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September 16, 2011 – Pawnshop operator and payday loan provider Cash America International, which is based out of Fort Worth, Texas, announced today that it plans to spin off most of its online lending subsidiary, Enova International.
Enova will now have a common stock in the New York Stock Exchange, signified by the symbol “ENVA.” Cash America will spin off the ownership through a public offering projected at $500 million; however, the company says it plans to maintain 35-49 percent of its stake. Three other companies will be joint underwriters: UBS Investment Bank, Barclays Capital Inc. and Jefferies & Co.
Enova’s services include consumer payday loans of an average of a little over $500, servicing not only the U.S., but also Canada, the U.K. and Australia. Cash America is the world’s largest pawn shop chain, and entered the payday loan business in 1999. Although the company’s focus is the pawn shop business, payday loans made up about 37 percent of Cash America’s income in the first six months of 2011.
Cash America said that problems with the companies’ partnership had arisen because investors were unable to differentiate between the online lending portion and the concrete business. Enova CEO Timothy Ho said separating from Cash America will give Enova its own identity.
Analysts say the move will also help Cash America’s stock ratings, as the harsh regulations associated with payday loans can pose problems for the company. The pawn shop industry is less regulated and is continuing to expand quickly.
A University of Toronto law school graduate paid off his $114,000 student loan balance in one massive payment.
Alex Kenjeev, who works for O’Leary Ventures, owned by Kevin O’Leary, the famous venture capitalist and creator of the hit television show, “Shark Tank,” made digital ripples across the internet last week when someone posted a picture of his final student loan payment receipt.
The receipt, which gained notoriety after showing up on the social community website Reddit, revealed that Kenjeev forked over $114, 460.30 to satisfy his outstanding debt.
“It was stressful enough to carry such a big debt load. I thought it would be worth getting a few laughs out of it,” he told Business Insider.
His idea of getting a few laughs out of his plight was by paying his student loan off entirely in cash. But when he walked into the Royal Bank of Canada (RBC) to withdraw his cash, the management was less than pleased by his request.
“Neither bank thought it was as funny as I thought it was,” he said.
RBC said they would only permit Kenjeev to withdraw the enormous sum if he agreed pay for a transport fee required to have it delivered by armored truck. While Kenjeev avoided the fee, he had to wait three days before he could withdraw the cash and have it delivered to Scotiabank, the bank holding his student loan.
“After so many years of carrying student debt, a few extra days didn’t bother me,” he said.
When the money arrived at Scotiabank, Kenjeev strolled through the doors with an enormous canvas bag containing his money.
“I just plopped the bag down,” he said. “They didn’t know how to handle it. At first the manager didn’t want to accept the money.”
But Kenjeev waited patiently, and allowed the bank to make calls to higher-up managers and decision makers. Ultimately he sat there and waited as tellers hand counted his money.
Nearly three hours later, Kenjeev shook hands with the bank’s manager, smiled, and walked out of the doors completely free of his student loan debt. He uploaded his receipt to Facebook, and the online community quickly made the picture go viral.
Rex Mundi, a criminal hacker organization whose name alludes to Judeo-Christian lore, leaked the personal information of AmeriCash Advance customers in a tweet on June 17, 2012.
AmeriCash Advance is a cash advance loans company that provides quick cash to customers with bad credit.
Five days prior to the leak, Rex Mundi faxed a “ransom note” to AmeriCash Advance informing them that their site had been hacked. The hacker organization demanded $20,000 from AmeriCash, for what they called an “idiot tax,” in exchange for not releasing the information retrieved.
AmeriCash Advance reportedly immediately authorities and took steps to protect data that had not been accessed by the hackers. AmeriCash Advance refused to give in to the hackers’ demands and Rex Mundi made good on their threat, leaking customer names, applicant e-mail addresses, loan amounts and partial Social Security numbers.
Rex Mundi claims that an unsecured confidential page gave them access to the company’s servers.
“This page allows its affiliates to see how many loan applicants they recruited and how much money they made. Not only was this page unsecured, it was actually referenced in their robots.txt file (Bad, bad move guys)”, said Rex Mundi on dpaste.
