The following are excerpts from some of the complaints to the New Hampshire Banking Department from short-term borrowers.

Most of the complaints were not from online payday loan borrowers – which encompass the bulk of the short-term loan industry – but from title loan borrowers. While payday borrowers write a check as collateral, title loan borrowers sign over the title to their car.

Sarah Mattson, an attorney with New Hampshire Legal Assistance, and a critic of the payday advance and title loan industry, said she too gets a much more disproportionate number of complaints from title lenders.

“That doesn’t surprise me,” she said. “In a payday loan they stand to lose money, but under a title loan, they could lose their most important asset. In New Hampshire, you need a car to work or find work. That might motivate them to seek legal help or complain to the Banking Department.”

Among the complaints:

• “I was heavily medicated awaiting surgery … I have already made two payments of $750, which has only covered interest.”

• “(The no fax cash loan lender) contacted my girlfriend and told her she should make payments for me, a single mom with two children on a very small income, pressuring her to pay my loan payments very stressful for her … began contacting friends … also informed them … that they would repossess my car and possible have charges brought against me. I did not give permission at any time to call my friends.”

• “When I contacted the agent the next day after repossession was told car already went to auction and I did not have access to it. They placed my personal items in a trash bag, delivered it and charged a $25 “key” fee before I could get my items.”

• “My 22-year-old son was drawn into their trap. The interest rate is 30.58 percent, which is annual rate of 372 percent. I think this representative is loan sharking … and will look to get some my son’s blood money back.”

• “We went in for a [cash advance payday loan] of $2000 on my truck…. We were screwed and didn’t know what to do. …. Here we are four payments [of $678] later and we still owe $2113.”

• “I was led to believe that the interest on the loan was 31 percent and it was per month, but that’s 372 percent per year …. I wasn’t explained this clearly enough … this is unfair, hook line and sinker tactics or should I say worse than LOAN SHARKING. In three months I paid over $1600 in interest on $1500.”

• “I went to the office and paid off the loan in cash … they told me they did not know where my title was.”

• “No one returns my calls. Vehicle is to be auctioned off. I’m disabled living out of said vehicle, homeless, vehicle worth more than loan.”

The Daily-Press June 9 letter “Cap ‘misery’,” which argued for a 36 percent APR cap on payday loans, was not based on important facts. Payday loans are short-term, usually taken for only two weeks, not annual loans.

A 390 percent APR on a quick payday advance is a nonsensical, disingenuous metric used by extremists to cloud the debate. To reach this number, a two-week loan would have to be “rolled over” 26 times.

Extremists may hurt the very people they claim they’re trying to help by advocating to eliminate an available credit option for the consumers they purport to represent. Nearly all banks and credit unions do not provide temporary credit through small-dollar, short-term loans.

Bad credit payday loan stores provide reasonable Virginians with a well-regulated option, responsibly delivered for meeting unexpected expenses. Legislators should not take that option away from Virginians.

Martin Ray
District Director of Operations, Check ‘n Go,
Newport News

No longer will Southwest Gas Corp. steer customers to Arizona payday loan lenders to pay their gas bills in cash - effective immediately.

The company is terminating the lenders’ role as payment stations for its 1.8 million customers in the state, California and Nevada.

The stunning move to protect consumers comes after a June 12 Tucson Citizen column criticizing Southwest and Tucson Electric Power Co. for their relationships with payday loans lenders. Tucson Electric is “committed to find another option” so it, too, can end its association with payday advance loan lenders, spokesman Joe Salkowski said.

Payday lenders, unfortunately legal in 38 states, charge extremely high fees on small loans, generating the equivalent of 360 percent interest or more.

The no faxing payday loan lenders are ubiquitous in poor neighborhoods, so they’re easily accessible to folks needing to make quick cash utility payments before their power is shut down.

That’s one reason 650 payday lenders are used to take cash payments for 21 large utility chains across the U.S., the National Consumer Law Center found in a June report “Utilities and Payday Lenders: Convenient Payments, Killer Loans.”

