Payday Loan Times

 In the early 1970s, Bill Myers (pictured) saw how hard it could be for a small business to get a loan when he was a member of the Somadhara Bakery, the collective that later became Oasis Natural Foods.

Myers left town for Boston but returned in 1978 to Ithaca, where he and a group of friends decided to launch a new credit union.

“As now, there weren’t many credit unions being chartered, and none like we were proposing,” Myers said.

His group went to Washington, D.C., and waited outside the offices of the National Credit Union Administration to get a signature. And now, after 28 years, Myers is retiring as chief executive officer of Alternatives Federal Credit Union, a destination many came to instead of using payday cash loans over the years.

Alternatives, a not-for-profit community development credit union, emphasizes social and economic justice and education, Myers said. Myers points out that the credit union was doing microlending to small businesses and to low-income people before it was encouraged by the National Credit Union Administration. It has become a model for other credit unions throughout the world, and Myers has mentored credit unions as far away as Poland.

Myra Kovary, a founding board member of Alternatives, said she was a cheerleader, supporting and spreading enthusiasm for these non-instant payday loan ideas.

“I was one of the people who sat in his living room dreaming this up. It was a brilliant idea that we could make our money work for our values,” Kovary said. “Now there’s more interest in serving low-income communities. The base is bigger,” he said.

Today, 69 percent of the 8,000 members are low or very low income, said Interim CEO Leni Hochman, who started at the credit union as a teller.

Hochman said Myers, who has an economics degree from Cornell, tells people he started out as a baker, but added an “n” in the middle. Before running the credit union, Myers’ was a founding member of GreenStar Cooperative Market and handled product management for Erewhon Natural Foods in Boston. He also worked on his grandfather’s ranch in Oklahoma.

In 1979 when Myers and his friends pooled their savings, it cost $5 to join the credit union. It’s now $10 and open to anyone in Tompkins and surrounding counties. Compare that to rates on payday cash advances.

“It didn’t require much capital,” he said.

Former Somadhara member Mitch Weiss, who did daily books for the collective, remembers Myers as a driving force.

“He was definitely the idea man,” said Weiss, who left Somadhara for another collective, the Moosewood Restaurant “When I give money there, I feel like it’s being plowed back into the community. … To have this vision to fill such a need in the community, it’s one of the things that makes Ithaca a place that’s really worth living.”

Programs under Myers’ leadership include Business CENTS, an entrepreneurship program that Alternatives took over from a city-funded program.

The credit union also responded to employees’ requests for a livable wage starting with a study in 1994 that examined what it takes to live above the poverty level in Ithaca, updating studies every two years since and helping people understand the dangers of no fax payday loans. (Read on …)

The national trade group for payday advance lenders has called on its members nationwide who make loans over the Internet to comply with all state laws and to be licensed in each state in which they do business.

The effort by the Community Financial Services Association announced Tuesday, if complied with by all payday lenders, could put an end to a lot of illegal short-term loans now available online to New Yorkers. That’s because New York state already bans such loans through its interest rate cap and other restrictions, and no payday lender is licensed to operate stores in the state.

However, consumers have been able to get high-cost fast cash loans online from a variety of sources, which a spokeswoman for the trade group said was legal. Now, its members would be prohibited from making loans that violate state law. Violators risk losing their membership in the industry’s only trade group.

“With this new change in best practice, our members are unlikely to lend to someone who has a New York address due to the regulatory environment,” said CFSA spokeswoman Lyndsey Medsker. “We want to be responsible. We want to protect consumers. With this new best practice, we won’t lend to people whose state regulations don’t allow it.”

But CFSA, whose members are all U.S.-based, represents only about 60 percent of the storefront easy payday loan locations in the country. And many of the online lenders are actually based offshore in countries such as Costa Rica, and don’t necessarily follow state or federal laws.

“Someone who lives in New York can still go online and get a loan,” Medsker said. “They’re just getting it from someone who isn’t necessarily following any rules.”

Consumer advocates, who denounce online payday loans as abusive and predatory, and have sought to prohibit them nationwide, downplayed the new rule’s significance.

“Once again, CFSA’s ‘Best Practice’ is to comply with state laws,” said Jean Ann Fox, director of consumer protection for the Consumer Federation of America. “Operating within the law is the least you should expect, not a ‘best practice.’ ”

Payday loans are short-term, small-dollar loans of about two weeks made against an upcoming paycheck or postdated check, or with authorization to take the repayment electronically from the consumer’s checking account. The personal loans, typically for amounts ranging from $100 to $500, carry finance charges of $15 to $30 over the two weeks, which equals an annual interest rate of 390 percent to 780 percent.

