The following is a question submitted to consumer advocate, Mike Boguslawski:

Q: I borrowed some money for taxes from a payday advance lender. I was in a hurry, desperate, and did not do the math.

Now I have to keep “rolling” the amount I owe, which costs a fortune, and I cannot pay off the principal because of all the fees that I spend on “rolling” the loan. Is there anything I can do to bring the quick cash loan payments down or make the lender agree to a lower interest rate?

A: I have noticed that the frequency of advertising for no faxing payday loans seems to have increased during the past two months. Maybe that is because those “lenders” know people are vulnerable at tax time, or maybe I am just more aware of them when my pockets are empty.In any case, I have always avoided them and recommend everyone else does too, unless there is absolutely no other source of money and you cannot possibly wait.

These really should be called “quicksand loans” because once you step into them, it is almost impossible to get out without a little help.

For that reason, payday cash loans with triple digit interest rates are illegal in Connecticut. Nevertheless, they are still available over the Internet, and I’m guessing that’s where you found one.

The payday loan industry has come under a lot of fire from legislators who don’t like the high interest rates, but lenders do not mind because their profit margin is so ridiculously high. For example, check-based loans of $100 to $500 typically cost triple digit interest rates, which can be as high as 780 percent annual interest rates for two-week loans with $15 to $30 per $100 loaned, according to the Consumer Federation of America.

The real problem with these personal loans is that many borrowers cannot repay them within two weeks, so they have to use their next check to borrow enough to repay their first loan. Of course, all the fees associated with the original loan are also charged on the renewal loan.

One secretary in my office is up to renewal loan number- 16. She has effectively been paying about $40 per pay period for the use of $250 during the last eight months, which means she has paid $640 for the use of $2500, but she still owes the original $250. None of her payments have gone toward the principal. That means an annualized interest rate of 384 percent. That is a deal, according to the Consumer Federation of America statistics, but it is not a deal any consumer wants to make.

The relationship between you and the payday cash advance lender is contractual and, if you did obtain the loan from a Connecticut-based payday lender, you probably have an illegal contract on your hands. That might come in handy if the lender sues you, because a court ordinarily will not enforce an illegal contract.

If the loan was made over the Internet, then things become more complicated, particularly if the contract had a jurisdiction clause from another state that permits payday loans. In any event, the question of illegality only comes up if you are in court. If you plan on repaying the loan, you need another strategy.

One approach is to discuss the interest rate with the quick payday loan lender and see if there is some accommodation it can make. It is not like these guys are Santa Claus, but they can lower your rate and still make oodles of money. The secretary I mentioned now has “Platinum” status - a level to which no consumer should aspire with a payday lender, but it is good for her because it has cut her renewal fees in half.

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The British Columbia Payday Loan Association (BCPLA) called on the provincial government to hear witnesses on Bill 27, the Business Practices and Consumer Protection (Payday Loans) Amendment Act.

BCPLA spokesperson, Kevin Isfeld, criticized government officials for introducing cash advance payday loan legislation without first conducting direct consultations with the industry. The BCPLA represents 24 member companies that comprise 65 percent of operators in the province.

“This legislation contains many elements that are bad for consumers and industry operators, including provisions to regulate third-party service providers and the retroactive application of fines that could put many legitimate operators out of business,” said Mr. Isfeld.

“This government has conducted no direct consultations with BC operators. Our members are angry and concerned,” he added.

The BCPLA is a supporter of consumer protection measures. Its members are committed to legislation that will strike a proper balance between consumer protection and a competitive no fax payday advance lending environment. Bill 27, as written, fails to achieve this balance.

“The BCPLA believes that the government of British Columbia can redress shortfalls in the legislation by conducting committee hearings at which all stakeholders can make their views known. The government can then amend the Act to achieve the required balance,” Mr. Isfeld said.

The BCPLA demands an opportunity to appear as a witness before the legislature.

Payday loan and check cashing businesses may be restricted in Smithville in the not-so-distant future.

The Smithville Board of Aldermen discussed possibly placing a moratorium on those businesses as well as drafting ordinance language restricting how many may open within the city limits.

