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El Paso Payday Loan Lender Shut Down

Filed under: Texas — Paul Rizzo at 2:12 pm on Friday, June 29, 2007

Texas Attorney General Grag Abbott recently secured a court judgement against El Paso-based Advance Internet, an unlicensed payday advance loan lender.

According to court documents, Advance Internet’s owner John A. Gill Jr., used the guise of on-premises internet access and “instant cash” to lure customers into a cash loan lending scheme. Advance Internet’s customers, many of which were military families, were essentially tricked into entering fraudulent high-interest contracts.

El Paso Payday LoanIn 2006, Abbott charged Advance with violation of numerous finance law provisions, among them, a provision requiring lenders to obtain proper licenses before making personal loans.

Consumer finance laws mandate that usurious interest contracts, like the majority of those written by Advance, are null and void. According to the Attorney General’s office, Advance tricked customers into entering contracts with interest rates as high as 782%.

Aside from El Paso, Advance maintained offices in Coryell, Bell and Bexar Counties, all counties in close proximity to military bases.

Abbott also argues that Advance Internet had an internet “rebate” program that was utilized to hook customers into debt.  Those instant payday loan borrowers signed up for monthly withdrawals from their bank accounts were given a $100 rebate.

Advance made monthly withdrawals from customer’s bank accounts until the entire loan, burdened by the inflated interest rates, was paid off.  Customers who paid off the loan early to avoid the heavy finance charges were assesed a “termination” fee equal to the $100 rebate they received.

The Dangers of Texas Payday Loans, Bad Credit Lending

Filed under: Texas — Paul Rizzo at 5:59 am on Monday, May 14, 2007

It used to be that low-income consumers didn’t stand a chance of getting a loan.

But today, lenders aggressively court this market with subprime mortgages and payday loans.

“It’s a boom market,” said Matt Fellowes, a scholar at the Brookings Institution, a liberal think tank, who recently completed a study on lending to low-income consumers. “Where 40 years ago lenders were being accused of redlining lower-income markets, now they are awash in credit. In fact, families in the bottom half of the income distribution have been the fastest-growing part of the credit market over the past 20 years.”

Cheap Cash Loans But have we gone too far in extending credit (in the form of cash loans online) to low-income consumers – especially those who don’t have much wiggle room if the slightest hiccup throws off their finances?

Definitely, according to Mr. Fellowes. The trouble is, federal policy is stuck in the 1960s, when credit was difficult to get, he said.

“Federal policymakers need to get their foot off the gas pedal in promoting access to credit and start addressing the hard reality that millions of Americans now have too much access to credit,” he said.

More credit, more debt
Just think about all the pre-approved credit card offers that flood your mailbox and the promotions that retailers attach to instant-credit offers.

What we still aren’t doing enough of is imparting to consumers the consequences of taking on credit, not paying off their credit card bill each month and incurring interest charges on resources such as payday advances that could make them indentured servants to their creditors for years.

It’s particularly acute among the low-income. More than 55 percent of lower-income households held debt in 2004, up from 50 percent in 1989, Mr. Fellowes said.

“Total debt held by these households increased by 308 percent during this period, now adding up to over $481 billion,” he said. “Nearly all of this debt is for mortgages and home-related installment trades.”

Not surprisingly, Mr. Fellowes said, more than 32 percent of lower-income borrowers struggle to pay bills on time, and about 27 percent spend more than 40 percent of their income servicing debt. Hence, their use of no faxing payday loan outlets.

“Congress can’t just regulate its way out of this problem,” Mr. Fellowes said. “There are deep, systemic problems with America’s understanding of how to manage money effectively.”

In need of a plan
Mr. Fellowes says what’s lacking is an “intermediary,” such as a financial planner, who would stand between “lenders and borrowers today in low-income markets – someone who basically can take all the options that families have today and evaluate what those different options are and what would make the most sense.”

(Read on …)

El Paso Residents Turn to Texas Payday Loans

Filed under: Texas — Paul Rizzo at 6:21 am on Monday, April 23, 2007

In El Paso, where 200,000 people live below the poverty line, it costs more to be poor. Strapped for cash, but without good credit or an another alternative, many low-income El Pasoans regularly turn to faxless payday loans.

In exchange for the quick emergency cash they need, they also get exorbitant interest rates, which must be repaid, or additional debt, making it even tougher to escape poverty.

Just ask Valerie Estrada, who, as a single mother of four, a few years ago took out high-interest, two-week bad credit cash loans to pay bills, buy necessities and put food on the table.