But AmeriCash refuted Rex Mundi’s claims, saying, “The section of the system that the criminals hacked into was the automatic e-mail responder section, the part of the system that sends an auto-reply to an applicant that their application has been received.”
Fearing the leaked data might be used for phishing attacks, AmeriCash Advance warned customers about the security breach and advised them to remain vigilant.
According to the Rex Mundi twitter feed, the hacker organization applied similar tactics in Belgium where they targeted firms AGO-Interim and Dexia Bank. Both firms were given ultimatums to pay Rex Mundi money or have their secure information released to the public.
Interestingly, despite Dexia claiming not to have paid the ransom, Rex Mundi did not make good on their promise to leak data. On the other hand, AGO-Interim felt the full force of Rex Mundi’s wrath when the hackers released the data of roughly 10,000 clients.
Unlike the politically controversial Anonymous hacker group, it seems Rex Mundi is purely profit-driven as noted by their twitter feed, “To answer a popular question: We <3 hacktivists like @AnonymousPress. However, we’re in it for the money, which is also pretty awesome.”
While it remains to be seen if Rex Mundi will continue to focus on lenders of cash advance loans or if other hacker organizations will follow their lead, the cash advance loans industry is showing little sign of disappearing.
Prospective borrowers have a slew of different online and physical cash advance loans lenders available with varied security measures. Obtaining quotes for cash advance loans has never been easier thanks to nearly instant quote generation services.
April Garcia from Muscatine Iowa was almost scammed out of hundreds of dollars on July 14 by a group offering cash advance loans. She got a phone call that morning informing her that she was eligible for a $3,300 consumer cash advance loan. Despite recognizing that she didn’t remember filling out an application for cash advance loans, Garcia did recall filling out loan applications in the past. She proceeded with the scammers’ process.
“They said I’d have to pay them $330 for insurance but I would get that refunded,” Garcia said in an interview for the Muscatine Journal.
The scammers informed her that once everything had cleared she would begin receiving payments of $330 over the next ten months. This would ultimately total $3,300 since, according to the scammers, she would have been refunded the initial $330 that she paid for “insurance”.
“I went to Western Union and paid but the receipt said the money was received in India,” Garcia said. “That’s when I knew something was wrong.”
Unfortunately for Garcia, she failed to recognize that Western Union is often used by scammers due to the ease of withdrawing funds.
Garcia felt suspicious once she was told by the scammers not to show the Western Union receipt to another party. Garcia informed the Muscatine County Sheriff’s Office immediately.
“I asked them to look at my paperwork,” Garcia said.
Since Garcia never told the scammers the money was wired, she had time to contact Western Union and explain what the payday loans scammers had done.
“I thank God they didn’t pick up the money before I was able to call Western Union and get a refund for fraud,” said Garcia.
Even though Garcia is relieved that this particular group of cash advance loans scammers eventually stopped calling her, a completely different group continues to plague her.
“From a different number, I get calls saying I qualify for federal grants,” Garcia said noting that one call even came from her own cell phone number.
“Sgt. Ardyth Orr said these people have devices that can manipulate the numbers they call from,” said Garcia. “When I saw my own number I thought, ‘What the heck?’”
By manipulating their caller ID information scammers outside of the U.S. can avoid their foreign phone number from appearing to the victim and triggering suspicion.
Orr stated that scammers typically target victims with bad credit who may be desperate to borrow cash advance loans.
“Orr told me to be smart with my money and to not fall for the scams again,” Garcia said.
Despite narrowly avoiding being scammed with the bait of cash advance loans and being able to save her money from the scammers, Garcia is wiser for the experience.
“I’m glad I got everything back but I want people to know they should report these no matter what,” said Garcia.
Cash loan lenders are boosting their political contributions and lobbying efforts in order to get Congress to transfer oversight of their industry from individual states to the U.S. Office of the Comptroller of the Currency (OCC). A House committee heard the proposal on July 24, 2012, despite opposition from the OCC.
