Clips Roundup: April 3, 2015

Payday Clips
April 3, 2015

Editorial: Usury in Alabama – end it
The Anniston Star
March 27, 2015, (AL)

Payday loan borrowers would have 6 months to pay under Alabama Senate bill
By Mike Cason,
April 1, 2015

What the CFPB’s New Proposals on Payday Loans Mean to Consumers
By Brian O’Connell, Main Street
April 2, 2015

Postal banking could make the postal system’s troubles worse
By Charles Lane, Washington Post
April 1, 2015

Will the Fed Ever Be Able to Stop Payday and Other High-Cost Lenders?
By By Paul Kiel, Pacific Standard
April 1, 2015

Thursday’s letters: Title loans meet a need
Tampa Bay Times
April 1, 2015

Barack Obama: Payday loan stores now more prevalent than McDonald’s and often ‘trap people in cycle of debt’
By Bruce Alpert,
March 30, 2015

Regulating payday loans is tougher than it sounds
By John Norris, Montgomery Advertiser
March 30, 2015

Feds target abusive payday collection practices
By Jim Mitchell, Dallas Morning News
March 30, 2015, (TX)

Potential Big Changes Coming To Payday Loans
By Jim Abath, WAFF
April 2, 2015

Inside the new federal payday loan rules
PBS Newshour
March 29, 2015

President Obama Visits Birmingham Laying Out His Plans for an Issue that Birmingham City Councilors Have Long Had Concerns for
Birmingham Times
April 3, 2015 (AL)

New lending service helps people curb payday-loan debt
By Jon Collins, MPR News
April 2, 2015 (MN)

Advocates Want Better Protections Against ‘Predatory’ Payday Lending
By Jo Ingles, Ohio Public Radio
April 2, 2015, (OH)

Faith leaders and advocates for the poor are calling on the federal government to do something to reform payday lending
Columbus Dispatch
April 2, 2015, (OH)

Critics of payday loans applaud federal bureau’s proposed rules
By Jim Siegel, Columbus Dispatch
April 1, 2015

Consumer Protection Agency Seeks Limits on Payday Loans
By Logan Koepke, Equal Future
April 1, 2015

TV Clip from Cincinnati, OH
March 31, 2015, (OH)

Editorial: A chance to rein in payday loan abuse
Los Angeles Times
March 31, 2015

Expanding payday lending hurts, not helps, consumers
By Stephanie Bowman, Seattle Times
March 28, 2015

CUs Aim to Get Members out of Payday Loan Cycle, CFO Says
March 30, 2015

Editorial: Usury in Alabama – end it
The Anniston Star
March 27, 2015

Payday lenders are legal, profitable and ubiquitous. In Alabama, they are as common as houndstooth. Calhoun County offers proof.

At their best, they serve a purpose for Alabamians who need a short-term loan to fix their car or pay an overdue bill. At their worst — which is all-too common — they charge customers exorbitant interest rates that can reach 456 percent. Placing the blame on customers who allow payday loans to roll over and drive up their debt is both heartless (from a humanitarian standpoint) and wrong (from a political one).

Such blatant usury shouldn’t be allowed at any banking institution, be it a payday lender or a national bank.

That basic message came Thursday from the mouth of President Barack Obama during his visit to Lawson State State Community College in Birmingham. The president spoke kindly of proposed federal guidelines on payday lenders. We doubt, however, that a majority of Alabama’s legislators would agree with him.

The reason’s obvious. Alabama has suffered from a predatory lender problem for years, and the state Legislature hasn’t solved it. A few well-intentioned lawmakers have tried to push bills through the Statehouse that would cap that interest rate at 36 percent. We’ve championed those bills for years. But they haven’t passed.

So here Alabama sits, with a glut of payday lenders whose advocacy groups say they are invaluable to the state’s economy and its residents. Those advocates say low-income or cash-strapped Alabamians often have nowhere else to turn (which can be true) and that a majority of the lenders would close if lawmakers installed an interest-rate cap. That also may be true, yet that doesn’t answer the obvious question: Why are businesses that charge interest rates that can reach nearly 500 percent legal in Alabama?

We’ll tell you why. Because Montgomery is weak. Because the lobbying buddies of payday lenders are vocal. Because at the end of the day, too few legislators will put their signature on a bill that would limit how much interest these predatory businesses can charge their customers.

Sen. Arthur Orr, R-Decatur, has a bill in the Legislature this spring. It would establish a six-month minimum term for payday loans. That’s certainly better than the current setup, in which loans can now come to term in less than two weeks.

We strongly urge Calhoun County’s delegation to join forces with Orr and bring real reform to payday lending in Alabama. Only cowardice will keep it from happening.

Payday loan borrowers would have 6 months to pay under Alabama Senate bill
By Mike Cason,
April 1, 2015

Payday loan companies would have to give customers at least six months to pay off loans under a bill that cleared a committee in the Alabama Senate today.

Sen. Arthur Orr, R-Decatur, said his bill is modeled after the law in Colorado and would help protect consumers while not hurting the availability of payday loans.

For years, legislators have considered proposals to cap interest rates on payday lenders, who can charge annual percentage rates of up to 456 percent on loans as short as 10 days.

Consumer groups have pushed legislation to cap rates at 36 percent, but the payday loan industry has successfully fought those proposals.

Lenders say the default rate is so high they could not survive without the triple-digit rates.

Orr said his proposal is a compromise that might have a chance.

“Maybe the public will let their legislators know they want something done on this,” he said.

Orr said the maximum APR for a six-month loan under his bill would be 115 percent.

Orr said he hoped to strike a balance that would allow lenders to stay in business while helping prevent borrowers from getting stuck in a cycle of debt.

Stephen Stetson, a policy analyst for Alabama Arise, said Orr’s proposal would be better than the current law. But he said Arise and other groups would continue to lobby for the 36 percent cap.

During his visit to Birmingham last week, President Barack Obama said new regulations proposed by the Consumer Financial Protection Bureau would help payday loan customers.

But the federal bureau has no authority to cap interest rates.

Ten states, including Arkansas, Georgia and North Carolina, ban payday loans, according to a study by Auburn University’s Raymond J. Harbert College of Business.

Six states place no cap on payday loan interest rates, and 30 states allow triple-digit rates, according to the Auburn study.

A Senate committee approved Orr’s bill on a 10-1 vote, with two abstentions.

It moves to the Senate.


What the CFPB’s New Proposals on Payday Loans Mean to Consumers
By Brian O’Connell, Main Street
April 2, 2015

The federal government, via the Federal Consumer Protection Bureau, is getting increasingly aggressive on oversight of the payday loan industry.

Noting that 80% of payday loans in the U.S. last year resulted in the need for another loan within 14 days, the consumer watchdog agency is looking to reform the industry’s model. It wants “payday, auto title and installment lenders to review a borrowers’ ability to repay a loan in full and on time without additional borrowing.”

“The evidence shows that payday loans are easy to get into and hard to get out of,” says Tom Feltner, director of financial services at the Consumer Federation of America. “An objective assessment of a borrower’s ability to repay a loan based on their income and expenses promises to end the financial hardship that inevitably follows abusive lending.”

Additionally, the CFPB wants to stop payday loan companies from bypassing the rules it creates by crafting loophole loan products in response.

