Payday Lending News

The latest news on payday loans and the payday lending industry from the Center for Responsible Lending.

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  • San Jose City Council Votes to Cap Payday Lenders 
    Marin Independent Journal (CA) 16 May 2012
    Officials in San Jose, Calif., on May 15 made the city the largest ever to restrict the number of payday lenders and the first to stop them from setting up shop in or near low-income communities. The new ordinance allows the existing 39 payday lenders to remain in place. If one of the businesses closes, the vacancy could be filled with another lender within six months; but after that, the new lender would have to be at least a quarter of a mile away from any other lender and from poor neighborhoods. "We know these loans are not healthy decisions," remarked City Council member Ash Kalra, referring to criticism that the lenders are nothing more than loan sharks. "Putting the cap in place certainly helps."
  • Birmingham City Council Extends Moratorium on New Payday Loan Businesses 
    Birmingham News (AL) 16 May 2012
    Birmingham, Ala., has extended its moratorium on new payday loan, check cashing, and title pawn shops. The decision gives City Council until at least October to approve new rules. It established the freeze in December, including an amendment stating that that city's economic development division and planning and zoning officials would develop ways to curb "clustering" of these businesses. Councilwoman Lashunda Scales says Birmingham has too many payday loan and check cashing outlets, adding that they target vulnerable residents and send them into a spiral of debt. A gathering of too many payday lending businesses in one area may discourage other businesses from operating in the same area, she and others believe. Councilwoman Valerie Abbott said the committee has been looking into a possible modification to the zoning ordinance. Birmingham's ordinance was modeled after one in Midfield last year that limited the number of payday lending institutions to the current 12. In March, Center Point renewed its own long-standing moratorium on payday lending and title loan businesses. Because of Birmingham's moratorium, there is more interest being generated on this issue. The new federal Consumer Financial Protection Bureau chose Birmingham for the location of its first field hearing on payday lending, held this past January.
  • Military Officials Oppose Predatory Lending Legislation 
    Jacksonville Daily News (NC) 13 May 2012
    Officials with the U.S. Navy and Marine Corps have penned letters to the North Carolina General Assembly urging the lawmakers not to pass House Bill 810, which the military claims will hurt its members. The measure, which has already been approved by the state's lower chamber and now is pending in Senate committee, would amend the Consumer Finance Act so that non-bank lenders could lend up to $15,000 -- instead of $10,000 maximum currently allowed -- and charge as much as 36 percent interest for the money. Brig. Gen. T.A. Gorry, commanding general of Marine Corps Installations East, warned in his letter that the proposal would harm enlisted persons by inflating debt, compromising security clearance, creating a distraction from military responsibilities, and elevating stress. Gorry also dismissed a protection included in the bill that would require written permission from the company commander before a member of the armed forces could take out a loan, noting that there appear to be no repercussions for lenders that ignore the rule. "Furthermore," he added, "commanders will be constrained to adequately counsel troops on contractual obligations when given significant information only after the deal is completed and the borrowed funds likely committed." Meanwhile, Retired Navy Adm. Steve Abbot wrote, "We understand that the consumer finance industry has recently offered amendments purportedly intended to protect military personnel. However, we do not believe these changes are adequate, and continue to oppose this legislation."
  • New Zoning Law Squelches Payday Lenders in Ames 
    Des Moines Register (IA) 10 May 2012
    City councilors in Ames, Iowa, passed a series of rules on May 8 to effectively shut out new payday lenders. Although it is the responsibility of state governments to regulate lender interest rates, cities can restrict the businesses' growth via zoning laws. The Ames ordinance, passed unanimously, requires that payday lenders be more than 1,000 feet from schools, child care centers, other payday lenders, any land zoned for residential uses, and any arterial street. "I can’t think of an example that it would leave where you or I could go plant a payday lender," said Ames Mayor Ann Campbell. Existing payday lenders will be permitted to remain in place or be taken over by new ownership. They cannot expand, however; and if payday lending stops at one of these properties for a year, the existing lender cannot return to that same location. According to Iowa Citizens for Community Improvement, Ames is the first town in the state to restrict zoning for payday lenders this year. Des Moines, Clive, and West Des Moines approved rules against payday lenders in 2010.
