Payday Loan Times

The Deseret Morning News reports that Utah payday loan agencies dodged a legislative bullet Tuesday — one that would have limited them to charging just 8 percent annual interest on their loans instead of the triple-digit APRs that they currently assess.

Republican representative Dave Hogue of Riverton said he had to scrap the proposed interest rate cap in an effort to salvage other reforms he is seeking, or else all of his efforts would have been nixed altogether.

"I don't think that (interest rate cap) would ever pass this Legislature. And I don't think that would be acceptable to the financial industry because it would be a beginning of going back to usury caps that the Legislature erased in the 1980s," Hogue said.

The Business and Labor Committee of the Utah State Legislature passed Hogue's reform bill, 9-2, after he dropped the interest provision. The legislation includes restrictions such as limiting the penalties that payday lenders may collect on bounced checks that customers had used to secure payday loans.

The financial industry has long lobbied against imposing caps on payday loan interest rates, even in an industry where 521 percent is the median APR. The industry argued that capping payday loans could lead to caps on other loans from mortgages to credit cards. It could also result in large lenders leaving Utah and taking jobs with them, advocates say.

In Utah, a quick payday advance charges a median of $20 per $100 loan for two-week loans, made in advance of the borrower's next paycheck. Hogue's bill would have allowed unlimited interest on the initial loan, but only 8 percent for the extension period if the recipient could not pay it off.

Credit counselors and consumer advocacy groups say that payday loans are designed to trap desperate or unsophisticated people, but lenders say they offer emergency help to people with no credit, and their loans are cheaper than fees levied for bounced checks or for getting disconnected utilities turned back on.

Kip Cashmore, vice president of the Utah Consumer Lenders Association, believes that Hogue's proposed restrictions are not needed because most consumers are overwhelmingly happy with payday loans.

"Out of the hundreds of thousands of transactions that the companies did last year, the (state) registered 22 complaints. That's phenomenal," he said.

Many online payday loan companies instead back a bill by Sen. Ed Mayne of West Valley, which would allow the state to fine payday lenders for violations of state law. The only penalty currently allowed is to shut down a lender, a scenario that has happened only once. But some payday supporters oppose both pieces of legislation.

James Evans, Chairman of the Salt Lake County Republican Party and a payday lender himself, has been lobbying hard against any changes to state law, claiming that inflamed passions are the only motivating factors.

"I am fundamentally opposed to any bills this session because they are based on a premise that there's something wrong with the industry. And that premise is basically based on the articles [the Morning News] wrote," Evans said, citing journalistic prejudice against the industry.

The Morning News series on payday lenders found that Utah has more payday loan stores than 7-Elevens, McDonald's, Burger Kings and Subway stores — combined. Utah has some of the friendliest payday loan industry laws in the entire country, which has attracted many of the biggest national online payday lenders here.

Utah payday loan companies face relatively few regulations in the immediate future, and skeptics worry that there are few ways of policing the rules already in place. The newspaper also found that payday loan stores are concentrated in areas that near the large Hill Air Force Base, much like a similar charge levied against California payday loan companies of late.

Dan Saltzman is a Portland city commissioner and Jackie Dingfelder is a Democrat representing Portland in the Oregon House of Representatives. They responded harshly to the recent failed attempt by state legislators to curb interest rates on payday loans.

The following is an except of an editorial published in The Oregonian. (Bolds, italics and links were added by The Payday Loan Times staff.)

It is hard to miss the explosive growth of payday lending in Portland. On nearly every thoroughfare in our working-class neighborhoods, a payday loan shop offers quick cash advances … there are now more payday loan shops in the Portland area than Starbucks and 7-Elevens combined.

These no fax cash loan storefronts attract low-income workers who are struggling between paychecks to make ends meet. Frequently, however, taking a payday loan puts borrowers in much worse financial shape than before they took the loan.

Payday loans charge borrowers exorbitant fees and interest for loans of just a few short days at rates that commonly exceed 500 percent in annual interest. Soon these borrowers find themselves in a bottomless pit of debt, forced to choose between paying their loan fees and buying food.

