Payday Loan Times

After 10 years of explosive growth, the payday cash advance industry faces the prospect of tighter regulation as consumer groups and a handful of state lawmakers push for ways to protect borrowers.

In Ohio, payday lenders charge 15 percent interest per $100 over two weeks for these loans. However, critics say the interest rate climbs to about 400 percent when calculated over a year, meaning that a borrower could accrue $45 in additional costs on a $300 loan.

“Turn it this way, turn it that way, it looks like usury to us,” said Paul Bellamy, a research consultant with the Ohio Coalition for Responsible Lending.

Lyndsey Medsker, a spokeswoman for the Community Financial Services Association of America, said that the annual figures for these no fax payday loans are misleading.

“You’re not taking it out for a year,” she said. “You’re taking it out for two weeks.”

The coalition — a group of 160 consumer, faith-based and labor groups — has begun a push this year to cap the annual rate at 36 percent. The group has targeted fast cash loan lenders because it believes they provide high-interest loans to people least able to afford them, keeping them mired in poverty.

Last year, the U.S. Congress approved an identical bill for those companies that provide short-term loans for military personnel. Bellamy said the coalition wants Ohio law to mirror the federal law in this regard.

During the last decade, payday lenders in Butler and Preble counties have proliferated, climbing from four in 1996 to more than 40 last year, the coalition says. Statewide, the number of Ohio payday advance stores grew from 100 stores in 1996 to more than 1,500 in 2006, according to study by Policy Matters Ohio and the Housing Research and Advocacy Center.

This means Ohio has more payday lending storefronts than it does McDonald’s, Burger King and Wendy’s fast-food restaurants, the researchers found.

Ohio Rep. William Batchelder said this growth underscores the need for banking alternatives for consumers who frequent payday lenders.

“A lot of people are very concerned about this,” the Medina Republican said. “I think there is an acceptance that something needs to be done.”

Medsker said her Alexandria, Va.-based trade group wants states to mandate short-term, low-interest payment plans for people who can’t repay their personal loans on time. The association requires its members to allow clients who can’t pay within the two-week time frame to enter into an eight-week payment plan with no additional interest, she said.

Marlies Sanders was driving through the rain in the car - the one she had barely held onto by taking out a personal cash loan - when she got the calls, which went through to her voicemail.

She pulled over. It was her friend, who had just gotten a call from a person calling herself Ms. Medley saying that the Spotsylvania Sheriff’s Department was going to issue a warrant for Sanders’ arrest. The second message was from Medley herself, saying the past-due Allied Cash Advance payday loan debt was a felony because it exceeds $200.

“If I do not hear from you, then I will issue a warrant out for your arrest,” the caller said.

A lawsuit filed by consumer rights lawyer Dale Pittman says Medley was actually an Allied Cash Advance employee impersonating an officer. The lawsuit alleges that Allied Cash Advance started illegally hassling Sanders after she couldn’t pay back a no fax payday loan.

Virginia law prohibits the lenders from threatening borrowers with criminal prosecution if they can’t pay their loan off on time. But the lenders and the collection agencies they hire have been sued by private attorneys and attorneys general in several states in recent years for crossing the line.

The lenders are allowed to sue their customers in civil court, and they are increasingly taking advantage of that right. In 2006, the number of lawsuits against Virginians increased 38 percent, with 12,486 people getting sued for not paying off their online payday loans.

In Sanders’ case, an employee of Allied called from the company’s Fredericksburg office number and left voicemails saying she was with the Spotsylvania Sheriff’s Department, the lawsuit says. It also mentions that impersonating a law enforcement officer is a violation of Virginia’s criminal code.

Pittman, who has other similar cases pending in Virginia, is talking to authorities about pressing criminal charges. In his other cases, companies have illegally threatened criminal prosecution, but this was the first where they actually impersonated law enforcement, he said.

No one knows whether Medley is really the Allied Cash employee’s name.

“We have not determined who it is,” said Pittman, “and we don’t know if it is an alias or not.”

The payday loan company couldn’t be reached for comment at its Miami headquarters, and Pittman said he has heard nothing from them.

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Mark Bohlinger says he can tell when an affluent family is down on its luck: They start bringing their high-end electronics, televisions, jewelry and guns to his College Avenue pawn shop.

“Absolutely, absolutely,” said Bohlinger, owner of City National Pawn. “It’s kind of a fact of life.”

