Payday Loan Times

Raleigh, NC — North Carolina's 567 consumer finance outlets are currently competing against unregulated payday cash advance firms. However, the industry argues that they can't competete under the state's current lending rules because the interest and fees (max APR of 36%) fail to cover the cost of servicing small loans.

Industry supporters offered a bill that would allow these short term loans to charge up to 150% APR, compared to the unregulated payday loan industry which often charges between 500 - 600% APR. This new class of loan would be up to 18 months in term and $1,200 or less.

Consumer advocates reject this bill on the grounds of the APR and they had their victory Thursday when The House Finance Committee voted 9-17 against recommending the bill.

Supporters argued the proposed rules would have expanded opportunities for people without checking accounts to build up their credit while getting extra cash, unlike payday loans, which do not report to the three major credit bureaus.

Charlie Waters, chairman of South Carolina-based World Acceptance Corp., said after the meeting he doesn't know whether the industry will attempt to retool the bill to attempt to win passage. His firm has said without the changes, it couldn't profitably enter the North Carolina market.

"The vote was more emotional than based on good economic facts," he said.

Atlanta, GA — Lawmakers thought it was the end of payday lending in Georgia when they voted last year to outlaw payday advances. Any companies marketing the short-term, high-interest loans would be hit with hefty fines and up to 20 years in prison. The law was even upheld in the federal appeals court in June.

Since then, however, some wily lenders may have found brash new ways to flout the legislation, said lawyer and former Gov. Roy Barnes. In the latest trend, lenders ask customers to put up a household item - like a microwave, toasters or home electronics - before they can get a cash advance. The item is then leased back to them, but not before a consumer writes a check for the loan amount plus a finance charge, according to the complaint. If the loan isn’t repaid when it is due, the borrower is forced to negotiate another advance, buy an extension or risk bouncing the check.

Barnes filed a lawsuit last week in Clayton County Superior Court challenging the lenders’ new practice. “This is really nothing more than a new name for an old game,” he said.

His client, student Melony Reid, put up her computer and printer for a $500 loan from the defendant, USA Payday, which owns a string of lenders in the state. After extending her payments several weeks, she owed $675 in finance charges plus the principal loan amount.

Reid’s lawsuit is the latest in a flurry of litigation attorneys have filed against lenders since the law was enacted in May 2004. Barnes’ firm filed a rash of lawsuits last August accusing 60 businesses and individuals of violating usury and racketeering laws.

Detroit, MI — “They are killing us,” said a 47-year-old Detroit man, who paid $90 to take out a $500 two-week loan last Friday at the Check ‘n Go store near the Imperial Super Market on East 8 Mile Road in Detroit.

“I know they overcharge because they know we need them,” said a 47-year-old woman who paid $34.35 to take out a $200 payday loan at a lender across the street, Advance America Cash Advance on 8 Mile Road in Warren.

Michigan currently doesn’t regulate payday lenders, but consumers could see protections if the bill passed the state House last month becomes law. House Bill 4834 will now go to the Senate. Gov. Jennifer Granholm, who vetoed a bill on payday lending last year, is expected to approve the current bill.

House Bill 4834 would:

• Put the maximum amount of a payday loan at $600.
• Limit customers to two outstanding payday cash advances. They could take a payday loan for up to $600 from one lender and take a loan for up to $600 from somewhere else, for a maximum of $1,200. Both loans could not be from the same place.
• Prohibit rollovers. Borrowers would not be allowed to pay off the old loan by rolling it over into another loan — and dig themselves deeper in debt by owing even more money in fees.
• Establish an installment plan. A consumer who takes out 8 or more payday loans in any 12-month period could use the option to get out of the loan cycle.
• Give consumers a variety of ways to resolve disputes, including a recission period.

San Diego, CA - Military and state government officials have begun a crackdown on “predatory lending” businesses that target military personnel, who are often young and financially inexperienced. Wayne Strumpfer, acting commissioner of the Department of Corporations, said his agency is particularly interested in payday loan stores, which offer loans to military personnel and other customers between paychecks.

The current California state law limits the amount of a loan from one store to $300 and caps the amount of fees, but many people find they cannot repay the loan immediately and begin taking new loans to pay off their existing faxless payday loan.