Alderman Bob Foreman brought up the issue after one fast cash advance business opened in the Creekwood shopping center and another has been slated to open in the Hillside Plaza shopping center. Gladstone has also placed a moratorium on these businesses and is expected to draft ordinances to restrict them this summer.

Foreman cited the payday loan business of cash advance loans as being unnecessary in Smithville.

“I am very concerned about these businesses after the research I have done,” he said. “I don’t think they are good for the citizens.”

Foreman said that the high fees and interest rates associated with payday loans were what concerned him.

“I found out that the average borrower will pay $800 for every $325 loan,” he said.

According to the Federal Trade Commission, check cashers, finance companies and others are making small, short-term, high-rate loans that go by a variety of names including “[no fax payday loans], cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans.”

With payday loans, according to the Better Business Bureau, a consumer writes a check to one of these businesses for the amount he wishes to borrow plus a fee.

“The lender gives the borrower the amount of the check minus the fee,” the BBB Web site stated. “The lender holds the check until the borrower’s next payday, when he or she can do one of three things: allow the check to be cashed, redeem it by paying cash to recover the loan plus a fee or roll it over by paying the fee to extend the loans for two or more weeks.”

The BBB stated that the fees charged for these loans are usually a percentage of the face value of the check or a fee charged per amount borrowed — typically from $15 to $50 dollars for every $100 borrowed on a quick payday advance.

However, Alderman Kelly Edwards highlighted that the payday loan businesses also offered other services including Western Union.

“There is value in them,” Edwards said. “I just don’t know how many we need in Smithville.”

Edwards suggested structuring licenses for these types of personal cash loan businesses like liquor licenses so that only so many are allowed by population amount.

“We could say that Smithville can only handle one per every 5,000 people,” he said. “That way, we don’t have 10 of these things open here.”

Federal legislation giving provinces the power to regulate the sometimes faxless payday loan industry has cleared its final hurdle.

The Senate has approved a bill, in the works since 2005, aimed at ending legal uncertainty over the high-interest, short-term loans provided by payday loan operations. The Conservative government has said the bill is also designed to protect consumers from questionable business practices.

It is currently illegal under federal law to charge annual interest of more than 60 percent. Bad credit cash loan outlets usually lend money for only a matter of days but, if calculated on an annual basis, they are effectively charging up to 1,000 per cent interest.

Payday loan companies have complained that imposing the 60 percent limit on short-term loans is unfair and would make it impossible for them to even cover their basic administration costs.

The legislation allows provinces to permit interest charges above 60 percent, provided that they institute legal protections for faxless payday advance customers.

In anticipation of the federal law being approved, Manitoba and Nova Scotia have already passed the required consumer protection legislation. Similar legislation is in the works in British Columbia and Saskatchewan, and other provinces are expected to follow suit.

The Canadian Payday Loan Association, which represents 500 of the 1,350 outlets operating in Canada, congratulated the government and Liberal-dominated Senate for finally passing a law that “balances consumer protection with a viable industry.”

“For the first time, provinces will be given real authority to regulate the best players in the industry while putting the worst players out of business,” said association president Stan Keyes.
The association estimates that more than 2 million Canadians use payday loans every year to make ends meet between paycheques.

The San Francisco city attorney’s office filed a lawsuit Thursday against two short-term payday cash loan establishments for exploiting borrowers with high interest rates and devious business practices.

Check ‘n Go, which operates three stores in the city, and Money Mart, which operates 12 stores in the city, are the targets of the city attorney’s litigation.

According to the lawsuit, both businesses offer short-term faxless payday loans with interest rates over 400 percent, which violates state law. The suit also claims that the businesses have attempted to circumvent state law by working with an out-of-state bank, the First Bank of Delaware.

City Attorney Dennis Herrera said these payday loan establishments prey on low-income and working-class families who live from paycheck to paycheck.

“Check ‘n Go and Money Mart have targeted working families with an illicit lending scheme that would make a loan shark blush,” Herrera said in a statement. “With annual interest rates exceeding 400 percent, these business practices are not merely unconscionable, they’re illegal - and we intend to put an end to them in California.”