Pawn shops loan money to people, holding items such as televisions or guns as collateral. If the loan, plus about 20 percent interest, isn’t repaid within 60 days, the pawn shop sells the goods.

They’ve long been a source of quick cash for people who have lots of things but no access to credit. Experts, including Bohlinger, say that when a two-income family loses one source of income, they often first turn to the equity in their home, then to credit cards, and then, sometimes, to pawn shops and payday advance lenders.

Bohlinger recently showed off the collateral-holding area of his store, pointing out the big-screen LCD and plasma televisions that have been hocked by people looking for cash. He said very few stolen items are pawned; all items are entered into a database that police can check.

Bohlinger said about 75 percent of the items pawned at his store are eventually reclaimed by their owners, a rate that changes depending on the economy.

When construction slows, he said, he starts getting lots of tools from workers who hope to reclaim them when the economy improves.

“There’s a lot of people who are living paycheck to paycheck,” Bohlinger said. “That would be our main customer base.”

The number of people in and around Fort Collins who are living paycheck to paycheck appears to be increasing, judging from the dramatic increase in payday loan stores within city limits.

Since 2003, the number of payday loan stores in Fort Collins has more than doubled from nine to 20, according to the state attorney general’s office, which regulates the lenders. Growth of faxless payday loan stores statewide has been no less “explosive,” officials say, jumping from 212 in 2000 to 634 today.

The number of pawn shops in Fort Collins increased from six in 2003 to 10 today, according to city licensing officials.

Cash loan stores offer short-term loans to consumers by holding onto the borrower’s signed check. The loan is supposed to be repaid by payday, hence the name, but studies from across the country have repeatedly shown that borrowers just keep rolling over the high-interest loans.

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Sonny Eyabi is president of the Washington D.C. Financial Services Association, which represents more than 40 payday advance lenders in the District.

He penned the following recently for The Washington Post:

When the D.C. Council reconvenes on Sept. 18, it will vote on a bill that would leave District residents without access to payday cash advances - a popular, well-regulated short-term credit product - and put nearly 400 Washingtonians on the unemployment rolls.

The bill, sponsored by Mary M. Cheh (D-Ward 3), would cap annual percentage rates on payday advances at 24 percent. While this may sound like a great idea, it is essentially a ban on the industry. At that rate, lenders would actually lose money on every no faxing payday loan, with a maximum fee of only 92 cents per $100 borrowed.

If the rate cap is approved, the only way for our stores to keep their doors open would be to operate as charities.

We know our customers use payday loans to avoid bouncing checks, as overdraft protection, and to cover late fees on credit card and utility bills. By taking away the option of payday cash advances, demand for this product will not disappear.

For example, the state of Georgia has restricted payday loans in a similar way to the D.C. Council’s plan. In 2006, more than 500,000 cash advances were made to Georgians who crossed state borders so they could deal with unplanned expenses.

Payday cash loans are already strictly regulated in the District and in 38 states. These regulations include a maximum advance amount of $1,000 (including the fee), a maximum fee charged for the loan ($16.11 per $100 advanced) and the required display of all fees in English and Spanish. Would additional reforms help consumers?

Absolutely. To better protect the District’s payday loan customers, we advocate:

• Making sure that customers understand the cost of the product by fully disclosing all fees in simple and easy-to-understand language.

• Helping customers avoid getting caught in a “cycle of debt” by allowing only one rollover and offering an extended payment plan, at no cost, to any customer who cannot pay back the quick payday advance when it is due.

• Verifying that customers have the ability to repay before approving the loan.

• Funding financial literacy programs in the District.

Our members would be required to follow these rules, and we urge the D.C. Council to codify these reforms into law to ensure that all payday loan stores in the District abide by the same regulations.

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Before Kansas City moves to restrict payday cash advance lending, policy-makers should understand their constituents’ need for short-term credit and the unintended consequences of such restrictions.

So begins an article in The Kansas City Star by Tom Linafelt, director of corporate communications for QC Holdings, the parent company of Quik Cash.

While critics have rushed to label payday lending as “predatory” without ever having defined what “predatory” means, recent studies debunk that myth.

A January 2007 study by the Federal Reserve Bank of New York found not only that payday loans were not predatory, but that by increasing the supply of credit to an underserved market, they actually enhance the welfare of the households they serve.

