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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 North Carolina couple shared their horrible payday loan experience involving high interest, misrepresentation, and financial hurt with ABC News. But their experience wasn’t entirely negative, as from this mess a happy ending emerged.
Donna Seese and her husband found themselves in economic trouble as they were unable to afford even the most necessary of purchases.
“We were looking for basic necessities,” Donna told ABC. “You know gas money, food money.”
So the struggling couple sought help in the form of a cash advance, but found payday loans were illegal in their state. Instead of turning to a loan shark, they used their computer and sought an out-of-state lender online.
They found AdvanceMeToday.com, a website featuring a setting sun as their logo and a homepage with beautiful, lush green fields shown behind crystal clear window. The Seese’s said they told the representative they needed $300.
“What they charge is 30 percent per hundred dollars. So in reality, the total balance due would be $390,” explained Donna. “So, what’s going to happen is, you’re going to see a $90 debit come out of your account on every paycheck until the loan is paid off. And so I was like OK, that sounds fair.”
So every paycheck, Donna began seeing $90 removed from her bank account. After the fourth $90 payday loan installment was removed, Donna called a rep to make sure she would only see a $30 charge removed come her next check.
“He said, ‘Your $90 payments that you’ve been making have all gone to interest,’” said Donna.
Feeling misled, Donna didn’t realize that her $90 payments were never being made on the original $300 balance. Rather, the $90 every two weeks were the charge for what’s referred to as a payday loan rollover. AdvanceMeToday was charging her $90 simply to have that $300 balance unpaid.
When Donna complained about this mechanic, AdvanceMeToday withdrew the fill $300 from her bank account, amounting to a total of $660 for the original loan of $300.
After paying over 100 percent in interest for this payday loan, Donna approached North Carolina’s Attorney General, Roy Cooper. Since the payday lender was granting services to a state that had barred such forms of financing, Donna was able to dispute the $300 withdrawal, and had that money returned to her account by her bank.
Ultimately, the couple shelled out $360 for the payday loan, totaling only $60 in interest
A rising online bank claims it will crush student loan debt through its new reward program.
The online bank is called SmarterBank, which was created by the financial aid firm SimpleTuition.
SmarterBank is offering free checking accounts, free debit cards, ATM access at 40,000 locations, and online bill pay services. But the really interesting offer from the online bank is a program called SmarterBucks, which lets users accrue rewards through normal spending. The rewards can then be put towards existing student loan debt.
“Total student loan debt currently stands at $1 trillion and growing,” said Kevin Walker, co-founder and CEO of SimpleTuition, in a statement. “Add to that a poor job market and it paints a challenging picture for graduates and our society as a whole. We built Smarterbank as a revolutionary way for students and graduates to start chipping away at their student debt.”
Those enrolled in the SmarterBucks program will find themselves earning rewards dependent upon how much they spend. They will earn:
Over the course of normal spending, wherein groceries, gas, and entertainment are purchased every week, students and graduates can start to see their SmartBucks accounts grow in size. That money can then be diverted to student loan payments.
Additionally, family and friends can also contribute to an individual’s SmarterBucks account.
The bank claims that paying a mere $10 extra a month on a 10-year, $8,500 student loan at 6.8 percent interest can save a borrower up to $1,500 in interest and cut the term down by 16 months.
If a borrower makes extra payments of $50 a month, they can reduce their term by 51 months, and save up to $5,000 in interest.
The SmarterBucks program allows borrowers who typically don’t have any extra money to put towards their student loan to earn extra money meant for exactly that.
California financial regulators announced several warnings this week regarding the proliferation of illegal online payday loan lenders offering their services to state citizens.
The consumer alert, which appeared on the California Department of Corporations’ (CDC’s) website, said that many of these lenders who offer bad or no credit payday loans fail to include the annual percentage rate (APR) of the financing they offer. APR is used as a standard measure of a loan’s true cost, and an APR figure is required to be blatantly visible on all lending offers, payday loans included.
Additionally, it warned of an increase in harassing debt collection practices.
“Unlicensed payday lenders are becoming more aggressive in their collection techniques,” said Corporations Commissioner Jan Lynn Owen in the alert. “We’ve heard of payday lenders hiring collection agencies and contacting employers and threatening to report to credit agencies. The department is taking action to shut down illegal lenders and protect consumers whenever we discover the violations.”
So far, nine payday lending companies have been targeted by the CDC:
Payday loans, also called short-term loans, no credit loans or cash advances, are used by borrowers who need money quickly. These financing options have very relaxed requirements, as virtually anybody with a checking account and a steady income can qualify. It’s precisely due to this financial availability and ease of access that industry advocates claim these no credit payday loans need to exist. But industry opponents claim these products are predatory at best, financially lethal at worst.
California law currently limits a single cash advance’s interest rate to 15 percent. However, that’s only a 2-week interest rate. If stretched out and expressed on the same timeline as most other loans’ interest rates, that 2-week, 15 percent restriction permits payday loans to be offered at an APR of 390 percent.
