Payday Loan Times

A Senate committee approved two bills Wednesday afternoon that would block attempts by providers of payday loans and car title lenders to circumvent new caps on high interest rates.

The bills, already passed in the House, would tighten restrictions on conventional consumer loans and limit annual interest and fees on a consumer loan under $50,000 to 30 percent above the federal reserve discount rate, which is now 6.25 percent.

They now go to the Senate floor for a vote, with the Senate Commerce Committee’s recommendation of support, and then back to the House for a concurrence vote on amendments. Gov. Ted Kulongoski has said he will sign both fast payday advance bills if they pass.

Car title and payday lenders now charge triple-digit interest rates on small, short-term loans. Payday lenders on average charge 528 percent annual interest. Regulations passed last year by the Legislature and other bills now moving through the Senate would restrict payday and car title lenders to an initial fee of $10 per $100 of a small loan.

They could charge no more than 36 percent interest on renewals or rollovers of the faxless payday loan.

But those restrictions, which will take effect July 1, apply only to loans made under short-term licenses commonly used by car title and payday lenders. In the last 12 weeks, 138 of the state’s 360 payday lending stores have applied for a conventional consumer license, a different license that would allow them to operate outside the new regulations.

The two bills passed Wednesday by the Senate committee would close that loophole. House Bill 2205 makes the conventional license impractical for short-term personal cash loan lenders, as it requires 90 percent of their loans to be for at least six months. It would also require the lenders to use underwriters, undermining one of the appeals of payday and car title loans: no credit checks.

House Bill 2871, sponsored by House Speaker Jeff Merkley, D-Portland, would put an across-the-board cap on annual interest and fees for all consumer loans under $50,000 set at 30 percent above the federal reserve discount rate. The committee changed the lid from a flat 36 percent to a flexible rate tied to the federal reserve discount to avoid penalizing traditional lenders should interest rates soar as they did in the early 1980s.

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An online payday loan firm has been ordered to stop issuing loans to Illinois residents and was fined more than $230,000 on Wednesday by the Illinois Department of Financial and Professional Regulation for issuing a $300 payday loan with an interest rate of more than 2,000 percent.

The order and fine were issued against Global Payday Loan, doing business as Payday-Loans-Yes.com, which was ordered to cease operations in the state and pay $234,000 for charging Illinois customers excessive interest rates and violating the Payday Loan Reform Act, according to a release from the IDFPR.

The order invokes the largest fines ever imposed on a payday cash advance lender, with the total fine including:

• $1,000 per day for acting as a payday lender without a license
• $1,000 for making a payday loan with a term of less than 13 days
• $1,000 for assessing finance charges in excess of $15.50 per $100 loaned
• $1,000 for failing to verify that a payday cash loan was permissible under the PLRA
• $1,000 for failing to provide a consumer with notice of the right to a repayment plan
• $10,000 for interfering with the Division’s authority to examine a lender’s books, records, and loan documents
• $10,000 for engaging in unfair, deceptive, and fraudulent practices in collecting a cash advance, according to the release

The department investigated a complaint by a consumer who borrowed $300 through the company’s internet website, and found several violations, the release said.

The loan was written with a six-day term, which does not allow sufficient time to repay the loan; and fees on the loan exceeded the $15.50 per $100 allowed in Illinois. The annual percentage rate on the loan was 2,190 percent, the release said. The bad credit cash loan company also failed to provide the borrower with a statement explaining her rights, including the right to initiate an interest-free repayment plan.

The company continued to violate the consumer’s rights and still sends her e-mail warnings that her account is “seriously delinquent,” the release said.

As of April 1, the borrower had already paid the lender $360, which is $13.50 more than the company was entitled to collect under the PLRA. In April, the woman and her employer received several calls demanding additional payment, with Global representatives asserting the unpaid balance on her online payday advance was $630.00.

“I have been in the middle of a nightmare, and I will be glad for it to be over,” the borrower (unnamed for privacy reasons), said in the release. “These people are sharks, and I don’t owe them any more money, and don’t deserve to be harassed by them. That’s why I filed the complaint with the state.”