The agency also cites “abusive collection practices” from lenders in its call for reform. The CFPB says payday loaners routinely relies on post-dated checks and electronic access to bank accounts for consumer payments. Such payments often trigger bank account overdrafts, costing consumers more money. To remedy that, the CFPB is proposing a “two-attempt limit” for payday lenders to collect on a loan.

The proposals come on the heels of a speech by President Barack Obama last week in Birmingham, Ala., that was critical of current payday loan business models — especially on industry vetting practices. “If you lend out money, you have to first make sure that the borrower can afford to pay it back,” Obama said.

Payday lenders don’t see things the same way.

“I sat on a U.S. Chamber of Commerce legislative advocacy committee that publicly opposed legislation to effectively outlaw payday lending,” says Michael L. Morrison, founder of Montana-based Michael L. Morrison Marketing. “In our research the committee learned that, while the rates are egregious when calculated at an annual rate, most of the loans are made on a fee basis for a short term. The high costs come into play when borrowers continually renew the obligation, which is not uncommon.”

There is a need for payday lenders that is not met by banks and credit unions, and many of the consumers who resort to payday lenders are often considered unbankable, Morrison says.

“Until there is a dependable alternative, the elimination of payday lenders risks making life more difficult for the poor,” he adds.

Kurt Helwig, president and chief executive of the Electronic Funds Transfer Association, agrees that the CFPB shouldn’t come down too hard on payday lenders without a decent alternative for consumers. “We don’t really have an official position on those rules,” Helwig says. “That said, given the fact that there is clearly a market for payday loans, I would be concerned about what options a consumer in need of such a loan would have were these loans to be effectively regulated out of existence. As is often the case with regulations, it is important to be mindful of the unintended consequences.”

Maybe Ram Palaniappan, founder of Palo Alto, Calif.-based Activehours, has the most unique idea on the subject: Change how employees are paid. His firm has a vision of a future without payday loans, but it’s not through regulation of the existing system. “We want to get rid of payday loans altogether,” Palaniappan says. “We want to make payday every day.” Activehours estimates that $1 trillion of all employee income is kept out of the reach of employees between payment cycles, and its mobile app could allow hourly employees access to their pay without a fee or interest.

— Written by Brian O’Connell for MainStreet



Postal banking could make the postal system’s troubles worse
By Charles Lane, Washington Post
April 1, 2015

With President Obama’s strong support, the Consumer Financial Protection Bureau has launched a regulatory crackdown on payday lending, the short-term, high-cost loans that lower-income people use to cope with cash crunches — at the risk, critics say, of trapping themselves in a cycle of unpayable debt.

The question is, what’s the practical alternative? Payday lending is a $50 billion per year business because there’s a demand for it. People who can’t get quick cash from a storefront operator might turn to loan sharks, and nobody wants that.

To many progressives, including the bane of payday lenders, Sen. Elizabeth Warren (D-Mass.), at least part of the solution is to turn the U.S. Postal Service into a financial institution, with the authority to provide small-dollar loans at reasonable rates — as well as an array of other services, including savings accounts.

Mark Dimondstein, president of the American Postal Workers Union, says the post office could be a “public option” for the quarter of the population that the Federal Deposit Insurance Corp. identifies as being disconnected either totally or partially from the financial system.

The idea has a certain superficial appeal. Brick-and-mortar post offices already dot the landscape, often in areas where there is no bank branch; their staffs already sell money orders, a bank-like function. Postal buildings could be retrofitted and postal employees retrained.

Postal banking exists in other industrialized democracies; it began in Britain in 1861, and the United States itself had a version of it between 1911 and 1967.

Yet postal banking’s long history should actually be a red flag: Can we really resolve the cash-flow issues of the 21st century’s “under-banked” population based on a business model from the 19th century?

Giving this mission to a troubled, federally backed legacy institution would short-circuit potentially beneficial innovation by the private sector, including both existing financial institutions and “disruptive” newcomers. (Yes, postal banking also undermines check-cashing liquor stores and pawn shops, a desirable goal if you buy into the stereotype that these are unscrupulous exploiters, as opposed to family-run small businesses, that the government would be crushing.)

Advocates tout prepaid debit cards and bill payment as potential postal bank products. Maybe, but they would have to beat American Express’sServe cards, say, or PayNearMe, a smartphone-based, cashless payment system that people can use at FamilyDollar and 7-Eleven — and even to pay rent. Interestingly, a recent FDIC survey noted that “underbanked households were more likely to have access to smart phones . . . than the general population.” Anyone really think the post office can keep up in this space?

At bottom, though, the problem with postal banking is a certain inherent tension between its policy objectives: Is the primary purpose to help low-income people, or is it to help the postal service make more money to offset the irreversible decline of its bread-and-butter business, first-class mail?

Supporters say “both,” which simply shows that they learned nothing from the last great federally backed effort to make money by cheapening credit for the masses, Fannie Mae.

Payday lenders don’t charge high fees and interest, or encourage revolving credit, because they’re evil — or because they face burdensome overhead costs that a postal bank would not, as is sometimes claimed. They do it because unsecured lending to borrowers who have no assets and little earnings is a highly risky business, and they have to compensate for those risks.

Indirect proof of this comes from a two-year FDIC pilot project, begun in February 2008, to test whether banks could offer lower-cost small-dollar loans as an alternative to payday-lending establishments. A report by Bretton Woods, a consulting firm, summarized the results: “It is clear that, on a stand-alone basis, these loans were not profitable to originate, underwrite and process.”

These same costs and risks, more or less, would face the Postal Service, too. If it couldn’t charge small-dollar borrowers enough to offset them, it would have to raise the money from other customers, like bulk mailers, or ordinary first-class letter-writers or, perhaps, taxpayers.

All of this would occur under the watchful eye of the Postal Service’s master, Congress, which is, in turn, acutely responsive to postal system “stakeholders” — a.k.a. lobbyists.

Indeed, postal banking would add a group — postal banking customers, or, more likely, public-interest organizations speaking for them — to that list of constituents. For its part, the bank lobby would suddenly acquire a defensive interest in postal service legislation.

Postal banking, in short, could exacerbate the fundamental cause of the postal service’s problems: dysfunctional, overly politicized governance.

Come to think of it, that’s the fundamental cause of a lot of our problems.



Will the Fed Ever Be Able to Stop Payday and Other High-Cost Lenders?
By Paul Kiel, Pacific Standard
April 1, 2015

If there’s any industry that has mastered the art of the loophole, it’s high-cost lending. When faced with unwanted regulation, lenders are well-practiced at finding an opening that will allow them to charge triple-digit interest to their customers. As we have reported, they’ve been playing a giant, ongoing game of whack-a-mole with regulators and lawmakers in states across the country over the past decade or so.

Here’s only a partial list of dodges that have been employed over the years by payday and other high-cost lenders: posing as a credit-repair organization, posing as a mortgage lenderusing a bank as a frontusing a Native American tribe as a frontoffering cash for free to hook borrowerslengthening loan terms when rules targeted short-term loans, larding loans with useless insurance.

But after fights in cities and states across the country, the industry now faces its most powerful foe yet. The Consumer Financial Protection Bureau, created by the 2010 financial reform bill, has the authority to regulate high-cost loans on the federal level for the first time. And last Thursday morning, the agency unveiled a first draft of new rules that would sharply reduce the number of payday loans made in the country. You can expect lenders to respond by opening up their playbook.

