Payday Loan Times

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.

(Read on …)

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.”

Everyone’s heard the familiar radio spots cajoling people to take out a cash loan, which is paid back when your paycheck arrives. It sounds easy enough.

In reality, these loans are dangerous and damaging, requiring sky-high interest rates and often sending people into a downward financial spiral.

The Defense Department considers miltary payday loan lending one of the top 10 key issues impacting the quality of life of Soldiers, and a Pentagon report summary posted on the Center for Responsible Learning’s Web site estimates that about 17 percent of servicemembers use payday loans.

President Bush signed the 2007 National Defense Authorization Act in October 2006, which takes effect this October. The law caps interest rates for military personnel at 36 percent and prohibits the use of a personal check or other method to access a borrower’s bank account.

The law won’t stop soldiers from using payday loans, said Leonard Toyer, a financial counselor with Army Community Service, but it will lessen the amount of debt servicemembers carry as a result.

Payday loan requirements are simple: a bank account and steady source of income. The loan recipient writes a post-dated check to the lender for cash. Interest rates are extremely high, usually around 300 percent or more. Repayment is usually required within two weeks.

If the recipient cannot pay the loan off when it’s due, he or she must deal with late and bounced check fees and possible legal action. To avoid default, the borrower must roll the debt into a new loan with the same high rates.

“Unfortunately, 75 to 90 percent of people can’t pay it back in the prescribed time,” said Mr. Toyer. “They’re constantly rolling over two or three times trying to get out of the hole. Generally, unless they come into some kind of windfall where they can plunk a good chunk of money down, they’re stuck.

“When everything shakes out, you’re talking about people paying anywhere from 400 to 600 percent in interest for those [payday advances], and that’s ridiculous.”

According to Mr. Toyer, the reasons Soldiers use these loans, or even how many are using them, are hard to pin down.

“Since finances are so tied to careers nowadays, a lot of Soldiers are reluctant to come forward and say they used a payday loan,” said Mr. Toyer. “They know a lot of times, units don’t look favorably on that and might consider it irresponsible.”

The director of the Financial Readiness Program here, Mr. Toyer helps teach Soldiers how to handle their money, and the Army offers alternatives to no fax payday loan lending to help Soldiers in financial need.

According to Trina Reliford, the Army Emergency Relief officer for ACS, Soldiers can fill out an application for an interest-free loan and receive a check the same day with a commander’s approval under the Commanders Referral program. Soldiers may receive up to $2,000 a year in two loans and the first loan must be repaid before seeking Commanders Referral again.

(Read on …)

A federal grand jury in Florida has indicted a handful of payday loan executives and their sales agent for their roles in a scam that raised over $1.6 million.

In the latest step in the SEC’s case, a grand jury has indicted Eric Turner, Kenneth May and Anthony Pinone for their roles in the fraudulent offering and sale of stakes in Virtual Cash Card. Virtual Cash is a defunct South Florida company that purported to be in the payday loan business.

According to the indictment, the three men used an in-house sales force as well as Pinone’s firm, Omni Advertising & Marketing, to raise at least $1.6 million from more than 70 payday individuals. Starting in at least September 2001 until December 2002, those reps used boiler room tactics such as cold calling and unsolicited emails to push the investments.

The sales agents, who were unlicensed to sell securities, used fraudulent marketing materials to dupe investors into buying into a stake in the cash advance payday loan company.

Virtual Cash told investors it was part of the multi-billion dollar payday loan industry. Like other payday loan businesses, Virtual Cash claimed to provide customers with payday advances of up to $500. In return, customers authorized Virtual Cash to debit his or her bank account at a later date, normally within two weeks, for the amount of the loan plus a 20% fee, which amounts to more than a 400% annual return for the company making the loans.

Turner, 35, was the primary organizer of the venture, creating the original sales materials for investors, according to the SEC. Armed with the bold return figures of the payday loan industry, Turner had no trouble convincing May and Pinone that they could sell the idea to the public.

By February of 2002, Pinone had organized the boiler room of unlicensed agents to find potential investors in Virtual Cash. Its sales materials guaranteed investors a return of 3% a month on investments of less than $50,000 and of 4% per month on investments of more than $50,000, and promising annual returns of as much as 150%.

(Read on …)

The local payday cash loan industry has launched an aggressive advertising campaign to try to persuade the D.C. Council to reverse a vote that would limit the fees charged on short-term loans.

