Payday Loan Times

According to The Wichita Eagle…

A program that allows no faxing payday loan customers more time to pay off their debt is now available at stores that belong to the Community Financial Services Association.

The extended payment plan is one of several new “best practices” that members of the association must meet to remain in the trade group, which represents about two-thirds of the industry.

Stores belonging to the association started offering the repayment plans Aug. 31. Customers can ask at each store if it’s a member.

The programs give customers at least four more payment cycles to take care of their loan. For example, if a cash advance were due in two weeks, the customer would get eight additional weeks if needed, at no additional cost. The association has been collecting information from member stores about use of the program in the past two months, said spokeswoman Lyndsey Medsker.

Most customers pay off their loans on time, said Tom Linafelt, spokesman for QC Financial, an Overland Park-based company that does business as Quik Cash. It has five branches in Wichita.

“For the few who do need to (use the repayment plans), they’re very important,” Linafelt said. “If they’re unable to meet the terms of their loan agreement, they’re thankful we have this safety valve for them.”

The association in February announced several new practices for its stores. The group also banned ads that promote payday loans for “frivolous” purposes such as vacations.

Quik Cash is owned by QC Holdings. Its president is Darrin Andersen, who is also president of the trade association.

Some consumer advocates say that while customers may pay off their payday advance loans in time, many are only able to do so because they get money from another payday lender.

Jeff Witherspoon, executive director of Consumer Credit Counseling in Wichita and Salina, said his group, which helps people with debt, has seen many people with multiple payday loans.

One client had 29 loans out at one time totaling $10,000, he said.

Witherspoon said he did think the repayment plans could be helpful to customers who have taken out several payday advances and can’t get them paid back.

He said the client with 29 loans filed for bankruptcy.

Each time she drives past the payday lenders near her home, neighborhood activist Lori Lawrence wonders: “Why on Earth do we need two of them across the street from each other, another one a block away?”

Across the nation, cities and states are moving to limit faxless payday loan companies, which carry annual percentage rates ranging from 391 percent to 443 percent.

Thirteen states have banned them. Others are limiting the interest rates they can charge.

In some states, including Kansas, where regulations are less restrictive, some communities are acting on their own to cut down on the number of no fax cash loan outlets.

In the Kansas City area, for example, several communities have passed ordinances that keep the stores farther away from one another and from residential areas.

Wichita neighborhood groups say they’d like to see the same happen here.

But so far, city leaders have not discussed such measures. Some City Council members say they are reluctant to single out an industry for additional regulation.

The payday advance industry says it provides an important service to people who can’t get traditional loans.

Still, some neighborhood groups are worried about the growing number of stores. In 1995, there were 36 licensed payday lenders in Kansas. A decade later there were 10 times that many.

Consumers in Wichita now have about 75 places where they can get a payday loan, up 14 percent from last year.

When a new business anchors in the McAdams neighborhood, it’s often a payday loan shop or liquor store, says Paula Givens, a community activist.

“Whenever there’s something vacant or available, those are things that come to our neighborhood,” said Givens, who served as president of the McAdams Neighborhood Association for five years.

Last month, the De Soto City Council took action its members hoped would prevent the spread of payday cash loan and title loan companies to the city.

Somehow, the proprietors of such Kansas businesses have overlooked De Soto, although their businesses and the busy, gaudy signs that announce them are common enough in cities that border De Soto to the east and south.

The De Soto City Council is generally receptive to business and the short-term loan industry joins adult entertainment as the only category of business the city has actively attempted to discourage. The preemptive action against instant payday loans probably was much more needed as the city is home a significant underclass population on which the industry thrives.

Those engaged in the faxless payday advance industry maintain they are merely providing a service to consumers shunned by traditional lenders. And it’s true the friendly Mom and Pop store willing to extend credit for groceries or other necessities no longer exists.

But state law allowing cash advances with interest rates of 15 percent, finance charges of $15 and an A.P.R. rate of 390 percent on a 14-day loan of up to $500, consumers walk away with most of their next paychecks that were supposed to repay the loans already spent. That sets them up for an endless cycle of loans that nip away at weekly budgets and it erases any thought of savings for a better future.

It may be a vain hope, but perhaps the absence of the businesses here in De Soto will encourage those who find themselves short at each pay cycle to take advantage of budgeting help offered by different organization, including the De Soto Multi-Service Center, so that they become better educated on how to get the most for their money.

