A proposal to allow Georgia payday loan lenders to return to the state hit a snag Wednesday as it wound its way through the Legislature.

Committee members had scheduled a hearing on the contentious proposal, which would roll back the state’s ban on payday lending and replace it with a system to regulate short-term lenders.

Yet only the measure’s sponsors were given time to speak, leaving a packed room full of critics and faxless payday advance supporters with no time to talk about the measure.”This is an outrage! You ought to be ashamed of yourself. Shame, shame, shame,” said the Rev. Timothy McDonald, pastor of Atlanta’s First Iconium Baptist Church and longtime leader of the city’s Concerned Black Clergy.

“Sir, you’re out of order,” replied state Rep. James Mills, the committee’s chairman.

“I know I’m out of order,” he shot back. “God was out of order. Jesus was out of order.”

The proposal has enraged consumer watchdog groups, the AARP and many Democrats, who say fast cash loan lenders were banned three years ago because they trapped the neediest Georgians into high-interest loans that kept rolling over.

Supporters said the ban went too far, pushing out of the market reputable companies that require customers to prove they hold a job and a bank account and leaving a void filled by illegal lenders or murky Internet sites.

“We probably did something we probably should never do in the legislative process,” said state Rep. Earl Ehrhart, R-Powder Springs. “We passed a piece of legislation for one segment of the industry to eliminate competition.”

The proposal would create a system of “cash advances,” two-week loans prohibited by law from accruing interest. Instead, operators would take a service fee of $15 per every $100 borrowed. It also limits customers to borrowing the equivalent of 25 percent of their monthly income and bans lenders from rolling over loans from month to month.

Ehrhart, the bill’s co-sponsor, also suggested adding an amendment that would fine media companies and businesses that run advertisements for online lenders.

After the hearing was abruptly called to a close, both sides held impromptu press conferences in the crowded halls.

James Josey, a 23-year-old from Bainbridge, said he was the victim of a cash advance online scam and billed more than $450 on a loan of $250.

“They don’t need to let them back in,” Josey said. “It’s a cycle you get pulled into.”

Jabo Covert, a lobbyist for Check into Cash, a Cleveland, Tenn.-based lender, overheard the conversation.

“Our point is that we’ve got to put an end to abuses like that,” he said. “This bill would stop that from happening.”

SOURCE: The Columbus Ledger-Enquirer

Here is a paraphrased East Valley Tribune editorial …

A bill that would have created a registry in which every cash advance payday loan made in Arizona would have to be recorded with the state died in committee Monday. This was the correct result, even though there is room for some limited and reasonable regulation of the payday-loan industry.

House Bill 2224 called for a statewide registry of all such transactions as a means to prevent consumers from getting several loans at once they couldn’t afford to repay.

But if the widespread failure to use local registries of sales of overthe-counter drugs that could be made into methamphetamine — the subject of recent revelations by the Tribune — serves as any guide, it is doubtful the state would oversee a similar Arizona payday loan registry with any degree of reliability.

Under current law, a payday cash loan borrower may extend his or her loan to a new lending period up to three times. Monday’s defeated legislation called for a maximum of only once. Perhaps that was too strict a measure for members of the House Committee on Financial Institutions, who rejected HB2224 on a 5-4 vote.

It is true that some people take out too many very short-term loans and can suffer significant financial woe. The North Carolinabased Center for Responsible Lending said in a November report on its website that 90 percent of payday-loan borrowers take out at least five such loans in a year’s time, and 62 percent take out 12 or more annually.

But government acting as nanny, telling people how many loans they can take out rather than have that be a function of the private sector, can actually harm the interests of borrowers.

As has been pointed out in this space previously, many low-income people lack the credit to obtain any other kind of loan to pay for rent or groceries or, even more important, have no other means to establish good credit in order to borrow money at lower interest rates in the future.

A majority of the Mesa City Council realized this in October when it turned down city regulation of faxless payday advance stores. The Tribune reported Councilman Scott Somers as saying that last fall’s proposed crackdown wouldn’t stop people from going into debt.

“We’re not banning credit cards,” he said.

Another, potentially more reasonable measure has been proposed in the Legislature, but has been unable to get a hearing, the Tribune’s Dennis Welch reported Sunday. Instead of a registry, state Sen. Chuck Gray, R-Mesa, has proposed a cap on interest rates for such same day payday loans at 36 percent, a figure used by about a dozen other states, the Center for Responsible Lending said.

