Payday Loan Times

The D.C. Council is getting ready to vote on a plan to cap the interest rate on payday advance loans.

Currently, lenders can charge $16.11 per $100 borrowed. The bill sponsored by council member Mary Cheh would drop the maximum interest rate to 24 percent, a little over 90 cents per $100 borrowed.

The council gave preliminary approval in March by a 12 to 0 vote.

In a news conference on the legislation, former employees of an instant payday loan lending service decried the industry’s practices saying they guarantee that the customers will stay for years by allowing them to borrow more money than they take home in pay.

Providers of no faxing payday loans say the proposed caps would put them out of business. They say they provide customers with a choice that does not require a credit check and that helps provide money for emergencies.

Sonny Eyabi is president of the Washington D.C. Financial Services Association, which represents more than 40 payday advance lenders in the District.

He penned the following recently for The Washington Post:

When the D.C. Council reconvenes on Sept. 18, it will vote on a bill that would leave District residents without access to payday cash advances - a popular, well-regulated short-term credit product - and put nearly 400 Washingtonians on the unemployment rolls.

The bill, sponsored by Mary M. Cheh (D-Ward 3), would cap annual percentage rates on payday advances at 24 percent. While this may sound like a great idea, it is essentially a ban on the industry. At that rate, lenders would actually lose money on every no faxing payday loan, with a maximum fee of only 92 cents per $100 borrowed.

If the rate cap is approved, the only way for our stores to keep their doors open would be to operate as charities.

We know our customers use payday loans to avoid bouncing checks, as overdraft protection, and to cover late fees on credit card and utility bills. By taking away the option of payday cash advances, demand for this product will not disappear.

For example, the state of Georgia has restricted payday loans in a similar way to the D.C. Council’s plan. In 2006, more than 500,000 cash advances were made to Georgians who crossed state borders so they could deal with unplanned expenses.

Payday cash loans are already strictly regulated in the District and in 38 states. These regulations include a maximum advance amount of $1,000 (including the fee), a maximum fee charged for the loan ($16.11 per $100 advanced) and the required display of all fees in English and Spanish. Would additional reforms help consumers?

Absolutely. To better protect the District’s payday loan customers, we advocate:

• Making sure that customers understand the cost of the product by fully disclosing all fees in simple and easy-to-understand language.

• Helping customers avoid getting caught in a “cycle of debt” by allowing only one rollover and offering an extended payment plan, at no cost, to any customer who cannot pay back the quick payday advance when it is due.

• Verifying that customers have the ability to repay before approving the loan.

• Funding financial literacy programs in the District.

Our members would be required to follow these rules, and we urge the D.C. Council to codify these reforms into law to ensure that all payday loan stores in the District abide by the same regulations.

(Read on …)

The local payday cash loan industry has launched an aggressive advertising campaign to try to persuade the D.C. Council to reverse a vote that would limit the fees charged on short-term loans.

Last month, the council voted 12 to 0 to give initial approval to a bill that would limit the rate charged for a $100 loan repaid within two weeks to 90 cents, a rate more in line with those of banks and credit unions. Currently, customers pay an average of $15 to $16 per $100. The industry maintains that such a cap could force payday advance firms out of business.

As the final vote approaches Sept. 18, the D.C. Financial Services Association plans to use newspaper, television and radio ads to urge the public to reject the council’s efforts to “limit” bad credit payday loan options. The campaign paints the industry as providing a necessary service for some residents, a stark contrast to what critics characterize as an industry preying on the poor and locking them into debt.

Two television commercials feature customers Thomas Johnson, who needed quick cash to fix his car, and Erika Williams, who needed money when her child was sick. Both say they used the no faxing payday loans “responsibly.”

“Reforming payday loans is fine. Banning them is not,” a narrator says in both ads.

The TV ads began a week ago, and the print promotion, using the same words as the narration and also featuring Williams and Johnson, begins today.

The association, which represents 41 of 48 quick payday advance stores in the District, is also conducting a poll to gauge how the public feels about payday loans, said Tyrone D. Bland, vice president of the association and government affairs director of ACE Cash Express, which has 15 stores in the District.

“We’re just trying to define the message,” Bland said. “What we say is we are a viable credit option for a segment of the community.”

That segment is usually poor, and 99 percent of payday loans turn into long-term debt because the average borrower renews a loan eight times per year, according to the Center for Responsible Lending, a nonprofit research and policy group that lobbied for the D.C. law.

The council, led by member Mary M. Cheh (D-Ward 3), was swayed by the group’s arguments and approved the bill, which would cap the rate at 24 percent.

Interest rates under current District law range from 349 to 550 percent. Cash advance loans create a revolving door of debt because a customer, who generally borrows $100 to $500, has difficulty repaying it and must renew the loan for a fee, said Jillian Aldebron, policy counsel for the center.

A customer could end up paying more than $700 for a $325 loan, based on the average eight renewals, Aldebron said.

“That is a worst-case scenario,” Bland said. “Our goal is not to get you caught up in a circle of debt.” The idea, he said, is to save a customer from other debts, such as fees for late credit card payments and bounced checks.

Putting an emphasis on percentages, as the Center for Responsible Lending has done, muddies the debate, Bland said. “How much am I going to pay to [obtain a payday loan]? About $16,” he said. “If I write a bad check, the fee from the merchant is $35. The fee from the bank is $35. That’s $70 for $100.”

Bland said the D.C. Financial Services Association has created management practices that could be incorporated into the law to encourage responsible borrowing and lending. For example, customers would be allowed to extend a check cash advance without a fee for 60 days at least once per year if they could not pay but also would not be allowed to take out another loan.

Cheh said other states have been unsuccessful with such legislation.

“Basically, it’s a fig leaf so they can carry on their operations as they were,” she said. “People shouldn’t be fooled. I have confidence in my colleagues that they are not going to fall for this.”

SOURCE: The Washington Post

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.

If you work everyday but have bad credit, where do you go for an emergency loan? The only option might be a payday loan store.

Some DC Councilmembers say these businesses are located exclusively in poor communities and prey on people who they know are not likely to pay the money back in the two week loan period. After that, higher fees and interest rates kick in.

For instance, Stephanie Jones needed $200 for a cable bill. She got a payday advance loan from the “Payday Now” store on Georgia Avenue. Her fee was $30, which she called “a great deal.” She paid the loan off on time, then she went to work for the establishment.

Others have had different experiences after taking out bad credit payday loans.

Demetrius Jones, who was standing outside the “Payday Now” store, said: “They are robbing you without the gun; charging outrageous interest rates and they are only located in our communities.”

DC Councilmembers Mary Cheh and Marion Barry will hold hearings this week on a bill they have introduced to bring fast cash loan businesses under the same interest rate caps that other financial institutions face. It’s a 24% cap on loans over a year’s time.

A spokesperson for the industry says the bill would put payday loan lenders out of business because in effect it would mean roughly 90 cents on a $100 loan. Councilmember Cheh says payday loans to DC residents average 340%, while they paid $3.3 million in the year 2005 in payday fees.