The aim of the bill, which is called the Consumer Credit Access, Innovation and Modernization Act, or, more formally, HR6139, focuses on equality, in a manner of speaking. The bill, if passed into law, would give the OCC the power to designate lenders as National Consumer Credit Corporations. Surprisingly, it would also require the OCC to treat cash loan lenders who operate out of physical locations the same as cash loan lenders who only operate online.
A Closer Look at the Rules
Thanks to the Dodd-Frank Act, the OCC is supposed to have the authority to overrule state laws. The industry is claiming that the bill would help Americans who have difficulty obtaining loans by allowing the industry to compete with Native American and foreign cash loan lenders.
“On the internet you have a tremendous amount of competition that does not play by the rules that we do,” said Mary Jackson, senior vice president at Cash America, in a Business Week interview. She also added that state regulations were “a competitive noose.”
Smelling something suspicious, state regulators view the bill as an attempt to dilute the industry.
“This is an inherently local business with very local effects,” said John Ryan, the head of the Conference of State Banking Supervisors. “There needs to be local accountability and oversight.”
Delegates from the Conference of State Banking Supervisors, as well as cash loan lenders and finance companies, testified at the House hearing.
Roughly 35 percent of the $32 billion cash loan industry profits from the year 2010 were originated online. By 2016 it is predicted that share will nearly double to 62 percent according to a Jan. 9 report by John Hecht, a former JMP Securities analyst.
Currently, states have authority over cash loan lenders inside their borders. The Dodd-Frank Act also has the authority to regulate non-banking financial companies, including the payday industry. The bill that is before the House Committee will give some oversight authority to the OCC.
“These are products and services that the OCC has largely extinguished from the national banking system, and we would not support, license, nor charter an institution concentrating in these services today,” said Grovetta Gardineer, the deputy comptroller of the currency for compliance policy, according to Bloomberg.
If passed, this new bill would not apply to loans that are for a term of less than 30 days. The industry has rather boldly presented the argument that since most payday loans are for two weeks, the legislation does not concern payday loans.
“To make extremely expensive small-dollar loans with a federal charter, all the lender would have to do is set the term for 31 days,” said Jean Ann Fox, director of financial services for the Consumer Federation of America. “That is no problem for the industry.”
The bill would also exempt loans with terms of less than a year from the Truth in Lending Act (TIL). The TIL requires lenders to reveal to customers the annual percentage rate (APR) that borrowers pay. Lenders would then be able to simply state the cost of cash loans as finance charges.
According to the Consumer Financial Protection Bureau, APRs on cash advance loans can reach a whopping 521 percent.
New Name Same Business
In an unsurprising marketing move, the $11 billion online loan industry has begun to re-label itself, at least for the purposes of the bill. Lending organizations have begun to rebrand themselves by using alternative names for payday loans. Names such as “direct deposit advances” and “checking account advances” have begun to increase in popularity.
According to a memo by Peter Barden, the spokesman for the Online Lenders Alliance, lobbyists are advised to stray from use of the word “payday” and instead use “short-term, small-dollar lending.”
Charging ahead with this marketing revamp is the political action committee for Cash America which aims to double its yearly campaign contributions from $200,000 in 2007.
On Tuesday July 31, the Missouri Supreme Court ruled that cash advance interest rates should be capped. Voters must decide on the issue on the upcoming ballot in November.
If approved in November, the interest on cash advances—as well as all other small consumer loans—lent within the state would be capped at 36 percent. The average interest rate for these types of financing is currently at a towering 445 percent.
“Missouri’s borrowers currently pay significantly more in interest on payday loans than borrowers in any other state in the nation,” said Katie Wood, a local community leader, to the Hannibal Courier-Post.
Voters are expected to vote in agreement with the Supreme Court’s decision.
“This is great news and a clear victory for the democratic process,” said Wood. “Now the voters will decide if Missourians should cap the rate on payday loans or if payday lenders can continue to run roughshod over our citizens by charging borrowers more than 400 percent interest.”
Missouri is seemingly united in driving out the industry from their borders.
“I think it’s a bipartisan issue all over this state. We have community leaders like Katie and Branson Wood in Hannibal and state leaders from every corner of Missouri united on this. This is an opportunity for justice and to help Missouri’s economy and working people,” said State Representative Mary Still in an interview with the Hannibal Courier-Post.