Global Payday Loan was also ordered to provide documents showing whether it has made loans to any other Illinois consumers, the release said.

California Corporations Commissioner Preston DuFauchard has determined that GVG Financial Services, Inc., has willfully violated the California Deferred Deposit Transaction Law.

GVG has been ordered to desist and refrain from violating the law, ordered to pay penalties and the loans in question have been declared void. GVG is a payday loan company operating eight stores in Orange and Los Angeles Counties.

The investigation by the Department found that GVG willfully violated sections 23023, 23024, 23035, and 23036 of the law by entering into fifteen (15) deferred deposit transactions with consumers, while existing no faxing payday loans were outstanding with those same consumers, failing to provide the customers written agreements and proper consumer notices.

Specifically, GVG failed to provide its customers with information, such as charges, fees, quick payday advance rates and the Department’s toll free number.

As part of this action, the Commissioner ordered that the 15 illegal GVG deferred deposit transactions, totaling $3,920, be voided. Furthermore, the Commissioner has determined that GVG shall be required to pay a penalty of $37,500 ($2,500 per violation) to the Department.

GVG’s main office is in Santa Ana and has stores in several surrounding communities. The instant cash loan violations occurred at GVG’s Garden Grove location. A separate order prohibiting unlicensed activity was issued to Cain Rodriguez-Silva, the manager of the Garden Grove store.

The reason this was deemed unlicensed activity was because the personal loans were not in the name of the company, but in the name of Rodriguez.

Payday advance lending has become a multibillion-dollar industry and is growing online, according to Stephens Inc., a Little Rock brokerage research firm. According to a recent report:

• 23,000: Stores and pawnshops that made payday loans last year.

• 1,650: Stores or pawnshops that specialized Texas payday loans.

• $5.65 billion: Volume of online payday loans handed out last year.

• $1.4 billion: Income made off online payday loans last year.

• Thirteen states don’t allow quick cash loans, and efforts are under way to change the laws to either expand availability or tighten restrictions. Some examples:

- Georgia: The state is considering legislation to once again allowing payday lenders, according to Mary Jackson, a Cash America vice president. She said that many Georgians drive to nearby states to get payday loans and that that demonstrates a demand for the personal loans.

- North Carolina: Payday lenders left the state in 2005 after an adverse ruling by the state’s banking commissioner. Jackson said the strong influence of consumer groups there would likely keep it unfriendly territory for the industry.

- Oregon: Bad credit payday loans under $50,000 are capped at a 36 percent APR.

- Virginia: Efforts to cap payday loans at 72 percent failed last year.

- Arizona, Utah and Wisconsin: Municipalities might use zoning restrictions to limit the number of cash advance payday loan stores.

Meeting until midnight Friday and returning on Saturday, Nevada lawmakers took final action on dozens of bills, including a hard-fought bill to limit the terms of high-interest payday cash loans.

Many of those bills now move to Gov. Jim Gibbons for his signature, while others still need to have amendments approved by either the Senate or Assembly.

Bills that the two houses have passed with conflicting amendments will move into conference committees in the Legislature’s final full week, starting Monday.

The Senate voted 20-1 to give final approval to AB478, which Assembly Speaker Barbara Buckley, D-Las Vegas, said was needed to close a loophole in the state’s 2005 payday loan law.

Several small faxless payday advance loan companies opposed the law, insisting they were ”installment lenders” who should be regulated differently. Buckley said those companies were ”motivated by greed,” and evaded the law by changing their contracts when the 2005 law took effect. Those changes allowed them to charge interest rates ranging up to 900 percent for over a year.

Under AB478, any company charging more than 40 percent interest on a loan must limit the term of the loan to 35 days. If a borrower can’t pay the loan back after that time, the interest rate must drop to the prime rate plus 10 percent, or 18.25 percent in the current market.

Illegal immigrants could fall prey to loan sharks and other unscrupulous quick payday loan lenders if they have to pay $5,000 in fines and thousands more in fees and back taxes as required under the immigration reform measure now before Congress, some advocates are warning.

Many immigrants work low-wage jobs and have virtually no assets. As a result, they often have poor credit and are forced to borrow on the street from no fax payday advance stores.

