Payday Loan Times

A New Hampshire House subcommittee voted last week against a 36 percent cap on payday loan and title loan interest rates, endorsing instead an interest rate nearly 10 times higher that had been proposed by the industry as a “compromise.”

The full House Commerce Committee – which has long shot down interest rate cap proposals - is expected to endorse the position at the end of the month. But a floor fight is expected on the issue when the House session begins early next year.

The industry proposed rate for payday advance loans is $15 per $100 every two weeks, which translates into roughly 300 percent a year. For title loans (loans secured by a car title), the maximum rate would be $22 per month, or 266 percent.

These were the first caps proposed by an industry that had previously been hostile to any interest rate limits.

“It’s a good cap,” said Dick Bouley, a lobbyist with the Community Financial Services Association of America, a payday industry trade group. “We are not happy with it, but we can live with it.”

But opponents of the proposal said that the limits were not much more than what the industry was charging anyway.

“This will do nothing to stop the debt trap,” said Sarah Mattson, an attorney with Community Legal Services. “These caps won’t do it.”

State Banking Commissioner Peter Hildreth did not back the cash advance industry cap, instead reiterating his support for a 36 percent cap.

The payday loan bill informally endorsed by the subcommittee would replace a bill by Rep. Neal Kurk, R-Weare, that would have brought back the across-the-board anti-usury law that the Legislature scrapped in 2003. After the anti-usury law was eliminated, New Hampshire’s door was opened to the high-interest loan industry, and it quickly proliferated. Today it makes some 150,000 loans a year.

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The following are excerpts from some of the complaints to the New Hampshire Banking Department from short-term borrowers.

Most of the complaints were not from online payday loan borrowers – which encompass the bulk of the short-term loan industry – but from title loan borrowers. While payday borrowers write a check as collateral, title loan borrowers sign over the title to their car.

Sarah Mattson, an attorney with New Hampshire Legal Assistance, and a critic of the payday advance and title loan industry, said she too gets a much more disproportionate number of complaints from title lenders.

“That doesn’t surprise me,” she said. “In a payday loan they stand to lose money, but under a title loan, they could lose their most important asset. In New Hampshire, you need a car to work or find work. That might motivate them to seek legal help or complain to the Banking Department.”

Among the complaints:

• “I was heavily medicated awaiting surgery … I have already made two payments of $750, which has only covered interest.”

• “(The no fax cash loan lender) contacted my girlfriend and told her she should make payments for me, a single mom with two children on a very small income, pressuring her to pay my loan payments very stressful for her … began contacting friends … also informed them … that they would repossess my car and possible have charges brought against me. I did not give permission at any time to call my friends.”

• “When I contacted the agent the next day after repossession was told car already went to auction and I did not have access to it. They placed my personal items in a trash bag, delivered it and charged a $25 “key” fee before I could get my items.”

• “My 22-year-old son was drawn into their trap. The interest rate is 30.58 percent, which is annual rate of 372 percent. I think this representative is loan sharking … and will look to get some my son’s blood money back.”

• “We went in for a [cash advance payday loan] of $2000 on my truck…. We were screwed and didn’t know what to do. …. Here we are four payments [of $678] later and we still owe $2113.”

• “I was led to believe that the interest on the loan was 31 percent and it was per month, but that’s 372 percent per year …. I wasn’t explained this clearly enough … this is unfair, hook line and sinker tactics or should I say worse than LOAN SHARKING. In three months I paid over $1600 in interest on $1500.”

• “I went to the office and paid off the loan in cash … they told me they did not know where my title was.”

• “No one returns my calls. Vehicle is to be auctioned off. I’m disabled living out of said vehicle, homeless, vehicle worth more than loan.”

Sarah Mattson is a staff attorney for New Hampshire Legal Assistance in Manchester. The following is from the New Hampshire Union Leader …

My client, “J,” took out a car title loan last July. She thought it would help her get through a short-term lack of income.

