Tag Archives for " Payday "
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 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.
September 21, 2011 – One scam that many payday lenders use to target consumers is by illegally requiring employers to take money out of the borrower’s wages to pay back the loan. The Federal Trade Commission (FTC) seeks to end this activity by frequently charging these companies in court.
One such case occurred near the beginning of the month against South Dakota lender Padyday Financial, LLC, which operates Big Sky Cash and Lakota Cash. This company sells short-term, high interest, unsecured payday loans of between $300 and $2,525 throughout the U.S. It was charged with allegedly illegally garnishing consumer wages when they failed to pay the balance on a payday loan with the company.
Garnishing wages, according to the U.S. Department of Labor, is when “an employer is required to withhold the earnings of an individual for the payment of a debt in accordance with a court order or other legal or equitable procedure.” Private companies like payday loan stores need a court order, while government agencies do not.
The FTC’s case states that Payday Financial, LLC, sent documents that were similar to those used by federal agencies to ask employers to take these funds out of borrowers’ paychecks when they failed to repay their loans.
According to a press release from the FTC, “the complaint further alleges that the defendants have violated the FTC’s Credit Practices Rule by requiring consumers taking out payday loans to consent to have wages taken directly out of their paychecks in the event of a default, and have violated the Electronic Funds Transfer Act and Regulation E by requiring authorization for electronic payments from their bank account as a condition of obtaining payday loans.”
This is not the first of such charges levied by the FTC. For example, in September of last year it accused Ecash and GeteCash and the defendants settled in the case.
Former Google executive David Merill is now trying his run at payday lending, according to DailyFinance.com.
His new site, Zestcash.com, “uses some fairly high-level Google-esque algorithms to assess its borrowers’ creditworthiness,” according to DailyFinance.
From using traditional factors like payment history to exploring new frontiers that Merill feels are revealing, such as a borrower’s cell phone plan, Zestcash hopes to gauge a borrower’s likeliness of paying a loan back.
But Merill is receiving a lot of criticism for venturing into what many see as a questionable business.
Payday loans have been the recipient a lot of ill-attention in recent years, particularly by politicians looking to pass legislation limiting loans’ high interest rates.
“As high unemployment and falling wages continue to push more Americans into poverty, financial innovators like Merrill are on the lookout for new ways to milk profits out of this demographic,” says Huffington Post reporter Catherine New.
Merill’s website defends itself by claiming Zestcash loans are not payday loans.The site claims its borrowers set their own payment, can make small payments over time, and offers rates up to 50 percent lower than most payday lenders.
But ultimately its loans still have an annual percentage rate (APR) of nearly 400 percent—very similar to that of payday loans.
Zestcash loans’ APR then rises if a borrower is late on payment since late fees are administered.
Currently, Zestcash loans are only available to those states with no maximum interest rate: Missouri, Utah, Idaho and South Dakota.
Martin J. Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), gave a recent speech that covered some of the FDIC’s steps taken to curb the harmful effects payday loans have had on lower-income and minority families.
After determining “7 percent of U.S. households [who] do not have bank accounts, and another nearly 18 percent who may have an account still utilize non-bank financial services such as check cashers and payday lenders,” as stated by Gruenberg, the FDIC is shifting focus to “expanding access to insured financial institutions to all Americans.”
The measures the FDIC has begun to take include the testing of a project recommended in the past: the Small-Dollar Loan Pilot Program.
This program’s aim is to provide banks with a business model that would allow them to offer the same services payday lenders offer, but to allow those services to be profitable to both borrowers and banks alike.
The loans offered by this program are for $2,500 or less, have a term of 90 days or less, and carry an annual percentage rate (APR) of 36 percent or less. They have low origination fees, if any, and banks’ decisions to offer the loans are to be made within 24 hours of receiving an application.
Gruenberg reported that after testing the program on 28 volunteer banks, the Small-Dollar Program “demonstrated that banks can offer safe, affordable small-dollar loans as an alternative to high-priced sources of emergency credit.”
He said the FDIC is “hopeful that the results of the testing will encourage more banks to offer such products.”
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.
As a result of a new disclosure law in Utah, payday lenders were forced to disclose some previously hidden information from their books. According to the Salt Lake Tribune, Utah payday lenders say 99.9 percent of their loans are paid off before they reach their rollover limit of 10 weeks.
These payday loan lenders claim those numbers are evidence that their loans are not traps, but rather a needed and well-used service that the public as a whole benefits from.
