As reported by WVEC, Navy sailor Nathaniel Crumsey and his wife moved from Maine to Norfolk. He got his first payday loan just to help his family catch up financially.

“She use to work fulltime and we had to move because of the Navy, so we needed a little extra income because we were still living the same life we were with both jobs,” he said.

But Crumsey said the faxless payday loan ended up putting him even further behind.

“It’s been kinda like a snowball effect, getting one and paying off another, then going to another one to pay off the other ones,” he said.

His story and others like it are the reason that the Virginia General Assembly is considering changes, too.

Payday loans under fire: The House Commerce and Labor Committee last month reviewed two bills that will come before the General Assembly in 2007. One would repeal the 2002 legislation that authorized payday advance lending in Virginia. The other would create more regulations for payday lenders.

“The problem in Virginia is a consumer can go to one lender, borrow $500, go directly across the street, borrow another $500 and there’s no data base to check to see how many loans one consumer has at one given time and we need to address that issue in Virginia,” said Del. Kenny Alexander.

Cash advances do have their supporters – such as Lakita Pirtel, a single mother of three.

She said there have been times when her paycheck didn’t cover her expenses.

“My hours, they decreased and I had a hard time making ends meet,” she explained.

Pirtel said she’s gotten about a dozen cash advance loans in the past year, but she’s paid them all back.

“I’m not going to come into an institution and ask for $500 when I know I’m not going to pay it back. I have to know that the money is going to be there in the next two weeks to pay it back.”

Read the rest of this entry »

Following in the financial footsteps of Nova Scotia, Manitoba has passed new legislation regarding payday loans.

Fast payday loan companies in the province will need to be licensed and bonded, thanks to “first of its kind” regulations the government passed Tuesday.

Politicians in the Manitoba legislature passed amendments that will regulate such companies, which offer short-term cash advance loans to those who have run out of money before payday. In exchange they charge high interest rates, which when combined with service fees can equal an effective annual interest rate of several hundred percent.

The next step for the province is to wait for the federal government to amend Section 347 of the Criminal Code, which deals with criminal interest rates. Under current provisions of the Criminal Code, a criminal interest rate is defined as more than 60 percent annually.

The amendment would create a special exemption that would allow provinces to set short-term rates for the cash advance payday loan industry, which at the moment offers the most expensive legal way to borrow money in Canada.

Ottawa is expected to introduce a bill along those lines later this year.

Finance Minister Greg Selinger said Tuesday that Manitoba’s payday loan legislation is the first of its kind in Canada.

“We want to ensure that borrowers are protected against exorbitant fees and abusive industry practices,” Selinger said in a release. “We now look forward to the federal government passing amendments to the Criminal Code that will allow us to regulate the charges associated with the industry.”

Under the provincial legislation, payday advance loan companies will need to be licensed and bonded. The province’s Public Utilities Board will set the maximum cost of credit that payday lenders could charge for loans.

Moreover, customers will be warned about the high costs of taking out loans with the companies, and customers can have the right to cancel a loan without penalty within 48 hours.

The legislation will also prohibit lenders from charging extra fees when loans are renewed, extended or replaced by new loans.

Finally, the legislation will give the Manitoba Consumers’ Bureau the right to inspect licensed payday loan companies.

Yesterday, we reported on new payday advance legislation in Nova Scotia.

One would assume that a payday loan company in the area, such as National Money Mart Company, would object to these laws. But one would be mistaken.

One of Canada’s leading convenience financial services provider recently sent out a press release talking about such faxless cash advance legislation. It said it welcomes the new regulations passed by the Nova Scotia government on November 23, 2006 that “will balance strong consumer protection with a viable payday loan industry.”

Nova Scotia’s new law to regulate the payday loan industry is the first in Canada. The provinces of British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick have also expressed a desire to quickly introduce similar legislation on pay day loans.

“Money Mart strives to be the industry leader in consumer protection,” said Syd Franchuk, President of National Money Mart. “We welcome this important legislation and share the government of Nova Scotia’s commitment to balancing consumer protection while ensuring a viable industry that can responsibly serve the millions of Canadians and thousands of Nova Scotians who use this important financial service.”

What does the editorial board of The Walla Walla Union-Bulletin think about payday loans? Here is a paraphrased answer:

What would you call it if a person gets a loan and then is charged an interest rate that averages 528 percent or that hits 2,551 percent?

Images of knee-breaking loan sharks pop to mind. But in Oregon it’s just another day at the office for payday loan and car-title lenders.

The Oregon Legislature understood these businesses were dooming many citizens to fall deeper into debt. These individuals were those who could least afford to shoulder additional financial burdens. So it passed a law to cap interest at 36 percent, beginning in July.