By January, she’d taken out 34 loans from five different payday and car title lenders. The annual interest rate on a typical payday loan in New Hampshire exceeds 500 percent, and J shelled out more than $2,000 in interest. That’s because there hasn’t been an interest rate cap on small loans in New Hampshire since 1999, when lenders were allowed to charge more than 2 percent per month.

Unregulated interest rates mean payday and car title lending has exploded. The industry is wildly profitable; the nonpartisan Center for Responsible Lending recently reported that the typical payday loan borrower pays back $793 for a $325 loan. American families pay $4.2 billion in excessive payday loan fees each year.

Last summer, the Pentagon reported that the effects of predatory lending had compromised the mission readiness of America’s military personnel.

Congress responded swiftly, enacting legislation to cap the annual interest rate on loans to service members at 36 percent. On March 20, the New Hampshire House Commerce Committee voted to retain proposed legislation that would have extended similar protection to New Hampshire borrowers.

Triple-digit interest rates aren’t the only problem with faxless payday advance lending. Consumers take out payday loans because they’re financially distressed. Many don’t have the resources to pay back their loans with enough left over for ordinary living expenses, so they borrow over and over again, falling into a never-ending debt trap. Statutory prohibition of payday loan rollovers does nothing to prevent this debt trap because lenders are permitted to extend a new loan immediately after a previous loan is paid in full.

That’s just what happened to J.

She turned to payday lending when she was in between jobs and couldn’t stretch her welfare check far enough to meet the needs of her two young children. Rather than helping J, bad credit cash loan lending further strained her already tight budget and quickly ensnared her in the debt trap. Lenders offered her money over and over again, often making new loans minutes after she repaid old ones.

J’s story is typical of payday loan borrowers.

Advance America, New Hampshire’s biggest payday lender, reported an average of eight loans per customer per year in its 2005 Securities and Exchange Commission filing. The Center for Responsible Lending estimates that 90 percent of fast payday advance lending revenues are generated by repeat borrowing. The debt trap exploits working families, senior citizens, people with disabilities, and anyone else who struggles to make ends meet once in awhile.

An interest rate cap is the only way to protect consumers from this vicious cycle. Well-intentioned reform measures in other states have floundered as the payday lending industry develops new and ingenious ways to continue marketing multiple loans to each customer.

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The following is a paraphrased editorial from the Foster’s Daily Democrat in Dover, NH:

It might seem easy to argue caveat emptor in the debate before the Legislature over no fax payday loans. But suggesting it is simply an issue of “Let the buyer beware” would not address the problems created by these loans.

Several bills currently working their way through the legislative process would put caps on the annual interest rates payday loan services could charge. These would be akin to limits commonly found with credit cards.

But quick payday loan advocates argue that such limits would put them out of business.

For example, loaning someone $100 against next week’s paycheck can cost $20. While steep, that amount may not seem unreasonable to the borrower. Except when the loan is not repaid on time and is rolled over, the debt can rapidly escalate — at more than 500 percent per annum.

One cash loan online spokesman contends a suggested cap of 36 percent on a two-week loan would mean a fee of only $1.38, not enough to justify doing business.

Part of the dilemma facing the Legislature is figuring out who the demon is in this debate, if there is one. On the one hand, there are legal loan services, which have to cost-justify their existence. On the other, there are workers who find themselves short of cash with no hopes of borrowing from a bank — either because of poor credit or the short duration of their loan request.

Some who advocate for caps liken fast cash advance companies to loan sharks, taking advantage of people they know — or should know — will default. Loan companies defend themselves with statistics like Advance America, which claims a 95 percent repayment rate.

Striking a middle ground in this debate appears to be state Sen. Lou D’Allesandro, who suggests passing legislation that would keep the door open for those with poor credit and little where else to turn.

“Are we going to force those people to illegal, illicit loan sharks?” D’Allesandro told the Associated Press.

If this is the route to be pursued, the Legislature must emphasize full and clear disclosure.

