Payday Loan Times

Arizona’s major utilities have ended a longtime practice of allowing customers to drop off electric and gas payments at cash advance payday loan centers after a Phoenix community action group brought the matter to light.

Arizona Public Service Co., Southwest Gas and Tucson Electric Power Co. said they had begun the practice as a convenience to customers.

Earlier this month, they said they would quit over concern about potential problems related to regular and faxless payday loans.

“We were trying to do the right thing, with unintended consequences,” said Tammy McLeod, general manager of customer service for APS.

The change has met approval from Arizona Corporation Commission members, the Arizona chapter of the AARP and the Arizona Community Action Association, which advocates for low-income residents. That group helped publish a report earlier this month looking at the practice in Arizona and elsewhere across the country, describing the arrangement as a potential ambush for low-income people to be lured into high-interest online cash loans.

Payday loan centers offer easy-to-obtain, short-term loans to borrowers who promise to repay them plus a fee after the next payday.

The centers, which frequently also cash peoples’ checks, have come under fire for their rates, which some critics say are as much as 400 percent annually.

For years, most of the state’s major utilities arranged for customers paying cash to drop off their payments at pay day loan centers as well as grocery and convenience stores.

Both Tucson Electric Power and Southwest Gas used payday centers as main drop-off sites.

Texas Attorney General Grag Abbott recently secured a court judgement against El Paso-based Advance Internet, an unlicensed payday advance loan lender.

According to court documents, Advance Internet’s owner John A. Gill Jr., used the guise of on-premises internet access and “instant cash” to lure customers into a cash loan lending scheme. Advance Internet’s customers, many of which were military families, were essentially tricked into entering fraudulent high-interest contracts.

In 2006, Abbott charged Advance with violation of numerous finance law provisions, among them, a provision requiring lenders to obtain proper licenses before making personal loans.

Consumer finance laws mandate that usurious interest contracts, like the majority of those written by Advance, are null and void. According to the Attorney General’s office, Advance tricked customers into entering contracts with interest rates as high as 782%.

Aside from El Paso, Advance maintained offices in Coryell, Bell and Bexar Counties, all counties in close proximity to military bases.

Abbott also argues that Advance Internet had an internet “rebate” program that was utilized to hook customers into debt.  Those instant payday loan borrowers signed up for monthly withdrawals from their bank accounts were given a $100 rebate.

Advance made monthly withdrawals from customer’s bank accounts until the entire loan, burdened by the inflated interest rates, was paid off.  Customers who paid off the loan early to avoid the heavy finance charges were assesed a “termination” fee equal to the $100 rebate they received.

Payday advance loans are becoming an increasing burden on the purse strings of the poorest families, a new survey conducted by consumer information site cashdayadvance.net suggests.

Glasgow, 27 June 2007 - Attractive payday advance loans are becoming increasingly popular for struggling families, a new survey reveals. The study into the borrowing habits of households with below-average earnings found that the rate of growth in the payday loan sector amongst this demographic is increasing at a considerably more rapid rate than across the rest of the market, a finding that has worried experts.

Industry analyst Fraser Lamb finds the outcome of this new no faxing payday loan survey alarming.

“The fact that these types of loan are so readily available to those with poorer credit ratings makes them ideal as a stop-gap solution. The problem is that many people find themselves stuck in a constant loop of borrowing against their wages, which can be very difficult to reconcile at the end of the day. I want to see a shake-up of how these types of finance are marketed, and I want to look at the various ways in which we can make it clear to people that although payday advances are useful, they shouldn’t be used as a lifeline on a continual basis.”

While payday loans are found to be falling in price on average, statistics show that they continue to be one of the highest interest forms of finance available to consumer borrowers

Leaders in Rock Hill have decided to make it tougher for new payday lenders to open after the number of businesses in the city offering the short-term high-interest loans tripled in six years.

The City Council passed zoning laws on the businesses Monday night, banning new savings account payday loan lenders from opening within 300 feet of neighborhoods, churches and schools and within 1,000 feet of existing lenders.

