Payday Loan Times

The heyday of the payday loan company may be about to end in Battle Creek.

By April, organizers expect to open the Inspire Community Federal Credit Union, created to help low- to middle-income area residents avoid the financial minefields of predatory lenders.

The planned credit union has leased space at 80 W. Michigan Ave., Suite B, next to the Old Tyme Bakery at the base of a city parking garage, and is working on getting federal regulatory approval to open.

“This is going to create real change that will really make a difference in people’s lives,” said Charles Rose, a member of the credit union- steering committee.

“I think that if you take a look at a lot of the efforts that are going on, some of them, two years from now, will say, ‘Hey, it was nice that we did that,’” said Rose, also neighborhood economic development administrator for the Battle Creek neighborhood services department. “But this credit union will stay. It will be affecting generations of people in this city.”

Eric Tobin, the project coordinator, noted that this is a community development credit union, created to provide an alternative to the expensive choices that low-income people often find themselves having to make in tough times; i.e. cash loans.

Among the first offerings will be short-term loans that will make a lot more financial sense than using a providers of savings account payday loans, which charge annual interest rates of more than 400 percent, Tobin said Tuesday.

Also available will be two-year installment loans as an attractive alternative to acquiring goods through rent-to-own dealers, Tobin said.

“Somebody needs to fill that gap, and somebody needs to do that without taking advantage of them,” he said.

That type of lending will be coupled with referrals to local financial education programs such as those offered by Neighborhoods Inc. and Guardian Finance and Advocacy Services, Tobin said.

Guardian’s Jackie DeHaan championed the credit union idea after hearing about it at a conference about three years ago, Rose said.

In recent months, organizers have selected and trained a board of directors, picked their name and location and are revising their business plan, reports The Battle Creek Enquirer.

The organization has about $140,000 in seed money from the W.K. Kellogg Foundation, Battle Creek Community Foundation and Miller Foundation to move toward opening day.

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For the average consumer, “loans that fit in with your lifestyle” ideally would be fast and easy to get and would never require repayment, states an article in the investing section of The Chicago Tribune.

As long as the real-world lenders want their money back with interest, however, the best loan deals will never be as easy as consumers want. What’s more, any place offering fast, easy money is going to exact a price for the convenience of those online cash loans.

So when the writer saw a television ad for CashCall.com promising fast bucks to fit the consumer’s busy and stressed lifestyle, it not only seemed too good to be true, it looked like a Stupid Investment of the Week.

In most circles, taking out a bad credit payday loan does not constitute an investment, but it qualifies because it’s a commitment of money, over time, to get an expected “return,” namely the money that the borrower gets up front.

On the surface, and in the television ads, the loans look and feel a bit like payday advance loans a form of lending that typically is fairly abusive to the customer. In a payday advance situation, the lender is entering the deal based on the borrower’s paycheck, rather than the credit report.

Repayment terms are notoriously bad. The loans are designed to be paid back in a few weeks, but the annual percentage rate charged on the money often runs well into the hundreds.

CashCall clearly is a step above that level, to where its commercials might attract an average consumer with perhaps a slightly above-average consumer debt load. There is a credit check, but the documentation is light, typically amounting to a driver’s license and a voided check from an active checking account.

Rates on these cash loans: But try to find the rate and terms of the loan on the firm’s website and you are out of luck. The no fax cash loan amounts actually vary by state.

In most states, loans run from $1,075 to $5,075, though the consumer never sees the last $75 of that dough, because it goes to the lender as an “origination fee.” It not only adds to the effective interest rate you are paying, but because it is part of the loan, it also accrues interest.

Boy, does it ever.

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The Canadian Payday Loan Association (CPLA) today applauded the Manitoba government for passing payday loan legislation in the province.

In a press release, The CPLA recognized Manitoba’s role in putting their issue of industry regulation in the spotlight and urging the federal government to allow provinces to regulate a viable payday cash advance industry.

The CPLA has been actively calling on governments across the country for two years to introduce and pass effective payday loan legislation.

The federal government is currently holding hearings on Bill C-26, which
will allow provinces to regulate the cash loan industry. The Bill is
expected to be reviewed by the House of Commons Industry Committee before Christmas.

The Province of Nova Scotia recently passed its own payday loan legislation with British Columbia, Alberta, Saskatchewan and New Brunswick
having also publicly committed to quickly moving forward with similar legislation this spring.

“The Government of Manitoba was the first to recognize the need for
effective payday loan legislation that balances strong consumer protection
with a viable industry,” said Stan Keyes, President of the CPLA.
Manitoba’s Public Utility Board is expected to hold hearings in the
spring of 2007 to set permitted fees for borrowing.

“It will be important to set a cap on fees that allows for a competitive,
viable industry while ensuring consumer protection. We need to shut down the bad apples and let the committed, responsible [quick cash advance] lenders provide this needed financial service at reasonable rates, ” added Keyes.

