Consumers seeking online payday loans will have an unprecedented level of protection from companies belonging to the Community Financial Services Association of America (CFSA), the national trade association representing responsible payday lenders.

A new Internet Lending Best Practice requires CFSA members to follow state laws governing cash loans and to be licensed in each state they do business.

As part of the strengthening of CFSA’s mandatory membership requirements, all members must adhere to the new Internet Lending Best Practice:

Internet Lending. A member that offers payday advances through the
Internet shall be licensed in each state where its [payday advance loans]
customers reside and shall comply with the disclosure, rollover, rate, and
other requirements imposed by each such state, unless such state does not
require the lender to be licensed or to comply with such provisions, or
the state licensing requirements and other applicable laws are preempted
by federal law.

“Appropriate state regulations provide strong protections for consumers, while ensuring continued access to choices for short-term credit needs,” said Darrin Andersen, CFSA president. “That same principle should apply in cyberspace. Customers who choose to get a payday advance online should not forfeit any of the protections they would have at a store-front lender.

By requiring CFSA members to provide Internet loans in accordance with the laws of the state in which the customer resides, we are taking an important step toward ensuring that this service is both convenient and safe for consumers.”

The introduction of this new Internet Best Practice is yet another step in CFSA’s continuing effort to strengthen consumer protections against no fax cash advance loans. Earlier this year, CFSA announced significant changes to their Best Practices, including:

• Offering bad credit payday loan customers the option of an Extended Payment Plan if they cannot repay their loan when due
• Placing a “Customer Notice” on all CFSA member-company advertising and marketing materials
• Banning advertising that promotes the payday advance service for frivolous purposes
• Requiring CFSA members to prominently display the CFSA seal to help customers identify responsible providers that adhere to these and other CFSA Best Practices

Here is a recent editorial from a Canadian newspaper:

Payday loans will soon be seen for what they are - a pitfall for vulnerable users -thanks to the Ontario government.

The Dalton McGuinty Liberals, empowered by recent federal legislation allowing the provinces to put some restraints on the payday loan industry, introduced measures last week to force lenders to disclose all fees and interest rates charged.

Payday advance lenders are now required to post a 61-by-76-centimetre sign inside their shops which clearly explains the interest rates, brokerage fees, check-cashing fees and additional costs incurred when a customer borrows $100.

Payday lenders, which first came on the scene in the early 1990s, have run with little governance up to now.

Under the Criminal Code, it is illegal to charge annual interest rates of more than 60 per cent, but the law is not often enforced. And, according to news reports, some supposedly cheap payday loan lenders hide the high interest rates by saying fees above the legal maximum are “service charges.”

And, while Ontario is off to a good start, the province could take further steps to rein in such businesses by following the examples set by other provinces.

Manitoba and Nova Scotia have passed laws capping the interest rates and fees bad credit cash loan lenders can charge. New Brunswick, Saskatchewan, Alberta and British Columbia are in the process of enacting similar legislation.

In British Columbia, for instance, the province is conferring with consumer and industry organizations to establish reasonable fees for consumers, “but sufficient to cover the industry’s administration costs.” Fees will then be set by regulation.

The legislation will also prohibit lenders from requesting an assignment of wages, lending more than a regulated percentage of a borrower’s take-home pay, or requiring borrowers to sign documents transferring ownership of property, such as a vehicle.

These are all steps Ontario could and should implement to better protect the consumers who are at risk from no faxing payday loans - in most cases young, low-income families.

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The ads are on the radio, television, the Internet, even in the mail. They refer to instant payday loans and tell people how easy it is to turn a “check into cash.”

Until last year, Wood River remained free of these type of lenders, but since then, two have opened and two more are expected to open.

“It’s too many for a city this size,” Wood River Mayor Fred Ufert said. Ufert wants to “stop payment” on the number of businesses that would be able to open in city —population 11,300.

“(The city) wants to do something to regulate them before it gets out of control,” he added.

He said the short-term payday advance loan lenders prey on financially vulnerable residents with exorbitant fees and cast an image of a community in decline. He said that during the past several years, the city has worked hard at bringing development to town, and these businesses are detrimental to the process.

