Payday Loan Times

As stricter regulation keeps being released, payday lenders have been investing more in their pawn operations. (Read on …)

More than two years after a father and his two sons went to court in a bitter battle to control a Mason payday loan company, a Hamilton County judge has issued an order that puts tight controls on the firm’s finances and prohibits the alteration or destruction of company records.

The preliminary injunction issued by Common Pleas Court Judge Norbert A. Nadel is intended to maintain the status quo so that the company’s financial condition does not change substantially in the interim between when the order was issued and when the case is finally decided.

The order specifically prohibits CNG Financial from paying any dividens or making any other kind of payments to shareholders. The order also bars the company from borrowing any money other than funds that are routinely acquired to keep the fast payday advance business operating.

Nadel said Wednesday no trial date has been set and both sides are due back in court October 26 to determine when a hearing will be held on motions filed recently.

Allen L. Davis sued the company he created, CNG Financial, in 2004, claiming he did not receive all the shares he paid for when he exercised an option to buy a bigger stake in the company. He also accused his two sons, Jared and David, of mismanaging the company and using corporate funds to cover personal expenses.

At the time the suit was filed, CNG Financial operated about 800 Check ‘n Go stores across the U.S.

The payday cash advance lending firms, typically patronized by low-income people, have been frequently criticized for charging exorbitant interest rates to those who can least afford to pay them.

In Kentucky, for example, the fees charged for some of the company’s smallest personal loans amount to 460 percent per year.

Allen Davis, a former president of Provident Bank, later acquired by National City Bank, started the company with a single store at Fourth and Scott streets in Covington.

Today, it operates about 1,400 stores in 35 states and has about 3,000 employees. The privately held company had estimated revenues of about $360 million last year.

The three Davis family members and Cincinnati attorney David Rosenberg own all the company shares. The sons control it with a 60 percent stake given to them by their father.

When House Speaker Jon Husted decided to encourage bipartisan sponsorship of bills in the current legislative session, it surprised many.

No one could remember it being done before, as the relationship between the two parties in Ohio’s House had leaned toward acrimony for more than a decade.

But now there’s a two-party bill that has raised eyebrows; deals with payday loans. It would prohibit a check-cashing business from granting a loan to someone who still owes money on a similar faxless payday loan.

The bill was the idea of Rep. William Batchelder, R-Medina, whose views tend to outflank the party’s most conservative members. A constitutional expert, he wrote a bill credited with saving the state’s small banks in the 1980s, then voted against it because he thought it created too much government interference.

He went shopping among House Democrats for a co-sponsor for his personal loan bill and found one: Robert Hagan of blue-collar Youngstown, one of the most liberal of Democrats in his 20 years in the legislature.
It was a natural.

“Hagan and I have been personal friends. I always admired his ability to take on tough scraps, and I think he thought that of me,” Batchelder said. “Bob Hagan is a good, serious legislator and a good salesman.”

Batchelder previously served in the House from 1967-98, when term limits led him to accept a judgeship. He returned to his first love this year, representing the suburban Cleveland district.

Batchelder once even signed up on a bill sponsored by Hagan’s father, also named Robert, who in 1987 became the first father to serve alongside his son in the House.

(Read on …)

Pay day loan lending companies in Ohio have expanded exponentially within the past 10 years and Hocking County has one of the higher concentrations of payday lending companies in Ohio, according to the Ohio Coalition for Responsible Lending.

Hocking County has 2.12 payday lenders per 10,000 residents ranking it the 8th in the state. The state rate is only 1.35 per 10,000 residents. In 1996, no payday lenders had storefronts in Hocking County. During the past 10 years, six payday lenders have sprung up.

“What’s astounding is the growth of the industry. There are more payday lenders than all the McDonald’s, Burger King and Wendy’s restaurants in Ohio combined,” Cathy Johnston, advocacy director from the Ohio Coalition for Responsible Lending, said. Ohio has about 1,562 locations state-wide.

Personal loan companies offer short-term, high interest loans given for a post-dated check for the amount of the loan and the addition of lender’s fees. The maximum amount that can be borrowed is capped at $800 in Ohio, but the interest rates companies can charge have no maximum amount.

Almost 400 percent APR can be charged for $500 borrowed, which would translate into $45 every two weeks for a $300 loan. An $800 loan with a $72.50 origination fee and $40 of interest at 367 percent totals $912.50 at the time repayment is due. Usual repayment dates are two weeks from the time of borrowing these online payday loans.

“This kind of rates on small loans is usury,” Johnston said.

Under Ohio law, cash loan lenders are technically classified as “check cash lenders” and are regulated by the Ohio Department of Commerce’s Division of Financial Institutions.

