Payday Loan Times

The following is an editorial from The News-Leader…

Missouri is second only to the state of California in interest paid to payday loan “sharks.” By allowing people to take out repeated personal loans to pay off their original loan, the actual interest rate mounts up to nearly 2,000 percent.

There are more payday loan businesses (cash advance type loans) in Missouri than McDonald’s. The states around us have no rollovers allowed. What is wrong with the Show Me State?

Young men are fighting for their country. Their families struggle with lower income. The good old legislature passes a law that payday advance lenders can only charge soldiers 29 percent, when 50-20 percent would be appropriate for all citizens.

We already pay 30 cents out of every tax dollar for services to our people. We will be paying more if we allow the payday lenders to push the poor and vulnerable further down into poverty.

Is the light bulb on in the attic; is anybody home at the legislature?

Everybody wants to change the world? This is your chance. Start today — call/write your legislator. Do something about no fax payday loans.

In the 10 years since payday loans were legalized in California, at least 81 payday lenders have opened in Sacramento. Some city officials say that’s more than enough.

A committee of city council members voted unanimously Tuesday to recommend that the full council adopt an emergency ordinance placing a moratorium on new check cashing centers.

The 45-day moratorium would give city staff time to work on permanent zoning restrictions for new faxless payday advance lenders to prevent multiple businesses in the same neighborhood.

“They’re everywhere,” said City Councilwoman Sandy Sheedy, who proposed the moratorium. “How many do we need?”

Consumer groups say borrowers pay up to 456 percent APR for a two-week payday loan, and that payday lenders target low income communities.

Charisse Lebron, a consumer advocate who testified before the city council’s Law and Legislation Committee, said fast payday loans lead borrowers into a “quagmire” of debt because they often can’t repay the entire loan with their next paycheck.

The owner of a Broadway clothing store adjacent to a payday loan center said he worries about the people he sees going in and out of the business, but had reservations about the moratorium.

“It’s America,” said Eric Murrell. “It’s capitalism.”

Pay day loan lending companies in Ohio have expanded exponentially within the past 10 years and Hocking County has one of the higher concentrations of payday lending companies in Ohio, according to the Ohio Coalition for Responsible Lending.

Hocking County has 2.12 payday lenders per 10,000 residents ranking it the 8th in the state. The state rate is only 1.35 per 10,000 residents. In 1996, no payday lenders had storefronts in Hocking County. During the past 10 years, six payday lenders have sprung up.

“What’s astounding is the growth of the industry. There are more payday lenders than all the McDonald’s, Burger King and Wendy’s restaurants in Ohio combined,” Cathy Johnston, advocacy director from the Ohio Coalition for Responsible Lending, said. Ohio has about 1,562 locations state-wide.

Personal loan companies offer short-term, high interest loans given for a post-dated check for the amount of the loan and the addition of lender’s fees. The maximum amount that can be borrowed is capped at $800 in Ohio, but the interest rates companies can charge have no maximum amount.

Almost 400 percent APR can be charged for $500 borrowed, which would translate into $45 every two weeks for a $300 loan. An $800 loan with a $72.50 origination fee and $40 of interest at 367 percent totals $912.50 at the time repayment is due. Usual repayment dates are two weeks from the time of borrowing these online payday loans.

“This kind of rates on small loans is usury,” Johnston said.

Under Ohio law, cash loan lenders are technically classified as “check cash lenders” and are regulated by the Ohio Department of Commerce’s Division of Financial Institutions.

They are exempt from Ohio’s Small Loan Act and from state usury laws. Payday lenders with in-house collections are exempt from the federal Fair Debt Collection Practices Act.

(Read on …)

The once-explosive growth of instant payday loan stores in Utah — which often offer two-week loans for a whopping 500 percent annual interest rate — appears to have hit a saturation point and cooled.

The number of such lenders grew only 4.7 percent in the past two years, from 427 to 447 stores, according to the Utah Division of Financial Institutions.

That is much slower growth than in recent decades. The first payday cash advance lender appeared in Utah in 1984. Their number had grown to 17 stores in the Salt Lake area by 1994. Then they exploded to 427 registered statewide in 2005.

The current total of 447 is still more than the number of 7-Elevens, McDonald’s, Burger Kings and Wendy’s in Utah — combined.

The industry and its critics disagree whether slower growth comes because it is maturing and reaching a saturation point, or if restrictions on them by a growing number of cities are also slowing growth.

“We are just seeing a maturing in the industry. People who watch the industry said that it would be maturing and reaching a plateau. That is what is happening,” said Cort Walker, spokesman for the payday loan industry’s Utah Consumer Lending Association.