  • U. Prof Joins Federal Consumer Financial Protection Unit 
    Salt Lake Tribune (UT) 09 May 2012
    University of Utah law professor Chris Peterson, a vocal critic of payday lending, will take a leave from his position to join the enforcement unit of the new Consumer Financial Protection Bureau (CFPB). The agency is tasked with regulating everything from credit cards to mortgages. Peterson has called for a warning label on payday loans marking them as "predatory" and has criticized the Mortgage Electronic Registration System, which owns more than half of all U.S. home loans and has foreclosed on thousands of Americans. "He’s one of the leading scholars on consumer finance and predatory lending," according to Deepak Gupta, an appellate lawyer in Washington. "I think he’ll be a real resource for people in the agency." Peterson also has lobbied Congress and the federal government for tighter consumer lending policies on behalf of the U.S. Public Interest Research Group. Congress created the CFPB as part of the Dodd-Frank act in reaction to the housing bubble and financial collapse of 2007. It has been in operation since mid-2011.
  • Desperate for Cash? Beware Predatory Creditors 
    Fox Business 09 May 2012
    Many unscrupulous lenders of costly loans target consumers who may not be able to repay the loan -- including the elderly, people with limited education, and those with weak credit histories -- according to the Center for Responsible Lending (CRL). Although often associated with payday loans and subprime mortgages, predatory lending practices also may be found in home improvement, auto financing, car title, and tax refund anticipation loans. An increasing number of reputable banks also offer high-cost, short-term loans, although they are usually called “account advances,” says CRL spokeswoman Kathleen Day. “These loans can have an APR (annual percentage rate) in the triple digits,” she notes. “All high-cost, short-term loans trap people. ... They are designed to make you come back over and over again for more loans.” One bank charges $2 in interest for each $20 borrowed under its "checking account advance" loan and adds a $35 late fee if it is not repaid within 10 days. A $400 loan under that scenario would cost $40, the equivalent of 365 percent APR. Predatory lenders may try to get consumers to borrow more money than they can afford, claim that bad credit is not a problem, ask a borrower to make false statements on a loan application, or ask a borrower to sign blank paperwork. These lenders also may charge excessive late penalties or put in fine print that the borrower cannot take legal action against the lender. Potential borrowers should ask certain questions before signing, such as the actual rate of interest when including all loan origination fees and prepaid interest, the loan's payoff period, and whether the loan rate will go up or reset. Consumers who believe they are caught in a predatory loan can contact the Consumer Financial Protection Bureau or consult with a legal aid attorney.
  • Bank Regulator Urged to Stop Community Choice Financial Inc., Going Public May 8, From Using Prepaid Card Payday Loans to Evade State Law 
    U.S. Politics Today  03 May 2012
    The National Consumer Law Center (NCLC) has issued a press release that sounds the alarm on an emerging predatory financial practice: providing payday loans on prepaid cards. Specifically, when Arizona imposed a 36 percent interest rate limit on payday loans in 2010, payday lender CheckSmart dodged the regulation by offering cash advances on prepaid cards issued through Florida-based Urban Trust Bank. It also has started to provide the loans, which bear annual percentage rates of 390 percent and greater, in Ohio -- which in 2008 limited payday interest to no more than 28 percent. NCLC and more than two dozen other consumer groups have responded with a letter to the Office of the Comptroller of the Currency, in which they press the regulator to stop Urban Trust Bank from issuing prepaid cards sold by CheckSmart in Arizona, Ohio, and other states where CheckSmart cannot legally make direct loans. "Prepaid cards and payday loans just don't mix," according to NCLC's Lauren Saunders. "Prepaid cards should be safe alternatives to bank accounts, not vehicles for evading state law with predatory loans that trap people, often those with the least means, in a spiral of debt."
  • Fifth Third Bank Charges Customer $300 in Overdraft Fees Without Notifying Him: Report 
    Huffington Post 03 May 2012
    According to the Consumerist, Fifth Third Bank charged a customer $300 in overdraft fees without his knowledge -- even though he was enrolled in a program that was supposed to alert him if he was overdrawn on his account. Despite being signed up for overdraft notifications, the consumer blog reports that the account holder received none. He said he was surprised to find out that he had about $300 in overdraft fees -- a daily penalty as well as a fee for each purchase -- leaving his bank account in a $700 deficit. The bank has had similar complaints recently after a man claimed the bank charged overdraft fees on an account that he had previously closed. Fifth Third settled an overdraft fee lawsuit in 2010 after allegations of high-to-low transaction ordering, which results in a higher number of fees. Additionally, according to the National Consumer Law Center, the bank is now dabbling in payday lending, charging $10 for every $100 borrowed.