The loans are made by storefront lenders, check cashers and pawn shops, and are also available through toll-free numbers or the Internet. According to Little Rock, Ark.-based investment bank Stephens Inc., which has researched the industry for years, there are an estimated 24,200 U.S. stores.

In all, Stephens reports, the cash advance loan industry generates $47 billion in annual fees, including $5.65 billion — or 14 percent — online.

New York criminal law prohibits charging interest of more than 25 percent annually, and its civil banking law restricts unlicensed lenders further to just 16 percent. The state also bars check cashers from making loans and from accepting post-dated checks. That has effectively kept the payday lending industry out, as the most a store could legally charge is 95 cents for every $100 loaned.

Robert H. Frank, an economist at the Johnson School of Cornell University, is the author of “The Economic Naturalist,” which will be published this spring. He wrote the following piece on instant payday loans for the New York Times:

When a lion achieves alpha male status, one of his first acts is to kill all unrelated cubs in the pride. Is that a bad thing?

As biologists have long realized, the question makes little sense. In the bitterly competitive environments in which lions evolved, the dominant male’s behavior was favored by natural selection because it brought females into heat more quickly, thus accelerating the transmission of his genes into the next generation.

His behavior appears brutal to human onlookers and surely makes life less palatable for lions as a group. In the Darwinian framework, however, it is a simple fact of existence, neither good nor bad. In any event, such judgments have little practical significance, since moral outrage alone cannot prevent a dominant lion from killing cubs.

In contrast, when humans prey on weaker members of the community, others are quick to condemn them. More important, such denunciations often matter. Because complex networks of voluntary association underlie almost every human transaction, the bad opinion of others can threaten the survival of even the most powerful individuals and organizations.

But the supply of moral outrage is limited.

To maximize its usefulness, it must be employed sparingly. The essential first step is to identify those who are responsible for bad outcomes. This is often harder than it appears. Failure at this stage steers anger toward people or groups whose behavior is, like the alpha lion’s, an unavoidable consequence of environmental forces. In such instances, moral outrage would be better directed at those who enact the rules under which ostensibly bad actors operate.

A case in point is the outrage currently directed at lenders who extend credit at extremely high rates of interest to economically disadvantaged groups. Among these lenders, so-called payday loan shops have come under particularly heavy fire of late.

This industry, which didn’t exist in the early 1990s, now has approximately 10,000 retail outlets nationwide (more in some states than either McDonald’s or Burger King). Industry revenue, less than $1 billion in 1998, reached $28 billion last year.

Concentrated in low-income neighborhoods, [quick payday advance] lenders typically offer short-duration loans of several hundred dollars secured only by a post-dated personal check from the borrower. Fees on a two-week loan often exceed $20 per $100 borrowed, which translates into an annual interest rate of more than 500 percent.

Occasional borrowing on such terms can make sense, because it sidesteps the cumbersome process of taking out a traditional bank loan. Many borrowers, however, quickly get into financial trouble once they begin to roll over their no faxing payday loans. A recent report by the Center for Responsible Lending, for example, estimated that a typical payday borrower ends up paying back $793 for a $325 loan.

Payday lenders have been condemned as ruthless predators whose greed drives hapless borrowers into financial ruin. Without question, the proliferation of payday lending has harmed many families. And since lenders surely know that, the moral outrage directed at them is understandable.

(Read on …)

Consumer advocates from around New York urged state lawmakers last week not to rely only on financial education to protect low-income New Yorkers from issues such as payday advance loans - but to actually crack down on financial abuses targeting the poor.

Speaking at the second of two public hearings, the advocates cited a litany of financial practices they say take advantage of low-income and minority consumers around the state, reported The Buffalo News.

Examples of these practices? They range from high-cost "predatory" lending and tax refund anticipation loans to rent-to-own stores that charge two to three times the retail cost of appliances, electronics and furniture. Critics also relayed stories of consumers victimized by such deceitful lending scams, who are now fighting to save their homes, even as their lives are devastated.

"Predatory [cash advance] lending and fraudulent flipping schemes not only ruin the lives of individual borrowers, but these practices also contribute to the deterioration of urban neighborhoods," said attorney Treneeka Cusack of the Legal Aid Bureau of Buffalo, who handles predatory lending cases."It also increases the burden on an already stressed social service system, which often must provide victims with shelter and other related assistance."

The fight against payday loans: Cusack joined Buffalo attorneys Kathleen Lynch of the Western New York Law Center and David Chadwick of Legal Services for the Elderly, Disabled and Disadvantaged of Western New York in testifying before a pair of Assembly committees in a Manhattan hearing room.

