The Federal Deposit Insurance Corporation (FDIC) is now accepting bankers’ applications to participate in its Affordable and Responsible Consumer Credit pilot program, which will begin in January 2008. (Read on …)
A growing number of the nation’s 9,000 credit unions are hoping to steer consumers strapped for cash away from costly faxless payday loans by offering less expensive alternatives.
There are about 24,000 payday loan stores in the United States and last year, about 19 million people used one, industry spokeswoman Lyndsey Medsker says.
He added that the bulk of those customers are satisfied. The process just takes a few minutes, including a quick check of a person’s bank account and pay stub.
But 32-year-old Felisha Wilbourne says fast cash loans aren’t worth it. She went to an outlet a few years ago when she was falling behind on her bills.
“They gave me $200, but I had to pay $275 back in the next pay period in two weeks,” she says. “That still left me in the hole, because once you give up that check you have to wait a two weeks for another check.”
Now Wilbourne uses Northside Community Federal Credit Union in Chicago. It’s one of many credit unions offering payday loan alternatives.
Ed Jacob, Northside’s director, says the credit union decided to offer an alternative after noticing that some members had taken out personal loans with interest rates over 600 percent.
Northside offers a $500 loan that can be paid back over six months, Jacob says.
For its part, the payday loan industry argues that bounced-check fees of mainstream lenders or credit-card late fees can be even more pricey than the interest on instant payday loans, if those costs are computed on an annual basis.
Leslie Parish, a researcher for the Center for Responsible Lending — which tracks lending practices — says that credit unions are making a good effort but they are no panacea.
Former employees of a Cincinnati area payday advance lender have criticized the company’s business practices, saying they were pushed to solicit minority and low-income residents and get them to go deeper into debt through revolving loans.
The men, who once worked for Check’n Go, based in Mason, spoke at a news conference Wednesday in Washington, D.C., where they supported efforts to get the Council of the District of Columbia to regulate payday lenders.
At least one state lawmaker in Ohio is proposing a cap on interest rates on fast payday loans.
“We train our sales staff to keep customers dependent, to make sure they keep re-borrowing … forever, if possible,” said Mike Donavan, a former district director of operations for Check’n Go stores in Washington, D.C., northern Virginia and Delaware.
The company has about 1,500 offices nationwide.
William Harrod, a former manager of one of the company’s Washington, D.C. stores, said Check’n Go deliberately targets black communities.
“I was instructed to stick to low-income, black apartment buildings,” Harrod said of his instructions for marketing cash loans.
Check’n Go makes it very easy at the front end for people to get a loan, said Cameron Blakely, another former store manager.
“But at the back end, we made it very difficult for customers to get out of the loan,” Blakely said.
Check’n Go’s response Thursday to a request for comment was a written statement that said the three former cash advance loan employees had made “false and reckless statements regarding the business practices of Check’n Go.”
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.
Shares of Spartanburg payday lender Advance America hit an all-time low Wednesday a day after a Pennsylvania court ruled the Spartanburg cash loan company violated that states consumer law.
Advance America provided bad credit payday loans of as much as $500 to people in return for 6 percent interest plus a $150 monthly fee, a Pennsylvania court ruled Tuesday in agreeing with the state Banking Departments claim that fees exceeded limits set in state law.
The opinion prevents Advance America from continuing to lend money or collecting on lines of credit or loans currently outstanding in the Commonwealth of Pennsylvania pursuant to the violations of state law.
Advance America said it would appeal.
This provider of cash advances saw its shares slipped to $11.29 during trading Wednesday the lowest since the stock debuted in December 2004. Shares finished at $11.84, down $2.83 from Tuesday.
Revenue growth for payday loans, including those extended over the Internet, helped Fort Worth-based Cash America International rack up a 19 percent increase in net income for the second quarter.
Earnings were $13.2 million, or 43 cents a share, compared with $10.9 million, or 36 cents a share a year earlier, beating analysts’ estimates by 3 cents as calculated by Zacks Investment Research. Revenue hit $213.9 million, compared with $149.9 million a year earlier.
“All aspects of our business experienced increases in revenue, led by our expanded balances of cash advance loans, which posted the largest portion of the year-over-year gains in revenue,” President Dan Feehan said.
But he stressed that Cash America’s pawnshop loans and merchandise sales represented about two-thirds of revenue. Pawn revenue was up 18 percent, he said.
The company predicted that third-quarter profit would range from 52 to 58 cents a share.
Loan fees from cash advance payday loan units, not including pawnshops, increased to $76.9 million from $29.1 million a year earlier.
ChristiaNet.com, the world’s largest Christian portal with twelve million monthly page loads, conducted a new poll by asking the question, “Are payday loans a temporary fix to a crisis?”
