Monday, August 28, 2006

In July, payday advance loan legislation finally went into effect in Michigan had few rules to control the industry. Meant to control the industry, this new set of industry-backed state regulations went into effect have helped to weed out some of the more predatory players.

Steve Leach, who operates 50 Instant Cash Advance offices around Michigan, said his Grand Rapids-based payday loan company was actually glad to see the regulations.

"We were unhappy with some of the operators out there who were charging 30 percent more (in two weeks) than we were,'' he said.

The new legislation allows cash loans to possess an annual interest rate of up to 375 percent on a $250 loan, plus various fees. It also limits the number and amount of loans consumers can take out and forbids threats of criminal prosecution against people who fail to pay.

But not everyone is pleased.

Jean Ann Fox, of the Consumer Federation of America, said the new law is unfortunate because Michigan already had a much more reasonable small-loan law on its books. It was just never enforced.

That law capped the annual rate on small, no faxing payday loans at 25 percent, allowing a loan-processing fee of up to 5 percent for amounts up to $250.

"They would have been better off to enforce the rule they had,'' she said. "If they felt they had a loophole, then close it.''

While Fox advises against ANY payday loan use, Advance America - the largest of the publicly held payday advance companies - said its average customer uses the service seven or eight times a year. He or she pays average fees of $55 per transaction with an average loan amount of $339. That works out to $330 to $440 in fees, on average, per year, per customer.

Payday advance business is booming: Jamie Fulmer, director of investor relations for Advance America, said the company offers a service millions of customers need. For many, the alternatives of credit card late fees, bounced checks or overdraft fees are far more expensive than the payday advance fees.

"These are folks who understand what their options are,'' Fulmer said.

The Consumer Federation, however, sees other alternatives still.

At the Consumer Federation's recently launched Web site, www.paydayloaninfo.org, it recommends building an emergency savings fund, budgeting, pursuing traditional, less-expensive credit or loans, borrowing from family members, getting credit counseling, negotiating with creditors and even working more overtime.

Payday loan law generates business: At the Cash Store, Assistant Manager Patsy Collins said business has increased since the regulations went into effect July 1. That's partly because consumers need to go to more than one place to get a second instant payday loan.

"We used to advance up to $1,500,'' Collins said. "Now people need to spend their $3 a gallon to get the rest of the money they're entitled to because of the limits.''

One couple who declined to give their name came into the Cash Store saying they needed money for diapers, gas and groceries. As he unstrapped his baby from her car seat, the father said he had just lost his job at Steelcase Inc. and that the family was simply out of money. Enter the need for a cash advance.

The couple ended up getting turned away because it didn't have a checking account that had been open for at least 30 days - one of the four requirements on the Cash Store customer check list.

Business owner Leach said the payday loan industry is rapidly maturing. The new laws are part of that process, helping to establish industry standards and consumer protections.

"It's really good people who would prefer to do it from an industry rather than have to borrow it from their father, mother, sister or brother and have to explain their business,'' Leach said. "This is not a broke public.''

It's one that now comprehends what a faxless payday loan entails and can make its own decision on applying for one or not.

This entry was posted on Monday, August 28th, 2006 at 5:51 am and is filed under Michigan.