The rules also won’t allow lenders to open in stand-alone buildings, requiring them to be in shopping centers or supermarkets of at least 30,000 square feet.

Six years ago Rock Hill had less than a dozen no fax payday advance lenders. Now the city has 38, officials said.

The boom happened after North Carolina, just 10 miles to the north on Interstate 77, banned payday lenders. Georgia also has banned the businesses.

Rock Hill officials said they want to prevent payday lenders from opening near each other because they often refer customers who cannot pay off their loans to a lender next door, where they get another loan.

The bad credit cash loan lending businesses argued against the new rules at Monday’s meeting.

“Are you going to start zoning out McDonald’s because it’s bad for your health? If you take away our product, all you’ve done is take away one of the tools that folks have to choose from when they find themselves in need of money,” said Jamie Fulmer, director of investor relations for Spartanburg-based Advance America, the nation’s largest payday lender.

Providers of payday cash advances typically offer loans of several hundred dollars for several weeks. The current cap on interest in South Carolina is $15 for every $100, which works out to 400 percent interest annually.

Fulmer said the quick cash can actually save customers money compared to fees from a bounced check or having to get their utilities turned back on.

“If you eliminate payday lending, you’ve done nothing to address the fact that people have short-term needs,” Fulmer said.

City leaders said they decided to take action on their own after state lawmakers failed to pass new regulations on the industry during this year’s session.

The zoning rules will not affect fast payday loan lenders already operation in Rock Hill.

SOURCE: The Charlotte Observer

Payday loan lenders are exploiting borrowers in Lorain County and need to be stopped, according to the Ohio Coalition for Responsible Lending.

The coalition met with editors and a reporter at The Chronicle to discuss the boom of the payday loan industry and pointed to the increase from one location in 1996 in Lorain County to 30 a decade later as a good indicator of how big the problem has grown. The group supports recent legislation introduced to cap the interest rate that such lenders can charge.

“It’s a plague,” said Social Action Director Patrick O’Bryan of the Catholic Action Commission of Wayne, Ashland, Medina and Wooster. “(Cash loans) are ravishing the people who need it the most.”

Payday lenders offer short-term, high-interest loans against future paychecks, and seek borrowers with a bank or checking account and some kind of income or government benefits.

Quick payday advance borrowers typically pay $15 to borrow $100 for two weeks — an interest rate of 391 percent over the course of a year.

“It’s a simple solution for people that are desperate,” O’Bryan said. “But if you don’t have money to begin with, how are you going to have the money to pay it back two weeks later?”

State Rep. Matt Lundy, D-Elyria, has teamed up with Rep. William Batchelder, R-Medina, to support legislation calling for a 36 percent interest rate cap on bad credit payday loans.

Although discussions and terms still need to be worked out, Lundy said it’s important for the payday loan industry to know that the state has some concerns about the way its lenders are doing business.

“You can’t really legislate financial responsibility,” he said. “But we can legislate the industry to responsibly lend that money to consumers.”

Here are some facts regarding Ohio payday loans:

• In 2006, there were 1,562 payday lender locations in Ohio, up from 107 in 1996.
• Ohio has more personal cash loan lending locations than McDonalds, Burger King, and Wendy’s restaurants combined.
• 86 of 88 Ohio counties have at least one payday lender location.
• Borrowers pay the equivalent of 300 percent to 400 percent on these fast cash advance loans.
• Ohio recently changed its payday lending regulations, thus raising the maximum level of payday loans from $500 to $800.

SOURCE: The Chronicle-Telegram

Leaders in Rock Hill have decided to make it tougher for new providers of faxless payday loans to open after the number of businesses in the city offering the short-term high-interest loans tripled in six years.

The City Council passed zoning laws on the businesses Monday night, banning new payday lenders from opening within 300 feet of neighborhoods, churches and schools and within 1,000 feet of existing lenders.