Obviously, there is a demand for these lenders. Equally obviously, there is a need to level the playing field between the borrowers and the lenders. Some sense of fairness needs to be instilled in the payday lending industry.

In Oregon, payday loans are virtually unregulated by state law. Payday lenders face few regulations and no interest rate caps. A bill to provide meaningful statewide regulation, unfortunately, failed to pass the Legislature last year.

In the absence of significant state regulation, it has fallen to local governments to act to protect Portland's working families. The need for local regulation is critical to protecting the financial security of our working citizens struggling to lift their families out of poverty.

A proposed Portland ordinance would give borrowers a chance to end the cycle of debt that often occurs in payday loans. The ordinance would require payment of a portion of a loan's principal before the loan can be renewed. It would give borrowers the ability to rescind a payday loan within 24 hours, and it would give borrowers the ability to convert a payday loan into a payment plan.

While this ordinance is a necessary first step in providing regulation of the payday loan industry, the state Legislature must proceed with more stringent statewide regulations. The Legislature must take further action to cap interest rates so consumers throughout Oregon are protected from exorbitant interest rates.

Payday advance institutions have sprung up in large numbers near many California military bases, according to the Antelope Valley Press. Lawmakers believe they are targeting the state's military families, which become financially vulnerable when a member is sent overseas.

"We discovered a lot of younger enlisted folks were being taken advantage of by payday lenders," said Ted Lieu, a Torrance Democrat who serves in the Air Force Reserve and spent four years on active duty. "Many payday lenders are professional and do everything above board, but many do not."

Lieu has introduced Assembly Bill 1965 — which would require cash advance loan companies to abide by strict regulations when following up with members of the armed forces who have outstanding balances, including deferring collection activity against members who have been deployed (and spouses) — to protect the state's military personnel.

Payday cash loan providers generally offer a loan to a borrower in advance of the borrower's next payday. California law limits the amount to $300 per store, and limits the fee to $15 for every $100 borrowed. But when borrowers don't repay the fast cash advance when it's due, added fees and interest can escalate out of control.

A study by university professors Christopher L. Peterson of the University of Florida and Stephen Graves of CSU-Northridge found that the five California counties most densely packed with payday advance companies all have active, or recently closed, military bases. A surprising 14 of the 20 ZIP codes with the most payday lenders are within five miles of an active or recently closed base.

Oceanside, near Camp Pendleton in Southern California, has 22 payday lenders — far more than would be expected in such an affluent area. For the record, an Edwards Air Force Base spokesman said he wasn't aware of a problem with base personnel and any payday companies.

Assembly Bill 1965 would prohibit payday advance lenders from garnishing a military member's salary and prohibits contacting the borrower's superior officers in order to receive payment. The bill also requires the lending company to honor all terms and agreements of any replacement arrangement worked out between a member of the armed services or military / third-party credit counseling agency.
At least in the early going, the legislation is garnering bipartisan support.

"In concept, yes, I (support) whatever we can do to help our military families get by for that time that they're away from their families," said Sharon Runner, a Lancaster Republican.

The California bill is expected to be heard in committee in late March or early April. All three West Coast states have been in the news with proposed payday regulations lately. An Oregon payday loan bill is also being pushed by that state's consumer advocates, and a little farther north, a controversial piece of Washington payday loan legislation has also been hotly contested.

The Federal Deposit Insurance Corp. isn't happy. In examining the state of payday loans in Pennsylvania, the company has expressed concerns with certain practices.

Specifically, Dollar Financial said it has learned that the FDIC would like to meet with it regarding its dealings with payday advances. Located in Berwyn, Dollar is a leading international financial services company that offers a range of consumer financial products to its customers. This includes online payday loan offers.
Across the globe, Dollar operates 1,329 stores in 36 states, the District of Columbia, Canada and the United Kingdom that offer check-cashing, short-term customer loans, money orders and bill-payment and other services.

