Payday Loan Times

The Navy and the California Reinvestment Coalition (CRC) are working with various banking institutions to provide low-cost consumer loans or “quick consumer loans” to Sailors as an alternative to using payday cash loan lenders.

The Navy has recently coordinated with California government officials and the CRC about providing a safer consumer loan to Sailors to aid in preventing them from getting into financial trouble.

Capt. Mark Patton, commanding officer of Naval Base Point Loma, has taken steps to help by approaching the state congress and also has had talks with California Gov. Arnold Schwarzenegger concerning payday loan issues.

“It is a challenge to offer Sailors accessible and affordable credit,” said Patton. “This will allow us to hold our base banks accountable to provide better products and to help us take care of our own.”

Some of the more serious problems with some faxless online payday loans include annual percentage rates (APR) of up to 400 to 500 percent and no provisions for borrowers to make partial payments.

The proposed basic consumer loan would give Sailors new options such as set interest rates at 30 percent APR and penalty-free partial payments. Not only would the personal loan not exceed 25 percent of the borrower’s income, but also would consist of a loan limit of $500.

“This new system proposal will provide Sailors with the money they need while keeping them from falling deep into debt,” said Keith Kaufman, personal financial management program manager for the Fleet and Family Support Center (FFSC) San Diego.

“USA Federal Credit Union and North Island Credit Union have already contacted the FFSC and informed Sailors that they have a product in the works with reasonable interest rates, realizing they are lending money to people with either low credit or no credit,” said Kaufman.

The new opportunities may negatively affect faxless payday advance lenders in the area. Kaufman has no objections. “Thank you. We never wanted you to do business with our Sailors to begin with.”

Payday casn advance lenders will come under tighter regulation by the state later this year under legislation signed into law Friday by Gov. Bill Richardson (pictured).

“This is a big deal, particularly for my home community of Gallup,” said Democratic Rep. Patricia Lundstrom. The community has a heavy concentration of payday lenders.

The instant cash loans are short-term advances of cash against a borrower’s future paycheck or when a lender agrees to hold a borrower’s personal check and cash it later to cover the borrower’s debt.

Critics contend payday lenders target the poor and the short-term, high-interest loans can trap consumers in a web of debt. The new law, which will take effect on Nov. 1, will cap fees, restrict total loans by a consumer and prohibit immediate loan rollovers, in which a consumer takes out a new loan to pay off a previous loan.

A borrower who is unable to repay a bad credit payday loan will automatically be offered a 130-day payment plan, with no fees or interest. Once a loan is repaid, under the new law, the borrower must wait 10 days before obtaining another payday loan.

The law will allow the term of a loan to run from 14 to 35 days, with the fees capped at $15.50 for each $100 borrowed. There also will be a 50-cent administrative fee to cover costs of lenders verifying whether a borrower qualifies for the loan, such as determining whether the consumer is still paying off a previous loan.

A borrower’s cumulative payday loans could not exceed 25 percent of the individual’s gross monthly income. Richardson said the regulatory measures were a “good solid compromise” between consumer protection interests and the cash advance online lending industry.

“But we have done the right thing to protect consumers, including our most vulnerable citizens, who have gone unprotected for too long,” the governor said.

Lt. Gov. Diane Denish said the legislation was a “hard-fought battle” and described it as among the most important measures approved during the Legislature’s 60-day session, which ended two weeks ago.

Providers of no faxing payday loans will be required to provide consumers with loan information in Spanish or English. State regulators also can direct lenders to prepare loan brochures in another language.

(Read on …)

The courts are swamped with lawsuits and one-third of all cases come from Nevada payday loan-type businesses. It’s a reflection of the loan industry and it is bogging down the courts.

The I-Team’s Adrienne Augustus explains why so many loan companies are filing lawsuits and how the courts are coping with it.

It’s a real problem for the county clerk’s office. About 60,000 civil cases are filed every year. Nearly 20,000 are lawsuits filed by loan companies against clients who didn’t repay their loan.

The court system is struggling to keep up. Everyday they show up by the box load - high interest, fast payday advance lenders and installment loan companies filing hundreds of lawsuits against their customers.