Strumpfer said his agency is looking for violations of this state law. “We can shut them down” for violations, he said. The department ordered six payday loan stores closed in June for operating without licenses. One, in Lake Elsinore, had made at least 700 loans in five months.

Why the crackdown?
With fees that end up being several hundred percent APR, the average person borrowing $325 ends up paying $800, according to a report from the nonprofit Center for Responsible Lending.

In the military, these loans are particularly a problem. When 1,500 San Diego sailors were surveyed, it turned out 21% had taken out payday loans.

What is the military doing to stop this?
The Navy has established a hotline where sailors can be assured their commanding officers will not be informed of their money woes. The hotline focuses on increased education for military personnel on how to live within a budget.

Las Vegas, Nevada - North Las Vegas enacted a six-month moratorium (temporary ban) on new payday loan companies Wednesday.

Two weeks ago the City Council imposed a two-week ban on processing of payday permits simply by setting the moratorium for a public hearing and vote on Wednesday. The council adopted the moratorium to give city officials time to develop an ordinance.

Staff will consider a range of ideas from limiting the number of licenses allowed per year, restricting the number of licenses by population, holding a lottery for licenses and even an outright ban on new businesses.

They will also review setting standards from their distance to one another and to subdivisions, establishment size and hours of operation.

Until then the city develops an ordinance, this moratorium on instant payday loans will prevent any new payday loan companies from opening up.

Omaha, Nebraska — Payday lending services are strewn about the city of Omaha. “It’s modern-day loan sharking, but it’s sanctioned by law at this moment,” said Danielle Nantkes, attorney at Nebraska Appleseed, a non-profit consumer-advocacy firm.

Omaha is home to more than 70 shops, but only four lie west of 108th. Most of these businesses nest east of 84th. Ames Avenue has two shops that offer instant payday loans located in a one-mile stretch, and the city of Bellevue has nine.

Nebraska Appleseed and the Center for Responsible Lenders think it’s time for change. Nantkes said her organization wants to tightly regulate payday lenders. She said payday lenders must clearly and honestly disclose interest rates and that a cap on those rates would be beneficial. Nantkes also promotes legislation that would limit the number of times a customer could acquire a payday loan.

Payday loan services aren’t always predatory. Nantkes stressed the need for a “happy medium.” Their services can be useful if utilized with moderation, she said. However, aggregated use is the blood in the water that brings sharks.

According to the Community Financial Services Association of America, more than 15,000 payday advance locations across the country extend about $25 billion in short-term credit annually.

At least one bank in Chicago, Austin Bank, has decided to make an effort to capture a piece of the multi-billion dollar industry. Austin Bank is launching a loan product it bills as an alternative to payday lending that works like a credit line. Would-be customers apply for three-year loans of $1,000 to $10,000. If approved, they get checks for drawing on the loan.

Austin Bank’s $1,000 minimum represents the bare minimum most banks would be willing to offer. Small loans typical of the kind issued at cash advance stores are too expensive to service at traditional banks. The reason? It costs a bank just as much to underwrite a $1,000 cash loan as it does a $30,000 loan. Banks would actually lose money if they lent loans out as small as the payday lenders do.

Dollar Financial Corp, an international check-cashing and payday lending company that operates in the United States under the Money Mart and Loan Mart names, is partnered with Wilmington-based bank called First Bank of Delaware. First Bank is just one of 12 of 5,200 banks supervised by the Federal Deposit Insurance Corp. that funds payday loans.

But new FDIC regulations that limit payday lending by banks are forcing Dollar to also limit its relationship with First Bank, as it moves to fund its own payday loans in states where it is legal.

Consumer advocates have pushed for banks to offer more short-term credit products as alternatives to payday loans, claiming the payday lending business model is designed to keep borrowers in debt, not to provide one-time assistance during a time of financial need.

There are other bank alternatives, such as one program offered by Wells Fargo that allows customers with direct deposit accounts to borrow up to half of the money directly deposited a week in advance. Other banks are considering similar programs.

Meanwhile, some credit unions offer short-term loans as an alternative. Memphis-based FirstSouth Credit Union does not offer “payday loans” specifically but does offer small, unsecured loans for its members that work almost the same way.