They won’t have to study too hard. The new rules come with clear, ready-made gaps.

The CFPB acknowledges its rules fall short. “The Bureau is not seeking to identify all potentially unfair, deceptive, or abusive practices in these markets in the proposals under consideration for this rulemaking.”

The simplest and most comprehensive way for the CFPB to prevent lenders from charging sky-high interest would be to, well, prohibit them from charging sky-high interest. But Congress blocked the CFPB from setting an interest rate cap. So instead, the new rules focus on preventing borrowers from renewing loans over and over.

typical payday loan—borrowing $350 with a fee of $45—is due in full after two weeks. But if the borrower can’t pay the full $395, then the lender accepts just the fee. Two weeks later, the situation is repeated. This often happens for months on end.

To stop this cycle, the CFPB’s proposal would give lenders an option. Either they can actually check to make sure borrowers can afford the loans or they can face restrictions on how often they can renew a borrower’s loan. The restrictions would essentially prohibit lenders from making more than six payday loans to a borrower in a year.

What would such requirements do to the industry? According to the rough estimates CFPB provided in a lengthy analysis, if payday lenders had to underwrite their loans, they would be forced to cut their lending by about 70 percent to 80 percent. If lenders opted to restrict the number of renewals, the number of loans would drop by around 60 percent. And that would certainly send many lenders reeling.

Predictably, the industry is critical of a proposal that, if enacted, would slash profits. Dennis Shaul, head of the Community Financial Services Association of America, an industry trade group, said in a statement that payday lenders were “disappointed” in what he described as the CFPB’s rush to judgment.

The rules do not end there, and here’s where they get slippery. The proposal also would cover longer-term loans, which the CFPB defines as loans stretching longer than 45 days. But unlike the rules for short-term loans, these are limited to only high-cost loans with certain characteristics.

As a result, a lender could avoid being covered by these rules at all—allowing them to renew high-cost loans all they like—by offering a loan that lasts at least 46 days, as long as it doesn’t have the covered characteristics. Payday lenders have been moving to longer-term loans for years, largely in anticipation of a crackdown on shorter-term products.

The CFPB has its reasons for choosing this approach. The rules target what the CFPB views as the two riskiest types of longer-term loans for borrowers. The first type involves loans where the lender collects payments through access to the borrower’s bank account. The second involves loans where the borrower puts up title to their car as collateral. In those situations, borrowers risk having their bank account raided or car repossessed if they fall behind.

But there are plenty of high-cost loans that don’t have those characteristics and leave borrowers vulnerable. Two years ago, we reported on World Acceptance, one of the largest installment lenders. The company charges annual interest rates that can exceed 200 percent and often keeps borrowers renewing loans over and over. Its practices would be largely untouched by these new regulations. Moreover, installment lenders are often extremely aggressive in pursuing debtors who fall behind, including filing lawsuits as a means to garnish debtors’ wages.

The CFPB acknowledges its rules fall short of comprehensiveness. “The Bureau is not seeking to identify all potentially unfair, deceptive, or abusive practices in these markets in the proposals under consideration for this rulemaking,” it states in the analysis released last Thursday. Rather, the bureau says more rules are to come, including separate rules governing lenders like World Acceptance. The CFPB is certainly aware of World and related companies: it actually opened an investigation of World last year which has yet to conclude, according to a recent company statement.

This federal game of whack-a-mole seems likely to last years. The rules put forward Thursday must still wend their way through a lengthy approval process that will likely take many, many months. It could be years before the new rules are actually enforced. And sometime in the indeterminate future, the CFPB says it will get around to the gaps those new rules leave open. Meanwhile, you can expect high-cost lenders to exploit every gap and possibly discover other loopholes yet to be recognized.



Thursday’s letters: Title loans meet a need
Tampa Bay Times
April 1, 2015

Letters to the editor offer a significant contribution to the discussion of public policy and life in Tampa Bay. To recognize some of that work by our most engaged readers, the Times will select a letter of the month and the writers will be recognized at the end of the year.

Help us choose from the nominations for letter of the month for March by visiting the website listed below by Sunday. Read through the three letters and vote on the ballot at the bottom of the web page. We will choose the finalists each month based on relevance on topical issues, persuasiveness and writing style. The writer’s opinion does not need to match the editorial board’s opinion on the issue to be nominated. But clarity of thinking, brevity and a sense of humor certainly help.

To see the three March nominees and vote, go to

‘Payday’ loan proposals may help borrowers March 27

Title loans meet a need

I generally support President Barack Obama’s attempts to rebuild America’s middle class. His minimum wage, reduction of banking and credit card fees, and tax initiatives make sense to me.

His recent support for the Consumer Financial Protection Bureau’s proposed rules regulating payday loans and vehicle title loans troubles me. Several years ago I worked in the vehicle title loan industry in Oregon and Georgia.

Back then, these loans were commonly written with an annual percentage rate of 300 percent. That may seem outrageous; it certainly did to me before I entered the industry. Let me explain why it is not.

The customers of short-term, high-interest lenders represent a market, and market forces set the rates. These customers typically have few, if any, credit options due to bankruptcy history, failed loan repayment history or terrible credit ratings. I often found that the people using these loans had nontraditional employment: seasonal workers, independent contractors in construction, general laborers, caregivers, etc. Many had undocumented cash incomes.

Working for a scrupulous lender allowed me to explain the expense of the loan, to outline loan extension and repayment options, and to make it clear that failure to repay would put the ownership of their vehicle in jeopardy. My customers generally weren’t stupid, just broke.

Could the payday loan and vehicle title loan industry continue to be profitable with a reasonable cap on annual percentage rates? Let the states in which they operate decide. But limiting loans to only those whose incomes are verifiable, and capping the loan amount at $500 will not work for many people in need of this loan service.

Timothy Bailey, Tampa



Barack Obama: Payday loan stores now more prevalent than McDonald’s and often ‘trap people in cycle of debt’
By Bruce Alpert,
March 30, 2015

WASHINGTON — The Obama administration is proposing new rules to regulate payday loans, which it says too often lead consumers into a long “cycle of debt.”

In his weekend radio address, President Barack Obama says the goals of the new rules are simple: requiring payday loan businesses to “make sure that the borrower can afford to pay it back.”

In Alabama, where the president visited last week, he said “there are four times as many payday lending stores as there are McDonald’s” restaurants.

“But while payday loans might seem like easy money, folks often end up trapped in a cycle of debt,” Obama said. “If you take out a $500 loan, it’s easy to wind up paying more than $1,000 in interest and fees.”

The concept behind payday loans is simple enough. Sometimes people have immediate bills they need to take care of, and need a loan until their next pay check. That can work fine, despite high interest rates, if people pay the loans back in a week or two — upon receipt of their next pay check.

But too often, according to the Consumer Financial Protection Bureau, which is now receiving comments on its proposed new rules, people end up extending the initial short term loans for much longer periods, and paying extra fees and high interest rates over long periods of time. Many times the consumers can’t ever get out of that initial debt, bureau officials say.

The proposed rules would first require payday loan businesses to make sure that consumers applying for loans are actually in a position to pay them back and to offer consumer affordable repayment options. The rules would also limit the number of loans a consumer can take out over a year.