Kristina O’Conner, court civil division manager, said: “Five years ago, ten years ago you didn’t see this type of industry on the corners of the street. You saw more of the pawn shops, title loans, those types of items.”

O’Conner says the jump in payday loan online businesses directly affects the courts. They are a large reason court clerks are working mandatory overtime.

“The volume was so immense so quickly that it really has kind of bottlenecked with us in the court,” she explained.

The personal cash loan lending industry has steadily increased, despite a client default rate of more than 20-percent, which translates to loan companies and collection agencies suing thousands of people.

Those cases must be processed along with all of the lawsuits filed by everyone else. Many lawsuits filed by lenders end up in default judgment because the defendant doesn’t respond. That cycles more paperwork back to the clerks.

When a defendant does respond, the case ends up in front of a judge.

Chief Judge Douglas Smith, of the Las Vegas Justice Court, said, “The first one that I had was a bit of a shock when you had seven or 800-percent interest.”

Eight years ago Chief Judge Douglas Smith heard his first quick cash advance lending lawsuit. “I believe that I determined that it was a contract of adhesion, which means that it was a bad contract.”

(Read on …)

Ken Compton is the chief executive officer of Advance America, the nation’s largest provider of payday advances. The company, based in Spartanburg, S.C., operates approximately 2,800 payday lending centers in 36 states, including Arizona. This Guest Opinion appears online only and not in the Tucson Citizen’s print edition.

Critics of the payday advance industry would like you to believe that unsophisticated consumers are lining up for cash advances only to be trapped in a debt spiral that pulls them deeper into financial peril.

Not a pretty picture to be sure - but not an accurate one either.

The truth is that most of our customers use payday cash advances responsibly, allowing them to overcome unexpected financial circumstances.

These individuals appreciate having access to a product that, with its comparatively low one-time fee, makes more sense than the burdensome costs and other consequences related to bouncing a check, missing a credit card payment or neglecting an outstanding bill.

According to state regulator reports, more than 95 percent of payday loans are ultimately paid and more than 90 percent are paid when due.

And contrary to the misinformation spread by industry critics, a payday advance must be paid back within a specified time period (typically two weeks), and the fee does not compound interest.

Millions of consumers choose to avoid excessive credit card late fees and interest, record high nonsufficient funds fees and other punitive costs for missed payments by utilizing our service.
Consumers are well aware of their options and discerning enough to make financial decisions that best serve their interests.

And contrary to our opponents’s exaggerated rhetoric, it is not our intention to undermine the financial health of our customers by offering consecutive cash advance loans on which the amount increases so much that they are unable to resolve them.

A recent staff report from the Federal Reserve Bank of New York concluded that instant cash loans are not a form of predatory lending - as some of our critics contend - and instead can help consumers by increasing credit.

In addition, the report asserts that consumers appear to be sophisticated enough to seek lower prices for credit products and finds that some of those who use payday advances do so to avoid missing other payments. (Read on …)

A Senate panel voted Thursday to restrict South Carolina payday loan lending. The proposals would limit loans to five a year and decrease the loans’ limits to $400.

It would also require borrowers pay off one quick cash loan before getting another and set a seven-day wait between loans.

The Senate subcommittee did not change how much interest companies could charge; currently, the amount is $15 for every $100 borrowed. That’s an annualized interest rate of about 390 percent.

AARP in South Carolina says the number of cheap payday loan lenders in the state has more than doubled over the last five years. The group’s 2005 survey of credit counselors found that one in four clients had payday loans that were a major part of their credit problems.

Sarah Mattson is a staff attorney for New Hampshire Legal Assistance in Manchester. The following is from the New Hampshire Union Leader …

My client, “J,” took out a car title loan last July. She thought it would help her get through a short-term lack of income.

By January, she’d taken out 34 loans from five different payday and car title lenders. The annual interest rate on a typical payday loan in New Hampshire exceeds 500 percent, and J shelled out more than $2,000 in interest. That’s because there hasn’t been an interest rate cap on small loans in New Hampshire since 1999, when lenders were allowed to charge more than 2 percent per month.

