Payday advance lending continued its rapid growth in Colorado last year, jumping 28 percent to $632 million.Regular and online payday loans first topped the $500 million mark in 2005, when they grew 34 percent. The industry was as small as $36 million of loans in 1996. (Read on …)
Mark Bohlinger says he can tell when an affluent family is down on its luck: They start bringing their high-end electronics, televisions, jewelry and guns to his College Avenue pawn shop.
“Absolutely, absolutely,” said Bohlinger, owner of City National Pawn. “It’s kind of a fact of life.”
Pawn shops loan money to people, holding items such as televisions or guns as collateral. If the loan, plus about 20 percent interest, isn’t repaid within 60 days, the pawn shop sells the goods.
They’ve long been a source of quick cash for people who have lots of things but no access to credit. Experts, including Bohlinger, say that when a two-income family loses one source of income, they often first turn to the equity in their home, then to credit cards, and then, sometimes, to pawn shops and payday advance lenders.
Bohlinger recently showed off the collateral-holding area of his store, pointing out the big-screen LCD and plasma televisions that have been hocked by people looking for cash. He said very few stolen items are pawned; all items are entered into a database that police can check.
Bohlinger said about 75 percent of the items pawned at his store are eventually reclaimed by their owners, a rate that changes depending on the economy.
When construction slows, he said, he starts getting lots of tools from workers who hope to reclaim them when the economy improves.
“There’s a lot of people who are living paycheck to paycheck,” Bohlinger said. “That would be our main customer base.”
The number of people in and around Fort Collins who are living paycheck to paycheck appears to be increasing, judging from the dramatic increase in payday loan stores within city limits.
Since 2003, the number of payday loan stores in Fort Collins has more than doubled from nine to 20, according to the state attorney general’s office, which regulates the lenders. Growth of faxless payday loan stores statewide has been no less “explosive,” officials say, jumping from 212 in 2000 to 634 today.
The number of pawn shops in Fort Collins increased from six in 2003 to 10 today, according to city licensing officials.
Cash loan stores offer short-term loans to consumers by holding onto the borrower’s signed check. The loan is supposed to be repaid by payday, hence the name, but studies from across the country have repeatedly shown that borrowers just keep rolling over the high-interest loans.
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
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
Young people, U.S. soldiers and others with limited financial savvy most often fall prey to the short-term lenders, said Terri Verrette, a former payday advance lender.
She is now a financial counselor at America’s Family, a Colorado Springs nonprofit group that helps poor people become more self-sufficient. As reported by The Denver Post, Verrette characterizes such lending as predatory because many borrowers end up thousands of dollars in debt after taking out relatively small loans.
“The most fascinating thing you see is someone who doesn’t realize how much interest he’s paying,” she said.
Payday loans: A military problem - U.S. military personnel at Fort Carson acknowledged the problem. A U.S. soldier found to be using no faxing payday loan lenders can have his or her security clearance revoked and be released from active duty, said Patricia Randle, financial-readiness program manager at Fort Carson.
“They don’t want anyone in their command to know, so they feel it’s a quick way to get cash,” Randle said.
U.S. Sen. Wayne Allard recently added a rider to a defense bill to limit loan rates charged to soldiers. The bill has been passed by Congress and is awaiting approval from the president.
“Predatory lending is an abhorrent practice but especially when it takes advantage of our men and women in uniform,” Allard said.
America’s Family wants credit unions and others to offer similar revolving lines of credit of not more than $500, with cheaper fees and low interest rates than payday cash advances, said Steve Bigari, the group’s founder.
Bigari is working with Ent Credit Union in Colorado Springs to offer such a product to customers who need quick cash.
A payday loan store was robbed by Tuesday at about 6 p.m. in the 500 block of E. Colfax.
According to a police report, the suspect entered the cash advance venue, approached an employee, pulled out a handgun and demanded all the money in the vault in the back.
The victim complied, handing over more than $1,300 in cash. The suspect then fled. He remains at large.
As you might expect, brick and mortar locations that specialize in cash loans are susceptible to robberies. Few other businesses carry as much cash on hand as these operations do.