“I don’t want to see them pop up all over town, either,” he said. “It just doesn’t look good.”

The companies tend to cluster in low-income neighborhoods. The businesses make small, short-term, high-rate payday cash advances that go by a variety of names: payday loans, cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans.

Whatever the company calls the loan, it basically allows a borrower to write a personal check payable to the lender for a set amount, plus a fee. The company then lends the amount, minus the fee, for a two-week period.

When the loan falls due, the borrower either can renew the loan for an additional fee or repay the loan. If the borrower fails to appear in person or renew the personal loan, the lender can process the borrower’s check to recover the funds.

If the account is short, the borrower could face additional penalties from their bank, as well as the costs of the loan. The loan may incur additional fees or an increased interest rate as a result of the failure to pay.

In December 2005, Illinois enacted the Payday Reform Loan Act. It prevents easy payday loan lenders from preying on unsuspecting borrowers. The law limits what lenders can charge, restricts customers to no more than two loans at a time and establishes a state database to ensure the law is followed.

According to the Illinois Department of Financial and Professional Regulation, between 45,000 and 60,000 payday loans are issued in Illinois every month. Since the act went into effect, the state has fined lenders more than $500,000.

In October 2006, Congress passed a law that capped lending to military personnel at 36 percent annual percentage rate. The U.S. Department of Defense called the lending “predatory,” and military officers cited concerns that payday lending exacerbated a soldier’s financial challenges, jeopardized security clearances and even interfered with deployment schedules to Iraq.

Some federal banking regulators and legislators seek to restrict or prohibit the fast cash advance loans not just for military personnel but for all borrowers because the high costs are viewed as an unnecessary financial drain on the lower and lower-middle class populations who are the primary borrowers.

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Canadian Bill C-26, a law allowing individual provinces to cap interest rates on faxless payday loans, received “Royal Ascent” on May 4.

When the Senate and the House of Commons have both passed a bill in the same form, the Governor General gives the bill Royal Assent on behalf of the Crown and it becomes an Act of Parliament and a Statute of Canada.

Bill C-26 is designed to exempt payday cash loans from criminal sanctions in order to facilitate provincial regulation of the industry. The exemption applies to payday loan companies licensed by any province that has legislative measures in place designed to protect consumers and limit the overall cost of the loans.

Stan Keyes, President of the Canadian Payday Loan Association (CPLA) said his group has been working with governments for three years to secure regulation that balances consumer protection with a viable, competitive quick payday advance industry.

“We will now work closely with all provinces to secure good regulation for the industry that allows responsible and serious lenders to continue to provide this important service in a competitive environment while also shutting down the worst business practices and highest fees that hurt consumers,” Keyes said.

The CPLA saw its membership decline rapidly after a number of members came to suspect the group was supporting regulations that would secure the future of large companies at the expense of independent operators.

Canadian payday loan operator Rentcash supports the new law but urged provincial regulators against creating monopolies through rate caps that will distort the market.

“Rate-setting measures must not give competitive advantage to one company over another,” said Gordon J. Reykdal, Chairman, President and CEO of RentCash. “Rate-setting for financial services is highly unusual in the Canadian market place and payday lending is a new and growing industry. If regulators get it wrong, they will limit competition and restrict options for consumers.”

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The Oregon Legislature is likely to impose a cap on interest rates for small consumer payday advances, a step Catholic leaders have long urged as a way to relieve financial pressure on low-income households.

House Bill 2871 would outlaw interest rates higher than 36 percent for consumer loans of less than $50,000. The legislation would also limit fees and block lenders from giving quick and repeated loan renewals.

The bill is up for debate in the House this week and is expected to pass before moving to the Senate. Gov. Ted Kulongoski has said he will sign the bad credit payday loan legislation.

The St. Vincent de Paul Society, which serves many low-income Oregonians, has taken a lead in calling for regulation of lenders.

“These people are taking advantage of families in crisis by offering them loans at exorbitant interest rates or exorbitant fees and then making it difficult for them to pay back,” says Maureen Sloan, who chairs a St. Vincent de Paul’s advocacy committee. “Unless people have the wherewithal to pay the loan back they get into deep trouble that none of us can get them out of.”

