Headlines
- Payday Loan Industry Mounts PR Offensive
Consumer Affairs 31 Aug 2010
As more states crack down on payday loans, the industry is attempting to inundate the media with press releases in order to make a case for itself. For example, after the Colorado legislature passed a measure capping interest rates at 45 percent, a Web site called aboutpaydayloan.com issued a press release taking issue with the bill's provision requiring lenders to give borrower's six months to repay a loan instead of two weeks. However, Uriah King of the Center for Responsible Lending (CRL) asks how a payday customer who borrows $500 is going to be able to repay it from the next paycheck. "The answer is you can't," he says, "so you have to take out another two-week loan. That's the debt trap." It is not clear who operates the Web site that issued the press release, and many of the postings are from anonymous writers. Payday lenders also are trying to link themselves to law enforcement by associating themselves with efforts to rein in fraudulent debt collectors. Charlene Crowell, also of CRL, doubts the media barrage will work. She explains that voters typically reject payday lending practices and legislatures often have trouble getting pro-payday loan legislation out of committee. King advises consumers not to be fooled by payday lenders that offer financial advice. "Unless they tell you 'don't ever take out a payday loan,' I don't think I would be taking financial literacy advice from payday lenders," he declares.
- Higher Closing Costs May Not Be
USA Today 31 Aug 2010
Bankrate.com reports a 37 percent rise in average mortgage origination and third-party fees -- which can include costs for appraisals, credit reports, and/or a settlement lawyer, among others -- to $3,741 this year from $2,739 a year ago. Some say the fees themselves actually have not grown but rather that lenders are quoting more accurate estimates because of a new rule that leaves them on the hook for the difference between estimated and actual closing costs. The rule applies to the good-faith estimate provided by lenders pre-settlement, and HUD Deputy Assistant Director Vicki Bott says it protects consumers by deterring lenders from proffering "low-ball" numbers. Lenders also are investing more in auditors, inspectors and other compliance personnel to ensure accurate quotes -- which in turn may have inflated costs.
- New Policies Aim to Reduce Payday, Tax Refund Loan Dependency
Dow Jones Newswires 31 Aug 2010
The Obama administration will soon unveil a program through the U.S. Treasury Department's Internal Revenue Service designed to provide low- to moderate-income taxpayers with the tools they need to avoid taking out payday and refund anticipation loans. The initiative would allow the IRS to help Americans set up traditional bank accounts and have tax refunds directly deposited into those accounts, which could help steer millions of people away from high-interest loans and into the mainstream banking system. As many as 26 million taxpayers could benefit, and Assistant Treasury Secretary Michael Barr says more information about alternatives for tax refunds will be available soon. This initiative follows other moves by the administration to eliminate federal policies that play a role in risky financial decisions, the latest of which came in the IRS' decision to restrict refund anticipation loans by no longer providing tax preparers and financial firms with a key debt indicator. Research conducted by consumer advocates indicates high correlations between taxpayers who take out refund anticipation loans and those who use payday lending, as well as those who use overdrafts and credit card cash advances.
- Americans Now Owe More on Student Loans Than on Credit Cards
CreditCardGuide.com 31 Aug 2010
Credit card debt has dropped considerably over the past year and a half, falling 13.3 percent from its 2008 peak of $958.1 billion, while consumers' revolving credit dropped $4.5 billion in June alone, according to data from the Federal Reserve. In fact, consumers' outstanding balances on credit cards in June dropped below the amount owed on student loans. Americans owe $829.8 billion in student loans, compared to about $826.5 billion in credit card debt. An estimated $300 billion of those student loans have been incurred within the last four years, reflecting both the rise in education expenses as well as the inclination of many to choose to borrow money for school rather than be unemployed during today's tough economic conditions. Additionally, consumers often pay off their credit card before any other loan -- especially student loans -- because the interest rates are so much higher. Consumer advocates are especially worried about the sharp rise in student loans, which are not subject to fair lending or consumer protection practices. Student loans lack typical protections, such as statutes or limitations, truth-in-lending laws, and state usury laws; and they can turn into an intractable form of debt that stays with borrowers for a long time.
- Complaints Lead to Cease and Desist Order for Online Payday Lender
WITN TV 31 Aug 2010
The Better Business Bureau has received more than 20 complaints in the past three weeks about Select Premium Credit, a payday lender in North Carolina that has also captured the attention of the state's attorney general. Grievances are coming from people who have discovered a charge of $49.99 on their bank statements. According to the BBB, everyone who complained has applied for various payday loans online and provided sensitive information, including their bank account number and their digital signature. The North Carolina attorney general's office has issued a cease-and-desist order against the company. Beverly Baskin, President and CEO of BBB serving Eastern North Carolina, offered a warning to consumers: "The bottom line is if you are handing over your bank account information online to get a payday loan without doing your research, you are setting yourself up to pay hundreds and even thousands of dollars more than you bargained for."