If the FDIC takes action that will decrease the company's CustomCash revenue, Dollar said, it will "pursue other alternatives to mitigate the potential future loss of revenue, including offering company-funded payday loans that are regulated under prevailing state laws to the affected customers."

Four leading payday loan brands in the U.K. — Month End Money, PayDay UK, MyPayDay Loan and Payday Store — are being incorporated under a single umbrella of MEM Consumer Finance Ltd., according to a press release.

“The payday lending industry in the UK has grown immensely since we opened for business in 2003. As one of the leading providers of short term finance we feel the time is right to look at new expansion opportunities," Iain McKenzie, CEO of MEM Capital, said. "We have streamlined these brands under one, focused company, and will have the same teams and practices in place so the transition will definitely be a smooth one and it will make no difference at all to our existing customers."

The consolidated business will be under the control of MEM Capital’s Chief Operating Officer, Kirsty Auchincloss, who helped build the existing payday loan portfolio for the company. She was there when the tiny payday advance operation began in August 2003 and has been instrumental in its growth to present size: 12 full time staff members, an extensive external support network and hundreds of thousands of pounds a month.

“Teamwork has always been the essence of MEM. At first, it was just Iain and I working on new business sales, returning customers and all payments which meant we had to be particularly efficient at sharing the load," Auchincloss said. "Now we have a dedicated new business team for people applying for a [faxless payday loan] for the first time."

The company touts its customer service team for its regular repeat business and cites its production group for handling the vast number of repayment options.

As with U.S. payday loan companies, MEM Consumer Finance’s brands offer loans between £80 and £1,000 to consumers in advance of their next payday. Despite ongoing criticism from lawmakers, payday loans continue to be popular among people looking to bridge unexpected financial shortfalls. Whether you are in the U.S. or U.K., it's always important to find the best payday loan arrangement for your situation, if you go this route at all.

The AP reports that community activists, union leaders and church groups are banding together to promote a measure for November's ballot to limit the loan rates charged by payday lenders throughout Oregon.

The payday loan industry has been growing rapidly. But unlike other states that have been trying to outlaw these cash advances entirely, backers of the Oregon initiative are just looking to protect people from lenders who at times charge more than 500 percent interest.

To help bring about such a change, the Our Oregon coalition is teaming up with the main state chapter of the Service Employees International Union, Ecumenical Ministries of Oregon, the Oregon Food Bank and other groups to place the measure before voters this fall.

“We're going to have a huge volunteer program on this. People are very excited about it,�? said Patty Wentz of the Our Oregon coalition, which filed the initiative to cap most payday loan annual interest rates at 36 percent and loan origination fees at 10 percent.

The coming ballot measure campaign will mark a resumption of a fight that took place during the 2005 Oregon Legislature when a bill to limit interest rates on payday loans was approved by the Democrat-controlled Senate but died in the Republican-controlled House.

House Republican leaders have since appointed an interim committee to study the payday loan issue, but Wentz said advocates of interest rate caps on payday loans aren't going to wait for the 2007 Legislature to act.

“People were frustrated that reform that was so badly needed was thwarted by the House leadership because the payday loan industry has such great sway there,�? she said.

Any effort to cap interest rates likely will spark strong opposition from payday loan industry officials who say that the quick loan shops sometimes are the only source for a small, short-term payday cash advance for people who run into financial emergencies.

“It's a matter of consumer choice. This is a convenient way for people to get access to cash,�? said Annette Price, a lobbyist for the payday loan industry in Oregon.

But Ellen Lowe, a lobbyist who's worked with church groups over the years on social justice issues, said the high interest rates charged by payday lenders can victimize consumers who often end up even deeper in debt.

Art Powers, political director of SEIU Local 503, said the public employee union plans to take an active role in helping to win voter approval of the interest rate cap measure this fall.

Backers of the measure aren't trying to drive shops offering instant payday loans out of business, Powers said.