Overall, many participants seem to agree that these types of cash advance loans can provide some necessary emergency cash when needed. Bill Cooper, President of ChristiaNet said: ”
High interest loans are costly but in an emergency situation, people are usually willing to shoulder those costs. Even so, it might be advantageous to do some comparison shopping when opting for high interest loans.”
Out of 244 participants, 89 responded “yes” to the survey question. While many agree that online payday loans can provide some emergency cash when needed, there are some important issues to consider before doing so. One reader shared an experience by saying:
“From experience I fell further in debt. Instead of praying and waiting on God, I decided to take matters into my own hands.”
It seems that indulging in these types of loans might cause further problems for some borrowers. High interest fees might cause borrowers to get deeper into debt.
One-hundred and seven participants answered “no” to the survey question. The consensus with this group is that while fash cash advance loans provide a temporary solution, they only add to the problem already there. One concerned reader said:
“If you need an advance you’re living ahead of what you are getting and subsequently getting further and further behind.”
If the problem boils down to bad money management, then a temporary fix with some emergency cash won’t solve the initial problem.
Forty-eight people were unsure about the survey question. Most readers in this group feel that it depends on the crisis and if bad credit payday loans were used for a one time scenario, they could help.
“Unfortunately, I have had to get a few in the last couple of years. Some are just traps and the way you pay them there is no way to get out from under them.”
Democratic presidential candidate John Edwards, on an eight-state swing to highlight poverty issues, on Tuesday called for a national law to crackdown on predatory cash advance payday loan lending.
Walking through a struggling neighborhood in Cleveland, the nation’s poorest big city, Edwards said that without national regulations predatory lenders who offer higher-priced no faxing payday loans to people with tarnished credit or low incomes “just move to another place where they are not regulated.”
But are people responsible for their own actions?
As an example, consider the newly-instituted “abusive driving” fines in Virginia. Basically, if you’re caught driving in such a way that endangers other people on the road, you can get fined thousands of dollars.
Such a fine could put a lot of working class people in dire financial straits. The same sort of dire financial straits people find themselves in when they choose to live beyond their means and facilitate that lifestyle via payday cash advance loans.
In the first instance most would say that the person receiving the fine is suffering the consequences of their actions in not following traffic laws. Yet in the second instance, the people getting the payday loans are cast as victims. As if the decision to get the loan in the first place weren’t theirs to make.
It’s something to ponder.
A recent report issued by the National Consumer Law Center is absent what should be a critical element of any report: the facts.
The June 2007 report on utilities and payday advance lenders concludes that there is a link between companies like ACE accepting utility payments and offering short-term loans. According to ACE, the report relies on innuendo, anecdotes, and casual observations to make misleading conclusions.
ACE, a payday loan company, processed over 6.3 million utility and bill-payment transactions during the 12 months ended June 30, 2007. In a sample of 602,524 utility and bill-payment transactions, ACE identified 5,823 customers, or 1%, who also became short-term loan customers on the same day that they paid their bill.
Ninety-nine percent (99%) of ACE customers in this sample were not users of ACE’s short-term loan product on the day that they paid their bill at ACE.
In a report to be issued to ACE’s Board of Directors, Grant Thornton LLP has compared the computations and calculations that ACE used to prepare this cash advance analysis and did not have any exceptions.
“The National Consumer Law Center report fails to present the facts about payday loans and utility payments, and consists of erroneous arguments and false conclusions,” said Jay B. Shipowitz, President and Chief Executive Officer of ACE Cash Express. “The fact of the matter is that these are two separate customer groups with minimal crossover. Our bill payment service is a tremendous convenience and usually a lower cost option to our customers. It is shocking to us that anyone would want to eliminate this convenient and economical service.”
The report confesses that the National Consumer Law Center did not use data to reach their conclusions, when they state:”
“Available data offers no way to measure how many utility bill payers have been put on the road to becoming payday loan customers.”
This statement reveals the fundamental flaw of the report and the danger of drawing conclusions without factual data. Consumers will not be served if their choices in how they make their utility payments are arbitrarily taken away.
Seven significant faxless payday loan chains are extensively bankrolled by brand name banks.
Bank Of America, Chase, WellsFargo, U.S. Bancorp, and Wachovia all extend tens to hundreds of million dollars in lines of credit to these predatory lenders who charge several hundred percent interest on payday advances, often made to the poor and uneducated.
The chart above shows the who and how. It’s a rework of a chart in the appendix of a report by the National Consumer Law Center, who got its data from SEC filings and exhibits.
While companies are in business to make a profit, you can’t help but wonder: if there’s nothing wrong with payday loans, why don’t these banks offer it at their branches?