Payday Lending News
The latest news on payday loans and the payday lending industry from the Center for Responsible Lending.
- Nationwide Pew Survey Challenges Conventional Wisdom on Payday Loans
MarketWatch 18 Jul 2012
Pew Charitable Trusts has released a new report, "Payday Lending in America: Who Borrows, Where They Borrow, and Why." In it, the organization calculates that U.S. consumers spend $7.4 billion annually on payday loans, forking out interest at an average of $520 per borrower for eight $375 loans or extensions. Payday loans often are considered a "last resort," but a majority of short-term borrowers cited several alternatives they would use if payday loans become unavailable. Nick Bourke, project director for Pew's Safe Small-Dollar Loan Research Project, notes that while payday loan regulations have effectively curtailed storefront operations, they have not prompted consumers to seek such loans online. "In states that restrict storefront lending, 95 percent of would-be borrowers have elected not to use payday loans at all. Just five percent went online or elsewhere," he reports. Pew's survey about payday borrowing found that most users are employed, white, female, and 25 to 44 years old. A disproportionate amount of consumers who use payday loan products, however, lack a four-year college degree, are home renters, are African American, earn less than $40,000 annually, and are separated or divorced. Pew also discovered that most consumers use payday loans for everyday living expenses -- including shelter and utilities -- rather than for emergencies.
- AG Sues Company Over Collecting on Payday Loans
Arkansas News Bureau 17 Jul 2012
Arkansas Attorney General Dustin McDaniel has filed a lawsuit against National Credit Adjusters, alleging that the Kansas-based collection agency illegally tried to collect on payday loan debts in his state. The action claims the firm violated the Arkansas Deceptive Trade Practices Act when it sought to collect on debts from payday and high-interest installment loan debts. In 2008, the state's high court declared that lenders charging high fees for short-term loans were in violation of the state’s 17-percent limit on consumer loan interest. By August 2009, all payday lenders in Arkansas had closed. “Though we have successfully shut down storefront payday lenders, we will continue to aggressively pursue online lenders who violate Arkansas law or collection agencies like this that attempt to collect on illegal debt,” McDaniel said in a news release. He is petitioning the court to order National Credit Adjusters to cease actions that violate Arkansas law, cancel outstanding usurious loan contracts, and refund Arkansas consumers any money collected for payday or high-interest installment loans.
- Restrictions on Payday Lenders Get City Staff OK
Iowa City Press-Citizen 16 Jul 2012
Iowa City, Iowa, staff have made recommendations for keeping payday lenders from setting up shop within the municipal limits. The Iowa City Planning and Zoning Commission will discuss the suggestions governing “delayed deposit services,” as the Iowa Code refers to them, during a July 19 meeting. David Goodner, community organizer with Iowa Citizens for Community Improvement, called the city’s recommendation “a step in the right direction.” Staff have suggested zoning changes to confine deposit service businesses to community commercial zones and require at least 1,000 feet of separation between new and existing payday lenders. Lenders would have to be licensed by the state of Iowa to open within city limits. Iowa City currently has half a dozen payday lenders. The city's senior planner, Robert Miklo, said that similar restriction ordinances have been implemented in Des Moines, West Des Moines, Ames, and Clive.
- Our View: Stop New Payday Lenders
Gadsden Times 16 Jul 2012
Birmingham, Ala., in December put a moratorium on licensing additional payday lenders in effect and in May extended the freeze for another six months. An editorial in the Gadsden Times suggests that a similar move should be considered locally. A recent public hearing in Gadsden, initiated by the Southern Poverty Law Center (SPLC), attracted about 25 attendees. The organization is collecting testimonies to be passed on to the federal Consumer Financial Protection Bureau. Councilman Deverick Williams expressed hope that such public hearings will encourage the state legislature to reform regulation of the lending industry, including a full ban on payday lenders. Industry representatives says that short-term loans can help individuals who need small amounts of money quickly but cannot obtain the loans at traditional banks. The SPLC counters, however, that such loans cost Alabama residents roughly $225 million a year that could be otherwise used for living expenses. In conclusion, the Gadsden Times piece notes that while some payday lenders are more nefarious than others, "the lack of regulation in Alabama is something that needs to be addressed. A city moratorium in the meantime is better than nothing."