“Back then, I only got paid once a month, so I would take out one or two payday loans to buy things that we needed. Then, when I got paid, my whole check would go to paying those loans,” Estrada said. “It took a long time to be able to get out of that cycle.”

Payday Loan, Texas “I would ask for a $365 loan and a $400 loan and, by the time I repaid the two loans at the end of the month, the first one would go up to $450 and the second one would be $500 to $600,” she said.

The $35 to $150 no fax payday loan fees Estrada describes are not atypical in El Paso. In fact, according to a bill filed last month by state Sen. Eliot Shapleigh, D-El Paso, payday lenders in Texas are using a legal loophole to charge exorbitant interest rates, between 300 percent and 1,100 percent when annualized.

By registering as “credit service organizations,” the payday lenders evade Texas’ small-loan law, enabling them to charge rates 20 times as costly as a high-interest credit card, Shapleigh’s office said. Included in the five bills the state senator filed last month that could regulate the industry is one that would limit payday-loan interest rates to 36 percent annually.

Shapleigh’s efforts are a good start, but additional action is needed to support El Paso’s poor, said Anibal Olague, executive director of the Border Fair Housing and Economic Justice Center.

“One of the biggest issues is access” to personal loans, Olague said.

He said that many banks fail to offer the short-term loans some poor people need and that banks aren’t as prominently located in low-income neighborhoods. Drive through the poorer areas near Fort Bliss, Downtown and along Alameda Avenue, and you’ll see countless billboards and signs for payday loans, as well as other high-cost financial service providers, Olague said.

“These guys are everywhere,” he said.

Nationally, high-price financial service providers tend to be more densely concentrated in low-income neighborhoods, according to a payday advance loan study released last year by the Washington, D.C.-based Brookings Institution. It found that banks were less frequently concentrated poor areas, although 29 percent of poor neighborhoods analyzed did contain one bank or credit union, while 75 percent of those neighborhoods were found to have one such institution nearby.

The study said these demographics are one reason it is often expensive to be poor. It reported that compared with wealthier people, low-income earners can pay thousands of dollars more a year on their cars, home, insurance, furniture, groceries and financial services.

However, even in cities where many bank branches are in low-income neighborhoods, like Seattle and San Francisco, many poor people still turn to payday loans online, said the study’s author, Matt Fellowes.

Fellowes said two things must happen to overcome the problem:

  1. First, financial education is needed to inform poor people of their options and to build trust in banks and credit unions.
  2. Second, because low-income people need short-term financial services, the options banks offer may have to change.

Banks and credit unions “might not offer products and services that make sense,” Fellowes said.

In El Paso, the West Tex as Credit Union offers a low-fee quick cash advance loan. Charging only $10 for a $500, two-week loan, the credit union is doing what other bankers in town have said would be economically unfeasible.

The credit union’s CEO, Rufino Carbajal, acknowledged that the practice is not a big moneymaker. On 201 loans totalling $77,515 made during the first quarter, the credit union barely broke even after losses and transaction costs were figured in.

But, Carbajal said, direct profit is not why the credit union offers the service.

“There’s quite a bit of losses in that program,” he said. “But the key was to be able to get some people into the main credit and savings accounts.”

Basing his opinion on work he’s done with poor El Pasoans, Olague said programs like West Texas Credit Union’s are exactly what the county needs instead of fast cash loan providers.

“It’s useless to go out to these families and say this (high-interest payday loan) is a bad thing, but not to offer alternatives,” he said. “We need to make these banks and these credit unions accountable.”

SOURCE: The El Paso Times

Texas Bill Tackles Predatory Payday Cash Advance Lenders

Filed under: Texas — Paul Rizzo at 2:05 pm on Wednesday, April 18, 2007

After being scammed by a remodeling contractor several months ago, Yolie Garcia, 30, needed money to help care for her three children and make mortgage payments. Because of her bad credit, she took out a $500 payday loan, expecting to repay $640 dollars in two weeks.

“It’s a convenient easy way for someone like me that doesn’t have good credit to get money,” Garcia said. “You’re in and out within half an hour.”

Payday Loan Shark When she couldn’t afford repayment, she paid $140 every two weeks to renew the loan several times. She eventually took out a second cash advance payday loan just to help pay interest on the first one.

“I cry about it every 14 days when I have to go pay interest,” Garcia said.

Garcia’s situation is not unusual for people who obtain no faxing payday loans. A recent report by the Center For Responsible Lending found that 90 percent of payday lending revenues are based on borrowers who cannot repay their original loan when it’s due, rather than on people using the loans for one-time emergencies.

