Payday Loan Times

Last month, the De Soto City Council took action its members hoped would prevent the spread of payday cash loan and title loan companies to the city.

Somehow, the proprietors of such Kansas businesses have overlooked De Soto, although their businesses and the busy, gaudy signs that announce them are common enough in cities that border De Soto to the east and south.

The De Soto City Council is generally receptive to business and the short-term loan industry joins adult entertainment as the only category of business the city has actively attempted to discourage. The preemptive action against instant payday loans probably was much more needed as the city is home a significant underclass population on which the industry thrives.

Those engaged in the faxless payday advance industry maintain they are merely providing a service to consumers shunned by traditional lenders. And it’s true the friendly Mom and Pop store willing to extend credit for groceries or other necessities no longer exists.

But state law allowing cash advances with interest rates of 15 percent, finance charges of $15 and an A.P.R. rate of 390 percent on a 14-day loan of up to $500, consumers walk away with most of their next paychecks that were supposed to repay the loans already spent. That sets them up for an endless cycle of loans that nip away at weekly budgets and it erases any thought of savings for a better future.

It may be a vain hope, but perhaps the absence of the businesses here in De Soto will encourage those who find themselves short at each pay cycle to take advantage of budgeting help offered by different organization, including the De Soto Multi-Service Center, so that they become better educated on how to get the most for their money.

Democratic presidential candidate John Edwards, on an eight-state swing to highlight poverty issues, on Tuesday called for a national law to crackdown on predatory cash advance payday loan lending.

Walking through a struggling neighborhood in Cleveland, the nation’s poorest big city, Edwards said that without national regulations predatory lenders who offer higher-priced no faxing payday loans to people with tarnished credit or low incomes “just move to another place where they are not regulated.”

But are people responsible for their own actions?

As an example, consider the newly-instituted “abusive driving” fines in Virginia.  Basically, if you’re caught driving in such a way that endangers other people on the road, you can get fined thousands of dollars.

Such a fine could put a lot of working class people in dire financial straits.  The same sort of dire financial straits people find themselves in when they choose to live beyond their means and facilitate that lifestyle via payday cash advance loans.

In the first instance most would say that the person receiving the fine is suffering the consequences of their actions in not following traffic laws.  Yet in the second instance, the people getting the payday loans are cast as victims.  As if the decision to get the loan in the first place weren’t theirs to make.

It’s something to ponder.

Payday loans should be part of a state government review, a Deadwood lawmaker says.

Republican Rep. Chuck Turbiville made that recommendation Tuesday as an interim committee began a review of the state Department of Revenue and Regulation.

“There’s been a lot in the news about the [online payday loan] rates being charged,” Turbiville said. “Could we get some indication what might be done to regulate, cap, reduce those rates without driving away those credit card companies that came to South Dakota mainly because we do not have any regulation of that?”

Payday loan is a generic term for a relatively short-length, high-interest personal loan. Loans generally run about 30 days, and interest rates can be in triple digits. Lawmakers have made several attempts to regulate the industry in recent years, but a Wall lawmaker said the review process is a chance to see whether more needs to be done.

“A lot of work has been done on that, but the question is, ‘Have we gone far enough?’ ” Republican Rep. Gordon Pederson said.

Paul Kinsman, secretary of the Department of Revenue and Regulation, said his agency would welcome legislative input on that and other issues related to pay day loans.

“The department would be very interested in working with this group to come up with some kind of solution or at least a plan of action with how we’re supported to deal with [fast cash loans],” Kinsman said.

The legislative committee’s review is part of an ongoing attempt to study the workings of each major agency of the executive branch.

A recent report issued by the National Consumer Law Center is absent what should be a critical element of any report: the facts.

The June 2007 report on utilities and payday advance lenders concludes that there is a link between companies like ACE accepting utility payments and offering short-term loans. According to ACE, the report relies on innuendo, anecdotes, and casual observations to make misleading conclusions.

