The Community Financial Services Association of America will audit about 150 Kansas payday loan stores this summer to see if they are complying with new practices.

The trade group, which represents about 60 percent of the industry, has hired an independent auditor that will start testing stores after July 31, said spokeswoman Lyndsey Medsker.

The end of July is the last deadline for changes at member stores.

Association members have about 150 faxless payday advance stores in Kansas, including Advance America, Check ‘N Go, Check into Cash and QC Holdings, which does business as Quik Cash.

In February, the association announced a $10 million campaign aimed at educating consumers about low fee payday loans and credit counseling. As part of the campaign, member businesses also agreed to voluntary changes, including:

• By May 31, member stores must include a customer notice on all advertising saying that payday loans should be used only for short-term financial needs and not as long-term solutions. The notice will add that “customers with credit difficulties should seek credit counseling.”

• By May 31, stores must stop using advertising that encourages quick cash loans for frivolous purposes such as vacations.

• By July 31, stores must have extended payment plans in place. The plans will give customers who are unable to repay a loan according to their original contract the option of paying it off over a longer period at no charge. At least once a year, customers will be able to extend their balance in four equal payments.

Medsker said that about 10 percent of customers take advantage of such plans in Washington state, where extended payment plans for cash advance loans are required by law.

“Ninety percent of customers pay back their loans when they are due,” she said.

The campaign has been well received, Medsker said.

“Obviously the critics of the industry are still complaining, but they’re going to complain until the industry is banned,” she said. “The majority of our customers use the loans as intended.”

J.J. Selmon, an organizer at Sunflower Community Action, a Wichita grassroots group that has been a vocal critic of instant payday loans, sees a different side.

His organization has heard from 350 to 400 people strapped by payday loans, he said. Selmon has been skeptical about the campaign — saying it’s just a ploy to make the industry look better — but he said extended payment plans might help people who are in a bind.

SOURCE: The Wichita Eagle

The U.S. Defense Department will propose curbs on what it considers predatory lending to military service members and their families such as military payday loans, car title lending and tax refund anticipation loans, a draft of the proposal showed.

“A major concern of the department has been the debt trap some forms of credit can present for service members and their families already burdened with debt and recurring bills,” the Pentagon said in its proposal.

There will be a 60-day public comment period on the Pentagon proposal, according to the draft, a copy of which was obtained by Reuters on Monday.

Under the proposal, payday cash loans would be subject to a 36 percent cap on interest rates and fees. Credit cards, home mortgages, lines of credit, loans to buy cars and other services would not be affected.

For example, a payday loan would be limited to $2,000 with a term of 91 days or less and would be linked to a borrower’s deposit account at another financial institution.

Regulators have voiced concern about the proliferation of easy payday loan stores near and around military bases.

According to the Pentagon, being deep in debt distracts troops and hurts their ability to focus on military missions. U.S. financial regulators have said the number of denials of security clearances to military members due to financial problems has soared over the last several years.

Also according to the proposed rules, personal loans in which the title of a car is used as collateral would be limited to a term of no more than 181 days.

Service members of the four major branches of the U.S. military as well as the Coast Guard would be covered under the proposals.

MAY BE REVISITED
The draft proposal is not as broadly written as some in the financial services industry thought it might be, but language left open the possibility that the Pentagon could revisit the issue to expand coverage.

Click here to continue reading this Washington Post article.

Rep. Marian McClure’s initiative to place an interest-rate cap on payday advance loan lenders is a hopeful sign that Arizona yet may find a way to regulate these financial predators. But her initiative, announced Wednesday, won’t be on the ballot before the end of next year, assuming she gathers sufficient signatures.

In the meantime, the Arizona Legislature — no friend of meaningful regulation of high-cost loans — is on the verge of guaranteeing a lifetime of profits for payday lenders and continuing debt and financial hard times for their customer-victims.

