Payday Loan Times

Courtesy of an AOL Money & Finance blog …

For the uninitiated, payday cash advance lending is an industry that provides short-term loans that are generally due when the borrower receives his next paycheck. For this “service,” the borrower pay an outrageous interest rate, generally 10-30 dollars per 100 dollars borrowed, a steep rate for a 14-day loan.

Advocates of increased regulation of the payday lending industry frequently point out that, annualized, the interest rates on these loans frequently runs high into the triple-digits. The Consumer Federation of America reports that the average annual interest rate on these payday loans is 470%.

It seems that, these days, you will make very few friends as an apologist for the payday lending industry. To help battle its hugely negative image, the industry trade group, The Community Financial Services Association of America, has launched a nationwide advertising campaign, and promised to give borrowers more time to pay off loans.

Thirteen states have effectively banned payday lending, although Georgia is currently mulling allowing it again. According to the National Conference of State Legislatures, 52 no fax cash loan related bills have been introduced in state legislatures.

Critics of payday lending argue that it traps borrowers into a cycle of debt, and preys on low-income people, especially minorities. This is a legitimate complaint to be sure. In fact, it sounds a lot like another opportunity that is heavily regulated by states. and that states run: the lottery. According a study conducted at the University of Georgia, African Americans are three times as likely as whites to play the Lottery frequently. An individual without a high school diploma is four times as likely to play the Lottery as someone with a diploma.

An African American male without a high school diploma is more than 30 times more likely to play the lottery frequently than a white female with a post-secondary education.

I certainly don’t think that online payday loan lending is good for consumers, although the CFSA makes that case:

But, even if the loan was rolled over for the entire year, the high APR of payday loans pales in comparison to the realistic alternatives considered by consumers.

How does a $100 payday loan compare?

$100 payday advance with a $15 fee = 391% APR
$100 bounced check with $54 NSF/merchant fees = 1,409% APR
$100 credit card balance with a $37 late fee = 965% APR
$100 utility bill with $46 late/reconnect fees = 1,203% APR.

(Read on …)

Niger Innis, National Spokesperson for the Congress of Racial Equality (CORE) writes a letter regarding House Bill-163 (HB-163)to Senators and Representatives in Georgia.

Below is the transcript of the letter Mr. Innis (pictured) wrote:

On February 1, 2007, the Congress of Racial Equality (CORE), a proponent of regulated short-term loans, met with Georgia state officials to discuss House Bill-
163. HB-163 ensures that the citizens of Georgia would have a safe and regulated cash advance option that gives them increased protections, averts loans from being frequently renewed and, if needed, provides a payment plan option.

Because Georgia prohibits payday loans, it is estimated that over 30,000 Georgia residents have crossed the border into South Carolina and Tennessee to obtain such loans. The pending prohibition of [bad credit payday loans] in other states would ultimately force consumers to cross state lines, use Internet entities or loan sharks to address small, but, special financial needs.

CORE believes that the out-right prohibition of short-term [quick cash loans] could have a negative effect on our country similar to that of prohibition in the 1920’s, which was a miserable failure.

CORE Officials have been meeting with state legislators and minority leaders across the country to promote CORE’s Financial Literacy Choice and Awareness (FLCA) program. The FLCA campaign advocates a better understanding of personal finances by informing the public of the pitfalls and opportunities of various financial options. Further, the FLCA campaign promotes alliances with government, industry and the non-profit community to foster financial awareness and literacy.

CORE believes people should be able to make their own financial decisions, and that they are best able to do that when they are financially literate.

Representative Al Williams, Chairman of the Georgia Legislative Black Caucus and Senator Margarita Prentice, Chairman of the Ways and Means Committee of the Washington State Legislator are strong supporters of CORE’s FLCA campaign.

The domestic application of micro–credit/short-term [check cash advance loans] -an idea conceived by the Nobel Prize winning economists Dr. Mohammed Yunus for impoverished communities in developing countries–serves as the blueprint for CORE’s FLCA campaign. CORE believes that with proper enabling legislation the micro-credit/short-term loan industry could help to close a critical gap in our economy.

Divorce. Depression. Suicide.

On a daily basis, Mike Cherry, president and chief executive officer of Consumer Credit Counseling Services in Joplin, sees the impact debt has on people. He also is applauding Attorney General Jay Nixon’s call to reform the Missouri payday loan industry.

Cherry says his office helps 3,000 people each month deal with overwhelming debt. In 2006, his staff provided bankruptcy counseling for 10,750 people. More than half owed on at least one payday loan.

But some payday advance loan lenders think they’re unfairly characterized as loan sharks and crooks while other lending practices have been ignored.

Connie Bridges, manager of the Payday Money Store in Neosho, Mo., says the attorney general needs to take a look at banking and credit card companies.