ACE, a payday loan company, processed over 6.3 million utility and bill-payment transactions during the 12 months ended June 30, 2007. In a sample of 602,524 utility and bill-payment transactions, ACE identified 5,823 customers, or 1%, who also became short-term loan customers on the same day that they paid their bill.

Ninety-nine percent (99%) of ACE customers in this sample were not users of ACE’s short-term loan product on the day that they paid their bill at ACE.

In a report to be issued to ACE’s Board of Directors, Grant Thornton LLP has compared the computations and calculations that ACE used to prepare this cash advance analysis and did not have any exceptions.

“The National Consumer Law Center report fails to present the facts about payday loans and utility payments, and consists of erroneous arguments and false conclusions,” said Jay B. Shipowitz, President and Chief Executive Officer of ACE Cash Express. “The fact of the matter is that these are two separate customer groups with minimal crossover. Our bill payment service is a tremendous convenience and usually a lower cost option to our customers. It is shocking to us that anyone would want to eliminate this convenient and economical service.”

The report confesses that the National Consumer Law Center did not use data to reach their conclusions, when they state:”

“Available data offers no way to measure how many utility bill payers have been put on the road to becoming payday loan customers.”

This statement reveals the fundamental flaw of the report and the danger of drawing conclusions without factual data. Consumers will not be served if their choices in how they make their utility payments are arbitrarily taken away.

California Corporations Commissioner Preston DuFauchard has determined that Margaret Diego (dba The Cash Center Inc., The Loan Center Inc. and TLC) willfully violated the California Deferred Deposit Transaction Law (CDDTL).

Diego has been ordered to desist and refrain from violating the law, ordered to pay penalties, and the personal loans in question have been declared void. Diego has operated The Cash Center Inc., a payday lender in the city of Reseda in Los Angeles County, without the required license from the California Department of Corporations.

The investigation by the Department found that Margaret Diego willfully violated sections 23024, 23036, and 23037 of the law by entering into eighty seven (87) deferred deposit transactions with at least 13 separate consumers, in some cases while existing faxless payday loans were still outstanding with those same consumers.

The Commissioner also determined that Diego failed to preserve necessary records of transactions and that The Cash Center Inc., The Loan Center Inc, and TLC were operating without a license from the Department as required under the CDDTL.

The Cash Center was ordered to stop operating a payday advance loan lending business without a license. Additionally, as part of this action, the Commissioner ordered that 87 illegal deferred deposit transactions arranged by Diego, totaling $21,870, be voided. Furthermore, the Commissioner has determined that Diego shall be required to pay a penalty of $35,000 ($2,500 per citation) to the Department.

The Cash Center’s main office is in the city of Reseda in Los Angeles County. The violations occurred at the Reseda location and were discovered by a Department of Corporations examiner.

As defined by state law, a deferred deposit transaction is a written transaction whereby one person gives funds to another person upon receipt of a personal check and it is agreed that the personal check shall not be deposited until a later date. These loans are sometimes referred to as “payday advances” or “payday loans.”

Sawbucks closed two of its three Klamath Falls locations in anticipation of the new state regulations that cap interest rates for payday loans.

The stores closed the last week of June.

There was previously no cap for loans, said Melissa Johnson, Sawbucks manager. “We’ve tried to work with our customers that used to have those higher loans.”

She is concerned about the impact on personal cash loan customers, saying many have no other lending options because of their credit histories.

Interest rate cap
The new law caps the interest rate at 36 percent, but also allows an origination fee of $10 per $100 loaned, though no more than $30 for any instant payday loan amount. Previous annual interest rates reached 520 percent.

Some stores, like QuickCheck are still open and have made changes to comply with the new law. Rent-A-Centers in Oregon closed all their financial services departments. Other stores, such as the Check ‘N’ Go chain, have closed several quick cash advance locations in Oregon. All three had locations in Klamath Falls.

“It was a fatal blow that the Legislature gave us,” said John Rabenold, corporate spokesman for Check ‘N’ Go.

Eventually, all 21 Check ‘N’ Go locations in Oregon will be closed. Some remain open while customers’ accounts are settled.

