In El Paso, where 200,000 people live below the poverty line, it costs more to be poor. Strapped for cash, but without good credit or an another alternative, many low-income El Pasoans regularly turn to faxless payday loans.

In exchange for the quick emergency cash they need, they also get exorbitant interest rates, which must be repaid, or additional debt, making it even tougher to escape poverty.

Just ask Valerie Estrada, who, as a single mother of four, a few years ago took out high-interest, two-week bad credit cash loans to pay bills, buy necessities and put food on the table.

“Back then, I only got paid once a month, so I would take out one or two payday loans to buy things that we needed. Then, when I got paid, my whole check would go to paying those loans,” Estrada said. “It took a long time to be able to get out of that cycle.”

“I would ask for a $365 loan and a $400 loan and, by the time I repaid the two loans at the end of the month, the first one would go up to $450 and the second one would be $500 to $600,” she said.

The $35 to $150 no fax payday loan fees Estrada describes are not atypical in El Paso. In fact, according to a bill filed last month by state Sen. Eliot Shapleigh, D-El Paso, payday lenders in Texas are using a legal loophole to charge exorbitant interest rates, between 300 percent and 1,100 percent when annualized.

By registering as “credit service organizations,” the payday lenders evade Texas’ small-loan law, enabling them to charge rates 20 times as costly as a high-interest credit card, Shapleigh’s office said. Included in the five bills the state senator filed last month that could regulate the industry is one that would limit payday-loan interest rates to 36 percent annually.

Shapleigh’s efforts are a good start, but additional action is needed to support El Paso’s poor, said Anibal Olague, executive director of the Border Fair Housing and Economic Justice Center.

“One of the biggest issues is access” to personal loans, Olague said.

He said that many banks fail to offer the short-term loans some poor people need and that banks aren’t as prominently located in low-income neighborhoods. Drive through the poorer areas near Fort Bliss, Downtown and along Alameda Avenue, and you’ll see countless billboards and signs for payday loans, as well as other high-cost financial service providers, Olague said.

“These guys are everywhere,” he said.

Nationally, high-price financial service providers tend to be more densely concentrated in low-income neighborhoods, according to a payday advance loan study released last year by the Washington, D.C.-based Brookings Institution. It found that banks were less frequently concentrated poor areas, although 29 percent of poor neighborhoods analyzed did contain one bank or credit union, while 75 percent of those neighborhoods were found to have one such institution nearby.

The study said these demographics are one reason it is often expensive to be poor. It reported that compared with wealthier people, low-income earners can pay thousands of dollars more a year on their cars, home, insurance, furniture, groceries and financial services.

However, even in cities where many bank branches are in low-income neighborhoods, like Seattle and San Francisco, many poor people still turn to payday loans online, said the study’s author, Matt Fellowes.

Fellowes said two things must happen to overcome the problem:

1. First, financial education is needed to inform poor people of their options and to build trust in banks and credit unions.
2. Second, because low-income people need short-term financial services, the options banks offer may have to change.

Banks and credit unions “might not offer products and services that make sense,” Fellowes said.

In El Paso, the West Tex as Credit Union offers a low-fee quick cash advance loan. Charging only $10 for a $500, two-week loan, the credit union is doing what other bankers in town have said would be economically unfeasible.

The credit union’s CEO, Rufino Carbajal, acknowledged that the practice is not a big moneymaker. On 201 loans totalling $77,515 made during the first quarter, the credit union barely broke even after losses and transaction costs were figured in.

But, Carbajal said, direct profit is not why the credit union offers the service.

“There’s quite a bit of losses in that program,” he said. “But the key was to be able to get some people into the main credit and savings accounts.”

Basing his opinion on work he’s done with poor El Pasoans, Olague said programs like West Texas Credit Union’s are exactly what the county needs instead of fast cash loan providers.

“It’s useless to go out to these families and say this (high-interest payday loan) is a bad thing, but not to offer alternatives,” he said. “We need to make these banks and these credit unions accountable.”

SOURCE: The El Paso Times

As the South Carolina legislature debates a new bill that would cap payday advance lending interest rates, Rock Hill is taking steps to restrict the locations of such “predatory” institutions, as one city councilman called them this week.

