Payday Loan Times

The following is an editorial from The News-Leader…

Missouri is second only to the state of California in interest paid to payday loan “sharks.” By allowing people to take out repeated personal loans to pay off their original loan, the actual interest rate mounts up to nearly 2,000 percent.

There are more payday loan businesses (cash advance type loans) in Missouri than McDonald’s. The states around us have no rollovers allowed. What is wrong with the Show Me State?

Young men are fighting for their country. Their families struggle with lower income. The good old legislature passes a law that payday advance lenders can only charge soldiers 29 percent, when 50-20 percent would be appropriate for all citizens.

We already pay 30 cents out of every tax dollar for services to our people. We will be paying more if we allow the payday lenders to push the poor and vulnerable further down into poverty.

Is the light bulb on in the attic; is anybody home at the legislature?

Everybody wants to change the world? This is your chance. Start today — call/write your legislator. Do something about no fax payday loans.

Before Kansas City moves to restrict payday cash advance lending, policy-makers should understand their constituents’ need for short-term credit and the unintended consequences of such restrictions.

So begins an article in The Kansas City Star by Tom Linafelt, director of corporate communications for QC Holdings, the parent company of Quik Cash.

While critics have rushed to label payday lending as “predatory” without ever having defined what “predatory” means, recent studies debunk that myth.

A January 2007 study by the Federal Reserve Bank of New York found not only that payday loans were not predatory, but that by increasing the supply of credit to an underserved market, they actually enhance the welfare of the households they serve.

Another study found that further regulation of quick payday loan lending has the adverse and unintended consequence of reducing credit options for those who may have few alternatives, and that policy-makers should encourage competition in the small-loan market, as competition controls prices.

Payday advance companies each year help thousands of Kansas City-area families overcome unexpected financial circumstances.

When an air conditioner breaks or a car battery dies, Quik Cash and other responsible lenders provide convenient access to small amounts of money in the form of instant payday loans. Banks don’t.

Missouri payday lending laws already include some of the strongest consumer protections in the country. Limits on loans, loan renewals and associated fees protect consumers from creating a “cycle of debt” and from experiencing the kinds of annualized percentage rates referenced by industry critics.

These are the kinds of strong consumer protections the no fax cash loan lending industry consistently supports.
In fact, the payday lending industry’s trade association, the Community Financial Services Association, this year launched a customer pledge that includes an extended payment plan granting any customer, at any time, for any reason, more time to pay off a loan at no additional cost.

Let’s give reasonable, hard-working Kansas City consumers access to a variety of regulated credit options and trust them to make financial decisions based on what’s best for them and their families.

SOURCE: Kansas City Star

A St. Louis resident has filed a class-action suit again Advance America, a major payday loan company, accusing the company of predatory lending, according to a news release by Simon-Passanante P.C., a St. Louis law firm.

The firm represents Cynthia Williams, the lead plaintiff, in this lawsuit, which was filed Monday.

In the news release, the law firm said at the heart of the lawsuit is the allegation that Advance America systematically traps customers in loans they cannot repay by violating Missouri law.

The firm said the suit was filed against the Spartanburg, S.C.-based company and its subsidiaries Cash Advance Centers of Missouri, doing business as Advance America. The company operates 2,900 cash advance stores in 37 states, about 82 of which are in Missouri. In Springfield, the company has six offices.

The law firm said Williams, beginning in March 2006, was trapped in a cycle of debt after taking out a loan at Advance America and that she and her husband began working 70-hour weeks to pay off the debt.

The suit alleges that while state law allows borrowers to repay the bad credit payday loans in up to six payments, Advance America limited borrowers to four payments. Borrowers were then trapped in loans charging more than 400 percent interest, despite interest at 324 percent capped by laws.

Other allegations include:

• Advance America exploited borrowers’s financial situations; intentionally loaning too much money at an interest rate higher than 400 percent that trapped them in a cycle of debt.

• Advance America created phony “new loans” and encourage customers to take these out rather than make payments to reduce their existing fast payday advance.

St. Louis lawyers John Simon, Erich Vieth and John Campbell of Simon-Passanante P.C. and Debra K. Lumpkins of Gateway Legal Services filed the lawsuit on behalf of the borrowers. Simon-Passanante said this is the first class action lawsuit filed against Advance America in Missouri.

Simon-Passanante and Gateway Legal Services said they also have class action cases pending in St. Louis County and St. Louis City against three other payday lenders, including Quik Cash, based in Overland Park, Kan.