“These common sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them,” said Consumer Financial Protection Bureau Director Richard Cordray.

The rules would apply to payday loans, vehicle title loans, deposit advance products as well as some high-cost installment loans and open-ended loans.

In Louisiana, some organizations, including AARP, are also asking the State Legislature to impose new regulations to protect payday loan consumers.

The association representing many of the payday businesses warned that over regulation can force many of their members out of business, denying a financial tool that has helped many Americans out of temporary financial problems.

“Payday loans represent an important source of credit for millions of Americans who live from paycheck to paycheck,” said Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA) “The traditional banking system alone does not adequately serve 24 million underbanked households, according to the Federal Deposit Insurance Corp.

He said his association wants the Obama administration to consider two factors as it moves forward with regulations.

“First, new rules must achieve the delicate balance of preserving consumers’ access to credit, while enhancing consumer protections,” Shaul said. “Second, new rules should be grounded in rigorous research, not anecdote or conjecture, to determine how any regulations might impact borrowers’ financial welfare.”

In Congress, Republicans approved budgets last week that would give it yearly votes on the spending levels for the Consumer Financial Protection Bureau, which they warn has taken too onerous a regulatory approach since its creation following the financial crisis of 2008. Currently, the agency’s funding comes from Federal Reserve fees paid by banks and other financial institutions.

“Washington should not dictate the specific financial decisions consumers and families must make every day,” said Sen. David Perdue, R-Ga. He said the effort by Republicans to conduct oversight over the consumer agency is “just a first step in reining in overreaching regulators who have been acting outside of any congressional approval.”

The Obama administration contends Congress is trying to block meaningful regulations intended to protect consumers from abuse.

“As Americans, we believe there’s nothing wrong with making a profit,” Obama said in his weekly radio address. “But there is something wrong with making that profit by trapping hard-working men and women in a vicious cycle of debt.”

Last week, Pew Charitable Trusts said in a report that car title loans are just as dangerous as the small, high-interest payday loans they are modeled after.



Regulating payday loans is tougher than it sounds
By John Norris, Montgomery Advertiser
March 30, 2015

This week, President Obama was in Birmingham, and had some words about payday loan places. This industry seems to be under attack, so why don’t they just reduce their rates to more reasonable levels?

I don’t make it a habit, but I have borrowed money from my teenage son when I have been short on both cash and time. Without fail, I repay him the next day plus the $1 he requires. Of course, I could give him the old “roof over your head, clothes on your back, and food in your mouth” routine, but the convenience alone is usually worth it.

Now, if I borrow $10 and pay $1 in interest on a one-day loan, that works out to be an annual interest rate well in excess of 3,500 percent. As such, my son is something of a predatory lender.

The biggest problem with the industry is the size of the loans involved, as the average appears to be around $350 with a two-week term. So, just how many loans must a payday lender make in order to turn a profit? A few quick calculations suggests it is a pretty decent number.

Right now, the Prime Lending Rate is 3.25 percent. What if we decided to lend money out for 14 days at 10 percent? That would be a pretty decent amount, right? And what if we needed to make $100,000 in order to pay all the associated costs of running the business and still take home some money besides? It gets fun in a hurry.

You see, a 10-percent annual percentage rate for two weeks on $350 is around $1.34. So, if the average loans are $350, we would have to make 74,627 two-week loans to gross $100,000. If we work six days a week every week of the year, that would work out to be a little under 205 loans per day. Assuming an eight-hour workday, that means one loan every two minutes.

I doubt there is enough time in the day for one person to do everything that needs to get done with that type of volume. So, what if we can only realistically process one loan every 15 minutes? How much would we have to charge then? The answer is around 75 percent. How about every 30 minutes? Try 100 percent. In truth, we will probably need some additional help, which will eat into our take home pay.

Basically, this is just an expensive business for both sides because of the small size of each individual transaction, and the short term of each loan. But just what is an acceptable rate, and who should decide such a thing?

Currently, the going rate is around $15 for each $100 borrowed. That works out to be around 390 percent on a two-week loan. At $10, the rate shrinks to roughly 260 percent, and at $5, borrowers will pay about 130 percent. I won’t go any lower than that, because I think it doubtful someone would lend a stranger $100 for two weeks for anything less than $5. If nothing else, there are absolute costs associated with processing and servicing the loan.

Unfortunately, I don’t think there is a good solution here. Of course, it is hard to stomach people paying 400 percent, or even more, on a short-term loan. However, if you really put the screws to the industry, you will find some folks won’t be able to borrow money at any price, and I am not sure that is so good either.

Feds target abusive payday collection practices
By Jim Mitchell, Dallas Morning News
March 30, 2015

The Consumer Financial Protection Bureau is taking its long-awaited whack at curbing payday lending abuses. The ideas are noteworthy.

In Texas and other states, consumer activists have focused on reforming the length of payday loans, the fees charged and other elements of the loan agreement that bury borrowers in heavy debt. In Texas, Dallas is a leader in payday lending reform and thisbill in Austin would protect the right of cities to regulate payday abuses and extend those tougher provisions statewide.

But one area has remained the Wild West for payday lenders – collection practices. Now the CFPB is proposing rules to become the new sheriff in town on collections.

Payday lenders require borrowers to agree to give them post-dated checks or debit authorizations as a condition of the loan. But once payday lenders get into a customer’s checking, savings, or prepaid account, getting them out can be a nightmare.

Consumers end up with unanticipated withdrawals or debits, transaction and insufficient fund fees, all of which add to the overall cost the loan.

Frankly, I’ve always considered the posted-dated check to be the height of hypocrisy. If the borrower had the money, he or she wouldn’t be going to a payday lender. The lenders know this and still accept a postdated check — which is really a “hot” check. Tell me what other financial organization would willingly accept a bad check as part of its business model?

In response, the bureau is considering rules that would require payday lenders to notify customers at least three business days in advance before submitting a transaction to the consumer’s bank, credit union, or prepaid account for payment.  And after two consecutive failed attempts to collect money from the consumer’s  account, the lender would not be allowed to make any further attempts to collect from the account unless the consumer provided a new authorization.

I have issues with the new authorization provision because I worry payday lenders will use it to trick borrowers back into the same cycle. Still, the spirit of the proposed CFPB rules is properly placed.

Other parts  of the proposal center around  cooling off periods loans, number of rollovers, verification of income and repayment ability. In other words, this is smart lending, not lending designed to exploit.

About time.



Potential Big Changes Coming To Payday Loans
By Jim Abath, WAFF
April 2, 2015

Have you ever gotten one of those payday loans or considering getting one? Well, there’s a potentially big change coming in Alabama. Lawmakers are talking about ways to lower your fees and how long you can get one of those loans, and that’s just the start. I’ll explain more at 5:31 on WAFF 48 News Today. And you can read more about the difference between payday and installment loans right here

Decatur’s had a rough year with a budget shortfall and the Sweetwater project falling through. But this morning, Mayor Don Kyle will look to the future in his state of the city address. Muriel Bailey has more on what we expect him to discuss.

We’re also on top of the investigation into the Alabama A&M grad student’s body found in a Meridianville pond yesterday.  And we have an update on the three women shot over spring break.

Add to that a McDonald’s pay raise, the newest oldest person and Kentucky arriving at the Final Four, and you can see we have a packed morning.