Unregulated interest rates mean payday and car title lending has exploded. The industry is wildly profitable; the nonpartisan Center for Responsible Lending recently reported that the typical payday loan borrower pays back $793 for a $325 loan. American families pay $4.2 billion in excessive payday loan fees each year.

Last summer, the Pentagon reported that the effects of predatory lending had compromised the mission readiness of America’s military personnel.

Congress responded swiftly, enacting legislation to cap the annual interest rate on loans to service members at 36 percent. On March 20, the New Hampshire House Commerce Committee voted to retain proposed legislation that would have extended similar protection to New Hampshire borrowers.

Triple-digit interest rates aren’t the only problem with faxless payday advance lending. Consumers take out payday loans because they’re financially distressed. Many don’t have the resources to pay back their loans with enough left over for ordinary living expenses, so they borrow over and over again, falling into a never-ending debt trap. Statutory prohibition of payday loan rollovers does nothing to prevent this debt trap because lenders are permitted to extend a new loan immediately after a previous loan is paid in full.

That’s just what happened to J.

She turned to payday lending when she was in between jobs and couldn’t stretch her welfare check far enough to meet the needs of her two young children. Rather than helping J, bad credit cash loan lending further strained her already tight budget and quickly ensnared her in the debt trap. Lenders offered her money over and over again, often making new loans minutes after she repaid old ones.

J’s story is typical of payday loan borrowers.

Advance America, New Hampshire’s biggest payday lender, reported an average of eight loans per customer per year in its 2005 Securities and Exchange Commission filing. The Center for Responsible Lending estimates that 90 percent of fast payday advance lending revenues are generated by repeat borrowing. The debt trap exploits working families, senior citizens, people with disabilities, and anyone else who struggles to make ends meet once in awhile.

An interest rate cap is the only way to protect consumers from this vicious cycle. Well-intentioned reform measures in other states have floundered as the payday lending industry develops new and ingenious ways to continue marketing multiple loans to each customer.

(Read on …)

A KLAS TV report …

When rent money is gone or the paycheck hasn’t come, many Nevadans are in need of a quick buck. Sometimes they turn to payday lenders - companies that give short-term quick cash loans with high interest.

The State Assembly’s top lawmaker is fighting to stop these predatory lenders. Speaker Barbara Buckley wants to control lending terms for loans to keep interest rates down.

Right now, these fast payday loans can last a year or more and have interest rates as high as 600, 700 or even 800-percent rates, meaning a loan for $800 could cost you more than $5,000.

Lending restrictions that went into effect this year were meant to protect consumers by regulating all payday-type lenders. This new proposed legislation would tighten those already strict regulations, and some lenders are fighting it.

When Richard Swanson collects on the loans he issues, customers like Rick Taylor can end up paying 260-percent in interest a year. But to Taylor, that’s a lot better than what a friend paid with another faxless payday advance lender.

“You’re talking 500-percent or more at some of these places and I always thought it should be state regulated or something should be done. To me it’s really a rip,” said Taylor.

Current state law put restrictions on payday lenders who charge exorbitant interest rates on contracts shorter than one year. But Swanson isn’t a payday lender.

Loan Depot is an installment loan company. His contracts simply require clients to promise to repay the personal loan. Swanson recently extended his contracts to up to two years, falling outside of the state guidelines.

“Our rates are a lot lower than the check loans, the payday loans,” explained Rick Swanson, owner of Loan Depot. “It’s a lot easier to pay back a lot less over a longer period of time to get back on your feet than a payday loan where you have to pay back every two weeks or roll it over.”

Swanson says the installment loan method of lending sets him apart from payday lenders. But state lawmakers don’t agree. Assemblywoman Buckley is proposing legislation that would catch installment lenders in the same restrictive net as cash advance loan lenders.

“So, we’re making it really clear that the law applies to all of the high interest loans,” she said.

Where the current law reads short-term loan services, Buckley wants to change it to high-interest loans. That means all high-interest, long-term installment lenders - including installment lenders like Swanson - would face the tighter lending restrictions.

