Forget Boise St. playing in The Fiesta Bowl for a minute. That school’s student newspaper, The Arbiter Online, recently ran the following (paraphrased) editorial:

Regular and no faxing payday loan lenders know that it often takes naive borrowers a long time (and lots of fees) to figure out a simple fact:

If you didn‘t have enough money this week, you probably won‘t have enough to pay them back plus cover your other bills within a two-week period. In fact, they‘re willing to bet their business model on it.

Payday cash advance lenders count on you to roll the first loan over again, and again and again. The small fee that you were initially charged for the first loan quickly adds up to a hefty amount that is actually larger than the original loan. And they cash in on your financial misfortune.

Roughly 10 percent of all payday loans are made to people ages 18-25, according to, Vicki Jacobson, president of the Foundation for Credit Education in St. Louis.

OK, maybe you went over-the-limit on your credit cards and haven‘t paid your cell phone bill in two months. Maybe you‘ve just found yourself in an uncomfortable situation with your creditors that you need to resolve quickly.

Don‘t panic. The important thing to realize when you‘re in a tight financial situation is that “if it can be fixed with money, it isn‘t really a problem.“ That might seem trite and easy to say, but coming from a former debt-strapped college student, this article knows how you feel.

Here are some alternatives to borrowing from your already stretched paycheck with a cash advance:

- If you have never been late or over-the-limit on your credit card before (or at least not in the last six months), contact the credit card company and ask for a waiver on your monthly payment. You‘ll still incur interest charges but the extra breathing room could help relieve the pressure.

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Washington state Rep. Sherry Appleton expects a different outcome this legislative session when she introduces two bills that could drastically curtail profits for payday advance lenders.

The Columbian has the story.

The bills, which the Democrat from Poulsbo will file December 18, ask for a 36 percent cap on the annual loan rates, along with more time for borrowers to pay off the loans and would force lenders to consider a person’s ability to repay a loan.

The payday industry beat back similar proposals last year. Appleton said that since then, her colleagues have become better informed on the issue. It also has helped that Congress passed tough short-term lending laws to protect military personnel, while national and state studies on the topic are causing greater scrutiny of payday cash loan lenders.

“I think we have a righteous cause,” Appleton said.

Payday loan industry growth: The legislation comes as the industry is experiencing explosive growth in Washington. Statewide payday loans in 2005 totaled $1.4 billion, a 141 percent increase from 2000. During the same five years, the number of payday loan outlets almost doubled to 716.

Debate on the issue has focused on the interest rate charged to borrowers. The payday industry argues those rates aren’t accurate since the loans are paid off in two weeks.

Opponents argue the rate is relevant and note that many borrowers are forced to roll over the loans because they can’t pay them off in the two-week period.

In Washington, a person is allowed a maximum two-week quick payday loan of $700 under state law. Lenders charge $15 per $100 of a loan for the first $500, a rate that amounts to 390 percent annual interest. The fee drops to $10 per $100 above the $500 threshold, or a 260 percent annual interest rate.

The average loan in Washington in 2005 was $385.

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Like most shoppers, Linda Lanham knows what it’s like to feel the pressure of the holidays.

“You want to find the perfect gift and the perfect meal and sometimes your expectations of the holiday does not fit your budget,” said Lanham.

She knows how shoppers can be easily tempted by payday loan companies looking to take advantage of the financial strain caused by the holidays.

“People get desperate. There’s a lot of us that live payday to payday and anything can throw you into despair and you’re going to look for the quick way out,” she said.

This time of year, faxless payday advance companies offering that quick way out are working even harder to get people to sign on the dotted line.

“We’ve seen advertisements for holiday spending or loans that might be available that aren’t currently available the rest of the year,” said Tonya Collister of Consumer Credit Counseling Services.

Collister calls these savings account payday loans abusive. She came to a forum on predatory lending on Monday night to help educate Springfield residents about the dangers of payday, car title and other quick loans.

“The companies that offer that type of loan are going to charge higher interest rates,” she said.

On average, those cash advances charge 400 percent interest rates. Collister says a far better option is saving throughout the year for Christmas, making homemade gifts or explaining to your family why you’re cutting back.

“Spend what you can but don’t go out of your way to make it an extravagant Christmas if you can’t, and remember the real reason for the holidays,” she said.

A recent opinion piece in The Desert News basically says the following:

A new national study says a typical payday loan borrower pays $793 for a $325 loan. In Utah, according to the Center for Responsible Lending study, insant cash loan stores collect at least $69 million in excess, “predatory” fees each year from folks who end up trapped in debt.

The problem is pervasive.