Automobile title loan lenders and payday lenders are currently defined under the broad umbrella of “financial institution” in the city’s zoning codes. That definition also includes facilities such as Wachovia Bank and credit unions.

But in the zoning changes that the city’s Planning Commission will discuss on May 1, the title loan lenders and pay day loan lenders are singled out from the broader definition and would have to be at least 300 feet from residential districts, churches and schools, and at least 1,000 feet from similar financial businesses.

They also cannot be stand-alone facilities and must be located within retail establishments and commercial structures of at least 30,000 square feet.

City Councilman John Gettys, who asked to put the zoning changes on the agenda, said they are steps toward restricting such “predatory lending agencies,” he said Friday.

“These types of businesses … basically target those living in poverty in manners that truly hamper someone’s ability to pay the loan back and get on with life,” Gettys said.

But Jamie Fulmer, director of investor relations for Spartanburg-based Advance America Cash Advance, chaffed at that characterization of the bad credit cash loan industry on Friday.

“You don’t make that charge against pharmacies or grocery stores that are always clustered together,” Fulmer said.

Advance America has seven locations in York County. Payday lending essentially allows people to borrow against future paychecks. The typical South Carolina payday loan period is two weeks, and the current cap on interest is $15 for every $100. That works out to a 391 percent interest, annually.

Congress passed a law in 2006 that would limit interest rates to 36 percent for military personnel. State Rep. Alan Clemmons, R-Myrtle Beach, recently introduced a bill that also would cap interest rates at 36 percent in South Carolina.

But legislation at the state level often moves slow, Gettys said, which is why he is hoping to institute restrictions on payday cash loan providers locally.

Teresa Arnold, legislative director for the South Carolina AARP, said payday lenders often refer customers who cannot pay off their loans to the business next door, where they get another loan.

Lenders with several branches in an area could refer customers between branches, Arnold added. High interest rates trap consumers in a cycle of debt, Arnold said.

“You get desperate. You think, ‘Where am I going to get the money to pay the power bill or get the groceries?’” she said. “But then you realize: You didn’t have $300 two weeks ago, and you definitely don’t have $300 today.”

AARP, a strong critic of faxless cash advance lending, supports Clemmons’ bill.

But Fulmer said the quick cash service actually saves consumers money. Fees from bounced checks are often higher than the charges from interest, he said.

“I think consumers that use this product are smart enough to know that this bridges gaps between paychecks,” he said.

About 95 percent of Advance America’s customers pay the company back on or about the day the loans are due, Fulmer said. A 36 percent interest rate on $100 would work out to $1.38 on a two-week loan.

Families with little savings or no credit cards and are struggling to pay their bills are significantly more likely to have used instant payday loans than those with more financial options, according to Statistics Canada.

The agency said in a study released Friday that families with $500 or less in the bank were 2.6 times more likely to have used payday loans than those with between $2,000 and $8,000.

The short-term loans require no credit check and typically dole out amounts of about $100 to $1,500. They’ve been criticized for being the most expensive legal way to borrow money.

Charges keep adding up: They come with a range of fees and added charges for clients who keep rolling over loans from week to week and month to month if they’re unable to pay back the original loan.

Published in the April issue of Perspectives on Labour and Income, the study examines the characteristics and behaviours of payday loans borrowers, using first-ever data on these fast cash loans from the 2005 Survey of Financial Security.

Payday loans were dubbed as such for the method of paying them back. When you sign the loan agreement, you leave a cheque, dated for your next payday, which covers the amount of the loan and the fees and service charges.

Families behind in bill or loan payments were more than four times as likely to have used payday cash advances than those who were able to keep up, the study found.

“Concerns have been raised about questionable practices within the payday loan industry, including high borrowing costs, insufficient disclosure of contract terms, unfair collection practices, and spiralling debt loads resulting from loans being rolled over,” Statistics Canada said.

Despite a rise in the number of payday transactions, relatively few Canadians use this kind of service. Less than three percent of families had taken such a bad credit payday loan in the three years ending in 2005, Statistics Canada said.

Almost half of those families had spending that outstripped their incomes.

Families who had been refused a credit card were more than three times as likely to have had a payday loan than those who had been granted a card, the report said.

The British Columbia Payday Loan Association (BCPLA) today applauded the provincial government for consumer protection legislation introduced yesterday that will clamp down on unethical business practices by some quick payday loan lenders.

