Payday Loan Times

As U.S. soldiers face continuing demands in the call to protect their country, starting October 1 they gain an extra measure of protection from a lingering financial threat to their own families.

The federal Military Lending Act will take effect Monday, and will bar predatory lenders from gouging military families with no faxing payday loans that trap borrowers in debt and typically carry 400 percent annual interest rates.

The new law caps interest at 36 percent for certain payday, auto title, and refund anticipation loans made to military families.

“The 36 percent cap will slow the predatory lenders down,” said Jean Ann Fox, director of consumer protection for the Consumer Federation of America (CFA). “And the law says they can’t hold onto the service member’s personal check or have electronic access to their bank account as collateral for this type of loan. The threat of the lender depositing the borrower’s check, which would often not clear the bank, has been a key way to trap borrowers in loans that they end up paying back many times over in interest.”

The law will not cover all high-cost products - predatory lenders have designed some loans to get around restrictions in states. For example, fast payday loan lenders in Illinois restructured 350 percent interest loans as 121-day installment loans to get around the 120-day minimum loan term established in that state.

Military would not be protected from this product under the new rules, which apply to only loans of 91 days or less.

“Still, as long as the [cash advance payday loan] lenders don’t contort their products to try to end-run the protections for military, this law will protect our soldiers and their families from the worst abuses,” said Fox.

Lawmakers passed the Military Lending Act after the Pentagon reported that predatory practices weaken the military, and that debt issues threaten the security clearances of military personnel.

Ohioans with lower credit scores who turn to cash-advance storefronts to cover unexpected expenses understand the costs involved and don’t want lawmakers to limit their availability, according to a study released Wednesday.

The survey of 400 Ohio payday loan customers, backed by an association of payday advance loan lenders, also calls into question statistics circulated by a group supporting planned legislation to cap interest rates charged for such temporary loans and promote less-expensive alternatives.

“I am most angered when I hear (Ohioans who utilize payday loans) criticized for not understanding what they’re doing,” said Patricia Cirillo, a senior research associate at the Cleveland-area Cypress Research Group, who conducted the survey. “They absolutely do understand what they are doing and, in fact, given the choices available to them, a payday loan is often the most economical choice.”

The release Wednesday came a week after the Ohio Coalition for Responsible Lending unveiled its own findings in a report titled “Trapped by Design: Payday Lending by the Numbers.”

Using information culled from the financial reports of four of the state’s top payday lenders, the coalition noted that more than 300,000 Ohioans “are trapped in a long-term payday lending cycle,” and pay more than $318 million in payday loan fees each year.

The average online payday loan, according to the coalition, totals $328 and carries an average annual percentage rate of 391 percent. And the average payday borrower takes out close to 13 loans annually.

(Read on …)

Payday advance lending opponents in Virginia have gotten more organized this year - and the new group spearheading the fight plans to keep the issue at the forefront through this fall’s elections.

Virginians Against Payday Lending reiterated at its meeting Tuesday in Newport News that it doesn’t plan on compromising on passing legislation that would cap the loans’ interest rate at 36 percent.

The cash loan lenders, which charge almost 400 percent annual interest, have said 36 percent would put them out of business.

The group opposing the personal loans believes it has a good shot this year because it is better-organized and has gained momentum. A group of leaders from different faiths and political persuasions, including the Family Foundation of Virginia and the Rev. Jonathan Falwell, are joining the fight.

To counter a payday loan industry argument that there are no alternatives, the group is working with credit unions to develop loan programs that cater to payday loan customers.

Darryl K. Dever is a payday loan lobbyst.

Bill Faith is the leader of the Ohio Coalition for Responsible Lending and would rather see payday loans replaced with small-loan options that allow borrowers to repay over a few months.

Below, they argue their sides with one another…

What’s wrong with the current law governing payday lenders?
Dever was a key author of the law in 1995. “We put safeguards in place that are still model safeguards. We said no loan rollovers. We said you must come back the next business day to even apply for a new loan. This law has worked well,” he said.

Faith said the law does not stop borrowers from taking a instant payday loan from one store to pay back the loan from another. “The product we designed is horrible. If you can’t make money lending at 36 percent, something’s wrong with that.”

Does payday lending help people?
Dever: “They’re using the product because there is a need for it. People have short-term problems. They don’t have many opportunities and don’t have many solutions.”

Faith: “Payday lending doesn’t solve consumer financial problems. It is designed to put people in a debt trap.” He later called it “legalized loan sharking. The only difference is, most loan sharks charge less.”

Do payday customers get caught in a debt cycle, forced to use new loans to pay off old ones?
Based on a report by his group, Faith said the average faxless payday advance borrower took out more than 12 loans last year, and 90 percent of industry revenue comes from people caught in a debt cycle. “If their customers went in and got one, two or three loans per year, we wouldn’t be here today.”