“Missouri law is designed to protect Missouri citizens by getting them out of [payday advances] as quickly as possible and by capping the amount of interest charged on a loan. Advance America has short-circuited these protections,” Campbell said in the news release.

Blue Springs is on its way toward regulating faxless payday loan offices.

The Planning Commission on Monday voted to recommend to the City Council tighter regulations for such businesses under the city’s Unified Development Code, requiring hearings and a conditional-use permit to open. The city also would enforce rules to prevent them from clustering or being to close to homes.

Proposed revisions are for title loans, payday loans and similar businesses, lumped under a category of short-term loan services. It doesn’t include pawn shops.

Current short-term loan shops would not be affected because they would be considered “grandfathered.”

At a City Council workshop, council members said they want to regulate the loan offices because of potential side effects of having so many.

Nearly 10 of the fast payday advance establishments are slung along Missouri 7, a commercial route where the city has been showing success in encouraging redevelopment and beautification.

Brien Starner, president of the Blue Springs Economic Development Corporation, said the problem is common to many cities, from Blue Springs to Raytown to Overland Park, when dealing with third- or fourth-generation use of buildings that are becoming obsolete.

An overabundance of such buildings can result in declining lease rates that attract personal cash loan shops or other businesses that want low overhead. While those businesses serve a need, a concentration of them makes it hard to draw new investors with larger projects that could upgrade entire blocks by remodeling or replacing the buildings.

“There’s a perception that makes them concerned about the economic viability of that corridor and marketplace,” Starner said.

Another frequent criticism of that industry is high fees of $15 to $20 per $100 for only a two-week loan, but City Attorney Bob McDonald said that under Missouri law the city’s legal ability to regulate the businesses is limited to zoning.

He told the commission that a study in Milwaukee found that such businesses have secondary effects on public safety.

Cash advance payday loan offices typically are open late hours, with less security than banks. Because people leave the offices with large amounts of cash, there can be an increase in robberies.

There is a perception that areas with concentrations of such businesses are going downhill, which can hurt property values, McDonald said. Phone calls were made to most Blue Springs short-term loan businesses, but office managers or owners either failed to return calls or declined to comment.

(Read on …)

Blue Springs is working on regulating no fax payday loan companies.

The City Council on Monday directed City Attorney Bob McDonald to begin drafting an ordinance that would limit such establishments to one per 4,500 residents.

The council also directed him to prepare a 60-day moratorium — to be voted on at the next council meeting — on new cash advance outlets.

The city now has about 54,000 residents and 12 payday loan outlets, McDonald said. The proposed ordinance will call for minimum distances between those outlets, businesses such as pawn brokers and residential areas.

McDonald had provided a report to the council after researching Independence and Lenexa ordinances and other areas’ response to the businesses.

He said Milwaukee conducted a study that showed crime rates went up around the payday advance loan businesses because they don’t have as much security as other financial institutions.

McDonald said there are limits on what Blue Springs can do. It can’t regulate interest rates or set limits that effectively prevent any of the businesses from locating in the city. New zoning regulations wouldn’t apply to businesses already in the city.

Mayor Steve Steiner said he wanted the council to consider the issue after a suggestion from Councilwoman Sheila Solon.

Steiner said he’d talked to the Independence mayor and Brien Starner, president of the Blue Springs Economic Development Corp., who pointed out that an excess of quick payday loan companies makes it difficult to market a city to prospective businesses.

“If there’s a slew of them, they ask what’s going on in a community, ” Steiner said.

Steiner said customers of such businesses often have an income of $35,000 to $60,000. “Just people living beyond their means.”

Solon asked for the moratorium, similar to an action the city took when there was a concern about too many used-car lots. She said she was hearing complaints.

The council asked McDonald to make the bad credit cash loan regulations as tough as possible while legally defensible.

“Push it as far as you think it’s safe to do,” Steiner said.

SOURCE: The Kansas City Star

Struggling Missourians gave no fax payday loan companies $317 million last year alone.

Few laws protect borrowers from the fees and high interest that those companies charge. What’s worse, the laws that are on the books aren’t always enforceable because of a loophole.

Some lawmakers proposed bills that would tighten the restrictions on payday advance loan companies. One payday loan borrower says passing a law would do nothing to help struggling Missourians if it’s not enforced.

Lee Griffin of Springfield says he’s fighting a losing battle.