“I had a lady in here who was overdrawn by $1.73 and the bank penalized her $25,” Bridges said. “Some of them charge $7 a day on top of that for each day overdrawn. Now you tell me, who’s the crook?”

Payday loan limits: Nixon recently sent a letter to the Missouri General Assembly asking legislators to support measures to limit the interest and other fees charged on a personal cash loan to about 36 percent, prohibit renewals of loans and clarify that limitations apply to both licensed and unlicensed lenders. The legislation would give Nixon’s office jurisdiction to issue cease-and-desist orders against violating lenders and allow him to sue for injunctions, restitution, rescission of loan contracts and civil penalties.Nixon points to a recent report from the Missouri Division of Finance that indicated there are 60 percent more Missouri payday loan businesses now than four years ago and 870,000 more payday loans have been made. More people are borrowing more money at higher interest rates resulting in nearly 60,000 more defaulted loans.

“Missourians continue to fall into the debt trap set and sprung by [cheap payday loan] lenders who promise a quick fix to a financial pinch, but instead inflict greater harm through exorbitant fees and onerous terms,” Nixon wrote in a letter to legislators.

(Read on …)

The end of the month approaches and, with it, come the bills. The combination of rent, cell phone bill, credit card payment and other expenses can start to become an overwhelming prospect for young people with little financial experience.

It is a situation any college student can easily fall into.

The payday loan is fast becoming a popular and potentially dangerous solution for student’s short-term financial woes, said Dr. James Grunloh, economics professor and director of the Center for Economic Education.

“You can solve that immediate crisis,” he said, “but you pay dearly for it.”

A faxless payday advance is a short-term advance of money that a borrower promises to pay back within a certain time period, usually two weeks, according to Payday Today, an independent payday lender and product research firm. The borrower simply post-dates a check and walks out the door with cash in hand, only having to provide a driver’s license and proof of employment.

“They’ll basically lend money to almost anybody, which means that it’s a very risky kind of loan,” Grunloh said.

Courtney Lautenschlager, a customer service representative at Payday Loan Store in Oshkosh, said no faxing payday loans act as a safety net for people who find themselves in a bind.

“People take out these loans when they get behind on bills or have unexpected expenses that they can’t go to a bank for,” she said.

“If people use them responsibly, they can be a very good deal for a short-term solution. It’s when people get caught up and the interest starts to pile up that they can get into trouble.”

That interest, Grunloh said, is the problem.

According to Payday Today, Wisconsin is one of only a few states that has legalized payday lending but has placed no regulatory laws on the industry. There are no restrictions on how long a easy payday loan may last, how much a borrower may take out in loans or how much a lender may charge in interest rates.

Grunloh said the only restriction on payday lenders in this state is that they must disclose the annual percentage rate of the loan, but this information is usually buried in the fine print of the contract.

According to billsaver.com, the average credit card annual percentage rate in the United States is 13.37 percent. Compare that to a typical payday loan of $100, where the borrower is expected to pay $20 in interest. The result is an annual percentage rate of 521 percent.

(Read on …)

The South Carolina Department of Consumer Affairs (SCDCA) presents “Payday Lending, Title Lending And Mortgage Scams” on Tuesday as part of its monthly After Hours series.

The seminar will feature a panel of experts on credit counseling, payday cash loan lenders, and more in order to inform consumers about predatory lending risks and protection. The seminar will be held from 5:45 p.m. – 6:45 p.m. on the second floor of the South Carolina Department of Consumer Affairs located at 3600 Forest Drive in Columbia.

This After Hours program is part of an effort by SCDCA during National Consumer Protection Month to inform consumers about threats to personal finances. Many people consider cash advances to be counted among these.
Specifically, panelists will cover risks associated with mortgages, payday lending and title lending. Officials say victims of predatory lending often agree to high-risk loans, paycheck advances, or use a title as collateral to obtain short-term cash loans, which put the consumer in a worse financial position than when the loan was sought.

Efforts to place modest reforms on the Virginia payday loan lending industry died Saturday when negotiations broke down in the General Assembly’s final hours.

Sen. Richard Saslaw, D-Fairfax, said industry representatives, consumer advocates and Gov. Timothy M. Kaine couldn’t agree on restrictions that would protect those who use the short-term, high interest loans without putting payday lenders out of business.

Saslaw’s industry-backed bill would have placed limits on the number of loans individuals could have at one time and required lenders to give overextended borrowers more time to pay.

Legislators voted earlier in the week to send Kaine the bill, but reneged for fear that he would place on it annual interest rate caps. Instead, House and Senate “conferees” tried to work out differences before lawmakers adjourned on Saturday.

Whether an agreement was in sight depended upon whom you asked.

“If we had more time we could have reached an agreement,” said Reggie Jones, a lobbyist for the cash advance online industry. “I feel like we were so close.”

