Payday Loan Times

Republican Sharon Nelson is attempting to bridge the gap between stricter payday lending standards and a bill that will pass the Senate Committee. (Read on …)

If you work everyday but have bad credit, where do you go for an emergency loan? The only option might be a payday loan store.

Some DC Councilmembers say these businesses are located exclusively in poor communities and prey on people who they know are not likely to pay the money back in the two week loan period. After that, higher fees and interest rates kick in.

For instance, Stephanie Jones needed $200 for a cable bill. She got a payday advance loan from the “Payday Now” store on Georgia Avenue. Her fee was $30, which she called “a great deal.” She paid the loan off on time, then she went to work for the establishment.

Others have had different experiences after taking out bad credit payday loans.

Demetrius Jones, who was standing outside the “Payday Now” store, said: “They are robbing you without the gun; charging outrageous interest rates and they are only located in our communities.”

DC Councilmembers Mary Cheh and Marion Barry will hold hearings this week on a bill they have introduced to bring fast cash loan businesses under the same interest rate caps that other financial institutions face. It’s a 24% cap on loans over a year’s time.

A spokesperson for the industry says the bill would put payday loan lenders out of business because in effect it would mean roughly 90 cents on a $100 loan. Councilmember Cheh says payday loans to DC residents average 340%, while they paid $3.3 million in the year 2005 in payday fees.

More than 15 members and supporters of Socialist Alternative held signs and handed out flyers at an intersection near the Tacoma Mall, drawing awareness to the outrageous practices of payday loan stores and prompting the public to attend an upcoming city council meeting at which the topic will be addressed.

Drivers overwhelmingly showed support by honking their horns and giving thumbs up.

Making promises of affordable, quick credit, providers of fast cash loans often prey on the most vulnerable of the working class, the poor, while thriving on their borrowers’ inability to repay the loan on time, thus creating a cycle of recurrent fees and debt. Some borrowers actually end up acquiring multiple loans in order to financially stay afloat.

Not surprisingly, these payday lenders donated over $200,000 to state politicians in 2006, amounting to nothing more than a bribe to protect their interests.

These politicians allow no fax payday loan profiteers an exemption from Washington State usury law, which caps interest rates at an already astounding 36%. No wonder there has been an explosion of payday loan stores in poorer neighborhoods. With high interest rates and exorbitant fees, balances can accrue to more than ten times this amount (360%) over a one-year period.

At the city council meeting on June 5, the campaign plans to mobilize people opposed to the way payday loan lenders operate, and demand the city rescind these special privileges and provide living-wage jobs and financial assistance alternatives to these quick cash advance lenders.

One of the signs, “We Need Real Paydays, Not Payday Loans,” demonstrated an alternative.

Workers cannot expect that the two parties of big business that legalized unethical payday lending some ten years ago in Washington State will end these high-interest loan rip-offs and provide living-wage jobs and the healthcare that we need. This can only be achieved by the mobilization and struggle of working-class people.

Here is a Letter to the Editor from The Washington Post. Its focus? The need for cash advances.

Linda Singer, the District’s attorney general, needs a quick lesson in economics as evidenced by her plan to help poor people ["Targeting Businesses Targeting the Poor," Metro, April 26].

The high interest rates of no fax payday loans, subprime mortgages, tax-refund-anticipation loans and international money wires are not arbitrarily set to shake money out of the pockets of the poor. Rather, high rates reflect the fact that the loans are both short term and risky. Businesses need to charge these rates because of the high level of risk associated with the loans.

Limiting the interest rates that can be charged would only reduce the availability of such cash loans to poor people, the vast majority of whom, by the way, repay their loans on time.

But of course, as the attorney general’s office would have you believe, poor people don’t know what’s best for them.

The District’s attorney general yesterday proposed legislation to limit high fees charged by financial businesses, such as those that provide payday advances, that cater to low-income customers.

Attorney General Linda Singer (pictured) said she plans to hold town hall meetings and work with D.C. Council members to introduce laws lowering interest rates that can reach almost 400 percent a year.

The targets of Singer’s ire were included in a 25-page report her office is expected to release today, “The High Cost of Being Poor in the District of Columbia.” They include check-cashing centers, rent-to-own facilities, payday loans, subprime mortgages, auto financing, tax refund-anticipation loans and international money wires.

In addition to imposing fee limits, Singer said she wants more transparency in loans so that customers can make comparisons and projections.

“We want to make sure consumers are treated fairly and they have the ability to make good choices in how they spend their money,” she said.

Many laws have been ineffective because of loopholes, said Singer, who met yesterday with council member Mary M. Cheh (D-Ward 3).

Cheh, head of the Public Services and Consumer Affairs Committee, said she will work with Singer to determine what type of fast cash advance legislation should be introduced. Cheh recently introduced a bill that would require mortgage lenders to disclose the total payments over a loan’s lifetime, including principal, interest, taxes and insurance.

“We can pass the laws, but we can’t enforce them,” Cheh said. “By linking together and proceeding against them, we can be much more effective.”