Commenting on the ongoing national backlash against the cash advance lending industry, Still said, “I would say this industry is on its last legs in Missouri with the high interest rates they were charging. I am thrilled about it.”
Leading the charge to push the cash advance cap onto the November ballot was the group Missourians for Responsible Lending. The group managed to obtain enough signatures to qualify for putting the issue forward. The signatures await verification and certification by state authorities but Rep. Still doesn’t believe that process will be a problem.
“We turned in 180,000 signatures-double what we needed-so I feel confident the signatures will be certified,” she said.
In Alabama, the Birmingham City Council voted to extend a ban on the opening of new cash advance loan, title loan and pawn businesses within city limits.
The first moratorium on these lending businesses was created in December of 2011. Councilwoman Lashunda Scales was the mastermind of this initiative and claimed that the city was already overfilled with these types of lenders, which strangle more positive commercial development.
“We’re trying to come up with law that would allow the number of payday lending and title lending institutions in the city. We’re looking for a permanent solution,” Scales told AL.com.
Only one council member voted against the extension. However, another voiced support for Scales and the ban.
“They’ve been working on preying on our folks longer than we’ve had time to work on this ordinance. It takes longer than a year to carefully and deliberately address the issue,” said Councilman Steven Hoyt, according to AL.com.
Cash advance loan lenders, along with their trade association, Borrow Smart, have argued that they provide a necessary service that is unfairly characterized as being harmful to city development and residents.
The lenders may have a point: Scales has long been an ardent critic of the cash advance loan industry. She has often accused them of preying on vulnerable residents as well as forcing borrowers into cycles of debt. Additionally, Scales believes that many lenders operate together in locations that make it difficult for other businesses to locate in those areas.
“The moratorium allows the city to develop a strategy that works best for the city, its citizens and industry involved,” said Scales.
The lending industry sent a representative to the meeting who spoke following the moratorium vote.
The Birmingham ban was actually based on a similar on in Midfield which also limited cash advance loan lenders within city limits.
A cash advance scam is spreading across the country. The Better Business Bureau of North East California reports that 300 people have complained about several cash advance companies from Las Vegas. These companies are allegedly using duplicate websites that are identical to one another.
Victimized borrowers claimed that they looked into borrowing cash advance loans on these websites, but never actually applied for them. Despite never completing or submitting their applications, these borrowers were still charged $30 from their checking accounts without authorization.
One woman from Sacramento claims that she viewed the websites in question and was curious about applying for a cash advance, but never completed the application. However, she soon received 75 to 100 financing solicitations. Even though she ignored these offers she found that the website still withdrew $30 from her bank account.
The names of the lenders alleged to be involved in this scam are Capital Advance Capitol, Ideal Advance, LoanTree Advances, Pacific Advances, Palm Loan Advances, Vantage Funding and Your Loan Funding.
The Better Business Bureau claims that many of these companies have poor ratings due to their weak or nonexistent responses to complaints. However, these companies do sometimes refund money to complaining customers. Strangely, these companies are also known to sometimes give gas vouchers to complaining customers.
One man in Sacramento is only interested in getting his money back.
“After they offered the voucher, I never got it. I don’t even want a gas voucher,” he told the Better Business Bureau, according to the Sacramento Business Journal.
The regional president of the Better Business Bureau, Gary Almond, says that borrowers should be cautious when sharing information online.
“If a form asks for personal information like bank account numbers or social security numbers, you may want to do a little more research on who you are dealing with before completing the form. You can never be too cautious when doing business online,” said Almond.
Fourteen people were charged in a case led by the Federal Bureau of Investigation (FBI) regarding the theft of over $1 million from Citibank. The money was stolen using cash advance kiosks at California and Nevada casinos.
According to an indictment, the defendants stole the money by exploiting a computer error in Citibank’s electronic transaction security protocols. The scam involved multiple cash advance withdraws within one minute.
The FBI, assisted by the Los Angeles Police Department and the Glendale Police Department, arrested 13 of the defendants in the Los Angeles area on Oct. 24 and 25.