Payday loan lending opponents claimed the industry was unwilling to accept “real reforms,” such as an interest rate cap or a limit on the number of loans individuals could have each year.

“We want to protect people and they want to protect profits, and that seems to be the sticking point,” said the Rev. C. Douglas Smith, a member of the Virginia Partnership to Encourage Responsible Lending, a coalition of 25 faith, business and civic groups that oppose the use of online payday loans.

Both sides said they were disappointed that nothing was accomplished. The session started with more than a dozen bills to either reform the industry or repeal the 2002 law that allowed payday lenders to charge more than 36 percent interest.

(Read on …)

The Community Financial Services Association of America, the national trade association for no fax payday advance lenders, is planning to spend $10 million for an advertising campaign that it says is intended to educate people on how to use payday loans wisely.

Payday loans are small loans a borrower promises to repay from his or her next paycheck, usually in two weeks. A $100 loan might have a $15 fee.

Consumer-advocacy groups are critical of these payday cash loans because when the fees are annualized, they often amount to triple- or even quadruple-digit interest rates. The groups argue that the loans take advantage of cash-strapped consumers.

“This is a public-relations act from an industry under heavy fire,” says Jean Ann Fox, director of consumer protection for the Consumer Federation of America.

Industry executives say their campaign is an effort to encourage consumers to use payday advances responsibly. They argue that payday loans are the more affordable route for people who find themselves in desperate need of money.

“If it only cost $10 to bounce a check, I’m not sure we would have nearly as big a payday loan industry,” says Don Gayhardt, president of Dollar Financial Corp., a payday lender. “Payday loans are not predatory. We enhance the economic well-being of people.”

To show its commitment, the trade group is asking members to voluntarily implement new practices. The most notable is an extended payment plan for borrowers who cannot immediately pay back their loan. At no cost, borrowers would be allowed to repay the bad credit payday loan over four pay periods.

I have no doubt the media campaign will be successful. The ad I viewed, which features Darrin Andersen, president of the trade group, has soft music and shows a child with his arm in a sling and a man on the side of the road with a car in need of repair. The message: If you need money to fix your kid’s arm, we’re here for you. If your car breaks down and you don’t have cash, come to us.

Andersen advises that people should use payday cash advances only for unplanned short-term expenses. Borrow only what you feel you can comfortably repay, he says.

Using a credit card to buy things you can’t pay off the next month is bad enough, but to borrow against your next paycheck is the very definition of irresponsibility. It’s an incredibly unwise financial move.

But the payday lenders are right about one thing: They provide a service the people want. Just last month, 15 million people took out pay day loans, according to Gayhardt. “I think consumers understand the bargain they get with a payday loan,” he said.

But, you know, not every bargain is a good buy.

SOURCE: The Denver Post

As founder and CEO of one of the country’s largest privately held fast payday advance companies, Allan Jones would like to disprove some of the payday advance industry myths by using facts …

Our company maintains corporate offices in Cleveland, Tenn. With 1,250 centers in 30 states, we have 75 centers in Tennessee, representing more than 500 employees and their families.

A payday loan online is a small, unsecured, short-term loan due on the next payday. Payday advance, the fastest-growing segment of the financial market, is extremely popular due to ease of use. Never before has a financial product been so widely accepted by consumers, yet so criticized by anti-business consumer groups.

The controversy centers on the misunderstood annual percentage rate (APR), which is irrelevant when applied to anything less than an annual rate. APR is designed to compare transactions from one year to the next; that is, a 7.5 percent APR remains constant whether it is over 10 years, 20 years or 50 years. Quoting a 365-day rate for a 14-day transaction creates an erratic number that has no effect on the dollar cost of the loan.

As an example, a $15 fee for $100 for 14 days equals 391 percent APR. If the consumer pays off one day early, the APR on this cash loan skyrockets to 421 percent. Likewise, if they pay off one day late, it drops to 365 percent, or a 56 percent difference. The 56 percentage-point APR spread becomes inflammatory to consumer groups, yet the fee remains constant at $15 to the consumer.

Customers mischaracterized
Another misconception spread by consumer groups is the portrayal of payday customers as “poor and uneducated.” They intentionally confuse payday loan customers with active checking accounts with the “unbanked” check-cashing customers.

Our typical customer is a female schoolteacher with unexpected car repairs, in addition to firemen, policemen, nurses and other hard-working citizens.

A recent study, “Defining and Detecting Predatory Lending,” by New York Federal Reserve Board researcher Donald P. Morgan, noted the seemingly contradictory nature of instant payday loans.

“To economists, this predator-prey concept of credit seems foreign,” Morgan wrote. “If credit is so expensive that lenders are earning abnormal profits (given their risks and costs), why don’t new lenders enter the market to compete rates down to fair levels. ‘Unaffordable’ credit also sounds peculiar; how can lenders profit if borrowers cannot repay?” Every time there is a true, nonbiased report issued, they reach the same conclusion.