(Read on …)

Sen. Lowell Barron, D-Fyffe, has introduced a bill designed to reform the state’s controversial Alabama payday loans.

Barron said payday lending can trap borrowers in a cycle of debt. Payday loans, which are short-term loans typically for $1,500 or less, are intended to bridge the borrower’s cash flow between paydays.

“It is my opinion that we need to address some workable reforms to the [payday cash loan] industry,” Barron said.

Barron himself came under fire for owning a number of “fast cash” operations during the last election, though he reported he sold his interests in 20 such businesses. He voted to approve a bill four years ago that placed some regulations on the previously unregulated payday loan industry. The 2003 bill allowed the businesses to charge 17.5 percent interest per transaction.

“I felt that the regulations we enacted [then] made a drastic and positive impact for consumers,” he said.

Barron said his new reform bill would give the customer a one-day right to rescind the cash advance payday loan and prohibit rollovers or renewals. The bill would also require all lenders to offer an extended payment plan with no additional interest charges to customers at any time if they are unable to repay the loan – which Barron said would eliminate the cycle of debt incurred by many consumers.

Barron’s bill would ban all military payday loans. Starting Oct. 1, a federal law restricts the interest charged to military personnel to 36 percent.

“I thought we would go a step further,” Barron said.

Sen. Bradley Byrne, R-Fairhope, has also introduced a bill that would repeal the 2003 legislation and put no faxing payday loan businesses under the ASL act.

“[This bill] would repeal the payday loan act and regulate the industry under the small loan act, and I say that this proposal is not the answer,” Barron said. “Right now, the consumer has choices when it comes to unsecured, short-term borrowing.”

Barron said regulating an industry using an act that was not designed for that purpose would not be successful.

“I encourage my colleagues not to throw the baby out with the bath water,” Barron said. “The payday loan industry needs reform, not elimination.”

New regulations for Tennessee payday loan lenders were advanced by a House panel today.

The vote came despite objections from advocacy groups who complain that it will still allow the lenders to charge more than 17 percent interest.

By an 11-to-7 vote, the House Insurance and Commerce committee approved the new restrictions for the businesses. The bill, however, is significantly different from a no fax cash advance bill defeated before a Senate panel that would have fined lenders 300-dollars each time a customer is charged an interest rate above 17 percent, the limit in the state’s constitution on consumer loans.Bill sponsor Senator Terry Smith of Hot Springs says the legslature needs to come out of hte session with some sort of regulation for the faxless payday loan industry.

The bill allows customers to rescind the checks within a day and says no check casher can threaten a criminal “hot check” charge against a client for extending a loan. The bill also allows the state Board of Collection Agencies to go after check cashers breaking the state’s laws, giving customers the greater of two-times the value of their check or one-thousand dollars.

The bill requires check cashers to tell customers their payday cash loans are to be “used for short-term financial needs only, not as a long term financial solution.”

Legislation in Washington to reform the payday loan lending industry appears to be dead. Oregon Public Broadcasting correspondent Austin Jenkins reports on what happened behind-the-scenes.

——————-

State Representative Steve Kirby, a Democrat, chairs the House Banking Committee. He he had a package of fast payday advance lending reform bills.

One would have created a repayment plan for payday customers who get in trouble. But that and other bills never got off the House floor. He blames a ruckus by opponents of the industry.

“The industry, they were not responsible for killing these bills,” Kirby said. “This was actually people who fancy themselves to be consumer advocates who killed these bills. I’m appalled.”

One of people who opposed Kirby’s bills is Representative Sherry Appleton, also a Democrat. She says his bad credit cash loan proposals didn’t go far enough.

“I don’t just want to swat at the problem, I want to get rid of the problem. And that means that we need to have some tough legislation,” she said.

Appleton wants a thirty-six percent interest rate cap on pay day loans. But Committee Chair Kirby wouldn’t give her bill a hearing.

“You know around here when you try to go for all or nothing that’s a really good way to end up with nothing and that’s what we ended up with,” Kirby responded.

But Appleton isn’t giving up.

“And we’re going to come back and we will come back every year until we get something.”