Backers of quick cash loan regulation hit the phones this spring to build citizen support and encourage contacts to legislators.

The Economic Fairness Coalition even has a faith outreach coordinator to work with churches.

“It protects Oregon families from loan sharking,” says coalition director Patty Wentz. “Usury is immoral and this will make it illegal.”

David Carrier, director of the Archdiocese of Portland Office of Justice and Peace, says that predatory lending “has disastrous consequences for the poor.”

Providers of payday advance loans have fought against the bills. In hearings, they have put forward happy customers who say the quick loans were helpful.

Also pending in the Legislature are a package of proposals that would regulate lenders further, from stiffening license requirements to limiting interest rates. They would also close loopholes on giving Internet loans from out of state.

The House overwhelmingly passed that collection of bills in February. They are now waiting in a Senate committee.

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Proposed limits on payday loans have been eased by a Senate panel. The amended bill was advanced to the Senate Banking and Insurance Committee.

This is the bill’s second time through the committee process. As initially introduced in February, the bill would have made fast payday advance lending illegal.

Compared with the initial compromise, the approved changes upped the limit of each loan to $500 from $400, or up to 20 percent of a customers’ gross income, and shrunk the waiting period between loans to two days from seven.

The insurance subcommittee also removed the five-per-year limit on cash loans but did keep in the creation of a database to track payday loans in South Carolina.

The bill is unlikely to pass this year. Bills not approved by either the full House or Senate by May 1 must get a two-thirds vote to be considered by the other chamber.

The Salmon Arm Observer in Canada wrote the following response to recent payday cash advance regulations in the country …

Recent legislation from the federal government that allows provinces to further regulate no fax cash loan companies is welcome news, as is B.C.’s new legislation that will regulate payday lenders and limit the cost of borrowing.

A study from Statistics Canada shows that families who have little savings, no credit cards and are struggling to pay their bills are more than four times as likely to use the loans than those who can keep up with their bills.

Online payday loans are generally short-term loans that require no credit check; borrowers leave a cheque dated for their next payday which will cover the loan plus fees.

Stats Canada said concerns have been raised about questionable practices within the payday loan industry such as high borrowing costs, insufficient disclosure of contract terms, unfair collection practices and spiralling debt loads resulting from loans being rolled over.

Under B.C.’s new legislation, borrowers will have the right to cancel a fast cash advance within a certain time by returning the money.

We applaud the move to remove some of the desperation from those B.C. families who are already facing desperate times

Felix Salcedo, a retired Reno justice of the peace who’s now a senior judge, added in comments to the Commerce and Labor Committee that he has seen cases of interest rates as high as 7,300 percent on no fax payday loans.

Salcedo said forms provided by the payday loan companies disclose the consequences of late or no payments by borrowers, “but when you’re desperate and need a couple of dollars it makes no difference what’s on that form.” In pressing for approval of AB478, Salcedo said cases involving quick payday advance lenders have clogged courts.

He said in most cases borrowers don’t show up to tell their side of the story, and lenders can get default judgments unless a judge spots an egregious case and tosses it.

Assembly Speaker Barbara Buckley, D-Las Vegas, said her AB478 would stop the abuses by closing a loophole in a 2005 instant cash loan law. Buckley describes the effect of the practices as creating “an endless cycle of debt” for borrowers.

Buckley also says almost 40 percent of civil cases in Reno’s justice courts and 34 percent of such cases in Las Vegas’ justice courts are brought by payday lenders.

Also urging approval of the bill was Capt. Scott Ryder, commanding officer of the Fallon Naval Air Station. Ryder said that a dozen payday loan store branches are clustered within a short drive of his base, and that unfair lending can ruin the lives of sailors and soldiers and hurt the country’s military readiness.

Representatives of payday loan companies identified as making use of the 2005 loophole have denied they’re evading the law. They’re expected to testify before Senate Commerce and Labor at a follow-up hearing next week.

Other companies have endorsed the bill. Buckley said that while some guaranteed payday loan locations are evading the law, about 500 are obeying it.