The rules also won’t allow lenders to open in stand-alone buildings, requiring them to be in shopping centers or supermarkets of at least 30,000 square feet. Six years ago Rock Hill had less than a dozen payday advance loan lenders. Now the city has 38, officials said.

The boom happened after North Carolina, just 10 miles to the north on Interstate 77, banned payday lenders. Georgia also has banned the businesses.

Rock Hill officials said they want to prevent payday cash loan lenders from opening near each other because they often refer customers who cannot pay off their loans to a lender next door, where they get another loan.

The payday lending businesses argued against the new rules at Monday’s meeting.

“Are you going to start zoning out McDonald’s because it’s bad for your health? If you take away our product, all you’ve done is take away one of the tools that folks have to choose from when they find themselves in need of money,” said Jamie Fulmer, director of investor relations for Spartanburg-based Advance America, the nation’s largest payday lender.

Payday lenders typically offer pay day loans of several hundred dollars for several weeks. The current cap on interest in South Carolina is $15 for every $100, which works out to 400 percent interest annually.

Fulmer said the quick cash can actually save customers money compared to fees from a bounced check or having to get their utilities turned back on.

“If you eliminate payday lending, you’ve done nothing to address the fact that people have short-term needs,” Fulmer said.

City leaders said they decided to take action on their own after state lawmakers failed to pass new regulations on the industry during this year’s session. The zoning rules will not affect fast cash advance lenders already operation in Rock Hill.

Air Academy Federal Credit Union has begun offering its members an alternative to no fax payday loans at a fraction of the interest rate such lenders charge.

The city’s second-largest credit union is charging an 18 percent annual rate for its “Smart Solution” loans, which are made without a credit check or collateral and must be repaid in 60 days, said Karin Kovalovsky, Air Academy’s vice president of marketing.

Faxless payday advance lenders in Colorado charged rates averaging 345 percent in 2005, the latest information available, and can charge rates as high as 520 percent under state law, according to a report from the Colorado Attorney General’s Office.

Payday borrowers often extend the loans and end up paying more in fees than they initially borrowed.

“We began offering this product on a limited basis to those members who don’t qualify for traditional loans,” Kovalovsky said. “We want our members to avoid going to payday lenders and getting caught in a cycle of debt that is hard to get out of.”

To get the loans, borrowers have to have been an Air Academy member for six months and earn an income after taxes of $1,000 a month, or $1,200 before taxes, Kovalovsky said. Borrowers must apply for loans at one of Air Academy’s 11 branches.

The credit union has about 44,000 members, including active-duty and retired military personnel; all employees and cadets at the Air Force Academy; employees and students in 10 area school districts and employees of 120 area companies and organizations.

Air Academy limits the amount of its Smart Solution loans to $300 for the first three loans, but the amount can be increased to $500 if the borrower pays back the loans on time, Kovalovsky said. The credit union charges a $30 application fee for each loan.

Borrowers who take out six of the instant cash loans within a year will be required to enroll in the credit union’s financial education program, Kovalovsky said.

A $300 loan under the program would cost nearly $37 in interest and fees, while a payday loan of the same amount would cost $60 at most local lenders and would have to be repaid within two or three weeks.

Air Academy has made 28 loans since starting the program two months ago on a limited basis, and none have defaulted, Kovalovsky said. More than half of the borrowers have some affiliation with the military, similar to the makeup of the credit union’s membership, she said.

Ent Federal Credit Union, the region’s largest financial institution with nearly 180,000 members, offers a $500 emergency quick payday loan, but only to employees of companies participating in the America’s Family program. Jim Moore, an Ent senior vice president, said the credit union plans to offer the loan to all members within three months.

Security Service Federal Credit Union also offers emergency loans, but only to military or their family members affected by a deployment. Armed Forces Bank and Academy Bank offer “workout” loans, limited to the borrower’s monthly pay before taxes that include no credit check.

