Tag Archives for " Loan "
September 8, 2011 – Payday loans can offer short-term financial relief for borrowers strapped for cash, but as debate on a new California bill has pointed out, they can also put borrowers deeper in debt while stacking on high interest rates and fees.
California lawmakers are discussing a bill (AB 1158) written by Assembly Majority Leader Charles Calderon (D-Whittier) that would amend the current state laws to increase the maximum amount borrowers can receive.
Current law sets the maximum payday loan at $300, with a cap for lender fees at 15 percent of the loan. For a two-week loan, this fee amounts to a 460 percent APR. According to the bill, California is tied with one other state for the lowest cap among the states that allow payday financing.
“California is one of the most costly states in which to live, and yet the state has one of the lowest advance limits in the nation,” bill advocates said.
Among the bill’s supporters are members of the payday lending industry, the California financial Service Providers’ Association and the Community Financial Services Association. Opposition includes Center for Responsible Lending, California Reinvestment Coalition and the city of San Diego, among a variety of others.
One concern the opposition has voiced is that borrowers can take out more than one payday loan at a time. Existing state legislation, enforced by the Department of Corporations, limits a payday lender from granting a borrower more than one at a time; however, it does not prohibit a borrower from taking out a loan from a different company to pay off another.
Lawmakers on both sides are advocating changes to the bill to make it more effective, such as considering income-based limits and repayment plan options. Also up for debate, according to an article in the Los Angeles Times, is requiring lenders to assess a borrower’s financial situation before giving them a loan, and also limiting the number of loans a borrower can take out each year.
Many are also concerned with the borrowers’ ability to pay back these larger sums in a short period of time. In the Assembly’s third reading of the bill, opposition said, “Increasing the amount of debt payday borrowers owe will only increase the likelihood that payday borrowers will not be able to pay off the loan at their next payday and will be more likely to land in the debt trap.”
AB 1158 is currently in a Senate Judiciary Committee and debate is ongoing.
September 8, 2011 – After three years of higher loan limits in some areas, the Federal Housing Administration (FHA) announced in August that single-family home loan limits will be lowered starting Oct. 1. This change is in accordance with the Housing and Economic Recovery Act (HERA) that was passed in July 2008.
The Economic Stimulus Act passed in February 2008 under President George W. Bush raised limits for home loans insured by the FHA to 125 percent of the median house price in the area. This was an effort to “mitigate the effects from the economic downturn and the sharp reduction of mortgage credit availability from private sources,” according to a May market analysis from the U.S. Department of Housing and Urban Development.
While initially the new loan limits stipulated in the HERA were set to take effect in January 2009, financial strains in the credit market delayed congressional implementation until now. The loan limits beginning on Oct. 1 will be in effect until Dec. 31, 2011. The floor loan limit in low cost areas will stay at $271,050 for one-unit properties, while the ceiling limit in high housing cost areas will change from $729,750 to $625,500, or 115 percent of the median house price (whichever is lower).
The new loan limits will take effect in the highest cost metropolitan areas in the country, which amounts to 669 counties out of the 3,234 total in the U.S. in which the FHA insures home loans. According to the FHA, loans in these areas accounted for about three percent of loans granted last year. Any loans insured by the FHA before Oct. 1, 2011 will not be affected by these new limits, including streamline refinance loans. Limits in Hawaii, Guam, the Virgin Islands and Alaska are higher than in other areas because of higher construction costs.
September 16, 2011 – Continuing its forage into the private student loan industry, Discover Financial Services announced early this month that it plans to purchase $2.5 billion in private student loans from Citigroup.
This move, announced on Sept. 1 and set to go through by the end of the month, comes after Discover purchased Citigroup’s 80 percent share of its private loan business, The Student Loan Corp, in January of this year and a large volume of accounts from the company’s portfolio – an acquisition totaling $4.2 billion.
In addition, Sallie Mae purchased $27 billion of SLC’s federal student loans and assets and Citibank also purchased $8.7 billion. SLC is a top-three originator of private student loans in the U.S. and has more than 50 years of experience in the industry.
In this sale, Citigroup retained $8.7 billion in unguaranteed assets, although it says it plans to continue to shrink those assets over time. For Citigroup, the newest portfolio sale is part that initiative, which involves shrinking its “bad bank” assets, or City Holdings unit, of which the SLC was a part.
Most of the new portfolio is comprised of school-certified loans for students at a four year college and about 80 percent of the loans have already entered repayment. Student loans are often less risky for lenders because students are more likely to pay them back. Discover reported that it only wrote off 0.51 percent of loans on an annualized basis in the second quarter of this year.
In its last fiscal year, Discover reported that it made almost $5 billion in private student loans. It says it expects to become the nation’s third largest originator of private student loans this year.
The third quarter or 2011 held a slightly higher rate of auto loan delinquencies than the second quarter, according to The Associated Press.
The delinquency rate is characterized by borrowers who are 60 or more days late on an auto loan payment. In the second quarter, 0.44 percent of car loan holders were labeled delinquent. In the third quarter (June to September) 0.47 percent proved delinquent.