So, join us and we’ll all get caught up on your world. We’re on from 4:30 to 7:00 a.m. And then, go make it a great day!

— Jim Abath

Inside the new federal payday loan rules
PBS Newshour
March 29, 2015

HARI SREENIVASAN: The federal Consumer Financial Protection Bureau this week took new steps to protect the working poor from people critics describe as predatory lenders, those who make payday loans.

For more about this, we are joined now from Washington by Chico Harlan of The Washington Post.

So, first, I guess let’s just set the stage here. What qualifies in this category of loans that the CFPB is trying to regulate?

CHICO HARLAN, The Washington Post: Well, they’re actually going after a pretty broad swathe of both short-term and medium-term loans, generally characterized by very high interest rates and by the target audience or the target consumer, which is — which tends to be — tends to be the working poor.

You have two categories, payday loans, which are — you know, you have two weeks, basically, to pay it back, and then installment loans, which go over a longer period. You still have astronomical interest rates. And they’re paid back over weeks or sometimes months.

HARI SREENIVASAN: What is the hazard when somebody takes a loan, can’t take it or can’t pay it back? They pick up another loan?

CHICO HARLAN: Yes, that tends to be the biggest hazard.

It’s that, you know, these loans are marketed as a two-week fix. Let’s say you have some unforeseen emergency, a car accident, bills that are larger than anticipated. Well, you go to a payday lending store, and you take out a loan, with the idea that it will be paid back in two weeks.

However, these are people who don’t always have so much money on hand. And when that two-week period hits, boom, you have all this — these financing fees that are added in.

And many people find themselves in a position where the only way they can pay back that loan and still pay for food and other daily needs is to take out yet another payday loan.

HARI SREENIVASAN: All right, so what is the bureau going to do or want to do to try to prevent this from happening?

CHICO HARLAN: Well, they’re going after this in a couple of different ways.

And it does get complicated, but I think maybe the key, the key thing, the pillar in this whole strategy is a cap that will come after the third loan.

So, let’s say you take out a loan, renew it twice. Now a payday company can no longer get you on a fourth — or on a third renewal.

They basically have to give you an off-ramp, where all the money you owe after three payday loans in a row gets paid back over any period of time that you want.

HARI SREENIVASAN: So when do these proposed rules go into effect?

CHICO HARLAN: Well, there’s still going to be quite a long period of deliberation. I would suspect that some — by some time next year, these rules or some version of them will go into effect.

HARI SREENIVASAN: And what has the initial response been from the lending industry about this?

CHICO HARLAN: Almost everybody I have talked to in the payday industry has made it clear that this was far more strict than expected.

And the outcome, or the outcry, I should say, from people in the payday industry has been pretty — pretty fierce, saying that, this will really jeopardize our business, but more importantly — this is their words — this will jeopardize the ability of low-income people to get credit when they’re oftentimes not serviced properly by banks.

HARI SREENIVASAN: All right, Chico Harlan from The Washington Post, thanks so much.

CHICO HARLAN: Thank you, Hari.



President Obama Visits Birmingham Laying Out His Plans for an Issue that Birmingham City Councilors Have Long Had Concerns for
Birmingham Times
April 3, 2015

As Congress readies for the next fiscal year, United States President Barack Obama took note and packed a bag to Birmingham to discuss what citizens could expect from Congress in the upcoming budget. Using a platform centered on “middle class economics” the President outlined what he hopes to accomplish with new laws and initiatives to help working families. Specifically he dissected the dangerous cycle of payday lending and how ‘new proposed federal regulations for the industry’ should be put in place to combat this issue that keeps so many families in bondage.
“There are four times as many payday loans as there are McDonalds in the state of Alabama,” said President Obama. “We must put laws in place to make sure our folks aren’t getting taken advantage of.” He further emphasized our need to teach young people ‘as we indeed are our brother’s keeper’ the need to be financially educated at a young age, citing decisions that they make can have long term consequences for the family. He used an example of one family who borrowed payday loans to get out of loans and instead ended up worse than they began. President Obama said if this is the business of payday lending institutions, then they ‘need to find a new way of doing business.’
Most of the Birmingham City Councilors attended and took note as they felt the need to recharge their standpoint on this near decade-old debate that began with Councilor Hoyt in 2008. Councilor Hoyt then made the issue known of the sudden growth and negative impact of payday lender businesses in the City of Birmingham and received an opinion from the City of Birmingham law department that councilors could not regulate their business, but that there might be other options afforded to councilors. He and other contributing colleagues on the council are pleased that the dire issue is now getting its due assessment.
Not to let the issue dissolve, Councilor Kim Rafferty then picked up the loose ends and discovered the zoning option, which Councilor Valerie Abbott closely mentored through the system, resulting in the ordinance modifications approved by the council in which Councilor Lashunda Scales moved for its moratorium.
“It was a challenge as we kept the moratorium in place while Councilor Abbott and others worked with zoning and the law department to strengthen the City code that
limits the number of lenders in the city,” Councilor Rafferty said. “The council passed those amendments in 2012 and 2013 and the moratorium was lifted. The biggest hindrance is that the state Legislature voted to recognize them as legit banking operations in our state laws and local jurisdictions have only the power to limit them under zoning laws.”
The Birmingham City Council’s collective teamwork brought about numerous banking options and products led by Councilor Rafferty such as Bank on Birmingham, an initiative to get banking institutions to become invoked in reaching under banked citizens with viable options other than payday lending. Bank on Birmingham is also a
partnership between the banking industry in the City of Birmingham and the nonprofit
organizations who counsel the victims of payday lending practices.
“We are glad to see that this issue is now getting the attention of the federal government through President Obama so that strict regulations can be put in place, Councilor Rafferty said. “It’s important that citizens, no matter what economic status they hold, are able to move forward and continue to provide for their families.”



New lending service helps people curb payday-loan debt
By Jon Collins, MPR News
April 2, 2015

Minneapolis resident Sherry Shannon borrowed $140 from a payday lender to fund a repair on her car almost two years ago. Even though she tried to pay it off, the loan ballooned each month with interest and fees until it had more than doubled from the original amount.

“It was just a nightmare,” Shannon said. “I didn’t think I’d ever get out of this.”

Shannon eventually received help from her church to pay off the debt, but consumer advocates say millions of borrowers across the country have found themselves in a similar situation.

That’s spurred a nonprofit to launch a first-of-its-kind lending service that aims to help consumers stuck in a debt cycle at payday lending institutions. Exodus Lending started offering refinancing of payday loans this week.

Payday lending is a short-term loan obtained against the borrower’s future paycheck. Opponents of the payday loan industry say it preys on low-income people, saddling borrowers with high interest rates and fees. Industry officials argue that they offer a temporary service to those trying to make it to the next paycheck.

“There’s always a fee at the front end when you take out the loan, but also a fee every time you roll it over” by taking out a new loan, said Adam Rao, director of Exodus Lending. “By the time they’re able to pay off the loans, if they’re able to get out of it, they’ve paid exorbitant amounts of money and fees as opposed to the amount of the original loan.”

The Consumer Financial Protection Bureau estimates that 80 percent of payday loans are rolled over at least once and almost a quarter of borrowers roll them over more than six times. To prevent this cycle of ballooning fees and interest, Exodus Lending offers no-interest refinancing for payday loan debt, as well as long-term financial counseling.