Compare that to the average APR of 30-year fixed mortgages, which currently hovers around 3.5 percent.
Industry supporters, however, argue that APR shouldn’t be used to judge their products. Their claim rests on the fact that no credit payday loans are designed to be short-term and repaid quickly. Since they’re not meant to be stretched out for a full year, APR shouldn’t be the unit of measurement used for this type of borrowing.
For all of their downfalls though, most do agree that there is a place for bad credit financing in our society.
“We understand that there is demand for small-value loans from many consumers,” said the Consumer Financial Protection Bureau (CFPB) on their website. “But we want to make sure that consumers understand the consequences of their decisions and are protected from risks that may be inherent in these products.”
An October deadline is fast approaching for California victims of Money Mart and Loan Mart’s abusive retail and online payday loan business practices to claim money.
In 2007, San Francisco City Attorney Dennis Herrera filed a consumer protection lawsuit against Money Mart and Loan Mart alleging the two companies committed fraudulent business practices that abused borrowers.
According to the lawsuit, Money Mart and Loan Mart marketed their short-term loans at exorbitant and illegal interest rates. A judge ordered that Money mart and Loan Mart pay customers up to $7.5 million.
The settlement requires the company to pay restitution to victims in amounts ranging from $20 to $1,800. Eligible claimants are those who borrowed retail or online payday loans from Money Mart and Loan Mart between 2005 and 2007.
Under the terms of the settlement Money Mart and Loan Mart must forgive a total of $8 million in retail and online payday loans that is owed by California borrowers.
The parent company of Money Mart and Loan Mart must also pay the City and County of San Francisco $875,000.
While Money Mart and Loan Mart are required to make “reasonable efforts” to locate eligible claimants, Herrera’s office is also authorized to continue efforts to locate victims before the October 1st deadline this year. Efforts have been ramped up in the three months before October to locate possible claimants that have moved or misunderstood letters informing them of the settlement.
“Bringing justice to victims of predatory payday lending means working aggressively to maximize restitution to all the low-income and moderate-income Californians who deserve it,” said Herrera in a news release from the Office of the City Attorney of San Francisco.
Herrera also made a point of giving attribution to other prominent officials working on behalf of the retail and online payday loan victims. “As we approach the final 60-days of our outreach effort, I’m very grateful to be joined by City Treasurer Jose Cisneros, whose leadership established more affordable alternatives to predatory storefront lenders. I’m also very thankful to labor and community leaders like Tim Paulson, Mike Casey and Michael Pappas who have also agreed to take part in our important task.”
Despite the settlement, Money Mart and Loan Mart still maintains offers online payday loans in addition to maintaining a number of retail stores across the country.
Borrowers who may be victims of Money Mart and Loan Mart can contact the San Francisco City Attorney’s office to complete a claim form.
Borro, a new online pawnbroker, is offering secured personal loans ranging from $1,000 to $1 million.
A secured personal loan is financing that is lent after a borrower offers up collateral. Any item of value that a lender agrees to is collateral. In the event that a borrower cannot repay a collateralized loan then the collateral will be seized and sold by the lender in order to make up for the lender’s lost money. As many people who are familiar with pawnshops know, examples of collateral include jewelry, cars, and memorabilia.
Borro offers loans that are secured against jewelry, fine art, classic cars and even wine collections.
While Borro originally launched in the UK back in 2008, it has only just begun operations in the US this year.
This expansion has been made possible by Borro’s meteoric growth of 650 percent in its first six months of existence. According to Business Wire, Borro “has essentially created a new category of online loans [called] Personal Asset Lending.”
Customers of Borro are able to get their money within 24 hours. Similar to payday loans, Borro does not evaluate credit scores or conduct credit checks. Instead, borrowers must only submit their collateral. If the valuable asset is small enough, Borro will provide a mail-in packet that can be returned to them via mail.
Once Borro receives an applicant’s collateral, they are able to evaluate it. Borro utilizes expert appraisers that determine the value of any objects they receive. After evaluation, Borro wires money to applicants’ bank accounts. These secured personal loans carry a monthly interest rate of 4 percent and an annual percentage rate (APR) of53 percent. Borro claims that their secured personal loans are usually repaid in three months.
If an interested borrower has collateral that is too large to simply mail in, Borro can dispatch expert appraisers that will visit the home or location of the borrower and collateral.
Between February and May of 2012, Borro lent $2 million in secured personal loans.
In the second week of October, Borro announced that it had secured $26 million in venture capital from Canaan Partners. The lender plans to use the money to expand operations in the U.S. and the U.K. while increasing its range of products.
“This investment comes at a pivotal time for Borro. The new funding will allow us to accelerate growth in the U.S. and U.K. as the leading online lending and liquidity marketplace for luxury personal assets,” said founder Paul Aitken to Business Wire.