Last month, the council voted 12 to 0 to give initial approval to a bill that would limit the rate charged for a $100 loan repaid within two weeks to 90 cents, a rate more in line with those of banks and credit unions. Currently, customers pay an average of $15 to $16 per $100. The industry maintains that such a cap could force payday advance firms out of business.

As the final vote approaches Sept. 18, the D.C. Financial Services Association plans to use newspaper, television and radio ads to urge the public to reject the council’s efforts to “limit” bad credit payday loan options. The campaign paints the industry as providing a necessary service for some residents, a stark contrast to what critics characterize as an industry preying on the poor and locking them into debt.

Two television commercials feature customers Thomas Johnson, who needed quick cash to fix his car, and Erika Williams, who needed money when her child was sick. Both say they used the no faxing payday loans “responsibly.”

“Reforming payday loans is fine. Banning them is not,” a narrator says in both ads.

The TV ads began a week ago, and the print promotion, using the same words as the narration and also featuring Williams and Johnson, begins today.

The association, which represents 41 of 48 quick payday advance stores in the District, is also conducting a poll to gauge how the public feels about payday loans, said Tyrone D. Bland, vice president of the association and government affairs director of ACE Cash Express, which has 15 stores in the District.

“We’re just trying to define the message,” Bland said. “What we say is we are a viable credit option for a segment of the community.”

That segment is usually poor, and 99 percent of payday loans turn into long-term debt because the average borrower renews a loan eight times per year, according to the Center for Responsible Lending, a nonprofit research and policy group that lobbied for the D.C. law.

The council, led by member Mary M. Cheh (D-Ward 3), was swayed by the group’s arguments and approved the bill, which would cap the rate at 24 percent.

Interest rates under current District law range from 349 to 550 percent. Cash advance loans create a revolving door of debt because a customer, who generally borrows $100 to $500, has difficulty repaying it and must renew the loan for a fee, said Jillian Aldebron, policy counsel for the center.

A customer could end up paying more than $700 for a $325 loan, based on the average eight renewals, Aldebron said.

“That is a worst-case scenario,” Bland said. “Our goal is not to get you caught up in a circle of debt.” The idea, he said, is to save a customer from other debts, such as fees for late credit card payments and bounced checks.

Putting an emphasis on percentages, as the Center for Responsible Lending has done, muddies the debate, Bland said. “How much am I going to pay to [obtain a payday loan]? About $16,” he said. “If I write a bad check, the fee from the merchant is $35. The fee from the bank is $35. That’s $70 for $100.”

Bland said the D.C. Financial Services Association has created management practices that could be incorporated into the law to encourage responsible borrowing and lending. For example, customers would be allowed to extend a check cash advance without a fee for 60 days at least once per year if they could not pay but also would not be allowed to take out another loan.

Cheh said other states have been unsuccessful with such legislation.

“Basically, it’s a fig leaf so they can carry on their operations as they were,” she said. “People shouldn’t be fooled. I have confidence in my colleagues that they are not going to fall for this.”

SOURCE: The Washington Post

Police are looking for a man who robbed Check into Cash Pay Day Loans Co. at 875 Oak Park Blvd. in Pismo Beach about 12:45 p.m. Tuesday.

The unidentified robber was reportedly wearing a black mask and black sweatshirt. He claimed to have a gun in his pocket and escaped the fast payday advance store with an unspecified amount of cash.

“He entered the business and threw a bag at the clerk,” said Cmdr. Jeff Norton of the Pismo Beach Police Department. “He simulated having a weapon. It is still under investigation whether this is related to the robbery in Nipomo.”

A bank robbery under similar circumstances occurred Monday afternoon at the Mid-State Bank & Trust branch at 615 West Tefft St. in Nipomo.

According to witnesses, the Check into Cash robber was either white or Hispanic, approximately 6 feet, 1 inch tall and weighed about 180 pounds.

The Nipomo bank robber was described as a white, heavy-set man in his late 30s who was wearing a dark ball cap with white lettering, a blue sweatshirt, baggy jeans and latex gloves. Witnesses also reported that he had a goatee and what looked like fake sideburns, officials said.

The payday loan company offers small, unsecured, short-term loans ranging from $100 to $1,000, until the borrower’s next payday.