Another study found that further regulation of quick payday loan lending has the adverse and unintended consequence of reducing credit options for those who may have few alternatives, and that policy-makers should encourage competition in the small-loan market, as competition controls prices.

Payday advance companies each year help thousands of Kansas City-area families overcome unexpected financial circumstances.

When an air conditioner breaks or a car battery dies, Quik Cash and other responsible lenders provide convenient access to small amounts of money in the form of instant payday loans. Banks don’t.

Missouri payday lending laws already include some of the strongest consumer protections in the country. Limits on loans, loan renewals and associated fees protect consumers from creating a “cycle of debt” and from experiencing the kinds of annualized percentage rates referenced by industry critics.

These are the kinds of strong consumer protections the no fax cash loan lending industry consistently supports.
In fact, the payday lending industry’s trade association, the Community Financial Services Association, this year launched a customer pledge that includes an extended payment plan granting any customer, at any time, for any reason, more time to pay off a loan at no additional cost.

Let’s give reasonable, hard-working Kansas City consumers access to a variety of regulated credit options and trust them to make financial decisions based on what’s best for them and their families.

SOURCE: Kansas City Star

A South Carolina couple has filed a lawsuit claiming payday advance loan lenders attract borrowers to “unconscionable loans” and trap them in an endless cycle of trying to repay the loans.

State Sen. John Hawkins filed the lawsuit Tuesday on behalf of Mark and Rebecca Morgan of Horry County. Hawkins said he would seek to make the lawsuit class action.

The lawsuit names several instant payday loan lenders, including the nation’s largest, Spartanburg-based Advance America. Spokesman Jamie Fuller said the company was aware of the lawsuit but hadn’t seen the details.

“We can’t comment on the specifics of the case. We are going to defend our position strongly in court. We won’t try it in the media,” Fuller said.

The company doesn’t do anything illegal and “provides a needed service to consumers,” Fuller said. “Consumers have shown that this is a product that they like and use responsibly.”

Hawkins, a Spartanburg Republican, said the Morgans were representative of a larger group. They were “in debt up to their eyeballs,” due to cash advances he said, but would not provide specifics. Hawkins also would not make the Morgans available for an interview.

The borrowers are being “trapped into getting continuous loans to repay loans that should not have been made,” with the lenders accruing fees and interest payments along the way, Hawkins said.

The suit names payday lenders Advance America; Carolina Payday Loans; Check into Cash of S.C.; Check ‘n Go of S.C. and Local Cash Advance of S.C.

It claims the lenders violated the Consumer Protection Code with negligent lending practices, “breached their obligations of good faith, and engaged in a civil conspiracy to make unconscionable [personal loans].”

APPLETON, Wis. — This city of 70,000 has five McDonald’s franchises, three Pizza Huts, four Starbucks shops — and 19 payday loan stores, brightly lighted storefronts with names like EZ Money and Check Into Cash that offer two-week loans without credit checks.

Peggy Truckey, 53, knows the allure. Last year she owed nearly $1,300 to four of those stores, and was paying about $600 a month in finance fees alone.

“I thought I was going to have to take a second job just to pay off the interest,” Ms. Truckey said.

Then she heard about a new nonprofit program operated out of a Goodwill thrift store, one of several hundred lower-cost payday loan products that are now being tried by credit unions around the country. She got a personal cash loan, at half the finance charge, but also something more: help converting all her two-week payday debts, which charged the equivalent of more than 500 percent annual interest, to a one-year loan at 18.9 percent, bringing her monthly payments down to a manageable $129.

A few dollars from each payment go into a savings account, the first she has had in years.

“I have almost $100 in savings,” said Ms. Truckey, who earns $9.50 an hour as a supermarket meat clerk. “I’m in a comfortable position for the first time in many years.”

The program, GoodMoney, a collaboration between Goodwill and Prospera Credit Union, is a response to an industry that has been criticized by lawmakers and consumer advocates as predatory but that has reached as many as one in 20 Americans.

“Our goal is to change behavior, to interrupt the cycle of debt,” said Ken Eiden, president of Prospera, who is also a director at Goodwill.

For Ms. Truckey, as for most borrowers, the bad credit payday loans began as a stopgap. After losing her job in 2002 she borrowed $500 from a payday store, which charged $22 per two weeks for every $100 borrowed, or the equivalent of 572 percent annual interest. When the loan came due in two weeks, she could repay only the $110 finance charge, so she rolled the loan over, adding another finance charge.