State Sen. Eliot Shapleigh has proposed a number of bills to deal with the problem.

The state Senate Business and Commerce Committee on Tuesday heard proposals that would close lending loopholes, set up a state database to monitor and analyze payday lending, and limit the maximum rate for interest and fees on payday loans to 36 percent.

“In Texas, predatory lending is a plague. Seven of the 10 highest subprime lending cities are in Texas,” Shapleigh said. “Some of these payday loans have a 1,153 percent interest rate after all the fees are added in.”

Lawyer Scott Sheehan testified that online payday advance lenders are a good business model helping the economy of Texas. Several recent court cases have found that assertions that payday lenders are circumventing the law are not true, he said.

“These are successful businesses; they’re paying taxes and employing people,” Sheehan said.

Some committee members questioned whether lowering the rates that personal loan lenders could charge would put lenders making high-risk loans out of business and deny credit to some people who do not have other alternatives. All Shapleigh’s proposals were left pending by the committee.

Garcia said she still hasn’t paid off her loans and her husband is considering a second job to be able to afford repayments.

“I don’t see how I’m going to get out of it,” Garcia said.

SOURCE: The El Paso Times

Texans Pay Price for Predatory Payday Loan Lending

Filed under: Texas — Paul Rizzo at 2:11 pm on Friday, April 13, 2007

The crash of the subprime home mortgage market may have been a surprise to some, but all the warning signs were there. A business model where people are given loans that are likely to go into default, due to teaser rates and increasing payments over time, is bound to fail.

Rising home values in much of the country kept the bad credit home loan industry afloat for awhile, but now the weaknesses of the system are painfully clear. A system where an important part of the profit is based on closing loans — and not on the likelihood of the loans actually being repaid — is bound to crumble under the weight of the many brokers and lenders trying, in the short-term, to maximize the cash in their pockets.
Texas Payday Loan Texas Payday Loan Changes: There’s not much that can be done to remedy the past poor judgments and predatory lending practices in the subprime home mortgage market. However, Texas has a chance to stop the proliferation of payday cash loan lending that targets the same customers — those with weak credit scores and not quite enough money to make ends meet.

Currently payday lenders charge, on average, 400 percent APR for two-week loans, and they are virtually unregulated in Texas. They can charge whatever they want because they are exploiting a loophole in a law designed to protect consumers against fraudulent credit repair businesses. Sadly, they have found a way to turn consumer protections into a means to avoid state interest rate limits and state regulation.

Regular and faxless payday loans are quite different from subprime home mortgage loans, but they share two crucial features: They charge exhorbitant interest rates, and they are loans that are designed to fail.

Payday lenders maximize their profits when borrowers cannot pay back loans and need to roll them over time after time, until they end up with a debt many times the amount borrowed. A recent study showed that payday lenders get 90 percent of their revenue from borrowers who are unable to pay back their loans in time.

The industry recently launched an ad campaign, pledging high market standards and warning that consumers should take out cash advance loans only in the event of an emergency. That may sound convincing at first blush, but it hides an agenda to legitimize a kind of lending that lures people into easy credit and ends up costing them many times the amount of the initial loan — creating what is often termed a “debt trap.”

The federal government decided last fall that payday loans are so dangerous to military families that they should be limited in their interest rate charges to 36 percent. However, payday lenders want new laws in Texas that make charging an effective annual interest rate of 400 percent on a two-week payday advance a state-sanctioned practice.

And, they don’t want to stop there.

They want an “out” built into their own legislation in case they decide to charge more. The proposed legislation maintains the loophole in Texas law that payday lenders have used to avoid all state interest rate limits and to side step federal banking guidelines related to payday lending.

We have a chance now to save Texas from falling into the same trap with faxless cash advance loans as the country encountered with subprime mortgages.

First, Texas must close the loophole that payday lenders are using to make loans at exhorbitant interest rates.

Second, no credit check payday loan lenders must be required to submit information about the loans they make in Texas to state regulators. This way, the state will have concrete information that can be used for clear policy making based on fact and not industry assertions of acceptable profitability.

Let’s take this opportunity and make good policy.

Author Jim George, an Austin attorney, is the chairman of Texas Appleseed, a nonprofit public interest law center.

Texas Attorney General Discusses Payday Loans

Filed under: Texas — Paul Rizzo at 6:01 pm on Saturday, April 7, 2007

Subprime mortgage loans are hogging the headlines, but there’s another kind of loan that’s also getting state lawmakers’ attention: Texas payday loans.