Wendy Gibson, a regional manager for Check City and a spokeswoman for the Utah Consumer Loan Association of payday lenders, said “[That percentage] matches my experience with my customers and sounds about right. Almost everyone pays off their loans before reaching day 70. That shows we loan to people who can afford them,” as reported by the Salt Lake Tribune.
But critics are wary of those statistics.
According to Utah’s small-claims court records, payday lenders sue an average of 11,600 loan defaulters every year. If those lawsuits represent the 0.1 percent of loans not paid off, then that means payday lenders issue 11.6 million loans a year.
While Utah does not require the disclosure of the total annual number of payday loans issued, a payday lending report done in Washington State reveals that Washington’s payday lenders issued an average of 2,944,291 payday loans annually between 2000 and 2009—nowhere near the 11 million that Utah’s lenders claim.
To explain these numbers, Jerry Jaramillo, a supervisor at the Utah Department of Financial Institutions, said the disclosure law went into effect halfway through the year, so payday lenders’ computers may not have been set up to properly track their loans for a entire year.
He said “The real test will be what they report next year,” according to the Salt Lake Tribune.
Payday Loan Yes, Fast Cash Advance, and Nationwide Cash Inc., all had suits filed against them at the end of November by Missouri’s Attorney General, Chris Koster.
These three payday companies belong to two parent companies: Global Payday Loan LLC and Ambassador Financial Services Inc.
These payday lenders have failed to register with the Missouri Secretary of State and the Missouri Division of Finance, yet have been still lending money to Missouri borrowers.
Missouri law monitors payday lenders and makes them adhere to strict guidelines, such as interest rate caps, fee caps, and limits on how often a consumer can roll over a payday loan. Without registering with the Division of Finance, however, the state cannot successfully monitor the practices of the lenders.
“Requiring payday lenders to register with the Missouri Division of Finance will help ensure these lenders are complying with the laws and regulations of the state of Missouri,” said Koster, according to the press release on the Missouri Attorney General’s website.
Koster is seeking to issue and immediate halt in issuing of loans to the payday lenders in question until they have properly registered with the state and obtained appropriate licenses for lending in the state of Missouri. Koster is also seeking to have all origination fees, late fees, and interest the companies have gained to be issued back to the consumers who used their services.
None of the websites of the payday lenders in question are prohibiting loans to Missouri yet.
The Attorney General is asking anyone who has borrowed from one of these lenders to contact his office’s consumer hotline at 1-800-393-8222, or file a consumer complaint on his official website.
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.
Indian tribes may have found an industry outside the arena of casinos and gambling. A reservation located deep in Montana is pioneering the way for its other sovereign counterparts as it begins a new venture in the world of payday lending.
Neal Rosette, Chippewa Cree’s former executive administrative officer, and now the CEO of Plain Green Loans, felt this was the perfect time and the perfect industry to break into. “We are sovereign nations and we have the ability to create our own laws that regulate our businesses such as this,” he said to The Associated Press.
Comments such as that are what scare consumer protection groups though. Payday loans are commonly viewed as the most notorious of all forms of borrowing. Consequently, consumer advocates have struggled to pass regulations on this business, and continue to struggle pushing new restrictions every day. But on Indian reservations, most consumer protection groups will have little to no say on what kinds of laws can be passed since reservations are considered sovereign.
The Chippewa Cree tribe has responded to anticipated opposition by claiming they are not offering payday loans. Rather, they say their loans are paid off over a period of several months in two week or four week installments.
Critics say that’s nothing but semantics. Payday loans aren’t necessarily defined by being paid off in two weeks. Rather, the nature and annual percentage rate (APR) of the financing is what defines this type of borrowing, and the money offered by Plain Green Loans is given at an APR of 360 percent—right on par with many typical payday loan offers.
To further prove this point, Plain Green Loans itself posts an example of a $600 loan paid back in 12 bi-weekly payments. By the time consumers pay this loan off, they would have shoveled over $1,261.32—more than twice the amount they borrowed.
This act of creating lending establishments with loans offered at very high rates, yet shying away from the “payday loan” title has been a growing trend. Within the last year, former executive of Google, Douglass Merrill, started a new online lending company called ZestCash. With APRs ranging from 200 to more than 400 percent, Merrill still boldly places a “This is not a PayDay Loan” link on the company’s homepage.
While Plain Green Loans holds on to the claim it’s not a payday loan lender, and despite the fact it has comparable APRs, the tribe is also following the typical route of public disapproval. After less than a year, the Better Business Bureau has already received 20 complaints and rated the company with an F.
“That’s part of this industry—complaints—regardless of you are,” responded Rosette to the AP.