Payday Loan Times

The following is an editorial from The Cleveland Plain Dealer…

Democrat Marc Dann practically boasts that he is one of the most partisan statewide officeholders ever elected. But, he admits, “We don’t have a monopoly on good ideas.”

Thus, Ohio’s attorney general lauds Rep. William Batchelder’s effort to limit payday advance loan lending, a practice that has literally exploded in the state over the past decade.

Batchelder, a conservative Republican believed to have designs on succeeding Jon Husted as speaker of the House in 2009, is drafting a bill to limit short-term loans that come with sky-high interest rates.

Dann is all for restraining companies whose annual interest rates on faxless payday loans approach 400 percent - no matter who’s pushing the proposal. So far, however, House Minority Leader Joyce Beatty, a Democrat, is loath to jump on Batchelder’s bandwagon.

By her unwillingness to support an issue championed by a Republican, Beatty seems to be letting the people’s interests take a back seat to her party’s. She has told reporters that some of her Columbus constituents truly feel they need the short-term loans, believing it’s better to pay the interest than to lose elec- tricity or an apartment because of missed payments.

But no one is proposing doing away with short-term pay day loans altogether.

Batchelder is still drafting his measure, but Dann and others support setting interest-rate caps. He also expects Beatty to come around.

Consider these findings from “Trapped in Debt,” a report from Policy Matters Ohio and the Housing Research & Advocacy Center:

In 1996, Ohio had 107 quick payday loan locations; today it’s 1,562 - more sites than McDonald’s, Wendy’s and Burger King combined.

Ohioans paid $209 million in payday loan fees in 2005.

In recent years, state lawmakers actually increased the maximum loan amount from $500 to $800. They also exempted the loans from the 25 percent interest rate cap that applies to other lenders.

Nationwide, just 1 percent of cash advance payday loan borrowers take out only one loan annually. The average is nine such loans per year.

“There’s nobody in this state who can be for the rules we have now,” Dann says. “We can’t allow this kind of stuff.”

He’s right.

People looking to take out a Canadian payday cash loan now in Ontario have a clear picture of the true cost of their decision.

New rules covering the industry took effect this week. They include:

• Payday advance lenders must now disclose all charges, including interest rates, brokerage fees and, check-cashing fees for all loans over $100.

The new rules were brought in to protect consumers from sky-high interest rates charged by some payday loan lenders.

Shares of Spartanburg payday lender Advance America hit an all-time low Wednesday a day after a Pennsylvania court ruled the Spartanburg cash loan company violated that states consumer law.

Advance America provided bad credit payday loans of as much as $500 to people in return for 6 percent interest plus a $150 monthly fee, a Pennsylvania court ruled Tuesday in agreeing with the state Banking Departments claim that fees exceeded limits set in state law.

The opinion prevents Advance America from continuing to lend money or collecting on lines of credit or loans currently outstanding in the Commonwealth of Pennsylvania pursuant to the violations of state law.

Advance America said it would appeal.

This provider of cash advances saw its shares slipped to $11.29 during trading Wednesday the lowest since the stock debuted in December 2004. Shares finished at $11.84, down $2.83 from Tuesday.

A state study found that a 2005 law regulating Illinois payday loans saved borrowers $20.6 million in loan fees and interest charges over 18 months.

The good news is tempered by the fact that payday lenders have been moving into longer-term, high-interest loans not covered by the reform law, according to consumer advocates.

“Our worst fears have been realized,” said William McNary, co-director of Citizen Action/Illinois. He said lenders have told his organization that less than 5 percent to 10 percent of the personal loans they now issue are payday loans, because they don’t make money the way they used to.

Payday loans are short-term loans for small amounts of money secured against a post-dated check. The industry says the loans provide people with quick cash for emergencies, but consumer advocates say the loans prey on the poor with triple-digit interest.

The law limits the interest that can be charged for supposedly low fee payday loans to $15.50 per $100 and caps loans based on a borrower’s pay, along with other reforms.

Before the law took effect, the average finance charge for short-term loans was $20 per $100 borrowed for a 14-day loan and $45 per $100 for a 31-day loan, according to the Illinois Department of Financial and Professional Regulation report. The average finance charge offered since the reform law was $15.36 per $100 loaned.

Because of the reforms, “consumers are better protected from falling into an endless cycle of debt,” Gov. Blagojevich said in a statement.