As reported by WVEC, Navy sailor Nathaniel Crumsey and his wife moved from Maine to Norfolk. He got his first payday loan just to help his family catch up financially.

“She use to work fulltime and we had to move because of the Navy, so we needed a little extra income because we were still living the same life we were with both jobs,” he said.

But Crumsey said the faxless payday loan ended up putting him even further behind.

“It’s been kinda like a snowball effect, getting one and paying off another, then going to another one to pay off the other ones,” he said.

His story and others like it are the reason that the Virginia General Assembly is considering changes, too.

Payday loans under fire: The House Commerce and Labor Committee last month reviewed two bills that will come before the General Assembly in 2007. One would repeal the 2002 legislation that authorized payday advance lending in Virginia. The other would create more regulations for payday lenders.

“The problem in Virginia is a consumer can go to one lender, borrow $500, go directly across the street, borrow another $500 and there’s no data base to check to see how many loans one consumer has at one given time and we need to address that issue in Virginia,” said Del. Kenny Alexander.

Cash advances do have their supporters – such as Lakita Pirtel, a single mother of three.

She said there have been times when her paycheck didn’t cover her expenses.

“My hours, they decreased and I had a hard time making ends meet,” she explained.

Pirtel said she’s gotten about a dozen cash advance loans in the past year, but she’s paid them all back.

“I’m not going to come into an institution and ask for $500 when I know I’m not going to pay it back. I have to know that the money is going to be there in the next two weeks to pay it back.”

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Following in the financial footsteps of Nova Scotia, Manitoba has passed new legislation regarding payday loans.

Fast payday loan companies in the province will need to be licensed and bonded, thanks to “first of its kind” regulations the government passed Tuesday.

Politicians in the Manitoba legislature passed amendments that will regulate such companies, which offer short-term cash advance loans to those who have run out of money before payday. In exchange they charge high interest rates, which when combined with service fees can equal an effective annual interest rate of several hundred percent.

The next step for the province is to wait for the federal government to amend Section 347 of the Criminal Code, which deals with criminal interest rates. Under current provisions of the Criminal Code, a criminal interest rate is defined as more than 60 percent annually.

The amendment would create a special exemption that would allow provinces to set short-term rates for the cash advance payday loan industry, which at the moment offers the most expensive legal way to borrow money in Canada.

Ottawa is expected to introduce a bill along those lines later this year.

Finance Minister Greg Selinger said Tuesday that Manitoba’s payday loan legislation is the first of its kind in Canada.

“We want to ensure that borrowers are protected against exorbitant fees and abusive industry practices,” Selinger said in a release. “We now look forward to the federal government passing amendments to the Criminal Code that will allow us to regulate the charges associated with the industry.”

Under the provincial legislation, payday advance loan companies will need to be licensed and bonded. The province’s Public Utilities Board will set the maximum cost of credit that payday lenders could charge for loans.

Moreover, customers will be warned about the high costs of taking out loans with the companies, and customers can have the right to cancel a loan without penalty within 48 hours.

The legislation will also prohibit lenders from charging extra fees when loans are renewed, extended or replaced by new loans.

Finally, the legislation will give the Manitoba Consumers’ Bureau the right to inspect licensed payday loan companies.

Yesterday, we reported on new payday advance legislation in Nova Scotia.

One would assume that a payday loan company in the area, such as National Money Mart Company, would object to these laws. But one would be mistaken.

One of Canada’s leading convenience financial services provider recently sent out a press release talking about such faxless cash advance legislation. It said it welcomes the new regulations passed by the Nova Scotia government on November 23, 2006 that “will balance strong consumer protection with a viable payday loan industry.”

Nova Scotia’s new law to regulate the payday loan industry is the first in Canada. The provinces of British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick have also expressed a desire to quickly introduce similar legislation on pay day loans.

“Money Mart strives to be the industry leader in consumer protection,” said Syd Franchuk, President of National Money Mart. “We welcome this important legislation and share the government of Nova Scotia’s commitment to balancing consumer protection while ensuring a viable industry that can responsibly serve the millions of Canadians and thousands of Nova Scotians who use this important financial service.”

What does the editorial board of The Walla Walla Union-Bulletin think about payday loans? Here is a paraphrased answer:

What would you call it if a person gets a loan and then is charged an interest rate that averages 528 percent or that hits 2,551 percent?

Images of knee-breaking loan sharks pop to mind. But in Oregon it’s just another day at the office for payday loan and car-title lenders.

The Oregon Legislature understood these businesses were dooming many citizens to fall deeper into debt. These individuals were those who could least afford to shoulder additional financial burdens. So it passed a law to cap interest at 36 percent, beginning in July.

Thirty-six percent is still high, but it was a first step. However, the cap won’t apply to car-title lenders, who make short-term cash loans using car titles rather than future paychecks as collateral.

