Payday Loan Times

Seeking to break “the endless cycle of debt and despair” caused by high-cost payday advance lending, a Wilmington nonprofit organization Monday launched an alternative program with low interest rates and longer terms.

West End Neighborhood House’s Worker’s Loan Program will provide short-term loans with 13.49 percent annual interest rates to compete with commercial lenders that charge rates equal to 300 percent or more annually, said Michael Fleming, a member of West End’s board of directors.

He and several political and community leaders gathered Monday at West End to formally kick off the program.

Borrowers will also get financial counseling and be able to pay back their quick payday loan over four pay periods, rather than the 14-day terms typically offered by commercial lenders.

The program is the first in Delaware to offer an alternative to commercial payday lenders, but others are being developed. Later this month, American Spirit Federal Credit Union in Newark will begin providing 30-day loans at 18 percent, and the Delaware Community Reinvestment Action Council expects to partner with a credit union next year to start a short-term loan program for Wilmington residents.

Nationwide, nonprofit groups, credit unions and banks are beginning to compete with commercial lenders.

Steven Schlein, spokesman for the industry group Community Financial Services Association of America, has said commercial lenders welcome competition but alternative lenders will find it impossible to offer cheaper loans.

The number of cash advance online lenders in the United States has grown from virtually zero before 1990 to about 24,000 today, Schlein said. The largest commercial lenders see relatively thin profit margins, he said.

West End worked with several banks, financial companies and other nonprofit agencies’s program to develop the program. The F.A.I.T.H. Center, a cooperative effort among several Wilmington churches, applied for the initial grant from the nonprofit Speer Trust to start the program.

(Read on …)

Don't worry, The News Journal inn Wilmington wants to tell residents, low-income consumers will have financial alternatives by this time next year.

Community activists, led by the Delaware Community Reinvestment Action Council, are planning to launch a credit union that they say will cater to the needs of low-income people living and working in the state's largest city.

One of the main purposes will be to provide individuals with an alternative to high-interest online payday loans, said Rashmi Rangan, executive director of the Delaware Community Reinvestment Action Council, a nonprofit consumer advocacy group focused on banking.

She said the credit union, which hopes to open for business in mid-2007, will make loans with low double-digit interest to eligible members. This would run in opposition to the fees charged on most faxless payday loans in the state.

Payday advance proliferation: Payday advances are widespread in Delaware because the state imposes no cap on the interest lenders can charge. Rangan couldn't provide an estimate for how much money is lent annually across the state, but statistics from the bank commissioner's office show that there are 20 fast payday loan lending locations in the Wilmington area alone.

That's a lot.

About two dozen people are involved with organizing the credit union idea.

"We see this as a great opportunity to help people better manage their credit, and we see it as an opportunity to give people access to loans without losing the shirts off their backs," said Lance Bruce, chairman of the 3rd District Planning Council, a Wilmington community group supporting the credit union.

(Read on …)

First Bank of Delaware discontinued the use of payday loans a few months ago. We had the report.

Now, the company has announced it’s also dropping tax refund anticipation loans. These resources are similar to short term payday loans. They had drawn criticism from consumer advocates due to the high cost to borrowers.

First Bank of Delaware said the move would “have a material adverse impact” on the bank’s earnings, but didn’t specify a figure. No quarterly reports have been announced since the instant payday loan removal, so there's no way for the public to know the effects of that decision at this time.

Should you take out a payday loan? How are the fees calculated? An article from the Daily Times (the newspaper of the Eastern Shore of Delaware, Maryland and Virginia) examines the payday loan industry and breaks it down for consumers who may be curious about it.

From the basics of the payday advance business to a checklist for consumers, this column is worth taking a look at and the Times is happy to pass it along to you.

~~~~~~~~~~~~~~~~~~~~~

HOW PAYDAY LOANS WORK
Let's say you need $200 cash as of tomorrow, April 18, but your payday is in two weeks (May 2). A company will agree to give you a loan by the end of the business day, so long as you write a post-dated check (or agree to an instant wire transfer, if you use a faxless payday loan agency) for the $200 plus fees, due on May 2.

The rates of interest vary, but you're probably looking at 15-20 percent of the loan amount. In this case, $35-40. For the purposes of this example, let's say you owe $40, making the total amount $240.
(Read on …)

According to The News Journal, payday loan applications are on the rise throughout Delaware. The payday advance industry in the state has grown from just a few hundred outlets a decade ago to more than 20,000 today. They lend an estimated $40 billion a year, usually in $200 to $500 increments.

“This market is incredibly dynamic,” said Matt Fellowes, a researcher at the Brookings Institution, a nonprofit think tank in Washington, D.C.

Fellowes and other experts spoke at a forum Friday at the University of Delaware titled “The High Cost of a Low Income,” which focused on the impact of payday lenders, check-cashing outlets and title-loan companies. Some of those businesses prey on unsuspecting consumers, and the high interest rates and fees charged by all of them can add up quickly, experts said.

Fellowes’ study of lenders specializing in payday advances nationwide matches The News Journal’s analysis of state and federal banking data, which showed that such financial institutions have become common in all kinds of Delaware neighborhoods.

In Delaware, 300 such businesses have taken their place alongside the 260 mainstream bank branches in middle-income neighborhoods and commercial districts throughout the state, data show. No longer confined to poor urban areas, they dot strip malls along Kirkwood Highway outside Wilmington, DuPont Highway through Dover and Del. 1 through Rehoboth Beach, with neon signs promising 10-minute approvals for borrowers with bad credit.

New Castle County is home to almost half of the state’s alternative lenders. About 84 percent of them are in neighborhoods where the median household income is between $30,000 and $75,000.

“These aren’t poor neighborhoods,” Fellowes said.

(Read on …)

Under pressure from federal regulators, First Bank of Delaware plans to end its involvement with with payday loans and cash advances.

The announcement by the Brandywine Hundred-based bank follows a similar move late last year by Rehoboth Beach-based County Bank. Both banks made the loans available through partner companies that operate storefront locations nationwide.

In a brief statement released late Tuesday, First Bank of Delaware acknowledged that the Federal Deposit Insurance Corp. had ordered the bank to stop its payday-lending involvement, unless the bank could fix unspecified problems with oversight of the lending. As a result of the regulatory pressure, the bank said it has decided to stop payday lending “in a time period that has yet to be determined.�?

(Read on …)

Rehoboth Beach, DE — County Bank is ending its eight-year involvement in the industry of payday advances. Harold L. Slatcher, president of the Rehoboth Beach, Delaware-based bank, said Tuesday that the bank will end all partnerships with payday lenders by the end of next month.

"This is 100 percent our decision," said Slatcher, who helped found the bank in 1990. "At no time did the FDIC ask us to get out of this business, nor did we cave in to pressure from the activists."

County Bank was among the most significant players in the payday lending field. At its height, the company had partnerships with 20 no faxing payday loan companies, according to a North Carolina consumer activist group.