Jobs lost
About 60 employees of Oregon’s Check ‘N’ Go will lose their faxless payday advance jobs with the closures.

It’s unfortunate that the Legislature did not take into consideration the effect the new law has on employees or offer an incentive for retraining, Rabenold said. Closing two Sawbucks stores in Klamath Falls required laying off two employees. Both had been with the company for four years.

Johnson said because Sawbucks offers other services such as check cashing, Western Union, money orders and utility payments, the final store will probably remain open. Streamlining expenses will help, she said.

Meanwhile, she is researching impacts of a check cashing law that limits excessive fees of $5 or varying percentages from 2 percent to 3.5 percent, depending on what type of check is being cashed.

Payday advance lenders dodged a legislative effort to reduce their usurious interest rates at this year’s General Assembly session. But Gov. Timothy M. Kaine signaled last week he hasn’t given up on leashing the industry.

The payday loan industry and its lobbyists survived a measure that would have capped interest rates on their loans at 36 percent - the same cap that applies to other lending institutions in the state.

It sounds, however, as if the governor and lawmakers are ready to take another shot at lowering those no credit check payday loan lending interest rates. Speaking at a ceremony to mark the passage of tax-relief legislation for the poor, Kaine said the state must do more to help the working poor.

Without being specific, he said he would either propose or support additional restrictions on payday lenders.

“I am very committed to working with legislators to try to find meaningful ways to reform this industry so that people don’t dig themselves in deep and get taken advantage of at vulnerable moments of their lives,” he said. “I just really have it on my heart that people shouldn’t take advantage of folks who are poor when it comes to lending them money.”

Virgina payday loan lenders have flourished since 2002 when the state uncapped regulations on the industry allowing it to charge interest rates of as much as 400 percent on an annual basis.

A payday loan costs $15 for every $100 borrowed. The maximum loan amount is $500 and the typical term is one or two weeks. If renewed for a year, as is done in some cases, the interest rate hits 390 percent.

But that’s not the worst of it, as a number of legislators have pointed out. Many borrowers take out more than one such loan. Figures show that multiple loans can often end up creating a financial trap for the borrower. The only way out of that trap is to arrange for another loan. And the cash advance payday loan borrowers - often people who live from paycheck to paycheck - become entwined in a cycle of debt from which they cannot escape.

Foes and supporters of the payday lending business waged heated debates during the 2007 legislative session, but could not agree on how to reform it. Some lawmakers supported interest rate caps (36 percent) that the industry said would put them out of business. Others preferred limiting the number of loans a borrower could have at one time.

That would have created extended payment plans and forced lenders to make sure their customers did not have too many loans with other payday lenders.

(Read on …)

The following is a paraphrased editorial from The Register-Guard in Oregon…

Dozens of fast payday loan and car title lenders have closed their doors across Oregon since a new state law capping their annual interest charges at 36 percent went into effect this month.

Boo hoo.

Well, not exactly. Few Oregonians are shedding any tears for an industry that claims it won’t stick around unless it can charge annual interest rates of 520 percent. Such rates were standard fare for providers of payday advance loans before the Legislature passed the much-needed usury cap earlier this year.

Theatrics are obviously involved here. An estimated 60 payday loan stores statewide have closed or surrendered their licenses since June 1. That leaves about 200 payday lenders still doing business under the new regulations. Because 29 other states have imposed interest rate caps similar to Oregon’s, it seems likely that the industry will adapt and continue to exist in this state, as it has elsewhere.

Some short-term, no fax cash advance lenders no doubt hope that the Legislature will reverse itself in the next session and allow them to resume charging the exorbitant interest rates that they used for a quarter century to prey on desperate and naive Oregonians.

They should think again. Oregonians are fed up with legalized loan sharking. The Legislature began regulating the industry last year after cities across the state began adopting their own ordinances, and a statewide coalition of religious groups and charities began preparing to put a statewide initiative measure on the ballot.