“We’re real concerned about the potential for fraud,” said Beatriz Ibarra, who studies Hispanic finances for the National Council of La Raza, the nation’s largest Hispanic advocacy group and a tepid supporter of the draft legislation. “They’ll find a way to pay, but how?”

Some say the measure also could lead to abuse by employers, who could offer to pay employees’ fines in return for repayment arrangements that could be difficult to satisfy, leading to what would amount to indentured servitude. However, advocates and other experts say that is unlikely, because most employers probably wouldn’t find that sort of arrangement worth the cost and risk.

It is not exactly clear how much time the immigrants would have to pay the fines and fees to achieve legal status and eventually obtain a green card, which confers permanent residency. But because of the backlog of green card applications, immigrants may have up to eight years to come up with the money.

“It’s a lot of money, but if they gave us the opportunity, we’ll see how we can get it,” said a young immigrant mother of a 2-year-old U.S.-born daughter, speaking on condition of anonymity for fear of deportation.

The native of Guerrero, Mexico, said she has no idea how she would get the money — which could amount to $3,000 for the initial visa application and $4,000 plus back taxes for a green card. However, she said she is confident she would manage, even though she only makes minimum wage working at a Mexican grocery in Georgia and could conceivably be in need of payday loans.

To make it across the border, many illegal immigrants pay thousands of dollars to smugglers, who sometimes threaten them with death if they don’t pay their debts. Then, many make low wages working in agriculture, construction and the hotel and restaurant industry. Out of that, they often send money back home to support their families. And because they are illegal, they tend to distrust banks.

“If you have a family of four or five, it’s going to add up to thousands of dollars, and I just can’t imagine anyone having that amount of money stored in a shoebox — so someone will come up with a lending scheme that will be close to usury,” said Robert Moser, deputy director of Catholic Charities for the Diocese of San Diego.

The Pew Hispanic Center reported last spring that the average weekly earnings for illegal immigrant males who arrived between 2000 and 2005 were around $480, and about $100 more for those who arrived before 2000.

About half of Hispanic immigrants have no checking or savings accounts, and those who have credit cards often pay exorbitant fees and have difficulty managing their debt, according to a study co-authored by Ibarra. Hence, the possibility of cash loans.

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Pretend for a moment that — like most Arizona residents — 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?

Providers of payday advance loans each year help thousands of Arizona families overcome unexpected financial circumstances.

When an air conditioner breaks or a car battery dies, Quik Cash and other responsible bad credit payday loan lenders provide convenient access to small amounts of money to cover those costs. Banks don’t — they instead make billions on bounced check and non-sufficient-fund “protection” fees.

Critics, including the Arizona Daily Star, have labeled payday lending as “predatory” without ever having defined what “predatory” means. Recent studies debunk that myth 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, a January 2007 study by the Federal Reserve Bank of New York found not only that cash advance loans were NOT predatory, but also that by increasing the supply of credit to an under-served market they enhance the welfare of the households they serve.

Another study, by the Indiana Policy Review Foundation, found that further regulation of payday 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.

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More than 15 members and supporters of Socialist Alternative held signs and handed out flyers at an intersection near the Tacoma Mall, drawing awareness to the outrageous practices of payday loan stores and prompting the public to attend an upcoming city council meeting at which the topic will be addressed.

Drivers overwhelmingly showed support by honking their horns and giving thumbs up.

Making promises of affordable, quick credit, providers of fast cash loans often prey on the most vulnerable of the working class, the poor, while thriving on their borrowers’ inability to repay the loan on time, thus creating a cycle of recurrent fees and debt. Some borrowers actually end up acquiring multiple loans in order to financially stay afloat.

Not surprisingly, these payday lenders donated over $200,000 to state politicians in 2006, amounting to nothing more than a bribe to protect their interests.

These politicians allow no fax payday loan profiteers an exemption from Washington State usury law, which caps interest rates at an already astounding 36%. No wonder there has been an explosion of payday loan stores in poorer neighborhoods. With high interest rates and exorbitant fees, balances can accrue to more than ten times this amount (360%) over a one-year period.