Dozens of companies offer payday loans in Minnesota from brick-and-mortar storefronts as well as online. The Minnesota Department of Commerce estimates that the average payday loan in the state last year was $303. By the time the loan has been repaid along with all fees and interest, the average borrower had paid 228 percent of the original loan amount. The average yearly payday-loan borrower in Minnesota took out 10 loans a year.

Exodus Lending grew out of concern about a payday lender named ACE Cash Express that moved into a building near Holy Trinity Lutheran Church in Minneapolis about three years ago. Opponents of payday lenders, including at least a dozen people wearing clerical collars, rallied outside that business on Holy Thursday to announce the launch of Exodus Lending.

“We believe that financial institutions and banks should be able to make a profit from lending. We just think that these kind of interest rates are absolutely ridiculous, overt usury,” said New Creation Church’s Pastor Paul Slack, president of the faith-based group ISAIAH. “In fact, we think it’s robbery, and we think it’s sin, and we think it’s high time that it’s regulated and indeed this practice is stopped.”

The Consumer Finance Protection Bureau found last year that ACE, a national company headquartered in Texas, had used illegal tactics against its clients. It required the firm to pay $5 million fines and $5 million in refunds.

The manager of ACE Cash Express referred all questions to the company’s corporate office. Company officials did not respond to requests for comment.

But others in the industry argue that payday loans are often the most affordable of a set of options that includes credit cards or the possibility of overdrawing bank accounts.

“The vast majority of Americans use payday loans responsibly and make informed choices about their personal financial situation,” said Amy Cantu, a spokesperson for Community Financial Services of America, which represents some large, licensed payday lenders. “They look to short-term credit to solve that temporary cash-flow problem until their next payday.”

Cantu said her organization rejects the notion of a “debt cycle” caused by payday lending.

“What we’ve seen in those states without the payday loan option is that consumers turn to more risky products, more expensive products,” Cantu said. “They have to basically turn to operators who operate in the shadows and provide this product illegally and outside the bounds of the law.”

There are bad actors in the industry, Cantu said, but members of her organization stick to a set of best practices that includes the right to rescind a loan, truthful advertising and an extended payment plan that allows a loan to be repaid over a period of additional weeks without any additional cost.

The payday loan industry has come under increasing scrutiny in recent years. The Consumer Financial Protection Bureau announced late last month that it is exploring ways to end what the agency refers to as “payday debt traps.” The agency could require payday lenders to assess a borrower’s ability to repay before a loan is given out; require affordable repayment options; and limit the number of loans borrowers can take out each year.

On the state level, a bill that would have capped the number of payday loans taken out by borrowers was passed by both houses of the Legislature in 2014, with the vocal support of Gov. Mark Dayton. But it failed because the conference version wasn’t passed by the end of session.

A bill introduced this year would limit all fees and interest to 30 percent of the original payday loan amount. That legislation hasn’t made progress this session, but could proceed next year. A spokesperson for the Minnesota Department of Commerce said the agency and administration are interested in finding ways to combat the “debt cycle” that occurs when borrowers get into financial trouble.

Other faith-based groups across the country have started similar projects to refinance payday loan debt, but Exodus is the only one that combines that effort with financial counseling, said Rao, the director.

The project is starting small, hoping to refinance the payday loan debt of about 20 borrowers at first. But Rao hopes it will gain momentum in a climate where payday lenders are becoming increasingly scrutinized.

“Even if this is a small scale, this is a very meaningful and significant impact on people’s lives, who are then going to become advocates on this issue and help encourage other people to take control of their financial future as well,” Rao said.

Advocates Want Better Protections Against ‘Predatory’ Payday Lending
By Jo Ingles, Ohio Public Radio
April 2, 2015

To listen:

Faith leaders and advocates for the poor are calling on the federal government to do something to reform payday lending.

An advocate for the homeless in Central Ohio says Ohio’s laws that crack down on payday lenders have been ineffective at curbing some of the predatory lending practices. Bill Faith says payday lenders are finding ways to get around those new laws by using other areas of Ohio’s lending laws.

“They have exploited those loopholes and we have tried multiple ways to close those loopholes,” he said.

Faith is calling on the federal government to set new standards for payday loans based on the borrower’s ability to repay them. A spokesperson for the Ohio Consumer Lenders Association, Patrick Crowley, says payday lenders serve Ohioans who cannot use banks. And he says they also help Ohio’s economy in general.

“Our industry puts nearly a billion dollars into the state’s economy and employs the equivalent of almost 11,000 people,” Crowley said.

Crowley says payday industry leader want to work with the federal government as it comes up with guidelines.



Ohio Politics Now: Democrats celebrate Kasich’s ‘poll tax’ veto, ask for clarification
Columbus Dispatch
April 2, 2015

A look at what’s happening in Ohio politics and policy today:

Gov. John Kasich vetoed part of the transportation budget yesterdaythat would have required those new to the state and register to vote to also get an Ohio driver’s license and change their vehicle registry within 30 days, Dispatch reporter Randy Ludlow writes. Democrats and voting rights activists called the Republican-backed provision in the $7 billion budget a “poll tax” aimed at out-of-state college students, many of whom tend to be liberal.

Still, the Ohio Democratic Party is asking for clarification because Senate Republicans say the requirement has not been removed.

“Residency is residency, and although the veto removed it from the statute, the (Ohio) Administrative Code considers that a trigger for residency and therefore covers driver’s license rules as enforced by the (Ohio Bureau of Motor Vehicles),” said John Fortney, spokesman for the Senate GOP.


2016 presidential race: Among Ohio voters, Kasich remains the top pick in the crowded GOP presidential field , according to the latest Quinnipiac poll released this morning, Dispatch Public Affairs Editor Darrel Rowland writes. But while Kasich gets 20 percent in Ohio, he was not included in a poll of two other swing states – Florida and Pennsylvania. The governor has said he will make a decision soon on whether he will run for president.


Open for business: Sen. Sherrod Brown wants Indiana business to know , “We are open for business for everyone, everywhere regardless of whom they love and their religious affiliation.” Ohio Democratic senator was joined by mayors from Ohio’s major cities to send the message after Indiana’s controversial religious freedom law that many believe will lead to discrimination against the LGBT community.

Meanwhile, leaders of Young Conservatives in Columbus this week are trying to convince the Republican party to change its platform against same-sex marriage, Dispatch reporter Maria DeVito writes.


2016 Senate: A little more than 18 months until the 2016 Senate race will be decided and Sen. Rob Portman is boasting an $8 million campaign fund , Dispatch Washington reporter Jessica Wehrman reports. The Republican senator will likely face either former Ohio Gov. Ted Strickland or Cincinnati Councilman P.G. Sittenfeld.


Payday lending: Advocates for the poor and faith leaders in Ohio are hopeful after the Consumer Financial Protection Bureauproposed new rules to clamp down on the short-term lending industry, Dispatch reporter Jim Siegel writes. “Ohio’s past efforts to crack down on short-term, high-interest lenders largely failed, but payday industry critics expressed hope on Wednesday that new federal regulations will help low-income consumers avoid getting caught in a debt trap.” But what about cracking down in Ohio? Critics say it would be politically difficult. “In just the last two-year election cycle, the short-term lending industry gave about $320,000 to majority Republican lawmakers and legislative candidates.”




