A payday cash advance lending business violated Pennsylvania consumer law by providing loans of as much as $500 to people in return for 6 percent interest plus a $150 monthly fee, a state court ruled Tuesday.

A Commonwealth Court panel agreed with the Banking Department’s claim that fees charged by Advance America Cash Advance Centers exceeded limits of the state’s Consumer Discount Company Act.

The Banking Department sued Advance America’s parent company, NCAS of Delaware LLC, in September, three months after the company began offering the bad credit payday loan product.

The lawsuit called Advance America’s $150 ”monthly participation fee” an illegal and usurious sham.

The opinion issued Tuesday 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.

But the judges also said the company may pursue its allegations of constitutional violations and cautioned that the case record was not sufficient for them to determine whether the participation fee amounted to ‘’sham interest.”

Advance America spokesman Jamie Fulmer said the faxless payday advance company had no immediate comment on the effect of the injunction.

”Families who seek these types of loans are usually living paycheck to paycheck and need just a little bit more to make it to Friday,” she said. ”Preying on their need by charging exorbitant fees is simply unconscionable.”

Advance America, based in Spartanburg, S.C., calls itself the country’s leading provider of payday loans, with more than 2,800 centers, including about 100 in Pennsylvania.

In the Lehigh Valley area, it has offices in Allentown, Bethlehem, Easton, Whitehall Township, Stroudsburg and Pottsville.

The following is an editorial from The Roanoke Times…

Pretend for a moment that - like most Virginians - you make enough to make ends meet, but haven’t accumulated much in the way of savings or assets.

Your car breaks down. You need $300 to fix it so you can get to work. You’re not comfortable borrowing from friends or family. You don’t want to max out your credit card, bounce a check or pawn personal items. What do you do?

The industry of payday cash advances exists because it fills a vacuum that banks created when they stopped offering low-dollar, short-term loans. They instead found bounced-check and nonsufficient funds “protection” fees more profitable.

Recent studies debunk the myth that payday loans are “predatory,” and underscore the fact that - before restricting or eliminating such short-term credit options - public officials should better understand the consumer demand for such products and the unintended consequences any such restrictions might create.

Indeed, while critics - including recent Roanoke Times guest columnists - have rushed to label payday loan lending as “predatory” without ever having defined what “predatory” means, a January 2007 study by the Federal Reserve Bank of New York found that payday loans were not only not predatory, but that - by increasing the supply of credit to an underserved market - they actually enhance the welfare of the households they serve.

Another study found that further regulation of no fax payday loan lending has the adverse and unintended consequence of reducing credit options for those who may have few alternatives, and that policymakers should encourage competition in the small loan market, as competition controls prices.

Payday loans are a sensible choice for many facing personal emergencies and more onerous fees such as those associated with bounced checks and late bill payments.

Just as a taxicab is not the right choice for a cross-country trip, but a good choice for a ride across town, a cash advance loan can be the best choice for someone short of cash a week or two before payday.

While attacking payday advances for carrying high annualized percentage rates, industry critics fail to mention that no payday loan customer would ever experience such APRs. To do so, a payday loan customer would have to renew his or her loan every two weeks for a full year, an impossible feat that is illegal in Virginia and all of the 37 other states with responsible payday lending legislation.

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There are some organizations in Pennsylvania, such as The Ludwig Von Mises Institute, which support faxless payday loans and oppose the government regulation of it.

“We recognize why payday lending exists,” Dr. Mark Thornton, senior fellow at the organization, said.

“[No faxing payday loan] shops, pawn shops and title pawn shops have surfaced as a response to the need of low-income minority customers because these customers are discriminated against elsewhere,” Thornton said.

He explained that banks are a highly governmentally regulated industry and are often exposed to problems regarding discrimination.

“A lot of low-income people can’t even get bank accounts, so there is no way that they can apply for loans from banks,” Thornton said.

He explained that payday advances should be used in emergency situations. “People should be using them for things like medial supplies,” he explained.

Thornton also offered an explanation for payday loans’ high interest rates. “The high interest rates cover a lot of costs for the lenders. There is a lot of paperwork involved and also the everyday expenses for business,” Thornton said.

With home loans and car loans, there is collateral for a lending officer but with payday loans, the lenders don’t have any sort of material collateral.

“There is a risk for the lender and all those things attribute to the high interest rates,” he said.

He noted that all people considering taking out a cash loan online should talk to someone who has already done it.

“Then the people should go through the same lending office, that way they will know what to expect and they won’t be surprised,” Thornton said.

Orem city officials have put a cap on the number of payday advance lending stores they will accept in their city, hoping to limit the opportunities for residents to become buried under loans with annual percentage rates as high as 800 percent.

The Orem City Council has adopted an ordinance, similar to other cities in Utah, that limits the number of deferred-deposit loan stores to one store for every 10,000 residents.

Leaders in Salt Lake City and Salt Lake County are considering similar ordinances.

Critics of online payday loan lenders applaud such moves, but industry representatives said they will only hurt consumer choice.

Orem has 23 such stores for approximately 90,000 residents — Check City, Check Into Cash, Quick Loan, to name a few — far more than the nine it should have under the new ordinance.