Not that anyone should expect the industry of bad credit payday loans to slink quietly into the night. In a special session last year, the Legislature clamped down on payday lenders. The industry quickly figured out how to sidestep the new regulations by offering new types of loans under different licenses.

That prompted the 2007 Legislature to impose a blanket interest rate limit on consumer loans of all types. Other than an outright ban on payday and car title loans, it’s the only proven way to keep predatory lenders from taking advantage of the poor and vulnerable.

Payday cash loan lenders continue to make the improbable argument that the new 36 percent cap and other new restrictions make it impossible for them to stay in business. That fails to explain how the industry has managed to survive in the other states that have adopted interest-rate caps similar to Oregon’s.

Short-term lenders also claim that the Legislature has left low-income borrowers with no way to obtain short-term loans. That’s simply untrue. A variety of lenders, in particular credit unions, offer short-term loans at lower rates and with fairer terms.

What the payday lenders really want is for Oregon to turn back the clock to 1981, when the state lifted all of its interest rate caps on personal loans. The move was intended to lift restraints on the consumer credit marketplace’s ability to self-regulate through competition, supply and demand. But the practical result was a seamy proliferation of short-term lenders who charged annual interest rates in excess of 500 percent.

Now, these short-term lenders have a simple choice: They can find a way to stay in business by offering consumers loans under the reasonable limits provided by the state’s new regulations. Or they can shutter their businesses and leave this state, muttering with every step about how unfairly they’ve been treated and how much they’ll be missed by cash-strapped Oregonians.

If they choose the latter, it’s doubtful anyone will shed any tears.

The D.C. Council on Tuesday voted to sharply limit the practice of payday loans in the District.

Officials said the loans target poor and lower-income workers who can be stuck with interest rates as high a 300 percent if the loans are not paid back quickly.

Officials said that often borrowers are unable to repay their payday cash advances and must fork over additional fees. Typically, D.C. residents pay over $700 just to borrow $325.

The new measure would restrict interest rates and penalties on such loans and require more disclosure to borrowers.

The D.C. Council must vote on the legislation again this fall before it can go into effect.

Officials said that since 1998, the District has given faxless payday loan lenders special treatment - no other lender can charge more than 24 percent interest for a consumer loan.

Twelve states have eliminated payday loans, including Maryland. In North Carolina, most low-income residents said eliminating payday loans either was a good thing or had no impact on their lives.

A national, faxless payday advance lending group announced Monday it is hiring a former Democratic gubernatorial candidate to be its executive vice president.

Community Financial Services Association of America is bringing in Tommy Moore (pictured), who resigned from his Aiken County senate seat this weekend, to lobby and do public relations for the payday lending industry. The businesses provide loans of hundreds of dollars for several weeks at high interest rates.

The industry has been sharply criticized recently by people who said it takes advantage of poorer consumers and the high interest rates send them into a spiraling crush of debt. But no fax payday loan lenders have said the businesses provide a vital service and consumers pay more in fees in the long run when they bounce checks while trying to pay the bills.

“At this point in my career, I saw an exciting opportunity to take on a new challenge that builds on my long history of supporting and protecting consumers,” Moore said in a news release issued by the group.

Initially on Monday, Moore would not talk about his new job. He did not immediately respond to a message left on his cell phone after the announcement was made.

Association spokesman Steven Schlein would not disclose how much Moore would be paid. The fast cash advance group paid its executive director $132,749 plus an undisclosed sum included in a $1.2 million “management fee” in 2005, the most recent year available from Guidestar, nonprofit research group.

Moore was the Democrats’ candidate for governor, receiving less than 45 percent of the vote in 2006. He had been in the state Senate since 1981.

During last year’s gubernatorial campaign, Moore received at least $7,000 in donations from the payday and car title loan industry.

“We’re deeply disappointed he would take a job like this. These are bad guys, and they do shameful things,” said John Ruoff, research director for the advocacy group S.C. Fair Share.

A bad credit cash loan lending bill will be waiting when the Senate returns in January. Moore didn’t appear to push from either side last session, but that will likely change with his new job, Ruoff said.