And, according to The Associated Press, a fourth of payday lenders have applied for conventional consumer licenses, which allows them to restructure payday loans into small installment loans and continue to charge the high interest rates.

“We think consumers should be allowed to make decisions about what loans are right for them, and the market should set the rate,” Luanne Stoltz, a quick payday advance lender and vice president of the Consumer Financial Services Association, told the AP.

Generally speaking, competition can regulate the marketplace. But when people are being gouged, the government has an obligation and a responsibility to step in.

Oregon is on the right path when it comes to online payday loans. It needs to keep moving to deal with this insidious practice.

Two nationwide tax preparers are offering new loan products in time for the holidays, backed by future tax returns. To issue a loan, The Chicago Sun Times reports, tax preparers use pay stubs to estimate a customer’s tax refund.

A local research group thinks this kind of Refund Anticipation Loan is a terrible idea. The Woodstock Institute said the holiday loans, combined with other refund anticipation loans taken at tax time, will eat away hundreds of dollars from individual returns.

“From the looks of this product, tax preparers are moving into the [no faxing payday loan] business,” said Marva Williams, senior vice president of Woodstock. “We strongly urge consumers to stay away from these expensive loans this holiday season, just as they would avoid a payday loan.”

The loans are being offered by Jackson Hewitt and H&R Block. Liberty Tax Services’ CEO John Hewitt called the holiday loans “a kind of predatory lending” and said tax preparers at his chain won’t do them.

The holiday loans/new kind of payday cash advances are a variation of a tax refund anticipation loan or RAL. An RAL is a short-term loan that’s backed by a tax refund. The average cost of a rapid refund loan is $100, paid by taxpayers to receive their refund money a couple of weeks early.

Annual interest rates on RALs range from 40 to more than 700 percent, according to the National Consumer Law Center.

The new holiday loans act as RALs on top of RALs.

Jackson Hewitt’s “Holiday Express Loan Program” or “H.E.L.P.” will offer a $600 loan. If the loan is approved, the bank fee is $65. The payday cash loan is due to be paid back in March, and while another RAL isn’t necessary, a customer can use another RAL to pay it off at tax time.

H&R Block also offers an “early season” loan product, which started this month, though a company representative declined to comment about it.

CEO Mark Ernst said at a financial conference in November that instant cash loans would be priced 40 percent lower this year.

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A recent editoral in The Bend Bulletin didn’t call for the end of payday loans in the state; but it did ask for a loophole in legislation to be closed. Here it is, paraphrased:

Anybody paying 500 percent annual interest on a loan has to be foolish, desperate or not realize what they are doing.

Some payday advance lenders charge that kind of interest.

They make smaller loans.

The average no fax cash loan amount for last year was $331, according to the Oregon Department of Consumer and Business Services. The lenders typically charge about $20 per $100 on a two-week loan. And if the borrower can’t pay up, the lender rolls the loan over for another two weeks.

It can add up to 521 percent annual interest.

We think consumers should be able to decide what loans are right for them and the market should set the rate they pay. Payday and title loans can serve a need for desperate consumers. Most folks who take out those kinds of bad credit payday loans do repay them.

But government still has a role to play in taming the market when it’s behaving badly. Charging people 521 percent annual interest is behaving badly.

Earlier this year, Gov. Ted Kulongoski signed into law new regulations that put a 36 percent interest cap on the industry. It’s similar to laws enacted in most other states in the country.

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The push for legislation in Nova Scotia on payday advances has come through.

The new rules governing payday loan businesses should help protect consumers and support a viable industry, an industry group said Friday.

The Canadian Payday Loan Association applauded the adoption of Nova Scotia’s Bill 87, the first law in Canada overseeing the regulation of the instant cash loan industry.

The legislation was unanimously passed in the provincial legislature on Thursday.

Payday loan businesses provide small personal loans to cover short-term emergencies. Nova Scotia’s Utility and Review Board is to hold hearings in the spring to set permitted fees charged for borrowing.

The association said the average loan is $300 for about 10 days.

Among other things, the new rules will ensure lenders disclose all fees and give borrowers a day to change their minds about such payday cash loans and cancel them at no cost.

“This is an important day for consumer protection in Nova Scotia,” association president Stan Keyes said of the provincial law being passed.

“It will be important to ensure that the government sets a clear cap on the cost of borrowing that will balance strong consumer protection while ensuring a viable industry that can afford to provide this . . . service,” he continued.

The association says up to two million Canadians use regular or no fax payday loans every year. It has been “calling on governments across the country for two years to introduce and pass effective payday loan legislation,” the release said.

Ottawa is holding hearings on a proposed federal law intended to regulate the industry. The bill is expected to be reviewed by a parliamentary committee before Christmas, the release said.

Other provincial governments are also planning to enact pay day loan legislation.