  • Texas Cities Take Action to Regulate Payday Lenders 
    Texas Tribune 03 May 2012
    City councils throughout Texas are ramping up efforts to regulate payday and auto title lenders -- which critics say drag borrowers into a cycle of debt -- but are being met with opposition from industry lobbyists. Governments in cities that include Dallas, Austin, San Antonio, Brownsville, and Irving all have passed zoning ordinances to limit the growth of these businesses in their jurisdictions. Legislators pushed through statewide regulations in 2011, but many city councils did not find them comprehensive enough. Under the state law, payday and auto title lenders must post a visible schedule of fees in their businesses. Meanwhile, a dozen U.S. states have banned payday lending altogether; and others have capped the maximum loan amount, but that amount remains unlimited in Texas. While the Texas Constitution forbids annual rates of interest of more than 10 percent, payday lenders get around this regulation and charge as much as 500 percent interest by registering as "credit service organizations." Ann Baddour of the nonprofit advocacy group Texas Appleseed says, "There was a huge push to have some consumer protection ... that would reduce the cycle of debt and the huge charges that are part of [the payday and auto title lenders'] business model. Nothing that directly addresses the business model passed the Legislature last session. The cities have felt the pressure to take action." They are getting wide support from a number of statewide religious organizations, including the Texas Catholic Conference and the Texas Baptist Christian Live Commission.
  • Pesky Fees That Could Surprise You Are Out There, And They Can Add Up In a Hurry 
    Detroit Free Press 03 May 2012
    Although most consumers are familiar with annoying fees, many of them often go unnoticed. In Michigan, for example, lenders can charge a 45-cent verification fee for each payday loan transaction verified through a state database that makes sure individual consumers do not take out too many loans at the same time. Failure to repay the loans on time also attracts fees. Payday lenders can charge a returned check fee of $26.88, regardless of whether the loan was for $100 or for $600. "People can get into trouble because this can snowball into a bigger problem," according to Lisa Ross of the Michigan Office of Financial and Insurance Regulation. Some credit unions and banks charge fees of up to $5 for mail returned from an invalid address, so consumers should promptly update their addresses if they move. When buying or selling a home, the average home inspection should run about $350 to $700, but some places will try to charge as much as $1,000. Some scams try to charge individuals $20 to claim a fake sweepstakes prize, a practice that the Federal Trade Commission is cracking down on. There are also fees associated with secured credit cards, such as for raising the credit limit or a processing fee. Consumers looking to buy a car should also watch out for inflated documentation fees.
  • Payday Loan Limits Advance 
    Delaware News Journal 02 May 2012
    Legislation to regulate payday lending in Delaware passed the state House on May 1 and is moving to the Senate, where it has bipartisan backing. If passed, the new law would limit the number of short-term, high-interest loans a borrower can obtain in a 12-month period to five transactions of up to $1,000 each. The proposal also would establish a database in the Banking Commissioner's Office to track the number of payday loans and how they are repaid. Lead sponsor Rep. Helene Keeley (D-Wilmington South) and other House Democrats have tried unsuccessfully to pass a payday lending reform bill for about 12 years. Kent County Republican Sen. Colin Bonini, a co-sponsor of HB 289, said the bill has a good chance in the Senate.
  • Initiative Organizers Optimistic Issues Will Get on Ballot 
    Columbia Daily Tribune (MO) 02 May 2012
    Organizers collecting signatures for petitions to put new payday lending restrictions and minimum-wage requirements on the November ballot say they will submit nearly 300,000 signatures on May 5 -- about three times as many as required -- despite an estimated 5,000 signatures being stolen from a vehicle owned by the executive director of one of the organizers. Assuming that all signatures are deemed valid and the measures go on the ballot on election day, voters will decide whether to cap interest rates on payday loans at 36 percent. They also will cast their ballot for or against a proposal to up the minimum wage to $8.25 per hour.
  • Dueling Bills Aim to Reform Payday Lending 
    The Valley Breeze 02 May 2012
    Two bills in Rhode Island's General Assembly could reform check cashing laws there and limit the annual percentage rate charged on payday loans. State law currently allows up to 260 percent annual interest for short-term loans, a practice often called "predatory." Rhode Island is the only state in the Northeast that allows the high-interest loans. Seventeen states plus the District of Columbia have imposed annual rate caps of about 36 percent. The two Rhode Island bills, meanwhile, have stalled in legislative committees. House Bill 7588 would reduce the permitted amount of interest for payday loans to 130 percent annually, but many say the measure does not do enough to protect consumers. Rep. Frank Ferri (D-Warwick) sponsored the other proposal, which would reduce the rate cap to 36 percent. A corresponding bill in the state Senate, S-2307, has 26 signers.
  • Santa Clara County Supervisors Ban New Payday Loan Shops 
    Marin Independent Journal (CA) 01 May 2012
    On May 1, supervisors in California's Santa Clara County unanimously approved a ban on new payday loan shops in unincorporated areas. The move came after numerous consumer advocacy groups and the public decried the industry for charging excessive fees and trapping low-income and minority borrowers in a nasty spiral of debt. While the city has just one payday lender on unincorporated land, the ban will remain in place until the county's permanent ordinance takes effect in June. The council is expected to consider ordinances for the industry at an upcoming meeting.
