Payday Loan Times

New regulations for Tennessee payday loan lenders were advanced by a House panel today.

The vote came despite objections from advocacy groups who complain that it will still allow the lenders to charge more than 17 percent interest.

By an 11-to-7 vote, the House Insurance and Commerce committee approved the new restrictions for the businesses. The bill, however, is significantly different from a no fax cash advance bill defeated before a Senate panel that would have fined lenders 300-dollars each time a customer is charged an interest rate above 17 percent, the limit in the state’s constitution on consumer loans.Bill sponsor Senator Terry Smith of Hot Springs says the legslature needs to come out of hte session with some sort of regulation for the faxless payday loan industry.

The bill allows customers to rescind the checks within a day and says no check casher can threaten a criminal “hot check” charge against a client for extending a loan. The bill also allows the state Board of Collection Agencies to go after check cashers breaking the state’s laws, giving customers the greater of two-times the value of their check or one-thousand dollars.

The bill requires check cashers to tell customers their payday cash loans are to be “used for short-term financial needs only, not as a long term financial solution.”

As founder and CEO of one of the country’s largest privately held fast payday advance companies, Allan Jones would like to disprove some of the payday advance industry myths by using facts …

Our company maintains corporate offices in Cleveland, Tenn. With 1,250 centers in 30 states, we have 75 centers in Tennessee, representing more than 500 employees and their families.

A payday loan online is a small, unsecured, short-term loan due on the next payday. Payday advance, the fastest-growing segment of the financial market, is extremely popular due to ease of use. Never before has a financial product been so widely accepted by consumers, yet so criticized by anti-business consumer groups.

The controversy centers on the misunderstood annual percentage rate (APR), which is irrelevant when applied to anything less than an annual rate. APR is designed to compare transactions from one year to the next; that is, a 7.5 percent APR remains constant whether it is over 10 years, 20 years or 50 years. Quoting a 365-day rate for a 14-day transaction creates an erratic number that has no effect on the dollar cost of the loan.

As an example, a $15 fee for $100 for 14 days equals 391 percent APR. If the consumer pays off one day early, the APR on this cash loan skyrockets to 421 percent. Likewise, if they pay off one day late, it drops to 365 percent, or a 56 percent difference. The 56 percentage-point APR spread becomes inflammatory to consumer groups, yet the fee remains constant at $15 to the consumer.

Customers mischaracterized
Another misconception spread by consumer groups is the portrayal of payday customers as “poor and uneducated.” They intentionally confuse payday loan customers with active checking accounts with the “unbanked” check-cashing customers.

Our typical customer is a female schoolteacher with unexpected car repairs, in addition to firemen, policemen, nurses and other hard-working citizens.

A recent study, “Defining and Detecting Predatory Lending,” by New York Federal Reserve Board researcher Donald P. Morgan, noted the seemingly contradictory nature of instant payday loans.

“To economists, this predator-prey concept of credit seems foreign,” Morgan wrote. “If credit is so expensive that lenders are earning abnormal profits (given their risks and costs), why don’t new lenders enter the market to compete rates down to fair levels. ‘Unaffordable’ credit also sounds peculiar; how can lenders profit if borrowers cannot repay?” Every time there is a true, nonbiased report issued, they reach the same conclusion.

In Tennessee, the fee has been capped at $30 since 1996 without a cost-of-living increase. The Department of Financial Institutions’ 2005 annual report showed hundreds of complaints, but none against the “deferred presentment” industry. That shows the current cash advance payday loan law is working.

SOURCE: The Tennessean

Tennessee’s next legislative session begins anew in a matter of weeks. The Memphis Daily News reports this is why the push to get lawmakers involved in reforming the state’s auto title lending industry is starting to accelerate.

An ‘onerous’ industry
Activists have pointed to several reasons why their focus is on auto title lending specifically, as opposed to the quick payday advance shops that offer quick cash to low-income customers at triple- and quadruple-digit interest rates.

First, they say, there’s not as much of a deep-pocketed, well-heeled lobby for the auto title loan industry as there is for payday loan businesses.

Second, while neither lending option is ideal or especially consumer-friendly, debtors tend to get fleeced by auto title loans even more easily than they do by no faxing payday loans.

Auto title storefronts pop up in Memphis with presumably no favoritism toward rich or poor neighborhoods; they beckon cash-strapped customers from scattered addresses Downtown as well as in the higher-income wealth corridor around Wolfchase Galleria.

Moreover, anyone unlucky enough to get caught up in the debt cycle that often accompanies auto title loans would no doubt be familiar with the more unpleasant provisions in the state’s code, such as the fees that lenders are allowed to charge.

