Payday Loan Times

The Philadelphia Inquirer reports that Pennsylvania officials want mainstream lenders to do what they try to discourage check-cashing agencies and payday lenders from doing:

• Provide loans to high-risk borrowers.

While a handful of major banks have not signed on, credit unions have.

Former Banking Secretary A. William Schenck III began approaching banks last year, looking for "a fair and reasonable alternative" to cash loans, which can cost borrowers the equivalent of more than 400 percent in annual interest.

However, Schenck and state Treasurer Bob Casey Jr. have had a tough time persuading major banks to expand their menus. Therefore, Pennsylvania has turned to its credit unions.

An alternative to payday loans: The Pennsylvania Credit Union Association has responded with a new program - Better Choice - that will offer $500, three-month loans at an annual interest rate of 18 percent, plus an application fee of up to $25, and a savings deposit of $50. Despite the fees, it's cheaper than a no fax cash advance.

Better Choice borrowers can pay back a $500 loan with monthly payments of $197.50 - including interest and principal - and have the loan paid off, plus $50 and market-rate interest in savings at the end of the loan term, said Diane Powell, spokeswoman for the credit union association.

"The idea is to get them out of the lending trap," Powell said, "not just to fee them to death."

Powell said some large Philadelphia-area credit unions planned to participate in the Better Choice program. She said the association hoped the alternative to payday cash loans would be offered before the end of next month.

Mere days after seemingly making the proper PR move and halting payday advances to the military, Advance America is facing a public relations nightmare.

The Pennsylvania Department of Banking has filed a Commonwealth Court suit against the cash loan company, saying it provided lines of credit without a license and exceeded state caps on interest and fees.

Advance America, of Spartanburg, S.C., is the country's biggest cash advance lender and operator. It has 100 branches in Pennsylvania. It offered a $500 line of credit in Pennsylvania that was ostensibly at 5.98 percent, but required a $149.95 monthly fee and a $20 minimum monthly payment, the Governor's Office said.

"Under this outrageous product, a person who borrows $500 and makes minimum monthly payments ends up paying back more than $4,000 over about two years," Gov. Ed Rendell said.

Advance America and other companies stopped making traditional, short-term fast cash loans this year because of new regulations from the Federal Deposit Insurance Corp.

"Advance America may not be making payday loans in Pennsylvania anymore, but they are still trying to take advantage of hard-working, hard-pressed families," Rendell said.

An Advance America representative could not be reached immediately for comment, but we'll keep you posted on this cash advance payday loan story as it develops.

As Pennsylvania Banking Secretary, William Schenck, resigns, the Centre Times Daily thanks the appointee for two and a half years of hard work. The followig paraphrased editorial especially focuses on his efforts to curtail the instant payday loan industry …

Under Schenck's leadership, the state Banking Department went from "boring" (his words) to crusading, going after predatory loans and no fax payday loan lenders, and looking hard at the troubling foreclosure rates around the state.

The timing couldn't have been better: As the financial marketplace - especially companies that provide alternatives to established banks - has exploded, too many slimy operators have emerged who target those who need help most and who can least afford to get ripped off.

Although we disagreed with some of Schenck's strategies, we nonethleless are grateful for his tenure, particularly for elevating the consumer focus. We urge Governor Rendell to find someone who will continue to strenghten this mission. We will all be richer for [curbing payday cash advances in the state].

"This is just another cynical attempt to circumvent the Pennsylvania small-loan cap that prevents companies from fleecing state consumers."

Those were the words of Jim Swoyer, of the Pennsylvania Public Interest Research Group (PENNPIRG), in response to the reemergence of Advance America in the Keystone State.

According to the Pittsburgh Post-Gazette, the state Banking Department is trying to determine if the controversial loan offered by the payday giant — its new "Choice" line of credit allows borrowers up to $500 a month for a $150 participation fee — is legitimate.

Department spokeswoman Heather Tyler called the product "a really bad deal for consumers."

Advance America and similar bad credit payday loan firms earn fees for originating short-term, high-interest loans financed by regular banks, then collect payments for the banks. Generally, the payday loans are unsecured and made for only about 15 days.

The company says its prices reflect the cost of its high-risk business, and that its products help people who have nowhere else get cash quickly. On the flip side, its critics say borrowers often are unable to pay spiraling fees and interest on no fax payday loans, making them a huge detriment and hardly convenient.

The FDIC has also investigated Advance America's practices in Arkansas, while the company was forced to suspend its lending business in North Carolina in December when that state's banking commissioner determined the company's high interest rates were illegal.

The Pittsburgh Post-Gazette is not exactly confident about the future of payday loans in Pennsylvania. After seeing two of the major cash advance ldners in the state exist, it would be difficult to argue with this point of view.