Dever questioned Faith’s figures. “The study says people used more than one lender. It doesn’t say they used more than one lender at the same time. That’s purely assumption on your part. There’s no fact to that at all.”

Shouldn’t people be responsible for their own financial choices?
Faith said studies have shown that only 10 percent of payday cash loan customers don’t have other options, such as credit cards. “They bought the line of the quick, easy money.” He added: “Consumers need to make more-informed choices … there’s no question about that. It’s up to the legislature to make a fairer playing field.”

Dever said an industry-backed study of Ohio customers showed 96 percent thought payday loans were a useful service. “They are making a conscious decision of what their options are. You seem to indicate these people are incapable of making an educated decision. I believe they are.”

The Oceanside City Council last week approved restrictions on new payday cash loan businesses in an effort to help protect young Marines from being saddled with exorbitant interest rates.

The move reflects a national effort to regulate the businesses that often set up near military bases, such as Camp Pendleton, and prey upon young troops who need money between paychecks.

In January, Maj. Gen. Michael R. Lehnert, the commanding general for Marine Corps installations west of the Mississippi, asked the council for help in protecting young and often unsophisticated enlistees from the high interest rates.

The regulations the council unanimously approved last night place new cash advance lending companies in the same category as adult businesses and massage parlors, requiring them to obtain conditional-use permits before opening.

They also will have to be located away from churches, parks and schools.

Despite the unanimous vote, two council members expressed concerns with the changes to the city’s zoning laws. Councilmen Jerome Kern and Jack Feller said the changes likely give an advantage to existing lenders, who will not be affected.

Kern also said young Marines haven’t received enough instruction on borrowing from the faxless payday loan businesses: “We’re kind of closing the barn door after the horse is out,” he said.

Councilman Rocky Chavez disagreed. “The Marines are being counseled quite a bit,” he said.

After the vote, Sgt. Maj. Jeffrey Dixon said, “We give classes, but unfortunately so many times they don’t want to tell us.”

At least 21 payday advance loan lenders operate in Oceanside, according to a city staff report. Countywide, the city ranks second only to San Diego in the number of such establishments. San Diego has no laws regulating the businesses.

Congress approved a law, which takes effect Oct. 1, limiting the interest rates that can be charged to service members to 36 percent annually. The rates at payday lenders often go as high as 400 percent annually, but the loans are typically short term.

The City Belle ville Council has taken aim at the number of quick payday loan businesses in town.

An ordinance approved Monday limits to three the number of consumer installment loan or payday lending businesses that may operate in the city.

The ordinance also requires owners of the businesses to receive a license from the city and the state, if required under the state Consumer Installment Loan Act.

“Payday lending practices often have an unreasonably adverse effect upon the elderly, the economically disadvantaged and other residents of the city. Frequently, taking [payday loans] puts borrowers in much worse financial shape than before they took the loan,” the ordinance states.

Industry representatives contend that payday lenders fill a demand and help borrowers cover unexpected expenses and pay for basic needs until their next paycheck.

Online payday loans typically are short-term loans for which a customer writes a post-dated check for the amount of the principal plus a fee that the lender cashes on the next payday. However, the term frequently is used to describe businesses that provide short-term installment loans and those that trade cash for vehicle titles.

City Attorney Robert Sprague said the nine payday lenders already open in Belleville will be grandfathered in under the new law.

The Fairview Heights City Council passed an ordinance earlier this month limiting payday lending businesses to two. City leaders have said there are three currently operating.

The Canadian Payday Loan Association (CPLA) just released the first statistically-relevant survey ever completed of payday loan customers in Manitoba.

Here are results from it:

Demographics of Payday Loan Customers
Contrary to conventional assumptions, the average payday loan customer is employed, educated and is not representative of “low income” households.

• The average personal cash loan customer is 38 years old
• 77% of customers are currently employed full-time
• Almost half (46%) have completed post-secondary education
• Overall household income reported for payday loan customers tends to be either on par with - or ahead of - the general Manitoba population.  Notably, only 13% of payday customers reported household income of less than $25,000 compared to 28% of the general Manitoba population.  39% of payday loan customers reported household income in the $25,000-$50,000 bracket compared to 30% of the general Manitoba population.
• Another 39% of cash advance payday loan customers reported income of $50,000 or more compared to 42% of the Manitoba population with the same household income.

Personal Credit Profile
Although some have suggested people use payday loans because they have no other option, the surveys demonstrate that customers have access to a wide variety of credit products, however still choose a payday loan for short-term, small-sum borrowing.

• Customers owe an average of $24,357 to various financial institutions, excluding mortgages.
• Customers have access to a variety of credit options, but choose a payday loan over a line of credit, credit card, retail card, overdraft or other forms of credit largely due to the “convenience” of the payday loan product, “ease of use” and “long hours of operation.”
• Only 15% of customers indicated they used a no fax payday loan because they had “no other option.”