While there may be fine print — which sometimes can’t be read without a magnifying glass — bad credit cash loans as they currently exist are an accident waiting to happen.

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Negative perceptions about faxless payday loans really aggravate Megan Tracy, a 42-year-old Concord woman who lives on $700 a month in Social Security and disability benefits.

The way she sees it, a $240 payday loan once a month gives her the boost she needs to make ends meet, allows her to rely less on church meals and gives her a chance to take her kids to the movies once in a while. It gives her a little extra cash while she’s waiting for her checks to arrive and once they do, she pays back the instant cash loans to avoid slipping further into debt.

“It works,” said Tracy, who testified last week against a proposed law to ban payday lending in New Hampshire. “My quality of life has gone up because of those loans.”

The problem, consumer advocates say, is that people like Tracy often fall into a vicious debt trap. Once they have taken out the first high-interest payday loan, they have to keep taking out more to continue making ends meet, and eventually they can’t repay the loans as the cost adds up. Payday advance loan lenders have launched a multimillion dollar campaign to try to change the perception of their industry.

But consumer advocates and some state lawmakers say payday loans should be curbed because they are a form of predatory lending whose victims can least afford it.

Opposing perspectives: Payday lenders offer two-week loans for up to $500, but they do not require a credit check. A customer shows a pay stub and writes a check for the amount borrowed (plus a fee) that will be cashed when the person’s next paycheck is issued. The small loans are controversial because of the interest rates.

For every $100 borrowed, customers are charged a $20 fee - which translates to an annual interest rate of 520 percent.

New Hampshire payday loan lenders say it is unfair to consider their fees interest rates and calculate them for a year since the loans are only two weeks in duration. A customer would have to take out a loan every two weeks for an entire year to actually pay that much interest in fees, and few, if any, customers do that, said Jamie Fulmer, a spokesman for payday lender Advance America. But consumer advocates say the charges are outrageous and should not be allowed.

New Hampshire lawmakers are considering a bill this session that would cap annual interest rates on payday and title loans at 36 percent. Title loans, like payday advances, are a two-week cash loan but consumers must hand over the title of their vehicle instead of a check.

Consumer advocates say a 36 percent cap is reasonable for those kinds of loans and anything higher is predatory. Easy payday loan and title lenders say a 36 percent cap will drive them out of business, leaving people like Tracy with nowhere to go for emergency cash.

The debate comes down to opposing perspectives of who is using the product and why.

A financial tool: Critics who claim the cash advance loan lending industry preys on low-income people who aren’t financially savvy do not paint an accurate picture, Fulmer said. His company is the largest payday lender in the country, with more than 2,900 stores in 36 states, including 20 stores in New Hampshire.

Contrary to what some believe, he said, most Advance America customers are not poor or uneducated. The average household income of Advance America customers is roughly $41,000 a year, all of its customers are employed, 90 percent have at least a high school education, and a little less than half own a home, he said.

“They’re your teachers, your bus drivers, your policemen,” he said. “The true middle-income folks.”

And they’re using payday advances the way they’re supposed to - as a one-time fix when an unexpected expense or circumstance leaves them with a gap between paychecks, he said. Ninety-seven percent of customers ultimately pay back their loans; 95 percent pay them back “on or about” when they’re due, he said.

To continue reading this Concord Monitor article, click here.

New Hampshire would join four other New England states in closing the doors on payday advance and title loan shops if legislation to cap interest rates is approved.

Currently, New Hampshire and Rhode Island are the only New England states whose laws make no fax payday loans profitable, said Jamie Fulmer, director of investor relations of South Carolina-based Advance America Cash Advance.

If New Hampshire joins its neighbors in capping interest rates, payday and title loan companies will close in the state, Fulmer and New Hampshire Banking Commissioner Peter Hildreth said Tuesday.

“People have to understand that means there won’t be any (payday lenders),” said Hildreth, who supports a cap.