“They’re doing good business,” said Myla Dutton, executive director of the Community Action Services and Food Bank, an organization dedicated to helping low-income residents. “That’s why they’re here. They’re not hurting for business.”

Stores now in Orem can remain open under the “grandfather” clause, but should one close, another cannot open until the number of stores drops below nine.

No faxing payday loans allow people without good credit to get quick loans from $10 to $1,000 for as little as $20.

The expensive money loan is due in a week or after the person’s next paycheck — with interest.

If the person can’t pay, they often roll over the loan, gathering more interest and promising to pay the next week, Dutton said. However, with APR, or annual percentage rates, at well over 500 percent, the interest quickly can become more than the initial loan.

The first fast cash loan business popped into Utah in the mid-1980s, and now there are more than 400, said Linda Hilton, director of the Coalition of Religious Communities in Salt Lake City. Hilton has been working to educate people on payday lending since 1999.

“It’s been around for a long time,” she said. “In the Depression it was called loan sharking, and Al Capone ran it. It’s (now) legalized loan sharking. The growth of this industry is growing faster than Starbucks.” Read the rest of this entry »

Revenue growth for payday loans, including those extended over the Internet, helped Fort Worth-based Cash America International rack up a 19 percent increase in net income for the second quarter.

Earnings were $13.2 million, or 43 cents a share, compared with $10.9 million, or 36 cents a share a year earlier, beating analysts’ estimates by 3 cents as calculated by Zacks Investment Research. Revenue hit $213.9 million, compared with $149.9 million a year earlier.

“All aspects of our business experienced increases in revenue, led by our expanded balances of cash advance loans, which posted the largest portion of the year-over-year gains in revenue,” President Dan Feehan said.

But he stressed that Cash America’s pawnshop loans and merchandise sales represented about two-thirds of revenue. Pawn revenue was up 18 percent, he said.

The company predicted that third-quarter profit would range from 52 to 58 cents a share.

Loan fees from cash advance payday loan units, not including pawnshops, increased to $76.9 million from $29.1 million a year earlier.

UniSource Energy Services, the electricity provider in Nogales, has announced plans to eliminate the option for customers to pay in cash at ACE Cash Express locations.

The decision has nothing to do with economics, convenience or cost cutting. Instead, the company is trying to protect its most vulnerable clients, said Joe Salkowski, the public information officer for the utility company. It wants to distance itself from this instant payday loan chain.

“We’ve had conversations with our friends in the low-income advocacy group about directing our customers to make payments where extremely high-interest loans are available,” Salkowski said. “In recognition of those concerns we’re going to look for another way, (in which customers may pay.)”

While the majority of customers pay online or with checks, some people do not have bank accounts and can pay only in cash. In Nogales, those people can go directly to the UniSource office, but for those who live elsewhere the only option was to pay at the aforementioned payday loan company.

ChristiaNet.com, the world’s largest Christian portal with twelve million monthly page loads, conducted a new poll by asking the question, “Are payday loans a temporary fix to a crisis?”

Overall, many participants seem to agree that these types of cash advance loans can provide some necessary emergency cash when needed. Bill Cooper, President of ChristiaNet said: ”

High interest loans are costly but in an emergency situation, people are usually willing to shoulder those costs. Even so, it might be advantageous to do some comparison shopping when opting for high interest loans.”

Out of 244 participants, 89 responded “yes” to the survey question. While many agree that online payday loans can provide some emergency cash when needed, there are some important issues to consider before doing so. One reader shared an experience by saying:

“From experience I fell further in debt. Instead of praying and waiting on God, I decided to take matters into my own hands.”

It seems that indulging in these types of loans might cause further problems for some borrowers. High interest fees might cause borrowers to get deeper into debt.

One-hundred and seven participants answered “no” to the survey question. The consensus with this group is that while fash cash advance loans provide a temporary solution, they only add to the problem already there. One concerned reader said:

“If you need an advance you’re living ahead of what you are getting and subsequently getting further and further behind.”

If the problem boils down to bad money management, then a temporary fix with some emergency cash won’t solve the initial problem.

Forty-eight people were unsure about the survey question. Most readers in this group feel that it depends on the crisis and if bad credit payday loans were used for a one time scenario, they could help.

“Unfortunately, I have had to get a few in the last couple of years. Some are just traps and the way you pay them there is no way to get out from under them.”

In January, Maj. Gen Mike Lehnert, commanding general for Marine Corps installations west of the Mississippi, asked the Oceanside City Council to do something about bad credit payday loan lenders who charge high interest rates to members of the military.

It’s an issue that affects military personnel across the nation. Nearly 200 payday lenders operate in the county, which is home to more than 113,000 active-duty members of the military serving at 14 bases and commands.

With quick payday advance lenders nationwide charging as much as 400 percent interest, Congress passed a law, effective Oct. 1, limiting interest rates that can be charged to military personnel to 36 percent annually.

Additionally, a regional Military Joint Task Force on Financial Health has been set up by Navy and Marine officials to address service members’ financial issues.

