Aaron Medres is on a mission.

Four years years ago, the Chattaroy truck driver took out a $500 payday loan to cover some unexpected repairs to his car. Two weeks later, to pay back the $500 and the $75 fee, he took out another cash loan from a different lender. And then another.

All told, he says, it took him three years and thousands of dollars in fees to pay everything off.

“It was just stupid on our part,” he said to The Spokesman Review.
Now Medres is one of a growing circle of people calling on state lawmakers to restrict the interest rates charged by Washington’s $1.4 billion payday lender industry. Proponents include anti-poverty activists, unions, military leaders and former cash advance payday loan customers.

“Maybe we can get some justice for a lot of these borrowers,” Rep. Sherry Appleton, D-Poulsbo, told a Senate committee earlier this month.

This year, Congress passed a bill that caps the interest rate for such payday loans online at 36 percent a year for military members and their families. Appleton wants to piggyback onto that, extending the cap to everyone. That’s what Oregon lawmakers did in May.

Payday advance lenders say such a cap would drive them out of business.

“I’m here to tell you that is not regulation. That is prohibition,” Darrell Wells, owner of Paycheck Financial Centers stores in Olympia and Aberdeen, told lawmakers.

Wells said the average faxless payday advance lending shop in Washington makes 415 loans a month, grossing about $20,000 in fees. After paying employees, taxes, overhead and benefits, he said, the store nets about $2,000 a month.

“The average person in this business is not making a ton of money,” he said. “If I could offer this product at a lower price, I’d already be doing it. It would be a huge competitive advantage.”

The proposed cap, he said, would reduce the interest to about 10 cents a day on a $100 loan. That’s too little, he said, to keep the business alive.

Dennis Bassford, president of 55-store Money Tree, Inc., closed his one Oregon savings account payday loan shop because of the 36 percent cap.

“Thirty six percent is a ban,” he said. “My company is proof of that.”

Read the rest of this entry »

The Free Lance-Star has bought into the falsehoods about payday loans spread by the products’ opponents. So states Lawrence Meyers, a partner in Payday Loan Capital LLC, a firm that helps payday lenders obtain money to grow their businesses.

A recent editorial [”Payday loans are no bargain,” Dec. 19] claims that “a payday loan seems like a quick fix. All too often that quick fix becomes a link in a chain that leads to bankruptcy.”

In truth, most payday loans get paid off; the nationwide default rate is 7 percent.

The FLS editorial asserts that “many [payday cash advance] lenders are clustered around military bases.”

However, a June 2006 study by the Consumer Credit Research Foundation found that only 1.3 percent of all payday loans are made to members of the military - and only 13 percent of military members in the immediate vicinity of a payday loan store took out a loan.

The editorial asks, “Why not limit payday lenders to 36 percent?”

The reason is that between a 7 percent average national default rate and a $9,000 average monthly operating expense, providers of no fax payday loans will lose money at that APR. A $14 fee per hundred borrowed is the minimum most lenders can charge and stay in business.

It is not time to shut payday lenders out of the state. If that happens, demand will not vanish. Borrowers will get personal loans on the Internet (which are more expensive) or bounce checks (at $50-$60 per check).

Strangely, the editorial does not come down on banks with their onerous NSF and overdraft fees.

While cash advance loans cost consumers only $4.2 billion last year and they received short-term credit in exchange, the banks made $52 billion on NSF and overdraft fees.

Palm Beach Circuit Judge Elizabeth Maass has ruled that thousands of Florida consumers who took out payday loans can bring their claims through class action arbitration, despite a provision barring that in payday loan contracts.

In an order dated Dec. 12, Maass ruled that class action waivers signed by thousands of people who obtained payday loans through Check ‘n Go of Florida Inc., were unconscionable. She wrote that “the chance that [the named plaintiff] could have obtained competent counsel absent the possibility of class action status … is effectively zero.”

Ted Leopold, a partner at Ricci Leopold of Palm Beach Gardens and one of the plaintiffs attorneys in the case, called the ruling a “sign that everyone who is preyed upon will have their day in court or arbitration. The [faxless cash advance] industry cannot take advantage of disadvantaged people.”