The House scheduled hearings Wednesday on three bills to cap interest rates on the loans. Most of the attention is on a bill that would cap the annual rate at 36 percent and only allow people to take out the loans once every 60 days.

Hildreth said that is intended to stop people from rolling over the loans, effectively prolonging their debt.

Payday lenders offer quick cash advances for a fee, often secured by a postdated personal check from the borrower. Title lenders offer cash loans based on the value of the borrower’s car. Customers are drawn to the lenders because, unlike banks, they don’t run credit checks.

Borrowers who don’t repay title lenders lose their cars. Payday lenders may work out a longer payment plan to attempt to get their money back. Critics say some borrow increasing amounts, winding up deeper in debt.

Fulmer insists 95 percent of Advance America’s customers repay the loans.

“What happens in states where the product doesn’t exist, consumers are forced to turn to more expensive options,” said Fulmer. “Some are able to turn to a friend or family member … The majority have very few options.”

Fulmer argued the quick cash loans fill an important gap, mostly for working middle-income families with an average income of $41,000. Without payday loans, they may choose instead to pay a bill or rent late, or to bounce a check regardless of the impact on their credit rating or the fees they incur, he said.

Advance America charges consumers $20 per $100 in cash advanced, up to a maximum $500 loan in New Hampshire. A $100 guaranteed payday loan plus the $20 finance charge borrowed for two weeks works out to a 521 percent annual interest rate.

Under Rhode Island’s law, the same $100 loan by the company carries $15 in interest over two weeks - working out to a 391 percent annual interest rate.

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New Hampshire has become the magnet in New England for short-term high-interest providers of no fax payday loans - and state lawmakers are becoming increasingly uneasy about it.

Since the Legislature eliminated interest-rate caps in 1999, 42 payday loan and title loan lenders have sprung up around the state.

For the industry, this is proof that they are fulfilling a need.

“Thousands of New Hampshire citizens have come to value this as a choice when they have need of short-term financial options,” said Jamie Fulmer, spokesperson for South Carolina-based Advance America, the largest short-term lender in the state and nation. “The [quick payday advance] is an alternative that the consumers trust.”

The company, listed on the New York Stock Exchange under the symbol AEA, each year reaps more than half a billion dollars in fees and interest charged to customers out of approximately 2,750 storefronts nationwide, including 20 in New Hampshire.

Critics, however, have long charged that such instant cash loan lenders are taking advantage of a need, not fulfilling it.

“They are sucking the last drop of blood out of a dying corpse,” said Rep. Neal Kurk, R-Weare, who is proposing a bill that would reinstate the interest-rate caps of 1999. “It was a bad idea when we did it, and it has not improved with age.”

The short-term, high-interest loan industry in New Hampshire comes in two forms:

1. A title loan for which borrowers actually gives the lender the title of their car as collateral
2. A payday loan, for which a borrower agrees to write a posted-dated check as security.

The industry claims that the cost of a short-term loan is a fee — which is less hefty than the fees charged by banks for bouncing checks or credit card late fees. Critics, however, say that many of these short-term loans are rolled over and become long-term loans, and that these fees actually translate into interest rates that can run as high as 500 percent.

State and federal regulators have required loan companies to disclose these rates, much to the consternation of the industry.

“The APR is a ridiculous calculation,” said Steve Schlein, a spokesperson for Community Financial Services Association of America.

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The Eagle Tribune recently talked to Michael McKeon. The Masschusetts resident knows 25 percent interest each month is high, but when asked why he took out a $500 loan anyway, he just shrugged a little and said, “Desperate times. …”

McKeon, 27, and his wife Rachel, 30, recently put up the title of their only vehicle - a 1994 Chevy van - as collateral against a loan. They were going to be short on their $1,500 mortgage payment without it.

The couple took a friend’s recommendation and went to New England Auto and Payday Loans Inc., a Salem company offering high-interest cash loans leveraged against car titles.

The company, which declined to comment for this article, doesn’t do credit checks and can usually make cash available the same day a person applies.