Payday loan and check cashing businesses may be restricted in Smithville in the not-so-distant future.

The Smithville Board of Aldermen discussed possibly placing a moratorium on those businesses as well as drafting ordinance language restricting how many may open within the city limits.

Alderman Bob Foreman brought up the issue after one fast cash advance business opened in the Creekwood shopping center and another has been slated to open in the Hillside Plaza shopping center. Gladstone has also placed a moratorium on these businesses and is expected to draft ordinances to restrict them this summer.

Foreman cited the payday loan business of cash advance loans as being unnecessary in Smithville.

“I am very concerned about these businesses after the research I have done,” he said. “I don’t think they are good for the citizens.”

Foreman said that the high fees and interest rates associated with payday loans were what concerned him.

“I found out that the average borrower will pay $800 for every $325 loan,” he said.

According to the Federal Trade Commission, check cashers, finance companies and others are making small, short-term, high-rate loans that go by a variety of names including “[no fax payday loans], cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans.”

With payday loans, according to the Better Business Bureau, a consumer writes a check to one of these businesses for the amount he wishes to borrow plus a fee.

“The lender gives the borrower the amount of the check minus the fee,” the BBB Web site stated. “The lender holds the check until the borrower’s next payday, when he or she can do one of three things: allow the check to be cashed, redeem it by paying cash to recover the loan plus a fee or roll it over by paying the fee to extend the loans for two or more weeks.”

The BBB stated that the fees charged for these loans are usually a percentage of the face value of the check or a fee charged per amount borrowed — typically from $15 to $50 dollars for every $100 borrowed on a quick payday advance.

However, Alderman Kelly Edwards highlighted that the payday loan businesses also offered other services including Western Union.

“There is value in them,” Edwards said. “I just don’t know how many we need in Smithville.”

Edwards suggested structuring licenses for these types of personal cash loan businesses like liquor licenses so that only so many are allowed by population amount.

“We could say that Smithville can only handle one per every 5,000 people,” he said. “That way, we don’t have 10 of these things open here.”

The Community Financial Services Association of America will audit about 150 Kansas payday loan stores this summer to see if they are complying with new practices.

The trade group, which represents about 60 percent of the industry, has hired an independent auditor that will start testing stores after July 31, said spokeswoman Lyndsey Medsker.

The end of July is the last deadline for changes at member stores.

Association members have about 150 faxless payday advance stores in Kansas, including Advance America, Check ‘N Go, Check into Cash and QC Holdings, which does business as Quik Cash.

In February, the association announced a $10 million campaign aimed at educating consumers about low fee payday loans and credit counseling. As part of the campaign, member businesses also agreed to voluntary changes, including:

• By May 31, member stores must include a customer notice on all advertising saying that payday loans should be used only for short-term financial needs and not as long-term solutions. The notice will add that “customers with credit difficulties should seek credit counseling.”

• By May 31, stores must stop using advertising that encourages quick cash loans for frivolous purposes such as vacations.

• By July 31, stores must have extended payment plans in place. The plans will give customers who are unable to repay a loan according to their original contract the option of paying it off over a longer period at no charge. At least once a year, customers will be able to extend their balance in four equal payments.

Medsker said that about 10 percent of customers take advantage of such plans in Washington state, where extended payment plans for cash advance loans are required by law.

“Ninety percent of customers pay back their loans when they are due,” she said.

The campaign has been well received, Medsker said.

“Obviously the critics of the industry are still complaining, but they’re going to complain until the industry is banned,” she said. “The majority of our customers use the loans as intended.”

J.J. Selmon, an organizer at Sunflower Community Action, a Wichita grassroots group that has been a vocal critic of instant payday loans, sees a different side.

His organization has heard from 350 to 400 people strapped by payday loans, he said. Selmon has been skeptical about the campaign — saying it’s just a ploy to make the industry look better — but he said extended payment plans might help people who are in a bind.

SOURCE: The Wichita Eagle

The Overland Park City Council on Monday night agreed to rein in payday cash loan stores, which have more than tripled in the region’s biggest suburb since 2005.

The council voted unanimously to impose a one-mile limit between new no fax cash advance stores and require the existing ones to register with the city and pay a yearly $1,000 licensing fee.

The law, which also extends to car title loan stores, would keep the shops at least 200 feet from residential areas.