Check ‘n Go fired back yesterday at a former district manager who last week blasted the southwestern Ohio-based company’s practices, alleging that stores target poor, blacks residents and work to trap borrowers in revolving loans.

The nation’s second-largest payday cash advance lender filed a lawsuit in Washington claiming that former district director of operations Micheal Donovan and the Center for Responsible Lending have conspired to tarnish the company and the entire payday-loan industry.

Check ‘n Go officials accuse them of unauthorized eavesdropping and illegally obtaining confidential information.

The suit specifically accuses Donovan of breaching a confidentiality agreement, breach of fiduciary duty and trade-secret misappropriation.

“It’s unfortunate we have to take this route, but we cannot allow fabrications like this to go unchallenged,” Doug Clark, chief operating officer for Check ‘n Go, said in a written statement. “Our [payday loan company] and its employees deserve to be defended from these false allegations.”

The most stark company allegation is that Donovan has multiple felony convictions and put a false Social Security number on his application. Donovan said yesterday he does not have a felony record and the company misspelled his name when trying to look up criminal information about him, essentially pulling someone else’s background and identification.

Donovan said Check ‘n Go is making “false and reckless statements.”

Donovan last week said that as a Check ‘n Go manager, he trained sales staff to keep customers dependent on the cash advance loans, did not tell customers about extended payment plans and targeted low-income black and Latino neighborhoods.

He was joined by two other former Washington-area store managers, who also spoke unfavorably about company tactics.

The company yesterday denied basing employee incentives on repeat customers, and said that store sites and marketing tactics are not based on race.

Check ‘n Go also has denied Donovan’s statement that he felt pressured to donate to the campaign of company executive John Rabenold, who is running for the Ohio House.

“We take pride in how we serve our customers in Washington, D.C., and throughout the country,” Clark said.

The debate over no faxing payday loan lending regulation is heating up in Ohio. Two bills, one backed by the Ohio Coalition for Responsible Lending and another supported by the industry, should be introduced soon.

Ohio credit unions have designed StretchPay, a system with terms and conditions that are straightforward, transparent and easy to understand. Its goal is to work with members to avoid problems like those seen in other financial sectors.

With StretchPay, a credit-union member pays a $35 fee for access to a $250 line of credit for 12 months. He or she can take out a $250 personal loan at usually no more than an 18 percent annual rate (or less than $4 per 30-day period) and must repay the entire balance within 30 days.

As long as the balance is repaid every 30 days, he or she is entitled to take out a subsequent $250 loan.

Let’s assume a borrower takes out a $250 loan seven times over 12 months. The cost would be $61 (the annual fee of $35, plus $26 in interest, which could be less if advances are paid back in less than 30 days). This is dramatically different than the 391 percent APR some fast payday advance lenders charge.

The reasonably priced StretchPay loan program is coupled with the opportunity for credit-union members to receive financial counseling and education, thus helping the most financially vulnerable to begin building savings and assets.

As more families find it difficult or impossible to make ends meet until the next paycheck, credit unions are proud to help members with easy access to an affordable, instant cash loan, helping them get ahead and on the road to economic empowerment.

It’s what credit unions - not-for-profit, member-owned financial cooperatives - have done for working Americans since the 1930s.

Unlike his Staunton counterpart, Del. Steve Landes said he would support a cap on faxless payday loans.

In the past, Landes said he has been one of the legislators who have said that something needs to be done about the high-interest loans and has co-patroned legislation to do away with payday lenders and set caps on the rates that they can charge.

“The cap is at least the minimum that we should do,” Landes said in a phone interview last week.

City Council will decide today whether to approve a resolution that would asking the General Assembly to cap all consumer instant cash loans at 36 percent throughout the state.

In an interview, Del. Chris Saxman said that while he supports reform legislation, setting a specific cap on what a business can charge would set a dangerous precedent.

Landes said this is the first time he has heard of a locality drafting a resolution about payday loans. Localities have taken similar actions with immigration, but the issue is usually something that impacts the locality. This resolution is different because it is more of a statewide issue, he said.

It is always good for local governments to express their viewpoints, but there is not a lot that they can do with this issue at the local level.

A 36 percent cap is reasonable, Landes said. However, he said he would be willing to consider capping the payday advances at a higher rate if that would get something done on the issue. In the past session of the General Assembly, legislators considered capping rates between 36 and 72 percent.

“If there needs to be some negotiation, I’m willing to look at that,” he said. “We’ve not been able to get the payday lenders to agree to some level that most people would believe is fair.”

There are people who want to use a high-interest loan services, Landes said. In order to survive, cash loan lenders need to charge higher rates than other businesses.

(Read on …)