The payday loan industry says this change, combined with an existing state limit on payday loans to $500, would drive them out of business.

Gray’s proposal deserves formal debate so lawmakers can examine experiences in other states versus the possible negative effect on an enterprise for which there is obvious demand.

Consumer advocates are fighting back against an industry that they say takes advantage of financially strapped Missourians.

Last year, short-term cash loan companies granted almost three million loans and charged customers an average annual percentage rate of 422 percent. Legislation being considered in the Legislature would place more limitations on payday loan companies.

A recent study by the Center for Responsible Lending found Missourians paid $317 million in fees and interest on faxless payday loans in 2005, second only to California. Many consumer advocates say it’s time to change that.

“They’re easier to find than a church probably,” said Mike Cherry of Consumer Credit Counseling Service.

Forget a Starbucks on every corner - more than 1,500 Missouri payday loan stores are in the state. The companies, which offer fast cash under $500, made 2.9 million loans last year, up 43 percent in just four years.

“If you can sign your name and breathe and will give them a check, you can get a loan,” said Cherry.

The problem is, if the payments aren’t made on time, the interest rolls over, forcing borrowers in Missouri to pay an average annual percentage rate of more than 400 percent last year.

“He borrowed $200 and has to pay back $720,” said Cherry, describing a client.

What’s worse, Cherry says, is that currently guaranteed payday loan companies can offer up to six renewals on a loan, effectively increasing the annual percentage rate to 1,650 percent.

“They’re in a vulnerable position where they need money and need money fast and ask no questions,” he said.

Cherry supports House Bill 237, which would limit the annual percentage rate on payday loans to 36 percent and prevent payday cash loans from being renewed to get around interest rate restrictions.

“Something needs to be done,” said Cherry.

HB 237 is in a special committee on financial institutions. It is not currently scheduled for a hearing. Similar bills were introduced last year and in 2004 but neither got out of committee.

In 2002, legislators passed a law that restricts the total interest and fees to 75 percent of the total loan but clearly there are ways around that as well. By the time his $200 loan is paid off, Cherry’s client will have paid $520 in interest, well more than the 75 percent limit.

Vicky Greathouse needed cash when her mother-in-law passed away, but she said her longtime bank turned her away. The Glendale woman found help at an Arizona payday loan store.

This week, Greathouse testified at the state Capitol in defense of the much-criticized quick cash stores, saying they serve a purpose.

“People need a choice and a place to go in case something comes up and they need to make it from one payday to the next,” Greathouse said.

The stores, allowed to open in Arizona in 2000, have multiplied in seven years. Glendale has about 40 payday cash advance outlets, most in the southern part of the city.

The stores offer quick cash for those in tight spots but come with high interest rates.

“In our day, we called them loan sharks,” said Ricki Ray, a Glendale resident who is the president of her neighborhood association near 43rd and Glendale avenues.

The Glendale City Council in October did what it could to curb the quick cash loan industry, prohibiting the stores from opening within a quarter mile of one another. Mayor Elaine Scruggs called on the state Legislature to do more.

Lawmakers, including Rep. Chad Campbell, whose district includes a sliver of southern Glendale, have introduced a handful of bills this session to regulate the industry by lowering interest rates and reducing the number of times a person can roll over loans, delaying payment but accruing higher fees.

The bill that appeared to have the most momentum was House Bill 2224, pushed by Rep. Marian McClure, R-Tucson.

But McClure’s bad credit payday loan bill failed in committee on Monday.

The proposal would have required that people taking a loan be entered into a database and tracked so that they could not obtain another quick loan, spiraling into a cycle of high-interest debt.

State law already prohibits multiple payday loans, but there are no teeth for enforcement. McClure argues that a tracking system is necessary for any reform to take root.

But some lawmakers and industry lobbyists balked at the government tracking.

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Two lawmakers who were carrying rival New Mexico payday loan bills have reached a compromise, Gov. Bill Richardson announced Tuesday.

Appearing at a news conference with Rep. Patty Lundstrom, D-Gallup, and Sen. Bernadette Sanchez, D-Albuquerque, the governor said the new plan includes “reasonable fees but with important safeguards for consumers.”

The proposal for regulating the short-term, high-interest fast payday loans would cap fees at $15.50 per $100 borrowed, plus another 50-cent per $100 fee to establish a state database on consumers with payday loans.

A borrower who didn’t repay his loan on time would automatically be placed into a 130-day payment plan in which there would be no additional fees.