Ironically, the harmful bill working its way through the Legislature was crafted by none other than McClure. Though claiming to restrict the predatory practices of the savings account payday loan lending industry, this bill offers only minimal improvement at a huge cost: It would eliminate the sunset provision in state law that would truly protect the poor and the desperate by closing down the industry in 2010.

Payday lenders operate by exploiting people who out of desperation or lack of sophistication enter into an agreement they have little hope of being able to keep. In a typical transaction, the payday company lends the borrower about $300, taking as collateral the borrower’s check. The borrower agrees to come back in two weeks to redeem the check.

For this, the firm charges a fee equal to 17.6 percent of the loan.

But most borrowers cannot keep their agreement. Typically, they have borrowed the money for necessities — their rent, mortgage, car insurance, groceries or an unanticipated car repair. People who need to borrow such relatively small amounts for necessities are unlikely to be able to pay back the loan in just 14 days.

The lenders not only know this, they count on it. Every two weeks, the loan is renewed — with the 17.6 percent fee compounding every time. The providers of cash advance loans claim to be seeing people through a moment of financial distress.

But in actuality the industry profits by trapping borrowers in a cycle of debt. Nationally, payday lenders make 90 percent of their revenue from borrowers who cannot pay off their loans when due, according to the Center for Responsible Lending.

McClure’s legislative bill would prohibit renewals of bad credit payday loans. But it fails to create an effective way to police that prohibition.

Moreover, a feature allowing borrowers who cannot repay the loan the opportunity to choose a repayment plan is less of a reform than it may seem. Similar laws in other states have had little effect, at least partly because the borrower must ask for the repayment plan within 14 days. McClure’s bill would be more realistic if it prohibited ultra-short loans and required all payday loans to be of at least 90 or 120 days duration.

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Convinced the industry can’t be properly regulated, a veteran state legislator is launching an initiative drive to wipe out Arizona payday loan lenders.

The proposal by Rep. Marian McClure, R-Tucson, would cap interest rates for short-term loans at an effective annual rate of no more than 30 percent plus the going “prime rate.” That is generally defined as the lowest interest rate that banks charge thei preferred customers, a figure that currently stands at 8.25 percent.

By contrast, no fax payday loan stores, with their two-week loans, charge interest and fees that, on an annual basis, can translate to close to 400 percent.The decision to go to the streets comes as McClure, long suspicious of these high-interest loans, has been unable to convince colleagues to impose strict new regulations.

A House panel has approved some alterations in the law. But legislators have been unwilling to ban payday loans online, a practice that McClure said is “as dangerous, if not more so, than Internet gaming.”

Lee Miller, who lobbies for the Arizona Community Financial Services Association, said interest caps will kill the industry.

“The price we charge is the price we have to charge to operat that business model in those locations and still make a fair profit,” he said.

Payday lenders actually don’t “loan” money but instead agree to accept a check they know is not good and hold it for up to two weeks. Payday cash advance borrowers can get up to $500, with the check written out for 15 percent more than that amount.

Miller said the effective interest rate payday lenders charge is much higher because these are short-term payday loans. By contrast, he said, even companies that issue a high interest credit card “get to charge you interest 365 days a year, year after year afte year, until you pay off your bill.”

And he said the industry constantly needs to find new customers.

“We have no expectation that we’re ever going to see you again once you’ve paid us off,” he said.

The bottom line, he said, is that the approximately 720 site operated by cash loan lenders fill a gap in the market.

McClure is unconvinced.

“What did they do before payday loans?” she asked, noting they were not legal until seven years ago. “They went to family members, they went to friends. Many times they went to employers and got th employer to give them an advance.”

And sometimes, she said, it just requires creativity.

For example, she said someone who needs a tire doesn’t have to buy an expensive new one but instead could get a used one, good for even just a couple of weeks, taking care of the immediate short-term need.

McClure is counting on volunteers to collect the 153,36 signatures she needs on petitions by July 3, 2008. But McClur said she already has taken the first steps to building that army.

