mark the passage of tax-relief legislation for the poor, Kaine said the state must do more to help the working poor.

Without being specific, he said he would either propose or support additional restrictions on payday lenders.

“I am very committed to working with legislators to try to find meaningful ways to reform this industry so that people don’t dig themselves in deep and get taken advantage of at vulnerable moments of their lives,” he said. “I just really have it on my heart that people shouldn’t take advantage of folks who are poor when it comes to lending them money.”

Virgina payday loan lenders have flourished since 2002 when the state uncapped regulations on the industry allowing it to charge interest rates of as much as 400 percent on an annual basis.

A payday loan costs $15 for every $100 borrowed. The maximum loan amount is $500 and the typical term is one or two weeks. If renewed for a year, as is done in some cases, the interest rate hits 390 percent.

But that’s not the worst of it, as a number of legislators have pointed out. Many borrowers take out more than one such loan. Figures show that multiple loans can often end up creating a financial trap for the borrower. The only way out of that trap is to arrange for another loan. And the cash advance payday loan borrowers - often people who live from paycheck to paycheck - become entwined in a cycle of debt from which they cannot escape.

Foes and supporters of the payday lending business waged heated debates during the 2007 legislative session, but could not agree on how to reform it. Some lawmakers supported interest rate caps (36 percent) that the industry said would put them out of business. Others preferred limiting the number of loans a borrower could have at one time.

That would have created extended payment plans and forced lenders to make sure their customers did not have too many loans with other payday lenders.

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The following is a paraphrased editorial from The Register-Guard in Oregon…

Dozens of fast payday loan and car title lenders have closed their doors across Oregon since a new state law capping their annual interest charges at 36 percent went into effect this month.

Boo hoo.

Well, not exactly. Few Oregonians are shedding any tears for an industry that claims it won’t stick around unless it can charge annual interest rates of 520 percent. Such rates were standard fare for providers of payday advance loans before the Legislature passed the much-needed usury cap earlier this year.

Theatrics are obviously involved here. An estimated 60 payday loan stores statewide have closed or surrendered their licenses since June 1. That leaves about 200 payday lenders still doing business under the new regulations. Because 29 other states have imposed interest rate caps similar to Oregon’s, it seems likely that the industry will adapt and continue to exist in this state, as it has elsewhere.

Some short-term, no fax cash advance lenders no doubt hope that the Legislature will reverse itself in the next session and allow them to resume charging the exorbitant interest rates that they used for a quarter century to prey on desperate and naive Oregonians.

They should think again. Oregonians are fed up with legalized loan sharking. The Legislature began regulating the industry last year after cities across the state began adopting their own ordinances, and a statewide coalition of religious groups and charities began preparing to put a statewide initiative measure on the ballot.

Not that anyone should expect the industry of bad credit payday loans to slink quietly into the night. In a special session last year, the Legislature clamped down on payday lenders. The industry quickly figured out how to sidestep the new regulations by offering new types of loans under different licenses.

That prompted the 2007 Legislature to impose a blanket interest rate limit on consumer loans of all types. Other than an outright ban on payday and car title loans, it’s the only proven way to keep predatory lenders from taking advantage of the poor and vulnerable.

Payday cash loan lenders continue to make the improbable argument that the new 36 percent cap and other new restrictions make it impossible for them to stay in business. That fails to explain how the industry has managed to survive in the other states that have adopted interest-rate caps similar to Oregon’s.

Short-term lenders also claim that the Legislature has left low-income borrowers with no way to obtain short-term loans. That’s simply untrue. A variety of lenders, in particular credit unions, offer short-term loans at lower rates and with fairer terms.

What the payday lenders really want is for Oregon to turn back the clock to 1981, when the state lifted all of its interest rate caps on personal loans. The move was intended to lift restraints on the consumer credit marketplace’s ability to self-regulate through competition, supply and demand. But the practical result was a seamy proliferation of short-term lenders who charged annual interest rates in excess of 500 percent.

Now, these short-term lenders have a simple choice: They can find a way to stay in business by offering consumers loans under the reasonable limits provided by the state’s new regulations. Or they can shutter their businesses and leave this state, muttering with every step about how unfairly they’ve been treated and how much they’ll be missed by cash-strapped Oregonians.

If they choose the latter, it’s doubtful anyone will shed any tears.

The D.C. Council on Tuesday voted to sharply limit the practice of payday loans in the District.

Officials said the loans target poor and lower-income workers who can be stuck with interest rates as high a 300 percent if the loans are not paid back quickly.

Officials said that often borrowers are unable to repay their payday cash advances and must fork over additional fees. Typically, D.C. residents pay over $700 just to borrow $325.

The new measure would restrict interest rates and penalties on such loans and require more disclosure to borrowers.

The D.C. Council must vote on the legislation again this fall before it can go into effect.

Officials said that since 1998, the District has given faxless payday loan lenders special treatment - no other lender can charge more than 24 percent interest for a consumer loan.

Twelve states have eliminated payday loans, including Maryland. In North Carolina, most low-income residents said eliminating payday loans either was a good thing or had no impact on their lives.

