Two of Canada’s big banks are supporting predatory lending by owning shares in online payday loan and subprime operations, says a grassroots advocacy group.

But both TD Canada Trust and the Royal Bank of Canada yesterday questioned the accuracy of a report, entitled A Conflict of Interest: How Canada’s Largest Banks Support Predatory Lending, to be released today by the Association of Community Organizations for Reform Now (ACORN).

“Banks have created an economic apartheid and we demand that banks divest their stocks from all institutions that are part of the predatory economy, such as subprime mortgage and payday lenders,” said Mohanie Ramanha, the group’s leader.

DATA ACCURACY AN ISSUE

In its report, ACORN lists a number of payday advance lenders and subprime mortgage firms in Canada and the U.S. that it says TD and RBC have invested in.

It stated TD has the biggest holding, including shares in Money Mart, the largest payday lender and cheque casher in Canada.

“The accuracy of the data is an issue,” said Simon Townsen, a TD Bank spokesman, who added the bank makes investments based on sound business decisions that are compliant with regulations.

Beja Rodeck, spokesman for RBC Financial Group, denied the company holds the cash advance loan investments listed in the report.

“If we do hold any positions, they are incredibly small. We feel it would be a stretch to assume we are supporting predatory lending,” said Rodeck.

But Ramanha said ACORN stands behind the research, and is demanding Canada’s big banks stop practices that force high-risk borrowers into the mouths of these faxless cash advance lenders with their usury rates of interest.

For example, the report states some bank customers are forced to take out a payday loan to avoid paying the $37.50 per cheque NSF fee charged by TD.

In the report, ACORN states these payday lenders, which offer short-term loans, charge between 380% to 900%, with a customer paying up to $90 in fees just to borrow $300 for two weeks.

Canada’s Criminal Code mandates annual effective rates of interest not exceed 60%.

This report comes as Canadian banks are already on the hot seat for high service fees, while in the U.S., regulators are clamping down on subprime lenders.

Meanwhile, Saskatchewan yesterday joined Manitoba and Nova Scotia, with new laws to set maximum limits on no faxing payday loan costs, and to clamp down on unfair collection methods.

A recent report showing that Missouri payday loan businesses charged an average annual percentage rate of 422 percent last year has led to a renewed call for reform in the payday loan industry. That’s an increase from a 2005 report showing an average of 408 per cent.

State Rep. John P. Burnett of Kansas City (D-40), with the support of Attorney General Jay Nixon, is the sponsor of House Bill 237. They are joined in Kansas Ciy in support of payday cash loan legislation by advocates for the poor, including Larry Weber, executive director of the Missouri Catholic Conference; and Michael Halterman, CEO of Catholic Charities of Kansas City-St. Joseph Inc.

Nixon noted that while eight neighboring states have strict limits on the interest rates and forbid renewals, Missouri has no real limit on interest charged and allows up to six renewals – effectively allowing the check cash advance operator to charge interest rates of up to 1,950 APR.

The bill, which currenly is floundering around in committee, changes the laws regarding unsecured loans of $500 or less. It includes the following:

• Limits the interest and other fees that may be charged on the faxless online payday loans to $15 for the first $100 of principal for the first 30 days of the loan and not more than 3% per month thereafter, whichis an annual percentage rate of approximately 36%;

• Prohibits repeated renewals of loans to circumvent interest rate restrictions;

• Grants jurisdiction to the Attorney General to issue cease and desist orders against violators;

• Allows the Attorney General to sue for injunctions, rescission of pay day loan contracts and restitution, and civil penalties for violations.

The biennial report, cited by the bill supporters, showed that the number of payday advance loans continues to rise in Missouri – approximately 2.8 million loans were issued for the one-year period that ended Sept. 30, 2006, an increase of 11 percent over the last report issued in 2005. Missourians borrowed more than $787 million from payday lenders in only one year, Nixon said.

There are now 1,545 licensed payday loan businesses, an increase of 347 from the previous report, issued in 2005. In addition, a study by the Center for Responsible Lending showed that Missourians paid $317 million in fees and interest on payday loans in 2005, second only to California nationally.