They are exempt from Ohio’s Small Loan Act and from state usury laws. Payday lenders with in-house collections are exempt from the federal Fair Debt Collection Practices Act.

(Read on …)

Ohioans with lower credit scores who turn to cash-advance storefronts to cover unexpected expenses understand the costs involved and don’t want lawmakers to limit their availability, according to a study released Wednesday.

The survey of 400 Ohio payday loan customers, backed by an association of payday advance loan lenders, also calls into question statistics circulated by a group supporting planned legislation to cap interest rates charged for such temporary loans and promote less-expensive alternatives.

“I am most angered when I hear (Ohioans who utilize payday loans) criticized for not understanding what they’re doing,” said Patricia Cirillo, a senior research associate at the Cleveland-area Cypress Research Group, who conducted the survey. “They absolutely do understand what they are doing and, in fact, given the choices available to them, a payday loan is often the most economical choice.”

The release Wednesday came a week after the Ohio Coalition for Responsible Lending unveiled its own findings in a report titled “Trapped by Design: Payday Lending by the Numbers.”

Using information culled from the financial reports of four of the state’s top payday lenders, the coalition noted that more than 300,000 Ohioans “are trapped in a long-term payday lending cycle,” and pay more than $318 million in payday loan fees each year.

The average online payday loan, according to the coalition, totals $328 and carries an average annual percentage rate of 391 percent. And the average payday borrower takes out close to 13 loans annually.

(Read on …)

Darryl K. Dever is a payday loan lobbyst.

Bill Faith is the leader of the Ohio Coalition for Responsible Lending and would rather see payday loans replaced with small-loan options that allow borrowers to repay over a few months.

Below, they argue their sides with one another…

What’s wrong with the current law governing payday lenders?
Dever was a key author of the law in 1995. “We put safeguards in place that are still model safeguards. We said no loan rollovers. We said you must come back the next business day to even apply for a new loan. This law has worked well,” he said.

Faith said the law does not stop borrowers from taking a instant payday loan from one store to pay back the loan from another. “The product we designed is horrible. If you can’t make money lending at 36 percent, something’s wrong with that.”

Does payday lending help people?
Dever: “They’re using the product because there is a need for it. People have short-term problems. They don’t have many opportunities and don’t have many solutions.”

Faith: “Payday lending doesn’t solve consumer financial problems. It is designed to put people in a debt trap.” He later called it “legalized loan sharking. The only difference is, most loan sharks charge less.”

Do payday customers get caught in a debt cycle, forced to use new loans to pay off old ones?
Based on a report by his group, Faith said the average faxless payday advance borrower took out more than 12 loans last year, and 90 percent of industry revenue comes from people caught in a debt cycle. “If their customers went in and got one, two or three loans per year, we wouldn’t be here today.”

Dever questioned Faith’s figures. “The study says people used more than one lender. It doesn’t say they used more than one lender at the same time. That’s purely assumption on your part. There’s no fact to that at all.”

Shouldn’t people be responsible for their own financial choices?
Faith said studies have shown that only 10 percent of payday cash loan customers don’t have other options, such as credit cards. “They bought the line of the quick, easy money.” He added: “Consumers need to make more-informed choices … there’s no question about that. It’s up to the legislature to make a fairer playing field.”

Dever said an industry-backed study of Ohio customers showed 96 percent thought payday loans were a useful service. “They are making a conscious decision of what their options are. You seem to indicate these people are incapable of making an educated decision. I believe they are.”

Check ‘n Go fired back yesterday at a former district manager who last week blasted the southwestern Ohio-based company’s practices, alleging that stores target poor, blacks residents and work to trap borrowers in revolving loans.

The nation’s second-largest payday cash advance lender filed a lawsuit in Washington claiming that former district director of operations Micheal Donovan and the Center for Responsible Lending have conspired to tarnish the company and the entire payday-loan industry.

Check ‘n Go officials accuse them of unauthorized eavesdropping and illegally obtaining confidential information.

The suit specifically accuses Donovan of breaching a confidentiality agreement, breach of fiduciary duty and trade-secret misappropriation.

“It’s unfortunate we have to take this route, but we cannot allow fabrications like this to go unchallenged,” Doug Clark, chief operating officer for Check ‘n Go, said in a written statement. “Our [payday loan company] and its employees deserve to be defended from these false allegations.”

The most stark company allegation is that Donovan has multiple felony convictions and put a false Social Security number on his application. Donovan said yesterday he does not have a felony record and the company misspelled his name when trying to look up criminal information about him, essentially pulling someone else’s background and identification.

Donovan said Check ‘n Go is making “false and reckless statements.”