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Edwards, D-21st District, has served in the Virginia Senate since 1996, and represents the city of Roanoke, Craig and Giles counties and parts of Montgomery, Pulaski and Roanoke counties. Ware, D-11th District, has served in the Virginia House of Delegates since 2004, represents parts of Roanoke and Roanoke County.

This is their opinion piece on Virginia payday loans, written for The Roankoke Times …

There was a lot of hype about payday lending in this legislative session. We heard stories of abuses where some borrowers had taken out six or seven payday loans at a time and had fallen into a “cycle of debt,” from which they could not recover.

At the same time, we heard stories from individuals who credited the availability of a payday loan with solving an acute financial problem.

Clearly, the payday loan industry needs reforming. But individuals facing a short-term financial crisis need some assistance, and traditional lending sources may not be available for these people.

Many families who live paycheck to paycheck sometimes need a little extra help with financial emergencies. A small [bad credit cash loan] can help repair a car to drive to work, pay an electric bill on time or fix an emergency plumbing problem.

A payday loan is a way a person can get a few hundred dollars on short notice with no credit check and few hassles. Only a bank account and a regular income source are required for a loan up to $500.

Even those who are fighting the payday lending industry admit there is a “niche market” for [no faxing payday loans]. These lenders serve a segment of society who cannot, for many reasons, qualify for traditional loans.

The reform legislation that was proposed in the General Assembly this year would have improved the industry and better protected borrowers.

Senate Bill 1014 would have required the lender to check a database to ensure that an applicant for a loan up to $500 had no more than three payday loans outstanding at one time. No loan could have been “rolled over,” and a borrower would not have been able to take out another payday loan on the same day that the borrower paid off the existing loan.

If a borrower obtained three or more consecutive payday loans (within five days of each other), the borrower would have been entitled to receive an extended payment plan to repay the [cash advance] over a period of 60 days without added charges.

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Subprime mortgage loans are hogging the headlines, but there’s another kind of loan that’s also getting state lawmakers’ attention: Texas payday loans.

They are short-term loans given without a credit check.

Lawmakers have issued a handful of bills that could help regulate the state’s payday advance lending industry. In recent years, some payday companies have been able to avoid most regulation by operating as credit services organizations, or CSOs, the companies that offer to help repair your credit.

The practice gained support from a U.S. 5th Circuit Court of Appeals opinion in Lovick vs. Ritemoney, which held that payments to a registered CSO loan broker could not be treated as interest and therefore were not subject to banking regulations.

Houston attorney Richard Tomlinson, who talked to reporter Purva Patel about the proposed state laws, had a hand in that case.

Q: What would happen if state lawmakers passed legislation that would effectively overturn Lovick vs. Ritemoney?
A: That would be great. I would be in nirvana. It would reinstate current Texas usury law. There’s actually a regulation that addresses specifically payday loans.

And if you look at it, it tells you how much they can charge depending on how much is loaned and what the term of the loan is. And it varies. The annual percentage rate varies quite a bit. … It would mean the current Office of Consumer Credit Commissioner would be able to bring action against a lender operating inconsistently with the Texas law. It also will allow private actions.

Q: What are the chances such legislation will pass?
A: See, I think that’s the least likely bill to pass. And that’s because the [quick cash loan] industry will spend a ton of money. I mean, the big boys in this industry who are all using this business model in Texas are publicly held. They’ll spend a lot of money.

Q: Do you think the proposed bills go far enough?
A: If we could get legislative repeal of Lovick vs. Ritemoney, we already have a lot of good regulations on the books.

Just let the Consumer Credit Commission, the AG and private attorneys enforce the law. I think it would really bring about a great improvement for [cash advance payday loan] borrowers.