Why the sudden policy change at Southwest Gas? “It’s the right thing to do,” spokeswoman Libby Howell said.

“This is incredible and a great example of corporate leadership and responsibility,” said Kelly Griffith, deputy director of the Southwest Center for Economic Integrity. Sending a financially vulnerable consumer into a [fast cash loan] store to pay their utility bill is a recipe for financial disaster.”

Studies have shown that most faxless payday loans are obtained not for emergencies but to pay bills, Griffith said.

“I hope the leadership demonstrated by Southwest Gas will be indicative of a changing social, moral and economic understanding about predatory payday lenders,” she said.

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?

Vincent Fulginiti found himself mired in debt earlier this year from a payday cash advance that he couldn’t pay off. But he credits a credit union with helping him out of a bad fix.

With bill collectors on his heels, the Brevard County father of four told his credit union about his predicament. The financial co-op gave him a personal loan at 15 percent to cover the triple-digit-rate payday loan.

Four months later, Fulginiti has paid off the personal loan, boosted his credit score by more than 100 points and secured a small-business loan from Kennedy Space Center Federal Credit Union for a fencing business.

“My credit score wasn’t the best, but they gave me a shot. They gave me a chance,” said the 45-year-old maintenance technician, who worked for a private company. “And boy, it was like what a load was off my back. I don’t know what I would have done without it.”

Fulginiti was fortunate to find a way out of the debt trap he had fallen into, consumer advocates say. It is not widely known that credit unions have long offered small-dollar loans to members in a cash crunch.

But in recent years, with large quick payday loan lenders wielding big advertising campaigns and reeling in flocks of customers, credit unions are trying to better promote the alternatives, industry officials said.

“We’ve always provided a better option, but now we’re just trying to raise the visibility of what we’re doing,” said Fred R. Becker Jr., president of the National Association of Federal Credit Unions, a trade group in Arlington, Va. “Obviously, however, we have less marketing money than a multimillion-dollar, publicly traded payday-lending company.”

Many credit unions are gradually reaching out to people who might be “in the market” for a cash loan, he said. A few credit unions have even used the term “payday loan” in their promotions, although it is still set up like a conventional installment loan with, at most, an 18 percent rate, instead of triple-digit rates associated with payday advances.

Payday lenders dispute any suggestion that their loan costs are out of line or that they are taking advantage of people. They say they are meeting a demand, offering a service and extending credit to people, often with credit problems, who otherwise would not be able to obtain a loan from mainstream financial institutions, including credit unions.

Neither credit unions nor banks are prepared to take the riskier customers that faxless cash advance lenders serve, said Ian MacKechnie, CEO of Tampa-based Amscot Financial Corp., one of the state’s fastest-growing payday lenders.

“We welcome the competition of credit unions getting into the business of small loans,” he said. “But I tell you, some of them are charging roughly the same rate we charge, and yet they’re saying they’re trying to help people.”

A customer must first be a member of the credit union by opening a savings account with a minimal balance. Repayment terms and conditions are set up over a period of months. And, in some cases, the credit union can set up a direct deduction from a paycheck to repay the loan.

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If you work everyday but have bad credit, where do you go for an emergency loan? The only option might be a payday loan store.

Some DC Councilmembers say these businesses are located exclusively in poor communities and prey on people who they know are not likely to pay the money back in the two week loan period. After that, higher fees and interest rates kick in.

For instance, Stephanie Jones needed $200 for a cable bill. She got a payday advance loan from the “Payday Now” store on Georgia Avenue. Her fee was $30, which she called “a great deal.” She paid the loan off on time, then she went to work for the establishment.

Others have had different experiences after taking out bad credit payday loans.

Demetrius Jones, who was standing outside the “Payday Now” store, said: “They are robbing you without the gun; charging outrageous interest rates and they are only located in our communities.”