A survey completed in March by a San Francisco group reported that most bad credit payday loan establishments don’t warn their customers of the dangers of high-cost payday loans despite several laws meant to force businesses to provide full disclosure.

According to the California Reinvestment Coalition, a group of 245 nonprofit organizations and public agencies across the state, payday lenders have been taking advantage of lax California regulations for years.

In 2004, Californians spent more than $757 million in loan fees. According to the survey, that number would have dropped severely if only payday advance loan lenders had been more diligent in educating borrowers, a promise that the industry made to consumers through an advertising campaign.

Charisse Ma Lebron, who organized the study, said the lawsuit is a long time in coming.

“CRC commends City Attorney Herrera for protecting consumers, which is unfortunately what the state legislature has failed to do for all Californians,” she said in a statement.

Cash America is flush with cash. The instant payday loan and pawnshop operator reported strong growth in its cash advance operations, along with increases in its pawn business, thanks to an influx of new customers.

First-quarter revenue rose to $223 million, a 37% increase over the $163 million the payday loan company reported last year. Much of that growth resulted from the more than 235 pawn shops and cash advance centers the company opened over the past three years, creating an entry point for a significant number of new customers. Profits, meanwhile, rose 25% to $19.2 million, or $0.63 per share.

The share-price drop was an opportunity in the making for investors, though, since the stock had previously traded at a premium to its competitors. Shares have recovered 15% from the lows they ultimately reached last month, though they’re still some 8% off the fast payday advance company’s 52-week highs.

In the first quarter, Cash America enjoyed a tripling of its cash loans receivable on the cash advance side of the ledger, along with a 6% increase in the number of pawn loans written or renewed. The number of advances written has more than doubled, while the average pawn loan taken out - and the balance remaining at the end of the quarter - has edged upward.

The strength of the cash advance business was also aided by Cash America’s CashNet USA online payday loan business, which the company acquired last year.

Yet all the new customers crowding into Cash America’s stores also raise the risk of more frequent and plentiful defaults. In response, Cash America implemented a sevenfold increase in its loan-loss provision expense. That seems to be a prudent move; according to the company, a 10% increase in loss rates could trigger a corresponding $4 million decrease in net income, assuming cash advance volumes are written at the same rate as in 2006.

The sole tarnish on Cash America’s otherwise sterling quarter came from its check-cashing operations, where revenue dropped 1% on virtually flat fees collected from customers. However, with those operations accounting for just a little more than $1.1 million in revenue, the overall impact of this shortfall was negligible.

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.

Lowell Barron, D-Fyffe, represents District 8 in the Alabama Senate. He penned the following paraphrased take on payday loans for The Montogomery Advertiser …

More than three years ago, I was part of an Alabama legislature that approved a bill to regulate the instant payday loan industry in this state. And like many of my colleagues in the Senate, I felt that the regulations we enacted made a drastic and positive impact for consumers on this previously unregulated industry.

The legislation we adopted outlined the specifics of how the industry would operate and included measures to ensure that the people of Alabama would be treated fairly and would be protected from unscrupulous lenders. Now we need to address the most critical issue Alabamians face with these types of pay day loans - a reoccurring situation which puts the borrower in a cycle of debt that he or she can’t escape.

In the current legislative session, I have introduced a payday lending reform bill which is targeted at the heart of this critical issue. My proposal will:

• Give the customer a one day right to rescind the cash loan - (If a customer has borrowers’ regret or finds another source of funds, he should be able to return the loan proceeds and not incur any cost)

• Prohibit rollovers/renewals - (These loans are designed to fill a one-time need; they are not intended to be primary loans and prohibiting renewals will accomplish this)

• Require all fast payday advance lenders to offer an extended payment plan, with no additional interest charges, to the customer at any time they are unable to repay the loan - This gives everyone a way out if they find that they can’t repay the loan and it eliminates the cycle of debt.)

• Ban all lending to the military and their dependents - (Starting Oct.1, federal law restricts the interest which can be charged to military personnel to 36 percent; I thought we would go a step further.)

There are some who think the states should enact more drastic regulations for the quick cash advance industry and in some instances eliminate it all together. I disagree.