The four-hour hearing, together with a previous five-hour session in Buffalo last month, followed a series of stories in The Buffalo News in June detailing the high costs low-income people pay regularly to cash checks, buy furniture, appliances or electronics, borrow against their taxes, or pay back various kinds of no faxing payday loans.

(Read on …)

Step up efforts to combat payday loans! So says hopeful NY governor, Eliot Spitzer.

As he fights for regulations against these resources, two State Assembly committees said Wednesday they will hold a public hearing - the first of two - upstate (Buffalo) next month. The idea is to focus on no faxing payday loans and other "challenges and pitfalls" facing low-income consumers cut off from traditional financial services.

The hearing by the Consumer Affairs and Protection Committee and the Banks Committee will be held at noon Sept. 20 in the Frank E. Merriweather Jr. Library, 1324 Jefferson Ave. A second hearing will be held in October in Manhattan.

Advocates for the poor applauded the announcement.

"I think it's wonderful news that the Assembly is going to focus their attention on these kinds of issues that have been facing low-income people for a long time," said Kathleen Lynch, senior litigation attorney at the Western New York Law Center. "It is our hope that some of the abuses that we have seen will be addressed and ended."

You can assume that alleged predatory, faxless payday loan lending will be chief among these topics. The forums follow a June Buffalo News series, "The High Cost of Being Poor," that detailed how low-income consumers pay more for goods and services and the failure of laws and regulations - some of which haven't been changed in 20 years - to address the problems.

The series explained ways in which low-income consumers without cash or credit pay extra to cash checks; buy groceries from corner stores; take out bad credit payday loans; purchase furniture, electronics or appliances over time from rent-to-own stores; borrow money against their taxes; buy homes or cars; and obtain auto insurance.

In the hearings, lawmakers say they plan to examine the problems caused by low-income consumers having to rely for services on alternative providers, such as check-cashers instead of banks and rent-to-own outlets instead of department or discount stores.

It's not unusual for any campaign to field questions about just who is donating to it. It's a free country, this is how our elections are run and there are few rules in place for what sort of individual or company can help someone such as Sue Kelly maintain her congressional seat in New York.

The Times interest was piqued, however, by the attention paid to this race by fast payday loan companies.

First, some background: Kelly is facing her toughest competition in 12 years. As usual, the representative is receiving money from many industries she oversees in Congress. It's the status quo.

A handful of government watchdogs say the practice is bad for democracy because elected officials may find their loyalties divided on issues where the interests of large donors conflict with those of the voters.

"Money buys access in Congress, and often influence," said Massie Ritsch, spokesman for the Washington-based Center for Responsive Politics. "Members of Congress won't necessarily vote your way, but at least they listen. The less well-funded don't have that at their disposal."

The case becomes more interesting in New York because a fight is on to rid the state completely of predatory lenders and payday loans.

The Katonah Republican, Kelly, has raised about $1.4 million. Four Democrats are vying to unseat her, mainly on the basis of her support of Bush administration policy, including the war in Iraq. of course, Kelly wants to remain in office so she can continue working to keep the tax burden down and to improve the environment, educational opportunities and access to affordable health care, her campaign manager, Jay Townsend, said.

According to the June 30 Federal Election Commission filing, $766,942 of Kelly's contributions - or 54 percent - came from political action committees. Many of these special-interest donations come from businesses Kelly oversees through the House Financial Services Oversight and Investigations Subcommittee, which she leads.

"The fact that Sue Kelly takes money from the very same industries and companies that she has oversight responsibility for is ethically questionable and downright inappropriate," said Mike Morey, spokesman for Take19, a group organized to defeat her.

Since January 2001, Kelly has led the subcommittee with the power to investigate all matters that come under the jurisdiction of the House Committee on Financial Services, formerly known as the Banking Committee. Now, perhaps you can begin to see where receiving money from no fax payday loan firms becomes questionable.

After all, this committee oversees the securities, insurance, banking and housing industries, along with financial services regulators including the Federal Reserve, the Treasury Department and the Securities and Exchange Commission.

During her congressional career, Kelly has received more than $3.2 million in PAC money, with insurance, securities and investment, real estate, banks, accountants and credit companies among her biggest contributors, the nonpartisan Center for Responsive Politics said.

However, Kelly's 2006 election cycle contributors also included the lesser known QC Holdings Inc. and Cash America International Inc., payday advance companies that offer small, short-term loans.

"Neither company has been charged with wrongdoing," Townsend said. "Both are publicly traded companies listed on either the American or Nasdaq Stock Exchange."

That's true. But, as often happens during tense elections, campaign contributions are placed under a microscope and it's easy to see why these could raise financial flags.

