Payday Loan Times

Louisville businessman Bruce Lunsford, one of seven Democrats running for governor, said yesterday that he would press the legislature to crack down on the pay day loan and subprime mortgage industries if elected.

He said too many low-income people find themselves getting deeper in debt or risk losing their homes because of loans that carry very high interest rates or fees.

“Government hasn’t protected these people,” Lunsford said in a conference call with reporters.

John Rabenold, a spokesman for the Kentucky Deferred Deposit Association, said the no fax payday advance business already is regulated. He also said he isn’t aware of abuses in the industry, which offers short-term loans of up to $500 to people who are supposed to pay them back within 14 days.

“It’s a very convenient and confidential service customers have grown to appreciate in Kentucky,” he said.

However, the industry has attracted critics among some lawmakers and advocates who say payday and so-called “subprime,” or high-cost, mortgage loans prey on the poor and disadvantaged.

Bad credit payday loans are deceptive because many people don’t realize the true cost, said Ann Marie Reagan, a lawyer with the Kentucky Office of Legal Services, which has lobbied for tighter rules on such loans. State law allows lenders to charge up to $17.50 per $100, or $87.50 for a two-week loan of $500, she said.

That would amount to an annual interest rate of 459 percent if the loan were refinanced every two weeks over a year, Reagan said.

But Reagan said efforts to persuade lawmakers to impose additional restrictions on quick cash loans and sub-prime mortgage loans have failed in recent years amid intense industry opposition.

Lunsford said that if he’s elected, he will work to persuade lawmakers to enact tougher laws.

He said he wants to:

• Sharply reduce fees on payday loans and ban penalties for early payment
• Ban loan “flipping,” in which borrowers repeatedly refinance payday cash advances at high rates
• Ban excessive fees and penalties for paying off a mortgage early
• Prohibit mandatory arbitration, required in some loan contracts, which blocks people from filing lawsuits

Lunsford said a number of people raised concerns about the issue at a series of barbecue town meetings he and his running mate, Attorney General Greg Stumbo, have held around Kentucky.

He said it has nothing to do with the fact that one of his opponents in the May 22 Democratic primary, Lexington lawyer Steve Beshear, worked as the payday loan industry’s top lobbyist for several years in the late 1990s.

“I’ve done everything I can in this campaign not to address anyone else’s activities,” Lunsford said.

While Toni Czajkowski, a readers of The Herald-Leader, is thankful for recent insight from the newspaper into the recent military payday loan debate, he recently wrote a response to such an article.

In it, Czajkowski didn't simply focus on the interest rates attached to cash advance loans that focus on the armed services. We'll paraphrase his letter to the editor below …

Thanks to The Herald-Leader for its detailed explanation of the legislation regarding military payday loans. It seems to me that 36 percent interest is more than enough for the lenders to cover their risks.

What is the rate of default on such bad credit payday loans? What is the cost to administer them? Maybe we need to compare them with those of other lenders.

But the bigger questions are: Why do men and women in our military live paycheck to paycheck? And worse, why do they need these short-term no fax cash advance loans to make it to the next paycheck?

Why do military families need food stamps? Especially while contractors get paid thousands of dollars a day to paint schools and to not build hospitals in Iraq?

We should be outraged by the Bush administration's irresponsible fiscal policies. The priorities of the administration and members of Congress, such as Geoff Davis, do not match the priorities of working American families.

The fascist theocracy is only serving at the pleasure of the voters. Get rid of them all.

What to you do, in the weeks leading up to an election, when you're being blasted for supposesdly being against military payday advance reform? You change your stance!

So seems to be the case for Geoff Davis.

In a statement, Davis claimed credit for a compromise in the 2007 defense reauthorization bill that would impose a 36 percent limit on annual interest rates. Davis said his version of the cap would cover cash loans, as well as fees charged for insurance, investments and other financial products aimed at service members.

The original measure focused on just payday loans.

"As our troops are deployed, they are often faced with difficult financial decisions for themselves and their families," said Davis, who on Nov. 7 faces Democrat Ken Lucas in a race to represent Northern Kentucky. "Ensuring that lenders cannot prey on their financial vulnerability is extremely important to me."