Small short-term loans have been a market vacated by the traditional banking community and in the absence of other alternatives we cannot afford to cut off the supply of credit available to borrowers in these situations. A few years ago, Georgia banned payday loans, but this year they are expected to pass a law allowing these loans again because of the need for these services by many Georgians.

Another bill has been introduced in our session which would repeal the no faxing payday loan act and regulate the industry under the small loan act and I say that this proposal is not the answer.

As policy makers, we must balance the ability of the consumer to manage his/her own financial situation verses eliminating the access to credit. Right now the consumer has choices when it comes to unsecured short term borrowing, they can utilize the provisions of the small loan act or they can utilize the provisions of the payday loan act - both serve a differing need of Alabamians.

If we repeal the payday loan act, then the only option left to the consumer is a small loan transaction and its structure of:

- An installment loan with a minimum 30 day term and maximum of 25 months
- A blended interest rate of 3 percent and 2 percent a month depending on amount borrowed
additional fees in the form of acquisition fees, late payment charges, and account maintenance fees

This structure is not the solution because you are not addressing the problem - borrowers who are unable to repay their cash advance loans have few options and are forced to rollover or renew these loans and these consumers end up trapped in a never ending cycle of debt.

Square pegs do not fit into round holes and trying to regulate an industry under an act that was not designed for that purpose is just bad policy.

I encourage my colleagues not to throw the baby out with the bathwater. The payday loan industry needs reform not elimination. These loans must be further restricted to make sure Alabamians do not fall deeper in a cycle of debt. But it would be wrong to eliminate one of the options many consumers have for badly needed short-term financing.

This problem requires meaningful, effective, and workable solutions and my legislation provides just that. I will continue to advocate and stand behind my check cash advance proposals. Alabamians must be given options, especially when it comes to making credit decisions.

Arizonans who take payday loans would get more time to pay them back without financial penalties under the terms of legislation given preliminary House approval Monday.

The measure would leave intact existing laws that permit people to borrow up to $500 for two weeks for 15 percent of the value of the loan. That works out to an annual percentage rate in the neighborhood of 400 percent.

But SB1446 would prohibit “rollovers,” where lenders convince guaranteed payday loan borrowers who cannot repay within the two weeks to get another two weeks of credit - for an extra 15 percent fee.

Potentially more significant, it would spell out that those who cannot make the payment would be given a payment schedule for up to an extra 12 weeks to make good, all without having to pay any additional fees or interest.

Rep. Chad Campbell, D-Phoenix, said that payment schedule would be available to anyone. More to the point, it brings the effective annual interest rate down to about 52 percent on instant cash loans.

The measure has the acquiescence of lobbyist Lee Miller, who represents the owners of many of the more than 720 payday loan stores throughout the state.

That’s because of what lenders get in return: a right to stay in business. SB1446 would eliminate a provision in existing law that, unless repealed, would make it illegal to make Arizona payday loans after 2010.

However, Monday’s vote doesn’t guarantee there will be payday loan stores in Arizona forever. Rep. Marian McClure, R-Tucson, said she intends to pursue an initiative drive to statutorily ban these kinds of high-interest lenders.

Several legislators said Arizona never should have approved faxless payday advance lending in 2000.

Rep. Bill Konopnicki, R-Safford, disagreed. “These are emergency loan situations,” he said, adding they “fill a niche.”

A final roll-call vote is needed before the measure goes to the Senate.

Supposedly cheap payday loans are attractive for their convenience, but lenders have been prone to some dodgy dealings, according to statistics Canada study released Friday.

In 2005, three percent of Canadian families took out so-called payday cash loans or short term loans, of up to $1000.

The convenience is great for families looking to bridge financial gaps between paychecks for unexpected expenses, but it is a slippery slope for families close to the edge of a credit abyss.

High borrowing costs, insufficient disclosure of contract terms and unfair collection practices were all cited as questionable by the researchers involved in the no fax needed payday loan study.

Potential borrowers were four times more likely to be behind in bills or loan payments in the study published in the April Perspectives on Labour and Income. They were also more likely to have very little savings and no credit cards or been refused by the big banks for credit.

Nearly half of fast payday advance users in the study said they don’t have anyone to turn to if they needed help with finances, which is significantly higher than non-users.