“It’s clear that the law is working as intended,” said Bob Wolfberg, president of the Illinois Small Loan Association. He said the industry now makes less money off bad credit cash loans, which has forced lenders to offer different products, including longer-term loans.

On average, 45,000 to 60,000 payday loans are issued in Illinois every month. The law defined payday loans as loans for less than 121 days. Statistics on payday loans have only been kept since the law passed in December 2005, so it’s not clear if there’s been a big drop since the law passed.

The state financial regulation department has pushed rules that would eliminate the loophole, so that longer-term no fax payday advance loans could also fall within the law.

Department spokeswoman Sue Hofer said the department hopes Tuesday’s report will “stir some discussion.”

A payday cash advance lending business violated Pennsylvania consumer law by providing loans of as much as $500 to people in return for 6 percent interest plus a $150 monthly fee, a state court ruled Tuesday.

A Commonwealth Court panel agreed with the Banking Department’s claim that fees charged by Advance America Cash Advance Centers exceeded limits of the state’s Consumer Discount Company Act.

The Banking Department sued Advance America’s parent company, NCAS of Delaware LLC, in September, three months after the company began offering the bad credit payday loan product.

The lawsuit called Advance America’s $150 ”monthly participation fee” an illegal and usurious sham.

The opinion issued Tuesday prevents Advance America from continuing to lend money or ”collecting on lines of credit or loans currently outstanding in the Commonwealth of Pennsylvania pursuant to the” violations of state law.

But the judges also said the company may pursue its allegations of constitutional violations and cautioned that the case record was not sufficient for them to determine whether the participation fee amounted to ‘’sham interest.”

Advance America spokesman Jamie Fulmer said the faxless payday advance company had no immediate comment on the effect of the injunction.

”Families who seek these types of loans are usually living paycheck to paycheck and need just a little bit more to make it to Friday,” she said. ”Preying on their need by charging exorbitant fees is simply unconscionable.”

Advance America, based in Spartanburg, S.C., calls itself the country’s leading provider of payday loans, with more than 2,800 centers, including about 100 in Pennsylvania.

In the Lehigh Valley area, it has offices in Allentown, Bethlehem, Easton, Whitehall Township, Stroudsburg and Pottsville.

The following is an editorial from The Roanoke Times…

Pretend for a moment that - like most Virginians - you make enough to make ends meet, but haven’t accumulated much in the way of savings or assets.

Your car breaks down. You need $300 to fix it so you can get to work. You’re not comfortable borrowing from friends or family. You don’t want to max out your credit card, bounce a check or pawn personal items. What do you do?

The industry of payday cash advances exists because it fills a vacuum that banks created when they stopped offering low-dollar, short-term loans. They instead found bounced-check and nonsufficient funds “protection” fees more profitable.

Recent studies debunk the myth that payday loans are “predatory,” and underscore the fact that - before restricting or eliminating such short-term credit options - public officials should better understand the consumer demand for such products and the unintended consequences any such restrictions might create.

Indeed, while critics - including recent Roanoke Times guest columnists - have rushed to label payday loan lending as “predatory” without ever having defined what “predatory” means, a January 2007 study by the Federal Reserve Bank of New York found that payday loans were not only 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 no fax payday loan lending has the adverse and unintended consequence of reducing credit options for those who may have few alternatives, and that policymakers should encourage competition in the small loan market, as competition controls prices.

Payday loans are a sensible choice for many facing personal emergencies and more onerous fees such as those associated with bounced checks and late bill payments.

Just as a taxicab is not the right choice for a cross-country trip, but a good choice for a ride across town, a cash advance loan can be the best choice for someone short of cash a week or two before payday.

While attacking payday advances for carrying high annualized percentage rates, industry critics fail to mention that no payday loan customer would ever experience such APRs. To do so, a payday loan customer would have to renew his or her loan every two weeks for a full year, an impossible feat that is illegal in Virginia and all of the 37 other states with responsible payday lending legislation.

(Read on …)

There are some organizations in Pennsylvania, such as The Ludwig Von Mises Institute, which support faxless payday loans and oppose the government regulation of it.

“We recognize why payday lending exists,” Dr. Mark Thornton, senior fellow at the organization, said.

“[No faxing payday loan] shops, pawn shops and title pawn shops have surfaced as a response to the need of low-income minority customers because these customers are discriminated against elsewhere,” Thornton said.