  • Keep Out Payday Lenders: Pa. Should Not Let Them Prey on Our Most Vulnerable Citizens 
    Pittsburgh Post-Gazette 30 Apr 2012
    Under a new bill being introduced in the Pennsylvania Legislature, payday lenders would be able to obtain an exception to the state's Consumer Discount Company Act, allowing previously banned short-term lenders to return to the commonwealth. House Bill 2191 argues that to ensure that consumers do not borrow money from online payday lenders from different states, they should borrow from in-state, regulated lenders. The bill is being touted as a "consumer protection" measure. Industry lobbyists claim that active military families would have special protection, even though federal laws already protect military families from nefarious payday lending activities. While the interest on the proposed bill would be capped at 28 percent, the excessive fees would likely add up to hundreds of percentage points. The bill claims to limit roll-over loans. However, it allows borrowers to take out new loans the very next day. Despite the industry's best efforts, it is clear that the four components that define payday and predatory lending would remain intact: exorbitant rates, short payback periods, balloon payments, and automatic transfers.
  • Profits Are the Reason for Fees, Not Risk or Costs 
    New York Times 29 Apr 2012
    Consumer advocates have been warning American consumers to avoid check cashers and payday lenders by placing their money in a bank. However, they are changing their tune as some banks have become just as bad. While overdraft fees have been a problem for a while, now some banks are also making account advances, which are very similar to payday loans. The short-term loans often come with triple-digit annual percentage rates and the ability for the bank to repay itself by taking money out of the consumers' bank account. The trend of banks offering such short-term loans is spreading, leaving vulnerable members of society such as working families and the elderly to pay the price. While the banks claim the fees are due to the risk they must take to lend to consumers with poor or no credit, the loans are incredibly profitable, allowing banks to reap billions in profits every year.
  • San Jose Planning Commission Approves Payday Lending Curbs 
    Santa Cruz Sentinel 26 Apr 2012
    In California, the San Jose Planning Commission tightened its proposed restrictions on payday lenders after hearing two hours of public testimony. The proposal will be considered on May 15 by city councilors. It calls for a minimum one-quarter-mile distance between payday lending establishments, an increase from the 500-foot restriction originally proposed. Also under the changed proposals, no new payday businesses would be allowed into low-income census tracks. City staff will provide council members with information on how to pursue a cap on the number of payday lenders. Across the state, an increasing number of cities and counties are trying to place restrictions on payday lenders. San Jose currently has 38 payday lending stores.
  • City Council Votes to Restrict Payday Lender Growth 
    Your News Now  26 Apr 2012
    City councilors in Austin, Texas, have approved legislation to limit where payday lenders can open a business. Short-term loan outlets will not be permitted to open within 1,000 feet of another similar business or within 200 feet of an interstate. The decision came after a coalition of Austin faith leaders voiced its support, due to congregants suffering from high interest rates. The Austin Catholic Diocese said about $1 million in charity has gone to Texans who owe a debt to payday lenders.
  • Chasing Fees, Banks Court Low-Income Customers 
    New York Times 26 Apr 2012
    Large U.S. banks increasingly are striving to land low-income customers with alternative products that can bear high fees -- including prepaid cards, check-cashing services, and short-term emergency loans -- partly because such products are largely excluded from recent financial regulations. Kimberly Gartner of the Center for Financial Services Innovation says unbanked ...
  • San Jose and Santa Clara County City Leaders Push for Curbs on Payday Lending 
    Santa Cruz Sentinel 24 Apr 2012
    In California, South Bay officials are looking to rein in payday lending. This week, San Jose planners will consider a proposal to bar payday lenders from establishing their businesses in low-income neighborhoods. Next week, Santa Clara County supervisors will decide whether to make permanent a temporary freeze on all new payday lending stores in unincorporated areas. Although many states and the U.S. military are eliminating or restricting payday lending, the California Legislature has allowed the industry to grow. The number of payday storefronts has declined in the state in recent years, but the number of payday loans swelled from 10 million to 12 million between 2006 and 2010 and the number of customers increased from 1.4 million to 1.6 million. Many local communities are trying to amend land-use and zoning laws to make it more difficult for payday loan businesses to set up stores. In San Jose, city leaders are considering measures just short of a total ban. The current proposal stipulates that new payday business applicants would be blocked from moving into low-income neighborhoods but could open elsewhere in the city, staying 500 feet from other payday lending establishments. However, Ginna Green, spokeswoman for the Center for Responsible Lending, argued that the city already has 38 payday shops and that officials should impose stricter measures.
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