No matter how many payday loans they had, borrowers would be able to borrow only up to 25 percent of their monthly incomes. The new database established under the bill would keep track of cash advance loans.

Before the compromise, both Sanchez and Lt. Gov. Diane Denish had said Lundstrom’s House Bill 92 did not offer enough consumer protection. Currently payday loan companies are unregulated and typically charge interest rates that amount to more than 500 percent annually.

“A sign of a good bill is that everyone’s not completely happy,” Denish told reporters.

Richardson acknowledged the new bill would put some payday advance offices out of business. He said he expects opposition from payday lenders. Although he said the compromise bill would be the toughest payday loan law in the country, 11 states have banned such business.

The House could act on a compromise bill as early as today, Lundstrom said. “I’m glad we’ve come to the table,” she said.

While payday loan companies have mushroomed all over the state in recent years, Lundstrom said her city has the most payday loan offices per capita in the nation. In December, The New York Times published a story about payday loans that focused on Gallup.

A fiscal impact study of Lundstrom’s bill says there are 667 small, personal loan companies registered in New Mexico.

Sanchez helped derail a Lundstrom payday loan bill during a stormy debate in the final hours of last year’s Senate session, saying that bill helped the payday lenders more than consumers. On Tuesday, Sanchez said the compromise bill was a good first step. Her bill, Senate Bill 393, is going through the Senate committee process.

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

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

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

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

That law takes effect in October.

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

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

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

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

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

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

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

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Gov. Timothy M. Kaine (pictured) is now personally involved in efforts to clamp down on the regular and online payday advance industry.

With time running out for a deal, Kaine met privately yesterday with Reginald N. Jones, lead lobbyist for the lenders, amid indications they may want assurances Kaine will not seek tougher reforms if a bill reaches his desk.

Kaine, however, favors an interest-rate cap - opposed by lenders as a veiled effort to put them out of business because it would make it unprofitable to offer unsecured payday cash loans up to the legal limit of $500.

Kaine also might support restrictions on the number of loans Virginians annually can take out from money stores. Currently, there are no limits, though industry critics suggest borrowers carry no more than nine.

“The governor believes there should be some reasonable new protections for consumers,” spokesman Kevin Hall said. “He has felt, for some time, that the . . . removal of the interest cap was a very bad policy decision.”

After his session with Kaine, Jones declined to comment.

But before the meeting, Jones said it would not be wise to limit Virginia payday loans because it could drive borrowers to unregulated lenders, such as those operating on the Internet.

He said the industry might consider more lenient terms for borrowers to begin extended-payment plans for erasing overdue loans that, for some, carry triple-digit interest and take months or years to repay.

Facing stiff resistance in the House of Delegates, which favors a 72 percent interest cap, quick cash advance lenders for the first time began direct negotiations with their foes last week.

Del. Jennifer L. McClellan, D-Richmond, told The Associated Press reform efforts might fail if a compromise is not reached today, when a House committee could vote on the remaining lending bill.

Click here to read the rest of this Richmond Times-Dispatch article.

A writer from financial newsletter, The Motley Fool, had the following to say:

I don’t need ‘em and haven’t used ‘em, but I have an affinity for payday lenders. Whenever an industry is under attack from the government, regulators, or various do-gooders, the strong libertarian streak in me wants to defend them.

Of course, it also doesn’t hurt that investing master Peter Lynch considers industries with a high “ick factor” ideal sources of good investments.

No fax payday advance lenders are simple businesses to understand. A customer with short-term cash flow problems walks into an Advance America store, hands over a postdated check as collateral, and walks out with a fistful of cash. Most of the time, these loans are for a two-week period - just until the next paycheck arrives (hence the industry name) - and the borrower pays a fee for the service.

That fee, however, gets everyone riled up. A $15 fee per $100 borrowed doesn’t seem particularly onerous, but consumer advocates want to liken bad credit payday loans to the annual percentage rate you’d be charged on a regular loan. When you do that, it equals a 391% APR.

There are a couple of reasons why the fees are so high.

Payday customers can be bad credit risks, and default rates can run high. First Cash Financial had loss provisions of 23% in 2006, while Cash America’s were 30% last year. And there’s the convenience issue. Customers simply can’t get small, short-term loans from their local bank. Folks in need of short-term financial solutions have been abandoned by traditional lending sources.

Though many associate bad credit practices with the poor, EZCORP has found that the typical customer in Texas using its maximum $1,500 pay day loan service has an individual income of around $60,000 to $70,000 annually.