Critics of payday loans applaud federal bureau’s proposed rules
By Jim Siegel, Columbus Dispatch
April 1, 2015

Ohio’s past efforts to crack down on short-term, high-interest lenders largely failed, but payday industry critics expressed hope on Wednesday that new federal regulations will help low-income consumers avoid getting caught in a debt trap.

In 2008, Ohio passed a law to cap payday lending interest rates at 28 percent, down from the 391 percent annual rate charged by most lenders ($15 per $100 borrowed on a two-week loan). When the industry challenged the law on the statewide ballot, voters upheld it by a 2-to-1 ratio.

But the law allowed most Ohio payday lenders to simply switch state licenses and operate as either mortgage lenders or credit service organizations, and the state now has nearly 2,000 payday stores and auto-title companies that use a borrower’s car as collateral.

The federal Consumer Financial Protection Bureau, under the leadership of former Ohio Attorney General Richard Cordray,released draft rules last week designed to reel in abuses by short-term lenders.

“The thrust of the new rules is about going after that issue of the ability to repay,” said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio, and a leading payday-industry critic.

Ohio faith leaders also spoke out Wednesday in favor of the proposed federal rules. Nearly 100 clergy members signed a letter to the bureau calling for an end to predatory lending practices.

“It’s basically a matter of social justice and the common good,” said Sister Roberta Miller of Dominican Sisters of Peace.

Critics say payday loans push many customers into a debt trap, where they cannot afford to pay back the loan after two weeks and are forced to take out another loan to pay off the previous one.

A Financial Protection Bureau study from last May found that 80 percent of payday loans are rolled over or renewed at the end of the two-week term. More than 60 percent of loans go to borrowers who have taken out at least seven loans in a row, each time incurring new interest rates and fees, and about half of the loans go to those taking out at least 10 consecutive loans.

“This is trapping people in a cycle of debt that lasts a long time,” Faith said. “Their business model depends on repeat borrowing.”

The bureau’s proposed rules say short-term lenders must determine a person’s ability to repay the loan. Or, if they don’t do that, the number of loans would be limited to give borrowers a chance to catch up and pay them off.

The Ohio Consumer Lenders Association, responding to the federal rules, said reducing the availability of credit will hurt consumers.

“Short term lenders play a vital role in Ohio’s economy by providing access to credit and consumer protections to thousands of worthy customers who are responsible borrowers,” the association said in a statement. “Our products are invaluable to consumers who rely on short-term loans to pay bills and meet unexpected expenses.”

Faith said there are no current efforts to tighten Ohio laws on short-term lenders. “ Politically, it would be very difficult.”

In just the last two-year election cycle, the short-term lending industry gave about $320,000 to majority Republican lawmakers and legislative candidates.

The top individual recipients were Senate President Keith Faber, R-Celina, and now-House Speaker Cliff Rosenberger, R-Clarksville. They were followed closely by former Speaker William G. Batchelder, who in 2007 was a leading Republican payday critic and supporter of a bill to drastically cut their interest rates.

This year, the newly formed Batchelder Company lobbying firm was hired to represent Dublin-based Community Choice Financial, which operates more than 500 payday stores, including CheckSmart locations. Batchelder serves as an adviser to the firm, run by two of his former top aides.

The short-term lending issue needs a national solution, Faith said.

“States can be helpful, but in the internet age you have lenders crossing borders easily,” he said. “Without some kind of national regulation … we’re not going to truly get the reforms we need.”







Consumer Protection Agency Seeks Limits on Payday Loans
By Logan Koepke, Equal Future
April 1, 2015

The Consumer Financial Protection Bureau (CFPB) outlined new rules for payday lending late last week. The proposals take a two-pronged approach to ending “debt traps”: preventing lenders from offering consumers more than they can repay, and ensuring fair administrative procedures.

The potential regulations would not only require lenders to actually verify a borrowers’ financial ability to repay a “short-term” loan (shorter than 45 days), but would also limit the number and size of loans that borrowers could take out. Borrowers would only be able to take up to three consecutive “short-term” loans at a value no greater than $500.

The CFPB is also considering limiting mechanisms commonly used by the fast-growing online payday lending industry. Online payday lenders differ from their brick-and-mortar counterparts in several ways, particularly in that they often rely on direct, electronic access to borrowers’ bank accounts. As the CFPB argues, such access can, instead of making payment easier, actually “lead to unanticipated withdrawals or debits and transaction fees,” which in turn can “make it even harder for a consumer to climb out of debt.” The CFPB’s proposals would require lenders to provide consumers with three business days of advanced notice before making a withdrawal in the first instance, and would also limit lenders to two unsuccessful collection attempts.

Although the proposals still have a long way to go, consumer advocates have expressed concern that the proposals still provide room for lenders to evade regulatory scrutiny. For example, Michael D. Calhoun, President of the Center Responsible Lending told the New York Times of his concern “that payday lenders will exploit a loophole in the rule that lets lenders make six unaffordable loans a year to borrowers.”

The current proposals also lack any reference to “lead generators,” companies that collect personal and financial information from potential borrowers and then sell that information to lenders. These companies are a linchpin in the payday lending ecosystem, and the CFPB previously warned that lead generators could amplify the risks of borrowing online. That warning is especially prescient as, according to a recent Pew study, “a majority of online applicants enter their information on a lead generation site rather than a direct lender’s site, and the top online ads to appear after a search for ‘payday loan’ and related terms generally are those of lead generators.” There may be more work to be done to ensure that the proposed rules are Internet-ready.



TV Clip from Cincinnati, OH
March 31, 2015


To watch:





Editorial: A chance to rein in payday loan abuse
Los Angeles Times
March 31, 2015

The Consumer Financial Protection Bureau has finally turned its regulatory gaze to short-term lenders — think payday loan and automobile title loan companies — that build businesses around loans that can’t be repaid. The bureau floated a potential rule last week that addresses the central problem with such loans: borrowers being swamped with penalties and fees for loans they should never have been granted.

At the insistence of regulators, banks won’t dole out loans or credit cards to customers who can’t meet their borrowing standards. That practice has fueled the $46-billion market for payday loans, which just about anyone with income and a bank account can obtain from a non-bank lender, and similar products such as auto title loans, which use a person’s car or truck as collateral. Proponents say these loans help people with lousy credit pay unexpected bills. But the bureau’s research shows that a payday loan can quickly become a problem, not a solution: More than 80% of them were followed within two weeks by another one, and more than half went to borrowers who took out 10 or more in quick succession.

Critics point to this repetitive borrowing as proof that much of the industry’s profit comes from people trapped in debt. The patchwork of state regulations on non-bank lenders, however, leaves some states with no protection and others with little ability to enforce their safeguards effectively. That’s why the Consumer Financial Protection Bureau is considering national rules that would give lenders a choice: either verify a potential customer’s ability to repay before issuing a loan, or abide by strict limits on the terms and frequency of their loans.

Some consumer advocates argue that lenders should have to verify every customer’s ability to repay. To do otherwise, they say, leaves room for loans to desperate customers who will get caught in a vicious cycle of penalties and additional borrowing. But there’s evidence that the right limits can protect against such debt traps. For example, when Washington barred borrowers from taking out more than eight payday loans per year, the number of loans and the amount of fees collected dropped about 75%. By contrast, California has a law against issuing multiple payday loans to individuals, but it’s toothless because lenders aren’t required to report who gets a loan.