Q: Do you think federal regulation would be a good idea?
A: I don’t think there’s anything wrong with federal regulation. As much as I’m happy about the Democrats in the U.S. House and Senate being in power, my sense is the president is so pro-business that anything that might pass that would have any significant effect on the marketplace would probably get vetoed.

Q: What do you think about the industry’s current campaign to promote the idea that it’s weeding out bad players?
A: I have a problem with the fact that these are term loans that people have difficulty paying off.

They’re not installment loans where you’re lowering the payments every time you pay them off. The only way you can pay them off is if you pay back the whole thing in two weeks. … But the most nefarious thing … is … the reason people pay is they figure that if they miss a payment and their check or debit bounces, they think they’re going to be criminally prosecuted. They think they’ve committed a crime.

They’re not going to get prosecuted, they won’t go to jail, and they’ve not committed a crime, but they all think this. It’s like an urban legend out there.

If people knew failing to pay your [instant payday loan], though it may be sinful not to repay your debt, is not a crime, I think they’d find it a lot more difficult to collect. That’s why they have such a high rate of payment.

SOURCE: The Houston Chronicle

Democratic rivals of millionaire Tom Knox finally saw something to smile about yesterday: a guy dressed as a shark outside the Philadelphia mayoral candidate’s campaign office.

The walking, talking fish called itself “Tommy the Loan Shark” and wore a sign reading “400% interest,” a reference to Knox’s much-criticized past involvement in high-interest payday lending.

The appearance by Tommy (below) was one of several attacks on Knox’s cash loan past that sprouted yesterday from anonymous, self-described independent sources.

According to the Philadelphia Daily News, a conference outside Knox headquarters was led by lawyer Alex Talmadge and the Rev. Robert Shine, former head of the Black Clergy of Philadelphia.

They said they represent a newly formed organization whose mission is “exploring the issues of economic justice as they relate to the business practices of Tom Knox.”

Shine and Talmadge declined to say who else is involved in the effort.

Shine said he’d met with Knox and was “appalled” by his involvement in the payday advance business, which he referred to as “credit heroin.”

In the late ’90s Knox bought Crusader Bank, which made payday loans for about 18 months, drawing criticism from federal regulators.

Knox campaign spokesman Brad Katz said yesterday that Shine had asked Knox for financial support for Shine’s church in exchange for Shine’s support of his mayoral campaign. Knox refused, Katz said.

“That’s outrageous,” Shine said of Katz’s allegation. “I never asked him for a dime. I never asked for money for anything, period.”

Shine did say he’d asked Knox to commit to several policy initiatives for the poor, including “service centers” for the young and the elderly.

“Tommy the Loan Shark” was accompanied yesterday by Jim Nixon, a Democrat who was troubled by Knox’s payday cash loan record and who said he is forming his own organization to raise the issue.

“I’d take any of the candidates over him, and I’m going to be with Tommy the Loan Shark all across this city until this thing is done,” Nixon said.

Meanwhile, fliers began appearing in South and West Philadelphia attacking Knox’s fast payday advance lending and touting the record of rival mayoral candidate Congressman Bob Brady, according to the Knox campaign.

Brady campaign spokeswoman Kate Philips said their camp had nothing to do with the fliers or the shark. Katz said the fliers say a lot about Knox’s opponents.

“This just shows you their priorities,” Katz said.

As we’ve discussed yesterday and in recent weeks, shops that offer quick cash loans for a fee are flourishing in Arizona.

But that could change, the Tuscon Citizen reports, if legislation to add consumer protections is signed by the governor.

The proliferation of payday loan stores in low-income neighborhoods and stories of consumers unable to climb out of debt because of exorbitant borrowing fees have legislators pushing for changes.

Among them is eliminating the ability for a consumer roll over an Arizona payday advance, limiting them to one loan at a time.

Also on the agenda is reducing the overall interest rates.

Last month, legislators got a step closer to eliminating some of the high costs of borrowing money for consumers who rely on payday loans when money isn’t able to cover bills.