In Tennessee, the fee has been capped at $30 since 1996 without a cost-of-living increase. The Department of Financial Institutions’ 2005 annual report showed hundreds of complaints, but none against the “deferred presentment” industry. That shows the current cash advance payday loan law is working.

SOURCE: The Tennessean

Payday cash advance lenders have begun to hound Rena McFadden’s husband, threatening to take him to court unless he quickly repays the more than $2,000 he owes.

“The time to repay is too short. He’s been trying to talk to them, but they won’t talk,” McFadden, a 39-year-old who works in a dry cleaning shop, said recently. “They want the money by the next pay day. How are you supposed to pay your bills?”

Therefore, McFadden said she likes a proposal unveiled Wednesday by the payday lending industry allowing customers more time to pay back a loan. But she and consumer watchdogs still question whether people who use fast payday loans will really get help from an industry whose loans’ annual interest rates can exceed 400 percent.

“Payday lenders make it easy for consumers to get trapped in predatory debt,” said Teresa Arnold, legislative director for AARP in South Carolina.

Payday lenders offer quick cash advances - for a fee - that customers are supposed to repay once they receive their next paycheck. Borrowers who cannot repay the guaranteed payday loan by the next payday often “roll over” the loan repeatedly, leading to more charges that can quickly add up and lead to a cycle of debt. Customers are drawn to the lenders because, unlike banks and credit unions, they don’t run credit checks.

The payday loan industry’s biggest change would give customers more time to pay back a loan with no financial penalty. This “extended payment plan” would be available at least once a year and provide borrowers between two and four extra months to pay off loans. It was paired with a $10 million ad campaign warning that payday loans are not a long-term financial solution and a ban on ads that promote payday advances for “frivolous purposes” like vacations.

The move came as states from Virginia to New Mexico consider legislation to limit payday lending practices. In South Carolina, home to the nation’s largest payday lender, lawmakers are considering a measure that would cap at 36 percent the annual interest fee on the loans, and limit the number of payday loans a consumer could have with a single payday loan company.

(Read on …)

Three years after they made Georgia the nation’s only state to specifically outlaw payday advance lending, state legislators moved another step toward allowing a return of the high-interest short-term lenders.

A House committee approved a plan Thursday to relax the ban and create a system of loans designed to cap fees at $15 for every $100 borrowed. The full House could consider the measure as early as next week.

Why the sudden about-face?

Lenders say the ban went too far, forcing out reputable companies that require customers to prove they hold a job and a bank account and leaving a void filled by illegal lenders or murky Internet sites.

Opponents sniff that the lenders were outlawed because they trapped the neediest Georgians into an endless cycle of loans, and that relaxing the ban will roll out the welcome mat for crooked companies to return.

The new measure would ban the quick cash loans from accruing interest, but permit lenders to collect up to a $112.50 service fee on a $750 loan, the maximum loan allowed. It also bans lenders from rolling over loans from month to month.

The committee passed the measure by a 17-11 vote, but not before deciding to lengthen a “cool off” period between loans from two days to five days. The measure passed over the objection of state Rep. Earl Ehrhart, an influential Republican, who warned that the move could be a “poison pill” for the measure.

The legion of faxless payday loan lending lobbyists in the packed committee room didn’t seem to mind. They’ve been clamoring to return to Georgia since the ban was enacted, saying there’s a growing need for their services from Georgians with credit so poor they can’t turn to banks for emergency funds. They argue that the measure allowing their return is still one of the stiffest in the nation.

“We’re asking for the most restrictive - we call it humble - bill so we can come back,” said Jabo Covert, a lobbyist for Check into Cash, a Cleveland, Tenn.-based lender. “You can’t stick your head in the sand and think that the demand went away, the customers went away and the need for short-term loans has vanished.”

With the good also comes the bad, warned Joe Mulholland, a south Georgia district attorney who used the cash advance online ban to convict lenders on criminal charges.

“We’re not dealing with companies that try to uphold the law,” he said. “They’re trying to go around the law anyway they can … We’re not talking about good, strong companies. We’re talking about loan sharks.”

Consumer advocate Clark Howard, a syndicated radio host, told lawmakers Georgia is poised to loosen payday lending restrictions even as the federal government and other states are cracking down on the industry.

Last year, Congress imposed a 36 percent annual percentage rate cap on payday loans to military service members after reports showed thousands of troops in debt to payday lenders, many of which are clustered outside bases.

At least 12 states prohibit triple-digit rates on payday loans, a cap that effectively bans payday lending, according to Jean Ann Fox with the Consumer Federation of America. Dozens of other states are also considering legislation to ban payday lenders.

“Georgia’s the only state I know of where payday lending is currently not legal and the Legislature is actively considering making it legal,” she said.