But the credit reporting agency TransUnion says this increase is likely nothing to worry about—instead it can be attributed to typical yearly patterns and holiday pressures.
In fact, TransUnion’s automotive vice president of financial services Peter Turek said this current rate is near historically low levels. Before the recent recession, the delinquency rate for auto loans rested between 0.44 and 0.71 percent. And when compared to other loans’ delinquency rates, the sub 1 percent auto rate is miles lower than the real estate world’s 5.88 percent, according to TransUnion.
To explain this huge difference though, one can look at how the operating procedures of both industries varies. Auto loan lenders won’t hesitate to repossess a vehicle if payments are late by a few months. Mortgage lenders, on the other hand, have to go through the long and cumbersome foreclosure process to repossess a home. Also, many states declare mortgage loans as non-recourse, meaning lenders cannot legally pursue mortgage defaulters for the remainder of what they owe, whereas auto loan lenders usually can.
Even though mortgage delinquencies are high, and may continue to rise, TransUnion offers an optimistic forecast for auto delinquencies, predicting they will remain at the current low level throughout the next year.
Jason Cox, a staff sergeant from Georgia, is suing Community Loans of America, a lender who offers a service similar to payday loans, for charging far above the allowed annual interest rate on a military loan, according to The Associated Press.
This Fort Benning soldier claims he took out a loan for $3,000 for a trip to pick up his daughter. Within a year, his loan cost him more than $4,000 in interest alone. That amount of interest far exceeds the rates allowed by measures established to protect service members from predatory lending.
But Community Loans of America knew they were sidestepping those measures. “ID TYPE: GA, Military ID” is written directly on Cox’s loan documents.
And despite his military status, Cox’s loan carried an annual interest rate (APR) of 109 percent.
To put that in perspective, according to a Federal Reserve statistical release, the average APR on personal loans in 2011 was less than 12 percent.
After defaulting, the lender repossessed Cox’s car, leaving him without a vehicle and a balance of $4,100—a balance higher than the loan principle itself after more than a year of $375 monthly payments.
The soldier’s lawyer, former Georgia Gov. Roy Barnes, believes more soldiers have been victimized by Community Loans of America, who has over 900 stores in 22 states. As a result, he is pushing to have this suit gain class-action status.
Military personnel have been common targets of predatory lenders because military law prohibits soldiers from defaulting. Consequently, lenders would charge higher interest rates to soldiers since they knew soldiers would avoid default at all costs. In order to cut down on this lending behavior, the Military Lending Act was passed in 2007.
But military advocates are unsure how effective this act has been.
Chris Kukla, a representative from the Center for Responsible Lending, feels the military would be better protected if the laws established for military personnel applied to the entire public.
He explains, “The only way you’re really going to be able to protect [the military] is to have that protection apply across the board,” as reported by the Associated Press.
Eighteen people were charged today in a $1.9 million auto loan scheme in Queens, New York, according to a report by the New York Daily News.
The suspects would take out car loans on high-end cars such as Escalades, Mercedes-Benzes, Maseratis and BMWs by using straw borrowers—stand-in borrowers whose information is used to pull loans out while concealing the real borrowers’ identities in exchange for compensation. Then after obtaining the vehicles, loan payments would cease, and the real borrowers and cars would disappear.
Among those involved in this scheme was Ronda Richardson, who works for the U.S. Treasury’s inspector general’s office.
Another recently-publicized individual was the alleged leader of this operation, Andre Dickenson, a 31 year-old who was charged earlier this year in a double-murder that took place at NFL player Jonathan Vilma’s Condo.
The suspects ultimately purchased 50 vehicles, one of which was a 2008 Porsche Cayenne that was used in Dickenson’s double-homicide.
After the scammers disappeared with the vehicles, the auto dealers and straw borrowers were held liable for the remainder of these large auto loans.
“Unfortunately, [the straw borrowers] wound up with ruined credit, multiple banks suing them for money, and suspended driver’s licenses for unpaid parking tickets on vehicles they allegedly own,” said Queens District Attorney Richard Brown as reported by the New York Daily News.
The straw borrowers were apparently lured into the scam with $2,000 payment and a promise the loans would be paid off, resulting in their credit score growing stronger.
Police Commissioner Raymond Kelley warns about any offer like this, saying “If you think that [is] too good to be true, you’re right,” according to the New York Daily News.
Wells Fargo announced Thursday that they will be offering lower interest rates on student loans. But their rates are still nearly half a percent higher than federal student loans.
As reported by The Associated Press, Wells Fargo’s basic undergraduate student loan rates dropped from 7.75 percent to 7.24 percent. That decrease is significant, but doesn’t even come close to 6.8 percent federal loan boast.
The new, lower rate is also only available to those with pristine credit scores. For those students (or parents) who have bad credit, the bank’s loans can carry rates of nearly 14 percent.
Aside from rate differences, though, private student loans continue to pale in comparison to federal loans since they lack the benefits the government-backed forms of financing come with. One of those benefits federal loans continue to entice borrowers with private loans miss out on is the forgiveness of all student debt after 25 years—or just 10 years if a student becomes a public service worker.