John Hart, attorney for the Cincinnati-based Check ‘n Go, declined to comment on Maass’ ruling other than to say he will appeal before the Jan. 11 deadline. Hart is a partner at Carlton Fields in West Palm Beach. Amy Brown of Squire Sanders & Dempsey’s Washington, D.C., office, is co-counsel in the case.

Check ‘n Go required its customers, including plaintiff Donna Reuter, to sign a contract that mandated binding arbitration and prohibited class actions in the case of disputes. Payday cash loans are typically small. Customers sign the contract and write a personal check for the amount borrowed plus a fee.

Leopold said that sometimes the real interest rate on payday loans can reach 600 percent once rollover fees are added. These fees, he said, violate state usury laws, which prohibit excessive interest rates.

The class attorneys argued that the waiver provisions in the payday loan contracts were procedurally unconscionable because they are embedded in contracts that consumers enter into when they face financial stress. Of the seven companies offering faxless payday loans in Florida in 2000, four required borrowers to sign a class action waiver.

The class attorneys also argued that the waiver was unconscionable because without class status, the consumers wouldn’t be able to hire competent counsel. No skilled, experienced attorney would take an individual case because the fee would be too small to justify the work, Leopold said.

Maass agreed.

“It would be virtually impossible for Ms. Reuter, or anyone in a similar position, to obtain competent individual representation for the types of claims brought here,” she wrote.

Class action arbitration works like regular arbitration, but the attorneys represent a class rather than an individual client. Leopold said the arbitrator will either be someone both sides agreed on or someone assigned to the payday loan case.

Read the rest of this entry »

For Tara Kudron, Mesa’s payday advance loan stores are a godsend when a small financial crisis hits and payday is still days away.

For members of Mesa’s community action group ACORN, however, the stores represent the object of numerous biblical passages warning against usury, or lending money to the poor at excessive rates.

But The Arizona Republic reports that on Thursday afternoon, at a small payday loan store in west Mesa, those biblical tables were turned as the money lenders booted the protesters out of this sanctuary to short-term cash advance lending.

The event started as another ACORN protest against payday loan stores in Mesa, which the community action group has called “loan sharks” in the past before taking the biblical route as part of an international day of action.

Thursday’s protest was designed to allow ACORN members and area ministers to read biblical passages condemning the pay day loan stores.

The ministers failed to materialize because the topic was “too political,” ACORN members said, and the protest was short-lived, lasting only a couple of minutes once the store’s manager called Mesa police to complain about ACORN members trespassing.

That the action lasted less than five minutes didn’t deter ACORN members, who want their message about the dangers of savings account payday loans to reach the ears of lawmakers as much as the customers.

“We want to draw attention particularly to the legislators because politicians running this November made promises,” said Judy Link, a Mesa ACORN member. “They said they were against payday loan practices, and we want to remind them of that.”

Read the rest of this entry »

AARP Utah appreciated the December 17 article about payday loans, but there is more to the story. And Laura Polacheck, Associate State Director of the organization, recently wrote in to The Salt Lake Tribune about it …

According to the Center for Responsible Lending, 99 percent of cash loans go to repeat customers and the average borrower repays a single loan eight times to the same lender. The average annual percentage rate for payday loans in Utah is 417 percent.

Payday lenders argue that an APR is an unfair comparison because these loans aren’t taken out for a year. But the cost of credit is always measured by an annual rate.

Payday advance lenders also argue that competition keeps prices fair, yet Utahns paid more than $69 million in interest charges above the initial interest rate collected. Nationally, the average payday borrower pays $800 to borrow $325.

Congress enacted legislation capping no faxing payday loans made to service members at 36 percent APR, largely because the Department of Defense reported that payday loans create such debt problems that readiness and eligibility for deployment are affected.

The military considers these bad credit payday loans predatory and called upon Congress to act. Shouldn’t we do the same for consumers in Utah?

A state agency delivered another blow to payday lenders Thursday by blocking their efforts to dodge restrictions on the high interest rates they charge on small, short-term payday cash loans.