Court documents state that the scheme started when defendant, 29-year-old Ara Keshishyan, recruited group members to open up several Citibank checking accounts. He supplied the members with “seed” money, which they deposited into the accounts. Afterwards, all 14 group members would travel to several casinos and use cash advance kiosks to withdraw, within 60 seconds, several times the amount of money deposited into the accounts. The money was attained due to a Citibank security gap discovered earlier. The casino cash advance facilities targeted were California’s Agua Caliente, Chukchansi, Morongo, Pechanga, San Manuel and Spa Resort, and Nevada’s Bicycle, Harrah’s, Tropicana, Wynn and Whiskey Pete’s.
After the cash was collected from the casino cash advance kiosks, Keshishyan distributed the group members’ financial cuts. Normally, the money was used to gamble at the casinos. To conceal the fraud, and avoid federal notices, the defendants kept both withdrawals and deposits under $10,000.
“While advancements in technology have created a world of accessibility to users and a convenience for consumers, they have also left room for criminals to exploit even the smallest of loopholes,” Daphne Hearn, FBI Special Agent in Charge said in a press release. “For over 100 years the FBI has kept pace with technological and communication changes in the business world where these types of electronic transactions are the standard and we will continue to do so in order to help protect commercial enterprise and our nation’s economy.”
Additional arraigned defendants include Ara Harutyunyan, Artur Harutyunyan, Vahe Asatrian, Sarkis Mooshidian, Migran Yamalyan, Seryozha Harutyunyan, Lianna Avetisyan, Ashot Oganisyan, Ovsep Sarfyan, Daniel J. Thomas, Hilda Hakverdyan, and Asatur Asatryan. One of the alleged group members, 58-year-old Levon Karamyan, remains at large.
The group members have been charged with “conspiracy to commit bank fraud and conspiracy to illegally structure financial transaction to avoid reporting requirements,” which is punishable up to five years in prison and a $250,000 fine. Keshishyan is additionally charged with 14 counts of bank fraud, each of which is punishable for up to 30 years in prison and a $1,000,000 fine.
A motions hearing is scheduled for Nov. 30 in San Diego.
Cash America, an international cash advance lender, has announced it will reimburse 14,000 customers for improperly collected funds. These funds were collected from customers in Ohio since Jan. 1, 2008.
According to a press release from the company, several employees improperly prepared court documents that were used in legal proceedings in the state of Ohio. Even though the court documents were somewhat accurate, the manner in which they were filed was not in compliance with court rules.
“We hold ourselves to the highest ethical standards. When we discovered this problem, we took swift action. First and foremost, we will take care of our customers and we are implementing rigorous measures to do so. We will also institute additional steps to help prevent this problem from occurring again,” said Daniel R. Feehan, CEO of Cash America, in the press release.
As a result of its employees’ actions, Cash America intends to reimburse all amounts received through its collection activities that resulted from legal proceedings. These reimbursements will include interest on top of their original amounts. In order to avoid a repeat of improper paperwork filing, Cash America will be hiring an independent claims administrator in order to operate the reimbursement program, which will ensure that Ohio cash advance customers receive their proper amounts.
Additionally, Cash America intends to dismiss all outstanding lawsuits filed in Ohio since January 1, 2008, due to the filing errors caused by its employees. The cash advance lender is also going to terminate any and all existing collection activities for closed cases. Finally, Cash America will notify credit agencies that certain Ohio customers do not deserve damaged ratings as a result of judgments against them, which resulted from improper legal filings.
Even though Cash America is proactively aiding its affected customers in Ohio, the cash advance business could still be vulnerable to subsequent lawsuits or punitive reprimands from regulators.
Despite its past mistakes, Cash America intends to keep state and federal regulators informed of its reimbursement program. The cash advance company estimates that the reimbursement program, along with its related expenses, will cost $13.4 million before taxes. These costs will be included in its fourth quarter financial report, which will conclude at the end of the 2012 year.
“We are deeply committed to our customers, our shareholders and our 7,000 employees who work diligently to provide the highest level of service to our communities. We are taking these steps to demonstrate our commitment to corporate integrity and community responsibility,” said Feehan.