Payday Loan Times

The general consensus among consumer advocates is that payday loans need stricter regulation. (Read on …)

Jeff Mangan served two terms in the Montana House (1999-2002) and one term in the Senate (2003-2006).

Here’s his recent piece in The Montana Standard, paraphrased:

There is a misconception that there is currently no regulation of payday lending in Montana. As a former legislator from Great Falls, I wrote and sponsored the first piece of fast cash loan lending legislation in Montana in 1999.

The law is called the Montana Deferred Deposit Loan Act, and it does regulate the industry and provide consumer protection in Montana. Current regulations include:

- A maximum loan amount of $300.

- Personal loans cannot be refinanced or rolled over.- The maximum fee allowed is 25 percent of the loan amount.

- No additional fees or charges are allowed besides those permitted by the act.

- Consumers have the right to rescind or cancel the loan within 24 hours at no cost.

- Fast payday advance lenders must provide clear and complete disclosure of terms, fees, and annual percentage rates (APR’s) in accordance with federal laws.

- Every lender is examined by the state on an annual basis to assure compliance.

- Consumers who default on bad credit cash loans cannot be prosecuted criminally.

Proponents of House Bill 29 agree that Montana consumers need and use the services provided by lenders. This is evidenced by some lenders being in business for more than 17 years in Montana. Our neighbors choose payday loans over other alternatives because a payday loan is typically less expensive.

As proponents of HB 29 try to shock you with interest rates, a simple comparison to the unfortunate alternatives makes the choice an easy one for those faced with difficult situations.

Consider these numbers: A $100 deferred deposit cash loan with a fee of $15 translates into an APR of 391 percent; a $100 average overdraft fee of $27.40 equals an APR of 701 percent; a $37 credit card late fee on $100 — APR of 965 percent; a late/disconnect fee of $46.16 on a $100 utility bill — APR of 1,204 percent, and finally, a $100 bounced check with an fee of $54.04 translates into an APR of 1,409 percent.

(Read on …)

Steve Doherty of Montana is the former minority leader of the Montana Senate and co-chair of the Progressive States Network. Dan Geldon of Massachussetts is a former staff member for the U.S. Senate Judiciary Committee who has written extensively on bankruptcy and credit issues.

They wrote the following, paraphrased guest piece for The Billings Gazette:

The Pentagon has a lot on its hands these days - keeping the peace in Iraq and Afghanistan, destroying al-Qaida and other terrorist infrastructure, and so on. But last year, it found itself preoccupied by another problem. Predatory, faxless online payday loans, our military leaders suggested, threatened our military readiness by reducing the quality of life of our fighting men and women.

Anyone with a checking account can obtain a payday loan by giving a postdated check for one amount in exchange for a smaller amount of cash.

These type of cash advance loans can be convenient, but lenders charge astronomically high interest rates if the borrower misses a payment. The average interest on payday loans in Montana, for example, is 521 percent (the sixth highest in the nation). In contrast, credit card companies generally charge about 30 percent interest for cash advances.

Stuck in a debt trap
The result of high interest is that if a check bounces for any number of reasons - like a health emergency or layoff in the family - the borrower gets stuck in a debt trap almost impossible to climb out of. Too often, our neighbors enter a transaction for some quick cash and leave it in financial ruin. The only way out for many borrowers is to declare bankruptcy.

No wonder the military was concerned when it discovered that 20 percent of our servicemen and women use this type of bad credit payday loan.

Last fall, Chief Master Sgt. Robert Moore at Malmstrom Air Force Base explained the problem to the Great Falls Tribune:

“We expend a lot of time and energy helping them get their debts under control so they are more ready and capable to perform the mission.”

Congress responded to this issue by imposing a 36-percent interest rate cap on military payday loans. Lending companies argued that the law would ultimately hurt soldiers by interfering with supply and demand and taking away a form of credit. The Pentagon didn’t buy it:

Soldiers would still have plenty of access to credit through credit card cash advances, small consumer loans, credit union loans, emergency assistance programs, and so on.

(Read on …)

A bill to restrict the practice of short-term payday cash loans and title loans, sponsored by Rep. John Parker, D-Great Falls, was voted down, 11-5, in committee Wednesday.