SOURCE: The Colorado Springs Gazette

Claiming they are protecting consumers, lawmakers in Nevada, New Mexico and Oregon recently have clamped down on the short-term, high-interest fast payday loan lending industry, blaming it for saddling residents with dangerous levels of debt.

The spate of new laws targets payday lenders and other creditors who offer customers short-term loans - meant to tide them over to the next payday - that can carry annual interest rates exceeding 400 percent. Critics say the lenders prey on low-income borrowers who end up trapped in a cycle of costly repayments.

Oregon Gov. Ted Kulongoski (D) on Tuesday (June 19) signed a series of bills that place new restrictions on the fees charged by providers of instant payday loans. Nevada Gov. Jim Gibbons (R) on June 1 signed off on a plan to close a loophole in state law that has allowed some short-term lenders to charge annual interest rates as high as 900 percent.

In New Mexico, Gov. Bill Richardson (D) in March also approved legislation to limit the terms of payday loans, but consumer groups complain the law doesn’t go far enough.

Heated statehouse debates over payday cash advance lending also have taken place in Georgia and Virginia this year, pitting consumer advocates against lenders, who argue that state restrictions ruin their businesses and deprive customers of services they need.

The subject has gained traction in state legislatures since Congress last year passed a law capping annual interest rates on payday loans at 36 percent for military service members and their spouses, who frequently resorted to the lenders, according to analysts.

According to a legal analysis by the Consumer Federation of America, 12 states effectively ban payday lending: Arkansas, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia.

In response to growing legislative pressure, cash advance loan lenders in February kicked off a year-long, $10 million advertising campaign to defend against what they consider unfair criticism - and to tout a new set of “best practices” to reassure borrowers. Among other standards, the guidelines call on lenders to use truthful advertising techniques and “appropriate collection practices” to retrieve payments.

“The product is good, but some people aren’t using the product correctly,” said Steven Schlein, a spokesman with the Community Financial Services Association of America (CFSA), which represents payday lenders and is footing the bill for the nationwide ad campaign.

At the center of the debate over payday lending is the question of whether annual percentage rates, or APR, should apply to short-term personal loans. Lenders, for example, typically charge $15 for a two-week, $100 loan. Schlein said payday customers think of that fee as 15 percent interest - not the 390 percent it amounts to annually. But consumer groups reject that argument.

“That’s like saying you shouldn’t quote the price of gas at $3 a gallon just because you bought half a gallon,” said Jean Ann Fox, director of consumer affairs with the Consumer Federation of America. More importantly, federal law requires interest rates to be calculated annually, Fox said.

Oregon’s new restrictions are being hailed by consumer groups because they target not only cash advance lenders, but other short-term lenders as well, including check-cashing businesses and those providing loans for vehicle titles. One of the main provisions of the package requires an annual interest rate cap of 36 percent across a spectrum of consumer loans, which, in the case of a $100 two-week loan, would amount to about $1.38 in fees.

(Read on …)

Ward Scull, a Newport News resident, and Mike Lane, a Gloucester resident and former deputy commissioner of U.S. Customs, are co-founders of Virginians Against Payday Loans (VAPL). They wrote the following to the Virginia Daily Press:

For decades now the gap between the rich and poor in America has been growing. And this widening chasm between classes has resulted in another glaring gap - the deficit between those individuals with access to reputable financial services and those who have had the door slammed shut on mainstream financial options.

Predatory no fax payday loan lending has sprung up as one of the grimmest alternatives to address the needs of Virginia’s working poor.

The high risk typically attributed to lower-income borrowers has resulted in a much more costly product, if one is available at all, for the bottom sector of consumers. However, the notion that “the poor pay more” has breached the boundary of fairness and crossed into the realm of exploitation. Payday lending is one of the newest variations of price gouging of our economically vulnerable neighbors.