Soon she took a second loan, from another store, and eventually two more, which she rolled over every two weeks, multiplying the cost of the loans. Even after she found a full-time job, she said, “I wasn’t able to pay my electric bill on time or my other bills on time, because half my paycheck was going to finance charges.”

At GoodMoney, tellers encourage borrowers to consolidate their debt in lower-interest term loans, and to use other credit union services like automatic savings. If borrowers cannot repay a loan after rolling it over twice, they can get the faxless cash advance interest-free by attending a free credit counseling session with a nonprofit service.

However, alternative payday loans have also drawn criticism from some consumer advocates, who say the programs are too similar to for-profit payday loans, especially when they call for the principal to be repaid in two weeks. At GoodMoney, for example, borrowers pay $9.90 for every $100 they borrow, which translates to an annual rate of 252 percent.

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A payday loan employee recently wrote in to the Daily Press in Virginia regarding the use of cash loans…

A July 12 letter, “An interest- rate fix,” seeks to further the misguided perception that payday customers routinely convert our product into long-term debt.

As a long-standing employee of a payday advance company, I can say with certainty that nearly all of our customers use these short-term loans responsibly. And they are dutiful about repaying the loans within the specified time period. Virginia regulations do not allow customers to roll over their loans, so the interest is not compounded and does not result in long-term debt.

The letter writer also urges a 36 percent APR cap for faxless payday loans, and incorrectly believes that “legitimate lenders have no problem” operating under such a restriction.We could not stay in business with a 36 percent APR cap — the equivalent of less than $1.40 per $100 advanced. In fact, many of our customers choose our service in part because other financial institutions find it difficult to offer short-term, unsecured loans.

The truth is our customers know what it costs to borrow money, and compared with the fees connected to bouncing a check, paying a credit card bill late and even many ATM withdrawal charges, it costs less to get a pay day loan.

State Rep. Josh Zepnick (D-Milwaukee), a member of the Assembly Committee on Financial Institutions, has introduced two consumer protection bills designed to help citizens who utilize relatively new and emerging financial services of cash advances and auto title loans.

“Payday and auto title loans are largely unregulated in the state of Wisconsin and even the industry itself recognizes that there are bad actors or abusive lenders which are not good for anyone in Wisconsin,” Zepnick said.

“Check cashing, wire transfers and more recently payday cash advances and auto title loan stores tend to cater to a clientele that is seeking short-term solutions to serve their immediate financial needs vs. building a long-term relationship with a bank or credit union.”

Zepnick’s payday advance loan lending bill would limit the amount someone could borrow at any one visit to a payday lender; restrict the number of “rollovers” and discourage turning the payday advance into a long-term loan.

Zepnick said the bill would prohibit the state from creating a database of payday loan borrowers, a “Big Brother invasion of personal privacy.”

The second bill would ban auto title loan outlets from doing business in Wisconsin.

“The practice of borrowing against a depreciating asset, especially one that has a wide variance in tangible value depending on the vehicle condition and history, is dangerous and is financially dubious considering the flooded used vehicle market,” Zepnick said.

“There are some responsible actors in all of the above services - now is the time for them to step forward and help work on much needed public policy changes before they get lumped into the same sinking boat of predatory and irresponsible [no faxing payday loan] sharks.”

The Virginia Interfaith Center for Public Policy today was to release the faith community’s “Faithful Pledge” campaign to end the current system of payday advance lending and cap the interest rate on those short-term loans at 36 percent.

A 2002 bill exempted the instant payday loan industry from Virginia’s cap of 36 percent. The industry now charges interest rates of at least 10 times that on some two-week loans — a practice the Interfaith Center describes as immoral.

Last year the Virginia General Assembly took up various measures to limit the interest on the short-term loans, but attempts to set a lower limit failed.

The “Faithful Pledge” campaign is the faith community’s response to this resistance.

“We will not back down,” Ann Rasmussen said in a news release. She is policy director of the Virginia Interfaith Center. “The ‘Faithful Pledge’ campaign is the faith community’s speaker box, amplifying our voice as we speak truth to power and call on our state legislators to enforce Virginia’s usury cap law and limit the interest rate of [bad credit payday loans] to 36 percent.”