Payday loan criticism: Last week, Lucas launched a campaign commercial accusing Davis of "helping predatory payday lenders charge our troops 300 to 400 percent interest."

Davis had opposed an amendment on faxless cash advance lending that included the 36 percent cap, approved by the Senate this summer. The Pentagon says payday lenders surround military posts and exploit troops.

News stories about his opposition - and $11,450 he took for this year's race from CNG Financial of Mason, Ohio, which owns a chain of payday loan stores - spread across political Web logs.

Fifteen of his constituents called or wrote to express concern, said Justin Brasell, Davis' chief of staff.

(Read on …)

Don McNay of The Richmond Register is not pleased.

He wrote a recent column talking about the current fight in Congress over military payday loans. The main target of McNay's wrath? Geoff Davis. Let's read what he has to say, paraphrased …

As John Cheves noted in a recent Lexington Herald-Leader story, there is legislation in front of Congress to limit payday advance lenders to 36 percent interest when they lend money to soldiers. Davis is trying to stop it.

These cash loan providers are big contributors to Congressman Davis’ campaign.

Cash advance lenders say they can’t make money charging 36 percent. Can you think of another business that would whine about a 36 percent limit? When I grew up in the Northern Kentucky area that Davis represents in Congress, some cities were controlled by the Mafia. The mob had a term for 36 percent interest rates: loan sharking.

If a loan shark had charged 390 percent to 780 percent, not only would he have wound up in the river, someone would have thrown all their friends and relatives in, too. Now lenders like Check’n Go are “legitimate” corporations, and their employees can donate huge amounts of money to politicians. So far, they have coughed up $11,450 for Davis.

Davis, corporations taking advantage of soldiers and cash advance loans are a perfect storm of things that plague America. I’m angry about people continuing to rip off soldiers and military people.

(Read on …)

Considering the allegations surrounding Congressman Geoff Davis - such as the claim that his objected to the proposed military payday loan amendement is corrupt - it's a good thing he's chosen to speak up.

Davis, an Army veteran and freshman congressman from Hebron, has been criticized by consumer rights groups for opposing a 36 percent cap on payday loans.

But he called the idea "knee-jerk legislation" to The Cincinnati Post, saying the 36 percent cap would drive payday advance lenders out of business and send customers into the arms of other predatory lenders whose loan amounts aren't limited to the typical $500 and $700 maximum of cash advance providers.

Installment loan lenders, for example, can deliver personal loans for as much as $5,000 to individuals who typically end up rolling over the loan, generating more interest, because they can't afford to pay it back.

A real payday loan alternative: Davis spokesman Justin Brasell said the congressman's proposal would allow payday cash loan lenders to charge the fee they are charging up front now - about $30 per $200 on a two-week loan, which rolled over through a year would calculate to an annual interest rate of 390 percent - but would prohibit companies from rolling over the loans if the customer can't pay.

In such cases, Davis' measure would require lenders to set up customers on a six-month payment plan with an interest rate capped at 20 percent annually, Brasell said.

Consumer rights advocates say they don't dispute there are flaws within the installment loan industry, but that isn't a reason not to rein in payday advance loan businesses while they can.

"There are problems in the small installment loan market as well," said Jean Ann Fox, spokeswoman for the Consumer Federation of America, a group that has been pushing the amendment Davis opposes."A 36 percent rate cap as the outside limit, that may be high but that certainly is a vast improvement over 390 percent payday loans."

(Read on …)

In Kentucky, Rep. Geoff Davis objects to a national proposal that would limit interest rates for soldiers that acquire regular or no faxing payday loans. The question on the minds of many consumer groups, therefore, is:

Why?

The Pentagon has accused payday lenders of surrounding its military posts with the intention of exploiting troops.

Davis' chief of staff claims Davis opposes the amendment because it would impose a 36 percent cap only on payday cash loan lenders, but not other types of businesses that target service members.