Jerry Jaramillo, supervisor of savings and loans and trusts for the Division of Financial Institutions, said the growth of providers of faxless payday loans over the past two years is similar to growth shown by other financial institutions such as banks or savings and loans, which tend to mirror population growth.

A critic of the industry, Linda Hilton, director of the Coalition of Religious Communities, said another reason for slower growth may be that more cities have restricted how many payday loan stores they will allow, often preventing any new stores in their boundaries.

“There are definitely fewer places, at least in Salt Lake County, where they can open and do business, and that may be a factor,” she said. Cities that have at least some restrictions on new payday loan stores include Draper, Midvale, Orem, Sandy, South Salt Lake, South Jordan, Taylorsville, West Jordan and West Valley City.

Leaders in Salt Lake City and Salt Lake County also have been discussing restrictions.

Walker dismisses city cash advance restrictions as a reason for slowed growth.

“It just hampers a consumer’s ability to find the most convenient location,” he said. “What should be disconcerting is that the fewer the lenders that are present, the fewer the choices consumers have. As competition is limited, that is bad for consumers.”

Each time she drives past the payday lenders near her home, neighborhood activist Lori Lawrence wonders: “Why on Earth do we need two of them across the street from each other, another one a block away?”

Across the nation, cities and states are moving to limit faxless payday loan companies, which carry annual percentage rates ranging from 391 percent to 443 percent.

Thirteen states have banned them. Others are limiting the interest rates they can charge.

In some states, including Kansas, where regulations are less restrictive, some communities are acting on their own to cut down on the number of no fax cash loan outlets.

In the Kansas City area, for example, several communities have passed ordinances that keep the stores farther away from one another and from residential areas.

Wichita neighborhood groups say they’d like to see the same happen here.

But so far, city leaders have not discussed such measures. Some City Council members say they are reluctant to single out an industry for additional regulation.

The payday advance industry says it provides an important service to people who can’t get traditional loans.

Still, some neighborhood groups are worried about the growing number of stores. In 1995, there were 36 licensed payday lenders in Kansas. A decade later there were 10 times that many.

Consumers in Wichita now have about 75 places where they can get a payday loan, up 14 percent from last year.

When a new business anchors in the McAdams neighborhood, it’s often a payday loan shop or liquor store, says Paula Givens, a community activist.

“Whenever there’s something vacant or available, those are things that come to our neighborhood,” said Givens, who served as president of the McAdams Neighborhood Association for five years.

As U.S. soldiers face continuing demands in the call to protect their country, starting October 1 they gain an extra measure of protection from a lingering financial threat to their own families.

The federal Military Lending Act will take effect Monday, and will bar predatory lenders from gouging military families with no faxing payday loans that trap borrowers in debt and typically carry 400 percent annual interest rates.

The new law caps interest at 36 percent for certain payday, auto title, and refund anticipation loans made to military families.

“The 36 percent cap will slow the predatory lenders down,” said Jean Ann Fox, director of consumer protection for the Consumer Federation of America (CFA). “And the law says they can’t hold onto the service member’s personal check or have electronic access to their bank account as collateral for this type of loan. The threat of the lender depositing the borrower’s check, which would often not clear the bank, has been a key way to trap borrowers in loans that they end up paying back many times over in interest.”

The law will not cover all high-cost products - predatory lenders have designed some loans to get around restrictions in states. For example, fast payday loan lenders in Illinois restructured 350 percent interest loans as 121-day installment loans to get around the 120-day minimum loan term established in that state.

Military would not be protected from this product under the new rules, which apply to only loans of 91 days or less.

“Still, as long as the [cash advance payday loan] lenders don’t contort their products to try to end-run the protections for military, this law will protect our soldiers and their families from the worst abuses,” said Fox.

Lawmakers passed the Military Lending Act after the Pentagon reported that predatory practices weaken the military, and that debt issues threaten the security clearances of military personnel.

Ohioans with lower credit scores who turn to cash-advance storefronts to cover unexpected expenses understand the costs involved and don’t want lawmakers to limit their availability, according to a study released Wednesday.

The survey of 400 Ohio payday loan customers, backed by an association of payday advance loan lenders, also calls into question statistics circulated by a group supporting planned legislation to cap interest rates charged for such temporary loans and promote less-expensive alternatives.

“I am most angered when I hear (Ohioans who utilize payday loans) criticized for not understanding what they’re doing,” said Patricia Cirillo, a senior research associate at the Cleveland-area Cypress Research Group, who conducted the survey. “They absolutely do understand what they are doing and, in fact, given the choices available to them, a payday loan is often the most economical choice.”

The release Wednesday came a week after the Ohio Coalition for Responsible Lending unveiled its own findings in a report titled “Trapped by Design: Payday Lending by the Numbers.”