A national, faxless payday advance lending group announced Monday it is hiring a former Democratic gubernatorial candidate to be its executive vice president.

Community Financial Services Association of America is bringing in Tommy Moore (pictured), who resigned from his Aiken County senate seat this weekend, to lobby and do public relations for the payday lending industry. The businesses provide loans of hundreds of dollars for several weeks at high interest rates.

The industry has been sharply criticized recently by people who said it takes advantage of poorer consumers and the high interest rates send them into a spiraling crush of debt. But no fax payday loan lenders have said the businesses provide a vital service and consumers pay more in fees in the long run when they bounce checks while trying to pay the bills.

“At this point in my career, I saw an exciting opportunity to take on a new challenge that builds on my long history of supporting and protecting consumers,” Moore said in a news release issued by the group.

Initially on Monday, Moore would not talk about his new job. He did not immediately respond to a message left on his cell phone after the announcement was made.

Association spokesman Steven Schlein would not disclose how much Moore would be paid. The fast cash advance group paid its executive director $132,749 plus an undisclosed sum included in a $1.2 million “management fee” in 2005, the most recent year available from Guidestar, nonprofit research group.

Moore was the Democrats’ candidate for governor, receiving less than 45 percent of the vote in 2006. He had been in the state Senate since 1981.

During last year’s gubernatorial campaign, Moore received at least $7,000 in donations from the payday and car title loan industry.

“We’re deeply disappointed he would take a job like this. These are bad guys, and they do shameful things,” said John Ruoff, research director for the advocacy group S.C. Fair Share.

A bad credit cash loan lending bill will be waiting when the Senate returns in January. Moore didn’t appear to push from either side last session, but that will likely change with his new job, Ruoff said.

Scores of Oregon payday and car title lenders have closed their doors, as a 36 percent interest rate cap on regular and faxless payday loans and other new regulations took effect last week.

Gone are the 520 percent annual interest rates that were common among payday lenders before the Legislature recently passed new regulations. Gone, too, are many of the lenders. But among those who remain, borrowers will find their small, short-term loans cost about a third of what they cost before.

At least 60 no faxing payday loan stores have closed or surrendered their licenses since June 1, says Charles Donald, supervising examiner at the state Department of Consumer and Business Services.

Luanne Stoltz left a 20-year career as a high school math and science teacher years ago to open two payday stores in Portland. She has closed them both and says she doesn’t know what she will do next. “I’m out of business,” she said.

Check ‘n Go Inc., a payday advance loan lender based in Mason, Ohio, will close its 21 Oregon stores because of the new regulations, a spokesman said. Advance America, Cash Advance of Spartanburg, S.C., the nation’s largest payday loan company, is evaluating whether it can keep its 45 Oregon stores open, said Jamie Fulmer, director of investor relations for the company, which operates in 37 states.

“The economic situation that exists in Oregon currently is one that we think is prohibitive,” Fulmer said.

Northwestern Title Co., based near Atlanta, has stopped making car title loans in its 17 Oregon stores, which it is preparing to close, said Ken Wayco, president. Car title loans are similar to payday loans except they use car titles rather than the borrower’s next paycheck as collateral.

Northwestern recently filed a lawsuit in Marion County Circuit Court challenging the constitutionality of the new law that caps interest at 36 percent for all consumer loans.

“Unless we prevail in the suit there, we’re all out of business,” Wayco said.

Still, more than 200 personal cash loan lenders are doing business, at least for now, under the Legislature’s new regulations.

“It looks like some businesses are able to provide more affordable loans, and that sounds like a real win for the community and consumers,” said Patty Wentz, spokeswoman for Our Oregon, a nonprofit progressive coalition that led the fight for laws regulating payday and car title lenders.

The new laws allow pay day loan and car title lenders to charge an origination fee of $10 per $100 loaned, though no more than $30 for a loan of any amount. Loans must be for at least 31 days. Lenders can charge 36 percent annual interest, or about $3 per $100 in addition to the origination fee.

That means lenders can charge a total of $13 per $100, which amounts to an annual interest rate of about 154 percent for a 31-day loan.

Click here to read the rest of this article from The Oregonian…

The following is an editorial from The Viriginia Times-Dispatch, focusing on the state’s payday loan lending fight:

The fight over payday lending is like pulp fiction: There’s a tawdry story line. Profit bests principle. A tough guy is anything but.

• In March, barely a month after the legislature quits, lobbyists for payday advance lenders herd into a Richmond law office to tell their clients to steel for the next phase of a brawl that already has cost them a ton in legal fees, crummy press and campaign contributions.
• In May, a Peninsula businessman, who has bailed out employees swamped by debts to payday lenders, teams up with two retired U.S. Treasury guys to launch the latest group committed to shuttering the nearly 800 money stores here.
• About the same time, the State Corporation Commission –of which a former judge, Clint Miller, has signed on as a lobbyist for payday lenders’ crude kin, car-title lenders - reports that instant payday loan lenders are handing over more cash to fewer borrowers and filing more lawsuits against alleged deadbeats.

In other words, people who might not qualify for credit in the first place are discovering a second, costlier way to stick it to themselves: getting sued.