At FirstSouth, a member could get a loan for as little as $300-$500 to get them by until their next payday at an APR of 13.2 percent to 17.99 percent, said FirstSouth CEO Craig Esrael.

Payday lending is not really a growing concern in banking because those lenders are serving a different market niche, Rowe said. Federal regulators also have very strict rules about payday lending and banks that associate with them.

“I’ve talked with a number of community banks who’ve said even thinking about doing it is not worth the risk,” Robert Rowe, regulatory counsel with Washington, D.C.-based Independent Community Bankers of America, said. “On the other hand, I’ve heard if community banks had another way to do this without it being so expensive, they would like to do it — they’re just caught between a rock and hard place.

Army Chief Warrant Officer 2 Thomas Burden and an intern dressed in a shark costume for a congressional news conference called to get support for capping the interest rates charged on quick cash loans (also known as payday loans) under bill HR 97.

HR 97 is sponsored by Rep. Sam Graves, R-Mo., and would cap the annual percentage rate that can be charged for loans to military personnel and their spouses at 36 percent.

Graves has 36 cosponsors for the bill and is backed by the Military Coalition, an umbrella group of more than 30 military associations. Grave says the bill “is quickly becoming a very hot topic�? in Congress.

Some payday loan operations are charging basic fees that equal interest rates of as much as 400 percent — a level that Graves said is excessive. “I understand they need to make money but 400 percent is too much,�? he said.

Tampa, Florida — Marketdata Enterprises, Inc., has released a new 104-page report entitled: Check Cashing, Money Transfer, Payday Loan Services & Pawnshops: A Market Analysis. They found 35% of the U.S. population, or 12 million households, is “unbanked.” Marketdata considers the “unbanked” to be anyone without a checking or savings account. These “unbanked” individuals are often in need of cash loans and, as a result, are utilizing alternative financial services such as check cashing outlets, payday loan outlets, money transfer services, and pawnshops.

Why are so many people “Unbanked?”

“Large banks have limited hours and restrictive loan policies. People with bad credit or no credit that need cash quickly due to unexpected car repairs, medical bills and other events prefer using these alternative services. They are not asked about their credit records, and if they have a regular job they can get their payroll, government or personal check cashed, or get a short term loan quickly—for a fee. Most users gladly pay these fees for the more convenient hours and ease of use, but consumer groups and others criticize these services for the steep fees they may charge,” according to Research Director, John LaRosa.

How are the banks responding?

“Mainstream banks and large financial institutions such as Wells Fargo, Banco Popular, and Union Bank of California have been lured to the unbanked market by its high growth rate. They go so far as to reach out to the community via mobile check cashing vans that visit local factories and worksites. Customers of alternative financial services are NOT just the poor. Due to historically high household debt levels, many more middle income consumers find themselves squeezed from payday to payday. They also like these outlets’ longer and weekend hours and less onerous credit policies,” according to Research Director, John LaRosa.

Augusta, Georgia — Jerry Ayles, affiliated with Trihouse Payday Loans, offers his biased view on payday loans. The following views are that of Jerry Ayles, not the Payday Loan Times:

“One cannot deny the demand for the payday-loan product. Currently, it is estimated the payday-loan industry is $12-$14 billion dollars. Stephens Research estimates it will be a $50-$60 billion dollar industry in five years.”

“Why? Because the consumer wants and needs the product. Although you may not relate to this scenario, there are millions of people who need a quick and easy $300 on Tuesday to fix the car in order to get to work through Friday. And there are a multitude of other, legitimate reasons for these small, unsecured loans. When I worked behind the counter of my first store, I cannot tell you how many hundreds of times I received a phone call from a parent requesting I loan their son or daughter $300. Typically they asked me to make the loan because they knew, based on past experience, their family member would never pay them back.”

“The reality is, the folks making use of our product are well aware of the costs. We do not hide the fact that a $300 payday advance for two weeks will typically cost you $45. We use a multitude of disclosure forms with very large print and requirements for their initials to acknowledge their understanding of the terms. All they have to do is fix their car and pay us back.”

“Of course, like the credit-card industry, the banking industry, the financial industry and more, we do have some unscrupulous operators. With time, they will fail. Those of us who treat our customers with dignity and respect will prevail. And demand for our product by the consumer will continue to grow dramatically.”