The proposal is an amendment to the 2007 defense authorization bill. It's currently being debated in Congress, but the following tidbit calls Davis ' motives into question:

• He received more than $11,000 from CNG Financial, which owns national payday lender Check 'n' Go, in campain contributions.

That fact was reported by the Center for Responsive Politics and we'll have more on this story as it develops. But could a payday loan company connection be getting in the way of Davis doing what he actually think is right?

Times haven't changed for Republic Bancorp since it discontinued its payday loan practice. We reported earlier this year that first quarter profits fell after such a decision was reached; the same occurred last quarter.

On Friday, the business reported a 28 percent profit drop for the quarter ending June 30, largely because the company’s results from a year earlier included the aforementioned payday advance business.

Not counting the payday loan revenue, profits were $6 million, down from $6.6 million a year earlier.

“Although we did not post record earnings, we believe our results were solid and are a testament to the core banking principles that we practice each and every day,” Steve Trager, Republic CEO, said in a statement.

He cited the slight difference between the short-term interest rates the bank pays for deposits and the long-term rates it charges for loans as a pressure on profits. The company said its loan portfolio, particularly residential real estate, has lifted banking net interest income. Non-interest income increases included a 24 percent increase in deposit service charges, primarily because of new checking accounts.

The bank did not say it had any plans to bring back offers on bad credit payday loans for its clients.

Thousands of documents containing customers' personal and financial data were found intact, unshredded and scattered behind a Money Now payday loan store in Louisville, Kentucky, according to members of a local TV news team.

Boxes of financial records were found by another business owner in the same strip center. The individual who happened upon them immediately alerted the people that he had their information.

"It's my name, it's my social security number, it's my address," said an unnamed and upset woman whose personal information was discovered in a dumpster behind the payday cash loan store.

The news crew discovered more documents in the dumpster, some of which contained people's personal and financial info., such as their social security and bank account numbers. Employees at Money Now began picking up the documents after reporters showed up.

(Read on …)

Against the wishes of consumer advocates tha feared Senate Bill 45 would roll back payday loan protections, The House of Representatives voted 79-16 to pass the legislation. It exempts state-chartered banks from most Kentucky laws or regulations that don’t apply to national banks.

Those laws include the High Cost Loan Act that legislators enacted in 2003 to protect consumers against predatory loans. It included some disclosure requirements and put limits on some fees, according to The Courier-Journal.

The Kentuck Bankers Association has said SB 45 is needed to erase a competitive disadvantage in selling second-mortgage loans. The High Cost Loan Act forbids state banks from financing the premium for credit insurance over the life of a second-mortgage loan, which can add thousands of dollars to a borrower’s outlay. Such insurance pays off a loan in the event of death.

Consumer groups say financing credit life insurance over the life of a 20- or 30-year loan is an abusive practice. They say many borrowers don’t realize how much it will cost them. (Read on …)

The Courier-Journal reports that a bill that Kentucky-chartered banks say would make them more competitive with national banks has drawn fire from consumer advocates, who say it would roll back protections against cash loans.

The measure has passed the Senate and cleared the House Banking and Insurance Committee. It awaits a vote in the House.

Senate Bill 45 would make state-chartered banks exempt from any Kentucky laws or regulations that don't apply to national banks. About 45 national banks operate in Kentucky along with about 165 state-chartered banks.

On one hand, the Kentucky Bankers Association says the measure is needed to help state banks compete for second-mortgage loans. The association says national banks have lower costs for those loans because they are exempt from some Kentucky lending restrictions.

"We seek only to level the playing field," Ballard Cassady, president and chief executive officer of the association, told the committee this month.

Cassady said national banks "can ignore the peculiarities of Kentucky's state laws, and our state banks are left at a competitive disadvantage because they cannot." He said federal banking laws offer plenty of consumer protections.
On the other financial hand, consumer advocates, including retiree organization AARP and the state attorney general's office, said the broadly worded measure would affect more than mortgage-loan costs.

They said it would shield banks from Kentucky laws regulating usury and payday loans and from the High Cost Loan Act of 2003, meant to protect consumers against predatory home loans. (Read on …)