Payday Loan Times

Due to deceptive collection practices and threatening with abusive language while attempting to collect debts for a payday loan company a Jacksonville, Florida collection agency has been sued. (Read on …)

A federal grand jury in Florida has indicted a handful of payday loan executives and their sales agent for their roles in a scam that raised over $1.6 million.

In the latest step in the SEC’s case, a grand jury has indicted Eric Turner, Kenneth May and Anthony Pinone for their roles in the fraudulent offering and sale of stakes in Virtual Cash Card. Virtual Cash is a defunct South Florida company that purported to be in the payday loan business.

According to the indictment, the three men used an in-house sales force as well as Pinone’s firm, Omni Advertising & Marketing, to raise at least $1.6 million from more than 70 payday individuals. Starting in at least September 2001 until December 2002, those reps used boiler room tactics such as cold calling and unsolicited emails to push the investments.

The sales agents, who were unlicensed to sell securities, used fraudulent marketing materials to dupe investors into buying into a stake in the cash advance payday loan company.

Virtual Cash told investors it was part of the multi-billion dollar payday loan industry. Like other payday loan businesses, Virtual Cash claimed to provide customers with payday advances of up to $500. In return, customers authorized Virtual Cash to debit his or her bank account at a later date, normally within two weeks, for the amount of the loan plus a 20% fee, which amounts to more than a 400% annual return for the company making the loans.

Turner, 35, was the primary organizer of the venture, creating the original sales materials for investors, according to the SEC. Armed with the bold return figures of the payday loan industry, Turner had no trouble convincing May and Pinone that they could sell the idea to the public.

By February of 2002, Pinone had organized the boiler room of unlicensed agents to find potential investors in Virtual Cash. Its sales materials guaranteed investors a return of 3% a month on investments of less than $50,000 and of 4% per month on investments of more than $50,000, and promising annual returns of as much as 150%.

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Vincent Fulginiti found himself mired in debt earlier this year from a payday cash advance that he couldn’t pay off. But he credits a credit union with helping him out of a bad fix.

With bill collectors on his heels, the Brevard County father of four told his credit union about his predicament. The financial co-op gave him a personal loan at 15 percent to cover the triple-digit-rate payday loan.

Four months later, Fulginiti has paid off the personal loan, boosted his credit score by more than 100 points and secured a small-business loan from Kennedy Space Center Federal Credit Union for a fencing business.

“My credit score wasn’t the best, but they gave me a shot. They gave me a chance,” said the 45-year-old maintenance technician, who worked for a private company. “And boy, it was like what a load was off my back. I don’t know what I would have done without it.”

Fulginiti was fortunate to find a way out of the debt trap he had fallen into, consumer advocates say. It is not widely known that credit unions have long offered small-dollar loans to members in a cash crunch.

But in recent years, with large quick payday loan lenders wielding big advertising campaigns and reeling in flocks of customers, credit unions are trying to better promote the alternatives, industry officials said.

“We’ve always provided a better option, but now we’re just trying to raise the visibility of what we’re doing,” said Fred R. Becker Jr., president of the National Association of Federal Credit Unions, a trade group in Arlington, Va. “Obviously, however, we have less marketing money than a multimillion-dollar, publicly traded payday-lending company.”

Many credit unions are gradually reaching out to people who might be “in the market” for a cash loan, he said. A few credit unions have even used the term “payday loan” in their promotions, although it is still set up like a conventional installment loan with, at most, an 18 percent rate, instead of triple-digit rates associated with payday advances.

Payday lenders dispute any suggestion that their loan costs are out of line or that they are taking advantage of people. They say they are meeting a demand, offering a service and extending credit to people, often with credit problems, who otherwise would not be able to obtain a loan from mainstream financial institutions, including credit unions.

Neither credit unions nor banks are prepared to take the riskier customers that faxless cash advance lenders serve, said Ian MacKechnie, CEO of Tampa-based Amscot Financial Corp., one of the state’s fastest-growing payday lenders.

“We welcome the competition of credit unions getting into the business of small loans,” he said. “But I tell you, some of them are charging roughly the same rate we charge, and yet they’re saying they’re trying to help people.”