Parker’s bill would have capped interest rates on such personal loans at 36 percent, and would have curbed the practice of “rollover” lending, in which people take out new loans to pay off their earlier ones.

At a House Business and Labor Committee hearing on the measure earlier this week, Parker said that the annual percentage rate on title loans in Montana can reach 300 percent, and it can go as high as 650 percent on payday loans, and that such loans catch people in a “debt trap.”

Faxless cash advance lending industry representatives, though, said the bill would put hundreds of people out of work in Montana because the bill would shut down their businesses.

State Rep. Mike Milburn, R-Cascade, said Wednesday that competition sets the rates on such businesses, and that they wouldn’t exist if no one patronized them.

Lawmakers heard testimony yesterday on a bill that would radically change the instant payday loan and title loan industries in Montana.

The measure, sponsored by Rep. John Parker, D-Great Falls, at the request of the Department of Justice, would cap the interest rates on such loans at 36 percent, reports The Billings Gazette. It would also cap loans at 25 percent of the borrower’s net income or $300, whichever is less.

Attorney General Mike McGrath said interest rates on some faxless payday loans were as high as 650 percent, forcing some people to borrow more money to pay for their original loan, a situation he called a ”debt trap.”

”And sometimes you can never get out,” McGrath told the House Business and Labor Committee.

Committee members took no immediate action on the bill.

Shawn White Wolf, 34, said he’s paid more than $2,000 in interest on a $400 title loan in the past year. The Helena resident told the committee the businesses that offer title loans are preying on poor people.

”I hope you remember that the poor people, they need protecting, because they are the ones who are affected by this,” he said.

But former lawmaker Jeff Mangan, who wrote similar legislation on short-term loans in 2001, said the right laws were already on the books and the new bill would go too far.

”What this law is trying to do is regulate consumers,” Mangan said.

The bill includes provisions for a database to monitor borrowers with outstanding balances to prohibit them from taking out additional payday cash advances.

Todd Coutts, who owns a loan center in Missoula and co-owns one in Helena, said the new bill would wipe out most of the short-term loan industry.

”I know if this legislation passes it is going to pull the rug out from underneath me,” he said.

But McGrath said the new fast cash advance law would only affect those businesses that are taking advantage of their consumers.

”I think there is room for this business to survive, 36 percent is a very good rate,” he said. ”The good business people…will do quite well.”

The Helena Independent Record had the following to say about payday loans in the state recently …

When Montana Attorney General Mike McGrath announced proposed legislation to curb payday loan excesses last week, the industry was less than amused, saying the measure would shut down the 114 such lenders in the state.

We’re trying to be sympathetic, but it’s tough. According to the state Banking and Financial Institutions Division, the typical fast payday loan in Montana is a 14-day loan of $300 - at an absolutely ridiculous annual rate of 650 percent.

No wonder payday and title loan businesses are springing up all over the place. And no wonder they’re digging people — always poor people — deeply into debt.

The new rules, to be introduced in the Legislature by Rep. John Parker, D-Great Falls, would cap the annual percentage rate at 36 percent and require that no borrower have more than one no fax cash loan at a time. Title loans — loans secured by the borrower’s vehicle — would have a minimum 30-day term for repayment.

The 36 percent annual interest limit is the same as the limit that was recently imposed by Congress for companies that lend to military service personnel.

A Defense Department study in August found that 13 to 19 percent of military people took out high-interest, short-term cash advances last year, and that many of them were so deeply in debt as a result that their military effectiveness was compromised.

The industry insists such supposedly low fee payday loans are vital to their customers, who need the money to tide them over when times are tight. But as McGrath pointed out, the companies’ advertising shows they depend on people getting trapped in debt. He quoted a Great Falls radio ad telling customers that “every sixth loan” has a discounted interest rate.

There’s no doubt people need and want loans — otherwise those “You drive the car!” signs wouldn’t be all over the place. But the less-well-off Montanans who take them out deserve the same protection from widely inflated interest rates that Congress gave military families.

Montana’s attorney general is promoting a bill in the next Legislature that would cap the interest rates of title loans and pay day loans but an industry official calls the bill nothing more than “sound-bite legislation.”