“I thought it was going to help but it didn’t,” said Griffin.

Griffin needed some money two years ago, so he went to an instant cash loan company. He now says it was one of the biggest mistakes that he ever made because “a few months later, I was running so short because I was trying to make payday loans; I didn’t have enough for my other bills.

Griffin got another payday loan to try to catch up - and then another. He borrowed a total of $2,500 and is now paying $425 a month to pay it off, but he feels like he’s getting nowhere

“Since this all began with the first loan, I’ve paid $8,250. My principle has dropped $660,” said Griffin.

There is a law in place meant to protect faxless cash advance borrowers like Griffin from spiraling out of control.

“No borrower shall be required to pay a total amount of accumulated interest and fees in excess of seventy-five percent of the initial loan amount on any single loan,” the law says.

So far, however, Lee has paid more than 3000 percent in interest, and he wants to know why.

The answer, according to Attorney General Jay Nixon - is a loophole in the law that applies to these bad credit payday loans.

The problem, Nixon says, is current law doesn’t prevent renewals. Therefore, if you need more money and combine your current loan balance with a new one, the 75-percent rule doesn’t apply. That’s exactly what happened to Griffin.

“What happens often is the interest rate seems smaller and you don’t get it paid off and you renew it and the interest rate just gets bigger and bigger,” said Nixon.

(Read on …)

You’ve seen them dotting business loops and adorning strip malls.

If times were desperate enough, you may have even been tempted to walk in and patronize their services.

No fax payday loan companies, also known as cash advance or check advance loan companies, are cropping up everywhere. In Fulton, seven such companies - three already in 2007 - have been established in the last three years.

Whether the institutions provide an essential service, or a hazardous financial trap is a matter of perspective.

Overall, same day payday loans are secured by a personal check written for the amount of the loan plus a fee. According to the Federal Trade Commission, the customer is generally given 7 to 14 days to repay the money at an extremely high rate of interest - sometimes 500 percent APR or more.

With the check post-dated for the borrower’s next payday, the customer is given the option of bringing in cash in exchange for the check, or allowing the company to debit his or her account. There is also the option of “rolling-over” the check, extending the loan and paying an additional fee.

Typically associated with low-income neighborhoods, the industry is now beginning to spread to higher-income areas.

Dennis Clarke manages 10 different Missouri locations for Payroll Advance Inc., including the Fulton store on West 5th Street. He believes the industry of payday advance loans has been cast in an unfair light.

“Some of the press makes it sound like if all the payday loan stores were shut down that somehow that would help the people that would need to borrow money,” he said. Clarke also said it’s necessary to charge such a high interest rate because short-term loan customers are a high risk for defaulting on the loan. “We have clients who come in and borrow money to pay the electric bill, and they tell us if it wasn’t for us, it would be turned off.”

(Read on …)

The following is a letter to the editor from The Kansas City Star:

It was gratifying to see some of our elected officials finally cracking down on the purveyors of payday loans.

Yet another denizen from the dark side of capitalism, taking advantage of the most needy and vulnerable Americans, has become big business. Folks who barely get by from one payday to the next are put in a hole, handed a shovel and told to keep digging.

They pay for “free” credit reports that tell them they have poor credit. Car dealers push “no down payment” auto loans with interest rates that make credit card rates look cheap. And on it goes — getting the most out of those who have the least.

What prompted me to write was the new warm and cuddly ad being run on behalf of the payday advance industry. Yes, these people have an association — the Commercial Financial Service Association. And they’re running ads cautioning us to take out our payday loan only for short-term emergencies. Like eating, maybe?

The first ad I saw ran behind a Mercedes ad on CNBC. The next time I saw it was during a mystery on BBC America. Is this the TV audience most likely to get an instant payday loan?

This isn’t about cautioning people about the pitfalls of payday cash loans. It’s a blatant public relations campaign trying to convince regulators that there’s no need for regulation. It’s trying to convince us that these are fine, upstanding businesses that would never, ever take advantage of working men and women needing a little help to get by for a week or two.

If you believe that, your check’s in the mail.

Members of the Missouri General Assembly have introduced bills to further regulate the growing guaranteed payday loan industry in the state, but controversy still surrounds the movement to standardize these businesses.

Missouri is home to 1,644 payday loan stores that charge an average annual percentage rate (APR) of 422 percent for short-term cash loans, according to a March 11 Columbia Daily Tribune article. New legislation would cap this annual rate at 36 percent, a move that would essentially eliminate payday loans in the state, according to the article.