A customer must first be a member of the credit union by opening a savings account with a minimal balance. Repayment terms and conditions are set up over a period of months. And, in some cases, the credit union can set up a direct deduction from a paycheck to repay the loan.

(Read on …)

The 2001 state law that reformed the Florida payday loan lending business in the state is being ignored by some of the companies it was designed to regulate.

In skirting the reforms, those companies still make paycheck-advance loans with annual percentage rates that exceed 400 percent to 700 percent. And financially strapped customers who can’t pay on time are repeatedly allowed to refinance their debt, in apparent violation of the law.

Some of these companies argue that they aren’t subject to the Florida rules because they peddle cash loans from outside the state via the Internet. Others operate from local storefronts but say they are exempt from the law and governed instead by other state statutes.

“The Florida law has been around long enough that many lenders have figured a way to get around it,” said Lynn Drysdale, a Jacksonville consumer-advocacy lawyer. “You have to have a law that prevents these kinds of disguises to circumvent consumer protections.”

The 2001 reforms, signed into law by then-Gov. Jeb Bush, limit fast payday loans to $500, with terms not to exceed 30 days. “Rollovers,” or refinancings of an unpaid loan, are banned, and borrowers can hold only one loan at a time. If a customer can’t pay off the debt when it comes due, the law mandates credit counseling and a repayment plan.

Most importantly, the law limits how much lenders can charge for a payday loan, though the rates are still high by conventional measures. A typical customer can’t be charged more than $55 for a two-week, $500 loan. That’s $10 for every $100 borrowed plus a $5 “verification fee.”

But take out a no fax payday loan from any Cash America or EZMoney store in Florida and you will be charged far more than that. And if you can’t pay it off, you may be allowed to refinance the balance again and again, with late fees and other charges added.

Consumer groups point out that even the legally allowed charges in Florida translate to an annual percentage rate of 260 percent for a $500 loan held for two weeks (the typical term for a paycheck advance).

The APRs for loans at Cash America, EZMoney and Sonic are even higher, ranging from 468 percent to 702 percent - or even more if the loan is renewed and the usual fees are added to the balance due.

Payday advance lenders argue that discussing triple-digit annual percentage rates is unfair, because their cash advances are short-term financial instruments, not yearlong loans. But consumer advocates counter that some customers, unable to make it to their next payday time and time again, become serial users of paycheck advances and fall into just such a “debt trap.”

‘Very regulated industry’
Florida’s 2001 law was a compromise measure designed to rein in annual percentage rates that, at the time, were topping 1,000 percent when all the various charges were figured in. The law’s supporters say it has done much to deter abusive lending practices and bring some order to a cash advance loan industry viewed by some at the time as out of control.

According to state Sen. Lee Constantine, the law’s lead author, the rate of payday-loan defaults has fallen from about 40 percent before the reforms to less than 5 percent now.

“It has worked incredibly well,” said Constantine, a Republican from Altamonte Springs. “Now we have a very regulated industry, where the vast majority of companies are responsible and compliant. What we have in Florida is far and away the toughest law in the nation.”

A majority of check cash advance lenders in Florida - including Advance America of Spartanburg, S.C., and Tampa-based Amscot Financial Inc. - comply with Florida’s law, according to state regulators who monitor a transactions database created by the 2001 law.

“Most of these lenders are conscientious about toeing the line,” said Mike Ramsden, an administrator with the state Office of Financial Regulation.

Certain lenders say they consider Florida’s law a model for the industry.

“We believe what Florida legislators have developed is good, strong, pro-consumer legislation that governs this industry,” said Ian MacKechnie, Amscot’s president. “We’re a highly regulated industry, and we are committed to what we consider industry ‘best practices’ that payday lenders in all states should follow.”

Click here to read the rest of this Orlando Sentinel article.

Payday lenders pocket $4.2 billion in excessive fees each year from Americans who seek a two-week loan and end up trapped in debt, according to a report by the Center for Responsible Lending and a recent article in The Miami Herald.

The study calculates the cost of predatory payday lending state-by-state and also estimates that borrowers save $1.4 billion in states that enforce reasonable interest rate caps.