In 2002, SB 0884 sponsored by Ronnie DePasco (D-11) was signed by then-Gov. Holden that allowed the current interest cap at 1,950 percent.

The nation’s largest payday loan lender and the West Virginia attorney general’s office have reached an agreement that prevents the company from performing certain collection practices in the state, Darrell McGraw’s office announced Tuesday.

Advance America, Cash Advance Centers Inc., a Spartanburg, S.C.-based regular and bad credit cash loan lender, agreed to discontinue contacting consumers at their homes and leaving door hangers for consumers when attempting to collect alleged debts, McGraw said.

Also, the company will no longer contact third parties, normally listed references on the loan applications, unless the company thinks the person has moved.

The company will also close the zero-balance accounts of the consumers who complained to the attorney general.

Payday loans online are short-term loans or cash advances, which are secured with a postdated check for the full loan amount plus interest and fees. These loans typically have triple-digit interest rates and are illegal in West Virginia.

Advance American affiliates that signed the agreement have offices in Kentucky, Ohio, Pennsylvania and Virginia, each within 50 miles of the West Virginia border. Consumers often travel to these locations to obtain the no fax cash advance loans.

McGraw’s investigation began after the consumer protection division received complaints alleging that Advance America attempted to coerce payment by threatening criminal charges, making unauthorized collection calls to third parties and making personal visits to consumers’ homes in West Virginia, the attorney general’s office said.

New Hampshire would join four other New England states in closing the doors on payday advance and title loan shops if legislation to cap interest rates is approved.

Currently, New Hampshire and Rhode Island are the only New England states whose laws make no fax payday loans profitable, said Jamie Fulmer, director of investor relations of South Carolina-based Advance America Cash Advance.

If New Hampshire joins its neighbors in capping interest rates, payday and title loan companies will close in the state, Fulmer and New Hampshire Banking Commissioner Peter Hildreth said Tuesday.

“People have to understand that means there won’t be any (payday lenders),” said Hildreth, who supports a cap.

The House scheduled hearings Wednesday on three bills to cap interest rates on the loans. Most of the attention is on a bill that would cap the annual rate at 36 percent and only allow people to take out the loans once every 60 days.

Hildreth said that is intended to stop people from rolling over the loans, effectively prolonging their debt.

Payday lenders offer quick cash advances for a fee, often secured by a postdated personal check from the borrower. Title lenders offer cash loans based on the value of the borrower’s car. Customers are drawn to the lenders because, unlike banks, they don’t run credit checks.

Borrowers who don’t repay title lenders lose their cars. Payday lenders may work out a longer payment plan to attempt to get their money back. Critics say some borrow increasing amounts, winding up deeper in debt.

Fulmer insists 95 percent of Advance America’s customers repay the loans.

“What happens in states where the product doesn’t exist, consumers are forced to turn to more expensive options,” said Fulmer. “Some are able to turn to a friend or family member … The majority have very few options.”

Fulmer argued the quick cash loans fill an important gap, mostly for working middle-income families with an average income of $41,000. Without payday loans, they may choose instead to pay a bill or rent late, or to bounce a check regardless of the impact on their credit rating or the fees they incur, he said.

Advance America charges consumers $20 per $100 in cash advanced, up to a maximum $500 loan in New Hampshire. A $100 guaranteed payday loan plus the $20 finance charge borrowed for two weeks works out to a 521 percent annual interest rate.

Under Rhode Island’s law, the same $100 loan by the company carries $15 in interest over two weeks - working out to a 391 percent annual interest rate.

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A bill that would tighten some rules on Arkansas payday loan lenders won the support of a Senate committee Tuesday. But the measure is a weaker version of a bill that had failed earlier.

The bill, by Democratic Senator Terry Smith of Hot Springs, allows those seeking payday cash loans to rescind the checks within a day and says no check-casher can seek a criminal “hot check” charge against a client for extending a loan. The bill also allows for the state Board of Collection Agencies to go after check cashers breaking the state’s laws.

