The payday cash advance lending industry should provide more information to borrowers than they currently do, Rep. Andy Jorgensen (D-Fort Atkinson) said this week.

Jorgensen said he was introducing a bill that would require such lenders to be more up front about the costs that borrowers face with no fax payday loans. The bill would mandate that lenders disclose the total fees and costs of a loan, as well as the annual percentage rate to be paid, and provide applicants with state-written materials about the payday loan industry.

Payday lenders would also have to file with the state Department of Financial Institutions annual reports detailing the frequency of rollovers, defaults and costs incurred with payday loans. Under the bill, lenders who don’t follow the disclosure or reporting rules would face a $200 fine for each offense.

“Unfortunately, what may seem like easy money to folks in a tight spot all too often ends up putting them in much more difficult financial situation,” Jorgensen said in a statement.

Jorgensen said the only current requirement is that faxless payday loan lenders register with the state Department of Financial Institutions if they intend to charge an annual percentage rate that’s more than 18%. The department said it now has 495 payday lending locations registered, up 12% from last year.

Alberta will not be joining four other provinces which have introduced new legislation or regulations governing instant payday loan companies until at least next year.

Provinces have had the authority to regulate payday loan companies since last October when Parliament introduced legislation giving them that power.

Earlier this month, the Manitoba government unveiled rules, which will take effect next winter, that will force instant cash stores to post signs saying that Payday Loans are High Cost Loans, and detailing the cost of a two-week loan.

Nova Scotia, British Columbia and Saskatchewan all have similar legislation.

The industry of faxless payday loans has been under fire for its charges, which amount to high annual interest rates. For instance, according to the loan calculator on Money Mart’s website, a $300 loan for two weeks costs $57.90, an effective annual rate of over 500%.

Cam Traynor, spokesman for Service Alberta which deals with consumer issues, said the government will start consulting with consumer groups and the loan industry this fall.

“It takes time to get it right,” Mr. Traynor said. “It’s not regulated provincially and we’re starting from scratch.”

Traynor said it is too early to say whether it would require legislation or just regulations, which would be a less onerous process. He also couldn’t say whether there would be limits on the interest rate that cash advance payday loan stores should be able to charge.

About 40% of the cash stores are represented by the Canadian Payday Loan Association, which is headed by former federal Liberal cabinet minister Stan Keyes. He said last week that the industry is looking for respectability, and it welcomes regulations to weed out the bad players.

“It’s been mired in a bad reputation because of hundreds of companies that have bad business practices,” Keyes said.

He added that there has to be a balance between consumer protection from gouging and giving the no fax payday advance stores a reasonable income.

His association has a voluntary code that includes a 31-day, $1,500 limit on loans and no “rollovers,” or compounding the interest after the term of the loan expires. He couldn’t say what a reasonable rate of interest is, but because they are short-term and high-risk with no credit check and a 20% default rate, it would have to be higher than banks offer.

Two-million Canadians use fast payday loans every year. Mr. Keyes said it is a necessary service in a society where so many people live from paycheck to paycheck.

Aziza Gary grew increasingly uncomfortable.

Here she was, a lending specialist for a credit union in Baltimore, advising a member to steer clear of payday loans. Gary knew these loans were a bad deal from her years in banking. She even briefly worked for a company offering payday loans and had seen consumers unable to escape the cycle of these high-cost, revolving resources.

But the more the credit union member gushed with gratitude for Gary’s sage advice, the more Gary squirmed.

The truth was Gary had three outstanding payday cash loans. A big chunk of each paycheck went to finance these loans. She was behind on her rent and utilities. And the single parent barely was able to put food on the table for herself and her young daughter.

“In the back of my head I’m saying, ‘You’re such a hypocrite. Take your own advice,’” says Gary, 31, who works for the Municipal Employees Credit Union.

Her story is a firsthand account of the intoxicating world of payday advance loan lending and the hard journey out of it.

Payday loans are small cash advances on a borrower’s next paycheck. Their hefty fees translate into annual interest rates of several hundred percent, if not more.

Maryland essentially blocks payday lenders from setting up shop here by capping the interest rate that can be charged on loans. But the Internet opens the door to payday lenders from other states and countries that can easily sidestep any state’s consumer protection laws.

“[Online payday loan] lending makes it very, very easy because you do that in the privacy of your own home,” says Jean Ann Fox, director of consumer protection for the Consumer Federation of America. “Once you start, you get onto a debt treadmill.”

There are no firm figures on how much people borrow through payday lenders, although estimates range from $28 billion a year to nearly $48 billion.

Gary’s troubles began about two years ago with an e-mail from a personal cash loan lender offering fast cash. She was struggling to make ends meet on her $22,000 salary.