A piece in The Missoulian says McGrath - in an appearance in Great Falls on Thursday - noted the state’s poorest consumers are more likely to take advantage of such loans but often end up being trapped in debt.

Although the faxless payday advance lender businesses are required to obtain a license, McGrath said there is little to no regulation of the businesses.

The bill being sponsored by Rep. John Parker, D-Great Falls, would change that.

House Bill 29 would cap the annual percentage rate on cash loans and title loans at 36 percent, while ensuring that consumers only have one loan out at a time. The bill also would set up repayment plans and would cap loan amounts at 25 percent of the borrower’s net income or $300, whichever is less.

Congress also passed payday loan legislation in October aimed specifically at helping military personnel and their families. This legislation will allow for better enforcement of the federal law, as well as protect all Montana consumers, McGrath said.

Bernie Harrington, president of Montana Financial Service Centers Association, said the bill unfairly targets a single industry and would likely cause the 114 payday loan lenders in the state to shut down.

“This is great sound-bite legislation,” he said. “House Bill 29 would not allow this industry to survive in the state of Montana. “It’s a prohibition bill.”

Harrington said many people use payday advances instead of falling behind on a credit card payment or choking down a late fee or bouncing a check. Those borrowers depend on the industry, Harrington said.

“I don’t think the backers really understand the consumers they think they are trying to protect,” he said.

The bill is not intended to be anti-business, McGrath said, but level the playing field among all financial services and teach financial responsibility and accountability to borrowers.

Students with federal loans who graduated from Montana's public universities in 2005 left campus with an average debt of $20,179, up from $19,980 the previous year.

As financial trouble followes these students immediately upon graduating, many will turn to no faxing payday loans for assistance; a prospect that probably doesn't please many critics of the industry.

"The cost of education continues to go up," said Ron Muffick, director of business relations and programs for the Montana Guaranteed Student Loan Program in Helena.

But that's not all. Housing, fuel and home-heating costs are also on the rise, meaning parents aren't able to set aside as much for their children's college. They've been forced to look into the no credit check payday loan sector just to make ends meet themselves.

"A lot of families are strapped to the point that they can't save money to go to college," he said.

Muffick said student loans allow many to attend college who otherwise couldn't. The downside, he said, is "a lot of our grads are leaving the state because they can't make enough to pay their student loans and the high cost of housing."

The new Montana figures were released in response to a national report from Project Student Debt. Muffick said the Montana college-debt figures don't include private consumer loans, which are growing in popularity.

An increasing number of students are taking out such high-interest cash loans because they can't borrow enough under the limits of the federal loan system.

"Private loans have exploded in the last five to seven years," he said. "I find it troubling."

Despite the growing debt, Montana college graduates seem to be able to handle the payments. The default rate in 2004, the most recent year for which data was available, was 5.2 percent for Montana students, down from 6.7 percent the year before.

Billings, MT — Family Services Inc, of Billings, Montana, unveiled a new program yesterday to help families who have suffered from debt due to predatory lending, such as payday loans and title loans.

The program has two main elements. First, participating families must take a six-week "financial fitness" course that teaches participants about managing personal finances, dealing with loans and repairing bad credit. Family Service will then give them a loan to pay off their lenders. The families repay Family Service at no interest.

The "rescue loan" program, the first of its kind in Montana, received $4,000 in startup money from First Interstate Bank and a $4,000 match from E Z Money Check Cashing.

Linda Robbins, executive director of Family Service Inc., said her agency is seeing more and more people caught up in "predatory lending." Of 51 people who visited Family Service on Monday, 15 were having difficulty with loans, including title loans. Many are low-income clients with poor credit who find it hard to get loans at traditional lending institutions and often turn to payday loans.
irst Interstate Bank officials agreed to kick in $4,000 for the program if they could find matching funds. Robbins approached Bernie Harrington, president of E Z Money Check Cashing, a local "deferred deposit" lender. He didn't hesitate, Robbins said.

"He said, 'I'll do it,' " Robbins said. "It was just that easy."

"The thing that really sold me on the program was the financial literacy course requirement," Harrington said. "Borrowers get in over their head when they abuse any type of loan product, and if we can prevent that from happening through education, both the borrowers and lenders will be happier."