“But the idea that payday loan operations can charge 500 percent interest is outrageous,�? he said. “A lot of people are living on the edge, and some people get so desperate that they mistakenly see these loans as a lifeline.�?

As we've reported earlier, it can be difficult for payday loan legislation to pass. We'll follow this story as it develops.

With just three weeks remaining in the legislative session, proposals to restrict the state's controversial payday loan industry have fizzled out for the second straight year. This isn't the only instance in the country when, legislators and lenders have clashed over cash advances.

A coalition of consumer groups, the military and legislators sought tight controls on payday lenders, which issue short-term cash advances at high interest rates.

However, their proposals faced stiff opposition from the lenders, and from some lawmakers who didn't see a compelling case for sweeping new restrictions. Of the 15 payday loan measures introduced in the House and Senate, legislators on both sides of the issue agree that NONE will pass.

Reaction to the payday loan decision

Senator Darlene Fairley advocates industry restrictions. She and others vowed to return with a new round of proposed regulations next year. Meanwhile, one Navy official said the military is considering the unusual step of making payday lenders officially off limits to servicemen and women.

The use of quick cash loan topic was brought up in a 2004 session, when 14 payday-related bills were introduced. The one measure that passed codified "best practices" protections for military personnel, such as deferring repayment for a soldier who has been sent to combat.

This year's legislative hearings again pitted the payday industry against an organization not accustomed to defeat: the U.S. Navy. The Department of Defense has made restricting the loans a top priority, and Rear Adm. William French, the Navy's Northwest commander, testified that payday lenders deliberately ensnare sailors in debt, hindering combat readiness.

The stalled bills include:

• A proposal to limit the loans' annualized percentage rate to 36 percent
• A measure requiring cash loan lenders to offer payment plans to customers who can't repay a single loan, thereby curbing rollover fees.

The response of payday advance lenders

In response to critics, payday lenders point out that Washington borrowers took out more than 3 million of the loans in 2004; and in 2005, consumers filed only 69 payday loan-related complaints with the state Department of Financial Institutions. Doesn't this prove that provide a needed service to consumers who need emergency cash?

Dennis Bassford, president and CEO of Seattle's Money Tree Inc. was unavailable for comment. In past interviews with the Puget Sound Business Journal, Bassford has stressed that Washington's payday lenders already face strict regulations. He has stated that a 36 percent interest-rate cap would drive the lenders out of business.

Legislators ultimately had little appetite for new regulations, with most of the proposals falling apart at the committee level. Rep. Steve Kirby (D-Tacoma) chairs the House Financial Institutions and Insurance Committee and said consumer groups didn't prove the loans harm consumers.

"These assertions don't hold up or have never been demonstrated to us," Kirby said. "I'm not going to pass legislation that runs businesses out of the state of Washington unless there's ample evidence I should do that."

Looking ahead, regulation advocates plan to revisit the issue next year, but said payday lenders' growing political presence makes for an uphill battle.

"They have more muscle than the Navy or nonprofits, because they can make campaign contributions," said Rep. Sherry Appleton (D-Poulsbo) who sponsored five payday-related bills.

The fate of payday loans in Washington remains a mystery, although the resources have received a stay of execution for at least one more year now.

LitFunding announced that it has signed a Merger and Acquisition Agreement to acquire Easy Money Express, Inc. Morton Reed, LitFunding's CEO, was excited about the venture:

"The acquisition of Easy Money affords LitFunding with a highly profitable opportunity to leverage our capital at high yields with relative safety," he said.

Easy Money Express is an independent Internet and call center payday advance company. It will operate as a wholly owned subsidiary of LitFunding, developing a deferred deposit, consumer loan business that will specialize in providing short-term cash advances or payday loans.

Easy Money has developed an economical call center and Internet-based business model that permits applications to be submitted via the Web. Applications are processed almost instantly through highly automated software and the approved loans are directly deposited into the consumer's account, debited automatically the next payday. This allows the cash advance loan company to reach millions of customers, without the high cost of traditional "brick-and-mortar" retail locations.