Despite what some consider a flourishing economy, plenty of Americans are having a heck of a time just paying their bills.

According to the American Bankers Association, the percentage of bank cards 30 or more days past due increased to 4.4 percent in the first quarter of the year, up from 4.27 percent in the last fiscal quarter of 2005. All that rampant consumer debt is giving bill collectors incentive to toughen their tactics, according to The New York Times, even in cases where debts can't be proven.

New York Attorney General Eliot Spitzer is, of course, on the case, waging an all-out assault on all forms of predatory lending. The gap between rich and poor is growing wider in the U.S., and it's as easy as it's ever been for low-wage earners to fall behind and get into trouble with payday loans and other high-risk options sought by the desperate.

The Memphis Commercial Appeal reports that Tennessee's General Assembly took an important step by passing legislation that sets tighter limits on what fees lenders can add to high-cost home mortgage loans and curtailing other practices that can often result in foreclosure or even bankruptcy.

Officials hope momentum from that effort will carry over next year to extend protection against predatory lending in such fields as car title loans, instant cash loans and other alternatives aimed at consumers who don't understand how badly they're being taken for a ride.

It's hard to say what direction this economy is going to take in the near future, much less over the course of the next few years. What can be controlled is making sure vulnerable consumers are protected from those who would take advantage of the situation when things turn sour.

Eliot Spitzer, the New York State Attorney General, and front-runner in this November's race for governor, said the state's banking and insurance regulators aren't doing enough to protect New York residents from abusive practices, especially those with lower incomes.

The Democratic candidate told The Buffalo News that the two state agencies already have significant authority to go after violators of state law, but haven't been forceful enough in asserting it.

Instead, it has taken the investigations of his own office to prod others into action, the native New Yorker said.

"The Banking Department and the Insurance Department can do more than they have been. The agencies have not been digging as aggressively as they should have been to protect consumers. I would like to see state agencies be more aggressive in those domains," Spitzer said.

Republican candidate and former Assembly Minority Leader John J. Faso said that authorities must enforce the law, but the real solution to Buffalo's rising consumer debt problems is an improved economy, not more government.

Their comments came in response to last week's News series "The High Cost of Being Poor," which revealed several ways — some of them illegal — in which the poor end up paying more for goods and services.

(Read on …)

While a payday loan may seem appealing to people who are in need of cash fast, consumer advocates are trying to encourage alternatives.

The Consumer Federation of America (CFA), a non-profit association of 300 pro-consumer groups, doesn't see the benefits of payday loans. The small cash advances secured by a borrower's personal check and due in full on the borrower's next payday just result in financial danger, according to the Elmira (N.Y.) Star-Gazette.

In May, the CFA created a website, paydayloaninfo.org, to help consumers learn more about these loans. The site features facts about how the payday loan process works, as well as industry information, the legal status of payday advance lending, and relevant state laws.

On the site, an interested consumer can calculate the cost of using online payday loans by entering the dollars borrowed, fees charged, and length of the loan. A visitor to the site can also see the impact of not repaying the advance on time by entering the number of renewals or rollovers used during the course of a year, the consumer group's news release states.

"Consumers may be shocked to find out how expensive it is to use payday loans," said Jean Ann Fox, CFA's Director of Consumer Protection, in the release. "CFA's paydayloaninfo.org webite provides consumer-oriented advice and information to help protect borrowers against becoming trapped in high-cost, high-risk payday lending."

Visitors can click on their state to connect with state regulators to file complaints and/or get more information about cash advance loans.

A Fort Drum Military Reservation board, whose responsibilities include heading off predatory lending practices, didn't even meet for four years.

That's according to documents from the U.S. Government Accountability Office, a television crew in Watertown, N.Y. (near where the base is located) reported Monday.

In 2004, the New York Attorney General filed suit against N.Y. Catalog, a business located right outside Fort Drum. The lawsuit alleges that the agency was issuing payday loans, charging outrageous interest rates and targeting military families as the primary victims.

Valerie Melvin of the Government Accountability Office recently testified before the House Financial Services about financial issues facing U.S. Service members. The Department of Defense set up Disciplinary Control Boards to make recommendations to make businesses off-limits to service members, in order to protect families from unfair business practices.

"Our report did in fact talk about Fort Drum as being one of several bases where we had seen, inactivity I guess is the word," Melvin said. "And at Fort Drum in particular we had noted that the board had not met in about four years at the time of our review."

Melvin said that the Department of Defense, in response to the GAO report, planned to implement regulations requiring the boards to meet more often. This is the latest in a series of stories on military payday loans and the efforts of regulators to curtail them. Officials at Fort Drum's Public Affairs Office did not on whether the board had begun meeting since the report was issued.