He explained that banks are a highly governmentally regulated industry and are often exposed to problems regarding discrimination.

“A lot of low-income people can’t even get bank accounts, so there is no way that they can apply for loans from banks,” Thornton said.

He explained that payday advances should be used in emergency situations. “People should be using them for things like medial supplies,” he explained.

Thornton also offered an explanation for payday loans’ high interest rates. “The high interest rates cover a lot of costs for the lenders. There is a lot of paperwork involved and also the everyday expenses for business,” Thornton said.

With home loans and car loans, there is collateral for a lending officer but with payday loans, the lenders don’t have any sort of material collateral.

“There is a risk for the lender and all those things attribute to the high interest rates,” he said.

He noted that all people considering taking out a cash loan online should talk to someone who has already done it.

“Then the people should go through the same lending office, that way they will know what to expect and they won’t be surprised,” Thornton said.

Orem city officials have put a cap on the number of payday advance lending stores they will accept in their city, hoping to limit the opportunities for residents to become buried under loans with annual percentage rates as high as 800 percent.

The Orem City Council has adopted an ordinance, similar to other cities in Utah, that limits the number of deferred-deposit loan stores to one store for every 10,000 residents.

Leaders in Salt Lake City and Salt Lake County are considering similar ordinances.

Critics of online payday loan lenders applaud such moves, but industry representatives said they will only hurt consumer choice.

Orem has 23 such stores for approximately 90,000 residents — Check City, Check Into Cash, Quick Loan, to name a few — far more than the nine it should have under the new ordinance.

“They’re doing good business,” said Myla Dutton, executive director of the Community Action Services and Food Bank, an organization dedicated to helping low-income residents. “That’s why they’re here. They’re not hurting for business.”

Stores now in Orem can remain open under the “grandfather” clause, but should one close, another cannot open until the number of stores drops below nine.

No faxing payday loans allow people without good credit to get quick loans from $10 to $1,000 for as little as $20.

The expensive money loan is due in a week or after the person’s next paycheck — with interest.

If the person can’t pay, they often roll over the loan, gathering more interest and promising to pay the next week, Dutton said. However, with APR, or annual percentage rates, at well over 500 percent, the interest quickly can become more than the initial loan.

The first fast cash loan business popped into Utah in the mid-1980s, and now there are more than 400, said Linda Hilton, director of the Coalition of Religious Communities in Salt Lake City. Hilton has been working to educate people on payday lending since 1999.

“It’s been around for a long time,” she said. “In the Depression it was called loan sharking, and Al Capone ran it. It’s (now) legalized loan sharking. The growth of this industry is growing faster than Starbucks.” (Read on …)

Revenue growth for payday loans, including those extended over the Internet, helped Fort Worth-based Cash America International rack up a 19 percent increase in net income for the second quarter.

Earnings were $13.2 million, or 43 cents a share, compared with $10.9 million, or 36 cents a share a year earlier, beating analysts’ estimates by 3 cents as calculated by Zacks Investment Research. Revenue hit $213.9 million, compared with $149.9 million a year earlier.

“All aspects of our business experienced increases in revenue, led by our expanded balances of cash advance loans, which posted the largest portion of the year-over-year gains in revenue,” President Dan Feehan said.

But he stressed that Cash America’s pawnshop loans and merchandise sales represented about two-thirds of revenue. Pawn revenue was up 18 percent, he said.

The company predicted that third-quarter profit would range from 52 to 58 cents a share.

Loan fees from cash advance payday loan units, not including pawnshops, increased to $76.9 million from $29.1 million a year earlier.

UniSource Energy Services, the electricity provider in Nogales, has announced plans to eliminate the option for customers to pay in cash at ACE Cash Express locations.

The decision has nothing to do with economics, convenience or cost cutting. Instead, the company is trying to protect its most vulnerable clients, said Joe Salkowski, the public information officer for the utility company. It wants to distance itself from this instant payday loan chain.

“We’ve had conversations with our friends in the low-income advocacy group about directing our customers to make payments where extremely high-interest loans are available,” Salkowski said. “In recognition of those concerns we’re going to look for another way, (in which customers may pay.)”

While the majority of customers pay online or with checks, some people do not have bank accounts and can pay only in cash. In Nogales, those people can go directly to the UniSource office, but for those who live elsewhere the only option was to pay at the aforementioned payday loan company.