A 2005 law change banned abusive collection practices and limited the interest rates and fees charged by payday loans companies. Lenders can charge any rate for an initial period, but if a customer can’t pay it back, the rate must drop.

That law only applied to lenders that issue short-term personal loans, defined as one year or less. But some companies simply stretched out the terms of their loans to last more than a year, Buckley said, adding that her bill would limit fees and terms on any loan that charges more than 40 percent interest.

Despite the state General Assembly’s failure to criminalize high-interest consumer savings account payday loans during the 2007 session, just completed, there is progress on several fronts, according to Hank Klein, founder of Arkansans Against Abusive Payday Lending (AAAPL.)

In the Arkansas House, lawmakers voted overwhelmingly to take not only the interest but also the principal out of cash advance loans. But members of the Arkansas Financial Services Association sandbagged the bill in the Senate Commerce and Banking Subcommittee with a few well-placed $500 campaign contributions.

Payday loans are small loans, usually $100 to $500, made for an average of 14 days, Klein said. According to the Center for Responsible Lending, the average payday borrower pays $800 to borrow $325. A 14-day payday loan typically costs Arkansas borrowers 372 percent to 869 percent annually in interest.

Amendment 60 to the Arkansas Constitution, adopted by voters in 1982, governs usury and limits interest on consumer personal loans to a maximum of 17 percent per year.

Klein said the good news includes a Defense Department initiative, passed by Congress, to make it illegal to make loans to members of the active duty military and their families at interest rates higher than 36 percent annually. Also, the payday lenders failed to push through a bill Klein said was virtually meaningless - “We call it window dressing” - that would have allowed its supporters to pose as doing something to curb abusive loans.

The fast payday loan industry’s bill passed the Senate 30-3, but “we stopped it in the House 57-27,” said Klein. Also, after a slow start, Peggy Matson, director of the Arkansas Board of Collection Agencies, has begun making payday lenders accountable to state law.

Klein said that in the last two weeks, Matson took Dennis Bailey to court and won a $1.3 million judgment against him for an illegal affiliation with a Missouri Bank. One of his “Fast Cash” stores had been operating in Cabot, he said.

Matson will hold a hearing May 21 on a payday advance loan lender operating in Jacksonville, American Cash Advance, located in the old Wal-Mart Center, Klein said. The company allegedly made loans as high as $900 in violation of the $300 loan cap in Arkansas, and the loans are made as a money order, which the company then charges 10 percent to cash.

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Ontario is determined to enact a law to protect users of the instant payday loan industry, according to the minister of government services.

The challenge, says Gerry Phillips, is to do so without increasing the cost for those vulnerable consumers who have no other ready source of cash for an emergency.

“We have to do what we think is right for the consumer,” he said yesterday in a telephone interview, dismissing criticism that Ontario has dragged its feet.

Other provinces had legislation on the books, or ready to introduce, once Ottawa has cleared the way by offering an exemption from criminal-interest-rate laws. None has yet to set maximum charges for the short-term loans, estimated at $2 billion a year across Canada.

Phillips said Ontario deliberately held off because, like some consumer groups, the government was until last week pushing for a harmonized national approach to regulation. Instead, the federal government passed and is about to receive royal assent – as soon as today – for legislation that would hand the duty for regulation to willing provinces.

Bill C-26 would waive the 60 percent annual rate of interest limit set out in the Criminal Code in those provinces that ask for a designation, enact legislation to protect users of supposedly cheap payday loans and set limits on the cost of those loans.

As a first step, Ontario will use its existing authority to require by August that payday lenders display prominently and simply in their offices and contracts the total cost of a $300 loan over 14 days, expressed as a cost per $100 borrowed.

Surveys suggest that 37 percent of users of the bad credit payday loans are under the mistaken impression that the costs are equal to or less than credit-card interest. Some lenders charge the annual equivalent of up to 1,200 per cent, arguing that calculation is not relevant to short-term loans.

Phillips said his ministry will undertake a public consultation process over the next few weeks, and legislation could be introduced by the end of the year, after a provincial election.

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