New rules, adopted by the Department of Consumer & Business Services, will make it difficult for payday lenders to operate under a different license. Doing so would allow them to keep charging annual interest rates averaging 528 percent, said Cory Streisinger, director of the agency.

Regular and online payday advance lenders say the changes may put them out of business.

“It really is too bad because it just makes it more difficult for small lenders such as myself to move to another line of business, which is what we need to be able to do,” said Luanne Stoltz, a Portland payday store owner and vice president of the Community Financial Services Association of Oregon, which represents payday lenders.

Faxless payday loan lenders typically operate under a short-term license, charging about $20 per $100 borrowed on two-week loans for $300. Borrowers can renew the loan for an additional fee as many as three times. At the $20 rate, a borrower would pay $240 interest on a $300 loan after three rollovers.

In an April special session, the Legislature passed a law restricting charges on short-term cash advances to $10 per $100 for the initial loan and to 36 percent interest on rollovers. But those restrictions, which take effect next July, do not apply to conventional consumer licenses which are for longer-term installment loans.

About a fourth of the state’s 366 payday lending stores have applied for conventional licenses. Under a conventional license, they would have to make their loans for longer terms, but they could continue charging high interest.

The state’s new rules will require them to make 90 percent of their cash advance loans six months or longer.

Read the rest of this entry »

A settlement has received court approval in a class action lawsuit brought against the now defunct Internet-based payday loan company, Quik Payday Inc., and its US parent.

This class action was filed on behalf of everyone in Canada who took out a faxless payday advance from Quik Payday, from October 2, 2002 until February 11, 2005, when Quik Payday Inc. ceased carrying on business in Canada.
The claim alleges that Quik Payday, whose online payday loans were offered exclusively on the Internet, charged interest on its payday loans in excess of the maximum legal rate of 60% per year. Quick Payday charged a flat fee of $25.00 per $100.00 borrowed.

A rollover option was originally available for a further 4-18 day term, for an additional $25.00 per $100.00 borrowed. Moreover, Quick Payday charged a $20.00 late fee and interest at the purported rate of 25% per annum on overdue cash advance loans.

The claim alleges that all of these charges are “interest” as defined by the Criminal Code, and that the interest on all payday loans exceeds the maximum legal rate, and constitutes a criminal rate of interest. The Statement of Claim was issued on January 28, 2005.

The settlement calls for Quik Payday Inc. to pay all of its remaining assets into a settlement fund, which will be used to repay customers a portion of the interest and fees they paid at the time the payday loans were advanced.

Settlement funds will only be available to customers who did not default on the repayment of any of their loans with Quik Payday.

Quik Payday also agreed that it will take no collection action against any of its customers who defaulted on their payday loans.

Legislation introduced Thursday morning in the Arkansas House of Representatives would make payday advance lending with high interest rates a crime.

House Bill 1036 creates a criminal offense of making unlawful consumer loans and levies a $300 fine for each violation. The bill defines an unlawful consumer loan as one charging an effective annual interest rate greater than 17 percent, as prohibited by the Arkansas Constitution.

The measure would allow citizens to make complaints for police officials to investigate and prosecuting attorneys to take action. Lawmakers will consider the quick payday loan bill when the legislative session begins in January.

Rep. David Johnson, D-Little Rock, and Sen. Shawn Womack, R-Mountain Home, are the bill’s lead sponsors. They are joined by 14 co-sponsors in the general assembly.

Both legislators spoke at a news conference at the state Capitol in the old State Supreme Court Room.

Johnson said it’s time to put a stop to abusive cash advance lenders taking advantage of financially distressed consumers with small, high-interest loans masquerading as short-term solutions.

“In truth, it turns into a debt trap they can’t escape,” he said. “It’s not uncommon for people to incur hundreds if not thousands of dollars of debt on a small loan.”

Military payday loan effect: Womack said it is time to stop lenders from ensnaring low-income borrowers in an endless cycle of debt that creates an added barrier to entering the middle class. Reasonably priced credit should be available, even for small loans, he added.