• In June, pro’s and anti’s cross paths at big-dollar fundraisers for General Assembly Republicans and Democrats. The pro’s - perhaps because they didn’t think to do it - are still steamed over cash advance payday loan ads the anti’s ran in the program for the Dems’ event.

• And last week, Gov. Tim Kaine renews his call for a crackdown on the high-cost, instant personal loan industry, blowing the cover on one of the worst-kept secrets in town: that both sides are warily talking about a possible deal, brokered by Kaine aide Mark Rubin.

This can’t be good news for foes of payday lending. They want to put it out of business or put it on a leash. Read: Restrict sky’s-the-limit interest rates to 36 percent. Kaine isn’t committing to either.

His nuanced pronouncement may mean that Kaine, distaste for subprime-ates notwithstanding, doesn’t want this issue threatening his legacy-building agenda in the 2008 legislature.

The industry is worried, too. It wants an agreement because the General Assembly could change after November. The votes to keep providers of cheap payday loans alive are concentrated in areas where, because of population or prosperity, there are few cash shops.

Such indemnification won’t last forever; a deal is a better than another black eye. Or another. Or another.

When Kaine weighed in on payday lending during the 2007 assembly, it was a move by a fellow Democrat, Senate Minority Leader Dick Saslaw, that dashed substantive restrictions for the year.

Saslaw, who as his party’s Senate boss can make Kaine’s life lousy or lovely, yanked an industry-written “reform” bill. In doing the bidding of payday loan lenders, Saslaw stopped Kaine from doing a number on them.

Without a bill - credit the lenders’ skilled lead lobbyist, Reggie Jones, who also represents their potential competitors, credit unions - Kaine was helpless to force a vote on what he’d led many to believe was a non-negotiable demand: a 36 percent interest-rate cap.

The cash loan online lenders say that’s a deal-breaker; that it would drive them out of business by slashing rates to pennies on the dollar.

Since when is it the legislature’s job to guarantee a profit for any business, other than maybe regulated public-service corporations such as electric utilities?

Simpsonville is considering restrictions on sites for fast payday loan lenders, title loans and check cashing stores.

The planning commission is rewriting an ordinance that restricts new lenders in the city.

The commission discussed the cash loan ordinance July 5 and could vote whether to recommend it to the City Council at its scheduled Aug. 7 meeting.

The ordinance would allow lenders to open new stores in service districts but bans them from commercial areas except by special exemption from the board of zoning appeals

Simpsonville has eight no fax payday advance lending stores now that would be grandfathered into the ordinance.

If a lender goes out of business, the property owner would have one year to fill that space with another lending store or the grandfather clause expires.

In April, the council passed a 90-day moratorium on new business licenses to payday loan lenders. That moratorium ends July 16.

Federal regulators are pushing banks to offer cash-strapped Americans an alternative to high-interest, no faxing payday loans.

The Federal Deposit Insurance Corp. recently issued guidelines to help banks develop small loans that are significantly less expensive and have more consumer-friendly terms than payday loans.

The bank version would have a maximum annual interest rate of 36 percent and have low or no fees.

The FDIC also is asking banks to divert a portion of the revenue they make from each cash advance loan into a savings account for the borrower, and to offer financial counseling to repeat borrowers who might require help learning to manage their day-to-day finances.

In return, banks would receive positive marks under the Community Reinvestment Act, which requires banks to offer banking services to low- and moderate-income neighborhoods. Regulators use this data when deciding whether to approve bank mergers and acquisitions.

But banks are not rushing to offer the loans, saying they just aren’t profitable.

“Low-dollar-denomination loans are very expensive to make and because they are uncollateralized, they are very risky,” said Mike Van Buskirk, president of the Ohio Bankers League. “Banks will be cautious.”

Of the major Ohio banks, only Key Bank has introduced such a small payday loan. As part of a test program in several low-income Cleveland neighborhoods, Key provides a cash reserve line of credit of about $250. Customers can use it as “overdraft protection, which could be paid off over time, just like a credit card,” spokesman Mike Sherman said.

Ohio credit unions have been faster to draft low-dollar loans. The Ohio Credit Union League introduced an alternative to payday loans, called StretchPay, in June 2006.

StretchPay loans have an annual percentage rate of 18 percent and must be repaid within 30 days. Borrowers also pay an annual fee of $35 for a $250 loan limit or $70 for a $500 loan limit. The annual fee goes into a fund to help credit unions that suffer excessive losses on the loans.

Kemba Financial Credit Union and MidState Educators Credit Union in Columbus are two of about 30 Ohio credit unions offering the loan.

“We don’t want to be in the payday loan business, but we have an obligation to consumers to offer an alternative to 400 percent interest rates,” said Becky Hart, spokeswoman for the Ohio Credit Union League.

Fast payday advance lenders charge about $15 for every $100 borrowed. The annual percentage rate on the average payday loan is 391 percent, according to the Community Financial Services Association of America.

Payday lenders earned $6 billion in fee revenue from $40 billion in loans in 2003, according to Stephens Inc., a Little Rock, Ark.-based investment bank.

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