“There’s this little provision in the auto title lending legislation that allows lenders to charge fees up to 20 percent per month,” said Corky Neale, a research and innovation specialist for the RISE (Responsibility, Initiative, Solutions, Empowerment) Foundation. “So if you roll (the personal loan) over five times, you’ve got 100 percent of the principal paid out in fees.

“That’s one of the really onerous kinds of provisions in the auto title lending component of things.”

Comparison shopping
Activists are coming after similar tidbits of legislative code still on Tennessee’s books with full force. On Tuesday, attendees of a fiscal educational forum, which will last from 3 p.m. to 4:30 p.m., will get some background on Tennessee’s auto title lending legislation and compare it to that in surrounding states.
(Read on …)

At Fort Campbell in Tennessee, those in charge of the 28,000 soldiers stationed there were glad to see Congress pass a bill limiting rates on military payday loans.

President Bush is expected to sign it into law today.

"I've never seen so many … loan companies as I do within 30 miles of military bases," Sgt. Joshua Milligan told The Tennesseean. "People try to rip off soldiers because they're vulnerable, and they have nice fixed incomes. They know they'll be paid."

The Army post in Clarksville offers counseling to soldiers who get too far into debt, but Fort Campbell spokeswoman Cathy Gramling could not say how many use the service.

Overall, Tennessee is home to 1,428 fast cash advance lenders that can charge fees up to 15 percent on two-week loans, according to the state's Department of Financial Institutions. Fees are capped at $30 per loan, and patrons are limited to two outstanding loans or a total of $500 in outstanding debt at one time.

At 15 percent, the annual interest rate on these personal loans amounts to more than 390 percent, assuming the borrower renews the loan every two weeks, according to Stephen Henley, a director in the department.

According to the department's 2005 annual report, lenders reported 4.6 million payday loan transactions worth a total of $990 million. The majority of such payday cash advances were for amounts between $151 and $250.

In Nashville, WKRN often runs ethics investigations into local, questionable practices.

On Thursday, the target of one of these reports? Contributions made to a political campaign by a powerful, payday loan couple.

Evidently, secret payments were made to Senator Jerry Cooper by a lobbyist and her husband, a wealthy businessman. In 2000, Jerry Cooper received $35,000 from Steve and Brenda McKenzie.

This pair made its millions by starting a chain of successful instant payday loan businesses in strip malls and poor neighborhoods. A year earlier, the McKenzies sent Cooper $35,000, legislation unanimously passed through Cooper's committee essentially preventing the state from shutting down the payday loan industry.

A bit sketchy indeed.

During the year 2000, when Cooper was getting the money from the cash loan couple, Brenda was a registered lobbyist on Capitol Hill for the Payday Loan and Check Cashing Industry. Retired FBI agent Hank Hillian said:

“I don't like it. If this is influence buying, it's wrong and that's why you really need to look into something like this."

While McKenzie describes the payments as a loan, Senator Cooper apparently did not see it that way, as that cash is nowhere to be found on Senator Cooper’s financial disclosure statement, where public officials must disclose "Loans for more than $1,000."

The TV station had questions about this contribution from faxless payday loan advocates and called the senator's office. No one has called back yet.

The station did, however, talk to State Senate Majority Leader, Ron Ramsey, who also serves as Chairman of the Senate Ethics Committee. He said that as soon as he heard about this information, he called key officers of Tennessee's recently created Ethics Commission to investigate.

The Ethics Commission will begin its work on October 1.

You hear debt-laden stories related to various kinds of instant payday loans all the time. Critics seem to have the loudest voice when it comes to these resources.

As The Daily Times reports, however, many individuals from Tennessee are grateful for the chance to acquire a few cash advances.

Across the Volunteer State, payday loan services are regulated. They cannot charge more than $17.65 for every $100 dollars borrowed. The maximum fee a business can charge is $30, regardless of the loan amount.

Satisfied payday advance customers: A 44-year-old Maryville woman says she has used payday advance loan companies for the past year and thinks they provide a valuable service.

"I had always heard bad things about these businesses,'' the woman said. "But if I bounce a check and get charged $28 by my bank and another $30 from the company I wrote the check out to - the $30 fee these places charge doesn't look so bad.''

It's a point not many consider. The lifelong Maryville resident said a recent divorce and an illness that forced her to miss work contributed to her need for quick access to cash. She has used fast payday loan services on Alcoa Highway, in downtown Maryville and in Lenoir City.

"I think these businesses have actually helped eliminate loan sharks and seedy businesses," she added.

The cash advance and check cashing services are out in the open, they're legitimate and they're regulated by the state.'

For years, legislators have taken steps to stop faxless payday loan and check advance services altogether in some areas because so many of them operate near military bases and low-income communities. However, providers have still been able to operate in those states by funding loans through banks chartered in other states.