They are short-term loans given without a credit check.

Lawmakers have issued a handful of bills that could help regulate the state’s payday advance lending industry. In recent years, some payday companies have been able to avoid most regulation by operating as credit services organizations, or CSOs, the companies that offer to help repair your credit.

Online Loan The practice gained support from a U.S. 5th Circuit Court of Appeals opinion in Lovick vs. Ritemoney, which held that payments to a registered CSO loan broker could not be treated as interest and therefore were not subject to banking regulations.

Houston attorney Richard Tomlinson, who talked to reporter Purva Patel about the proposed state laws, had a hand in that case.

Q: What would happen if state lawmakers passed legislation that would effectively overturn Lovick vs. Ritemoney?
A: That would be great. I would be in nirvana. It would reinstate current Texas usury law. There’s actually a regulation that addresses specifically payday loans.

And if you look at it, it tells you how much they can charge depending on how much is loaned and what the term of the loan is. And it varies. The annual percentage rate varies quite a bit. … It would mean the current Office of Consumer Credit Commissioner would be able to bring action against a lender operating inconsistently with the Texas law. It also will allow private actions.

Q: What are the chances such legislation will pass?
A: See, I think that’s the least likely bill to pass. And that’s because the [quick cash loan] industry will spend a ton of money. I mean, the big boys in this industry who are all using this business model in Texas are publicly held. They’ll spend a lot of money.

Q: Do you think the proposed bills go far enough?
A: If we could get legislative repeal of Lovick vs. Ritemoney, we already have a lot of good regulations on the books.

Just let the Consumer Credit Commission, the AG and private attorneys enforce the law. I think it would really bring about a great improvement for [cash advance payday loan] borrowers.

Q: Do you think federal regulation would be a good idea?
A: I don’t think there’s anything wrong with federal regulation. As much as I’m happy about the Democrats in the U.S. House and Senate being in power, my sense is the president is so pro-business that anything that might pass that would have any significant effect on the marketplace would probably get vetoed.

Q: What do you think about the industry’s current campaign to promote the idea that it’s weeding out bad players?
A: I have a problem with the fact that these are term loans that people have difficulty paying off.

They’re not installment loans where you’re lowering the payments every time you pay them off. The only way you can pay them off is if you pay back the whole thing in two weeks. … But the most nefarious thing … is … the reason people pay is they figure that if they miss a payment and their check or debit bounces, they think they’re going to be criminally prosecuted. They think they’ve committed a crime.

They’re not going to get prosecuted, they won’t go to jail, and they’ve not committed a crime, but they all think this. It’s like an urban legend out there.

If people knew failing to pay your [instant payday loan], though it may be sinful not to repay your debt, is not a crime, I think they’d find it a lot more difficult to collect. That’s why they have such a high rate of payment.

SOURCE: The Houston Chronicle

Texas Payday Loan Store Robbed

Filed under: Police blotter, Texas — Paul Rizzo at 5:59 am on Wednesday, April 4, 2007

A man in his late 20s robbed a payday loan store in the 5400 block of South Padre Island Drive on Monday night, tying up a female clerk before fleeing with cash, police said.

Police still were looking for the man late Monday. He was described as thin, about five feet, nine inches tall, said police Capt. Tim Wilson. The man walked into the EZ Money Payday Loans store at about 7 p.m., showed a woman behind the counter a black handgun and asked her to open a safe, Wilson said.

She gave him cash and he tied her up in a back room, Wilson said. He then ran out the front door. A customer entering the instant cash loan establishments about 10 minutes later heard the woman’s cries for help and called police, Wilson said.

Police would not say how much money was taken, citing an ongoing investigation.

Texas Payday Loan Report: Loopholes Could Be Tighter

Filed under: Texas — Paul Rizzo at 6:59 am on Tuesday, March 6, 2007

Texas has laws prohibiting payday advance loan lenders from charging high interest rates. It just doesn’t look that way.

Companies that provide short-term loans at high interest rates use out-of-state lending partners to get around Texas’ usury laws.

Now, some state legislators are gearing up to close those loopholes and strengthen regulation of the Texas payday loan industry, even as the industry launches a major public relations campaign aimed at polishing its image.

Cash Advance Lending The payday lending industry says it provides an important service to consumers who need occasional help paying their bills – potentially avoiding more costly late fees or reconnection charges on their utilities.

Critics say the practice amounts to predatory lending, with service fees and shockingly high annual percentage rates that keep the working poor trapped in debt.