Fast payday advance lenders, who can legally charge up to a 782 annual percentage rate in Virginia, entrap borrowers with few viable financial alternatives and limited financial education into cycles of inescapable debt. This product, or “service” as industry proponents would have the public and policy makers believe, is dramatically different from loans offered to more affluent consumers.

Many Virginians have found these business practices, especially the triple-digit interest rates and the debt trap, to be nothing less than extortionate.

And some have begun to respond.

Virginians Against Payday Loans is already making significant headway by adding the expertise and authority of many concerned powerbrokers across our commonwealth. VAPL is comprised of a growing number of people and organizations with a multitude of talents: from concerned individuals, financial institutions, faith-based organizations, consumer advocacy groups, to the business community, and other partner organizations already working on the issue, like the Virginia Partnership to Encourage Responsible Lending (VaPERL), with whom VAPL works closely and strategically.

Our goals are simple:

- Repeal the law allowing pay day loan lending by exempting them from basic consumer protections or, at a minimum, amend the Payday Loan Act to include a 36 percent annual interest rate cap that would result in the full removal of the debt trap.

- Develop and provide viable financial alternatives to cash loans for lower-income Virginians who find themselves in need of short-term small denomination loans.

- Achieve financial literacy through education for those most likely to be payday borrowers.

VAPL hopes to achieve these goals by developing and implementing a plan of action for each.

Policy Reform: We have already begun working with allies in the General Assembly to draft and submit repeal and rate-cap bills. VAPL will also work to educate other legislators. A lobbyist or team of lobbyists will join with supportive local organizations and Virginia citizens to demand action by their representatives in the state legislature regarding supposedly cheap payday loans.

Financial Alternatives: There is an immediate need to address the substantive problem of those without access to financial services, often referred to as the “unbanked” or “underbanked.” Financial institutions are increasingly aware of the need to service this community of potential customers and are beginning to address it.

To continue reading this article, click here.

The following are excerpts from some of the complaints to the New Hampshire Banking Department from short-term borrowers.

Most of the complaints were not from online payday loan borrowers – which encompass the bulk of the short-term loan industry – but from title loan borrowers. While payday borrowers write a check as collateral, title loan borrowers sign over the title to their car.

Sarah Mattson, an attorney with New Hampshire Legal Assistance, and a critic of the payday advance and title loan industry, said she too gets a much more disproportionate number of complaints from title lenders.

“That doesn’t surprise me,” she said. “In a payday loan they stand to lose money, but under a title loan, they could lose their most important asset. In New Hampshire, you need a car to work or find work. That might motivate them to seek legal help or complain to the Banking Department.”

Among the complaints:

• “I was heavily medicated awaiting surgery … I have already made two payments of $750, which has only covered interest.”

• “(The no fax cash loan lender) contacted my girlfriend and told her she should make payments for me, a single mom with two children on a very small income, pressuring her to pay my loan payments very stressful for her … began contacting friends … also informed them … that they would repossess my car and possible have charges brought against me. I did not give permission at any time to call my friends.”

• “When I contacted the agent the next day after repossession was told car already went to auction and I did not have access to it. They placed my personal items in a trash bag, delivered it and charged a $25 “key” fee before I could get my items.”

• “My 22-year-old son was drawn into their trap. The interest rate is 30.58 percent, which is annual rate of 372 percent. I think this representative is loan sharking … and will look to get some my son’s blood money back.”

• “We went in for a [cash advance payday loan] of $2000 on my truck…. We were screwed and didn’t know what to do. …. Here we are four payments [of $678] later and we still owe $2113.”

• “I was led to believe that the interest on the loan was 31 percent and it was per month, but that’s 372 percent per year …. I wasn’t explained this clearly enough … this is unfair, hook line and sinker tactics or should I say worse than LOAN SHARKING. In three months I paid over $1600 in interest on $1500.”

• “I went to the office and paid off the loan in cash … they told me they did not know where my title was.”

• “No one returns my calls. Vehicle is to be auctioned off. I’m disabled living out of said vehicle, homeless, vehicle worth more than loan.”