However, the bill does not require check cashers to comply with the 17% usury limit set in the state constitution.

A House bill requiring that was previously voted down by the Senate Insurance and Commerce Committee.

Smith’s bill, which he described as a compromise providing some oversight of the cash advance payday loan industry, now heads to the Senate floor.

A customer making a $350 savings account payday loan in Arkansas would write the check-cashing company a check for $400. The lender would keep the check for about two weeks without cashing it, allowing the customer time to buy back the check.

The $50 charge on the $350 loan for 14 days is the equivalent of 371% annual interest. That is well above Arkansas’ usury limit of 17% per year. The bill does not require compliance with the 17% limit.

Four out of 10 U.S. workers often or always live from paycheck to paycheck, according to a survey released on Monday.

Such a need for quick cash explains the popularity of online payday loans more than ever.

Women are more likely to live paycheck to paycheck, at 47 percent, than men, at 36 percent, according to the survey conducted for CareerBuilder.com, an online job site based in Chicago. Overall, 41 percent of workers say they often or always live paycheck to paycheck - therefore, it would follow logic that they’d need the occasional faxless cash advance.

Also, 41 percent of women say they do not have enough income to live comfortably, compared with 29 percent of men.

U.S. government and other research reports have found that women earn about 77 cents for every dollar earned by men for comparable work. Women are also more likely to be single parents and, it’s safe to assume, apply for payday cash advances online or in person.

The new survey said 19 percent of workers who earn $100,000 or more annually often or always live paycheck to paycheck.

It found 58 percent of respondents report they set a budget each month. But one in five say they typically spend more than their budget, most often blowing it by eating out. The need for a - hopefully - easy payday loan then arises.

The survey also said one in five do not set aside any money for savings each month. Of those who do, 14 percent save $500 or more a month, 28 percent save $100 or less and 16 percent save less than $50.

It said 26 percent of women do not set aside any savings, compared with 17 percent of men.

Regulating Alabama payday loans under the state’s Small Loans Act, as Sen. Bradley Byrne of Montrose wants to do, would be a good step toward protecting low-income citizens from predatory lenders.

Indeed, legislators should go even further.

Sen. Byrne introduced a bill that would bring payday loans under the regulations of the Alabama Small Loans Act. That would limit the interest charged by the quick payday advance companies to 36 percent a year.

Since 2003, payday loan companies have been allowed to charge 17.5 percent interest per transaction. In practice, that amounts to an outrageous annual interest rate of 300 percent to 400 percent, depending on the amount of the original loan.

The typical no faxing payday loan is less than $200 and is to be repaid within a few weeks. Under loan company practices, borrowers who want more time to repay a loan must pay an additional 17.5 percent every two weeks.

Granted, payday loan companies assume a considerable risk by lending money to low-income people who are in financial trouble. But their exposure is limited.

It’s encouraging that both the Alabama Democratic Party and the Christian Coalition of Alabama have endorsed Sen. Byrne’s bill. With broad support, the Legislature shouldn’t hesitate to pass the proposed legislation. Indeed, social justice demands that it be passed to prevent personal cash loan companies from exploiting vulnerable families.

Legislators also could limit consumers to only one payday loan within a 60-day period. They could prohibit payday loan companies from taking an interest in a customer’s personal property, and could restrict the companies’ dealings with members of the military.

Legislators opened the state to predatory cash loan practices by legalizing the payday loan business four years ago. Now, they need to step in to protect consumers from the companies’ worst practices.

SOURCE: The Mobile Register

Another province has announced plans to regulate the pay day loan industry.

Saskatchewan’s NDP government says it plans legislation that will set maximum limits on the costs of instant payday loans, while addressing consumer concerns that companies are using unfair collection methods.

The province says the legislation will harmonize Saskatchewan’s laws with ones that have recently been passed in Manitoba and Nova Scotia.