Using information culled from the financial reports of four of the state’s top payday lenders, the coalition noted that more than 300,000 Ohioans “are trapped in a long-term payday lending cycle,” and pay more than $318 million in payday loan fees each year.

The average online payday loan, according to the coalition, totals $328 and carries an average annual percentage rate of 391 percent. And the average payday borrower takes out close to 13 loans annually.

(Read on …)

Payday advance lending opponents in Virginia have gotten more organized this year - and the new group spearheading the fight plans to keep the issue at the forefront through this fall’s elections.

Virginians Against Payday Lending reiterated at its meeting Tuesday in Newport News that it doesn’t plan on compromising on passing legislation that would cap the loans’ interest rate at 36 percent.

The cash loan lenders, which charge almost 400 percent annual interest, have said 36 percent would put them out of business.

The group opposing the personal loans believes it has a good shot this year because it is better-organized and has gained momentum. A group of leaders from different faiths and political persuasions, including the Family Foundation of Virginia and the Rev. Jonathan Falwell, are joining the fight.

To counter a payday loan industry argument that there are no alternatives, the group is working with credit unions to develop loan programs that cater to payday loan customers.

Darryl K. Dever is a payday loan lobbyst.

Bill Faith is the leader of the Ohio Coalition for Responsible Lending and would rather see payday loans replaced with small-loan options that allow borrowers to repay over a few months.

Below, they argue their sides with one another…

What’s wrong with the current law governing payday lenders?
Dever was a key author of the law in 1995. “We put safeguards in place that are still model safeguards. We said no loan rollovers. We said you must come back the next business day to even apply for a new loan. This law has worked well,” he said.

Faith said the law does not stop borrowers from taking a instant payday loan from one store to pay back the loan from another. “The product we designed is horrible. If you can’t make money lending at 36 percent, something’s wrong with that.”

Does payday lending help people?
Dever: “They’re using the product because there is a need for it. People have short-term problems. They don’t have many opportunities and don’t have many solutions.”

Faith: “Payday lending doesn’t solve consumer financial problems. It is designed to put people in a debt trap.” He later called it “legalized loan sharking. The only difference is, most loan sharks charge less.”

Do payday customers get caught in a debt cycle, forced to use new loans to pay off old ones?
Based on a report by his group, Faith said the average faxless payday advance borrower took out more than 12 loans last year, and 90 percent of industry revenue comes from people caught in a debt cycle. “If their customers went in and got one, two or three loans per year, we wouldn’t be here today.”

Dever questioned Faith’s figures. “The study says people used more than one lender. It doesn’t say they used more than one lender at the same time. That’s purely assumption on your part. There’s no fact to that at all.”

Shouldn’t people be responsible for their own financial choices?
Faith said studies have shown that only 10 percent of payday cash loan customers don’t have other options, such as credit cards. “They bought the line of the quick, easy money.” He added: “Consumers need to make more-informed choices … there’s no question about that. It’s up to the legislature to make a fairer playing field.”

Dever said an industry-backed study of Ohio customers showed 96 percent thought payday loans were a useful service. “They are making a conscious decision of what their options are. You seem to indicate these people are incapable of making an educated decision. I believe they are.”

The Oceanside City Council last week approved restrictions on new payday cash loan businesses in an effort to help protect young Marines from being saddled with exorbitant interest rates.

The move reflects a national effort to regulate the businesses that often set up near military bases, such as Camp Pendleton, and prey upon young troops who need money between paychecks.

In January, Maj. Gen. Michael R. Lehnert, the commanding general for Marine Corps installations west of the Mississippi, asked the council for help in protecting young and often unsophisticated enlistees from the high interest rates.

The regulations the council unanimously approved last night place new cash advance lending companies in the same category as adult businesses and massage parlors, requiring them to obtain conditional-use permits before opening.

They also will have to be located away from churches, parks and schools.

Despite the unanimous vote, two council members expressed concerns with the changes to the city’s zoning laws. Councilmen Jerome Kern and Jack Feller said the changes likely give an advantage to existing lenders, who will not be affected.

Kern also said young Marines haven’t received enough instruction on borrowing from the faxless payday loan businesses: “We’re kind of closing the barn door after the horse is out,” he said.

Councilman Rocky Chavez disagreed. “The Marines are being counseled quite a bit,” he said.

After the vote, Sgt. Maj. Jeffrey Dixon said, “We give classes, but unfortunately so many times they don’t want to tell us.”

At least 21 payday advance loan lenders operate in Oceanside, according to a city staff report. Countywide, the city ranks second only to San Diego in the number of such establishments. San Diego has no laws regulating the businesses.

Congress approved a law, which takes effect Oct. 1, limiting the interest rates that can be charged to service members to 36 percent annually. The rates at payday lenders often go as high as 400 percent annually, but the loans are typically short term.