Read the rest of this entry »

Maine credit regulators issued a cease and desist order on August 3, prohibiting an unlicensed Oklahoma payday advance lender from doing any further Internet business with Maine consumers.

The Maine Office of Consumer Credit Regulation (OCCR) ordered United Cash Loans of Miami, Oklahoma to stop engaging in any lending activity with Maine consumers, and to refund any fees paid to date by those consumers.

In May, a Houlton consumer reported to OCCR that she acquired an online payday loan with United Cash Loans United Cash Loans. She paid $475 for a loan of $300 for five weeks, which results in an effective APR of more than 600%. These rates far exceed limits established in Maine law.

She contacted state regulators and closed her checking account when the lender began threatening to deduct an additional $250 in fees.

Oklahoma credit regulators have also issued a cease and desist order against the company. The faxless cash advance lender reportedly claims that it is operated by the Modoc Indian tribe, and is therefore sovereign and exempt from the consumer protection laws of any state.

“While an Indian tribe may be free to govern activities on its own tribal land, Maine law deems the activities of United Cash Loans to have occurred in this state,” said Will Lund, director of the Office of Consumer Credit Regulation. “This company entered into a contract with a resident living within our state’s borders, and arranged to deduct funds from her bank account here in Maine.”

“The Maine Legislature has made clear that our state’s lending laws apply whenever a [fast payday loan] lender outside the state enters into a transaction with a consumer located in this state,” Lund added.

A St. Louis resident has filed a class-action suit again Advance America, a major payday loan company, accusing the company of predatory lending, according to a news release by Simon-Passanante P.C., a St. Louis law firm.

The firm represents Cynthia Williams, the lead plaintiff, in this lawsuit, which was filed Monday.

In the news release, the law firm said at the heart of the lawsuit is the allegation that Advance America systematically traps customers in loans they cannot repay by violating Missouri law.

The firm said the suit was filed against the Spartanburg, S.C.-based company and its subsidiaries Cash Advance Centers of Missouri, doing business as Advance America. The company operates 2,900 cash advance stores in 37 states, about 82 of which are in Missouri. In Springfield, the company has six offices.

The law firm said Williams, beginning in March 2006, was trapped in a cycle of debt after taking out a loan at Advance America and that she and her husband began working 70-hour weeks to pay off the debt.

The suit alleges that while state law allows borrowers to repay the bad credit payday loans in up to six payments, Advance America limited borrowers to four payments. Borrowers were then trapped in loans charging more than 400 percent interest, despite interest at 324 percent capped by laws.

Other allegations include:

• Advance America exploited borrowers’s financial situations; intentionally loaning too much money at an interest rate higher than 400 percent that trapped them in a cycle of debt.

• Advance America created phony “new loans” and encourage customers to take these out rather than make payments to reduce their existing fast payday advance.

St. Louis lawyers John Simon, Erich Vieth and John Campbell of Simon-Passanante P.C. and Debra K. Lumpkins of Gateway Legal Services filed the lawsuit on behalf of the borrowers. Simon-Passanante said this is the first class action lawsuit filed against Advance America in Missouri.

Simon-Passanante and Gateway Legal Services said they also have class action cases pending in St. Louis County and St. Louis City against three other payday lenders, including Quik Cash, based in Overland Park, Kan.

“Missouri law is designed to protect Missouri citizens by getting them out of [payday advances] as quickly as possible and by capping the amount of interest charged on a loan. Advance America has short-circuited these protections,” Campbell said in the news release.

New rules in several provinces are supposed to protect consumers from sky-high interest rates and fees at payday loan companies, but a consumer lobby group says they will likely won’t prevent the poor from becoming trapped by crushing debt.

Manitoba has become the latest province to unveil detailed rules that payday loan companies will soon have to follow. Regulations will require payday loan companies to post large signs near their doorways that detail the full cost of borrowing $300 for two weeks.

The signs must reveal the loan rate and fees and read in large letters Payday Loans are High-Cost Loans.

The aim, the province says, is to make borrowers more aware of how much they are paying for quick cash advances.

“That will make them in a position to make a more informed decision as to whether they want to take out the loan,” said Donna Tardi, manager of dispute resolutions with the Consumers’ Bureau branch of Manitoba’s Finance Department.

“It also would allow them to check out the cost from location to location and then decide which business they want to deal with.”

But the Consumers Association of Canada says this will not deter low-income earners, who cannot get credit at the big banks and therefore need instant payday loans.

The real answer, says vice-president Mel Fruitman, is to enforce the maximum interest rate under the Criminal Code — 60 percent a year.

The following is an editorial from The Cleveland Plain Dealer…

Democrat Marc Dann practically boasts that he is one of the most partisan statewide officeholders ever elected. But, he admits, “We don’t have a monopoly on good ideas.”