Julian Bond, chairman of the NAACP, said his organization is committed to fighting abusive financial practices such as no faxing payday loans.

”This is hard-earned cash being siphoned out of the wallets of working people,” Bond said. It’s “much-needed monthly benefits being squeezed out of retired and disabled folks.”

Cash loans are marketed as short-term cash advances on the borrower’s next paycheck. But previous research has found that the industry depends on repeat business or ”flipped” loans.

In fact, 90 cents of every dollar payday lenders make comes from borrowers who flip into loan renewals five or more times per year. The new report finds the average payday borrower pays back $793 for a $325 loan!

Some states don’t allow the savings account payday loan practice. They are Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia. All hold their lenders to consumer loan laws, which usually include a double-digit interest rate cap.

Congress recently adopted this approach when the Pentagon sought protections for troops from online payday advance lenders. The Defense Authorization bill President Bush signed in September included a 36-percent interest rate cap on such loans to military families.

Palm Beach Circuit Judge Elizabeth Maass has ruled that thousands of Florida consumers who took out payday loans can bring their claims through class action arbitration, despite a provision barring that in payday loan contracts.

In an order dated Dec. 12, Maass ruled that class action waivers signed by thousands of people who obtained payday loans through Check ‘n Go of Florida Inc., were unconscionable. She wrote that “the chance that [the named plaintiff] could have obtained competent counsel absent the possibility of class action status … is effectively zero.”

Ted Leopold, a partner at Ricci Leopold of Palm Beach Gardens and one of the plaintiffs attorneys in the case, called the ruling a “sign that everyone who is preyed upon will have their day in court or arbitration. The [faxless cash advance] industry cannot take advantage of disadvantaged people.”

John Hart, attorney for the Cincinnati-based Check ‘n Go, declined to comment on Maass’ ruling other than to say he will appeal before the Jan. 11 deadline. Hart is a partner at Carlton Fields in West Palm Beach. Amy Brown of Squire Sanders & Dempsey’s Washington, D.C., office, is co-counsel in the case.

Check ‘n Go required its customers, including plaintiff Donna Reuter, to sign a contract that mandated binding arbitration and prohibited class actions in the case of disputes. Payday cash loans are typically small. Customers sign the contract and write a personal check for the amount borrowed plus a fee.

Leopold said that sometimes the real interest rate on payday loans can reach 600 percent once rollover fees are added. These fees, he said, violate state usury laws, which prohibit excessive interest rates.

The class attorneys argued that the waiver provisions in the payday loan contracts were procedurally unconscionable because they are embedded in contracts that consumers enter into when they face financial stress. Of the seven companies offering faxless payday loans in Florida in 2000, four required borrowers to sign a class action waiver.

The class attorneys also argued that the waiver was unconscionable because without class status, the consumers wouldn’t be able to hire competent counsel. No skilled, experienced attorney would take an individual case because the fee would be too small to justify the work, Leopold said.

Maass agreed.

“It would be virtually impossible for Ms. Reuter, or anyone in a similar position, to obtain competent individual representation for the types of claims brought here,” she wrote.

Class action arbitration works like regular arbitration, but the attorneys represent a class rather than an individual client. Leopold said the arbitrator will either be someone both sides agreed on or someone assigned to the payday loan case.

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In Jacksonville, City Council member and Foley & Lardner attorney Kevin Hyde (pictured) is the recipient of this year’s Equal Justice Award. This is the eighth year Jacksonville Area Legal Aid has recognized a local attorney for their work to provide legal assistance to those who can’t afford it.

A staunch advocate for access to justice for all, Hyde has worked hard for JALA as a member of Council. His commitment to regulate the instant payday loan industry that preyed on Jacksonville citizens by charging triple digit interest rates is an example of that commitment.

Hyde - who will be recognized during a ceremony and reception tonight at The River Club - spearheaded the effort to regulate pay day loans by sponsoring an ordinance that would cap interest rates.

Although the courts later overturned it on appeal, Congress eventually followed Hyde’s lead. This fall, Congress passed a federal law capping no fax cash advance interest rates for military members at 36 percent.