DC Councilmembers Mary Cheh and Marion Barry will hold hearings this week on a bill they have introduced to bring fast cash loan businesses under the same interest rate caps that other financial institutions face. It’s a 24% cap on loans over a year’s time.

A spokesperson for the industry says the bill would put payday loan lenders out of business because in effect it would mean roughly 90 cents on a $100 loan. Councilmember Cheh says payday loans to DC residents average 340%, while they paid $3.3 million in the year 2005 in payday fees.

A new report from the Department of Defense praises North Carolina as one of the strongest states in the country in protecting military members from predatory payday advance lending.

But it also says Congress and individual states could do more to prevent the practice of targeting troops.

The report, released this month, was requested last year by U.S. Sen. Elizabeth Dole, a Salisbury Republican and member of the Senate Armed Services Committee.

Predatory lending includes practices such as no faxing payday loans, car loans, rent-to-own programs and other temporary loans that can charge service members triple-digit annual percentage rates.

In 2001, North Carolina became one of a few states to prohibit payday lending companies, the report said. The report said the armed services should do more to educate service members about predatory cash advance loan lending practices.

But, it added, “education does not trump the marketing of these loans and the easy availability of quick cash with few questions asked.”

The report recommends that Congress and individual states put caps on annual percentage rates, require more disclosure, force easy payday loan lenders to consider borrowers’ ability to pay and allow service members legal recourse in disputed cases.

Dole said she will look closely at the report’s recommendations.

“This report presents a powerful picture of the extensive problems brought about by predatory lenders that target military families,” she said in a release.

Dole said she plans to introduce legislation based on the department’s report. The chairman of the Senate’s banking committee, of which Dole is a member, has pledged to hold a hearing on the issue.

It’s an all too typical scenario.

Consumers find themselves strapped for cash, so they take out a cash advance to cover the bills. Then comes time to pay the loan, and they have to borrow more money to meet their obligation. The problem is, these loans are not being provided by their banks, they’re being provided by predatory payday lenders. And it’s not the money that’s being borrowed that is causing the financial strain, it’s the interest rates, some as high as 400%.

That translates to $2,000 in yearly interest on a $500 faxless payday loan, amounting to over $150 in interest each month.

According to the Center for Responsible Lending, there are over 22,000 payday advance loan lenders operating in the U.S; costing American consumers over $4.2 billion each year in fees. Ninety-nine percent of payday loans go to repeat borrowers, proving that this dangerous financial practice quickly becomes a vicious cycle that sets consumers sinking into financial quicksand.

“Consumers who borrow from a payday lender are putting themselves at a huge financial risk,” says Ann Estes, Vice President of Client Education and Counseling Delivery for ClearPoint Credit Counseling Solutions. “It’s a revolving door of high-interest rates and repeated borrowing that leaves many consumers unable to keep up. They are not borrowing from Peter to pay Paul, they’re borrowing from Paul to pay Paul. This practice is an indicator of a larger financial problem that needs to be addressed.”

Consumers often turn to no fax cash loan lenders because there is a shortage of cash flow, and they need help until the next paycheck arrives. But consumers who are struggling to make ends meet have many other options to consider before knocking on a payday lender’s door.

“There are so many other avenues to consider that there is no reason to use a payday lender,” Estes suggests. “Financial counseling is a great place to start, and there are many no-cost tools and strategies available to consumers to help get them back on track.”

ClearPoint Financial suggests the following tips to help consumers get out of this debt trap.

• Objectively assess your current situation. Consumers who are consistently visiting payday lenders for cash advances need to take a look at their current financial situation and determine why they are constantly behind on their bills.

Ask yourself these four questions: What are my financial obligations each month? Where am I falling behind? Are my monthly expenses too high? What costs can I eliminate to help myself out financially? By knowing and understanding your full financial picture, you can determine how you can make changes to positively affect your financial outlook and eliminate the need for relying on payday loans.

• Identify bad habits. It’s not always just plain bad luck that keeps consumers behind financially. Sometimes it’s the bad habits that keep us behind the financial 8-ball. Overspending, compulsive shopping, poor budgeting and even gambling are all triggers to debt accumulation.