According to the attorney general’s report, minorities and low-income residents who are less likely to have bank accounts are among the biggest customers of easy payday loan firms that charge significantly higher fees than banks.

Check-cashing businesses charge fees up to 5 percent. Payday loan centers charge up to 10 percent of the loan, plus an additional $5 to $20. In effect, a no fax cash loan of just two weeks carries an annual rate up to 391 percent, the report said.

Low-income buyers pay up to 3.7 percent more on car loans, and African Americans pay up to 10 percent more, according to the report.

Money transfers wired by immigrants to family members out of the country can carry 4 percent fees.

Click here to read the rest of this Washington Post article.

Legislation in Washington to reform the payday loan lending industry appears to be dead. Oregon Public Broadcasting correspondent Austin Jenkins reports on what happened behind-the-scenes.

——————-

State Representative Steve Kirby, a Democrat, chairs the House Banking Committee. He he had a package of fast payday advance lending reform bills.

One would have created a repayment plan for payday customers who get in trouble. But that and other bills never got off the House floor. He blames a ruckus by opponents of the industry.

“The industry, they were not responsible for killing these bills,” Kirby said. “This was actually people who fancy themselves to be consumer advocates who killed these bills. I’m appalled.”

One of people who opposed Kirby’s bills is Representative Sherry Appleton, also a Democrat. She says his bad credit cash loan proposals didn’t go far enough.

“I don’t just want to swat at the problem, I want to get rid of the problem. And that means that we need to have some tough legislation,” she said.

Appleton wants a thirty-six percent interest rate cap on pay day loans. But Committee Chair Kirby wouldn’t give her bill a hearing.

“You know around here when you try to go for all or nothing that’s a really good way to end up with nothing and that’s what we ended up with,” Kirby responded.

But Appleton isn’t giving up.

“And we’re going to come back and we will come back every year until we get something.”

Despite much sound and fury, it appears legislators will do nothing this year to crack down on controversial Washington payday loan lenders.

“None of the payday bills are going. They’re dead,” said state Rep. Sherry Appleton, a Poulsbo Democrat who wants to cap payday interest rates.

Payday advances are small, short-term advances offered at high interest to people who need money fast before their next paycheck. Critics charge that the loans trap the working poor in a cycle of debt, while proponents argue the thriving industry provides a needed service.

The payday stores seems to be on every street in some parts of Tacoma. The biggest concentration in the state is in the South Tacoma and Lakewood legislative district of Rep. Steve Kirby, a House committee chairman who killed Appleton’s payday bill.

Kirby said Appelton’s proposal to cap annual percentage rates at 36 percent would have driven the industry out of business. Kirby offered less dramatic faxless payday advance measures, but none made it to the House floor before a key deadline on Wednesday.

“To some people this was an all-or-nothing deal,” Kirby said. “And around here that’s a really good way to end up with nothing.”

Payday cash loan lenders are allowed to charge a maximum fee of 15 percent. That amounts to a $75 fee on a $500 loan, which pencils out to an annual percentage rate of 391 percent on a 14-day loan.

Kirby had pushed a bill to let payday borrowers have a 60-day payment plan once a year at no additional cost.

It’s similar to a change that a national instant payday loan lending trade group is voluntarily adopting in order to beat back moves by state legislatures across the country to clamp down on the industry.

Kirby and Appleton had also co-sponsored bills to create a financial literacy program for borrowers and to study putting together a database to track the loans. Kirby has said that creating a database could allow payday lenders to see if a borrower has multiple loans out. A database could set the stage for a future law putting limits on how many loans a borrower can have out at one time, he said.

But Appleton said her enthusiasm for the database bill flagged because she doesn’t want providers of instant cash loans to get names of all the borrowers.

Appleton was also upset that Kirby’s financial services committee watered down her bill to educate borrowers. The original version, which Kirby co-sponsored, would have required lenders to pay a 25-cent per-loan surcharge to pay for the financial literacy programs.

(Read on …)

By the Editorial Board of the Union-Bulletin

Often those who seek short-term, high-interest payday cash advances are desperate. Why else would they agree to pay 300 percent interest?

We, as a society, have an obligation to protect the most vulnerable among us from this legal loan sharking.

The federal government has taken action to protect those in the U.S. military and their families. A new federal law, which takes effect in October, caps annual interest rates [on military payday loans]and fees at 36 percent.

But what about the rest of us?

Washington lawmakers are now looking at several proposals aimed at protecting consumers from outrageous interest rates that too easily trap consumers in a vicious cycle of debt.

Establishing protections on payday cash loans is tricky. The regulations need to be strict enough to protect consumers but not so restrictive that payday lenders can’t make a reasonable profit.

Payday lenders do serve a legitimate need. However, payday loans are a rotten way to get your hands on cash. Other lower-interest avenues should always be pursued first.

Unfortunately, some people have limited options - all of them bad. Those with poor credit - or no credit - might find that cheap payday loans make the most sense for them. They might, for example, need $100 for a week or two and the cheapest way to get it is to pay $15.