(Read on …)

For at least a few days, Knoxville's Robert Isakson didn't care about controversy of payday loans in Tennessee.

The owner of Always Payday Cash Advance turned what started out as an online hobby into $47,006 in poker winnings this weekend. Isakson finished 160th out of 8,773 competing in the World Series of Poker Tournament at the Rio Hotel in Las Vegas.

"I'm looking forward to going back out there and trying it again next year,'' said Isakson, who won his entry fee and hotel stay through an online poker Web site. "On any hand luck can be involved, but over the long run, skill outweighs luck.''

Perhaps dealing with numbers and percentages via the instant payday loan business also paid off.

Isakson said he's been playing online for three years, but about 18 months ago decided to get more serious and better at the game.

"I read books and got into some online poker discussion groups,'' he said. "I decided I wanted to do more than be entertained.''

By earning more than $50,000 over the two weeks he was in Las Vegas playing - Isakson also placed 148th out of 2,803 to earn $4,591 in another poker tournament - he has certainly done that.

We doubt he'll need a faxless payday loan any time soon!

Despite what some consider a flourishing economy, plenty of Americans are having a heck of a time just paying their bills.

According to the American Bankers Association, the percentage of bank cards 30 or more days past due increased to 4.4 percent in the first quarter of the year, up from 4.27 percent in the last fiscal quarter of 2005. All that rampant consumer debt is giving bill collectors incentive to toughen their tactics, according to The New York Times, even in cases where debts can't be proven.

New York Attorney General Eliot Spitzer is, of course, on the case, waging an all-out assault on all forms of predatory lending. The gap between rich and poor is growing wider in the U.S., and it's as easy as it's ever been for low-wage earners to fall behind and get into trouble with payday loans and other high-risk options sought by the desperate.

The Memphis Commercial Appeal reports that Tennessee's General Assembly took an important step by passing legislation that sets tighter limits on what fees lenders can add to high-cost home mortgage loans and curtailing other practices that can often result in foreclosure or even bankruptcy.

Officials hope momentum from that effort will carry over next year to extend protection against predatory lending in such fields as car title loans, instant cash loans and other alternatives aimed at consumers who don't understand how badly they're being taken for a ride.

It's hard to say what direction this economy is going to take in the near future, much less over the course of the next few years. What can be controlled is making sure vulnerable consumers are protected from those who would take advantage of the situation when things turn sour.

A predatory mortgage lending bill ready is become law in Tennessee, but the Memphis-Shelby County Anti-Predatory Lending Coalition isn't finished.

The group zeroed in on new targets Wednesday as members suggested aiming at required free counseling for high-cost mortgage borrowers, as well as payday loan abuses, and bringing people up to speed on the new legislation.

"The prevailing wisdom didn't give [legislation governing high-cost home loans] a chance to pass," said Webb Brewer, lawyer with Memphis Area Legal Services, a proponent of the bill.

"We went against the power structure of Tennessee, the big money boys, the big time lobbyists and we won," said Warner Dickerson, member from the NAACP. "We won because we had a coalition."

Gov. Phil Bredesen is expected to sign the bill within the next two weeks. With its protections scheduled to take effect Jan. 1, the law also imposes a huge burden on lenders, some of whom may stop subprime lending altogether because of it, industry experts say.

The coalition has fought hard in lobbying the Tennessee Department of Financial Institutions to combat predatory practices. Coalition members also want to add additional measures, starting with free counseling, that weren't included in the initial bill for practical reasons. For instance, only half of Tennessee counties have qualified counselors.

Mortgages aren't the only area the group is out to stop, as many consider auto title and fast cash advance lending to be a bigger abuse. State law allows up to 20 percent a month for fees on top of the 2 percent a month interest rate cap — 264 percent in all.

An effort to get a law to lower the fees would be fertile ground for the coalition, and many are up to the challenge. The group also needs to make sure borrowers in search of a fast cash loan or mortgage know the new law, according to Martha Perine Beard, the head of the Memphis branch of the Federal Reserve Bank of St. Louis.

Chattanooga, TN — The city council is looking into a way to control the rapid growth of payday advance loan shops, pawn shops, title pawn outlets and check cashing stores. Currently, these stores are lining Brainerd Road, Rossville Boulevard and Ringgold Road.

Greg Helms of the Regional Planning Agency told council members that many payday advance loan firms have moved into Chattanooga after being outlawed in Georgia.

The city feels that the stores are destroying property values due to their "garish colors" and "flashy signage."

As evidence, Mr Helms said from 2000-2004, property values went up 23 percent near the stores and 31 percent citywide.

So two of the things city officials are considering are setting distance limits between the quick payday advance stores and setting standards on how they blend into the neighborhood.