1. Advance America, which has more than two dozen locations in this region and is the largest payday lender in Pennsylvania, plans to stop making new payday loans after tomorrow.
2. Ace Cash Express, with almost two dozen stores in the area, has set June 30 as the deadline for halting payday loans.

The news is a victory for consumer advocates, long critical of the industry. Still, some see it as a loss for cash-strapped consumers who have nowhere else to turn in a pinch.

Consumer groups and others accuse payday loan lenders of preying on low-income and vulnerable people by trapping them in a revolving door of debt with flat fees that amount to annual interest rates ranging from about 400 percent to 700 percent or more.

“It’s textbook predatory lending,” said Jim Swoyer, a Harrisburg-based advocate for the Pennsylvania Public Interest Research Group, a leading critic of the industry.

(Read on …)

Payday loan companies in Pennsylvania have take a hit, as a bill that would have increased the proliferation of the cash advances in the state, according to the Philadelphia Inquirer.

State Senator Gibson E. Armstrong, a Lancaster Republican, has indicated that his banking and finance committee will not debate on a House bill legalizing payday loans — a stunning reversal to lenders specializing in the short-term cash advance loans.

Industry lobbyists have warned legislators that the loans would be made anyway by lenders acting as agents for out-of-state banks. But instead, at least for the moment, federal banking regulators cracking down on those partner banks, and payday lenders are leaving the Keystone State.

The Dollar Financial Group has acquired 11 payday loan stores in western Canada and will soon complete deals for two more in the region, the Philadelphia Business Journal said Monday.

National Money Mart (Dollar’s Canadian subsidiary), which had minority ownership in seven stores.

The acquisition is valued at an estimated $16.8 million in addition to a portion of the loan portfolio, liquid assets, and other items.

Dollar Financial, headquartered in Berwyn, Pa., now operates 1,340 stores in 36 states, the District of Columbia, Canada and the United Kingdom. The locations offer check-cashing, short-term payday loans, money orders and other services.

The Federal Deposit Insurance Corp. (FDIC) expressed concern last month over Dollar’s “CustomCash” payday loans and installment loans. The FDIC has been subjecting lenders and partnering banks to closer scrutiny recently, with some companies in some states (such as North Carolina) deciding to stop making payday loans.

If the FDIC takes action that will decrease the company’s CustomCash revenue, Dollar has said it will pursue alternatives to mitigate the potential future loss of revenue. This may include company-funded payday loans that are regulated under prevailing state laws and can be just as easily distributed to the prospective customers.

The Pennsylvania payday loan giant does not appear to be deterred by the recent backlash against its Canadian subsidiary and other industry operations. It will be interesting to see if this acquisition helps boost the revenue of an already thriving enterprise.

After rumors that Advance America would be forced to put a halt to its payday lending in Pennsylvania, an agreement on the matter has finally been reached: its lending bank will stop its payday loan originations at 101 centers in Pennsylvania later this month.

The Spartanburg-based company says BankWest Incorporated will stop offering the services after March 27. Advance America handles payday cash advances and installment loans for BankWest.

The company, however, will service outstanding advances and loans through August and has no plans to shut down its centers in Pennsylvania. It's exploring other banking options in that state for its payday loan services.

It hasn't been the best week for Advance America.

Recent reports state that the company may have discontinue operations in Pennsylvania and Arkansas, but representatives - along with industry insiders - do not regard these as not signs of trouble elsewhere.

Advance America currently operates 2,604 centers in 36 states. In the two aforementioned states, the service operates under an "agency model," partnering with federally chartered banks to offer payday loans. There are a total of 131 stores in the two states.

In its fourth quarter earnings statements released earlier this week, Advance America disclosed that the Federal Deposit Insurance Corp. "has instructed certain banks to discontinue offering payday cash advances and alternative credit products if they cannot adequately address the FDIC's concerns regarding those products."

Jamie Fulmer, Advance America's director of investor relations told the Spartanburg Herald-Journal that it's too early to say how the FDIC news will play out.

"We're evaluating what options might be available to us should they (federally chartered banks) be forced to discontinue payday loans and installment loans in those states. … It's hard to say what those options might be."

(Read on …)

Due to a federal banking investigation, Advance America may be forced to alter its payday loan practices in Arkansas and Pennsylvania.

Company president Ken Compton said in a conference call last week with reporters and analysts that the Federal Deposit Insurance Corporation is looking at payday advance operations at banks it supervises.

Advance America and other similar lenders originate short-term, high-interest loans financed by regular banks. The companies also earn fees for collecting payments and dealing with late payers. Because the FDIC insures bank deposits, agency officials have said they think the business is too risky for their banks. The quick cash loan issue probably won't go away any time soon.