Since 1999, JALA has honored the individual or organization that has most assisted JALA staff in accomplishing their mission of serving low-income people in Duval, Clay, Nassau and St. Johns counties. The Equal Justice Award is the highest honor given by JALA.

In addition to the Equal Justice Award, seven others attorneys will receive pro bono service awards and eight local law firms will be recognized for having 100 percent attorney participation in JALA’s 2006 fundraising campaign.

University of Florida associate law professor Christopher Peterson is partly responsible for the payday advance interest rate law recently passed regarding loans to the military.

“I’m very satisfied to have my research contribute, albeit in a small way, to some positive change in our legal system,” said Peterson, who testified in front of the Senate Banking, Housing and Urban Affairs Committee in September on his findings.

Peterson and Steven Graves, an assistant professor of geography at California State University, surveyed more than 13,000 ZIP codes nationwide and found that more fast cash loan lenders were concentrated in ZIP codes with a military base than nonmilitary ZIP codes with similar population and demographic makeups.

The Gainesville Sun reported that Peterson said military bases are targeted by cash advance lenders because they are filled with junior enlisted personnel, who often have little experience managing money and low but consistent salaries.

“They’re also easy for the payday loan companies to track,” he said.

In a typical quick cash advance, a borrower is charged $15 to $18 per $100 loan for two weeks with the average loan being $350, according to the report. Sometimes the borrower writes a post-dated check.

The catch comes if the borrower is unable to repay the loan by the time it’s due. This causes the borrower to refinance the loan by borrowing more money on the same terms, known as a rollover. The annual interest rates usually span between 390 and 780 percent with the average borrower paying back$834 for a $350 loan.

While such providers of regular or online cash loans are illegal in 11 states, they are allowed in Florida with some regulations.

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Those familiar with the interest rate cap Congress placed on military payday loans this week may also be familiar with the bill it resembles.

“I think it’s fair to say the tide is clearly turning against the exorbitant interest rates and the predatory lending practices that have occurred in the past,” City Council member Kevin Hyde, who introduced first-of-its-kind legislation to cap local, short-term loan interest rates at 36 percent last year, said to the Jacksonville Daily Record. “Congress, in some sense, validated what we did.”

The bill Hyde introduced was originally targeted at military payday cash loan lenders. Hyde - who is also an attorney with Foley & Lardner - said studies from the U.S. Department of Defense initially inspired the legislation, so Congress wasn’t solely taking its cues from Jacksonville.

The DOD report ranked the prevalence of payday loan providing in an area as its eighth top concern for deciding which military bases to close. Payday lenders often target military members because their paychecks are small enough to keep them in need, but steady enough to provide regular payments, according to Lynn Drysdale, an attorney with Jacksonville Area Legal Aid.

She specializes in predatory lending cases and testified for the congressional panel on military cash advance companies a few weeks ago.

“My purpose was to come and say, ‘I represent sailors and service members. This is not some (meaningless) report, I’m telling you what I’ve seen,’” said Drysdale. “I was there to provide what actually happens on the street.”

Drysdale said she’s seen predatory payday lenders charge 390 to 900 percent interest rates for their loans. Payday lenders often require direct deposit banking information to pay back the loans – causing many borrowers to take on more personal loans to ensure their payments don’t bounce and incur more fees.

“(Another) key factor is members of the military are governed by the uniform code of military justice,” she said. “If you don’t pay your debt, it can affect your opportunity for advancement … and they (payday lenders) use the chain of command as a collection arm.”

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A recent opinion piece in The Orlando Sentinel certainly didn't hide from how it felt about the issue of payday cash loans to the armed forces. Here it is, paraphrased: 

It's unconscionable that Americans who volunteer to put their lives on the line for their country in the military have been targeted by rapacious cash loan lenders charging annual interest rates of 400 percent or more.

Congress needs to outlaw this predatory practice.

In June, the Senate unanimously approved a measure co-sponsored by Florida Democrat Bill Nelson and Missouri Republican Jim Talent to cap annual interest rates at 36 percent for payday loans to service members. The measure needs House approval to become law.

Ideally, that would come this week as Congress considers a military-spending plan.

All Americans deserve protection from cash advance loan sharks. Protecting men and women in uniform is a great place to start.