- DoD May Expand Breadth of Military Lending Law
Air Force Times 16 Jul 2012
Defense officials may widen their interpretation of the 2007 Military Lending Act, which limited interest rates at 36 percent for small-dollar loans to service members and their families. The law, however, limited regulations to payday loans, vehicle title loans, and refund anticipation loans as well as “closed-end” loans — a single advance of credit over a fixed term. It does not apply to credit cards, bank overdraft lines of credit, and any open-end payday or auto title loans. Some lenders are taking advantage of these limited definitions, according to the Consumer Federation of America. Army Col. Paul Kantwill, director of the office of legal policy in the Office of the Undersecretary of Defense for Personnel and Readiness, discussed the issue in a testimony given June 26 before the Senate Banking, Housing, and Urban Affairs Committee. He said, “While they [Department of Defense officials] concur that the act has largely stamped out the majority of abuses, they still report seeing payday loans and auto title loans charging more than the statutory cap on interest ... or lenders modifying products or procedures to avoid falling under that act." Before DoD alters the law, it will publish an advance notice in the Federal Register to receive feedback from various sources.
- Organizations Join CLC in Fight to Regulate Payday Lenders
The Baptist Standard 25 Jun 2012
More than three dozen organizations representing consumers, financial institutions, low-income communities, and the elderly have joined Texas Faith for Fair Lending and its efforts to push for new state laws that regulate auto title and payday lenders. Texas Faith for Fair Lending, a coalition that includes the Texas Baptist Christian Life Commission (CLC), has concentrated on the controversial issue of payday lending, since church leaders noticed that payday loans hurt struggling individuals and families. "When a desperate borrower takes out a $4,000 auto title loan, pays $1,200 a month for months on end and never pays it off, something is terribly wrong with the law," said CLC Director Suzii Paynter, speaking on behalf of Texas Faith for Fair Lending. "This type of predatory lending hurts Texas families and is a clear moral issue of concern for our pastors and congregations." The new joint coalition reported that 75 percent of surveyed registered Texas voters support legislation to lower consumer costs on small-dollar loans. Eighty-five percent of respondents favored capping interest rates on payday and auto title loans at 36 percent APR or less. Public perception of these loans is largely negative. Many of these organizations say that short-term loans unfairly target low-income families, military members, and seniors. In January, new laws took effect in Texas to license payday and auto title lenders for the first time in the state.
- Ga. AG Takes Action Against Payday Lenders
Legal Newsline 21 May 2012
Under pressure from Georgia Attorney General Samuel Olens, three payday lenders have agreed to stop doing business in the state. Georgia law explicitly bans payday lending -- including over the Internet -- but Payday Financial LLC, Green Billow LLC, and Western Sky Financial LLC claim to be owned and operated under tribal authority. They offered loans of $300 to $2,525 to borrowers in Georgia and the rest of country, via Web sites and television advertising. According to Olens' office, however, if a company conducts business in Georgia, then state law is applicable. "When it comes to payday lending in Georgia, there is no gray area," Olens declared. "It is unquestionably illegal in any form. We will not stand for unscrupulous, out-of-state lenders taking advantage of Georgia consumers by skirting our laws."
- Payday Loan Bill Headed for Debate
Delaware Online 17 May 2012
The Delaware Senate is preparing to debate legislation to more tightly regulate and monitor payday lending in the state. House Bill 289 was approved in the chamber's banking committee on May 16. This legislation would limit the number of short-term loans a consumer can take out to five $1,000 loans per 12-month period. It also would establish a database to track the number of payday loans issued annually, the total amount of interest and fees paid on the loans, and the number of borrowers who default. Bill sponsor Rep. Helene Keeley (D-Wilmington South) said that payday loans are meant to be short-term financial fixes, but high interest rates and loan roll-overs keep many borrowers in severe debt. Sen. Colin Bonini (R-Dover South said he's "as pro-business as it gets," but also said that HB 289 is necessary. He once paid $3,600 in cash to settle a family member's spiraling payday loan debts, he revealed, although the principal was between only $800 and $1,200.
- Millennials Use Alternative Financial Services
13WMAZ.com 17 May 2012
Individuals in the Millennial generation -- who are often underbanked -- are turning to alternative financial services such as payday loans, check cashing, and prepaid debit cards. Think Finance, which develops financial products for the underbanked population, found in a survey of 640 Millennials that half of those in the lowest income group used a prepaid debit card in the past year. The percentage was the same, however, as those in the highest income bracket. About 34 percent of Millennial with the lowest income reported using check cashers, compared to 29 percent of those with the highest income. Survey respondents who made more money used certain services at higher rates than those who made less money, such as payday loans and overdraft protection. Think Finance CEO Ken Rees says many consumers in this generation lack financial literacy and savings but have high debt and poor credit, which makes the convenience of these alternative services more attractive. A 2009 survey by the Federal Deposit Insurance Corporation found that nearly half of young adult households, those ages 15 to 34, are considered underbanked.
- 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.
- 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."
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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."
- 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.