Tony Garrett, manager of the Kirksville Advance America Cash Advance, said his company serves 150 to 200 customers at any given time. He said that despite the current payday loan debate, he thinks his business addresses a consumer need.

“I think we’re here for a reason, and I think that some people abuse that privilege,” Garrett said. “[But] there are some people that know the system and use it to the best of their abilities.”

He said his customers use bad credit payday loans to pay for unexpected expenses like car repairs, travel and past-due bills.

“Sometimes you need money and don’t have the cash for it right then, and if you go [to a bank], it could take you two to three days to get a loan,” Garrett said. “With us, it’s a same-day process.”

“I wouldn’t have been able to give my son a Christmas”

An Advance America Cash Advance customer who asked to remain anonymous said she used payday loans to make ends meet while raising her 3-year-old son. A single mother, employee and full-time student at Moberly Area Community College, she said she turned to cash advance online loans to afford car payments,gas, rent and groceries.

“In order to stay afloat, I had to [take out a payday loan],” she said. “I didn’t want to, but I had to.”

She said the high interest on payday loans is problematic, but the loans allowed her to pay for things she couldn’t afford otherwise.

“I’m glad they’re there or else I wouldn’t have been able to give my son a Christmas,” she said. “I don’t think they’d actually have these places if people didn’t need help.”

Steve Smith, professor of economics and business law, said the number of payday loan companies indicates a demand for their services. But he said opposition to quick payday advance operations arises because of high interest rates and the idea that the industry is “making a killing.”

“Frankly, also I think another reason you get opposition to payday loan places is because it’s good theater for a politician,” Smith said. “… There’s nothing better for a politician than to be able to pose - this is a somewhat cynical view, perhaps �- but to be able to pose as the protector of the little guy against big bad business.”

Smith said that although new legislation might help many individuals, it might also prevent some from getting the fast cash loan they need.

“You’re protecting them by basically taking an option away from them, and I don’t see why that is so great,” he said. “Another thing that can happen is if people are really desperate for money, they’ll get a loan anyway even if you pass those caps, but they’ll get it from an illegal lender.”

Click here to read the rest of this Truman State Index article.

A recent report showing that Missouri payday loan businesses charged an average annual percentage rate of 422 percent last year has led to a renewed call for reform in the payday loan industry. That’s an increase from a 2005 report showing an average of 408 per cent.

State Rep. John P. Burnett of Kansas City (D-40), with the support of Attorney General Jay Nixon, is the sponsor of House Bill 237. They are joined in Kansas Ciy in support of payday cash loan legislation by advocates for the poor, including Larry Weber, executive director of the Missouri Catholic Conference; and Michael Halterman, CEO of Catholic Charities of Kansas City-St. Joseph Inc.

Nixon noted that while eight neighboring states have strict limits on the interest rates and forbid renewals, Missouri has no real limit on interest charged and allows up to six renewals – effectively allowing the check cash advance operator to charge interest rates of up to 1,950 APR.

The bill, which currenly is floundering around in committee, changes the laws regarding unsecured loans of $500 or less. It includes the following:

• Limits the interest and other fees that may be charged on the faxless online payday loans to $15 for the first $100 of principal for the first 30 days of the loan and not more than 3% per month thereafter, whichis an annual percentage rate of approximately 36%;

• Prohibits repeated renewals of loans to circumvent interest rate restrictions;

• Grants jurisdiction to the Attorney General to issue cease and desist orders against violators;

• Allows the Attorney General to sue for injunctions, rescission of pay day loan contracts and restitution, and civil penalties for violations.

The biennial report, cited by the bill supporters, showed that the number of payday advance loans continues to rise in Missouri – approximately 2.8 million loans were issued for the one-year period that ended Sept. 30, 2006, an increase of 11 percent over the last report issued in 2005. Missourians borrowed more than $787 million from payday lenders in only one year, Nixon said.

There are now 1,545 licensed payday loan businesses, an increase of 347 from the previous report, issued in 2005. In addition, a study by the Center for Responsible Lending showed that Missourians paid $317 million in fees and interest on payday loans in 2005, second only to California nationally.

In 2002, SB 0884 sponsored by Ronnie DePasco (D-11) was signed by then-Gov. Holden that allowed the current interest cap at 1,950 percent.