City officials want to stop the proliferation of the stores, which they say take advantage of customers with high interest rates and present the appearance of blight.

Overland Park is one of between 50 and 60 cities across the nation that have taken steps to corral fast payday advance stores, said Christopher Peterson, a law professor at the University of Florida who has studied the payday loan industry.

But Peterson questions how effective zoning laws are at addressing the problem, saying that states are often in a better position to do things such as limiting interest rates charged by personal cash loan shops.

City Councilman Terry Goodman, who led the payday loan initiative, acknowledged that zoning laws might not stop residents from using payday loans stores already in the city. He agreed that the state needs to take charge.

There was an effort to limit interest rates on savings account payday loan stores in the Kansas Legislature this year, but published reports indicated that the measure may not succeed this year.

Two bills were introduced to the Kansas state legislature Feb. 15 aimed at restricting and regulating predatory payday loan lending in the state.

House Bill 2244 proposes to restrict no fax payday advance lenders from providing multiple loans to a borrower with two or more outstanding loans and to significantly lower the annual percentage rates of such loans.

HB 2245 addresses auto title loans. The bill proposes limiting the APR on title loans to 36 percent, which is the current Kansas restriction on fixed-term loans.

“I think for a number of states, the honeymoon is kind of over with payday lending,” said Holly Petraeus, the Senior Program Consultant for the Better Business Bureau’s Military Line, a program providing consumer education and advocacy for service members and their families.

Petraeus is also a military family member. Her husband, Gen. David Petraeus, is the current commander of Multi-National Forces-Iraq and former commander of the Combined Arms Center and Fort Leavenworth..

Her concern about fast cash advance lending to military members and their families led to chairing a roundtable discussion in early February convened by Kansas Attorney General Paul Morrison. Morrison intends for the roundtable’s recommendations to be added to HB 2244 as an amendment.

The two bills have several steps to go before becoming Kansas law. However, as Petraeus pointed out, several states and the federal government are taking a close look at predatory lending.

Payday lending is a small, short-term loan, usually for less than $500. The borrower pays a fee and is expected to pay the loan back in full, in two weeks. Petraeus said when quick payday loan lending was first established, it was presented as a beneficial service to people who just needed a little bit of help and couldn’t, or didn’t need to, qualify for a larger loan.

“Unfortunately it has turned out to be something else,” Petraeus said. “If you didn’t have $200 today, you are not going to have $200 extra in two weeks to pay it back.”

Therefore, borrowers take the cash loan out again and pay another fee. This can lead to a cycle of borrowing that can cause serious financial trouble. A report by the Center for Responsible Lending published in November said 90 percent of people who borrow from payday lenders borrow five or more times per year and 62 percent do so 12 or more times per year.

In 2005, Kansas had 358 payday lending stores. The average loan amount in Kansas was $262 and the average fee 15 percent. The 15 percent fee equals 391 percent APR. So a $262 cash advance loan in January could cost a person $1,286 by the end of the year.

“Again, it wouldn’t be an issue if you went in and borrowed it once and walked away,” Petraeus said. “But the average customer doesn’t.”

Petraeus said payday lenders will argue they are providing a service and fulfilling a need.

“I would argue they are creating an appetite for easy money,” Petraeus said.

SOURCE: The Fort Leavenworth Lamp

A credit union that provided low-interest loans and financial counseling to help people pay off high-interest bad credit payday loans has been declared insolvent and taken over by federal and state regulators.

Regulators said Friday that the $2.3 million Communities United Credit Union had “no prospects of restoring viable operations” and would be dissolved.”

The Kansas Department of Credit Unions is overseeing the move, which will see the 1,900 members’ accounts moved to other credit unions in the area. This will assist those suffering from dangerous quick cash loans.

“Our goal is to find another credit union that will serve these members,” said John Smith, administrator of the state credit union department.

Members’ accounts are insured up to $100,000 by the National Credit Union Share Insurance fund. It is administered by the National Credit Union Administration, which will operate Communities United until it is dissolved.

That could take up to three months, Smith said. The news caught credit union member Mitzi Rivers by surprise.

Rivers used a loan from Communities United to retire payday advance loans that were costing her $600 a month in fees.

“I am tremendously grateful that they were there to come to my rescue,” Rivers said Friday. “Now, I’m just in shock. It’s like family.”