Thus, Ohio’s attorney general lauds Rep. William Batchelder’s effort to limit payday advance loan lending, a practice that has literally exploded in the state over the past decade.

Batchelder, a conservative Republican believed to have designs on succeeding Jon Husted as speaker of the House in 2009, is drafting a bill to limit short-term loans that come with sky-high interest rates.

Dann is all for restraining companies whose annual interest rates on faxless payday loans approach 400 percent - no matter who’s pushing the proposal. So far, however, House Minority Leader Joyce Beatty, a Democrat, is loath to jump on Batchelder’s bandwagon.

By her unwillingness to support an issue championed by a Republican, Beatty seems to be letting the people’s interests take a back seat to her party’s. She has told reporters that some of her Columbus constituents truly feel they need the short-term loans, believing it’s better to pay the interest than to lose elec- tricity or an apartment because of missed payments.

But no one is proposing doing away with short-term pay day loans altogether.

Batchelder is still drafting his measure, but Dann and others support setting interest-rate caps. He also expects Beatty to come around.

Consider these findings from “Trapped in Debt,” a report from Policy Matters Ohio and the Housing Research & Advocacy Center:

In 1996, Ohio had 107 quick payday loan locations; today it’s 1,562 - more sites than McDonald’s, Wendy’s and Burger King combined.

Ohioans paid $209 million in payday loan fees in 2005.

In recent years, state lawmakers actually increased the maximum loan amount from $500 to $800. They also exempted the loans from the 25 percent interest rate cap that applies to other lenders.

Nationwide, just 1 percent of cash advance payday loan borrowers take out only one loan annually. The average is nine such loans per year.

“There’s nobody in this state who can be for the rules we have now,” Dann says. “We can’t allow this kind of stuff.”

He’s right.

People looking to take out a Canadian payday cash loan now in Ontario have a clear picture of the true cost of their decision.

New rules covering the industry took effect this week. They include:

• Payday advance lenders must now disclose all charges, including interest rates, brokerage fees and, check-cashing fees for all loans over $100.

The new rules were brought in to protect consumers from sky-high interest rates charged by some payday loan lenders.

Shares of Spartanburg payday lender Advance America hit an all-time low Wednesday a day after a Pennsylvania court ruled the Spartanburg cash loan company violated that states consumer law.

Advance America provided bad credit payday loans of as much as $500 to people in return for 6 percent interest plus a $150 monthly fee, a Pennsylvania court ruled Tuesday in agreeing with the state Banking Departments claim that fees exceeded limits set in state law.

The opinion prevents Advance America from continuing to lend money or collecting on lines of credit or loans currently outstanding in the Commonwealth of Pennsylvania pursuant to the violations of state law.

Advance America said it would appeal.

This provider of cash advances saw its shares slipped to $11.29 during trading Wednesday the lowest since the stock debuted in December 2004. Shares finished at $11.84, down $2.83 from Tuesday.

A state study found that a 2005 law regulating Illinois payday loans saved borrowers $20.6 million in loan fees and interest charges over 18 months.

The good news is tempered by the fact that payday lenders have been moving into longer-term, high-interest loans not covered by the reform law, according to consumer advocates.

“Our worst fears have been realized,” said William McNary, co-director of Citizen Action/Illinois. He said lenders have told his organization that less than 5 percent to 10 percent of the personal loans they now issue are payday loans, because they don’t make money the way they used to.

Payday loans are short-term loans for small amounts of money secured against a post-dated check. The industry says the loans provide people with quick cash for emergencies, but consumer advocates say the loans prey on the poor with triple-digit interest.

The law limits the interest that can be charged for supposedly low fee payday loans to $15.50 per $100 and caps loans based on a borrower’s pay, along with other reforms.

Before the law took effect, the average finance charge for short-term loans was $20 per $100 borrowed for a 14-day loan and $45 per $100 for a 31-day loan, according to the Illinois Department of Financial and Professional Regulation report. The average finance charge offered since the reform law was $15.36 per $100 loaned.

Because of the reforms, “consumers are better protected from falling into an endless cycle of debt,” Gov. Blagojevich said in a statement.

“It’s clear that the law is working as intended,” said Bob Wolfberg, president of the Illinois Small Loan Association. He said the industry now makes less money off bad credit cash loans, which has forced lenders to offer different products, including longer-term loans.

On average, 45,000 to 60,000 payday loans are issued in Illinois every month. The law defined payday loans as loans for less than 121 days. Statistics on payday loans have only been kept since the law passed in December 2005, so it’s not clear if there’s been a big drop since the law passed.

The state financial regulation department has pushed rules that would eliminate the loophole, so that longer-term no fax payday advance loans could also fall within the law.

Department spokeswoman Sue Hofer said the department hopes Tuesday’s report will “stir some discussion.”