The bill has a way to go. Industry insiders say the changes will shrink competition, reducing options for consumers needing an emergency payday cash advance.

But they aren’t balking as vehemently as with past efforts to curtail the industry, as this bill provides a long-term home in Arizona. Licensing that allows for payday loans to be made in Arizona is set to expire July 1, 2010.

“If the sunset date isn’t changed, nobody knows what will happen July 2″ of that year, said Lee Miller, lobbyist for the Arizona Consumer Financial Services Association, which represents payday lenders.

More than 700 payday advance loan branches and 98 offices are registered in Arizona. Six years ago, 27 home offices existed, but no branches.

Arizona didn’t recognize the payday loan industry until 2000.

That’s when the Arizona Legislature established rules for licensing these businesses offering up to $500 in short-term quick cash loans.

Key provisions eliminate rollover loans that lock consumers into long-term debt, allow payday loan applicants to set up an easy, no-cost repayment plan and restrict back-to-back loans.

That ability to roll over payday loans and added fees creates an annual percentage rate (APR) of 491 percent in the state.

Continue reading in the Tucson Citizen …

Convinced the Arizona payday loan industry can’t be properly regulated, a veteran state legislator is launching an initiative drive to drive it out of the state.

The ballot proposal by Rep. Marian McClure, R-Tucson, would cap interest rates for short-term loans at no more than 30 percent plus the going prime rate, which is generally defined as the lowest interest rate banks charge preferred customers.

By contrast, cash advance stores, with their two-week loans, high interest and loan roll-over fees, charge rates that can translate to close to 400 percent on an annual basis. The decision to take her campaign to the streets comes as a result of McClure’s inability to persuade her legislative colleagues to impose strict new regulations.

A House panel approved some alterations in the payday cash loan law. But legislators have been unwilling to ban payday loans offered over the Internet, a practice McClure said is “as dangerous, if not more so, than Internet gaming.”

To offset legislative intransigence, McClure, a former president of the Arizona Federation of Republican Women, is putting together a bipartisan coalition of volunteers to gather the 153,365 petition signatures she needs by July 3, 2008, to put the issue on the ballot.

In addition to the 3,000- member state Republican women’s group, McClure said she already is talking with the group’s Democratic counterpart.

Cynthia Fagyas, spokeswoman for the Arizona chapter of AARP, said her organization is also interested in pursuing the issue, though members want to see the final version of the faxless payday advance initiative. And McClure is counting on support from such groups as Arizona Community Organization for Reform Now, which helped put the $6.75-an-hour minimum wage on the 2006 ballot.

Lee Miller, who lobbies for the Arizona Community Financial Services Association, said interest caps will kill the industry.

“The price we charge is the price we have to charge to operate that business model in those locations and still make a fair profit,” he said.

Providers of no faxing payday loans actually don’t “loan” money but instead agree to accept a check they know is not good and hold it for up to two weeks. Borrowers can get up to $500, with the check written out for 15 percent more than that amount.

Miller said the effective interest rate payday lenders charge is much higher because these are short-term loans. By contrast, he said, even companies that issue a high-interest credit card “get to charge you interest 365 days a year, year after year after year, until you pay off your bill.”

Read the rest of this entry »

A man in his late 20s robbed a payday loan store in the 5400 block of South Padre Island Drive on Monday night, tying up a female clerk before fleeing with cash, police said.

Police still were looking for the man late Monday. He was described as thin, about five feet, nine inches tall, said police Capt. Tim Wilson. The man walked into the EZ Money Payday Loans store at about 7 p.m., showed a woman behind the counter a black handgun and asked her to open a safe, Wilson said.

She gave him cash and he tied her up in a back room, Wilson said. He then ran out the front door. A customer entering the instant cash loan establishments about 10 minutes later heard the woman’s cries for help and called police, Wilson said.

Police would not say how much money was taken, citing an ongoing investigation.