Once passed, the government intends to introduce regulations to limit fees and interest rates that lenders can charge their customers.

However, BCPLA spokesman Kevin Isfeld cautioned the government against introducing rate caps that will restrict choices for consumers and he called for an independent study on fast payday advance rates.

“The payday loan industry in British Columbia is highly competitive and there is a high demand for short term loans. There are multiple providers who service a wide range of clientele. Rate caps that are too restrictive will damage competition and restrict choice for consumers,” said Mr. Isfeld.

“There can be no question that if the government sets rates that are too low, most operators will be forced out of business. A lot of people who have need for the service won’t be able to get a payday loan,” he added.

The BCPLA is a strong supporter of consumer protection and accepts that the government will be implementing faxless cash advance caps.

To do so in a manner that balances consumer protection with a competitive lending environment, the BCPLA urges the government to undertake a comprehensive study of the industry that reviews the business practices, operational costs, expenses, and risk profiles of all industry participants in the province. This study must also include a review of the overall economic circumstances that have precipitated the rapid growth of the industry of bad credit payday loans.

“This study will provide regulators with a clear picture of what operators are currently charging and thus an accurate, timely and market-specific benchmark for rate-setting,” said Mr. Isfeld. “The BCPLA would be more than happy to fund this study and have it conducted by an independent body.”

State regulators are willing to discuss with legislators the activities of payday cash advance lenders - but are not planning to push any specific bills this year.

Instead, a legislative committee was told Wednesday, the Utah Department of Financial Institutions wants to see if a pair of bills passed during the last general session will be effective.

Paul Allred, deputy commissioner of the department, told the Business and Labor Interim Committee — meeting to decide what issues to study this year — that SB144 and SB16 featured provisions about payday and title lending institutions. Specifically, SB16 allows fining faxless payday loan lenders for various disclosure and licensing violations.

Allred also noted that a federal law passed in 2006 limits to 36 percent the interest rate payday lenders can charge military personnel and their family members.

“We don’t disagree that some of the issues needed to be discussed that were brought up in other bills during the session and that we support the Legislature studying that on an interim basis. … The things that we were able to accomplish in SB16 we feel will give us the ability, and we like the opportunity to see if those additional tools help us in enforcing it,” Allred said. “But we don’t have any priorities beyond what we had in SB16.”

A Deseret Morning News series last year showed the median rate charged by Utah payday loan lenders is 521 percent annual interest. A Morning News series in 2005 found that Utah has more payday loan stores than 7-Elevens, McDonald’s, Burger Kings and Subway stores combined. Most are concentrated in areas that are poorer, heavily Hispanic or near military bases.

Still, Allred reiterated that his department receives few complaints about check cash advance lenders, usually only 10 to 20 written complaints per year.

“The sense that we get is that those who use the payday lending understand the product. They know what they’re getting. They understand that they’re paying a high rate of interest,” he said. “But it’s an alternative that they are choosing to take. And we hope that with passage of the bill this session, that we gained some tools that will give us the opportunity to make sure that those infractions that we see, that we can take care of in a more precise manner.”

Francine Giani, executive director of the Utah Department of Commerce, said her department, which does not have regulatory authority over no fax cash loan lenders, receives 20 to 30 complaints about those lenders annually. Most are about high interest rates.

“Thirty-six percent for our military boys is great, but I can tell you that we have consumers that are paying 400 and 500 percent interest rates,” Giani said. “And we ask (and), well, they understand because they’re desperate and they go in and go ahead and sign all the papers and say that they’ll do all that they’re expected to do. They are are behind the eight ball by and large because they cannot get themselves out of debt.”

Allred noted that borrowers who pay back loans quickly face fewer problems. As an example, he said a lender gets 69 cents for a $100 loan for one week at 36 percent interest. That same $100 cash loan would have interest of 520 percent if there is a charge of $10 that is annualized over a year.

“But if the borrower pays off the loan in a week, they’ve paid $10,” he said. “So you need to look at that careful analysis and understand what’s occurring.”

You’ve seen them dotting business loops and adorning strip malls.

If times were desperate enough, you may have even been tempted to walk in and patronize their services.