- Texas Attorney General Charges Home Loan Servicer With Violating State Debt Collection Laws
North Texas e-News 31 Aug 2010
Texas Attorney General Greg Abbott has charged American Home Mortgage Servicing Inc. (AHMS) with using illegal debt collection tactics and improperly misleading struggling homeowners. According to investigators, AHMS agents used aggressive and unlawful tactics to collect payments and failed to credit homeowners who remitted payments on time. AHMS agents also have been accused of falsely claiming that homeowners did not make payments on time in order to justify profitable late fees or escrow accounts. They also reportedly failed to properly credit homeowners after withdrawing funds from the homeowners' checking accounts. This unlawful conduct often led to homeowners defaulting on their loans, which led to foreclosure proceedings. The attorney general has charged AHMS with multiple violations of the Texas Debt Collection Act and the Texas Deceptive Trade Practices Act (DTPA), and the state is seeking civil penalties of up to $20,000 per violation of the DTPA.
- Be Skeptical of Health-Care Credit Cards
Washington Post 31 Aug 2010
Thousands of dentists are offering health-care credit cards with tempting payment options, but many of the card companies and some of the practitioners who offer the cards are under scrutiny for deceptive and sometimes fraudulent practices. New York Attorney General Andrew Cuomo has initiated an investigation into the health-care lending industry after receiving hundreds of complaints, and Minnesota Attorney General Lori Swanson sued two clinics last year for signing patients up for credit cards without their consent and charging for services not yet provided. A California law that took effect in January, meanwhile, prohibits dentists from charging fees before services are performed. According to patient advocates and investors, people often are unaware that they are applying for a credit card; and more unpleasant surprises arrive when they get they card. Consumers who do not pay off the debt within the specified time frame often are slapped with interest charges exceeding 25 percent on the entire amount, and some have discovered charges for work that had not been done yet. Teaser and promotional rates are still allowed under the new credit card regulations, which also do not address the issue of charging prior to the completion of services. More people are struggling to cover medical bills as health care costs continue to rise, and the best option is the simplest: as for an extended payment plan, which many providers will offer without high interest rates.
- Furor Erupts Over Colorado Payday-Lending Regulations
Denver Post 30 Aug 2010
Controversy has arisen in Colorado surrounding recently passed payday lending regulations, as two Democratic lawmakers behind the overhaul accuse the Republican attorney general's staff of favoring lenders when it comes to fees. A.G. John Suthers' office is tasked with devising regulations that cap what lenders can charge on six-month loans; and Democrat Stan Garnett, who is engaged in an election bid against Suthers, has accused Suthers of improperly accepting campaign donations from lenders. Sen. Rollie Heath (D-Boulder) is defending Suthers' office, saying that the legislation is exactly as it was intended to be. Denver Democrats Rep. Mark Ferrandino and Sen. Chris Romer, who sponsored the bill, disagree. Their original intent with the legislation was to require lenders to refund a portion of the loan-origination fee to borrowers who repay their loans on time, but the modified and final version of the bill said the fee would not be refundable. The whole of the legislation became tough to decipher as a result of contradicting amendments that were added in the final days.
- Late Payments on Auto Loans Fall in 2nd Quarter
Associated Press 30 Aug 2010
TransUnion reports that the rate of auto loan payments 60 days or more past due slipped to 0.53 percent of outstanding auto loans in the second quarter, compared to 0.73 percent a year ago. The drop in the auto loan delinquency rate mirrors declines in late credit card and mortgage payments. Separately, new loans written during the second quarter rose 18.7 percent, reflecting an uptick in car purchases and a move on buyers' parts to take advantage of automakers' aggressive sales promotions. Delinquency rates rose in three states but were below the national average in 28 states and the District of Columbia. According to Peter Turek, automotive vice president in TransUnion's financial services group, the lingering effects of the recession will have a bigger impact in some regions given the close correlation between unemployment and auto loan payments. TransUnion expects the auto delinquency rate to rise to about 0.6 percent by year-end.
- State Payday Loan Fight a Madigan Family Affair
Chicago Sun-Times 30 Aug 2010
Efforts to crack down on payday lending in Illinois were rewarded last spring with the passage of a law setting new limits on the interest rates lenders charge and expanding the state's tracking system to ensure that consumers are not borrowing more than they can repay. At the forefront of the legislation were members of the Madigan family: state Attorney General Lisa Madigan, whose staff drafted the measure; her father, House Speaker Michael Madigan (D-Chicago), the Illinois Democratic Party chairman, who endorsed the bill and voted for it; and lobbyist Jordan Matyas, who helped the A.G.'s staff write the legislation and has since married the speaker's daughter. Now, Matyas' client, Veritec Solutions, which will track payday loans and other unsecured loans for the state of Illinois, stands to make a large profit. The company expects its business to grow by as much as 900 percent after the new legislation takes effect on March 21. Payday lenders have circumvented previous restrictions on interest rates by lengthening the terms of the loans -- meaning they could charge more and also did not have to report to Veritec -- and Veritec hired Matyas to help address this loophole. The new legislation will create two new kinds of short-term consumer loans, set new caps on interest rates, and require short-term consumer lenders to report all of their loans to Veritec in order to help state officials ensure that consumers do not borrow more than 25 percent of their gross monthly income.