But Wells Fargo is clearly making efforts to alleviate their pained borrowers. They also announced a reduction of 0.25 percent to 0.51 percent on existing fixed rates for financing used for community college, used by a borrower with a career, held by parents, and for consolidation loans.
Additionally, if borrowers are eligible for a San Francisco bank note, they may be able to receive an additional rate reduction. Wells Fargo loan holders can receive up to a 0.50 percent reduction on new loans through the San Francisco notes, according to The Associated Press.
With the emergence of two recent (but separate) Occupy Student Debt movements, this may be an attempt to begin winning back public affection.
Personal loans issued by the Small Business Administration (SBA) reached new heights at the end of November, as the SBA announced the amount of money they lent from the date they were established surpassed $50 billion.
“Since the agency’s founding in 1953, the agency has made more than 1.9 million low-interest disaster loans worth more than $50 billion to homeowners, renters, nonprofit organizations and businesses of all sizes,” said the SBA Associate Administrator James Rivera in an SBA press release.
It has offered over $36 billion in disaster relief loans in the past 22 years alone.
The SBA issues low-interest personal loans to businesses and inhabitants of areas affected by disasters. Among those disasters the SBA has provided help was the Northridge Earthquake in 1994, the Upper Midwest Floods in 1997, Hurricane Ivan in 2004, and the 2005 Gulf Coast Hurricanes.
Recently, the SBA has been offering personal loans to counties and states who have suffered from storm, wind, rain, and drought conditions.
“Over the years SBA’s disaster assistance program has made it possible for small towns and large cities to rebuild, saving jobs and supporting the long-term economic recovery of areas that would have otherwise failed without help,” explained Rivera.
Disaster loans are the only SBA-backed personal loans that are available to non-businesses. They allow homeowners to borrow up to $200,000 to repair or replace damaged real estate. Individuals may borrower up to $40,000 to cover personal, non-real estate related property.
These personal loans are also made available to nonprofits of any size. These organizations can receive up to $2 million to repair business and personal property.
“The SBA’s disaster loan program, with its low interest rates and reasonable terms make it possible for disaster victims to handle the cost of rebuilding and take the steps necessary to prevent the risk of being hit by a similar disaster,” said Rivera in the release.
The amendment SB 462 was pre-filed last Thursday. SB 462 amends Missouri laws relating to unsecured loans of $500 or less.
This amendment was proposed by Sen. Joe Keaveny, and designed to target the payday loan industry. It plans to stop payday lenders from “rolling over” unsecured payday loans of $500 or less more than once.
The act of “rolling over” loans is what has given the industry such negative public attention. Most consumer protection advocates don’t have a problem with a 15 percent interest rate on the two week term most payday loans carry. But it’s when they’re rolled over, or renewed, several times over that causes advocates to protest the existence of these loans.
When consumers find their payday loans rolling over, they often approach another payday lender for a loan to pay off the initial loan.
As explained on Keaveny’s website, “borrowers can become engulfed in a mountain of debt with no means of escape.”
Currently, Missouri law allows this form of financing to roll over a maximum of six times. SB 462 would limit the number of rollovers to a maximum number of once.
SB 462 would prohibit payday lenders from making loans to those with a payday loan already outstanding. The amendment also seeks to force these lenders to disclose certain measures to consumers before signing any contract. Some of those disclosures include the loan’s duration, due date, and amount of interest and fees that will be charged throughout the duration of the payday loan.
Keaveny has a long-standing history of working in the banking industry. He managed high-income portfolios and worked with the U.S. Securities and Exchange Commission for US Bank before becoming a Senator.
If SB 462 is enacted, it is scheduled to be effective on August 28, 2012.
A car loan borrower named Larnell Pillow is accusing his lender of destroying his marriage over missed payments.
Pillow took out an auto loan from a company called Prestige Financial Services when he had a stable job as a crane operator. He made timely monthly payments, and grew close to his lender, revealing personal information in casual talk. One piece of information disclosed to the lender was that Pillow had a girlfriend.
But this seemingly trivial fact was important because Pillow also had a wife and kids.
When Pillow lost his job, his girlfriend paid a few of his auto loan bills. But when Pillow wasn’t able to acquire money and he fell behind on his loan, the harassment and blackmail began.
When harassing threats failed to yield payment, the lender called his house phone and left a message naming Pillow’s girlfriend. That message was received by Pillow’s wife, prompting her to gather the kids and leave.
Pillow confronted the collection agent about the message and the agent allegedly replied with, “Now we know a pressure point to use on you.” Leveraging such a “pressure point” is what David Boyd, Pillow’s attorney, calls “sexual-scandal blackmail.”
Pillow never satisfied the auto loan payments so he surrendered the car to Prestige, and now his wife purportedly wishes to divorce him.
“[The calls] turned my world upside down. I’d lost my job. Then I lost my wife and kids. It’s just the domino effect,” said Pillow in the interview.
Prestige Financial Services refused to provide comment to the ABC News reporter, saying “Prestige Financial Services has not yet been served with a copy of the complaint and it is not in a position to address the merits of the lawsuit. Prestige does not comment on pending litigation.”