Thirty-six percent is still high, but it was a first step. However, the cap won’t apply to car-title lenders, who make short-term cash loans using car titles rather than future paychecks as collateral.

And, according to The Associated Press, a fourth of payday lenders have applied for conventional consumer licenses, which allows them to restructure payday loans into small installment loans and continue to charge the high interest rates.

“We think consumers should be allowed to make decisions about what loans are right for them, and the market should set the rate,” Luanne Stoltz, a quick payday advance lender and vice president of the Consumer Financial Services Association, told the AP.

Generally speaking, competition can regulate the marketplace. But when people are being gouged, the government has an obligation and a responsibility to step in.

Oregon is on the right path when it comes to online payday loans. It needs to keep moving to deal with this insidious practice.

Two nationwide tax preparers are offering new loan products in time for the holidays, backed by future tax returns. To issue a loan, The Chicago Sun Times reports, tax preparers use pay stubs to estimate a customer’s tax refund.

A local research group thinks this kind of Refund Anticipation Loan is a terrible idea. The Woodstock Institute said the holiday loans, combined with other refund anticipation loans taken at tax time, will eat away hundreds of dollars from individual returns.

“From the looks of this product, tax preparers are moving into the [no faxing payday loan] business,” said Marva Williams, senior vice president of Woodstock. “We strongly urge consumers to stay away from these expensive loans this holiday season, just as they would avoid a payday loan.”

The loans are being offered by Jackson Hewitt and H&R Block. Liberty Tax Services’ CEO John Hewitt called the holiday loans “a kind of predatory lending” and said tax preparers at his chain won’t do them.

The holiday loans/new kind of payday cash advances are a variation of a tax refund anticipation loan or RAL. An RAL is a short-term loan that’s backed by a tax refund. The average cost of a rapid refund loan is $100, paid by taxpayers to receive their refund money a couple of weeks early.

Annual interest rates on RALs range from 40 to more than 700 percent, according to the National Consumer Law Center.

The new holiday loans act as RALs on top of RALs.

Jackson Hewitt’s “Holiday Express Loan Program” or “H.E.L.P.” will offer a $600 loan. If the loan is approved, the bank fee is $65. The payday cash loan is due to be paid back in March, and while another RAL isn’t necessary, a customer can use another RAL to pay it off at tax time.

H&R Block also offers an “early season” loan product, which started this month, though a company representative declined to comment about it.

CEO Mark Ernst said at a financial conference in November that instant cash loans would be priced 40 percent lower this year.

Read the rest of this entry »

A recent editoral in The Bend Bulletin didn’t call for the end of payday loans in the state; but it did ask for a loophole in legislation to be closed. Here it is, paraphrased:

Anybody paying 500 percent annual interest on a loan has to be foolish, desperate or not realize what they are doing.

Some payday advance lenders charge that kind of interest.

They make smaller loans.

The average no fax cash loan amount for last year was $331, according to the Oregon Department of Consumer and Business Services. The lenders typically charge about $20 per $100 on a two-week loan. And if the borrower can’t pay up, the lender rolls the loan over for another two weeks.

It can add up to 521 percent annual interest.

We think consumers should be able to decide what loans are right for them and the market should set the rate they pay. Payday and title loans can serve a need for desperate consumers. Most folks who take out those kinds of bad credit payday loans do repay them.

But government still has a role to play in taming the market when it’s behaving badly. Charging people 521 percent annual interest is behaving badly.

Earlier this year, Gov. Ted Kulongoski signed into law new regulations that put a 36 percent interest cap on the industry. It’s similar to laws enacted in most other states in the country.

Read the rest of this entry »

The push for legislation in Nova Scotia on payday advances has come through.

The new rules governing payday loan businesses should help protect consumers and support a viable industry, an industry group said Friday.

The Canadian Payday Loan Association applauded the adoption of Nova Scotia’s Bill 87, the first law in Canada overseeing the regulation of the instant cash loan industry.

The legislation was unanimously passed in the provincial legislature on Thursday.

Payday loan businesses provide small personal loans to cover short-term emergencies. Nova Scotia’s Utility and Review Board is to hold hearings in the spring to set permitted fees charged for borrowing.

The association said the average loan is $300 for about 10 days.

Among other things, the new rules will ensure lenders disclose all fees and give borrowers a day to change their minds about such payday cash loans and cancel them at no cost.

“This is an important day for consumer protection in Nova Scotia,” association president Stan Keyes said of the provincial law being passed.

“It will be important to ensure that the government sets a clear cap on the cost of borrowing that will balance strong consumer protection while ensuring a viable industry that can afford to provide this . . . service,” he continued.

The association says up to two million Canadians use regular or no fax payday loans every year. It has been “calling on governments across the country for two years to introduce and pass effective payday loan legislation,” the release said.