At the city council meeting on June 5, the campaign plans to mobilize people opposed to the way payday loan lenders operate, and demand the city rescind these special privileges and provide living-wage jobs and financial assistance alternatives to these quick cash advance lenders.

One of the signs, “We Need Real Paydays, Not Payday Loans,” demonstrated an alternative.

Workers cannot expect that the two parties of big business that legalized unethical payday lending some ten years ago in Washington State will end these high-interest loan rip-offs and provide living-wage jobs and the healthcare that we need. This can only be achieved by the mobilization and struggle of working-class people.

The president of one Nevada payday loan company is speaking out against that payday loan high-interest assembly bill that went to the State Senate on Thursday.

The bill, AB-478, would mandate that companies only charge their highest interest rates for only 90 days, then lower the interest rate to prime-plus ten percent. Some of those companies currently charge as much as five, six, or seven hundred percent.

Carl Hull is President of Advanced Payday Loans and Check Cashing in Reno. He says AB-478 would hurt the industry and the consumers. He explains that his business helps people consolidate multiple no faxing payday loans into payments spread over a year.

He says if this bill becomes law, for certain people, payments could only be consolidated for over three months. He admits this plan simply doesn’t work for consumers.

Hull says the Nevada payday loan bill would also negatively impact the lending industry. He says without being able to consolidate loans over a year for a segment of customers, lenders could be forced into bankruptcy.

If the bill passes, Hull says interest rates as high as more than seven-thousand percent could still be charged on certain short-term payday advances.

The bill made its way to the Senate floor, but on Thursday afternoon, Senator Randolph Townsend asked that the bill be placed back on the back burner, so that wording could be changed.

The Senate is scheduled to vote on AB-478 on Friday, May 25th.

As faxless payday loan lenders have flourished throughout Virginia, they’ve had to fend off opponents from nonprofit groups that advocate for the poor at the General Assembly.

Those groups, like the Virginia Poverty Law Center, try to persuade lawmakers to consider the effects of laws on consumers for a wide range of bills. To counter their influence, personal cash loan and car title lending companies have spent at least $1.4 million on political contributions and lobbyists over the past five years - and that doesn’t include the hard-fought 2007 session.

A new group of religious and nonprofit groups have banded together with businesses to form a coalition called Virginians Against Payday Loans. They will have a chance in 2008 to rally behind a bill to repeal payday lending if state Sen. Marty Williams, R-Newport News, is re-elected.

“Those folks have got their act together,” said Williams, who spoke to the group at its first meeting in Yorktown on Monday.

The group, formed by Newport News business owner Ward Scull, was created specifically to ban payday lending or get the annual interest rate set at 36 percent. The fast payday advance industry, which will be legally forced to charge that percentage to the military this fall, says it can’t survive making loans at this level.

Payday loans charge an average of 368 percent annual interest in Virginia, and car title loans charge even more. Either a person’s future paycheck or vehicle is pledged to secure the loans. Because banks often won’t extend the small loans that these stores make, the industry says, it’s performing a needed service.

A slew of bills during the 2007 General Assembly session to repeal the industry - either outright or functionally by imposing the 36 percent cap - were eventually killed. Then the industry pulled its own compromise bill that would have established a database and allowed consumers to have three loans at a time.

That angered Williams, who was willing to give the industry a chance to compromise before he would be willing vote to repeal. He thinks that the actions of the pay day loan industry represented by the state’s 791 loan stores have put enough lawmakers over the top to kick the industry out of the state.

“I would almost assure them that they’ve got better than a 75 percent chance of being successful,” Williams said of repeal bills possibly succeeding in 2008.

Not including the 2007 session, payday and car title loan companies have paid their lobbyists at least $374,000 in the past three years. The payments are often hard to find because they come from obscure organizations.

Williams says he doesn’t know how many no fax cash advance contributions that he’s returned so far and worries about missing them because he doesn’t recognize the names.

“To the best of my ability, we’ve returned every check,” he said.

Williams returned $500 in February that Cash Advance donated and two other $500 donations from QC Holdings - rare moves in state politics. (Read on …)