The credit union had a net worth ratio - the difference between assets and liabilities - of minus-2.06 percent, Smith said. The average net worth ratio of Kansas-chartered credit unions in 2006 was 12.52 percent.

“They haven’t had a positive bottom line in the past three years,” he said.

The credit union has struggled with solvency issues several times in its 11-year history, several times needing hastily organized fundraising campaigns to keep going.

When several car loan/check cash advance borrowers recently went into default, volunteer directors tried two weeks ago to organize another campaign to raise $500,000.

Director Ed Poindexter said the campaign might have succeeded with more time, but added that trying to raise the money so quickly “was almost impossible and kind of overwhelming.”

The credit union has 15 days to appeal, but directors said it’s unlikely that would be successful.

“Without the working capital there’s no way we can win,” said Milford Adams, who has served on the board from the start. “That’s the bottom line. We just don’t have the financial stability to carry on.”

SOURCE: The Wichita Eagle

Led by a Wichita community action group, more than 200 people protested payday loans and car-title loans Tuesday in a loud rally in the Capitol rotunda.

Sunflower Community Action Coalition brought three busloads to the Statehouse to demand passage of strict regulations on short-term, high-interest loan agencies that have proliferated across the state.

Critics say the payday advances - at rates equivalent to annual percentages in the hundreds - are little more than a trap for poor people, who get caught up in an endless cycle of debt.

Cheers reverberated throughout the Capitol as Wichita-area lawmakers vowed to fight for tight regulation of the industry. The group spent the afternoon visiting lawmakers and other officials seeking support for their cause.

“We think having something like this will educate the legislators to do the right thing and not let money be the root of all evil,” said J.J. Selmon, one of the demonstration’s organizers.

Whitney Damron, a lobbyist for the no fax payday loan industry, said increased state control would prompt Kansans to go out of state or to the Internet for short-term loans - or bounce checks, which would cost them more and could lead to criminal prosecution.

Mitzi Rivers stood before a crowd of about 20 bankers and credit union leaders - people who lead boards in Wichita and make headlines in The Wichita Eagle - and told them her personal story of payday loans.

How she had so many that it would take her five hours on payday to go around to all the shops where she had taken out loans to pay them off.

How one day, tired and worn out, the mother of six - who was paying $660 a month in fees to no fax payday loan lenders - decided she needed a better way.

How Communities United Credit Union helped her by developing a budget and giving her a new loan at a lower interest rate that saved her $300 a month.

Rivers spoke Tuesday at a meeting organized by Sunflower Community Action, a grassroots group active in low-income neighborhoods, to encourage banks and credit unions to consider offering small-dollar loans to people trapped by supposedly low fee payday loans.

These small loans would be made available to people such as Rivers - people who live paycheck to paycheck - when a water heater breaks or a tire blows.

Angie Franklin, manager of the Communities United Credit Union, said she’s trying to help as many people like Rivers as she can, but her credit union is small.

The goal of the community development credit union is to help underserved residents in certain neighborhoods by focusing on education.

Franklin told her peers how hard it is to listen to stories such as Rivers’.

“They cry,” Franklin said, “I’m emotional, too, and I cry with them.”

One possible solution has been developed by a credit union in Arkansas, which offers customers a personal loan that is part loan, part savings account. A consumer takes out a $1,000 loan, for example, but only gets $500 back in cash. The other $500 is put in a savings account. The consumer pays back the $1,000, and when he does, he has money in the bank that is gaining interest.

Kevin Shields from the Federal Deposit Insurance Corp.’ s Kansas City office told the group that the chairman of the FDIC, Sheila Bair, is supportive of more traditional financial institutions reaching out to underserved people in their communities.

And there may be an incentive for it: the Community Reinvestment Act. That federal law encourages depository institutions to help meet the credit needs of the communities they serve.

Rob Allison, Bank of America’s Kansas president, said it’s too early to tell whether his bank would be interested in offering alternative products. But he said reinvestment act credit could definitely be an incentive.

“It’s very important to banks to get high ratings in community reinvestment,” Allison said.

He said he plans to take what he learned Tuesday back to others at his bank.

“It’s just too early,” he said. “But I think it was certainly an informative meeting.”

Lyndon Wells, executive vice president at Intrust Bank, said demand for small-dollar loans seems to exist. Many quick cash loan customers say they go to such lenders because banks don’t offer small-dollar loans. Such loans aren’t lucrative to banks.

(Read on …)