There are more pay day loan stores in Utah than 7-Eleven convenience stores, McDonald’s, Burger Kings and Subway restaurants combined. Many are concentrated in areas that are poor, heavily Hispanic or are near Hill Air Force Base, where service members and their families struggle to make ends meet.
Consumer groups are asking states to cap the interest that cash advance lenders can charge to 36 percent a year. This would be a substantial improvement in Utah, where payday lenders charge an average of 521 percent. Utah lawmakers should lead out on this issue.
While most people consider an average 521 percent interest rate to be unconscionable, a measure to rein in allowable interest charges faces an uphill battle. An attempt to cap the high interest rates failed in a previous legislative session amid cries that it signaled a return of usury caps, which were erased by the Legislature in the 1980s.

Since the general session, payday lenders have given some $25,750 to the campaigns of winning legislators.
For many people, providers of online payday loans are a last resort. Some customers lack access to traditional forms of credit or they have such poor credit histories that they cannot obtain loans or credit cards.

Others are people in crisis who need a few hundred dollars to pay a medical bill, keep utilities going or even buy food. They may be vulnerable to pitches regarding the ease of obtaining — and repaying — these loans.
Some will argue that free enterprise is the best regulatory force.

But government does set limits in other areas of commerce to ensure that businesses do not run roughshod over customers, investors or competitors.

When a business collects millions in “fees” and charges an average of 521 percent interest, government has just cause to protect consumers.

So much for that.

While the topic of Virginia payday loans and legislation meant to limit their rates was touched upon again this week, the conclusion remained the same: no new law to regulate such resources.

A House of Delegates committee killed a proposal yesterday that would have limited high-interest, short-term, bad credit payday loans to the same 36 percent annual interest rate cap that applies to other lenders in the state.

The measure would have repealed the 2002 law that exempts payday lenders from that cap. The Commerce and Labor Committee voted 10-to-8 against the bill.

Critics say borrowers often get trapped in a cycle of debt as they repeatedly renew their payday advance loans or borrow from one payday lender to pay off another. Those loans have average annual interest rates that can go above 300 percent.

Representatives of the no fax payday loan industry said such a bill would have forced them out of business. Moreover, they say their loans can be less expensive than fees for bounced checks or late credit card payments.

How does Dave Zweifel of The Capital Times feel about payday loans? Let’s paraphase his recent editorial and find out:

The so-called payday advance lending industry collects 90 percent of its revenues from borrowers who cannot pay off their loans when due.

That’s what the Center for Responsible Lending, a Washington, D.C., nonpartisan research and policy organization, reported last week after conducting a national study of the industry that feeds off people who are desperate for quick cash.

In other words, those stories the providers of online cash loans tell us about how they serve a real need for folks in need of quick cash who then pay them back with their next paycheck is a bunch of baloney.

In its report, the center calculated that predatory payday lending now costs American families $4.2 billion a year in excessive fees. It estimates that the share of that total for Wisconsin’s families who wind up doing such borrowing is $124 million a year.

“Taking the interest on the average payday loan principal as reported by state regulators, and multiplying it by the average number of loan flips per year, we find that the typical borrower ends up paying back $793 for a $325 loan,” the center’s report maintained.

Eleven states ban payday lending and as a result, the report added, they saved their citizens a total of $1.4 billion.

I’ve written about payday lenders several times in the past. Their most egregious practice was to set up shop across from military bases and then make loans to naive young soldiers on their way to Iraq, charging them fees and interests when they needed to “flip” their loans from month to month that amounted to annual percentage rates approaching 500 percent.

In other words, the faxless cash advance lenders had a virtual lock on the soldiers’ next paychecks.

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Some of California’s top military commanders will again call on the Legislature to crack down on payday loans, months after a reform measure collapsed at the last minute amid accusations of deception and resistance from an odd liberal-conservative alliance.

The Daily Breeze has the story.

Gov. Arnold Schwarzenegger has directed a panel of generals and other advisers to recommend new legislation to rein in payday loan practices aimed at the military.

“Our servicemen and women should not have to worry about financial predators trying to take advantage of their deployment situation,” Schwarzenegger said when he appointed the task force this fall.

The Republican governor is working with Democratic Assembly members Ted Lieu of Torrance and Lori Saldana of San Diego on a payday advance loan measure that is expected to be introduced this week.

Details have not been finalized, but the authors say it could impose limits on fees, among other industry practices. A separate bill will look at how to limit industry advertising that makes it appear as if a company is endorsed by the military.

The legislation also would broaden state authority to pursue cash loan lenders who violate a federal 36 percent interest rate cap.

Congress approved the cap earlier this year, but left enforcement in the hands of the Pentagon. Leiu and Saldana said the Pentagon cannot be expected to pursue complaints given wartime pressures and other global responsibilities.