Ottawa is holding hearings on a proposed federal law intended to regulate the industry. The bill is expected to be reviewed by a parliamentary committee before Christmas, the release said.

Other provincial governments are also planning to enact pay day loan legislation.

Ryan Krueger is the co-founder of Krueger & Catalano Capital Partners LLC, a private money management firm in Houston focusing on special situations and stocks. He wrote the following (paraphrased) editorial for The Washington Times:

The recent outcry for a ban on fast cash advance lenders made me wonder how many of those pointing fingers ever tried to open one of the doors they want to kick down.

Have they listened to a customer describe what is on the other side?

The tasteful accusation at fancy dinner parties is that they prey on the low-income worker, trapping him into unsavory interest rates. The hosts need to ask the caterer or nanny used that same evening for their opinions.

Up front, I must disclose a bias of my own. I know about preying on the uninformed - those who have sold me their shares of a publicly traded online payday advance lender. I am a professional money manager. And one of my favorite bets is on an extraordinary streak continuing - the mismatch of capitalism versus Congress.

Payday lenders are under severe scrutiny with potentially sweeping regulations from Congress to applause from pundits far more quoted than me. I wonder which one did the math on the $40 his daughter ATM’ed last weekend.

More than $4 billion in ATM fees were paid last year. This “little” fee has not been declining like you may think. Bankrate.com found ATM surcharges have climbed 20 percent in the last two years alone. Why is paying a fee to get your own money less offensive than paying someone to borrow theirs?

At least a no fax payday loan provider is providing a service and capital not available elsewhere. Yet one rate is called usurious, the other is called a convenience fee.

Next time see your banker, offer to bet him on the over-under for NSF fees, toward the bank’s profits. Let him set the line and then take the offer. The $25 Non-Sufficient Funds fee is not often described at the chamber luncheon as a 311/4 percent rate calculated on the $80 check written to your plumber before a deposit hits.

Worry not about the plumber, he can easily be assessed late fees on his credit card while he waits to get paid. Why do payday loans on city street corners carry egregious costs but bouncing checks and cards in the suburbs is merely protection against a lack of sufficiency?

Read the rest of this entry »

A new report is warning money-strapped Christmas shoppers NOT to be tempted by offers for fast cash this holiday season … or they could end up with a very unhappy New Year.

The report criticizes the practices of regular and online payday loan companies - an industry popular in the Sauk Valley - claiming they are exploiting a loophole in a new Illinois law meant to keep customers out of insurmountable debt.

That law, the Payday Loan Reform Act, took effect this year after unanimously passing the Illinois House and receiving only one “nay” vote in the Illinois Senate.

The PLRA offers consumer protections on short-term payday advances by capping fees and mandating a “debt-free recovery period or repayment plan” after 45 days of continuous indebtedness, to give borrowers a chance to catch their breath and break the cycle of debt.

Released in October by the Monsignor John Egan Campaign for Payday Loan reform, the new report, titled Hunting Down the Payday Loan Customer, claims that in response to the new law, many cash loan lenders have switched most, if not all of their business, from the usual two- or four-week payday loan to longer, more expensive installment loans that typically last about 140 days.

The PLRA only regulates loans of 120 days or less.

The longer loans come with interest rates many times well above 300 percent when calculated as an annual percentage rate, according to the report.

In addition, the borrower’s fees aren’t capped, and no “debt-free recovery period” is guaranteed if the borrower can’t make the payments.

Often, a borrower will take out another bad credit payday loan to pay the money due on the first one, creating a spiral of debt, the report said.

Beside warning consumers, the report also calls on the Illinois Legislature to change the law.

“… companies offering unregulated payday installment loans are offering an expensive and dangerous product, and these new loans should be subject to the same strong consumer protections passed by the General Assembly for traditional short-term payday loans,” states the report.

Read the rest of this entry »

As controversy swirls around the use of Oregon payday loans, the reason why these resources have exploded in popularity has become more evident.

The state legislature passed a law to cap interest at 36 percent beginning in July. However, the cap will not apply to car title lenders, who make short-term loans using car titles as collateral.

Since the Legislature’s crackdown, one-fourth of the state’s payday advance lenders have also applied for conventional consumer licenses. Those are not affected by the interest rate cap.

Meanwhile, a new state report says more than 100,000 Oregonians had problems paying off payday and car title lenders last year. Due to their circumventing of the law, these instant payday loan lenders charged annual rates of interest that averaged 528 percent.

The Oregon Department of Consumer and Business Services released figures for 2005 showing payday lenders made more than 840,000 loans in 2005. That’s a 15 percent increase over the previous year.

In all, the cash advance loans were worth more than $278 million.