In Southern New Hampshire, businesses offering fast cash abound. Just down the street from the storefront where the McKeons got their loan is LoanMax, another company that lends against car titles. The McKeons didn’t go to LoanMax because, they said, that company requires borrowers turn over a spare key to make repossession easier.

That payday loan company also declined to comment.

Across from LoanMax is Cash for Gold, a jewelry dealer that lets customers sell or pawn their jewelry. And just a short drive in the other direction is an Advance America branch, offering up to $500 instant payday loans leveraged against a personal check that the company promises not to cash until repayment comes due.

A problem with payday loans: Credit counselors generally say fast cash schemes - particularly payday and title loans - are a bad idea.

“It’s about as dangerous a proposition as it gets,” said Nick Jacobs, spokesman for the National Foundation for Credit Counseling in Silver Spring, Md.

Payday advance and title-lending industry representatives counter that short-term loans are a good choice for people who otherwise face bank overdraft fees, credit card late fees or worse.

“Our products and services present rational, cost-competitive alternatives,” said Jamie Fulmer, spokesman for Advance America, a national chain that offers paycheck advances.

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It all began in New Hampshire. That's where Advance America opened its first store. As the payday loan company faces stock issues, its spokesperson talked to The Union Leader.

“We typically charge $20 per hundred,” said Jamie Fulmer.

Expressed as an annual percentage rate, therefore, Advance America’s interest is 521.43 percent. Certainly seems like a lot for an instant payday loan - but, Fulmer said, in New Hampshire, Advance America’s maximum term of the loan is 19 days. Subsequently, someone who borrows $100 and pays $120 back within 19 days is paying only 20 percent expressed as a simple percentage.

As Fulmer defended the practice of payday loans in the state and around the country, it's worth noting that personal loan companies are regulated by the state Banking Department.

“We also go out and examine them on an 18-month cycle just like we do with all our other licensees unless we have some reason to go more often,” Commissioner Peter C. Hildreth said.

Few payday loan complaints: The department has logged only four complaints against payday and loan title lenders in the last 12 months. New Hampshire has no usury law, and no cap on interest rates.

“The problem with title and [payday advance] lenders from the public point of view is that the APR turns out to be 300 percent, 500 percent. I saw one that was 2,000 percent,” the banking commissioner said. “The reason it’s so high is they are short-term loans, so if you extrapolate it from a two-week loan to a one-year loan, that’s why it’s a 300 percent APR or a 1,000 percent APR.”

However, he said, pay day loans can only be for short periods.

“If you take a loan for two weeks, you can’t just roll it over for another two weeks,” Hildreth said. Advance America spokesman Fulmer said, “Nationwide, our average duration is just under 16 days.“

Fulmer also explained how a no credit check payday loan can benefit individuals in need.

"These are hard-working, middle-America folks who don’t have ready access to credit but need additional cash,” he said.

He said Advance America’s $20 per hundred loan fee is a cost-competitive alternative to writing a bad check, when the fees that bank and vendors charge for bounced checks are taken into consideration.

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About once a month, Leah Gabriel makes a trip to Advance America to take out a payday loan, according to a report in today's Nashua (N.H.) Telegraph.

“If I have a car problem, it helps me out, or if I need extra cash,” said the woman.

The situation is different for one Nashua man who earns $11 per hour and uses payday loans to cover his living expenses. The man, who asked that his name be kept private, also visited same the Advance America branch on Thursday. He has visited the payday advance loan center every other week for three years.

“It’s like a drug now,” said the man. “You can’t get out of it.”

He estimates that payday loans have cost him $2,600 a year in interest for three years. For instance, when he borrows $500 against his next paycheck, he has to write a check to the lender for $600 (the $500 he borrowed, plus $100 interest). He pays the 521 percent APR because he says it’s his only option. New Hampshire is the only state in the region without an interest rate cap on payday loans, and stories like the one above have become more and more common.

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