“The goal here is to have the appropriate balance,” Womack said.

Read the rest of this entry »

Don’t listen to the nay-sayers. Sometimes, you need payday cash advances to get you through difficult times. Just make sure you follow certain pieces of advice as you do …

1. Be realistic about how much you need
It’s tempting to suddenly get carried away when borrowing money and decide that you’ll upgrade your holiday to business class, or double the budget for a wedding – but remember that you have to pay the money back, so be realistic.

Write a detailed plan as to how much your “project” will cost. So if it’s a holiday include the cost of flights, accommodation, spending money and insurance. Do not borrow more money than you need to with your no fax cash advance.
2. Paying off existing loans may save you money
If you already have outstanding debts, it might be more practical to pay them off before taking out another loan. Debts on a credit card, or other unsecured loans will undoubtedly be costing you a higher amount or interest, so if necessary consolidate these by transferring them to your new loan.
This will cost you less interest and increase the possibility of paying off the original online payday loan sooner.

3. Compare quotes using the Internet
Once you’ve decided how much you need to borrow, go online and research the best deals available. There are many excellent search engines and price comparison sites that will help you with this – and rates can change on a regular basis. Being armed with such information will make it easier for you to decide which fast cash loan you’d like to take out.

4. Work out realistic monthly payments
It’s great to suddenly receive a lump sum of money in your bank account, but remember that you have to pay it back on a monthly basis. So you need to carefully calculate your budget – and be realistic about what you can and can’t afford.

When working this out take into account all your monthly outgoings, including mortgage repayments, bills, credit card repayments, food shopping and other outgoings, such as pension payments or childcare. Compare these to money you receive each month, whether it’s salary, share dividends and benefits, such as a pension.

Your payday advance loan lender will then be able to tell you over what period of time you will need to pay the loan back. Typical time periods for paying back such a secured loan can run from one year, up to the full length of your mortgage – so in some cases this could be 25 years.

Do bear in mind that the longer you opt to pay back an amount, the more interest you will accrue, so in effect the more the loan will cost you in the long-run.

In Oregon, representatives of the payday loan industry argue they provide a quality service to borrowers.

For example, Luanne Stoltz owns several payday loan stores in the Portland area and serves as a media contact for the business. She describes how a customer borrows a payday cash loan.

“Typically the customer comes into establishment with a pay stub, bank statement and verification of an open checking account. The lender makes an assessment of the customer’s ability to pay back a loan, and loans an amount based on the assessment.

Assuming the loan is for $100, a typical fee would be $18 (though the range is from 15 percent to 20 percent). The customer writes the lender a check for $118, dated for their next payday. The lender would have the customer sign a promissory note, and hold the post-dated check until the due date. On the customer’s payday, the lender deposits check. It is a simple transaction.”

Industry proponents argue the faxless payday advance is a valuable resource, citing the short-term loss associated with such a loan could be low compared to bank overdraft charges or utility bill late fees, despite interest rates that rise above 500 percent when calculated by year.

Also, convenience and quick approval time are noted as advantages for consumers who look toward no faxing payday loans. Stoltz says:

“Clearly a high demand for this product exists. Last year more than 800,000 payday loans were borrowed in Oregon alone and only nine complaints were registered.”

In fact Stoltz cites: “Payday loans have the lowest complaint rate than any other lending product.”

Asked how the new Oregon law compares to regulations in other states, Stoltz said: “No other state has such severe regulations as the law passed in Oregon in 2006.”

Until the bill is effective in July 2007, Oregon remains one of seven states without an interest cap on instant payday loans.

Speculating about the future of the payday loan industry, Stoltz said the industry is faced with the inability to cover overhead costs, and she worries.

“There is no chance to reverse the legislation as it stands today … No payday loan stores will exist after July 2001. The new legislation will result in a 70 percent decrease in revenue.”

Stoltz imagines some stores may morph into mortgage and consumer lenders, but warns small operators will probably have to go out of business.

“People need to realize that [cash advance payday loan] lenders employ over 1,000 people Oregon, those people will be without jobs,” she said.