“Payday loans are a very expensive way for consumers to meet their temporary credit needs,” Saskatchewan Justice Minister Frank Quennell said in a release on Monday.

“However, there is a demand for these short-term [fast cash loans] as seen by the tremendous growth in the industry. It is important that we protect consumers who access these loans by putting appropriate regulations in place.”

Payday loans are small, cash advances that are repaid to the lender at the time of the borrower’s next payday. The businesses have become common sights in Canadian cities, and their numbers are growing.

The federal government has already proposed a law that would allow provinces to regulate the industry if they introduce specific consumer protection legislation, and set caps on fees and charges attached to cash advance loans.

In addition to setting repayment limits, the Saskatchewan Payday Loans Act would require payday lenders to be licensed, would prohibit lenders from taking security on the loan, and would make it illegal for lenders to have than one payday loan with the same borrower.

It would also prohibit payday lenders from requiring a borrower to sign over future wages.
In January, an Ontario judge certified a class-action lawsuit against payday loan company Money Mart and its parent, Dollar Financial Group, that claims the rates it charges are excessive.

Currently, the Criminal Code makes it an offence to charge more than 60 percent interest a year.

Started by Margaret Smith of Windsor, Ont., on Dec. 23, 2003, the plaintiffs in the lawsuit argue that short-term payday loans end up costing borrowers interest rates that are in fact criminally high.

Bernestine Thomas was having a rough month.

A few years ago, the 52-year-old Lynchburg General Hospital employee was having some financial problems. Her daughter Barbara was in between jobs and her car kept breaking down.

In order to take care of her family and pay her bills, Thomas, who lives in the White Rock community, decided to visit a payday loan facility.

“I went to them a couple of times to borrow some money,” she said.

That decision is still present on her credit report today.

“It’s legalized loan-sharking; that’s what I call it,” she said.

Payday cash advance lending caused quite a stir in the General Assembly this year. Legislators proposed 11 separate bills trying to come up with a way to regulate the industry, and none of them passed.

The question was how far does the commonwealth go to regulate the industry. Does it repeal the Payday Loan Act of 2002, cap interest rates at 36 percent or set up a computer system to track consumers’ movements?

The Payday Loan Act authorized payday lending companies to set up shop in Virginia and exempted the industry from the prior 36-percent interest rate cap. The industry says the cash advance loans helps people like Thomas who are strapped for cash.

Opponents say the loans’ interest rates are exorbitant and put additional pressure on the consumer.

For the past five years, payday lenders have popped up everywhere around Virginia. Most of the payday cash loan lenders in Central Virginia are concentrated in Madison Heights and on Timberlake Road, Fort Avenue and Wards Road in Lynchburg.

After the General Assembly passed the Payday Loan Act of 2002, 49 payday lenders were open by the end of the year and around 124,362 payday loans were made that year.

As of Dec. 31, 2006, the Bureau of Financial Institutions, which regulates payday lenders, oversees 84 payday lenders operating 791 offices and 301 check cashers in the state.

The bureau doesn’t have the number of loans made in 2006 available to the public yet. In 2005, however, 445,891 loans were made.

Virginia Poverty Law Center Executive Director Jay Speer said the typical payday-lending customer lives in a low income or a minority neighborhood.

“They target minority neighborhoods,” he said. “Anyone who has trouble making ends meet is a likely customer. If you’re supporting a family on $20,000, that isn’t a lot of money.”

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Brenda Procter, a University of Missouri financial educator, will discuss faxless payday loans and predatory lending Thursday evening in Columbia at an event sponsored by the central chapter of the Missouri Association of Social Welfare.

Procter will appear from 6:30 to 8:30 p.m. Thursday at the Columbia Labor Temple community room, 611 N. Garth Ave. Procter teaches and advises in the Personal Financial Planning Department in MU’s College of Human Environmental Sciences. The title of Procter’s talk is “When Creditors become Predators.” Cash loans will be a major focus.

Bob Quinn, executive director of MASW, will provide an update on the legislative status of bills dealing with predatory and instant payday loan lending.