No fax payday loan companies, also known as cash advance or check advance loan companies, are cropping up everywhere. In Fulton, seven such companies - three already in 2007 - have been established in the last three years.

Whether the institutions provide an essential service, or a hazardous financial trap is a matter of perspective.

Overall, same day payday loans are secured by a personal check written for the amount of the loan plus a fee. According to the Federal Trade Commission, the customer is generally given 7 to 14 days to repay the money at an extremely high rate of interest - sometimes 500 percent APR or more.

With the check post-dated for the borrower’s next payday, the customer is given the option of bringing in cash in exchange for the check, or allowing the company to debit his or her account. There is also the option of “rolling-over” the check, extending the loan and paying an additional fee.

Typically associated with low-income neighborhoods, the industry is now beginning to spread to higher-income areas.

Dennis Clarke manages 10 different Missouri locations for Payroll Advance Inc., including the Fulton store on West 5th Street. He believes the industry of payday advance loans has been cast in an unfair light.

“Some of the press makes it sound like if all the payday loan stores were shut down that somehow that would help the people that would need to borrow money,” he said. Clarke also said it’s necessary to charge such a high interest rate because short-term loan customers are a high risk for defaulting on the loan. “We have clients who come in and borrow money to pay the electric bill, and they tell us if it wasn’t for us, it would be turned off.”

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After being scammed by a remodeling contractor several months ago, Yolie Garcia, 30, needed money to help care for her three children and make mortgage payments. Because of her bad credit, she took out a $500 payday loan, expecting to repay $640 dollars in two weeks.

“It’s a convenient easy way for someone like me that doesn’t have good credit to get money,” Garcia said. “You’re in and out within half an hour.”

When she couldn’t afford repayment, she paid $140 every two weeks to renew the loan several times. She eventually took out a second cash advance payday loan just to help pay interest on the first one.

“I cry about it every 14 days when I have to go pay interest,” Garcia said.

Garcia’s situation is not unusual for people who obtain no faxing payday loans. A recent report by the Center For Responsible Lending found that 90 percent of payday lending revenues are based on borrowers who cannot repay their original loan when it’s due, rather than on people using the loans for one-time emergencies.

State Sen. Eliot Shapleigh has proposed a number of bills to deal with the problem.

The state Senate Business and Commerce Committee on Tuesday heard proposals that would close lending loopholes, set up a state database to monitor and analyze payday lending, and limit the maximum rate for interest and fees on payday loans to 36 percent.

“In Texas, predatory lending is a plague. Seven of the 10 highest subprime lending cities are in Texas,” Shapleigh said. “Some of these payday loans have a 1,153 percent interest rate after all the fees are added in.”

Lawyer Scott Sheehan testified that online payday advance lenders are a good business model helping the economy of Texas. Several recent court cases have found that assertions that payday lenders are circumventing the law are not true, he said.

“These are successful businesses; they’re paying taxes and employing people,” Sheehan said.

Some committee members questioned whether lowering the rates that personal loan lenders could charge would put lenders making high-risk loans out of business and deny credit to some people who do not have other alternatives. All Shapleigh’s proposals were left pending by the committee.

Garcia said she still hasn’t paid off her loans and her husband is considering a second job to be able to afford repayments.

“I don’t see how I’m going to get out of it,” Garcia said.

SOURCE: The El Paso Times

Pensacola police officers are searching for a man who robbed a payday advance business over the weekend.

The robbery occurred about 5:05 p.m. Saturday when the man entered the Fast Payday Loans in the 300 block of East Cervantes Street and set a small black backpack on the counter, according to a Police Department release.

A 43-year-old female employee told police the man asked her three times to come to the front counter, the release said.

“When she did, she noticed he was shaking his hand inside the backpack as though indicating he had a gun,” the release said.

The payday cash loan employee told police she screamed when she realized what was happening. The woman said the suspect told her he would shoot her if she looked at him, according to the release.

“The suspect then demanded cash, the clerk complied, and he left the business on foot headed eastbound on Cervantes Street,” the release said.

The suspected instant payday loan thief, described as a Hispanic male, is about 5 feet, 5 inches tall, 40 years old and has acne scars on his face. He was wearing a black hat and white striped T-shirt, the release said.