The provision imposing a 36 percent annual rate cap on military payday loans that Congress recently passes - set to begin on October 1, 2007 - was meant to control these resources.
It may do away with such cash loans instead.
The payday loan industry disputes figures that claim 17 percent of the military uses payday loans. Lenders cite their own 2005 poll showing just 3.7 percent of military personnel had taken out such loans in the past five years.
An industry trade group says just 1.3 percent of regular and no faxing payday loan customers are military - and that the new rules will cripple them.
“A payday loan at that rate would be unprofitable because it costs us $13 per $100 loaned, but we could only charge $1.38,” said Darrin Anderson, president of the Community Financial Services Association of America, a trade group.
The nation’s largest payday lender, Advance America Cash Advance Centers Inc., which operates eight outlets in El Paso County, said that beginning Sunday it will stop making loans to military personnel nationwide.
Anderson, president of QC Holdings Cos., said the Overland Park, Kan., company is evaluating its Quik Cash outlets near military bases, including one in Fountain, to determine whether they should be closed.
Express Cash LLC may consider closing its branch near Fort Carson, or at least stop making small cash advance loans because it would lose money, said Ken Carlson, regional manager for the company’s four outlets in Denver and Colorado Springs.
The number of residents borrowing money from sub-prime lenders and cash advance providers increased last year, according to data released Monday by the Colorado attorney general's office.
In the state, sub-prime lenders, who handle consumer loans with an annual percentage rate (APR) of 12 percent or more, must be licensed by the state and report their lending activity every year. The rules don't cover lenders that make prime loans; banks and credit unions; creditors that make indirect loans, such as automobile dealers; and mortgage companies that make first mortgage residential acquisition and refinance loans.
Meanwhile, the number of licensed instant cash loan lenders - who make small loans of as much as $500 for 40 days or less, due on the consumer's next payday - rose almost 14 percent in 2005 from 2004, the AG's office said.
In 2005, such compnaies made almost $500 million in payday loans to almost 250,000 Colorado consumers, up 34 percent from 2004 and up 101 percent from 2002. The average cash advance payday loan amount was slightly over $300 and was to be repaid in 18 days with an average annual percentage rate of 345 percent.
Also, almost 15 percent of borrowers had 13 or more payday loans, meaning they were in debt for at least six months of the year.
In related news, almost 10,000 Colorado consumers borrowed from small-installment lenders, who loan $1,000 or less with terms of between 90 days and a year, in 2005. The average small-installment loan amount was slightly more than $300 and was to be repaid in six and a half months.
While seemingly not as dangerous as quick cash loans, these resources are still not ideal for those in need.
At 2005 drew to a close, the business of payday loans was booming out west. Colorado lenders were seeing more customers than ever.
Perhaps as a respond to this growth in popularity, the state has passed a payday loan act, officially known as the Deferred Deposit Loan Act.
This law allows individuals to borrow up to $500 for up to 40 days by giving the cash advance lender a post-dated check. In exchange for a fee, the lender agrees not to deposit the check until the date written on it. Up until that date, the borrower can pay the amount of the check and get it back from the lender.
The fee the lender can charge for a deferred-deposit loan is 20 percent of the first $300 and 7.5 percent of any amount over that.
Therefore, if a borrower wants the maximum loan amount of $500, the lender can legally require the borrower to sign a check for up to $575. If such a payday loan is made for the maximum allowable term of 40 days, the annual percentage rate turns out to be 137 percent.
Denver, CO — In 2004, the house passed a state law, HB 1394, allowing small installment loans in Colorado. The law was intended to allow select "supervised lenders" to make high interest loans that would compete with payday lenders.
The 2004 state law seems to have little impact on the fast growing cash advance and online payday loan industry.
Newly released 2004 data shows that payday loan locations, loans and dollars continued soaring in Colorado in 2004, all rising faster than they did in 2003, according to the Colorado Attorney General's Office.
The number of Colorado payday lending locations as of Dec. 31 rose 28 percent from one year ago, with 114 lenders operating 496 locations by the end of the year. The number of Colorado payday loans rose 22 percent to about 1.2 million, and the dollars loaned rose 26 percent to $367.5 million.