Donovan last week said that as a Check ‘n Go manager, he trained sales staff to keep customers dependent on the cash advance loans, did not tell customers about extended payment plans and targeted low-income black and Latino neighborhoods.

He was joined by two other former Washington-area store managers, who also spoke unfavorably about company tactics.

The company yesterday denied basing employee incentives on repeat customers, and said that store sites and marketing tactics are not based on race.

Check ‘n Go also has denied Donovan’s statement that he felt pressured to donate to the campaign of company executive John Rabenold, who is running for the Ohio House.

“We take pride in how we serve our customers in Washington, D.C., and throughout the country,” Clark said.

The debate over no faxing payday loan lending regulation is heating up in Ohio. Two bills, one backed by the Ohio Coalition for Responsible Lending and another supported by the industry, should be introduced soon.

Ohio credit unions have designed StretchPay, a system with terms and conditions that are straightforward, transparent and easy to understand. Its goal is to work with members to avoid problems like those seen in other financial sectors.

With StretchPay, a credit-union member pays a $35 fee for access to a $250 line of credit for 12 months. He or she can take out a $250 personal loan at usually no more than an 18 percent annual rate (or less than $4 per 30-day period) and must repay the entire balance within 30 days.

As long as the balance is repaid every 30 days, he or she is entitled to take out a subsequent $250 loan.

Let’s assume a borrower takes out a $250 loan seven times over 12 months. The cost would be $61 (the annual fee of $35, plus $26 in interest, which could be less if advances are paid back in less than 30 days). This is dramatically different than the 391 percent APR some fast payday advance lenders charge.

The reasonably priced StretchPay loan program is coupled with the opportunity for credit-union members to receive financial counseling and education, thus helping the most financially vulnerable to begin building savings and assets.

As more families find it difficult or impossible to make ends meet until the next paycheck, credit unions are proud to help members with easy access to an affordable, instant cash loan, helping them get ahead and on the road to economic empowerment.

It’s what credit unions - not-for-profit, member-owned financial cooperatives - have done for working Americans since the 1930s.

Ohio consumer advocates are concerned that victims of last month’s floods may turn to faxless payday loans to help them get by.

Columbus attorney Paul Bellamy with the Equal Justice Foundation says the short-term loans come with fees that translate to triple-digit interest rates. He says borrowers get caught in a “debt trap” because they often can’t pay up in two weeks when the money comes due, so they keep rolling over the personal loans and stacking up the charges.

John Rabenold is a spokesman for Check ‘n Go, a payday lender based in Mason. He says he doubts that the flooding has brought in more business.

Rabenold also says the cash loan online industry provides an important service for people in tight financial spots with nowhere else to turn.

After 10 years of explosive growth, the payday cash advance industry faces the prospect of tighter regulation as consumer groups and a handful of state lawmakers push for ways to protect borrowers.

In Ohio, payday lenders charge 15 percent interest per $100 over two weeks for these loans. However, critics say the interest rate climbs to about 400 percent when calculated over a year, meaning that a borrower could accrue $45 in additional costs on a $300 loan.

“Turn it this way, turn it that way, it looks like usury to us,” said Paul Bellamy, a research consultant with the Ohio Coalition for Responsible Lending.

Lyndsey Medsker, a spokeswoman for the Community Financial Services Association of America, said that the annual figures for these no fax payday loans are misleading.

“You’re not taking it out for a year,” she said. “You’re taking it out for two weeks.”

The coalition — a group of 160 consumer, faith-based and labor groups — has begun a push this year to cap the annual rate at 36 percent. The group has targeted fast cash loan lenders because it believes they provide high-interest loans to people least able to afford them, keeping them mired in poverty.

Last year, the U.S. Congress approved an identical bill for those companies that provide short-term loans for military personnel. Bellamy said the coalition wants Ohio law to mirror the federal law in this regard.

During the last decade, payday lenders in Butler and Preble counties have proliferated, climbing from four in 1996 to more than 40 last year, the coalition says. Statewide, the number of Ohio payday advance stores grew from 100 stores in 1996 to more than 1,500 in 2006, according to study by Policy Matters Ohio and the Housing Research and Advocacy Center.

This means Ohio has more payday lending storefronts than it does McDonald’s, Burger King and Wendy’s fast-food restaurants, the researchers found.

Ohio Rep. William Batchelder said this growth underscores the need for banking alternatives for consumers who frequent payday lenders.

“A lot of people are very concerned about this,” the Medina Republican said. “I think there is an acceptance that something needs to be done.”

Medsker said her Alexandria, Va.-based trade group wants states to mandate short-term, low-interest payment plans for people who can’t repay their personal loans on time. The association requires its members to allow clients who can’t pay within the two-week time frame to enter into an eight-week payment plan with no additional interest, she said.