• Create a budget. A personal budget is a consumer’s financial air supply. Without it, it’s very difficult to keep track of expenses, monitor spending and determine the best way to allocate monthly income. Living a haphazard financial lifestyle is what gets many consumers into trouble and forces them to apply for fast payday loans. Creating a budget doesn’t have to be difficult - start by documenting regular monthly expenses such as rent/mortgage, utility bills, car payments, etc.

Other items to track include credit card payments, grocery bills, and monthly savings. Once you’ve determined what monthly expenses do not change, you can then figure out how much you can afford for those that do fluctuate, such as groceries, gas and clothing.

• Contact your creditors. If you are behind on credit card payments, or even mortgage, rent or car payments, contact your creditors to inform them of your situation. Many will offer contingencies until you get back on your feet. By alerting them of financial hardship, you can possibly avoid missed or late payments.

• Consider obtaining additional income. For some consumers, identifying debt warning signs and creating a budget will only go so far. They simply need additional income to help make ends meet, even if just temporarily. Consider a second, part-time job for help with credit card bills, monthly expenses, or even to help boost savings. While it may require extra discipline, and maybe a little less sleep, it’s far more beneficial than taking out an expensive bad credit payday loan.

 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 the rest of this entry »

Consumer advocates strongly urged the Department of Defense Monday to make significant changes to proposed federal regulations to ensure that predatory fast payday advance lenders can no longer strip earnings from U.S. soldiers and their families.

As written, the regulations will leave loopholes large enough for payday, auto title and other predatory lenders to glide through, letting them gouge military borrowers without regard for a pending 36 percent interest rate cap, said the groups in a written response to the Pentagon’s request for public comments.

Congress passed the 36 percent cap on personal loans to military borrowers last fall after the Pentagon documented the devastating impact predatory lending is having on troop morale and combat readiness.

The law exempts only residential mortgages and loans to purchase personal property. Congress charged the Department of Defense with writing rules that would implement the cap and other financial protections for military borrowers included in the Military Lending Act, also known as the Talent/Nelson Amendment. But the consumer groups say the proposed rules leave many predatory products untouched.

“The Pentagon has worked hard to get protections in place before the date the law takes effect, and we appreciate their commitment. But these rules end up giving predatory lenders leave to raid the personal funds of the troops,” said Jean Ann Fox, director of consumer protection for the Consumer Federation of America (CFA). “This industry knows how to get around even the tightest of regulations. They will have no problem with the narrow definitions in the Pentagon’s proposed rules.”

In a statement introducing the proposed rules, the Pentagon acknowledged that faxless payday loans and similar products have two problems: exorbitant interest rates of 400 percent and higher, and a built-in structure that compels borrowers to renew an expensive short-term loan many times because they cannot afford to pay it off. The typical payday borrower pays back nearly $800 for a $325 loan.

Banks and other financial institutions argued strongly for an exemption for their products. The Pentagon’s rules limit the law to payday, auto title and refund anticipation loans, and defined those so narrowly that many similarly structured high-cost products already on the market will not be subject to the 36 percent cap. For example, the proposed rules would not stop any predatory car title lending in Virginia, and would not stop payday-like products by banks.

The proposed rules would not apply at all to military installment lenders who refinance loans at high fees with little benefit to the borrower. In the Pentagon’s own predatory instant cash loan lending report to Congress last year, they raised specific concerns about military installment lenders’ high interest rates and unfair terms.

In public comments on the proposed rules, CFA, the Center for Responsible Lending, the National Consumer Law Center, Consumers Union, and the National Association of Consumer Advocates called on the Pentagon to rewrite the rules to make the 36 percent cap meaningful by the October 1 implementation date if possible, and if not by that date, to take advantage of the extension Congress provided for in the Military Lending Act.

Congress gave the Pentagon nine months after the October 1 implementation to refine the rules.
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