“Financial health is a priority regarding our sailors and Marines,” task force spokesman Brian O’Rourke said in an e-mail yesterday. “We consider financial health to be just as important as physical health or mental health. It’s also a combat-readiness issue for us.”

This check-cashing service is among 22 providers of fast payday loans in Oceanside, which has the second most among cities in San Diego County. Military officials have voiced concern that safeguards are needed to protect Marines and sailors from high interest rates.

The city of San Diego has 85 payday lenders, the most in the county. Oceanside is second with 22, according to the California Department of Corporations, which licenses the businesses. Lehnert said he approached the Oceanside council for help because the city is home to so many payday lenders, which Camp Pendleton Marines use for short-term loans until their next paycheck.

On Monday, the city made its first response.

The Planning Commission voted to recommend that the City Council pass an ordinance requiring lenders to get a special operating permit. The commission recommended that instant cash loan companies not be allowed within 1,000 feet of a similar business or 500 feet of a home, church, park or school.

Similar regulations
The law is similar to regulations for massage parlors and pool halls.

Although San Diego has the most payday lenders in the county, it has no plans for regulations, city spokesman Kevin Klein said.

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Blue Springs is on its way toward regulating faxless payday loan offices.

The Planning Commission on Monday voted to recommend to the City Council tighter regulations for such businesses under the city’s Unified Development Code, requiring hearings and a conditional-use permit to open. The city also would enforce rules to prevent them from clustering or being to close to homes.

Proposed revisions are for title loans, payday loans and similar businesses, lumped under a category of short-term loan services. It doesn’t include pawn shops.

Current short-term loan shops would not be affected because they would be considered “grandfathered.”

At a City Council workshop, council members said they want to regulate the loan offices because of potential side effects of having so many.

Nearly 10 of the fast payday advance establishments are slung along Missouri 7, a commercial route where the city has been showing success in encouraging redevelopment and beautification.

Brien Starner, president of the Blue Springs Economic Development Corporation, said the problem is common to many cities, from Blue Springs to Raytown to Overland Park, when dealing with third- or fourth-generation use of buildings that are becoming obsolete.

An overabundance of such buildings can result in declining lease rates that attract personal cash loan shops or other businesses that want low overhead. While those businesses serve a need, a concentration of them makes it hard to draw new investors with larger projects that could upgrade entire blocks by remodeling or replacing the buildings.

“There’s a perception that makes them concerned about the economic viability of that corridor and marketplace,” Starner said.

Another frequent criticism of that industry is high fees of $15 to $20 per $100 for only a two-week loan, but City Attorney Bob McDonald said that under Missouri law the city’s legal ability to regulate the businesses is limited to zoning.

He told the commission that a study in Milwaukee found that such businesses have secondary effects on public safety.

Cash advance payday loan offices typically are open late hours, with less security than banks. Because people leave the offices with large amounts of cash, there can be an increase in robberies.

There is a perception that areas with concentrations of such businesses are going downhill, which can hurt property values, McDonald said. Phone calls were made to most Blue Springs short-term loan businesses, but office managers or owners either failed to return calls or declined to comment.

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Two of Charlotte’s economic giants, Bank of America and Wachovia, bankroll some payday advance loan lenders - the same lenders whose operations high-ranking officials found so distasteful that they drove them from the state.

These economic ties are no secret - they’re disclosed deep in federal Securities and Exchange Commission filings - but the relationship is unknown to many consumers, some of whom would doubtless be surprised by the industry ties.

“Those are the types of loans that they won’t show in their commercials or glossy advertisements,” says Rick Jurgens, consumer advocate for National Consumer Law Center.

Jurgens first noticed the ties when he was researching some states’ public utilities relationship with the quick payday loan industry. What he found was surprising.

Advance America, the industry heavyweight, got a $265 million line of credit funded by several banks in 2004 - well after public opinion began turning against high-interest, short-term loans. The banks included Wachovia, Wells Fargo, BB&T and Carolina First Bank. Another lender and administrative agent? Bank of America.

As recently as March, according to SEC documents, the company still had access to the cash.

“Payday lenders are often not highly capitalized companies,” Jurgens says. “That’s why they use lines of credit, which is essentially like a credit card with a relatively low interest rate, to do day-to-day lending.”

Inner City Press, a New York advocacy group, found Wachovia has “an unspecified portfolio of [bad credit cash loan] lending clients,” according to the organization’s Web site. The group is also opposing Bank of America’s application to acquire LaSalle Bank, due in part to its ties to payday firms.

Wachovia spokeswoman Iris Cumberbatch would only say the bank has “a very limited number of relationships” with payday lenders. “Beyond that, I can’t say anything specific because it would violate our privacy policy,” Cumberbatch says.

Bank of America representatives didn’t return calls seeking comment.

Payday lenders haven’t operated in North Carolina since 2005, when state Commissioner of Banks Joseph Smith ruled the practices of Advance America were illegal. The state had prohibited payday lending since 2001, when a law authorizing the practice expired.

But in practice, lenders flourished by making loans through out-of-state banks, a practice often derisively termed the “rent-a-bank” model. In 2005, for instance, no fax payday loans cost N.C. residents more than $74 million, according to the Center for Responsible Lending, an industry opponent based in Durham.

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