“Predatory lending is a plague,” says Sen. Eliot Shapleigh, D-El Paso, who’s written bills for the current legislative session that would put bad credit cash loan lenders under tighter oversight. “In America today, in the top 10 cities where predatory lending is worst, seven of them are Texas cities. All are minority communities, where predators have closed the door to mainstream banking and prey on soldiers, young women and struggling families.”

Third-party lenders
No fax payday loan lenders in Texas used to partner with banks based in states without usury laws, and those banks would actually provide the payday loans. In 2005, federal banking regulators discouraged banks from providing such loans.

“We’re not dealing so much with banks anymore,” says Leslie Pettijohn, Texas consumer credit commissioner. “The federal regulators have changed their criteria and have instituted guidelines.”

Instead, payday lenders are using anonymous third-party lenders under state laws regarding credit services organizations, or CSOs, the companies that offer to help repair your credit.

“The CSO model has been their attempt to escape regulation of any kind. It’s really, really unregulated at this point,” says Don Baylor, senior policy analyst at the Center for Public Policy Priorities in Austin. “High-cost payday loans are considered among the most destructive financial products in the marketplace.”

(Read on …)

Texas Payday Loans? Know the Facts Before Applying

Filed under: Texas — Paul Rizzo at 2:08 pm on Tuesday, February 6, 2007

Coming soon to a strip mall near you: A neon sign of the times, promising a quick and easy fix to the financial problems that ail you.

“There are more [fast payday advance] lenders and check cashers than there are McDonalds, Burger Kings, Targets, Wal-Marts, J.C. Penneys combined,” sociologist Howard Karger said.

It is a $40 billion industry.

No cash, no credit — big problem, according to some.

“You can have interest of up to $1,000 just on a $200 payday loan,” Karger said.

It’s estimated that faxless payday loans drain nearly $300 million in earnings from Texas workers each year, $4.2 billion nationwide. It’s collected from those who can least afford it - for the most part low-income, working class people who are financially strapped but don’t qualify for traditional loans.“They’re robbing you,” Bernice Labrie said.

Texas Payday Loans People like Labrie.

Although she works 40 hours plus a week as a janitor, she was still having trouble making ends meet. Then she ran across an ad in the Greenpages and decided to take out a $200 instant payday loan.

“I needed some extra cash and I said, hey, I can go do this,” she said.

“Let’s say you want to borrow $200,” Karger said. “You give them a check for $200, and they’ll give you $160 back. It’s usually a two week loan.”

Few actually manage to pay it back in that time.

The industry will tell you it provides crisis cash, a one shot deal to make it through to the next payday. But statistics show that payday lenders collect 90 percent of their revenue from borrowers who can’t pay off their cash advances when due, borrowers who continue to roll their loans over and over and over.

“Most people have to renew these loans eight, nine, 10, 12 times before they’re able to pay it off,” Tomlinson said.

All the while, interest is building.

“Interest rates that run into the hundreds of percent, and in some cases to the thousands of percent,” Karger said.

(Read on …)

Texas Editorial Backs Universal Payday Advance Limit

Filed under: Texas — Paul Rizzo at 8:39 am on Friday, December 29, 2006

Last September, Congress passed a law that limits the rate of interest that can be charged on a quick payday loan to members of the U.S. military and their families to 36 percent.

That bill, signed by President Bush and effective in October 2007, is designed to protect military personnel from predatory lenders who loan money at ridiculously high interest rates.

Texas Payday Loan

Those rates, states an opinion piece in The Austin American-Statesman, which can soar past 300 percent on an annual basis, can mire borrowers in rolling short-term debt and wreck their credit.

But if a 36 percent interest ceiling is good enough for the military, why not for all the regular Joes and Janes who find themselves in need of a quick loan?

So-called faxless online payday loans have grown into a $28 billion business in the United States - and Texas is a major player. Anyone with a regular job and a pay stub to prove it can borrow several hundred dollars for two weeks or until the next pay period. They must leave a signed check for interest and fees that can be cashed on the next payday.

The problem is that many of those borrowers cannot pay off the full loan by the next pay period and end up borrowing again just to pay the interest, which is about 400 percent on an annual basis.

Therefore, quick cash loans can sink a family into almost endless debt as the interest continues to roll over and grow, which is why Congress limited the interest rate for uniformed personnel.

Eleven states have effectively outlawed payday loans and several others, including Texas, have attempted to curb the predatory aspects of the practice.

Texas limits interest payments to 10 percent on most consumer loans, but cash advance loan lenders have found escape clauses that allow them to charge high fees and higher interest rates.

(Read on …)

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