In a recent editorial on the interest cap that will be imposed on car-title lenders, the Register encouraged credit unions to reach out to “Iowans without good credit.” Indeed, Iowa credit unions are working to offer additional products and services to underserved Iowans that have been stuck applying for cash advances.

Credit unions are known as being consumer-friendly alternatives in the financial industry, with a mission of helping our members achieve financial success.

In 2006, the Iowa credit-union movement assembled a fast payday loan lending task force to identify ways in which the industry could improve service and provide alternatives to individuals who utilize payday and car-title lenders. The task force reviewed credit union “payday alternative” models around the country and ultimately developed a draft of the proposed legislation that has evolved into Senate File 347.

The bill is designed to help Iowa’s not-for-profit credit unions reach out to underserved populations and provide a lower cost alternative to the check-cashing, wire-transfer and payday advance loan products in today’s marketplace.

Specifically, the bill would allow credit unions to offer check-cashing and wire-transfer services to anyone who is eligible for membership at their credit union. By providing a lower-cost alternative than these other outlets, the often “unbanked,” low-income or immigrant populations would be better able to wire money internationally. This provision mirrors legislation recently passed by Congress for federal credit unions.

Several credit unions in Iowa are working to offer alternatives to personal cash loan lending, including Scott Schools Credit Union, University of Iowa Community Credit Union and Veridian Credit Union. These credit unions have discovered ways to offer lower-cost alternative loans to their members that include a built-in savings component to encourage better financial habits and help members get out of the cycle of debt.

To further reach out to underserved populations, the Iowa Credit Union Foundation has a mission to eliminate poverty in the state of Iowa.

The foundation has developed a pilot program that could be replicated nationally to allow low-cost ways for immigrants to send money home, helping them avoid predatory lending. The program also includes individual development accounts, helping consumers save money by having their contributions matched.

The Iowa Credit Union Foundation is hosting a regional conference, “Discovering Untapped Markets,” focused solely on serving potential applicants for no fax payday loans and how to meet their changing needs. All credit unions from Iowa and surrounding states are invited to attend this event May 15 and 16 in Des Moines.

Furthermore, the Iowa Credit Union League has made a commitment to provide credit unions with the resources they need to better serve emerging populations. Recently, the league formed a subsidiary company, Coopera Consulting, whose mission is to inspire people, business and communities to partner for new economic opportunity.

The principals, Warren Morrow and Max Cardenas, are working with individual credit unions to identify new products and services to meet the needs of underserved markets.

Patrick S Jury is chief executive officer and president of the Iowa Credit Union League.

The Sawbucks company may have to close one of its shops.

The possible closure of one of the Klamath Falls payday loan company’s three locations stems from proposed Oregon legislation that would cap interest rates at 36 percent per year for all consumer loans less than $50,000.

The Consumer Protection committee approved the quick payday advance bill last week and it should be voted on in the House in the coming weeks.

The legislation is intended to curb a business that supporters say exploits low-income residents or those who live paycheck to paycheck. But Melissa Johnson, manager of Sawbucks, disagreed, saying many of her clients use payday loans to avoid bouncing checks and for other emergencies.

“I would say that it’s definitely not just lower income - we have quite a few customers who make very good money,” Johnson said.

The effects of capping interest rates are grim for these businesses, Johnson added. Currently, Sawbucks’ interest is $1.50 a day per $100 - an amount totaling more than 500 percent a year. The payday loan company hasn’t yet made any decisions of how it would handle the legislation.

Customers at Sawbucks go through an approval process, but many new customers take loans they don’t pay back, draining the company that relies on half its business from these loans, Johnson said. The company also provides check cashing.

“Because of the high risk of these loans, the percentage rate makes it so it’s not going to be that viable to do,” Johnson said.

Supporters of the new legislation argue that by charging high interest rates, no fax cash loan lenders prey on those who need a quick buck.

“It’s a very expensive form for people to borrow money,” said Dean Fortmiller, director of education at Medford’s Consumer Credit Counseling Service, which aims to recognize and address financial difficulties.

State Rep. Bill Garrard, R-Klamath Falls, supported the bill, but he said there’s still more that could be done. He believes all faxless cash advance businesses should have the same capped rate.

“Everybody ought to play on the same playing field,” Garrard said. “If we cap them, we should cap everybody else.”

He also thinks banks should step up and offer customers resources similar to payday loans.