While Advance America and QC Holdings have remained solely payday lenders, the others have branched out into related fields. EZCORP runs pawn shops, as do First Cash Financial and Cash America, while Dollar Financial does payday loans, check-cashing, bill payment, and money transfers. Buy here/pay here used-car dealerships are another new area payday lenders are beginning to explore.

In a very Lynchian way, payday lenders are good investments. They’re disliked by large swaths of people, and they have a high ick factor, but they provide a necessary and highly profitable service. Despite attacks from regulators, payday lenders will survive and thrive.

That’s good for investors, and it’s why I love ‘em.

The sponsor of the last surviving piece of legislation to rein in the payday loan industry threatened Monday to pull his bill if opponents try to place harsher restrictions on the short-term, high-interest lenders.

The Virginia Daily Press had the report.

Sen. Richard L. Saslaw’s industry-backed bill is the only one remaining out of more than a dozen introduced this year to either reform the industry or repeal the 2002 law that allowed providers of payday advance loans to sidestep the state’s 36 percent annual interest rate limit.

Efforts in the House to reform the industry died last week when the bill’s sponsor struck his legislation after an amendment was added to cap the annual interest rate payday lenders could charge at 72 percent.

Saslaw said he would follow suit, killing all hopes of online payday loan reform this year.

“If any amendment gets put on it that I don’t like, I certainly will” strike the bill, said Saslaw, D-Fairfax.

Del. Jennifer L. McClellan, D-Richmond, who fought for the 72 percent interest rate cap on the House version of the bill, said legislators were hoping for a compromise before Tuesday, when a House committee is scheduled to hear the bill.

“I think it depends how close we are to a deal this afternoon,” she said. “If we can’t reach a deal today, I think probably the bill will be stricken.”

McClellan said she could live without the 72 percent interest rate cap as long as some sort of measures to protect repeat borrowers - like a cap on the number of quick cash loans an individual could take out in a year - were added.

The bill would create a statewide database to track payday loans and limit to three the number an individual can have out at one time. It also would require a 24-hour cooling off period before someone can take out a loan after paying one off and allow borrowers with three payday loans no faxing to have 60 days to pay them off.

The average payday loan customer in Virginia took out seven loans in 2005, but opponents say that number is deceiving because most customers borrow from one lender to pay off another.

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Some of the claims supporters of no faxing payday loan lending made during a House subcommittee hearing Wednesday had me murmuring, “They must be joking.” But they weren’t.

Warren Bolton of The State will share two with you:

Claim No. 1: Jabo Covert, vice president of government affairs for Check into Cash based in Tennessee, told House Banking and Consumer Affairs Subcommittee members the attempt to rescue consumers from usurious interest rates charged by his company and other payday cash advance lenders is part of a movement being engineered by “anti-business groups across the country.”

Silly me. I thought this was a push by consumer advocates, responsible leaders and individuals trying to do that right thing. But this is an anti-business campaign?

So, that’s why Columbia City Councilman Daniel Rickenmann, a businessman and as pro-business as they come, is excited about the prospect that the state might enact tough restrictions on payday cash loan lending. He even wants tougher local restrictions.

And I guess that’s why other businessmen in Columbia and other parts of the state have written or called me to say they want South Carolina to stop payday lenders from ripping off borrowers. Some have helped bail out employees who had gotten trapped; one Columbia company has an informal process to help employees entangled with the lenders.

Perhaps that’s why Rep. Alan Clemmons, a Republican from Myrtle Beach who describes himself as “very conservative” and “very pro-business,” is leading the charge to cap the annualized interest rate cash advance online lenders can charge at 36 percent. Rep. Clemmons, an attorney who also is in the banking industry, began raising questions after a plea from a constituent.

Guess what? That constituent is a businessman who wanted to share concerns about payday lenders after one of his minimum-wage employees had gotten caught up in a debt cycle.

Mr. Clemmons said he went to colleagues in the Legislature, who represent citizens from all parts of the state, and asked whether their constituents would be hurt if faxless payday loan lending were tightly restricted.

“I was given an emphatic ‘no,’” he said. “I was told by those folks this manner of lending is hurting our communities.”

His attempt to cap the interest rate payday lenders can charge is “the proper thing to do and it’s the right thing to do,” Mr. Clemmons said. “Every bank I’m affiliated with would jump at the opportunity to make 36 percent.”

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