The terms of the merger agreement will allow Easy Money Express to become a separate, publicly traded entity, under certain terms. In such an event, LitFunding and its shareholders will retain 15% of the newly issued shares of Easy Money Express. The deal should be finalized March 31, 2006.

As debt piles up and you consider a payday loan, you want to make sure you're relying on a reputable service. Unfortunately, some payday advance providers cannot be trusted.

First of all, make sure the company is properly licensed in its state of business. You should also be on the lookout for a payday loan website that is professionally designed and managed, run by a real service that understands the business and markets it resides in.

Certain states, such as Georgia, don’t allow payday loans, so they will not issue a license to any company in that state for that purpose. When looking at a particular payday loan lender you should to e-mail them and ask for information regarding their lending license.

For example, the lending institution for Personal Cash Advance is located in South Dakota. The company is officially licensed by that state. When it issues a cash loan contract with a client, it is deemed to take place in South Dakota, regardless of where the client or his/her bank resides. Therefore, the payday loan contract is bound by the laws of South Dakota.

Security is also a major concern when shopping for the right resource. When a client completes an application, the connection will be “SSL,�? which stands for Secure Socket Layer. Secure Socket Layers provide the best means of encryption available to commercial websites today. Seeing this message should be any privacy concerns to rest.

Finally, make sure someone is available to answer all your application questions. Many cash advance loan providers leave you wondering what’s going on, not exactly a comforting sign. It's probably best to avoid that sort of payday loan company. Although price is important, customer service is even more important.

A bill to impose new consumer protection rules on the New Mexico payday loan industry is marching through that state's legislature. It passed the House, 63-4, with its next stop the Senate Judiciary Committee. But it's not quite the bill it was when it first showed up in Santa Fe, writes the Gallup (N.M) Independent.

Rep. Patricia Lundstrom, a Democrat from Gallup, introduced the bill and is fine with the changes that have been made to it. But payday lobbyists and owners resent that they're being singled out at all, and staunch consumer advocates think the changes have weakened it.

New Mexico has been wrestling with regulating the payday advance industry, which offers cash loans against a customer's paycheck(s), for some time. Lundstrom's bill proposed a cap on how much a person could borrow — at either $1,000, or 25 percent of his/her monthly income, whichever was less. It also proposed limiting interest rates to 92 percent annually.

The bill was doing fine until the House Judiciary Committee voted it down, and approved a substitute that raised the cap on a loan to $1,500 or 30 percent of a customer's gross monthly income. Lundstrom, along with the religious groups and the AARP, had no problems with the changes. So where does the problem stem from?

Last year, the state assigned a task force to come up with a list of regulations that actually had a chance of passing in 2006. Among the key points that lawmakers cannot reach a consensus on is how to cap payday loans, and at what amount. Most of the task force agreed on $1,000, but industry representatives — determined not to be muscled out of business — have been angling for at least $1,500 from the start.

"Why should payday loans be targeted and restricted?" Stephen Solomon, an attorney for one cash loan franchise, asked. "Our product lets our clients keep their lights on, their homes warm. If there wasn't a need, there wouldn't be so many stores. Consumers speak with their feet."

The industry's critics, meanwhile, want to make sure that reasonable terms are in place, and some consumer advocates think the legislation is not going far enough. For example, the director of the New Mexico Public Interest Research Group, Jeanne Basset, thinks Lundstrom's bill does not do the job.

"The bill will not stop the debt treadmill, and that is our main concern," she said. "It's great they're trying to do this, but let's do it in a way we know helps (borrowers) get out of the debt trap."

Basset would prefer a maximum APR of 54 and an extension of the 14-day period customers have to repay their loans — which she says results in cycles of debt that often take months, even years to get out of. The current bill does not mandate a longer repayment period or even guarantee 14 days.

Does this payday loan bill go far enough to protect consumers, and should it even be moving through the legislature at all? Regardless of whether it is eventually signed into New Mexico law, these questions will be debated for a long time as people on both extremes (and everywhere in between) jockey for position.