Payday loan law needs teeth:”We’re putting teeth in federal law,” Lieu said. At the same time, he said, the state can do little to solve the true problem: low pay.

“The [faxless payday loan] industry knows it has an underpaid, captive audience to target,” Lieu said. “We’re trying to address a symptom. The root of the problem is our soldiers are grossly underpaid.”

Military leaders have been urging California lawmakers and Congress to step in, claiming that financial troubles risk security clearances and could limit deployments.

“They are expected to be physically ready, psychologically ready and financially ready” before deployment, said Michael Lehnert, commanding general of the seven bases that make up Marine Corps Installations West. “We have seen a dramatic increase in those who have hit the wall financially. … It is having an effect on our readiness.”

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As The Clarion-Ledger reported in September, check-cashing services offering exorbitant interest rates - or payday loans - have sprung up across the state.

Now, federal officials are taking an interest and the paper has written a new editorial about the practices.

Based on the fees of $17 per $100 loaned over a two-week period, yearly interest from instant payday loan operations would be between 400 and 500 percent. However, according to the Center for Responsible Lending, they can reach 1,000 percent.

According to Federal Deposit Insurance Corp. Chair Sheila Bair, there are about 22,000 U.S. payday cash advance outlets.

“It almost seems as if the market has become divided between two groups: those who successfully rely on banks for virtually cost-free basic financial services and those who pay high amounts,” says Bair.

The FDIC is expected to issue draft guidelines this week giving banks credit toward meeting federal community lending requirements if they offer reasonably priced, small loans. Many credit unions are already offering alternatives to payday loans no faxing.

But the state has a duty, too.

The Mississippi Center for Justice will ask lawmakers in the 2007 session to require storefront lenders to provide information about the amounts of money they lend and demographic information about their customers, and for legislation to authorize cities to regulate the number of fast cash loan lenders.

It’s a matter of consumer protection and should be done.

The Financial Service Centers of America (FiSCA) today strongly criticized a recent report, “Financial Quicksand,” issued by the Center for Responsible Lending (CRL).

The study attacked the payday loan industry, stating it cost Americans over $4 billion/year. Here’s a paraphrasing of the group’s press release on the topic:

The report completely misrepresents the business practices of the industry, fails to address the high costs to consumers of the limited available alternatives and dismisses the financial sophistication of the people who use payday advances responsibly to manage their affairs.

Today, millions of Americans do not use traditional financial institutions to obtain credit, either because they don’t want it or because they are not qualified. However, they, like all Americans, deserve access to basic financial services, including short-term payday loans.

Alternative financial service providers, such as payday loan companies, satisfy an important, and growing need which banks, credit unions and other institutions cannot or do not satisfy.

One of the main points of the report is that online payday loan operators rely on “rollovers,” in which consumers take out a second loan to pay off the first, for a large part of their business. Yet, as a matter of fact, 22 of the 38 states and Washington, D.C. that permit payday loans prohibit rollovers.

Of the remaining states, the majority limit rollovers to three or fewer. Limits on rollovers are one of the many consumer protections that exist.

The report also fails to acknowledge that the absence of supply in no way impacts demand. Consumers in states without a regulated payday loan industry still have need for such short-term credit and must seek out and use other, often more costly and typically unregulated alternatives, such as Internet-based cash advance payday loan companies.

These alternatives frequently do not include safeguards and consumer protections.

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A broad coalition representing the poor, elderly, children, labor, business and minorities wants to get rid of payday advance lending in Virginia.

On Tuesday, the House of Delegates Commerce and Labor Committee will consider a bill to repeal the state’s 2002 payday-lending law. The coalition supports the bill, introduced by Del. John M. O’Bannon III, R-Henrico.

If the bill succeeds, providers of payday cash loans would face the same 36 percent interest cap that applies to other makers of small loans.

Payday lenders, who charge up to 780 percent annual interest, have been generous with their campaign contributions and have hired some top lobbyists to help fight the bill.

The lenders argue that consumers want and need their services, pointing to 445,000 Virginians who took out 3,372,000 pay day loans last year.

Payday loan critics: Opponents of payday lending say the loans are designed to pull financially struggling, lower-income borrowers into a credit trap from which it is hard to escape. Borrowers take out loans, one after another, to pay off previous loans, they say.

A report released last week from the North Carolina-based Center for Responsible Lending shows 90 percent of revenue of payday-lenders comes from borrowers who can’t pay their loans when due. Most loans go to people who have 12 or more loans per year, said Jean Ann Fox of the Consumer Federation of America.

The report shows 756 payday lending stores made nearly $1.2 billion in loans in Virginia last year, for which borrowers paid $177.3 million in loan fees. The typical U.S. borrower pays back $793 for a $325 payday loan.

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