At least with payday loans, consumers know up front what interest rate he or she will be paying.

Without that option, the desperate will be forced to consider even more expensive, even dangerous, options.

It is better to have a regulated industry in which consumers have some protection.

“We’re not trying to put the industry out of business, just trying to make it fair for everybody,” said Rep. Sherry Appleton, D-Poulsbo, who has introduced two proposals aimed at protecting the public.

Appleton has proposed capping interest at 36 percent annually (the same rate as military families) and setting a minimum bad credit cash loan term of 90 days.

Lobbyists for the payday industry contend 36 percent interest rate - while very high compared to bank loans - is not high enough to keep payday lenders in business.

While it’s possible this might force a few of the payday cash advance lenders to consolidate or streamline their operations, it’s unlikley to drive them out of business. The business will still be profitable, just not as profitable.

In the end, it’s fair. After all, if military families are protected with a 36 percent interest rates, shouldn’t all families in Washington state have that same protection?

Unhappy with the practices of short-term instant payday loan lenders, Washington state lawmakers have introduced several bills to curtail the number of people caught in a cycle of revolving debt.

The catch is, legislators in Olympia have different views on just how to do that, with some arguing for more restrictions on the industry and others saying there needs to be compromise.

The lending of no faxing payday loans was authorized in Washington state in 1995 - allowing people to borrow against their next paycheck at high interest rates. A decade later, there were more than 715 short-term lenders in the state - mostly concentrated in western Washington, according to an analysis by the Brookings Institution.

Consumers paid $174 million in fees on $1.4 billion worth of loans in 2005, the group said.Industry officials contend short-term loans help people who need cash in a hurry. But consumer advocates say all working families need the same protections offered in a new federal law that caps annual interest rates and fees at 36 percent for service members and their families.

That law takes effect in October.

“We are only asking the Legislature to extend the protections for military families to all working families,” said Karen Deal, political director for the United Food and Commercial Workers Local 21, a coalition of 30,000 retail, health care and laundry service workers.

Rep. Sherry Appleton, D-Poulsbo, has introduced two bills that she says will better protect the public from payday cash advances.

Currently, lenders provide short-term loans, typically around $500. Although most people pay about $64 for one such loan, Appleton said, others have paid up to $300, or about 60 percent, in interest.

“This type of percentage rate is usury, and we don’t do usury anymore in this country,” she said.

House Bill 1020 would cap interest rates at 36 percent annually and set a minimum-loan term of 90 days. The measure also asks the state Department of Financial Institutions to study the use of a statewide database to track and limit cash advances.

Appleton’s second measure, House Bill 1021, would defer loan payments for deployed service members and restrict payday lenders from harassing military borrowers.

“We’re not trying to put the industry out of business, just trying to make if fair for everybody,” Appleton said.

(Read on …)

A bill that would slash the interest rates charged by payday lenders appears dead after a key committee chairman said the proposal won’t get a hearing, reports The Seattle Times.

“I want to do this in baby steps,” said Rep. Steve Kirby, who leads the House Insurance, Financial Services and Consumer Protection Committee. “I have to be a little more thoughtful on these issues than someone who is not on the committee and just puts a bill out there.”

As chairman, Kirby, D-Tacoma, decides which bills get a hearing - and a chance to pass. He said Rep. Sherry Appleton’s push to cap annual interest rates at 36 percent for instant payday loan lenders won’t get to the hearing stage.

Her proposal would give borrowers more time to pay back loans and curb interest rates, which can reach the equivalent of 391 percent annually. Payday cash advance lenders say the bill would drive them out of business.

The lenders offer short-term, high-interest loans in amounts up to $700. A borrower writes a postdated check for the loan amount, plus the interest charge. The lender either cashes the check or collects cash from the customer when the loan is due.

After pronouncing Appleton’s approach dead, Kirby introduced his own personal cash loan lending bill, House Bill 1817, this week. It’s sponsored by all members of his committee and is scheduled for a hearing Feb. 13.

“Rather than the nuclear option, which is just to ban them [payday loans] in this state, we are trying to do things that interrupt the cycle of revolving debt,” he said.

The bill, while leaving fee structures and business practices largely intact, would allow customers to pay back some loans in at least four payments over 60 days at no additional cost.

A borrower could use the payment-plan option only once a year, but it would be available after just one loan. Currently, borrowers can opt into a similar payment plan after four successive loans and are usually charged an extra fee.

Appleton, D-Poulsbo, said Kirby’s legislation “doesn’t change the status quo at all” because most people taking out faxless payday loans borrow so often that one free payment plan would make little difference.

Money Tree CEO Dennis Bassford is more supportive.

“It is certainly a better attempt at good regulation than what it is being proposed by Rep. Appleton,” said Bassford, who leads one of the state’s largest payday-lending chains.

He and Money Tree Vice President David Bassford donated $1,200 to Kirby’s last political campaign.