Although the bureau hasn’t made a formal proposal yet, it has a promising outline for rules that could stop lenders from taking advantage of borrowers without cutting off those who have bad credit scores but have a real ability to repay. The key, as California unfortunately has shown, is making sure not just that the limits are sensible, but that they can actually be enforced.



Expanding payday lending hurts, not helps, consumers
By Stephanie Bowman, Seattle Times
March 28, 2015

AS the executive director of a statewide nonprofit working with low-income residents, I see daily the struggle and hurdles Washingtonians face to get on solid financial footing. And as an elected official, I know firsthand that decisions about how best to serve the community are rarely black or white. However, ESSB 5899, the legislation to expand payday lending in Washington, is not one of those issues. It is clearly wrong, and if passed would result in more financially vulnerable residents ending up in the debilitating cycle of debt for which payday lending is infamous.

ESSB 5899 is not a “reform.” It’s a new statute, and according to state Attorney General Bob Ferguson, “The new loan product … would be significantly worse for the average consumer than the current payday loan product.” Furthermore, the attorney general wrote, “The proposed bill would substantially raise the cost for consumers for a small installment loan compared to the current system.”

A person who takes out a payday loan of $700 for six months would pay more than $1,195 in fees and payments under the new proposal — $400 more than the existing system, Ferguson wrote.

Here’s what proponents of payday lending don’t mention: Under current law, payday lenders are already required to provide consumers with an installment plan — up to 180 days, with no additional fees or charges. The expansion of payday lending proposed by ESSB 5899 is unnecessary.

More importantly, it’s the wrong direction for our state. Let’s treat the problem, not cover up the symptoms. Rather than expanding payday lending, here are three things proponents could join us in doing to truly change the system.

First, work with organizations such as mine to get residents into mainstream banking. Nearly 25 percent of Washingtonians use payday lending because they don’t have a checking account. We partner with financial institutions in Washington to open these accounts. The Legislature could do much more to support this critical program.

Second, provide free financial counseling at public institutions, such as city halls and libraries. Free tax preparation is already offered during tax season; let’s expand this to include credit and debt counseling throughout the year in safe and accessible locations.

Finally, pass legislation requiring students to take a financial education class before graduation. Washington is one of the few states that don’t uniformly offer financial education courses. Let’s ensure our children leave school with a clear understanding how to navigate the increasingly complicated world of credit and debt — skills they’ll need no matter what career they choose.

Bringing a new payday-lending product into the state and calling it a “reform” is like putting lipstick on a pig. It doesn’t change the fact that it’s a pig. I urge legislators to think again before expanding payday lending.

Stephanie Bowman is the executive director of the Washington Asset Building Coalition and the co-president of the Port of Seattle Commission.

CUs Aim to Get Members out of Payday Loan Cycle, CFO Says
March 30, 2015

The credit union mission stood out during a Consumer Financial Protection Bureau hearing in Richmond, Thursday, as panelists addressed various aspects of payday lending. The field hearing was held in conjunction with the CFPB’s new proposal on payday lending.

While some at the hearing defended such lending as a consumer’s choice and others compared payday loans to “giving a starving man food laced with poison,” panelist Stan Leicester of BayPort CU, Newport News, Virginia, offered a simple alternative: come to a credit union.

“Credit unions have two primary objectives: get the member out of the payday lending cycle from week to week and improve credit scores,” said Leicester, senior vice president/chief financial officer at BayPort CU.

“We feel like our two primary objectives have been reached: We’ve done over $50 million [in short-term loans] since we started our program, and we’ve converted about 3,300 members out of the payday lending cycle. We’re really proud of that.”

BayPort started its short-term lending program in 2007, Leicester said, and it also offers a line of credit good for up to one year with a small fee and interest charged. Borrowers are required to pay off the loan within 30 days.

Leicester also added that borrowers are provided with financial counseling when they look into those types of loans. Counselors on staff look at ways the member can improve their credit score and get out of the payday loan cycle.

During the question-and-answer portion of the panel discussion, Leicester was asked what features credit union loans have that protect consumers.

“We carefully underwrite those loans to make sure the borrower has the ability to repay. Our main goal is to get them out of that payday lending cycle and get them into a more traditional product,” he said. “We also do feel like many people end up improving their credit score; and then once we ultimately get them into that newer product, we can do that at a lower cost.”

Clips Roundup: March 27, 2015

Payday Clips March 27, 2015 #StopTheDebtTrap

CFPB ponders proposals to limit predatory lending By Philip Beadle, Silicon Valley Business Journal March 27, 2015

Payday loan proposal won’t deter unlikely pair By Joe Sneve, Argus Leader March 27, 2015

CFPB’s new payday rule gives Ohio voters what they wanted: Plain Dealing By Sheryl Harris, Plain Dealer March 27, 2015

Tom Eblen: If feds, state won’t raise minimum wage, Lexington should By Tom Eblen, Herald-Leader March 29, 2015

Regulators outline rules on short-term loans By Peggy Heinkel-Wolfe, Denton Record-Chronicle March 26, 2015

Federal regulators need to protect Americans from predatory lenders: Wade Henderson PennLive March 27, 2015

Editorial: Progress on Payday Lending The New York Times March 28, 2015

‘Why I came to Birmingham’ by President Barack Obama March 27, 2015

Think Outside the Box to Solve Americans’ Cash Flow Problems By Sarah Gordon and Janis Bowdler, American Banker March 26, 2015

Government aims to protect users of ‘payday’ loans By Joshua Boak, Associated Press March 26, 2015

Payday Loan Rules Proposed by Consumer Protection Agency By Michael D Shear and Jessica Silver Greenberg, The New York Times March 26, 2015

Obama pushes payday lending rules in Alabama By Gregory Korte, USA Today March 26, 2015

Payday Loans — And Endless Cycles Of Debt — Targeted By Federal Watchdog By Scott Horsley, NPR March 26, 2015

The payday industry’s money-making model is coming to an end By Chico Harlan, Washington Post March 26, 2015

Payday Lenders Face New Rules Amid Allegations of Consumer Abuse By Carter Dougherty, Bloomberg March 26, 2015

CFPB Outlines ‘Debt Trap’ Regulations for Payday Loans and Auto Title Loans By Catherine Dunn, International Business Times March 26, 2015

Consumer Financial Protection Bureau Proposes New Payday Lending Rules By Ben Walsh, Huffington Post March 26, 2015

The Real Battle Over Payday Lending Has Just Begun By Rachel Witkowski, American Banker March 26, 2015

State joins efforts to curb payday debt traps By Carol Hazard, Richmond Times-Dispatch March 26, 2015

Obama praises payday lender rules, vows veto of limitations By Nedra Pickler, The State March 26, 2015

Regulators propose crackdown on payday loans By Kelly Avellino, WWBT March 26, 2015

Attorney General wants changes in pay-day and title loans process WRIC March 26, 2015

Mob sharks: Better rates than Alabama payday lenders By Josh Moon, Montgomery Advertiser March 27, 2015

President Obama discusses economy, criticizes payday lenders in Birmingham speech WTVM March 26, 2015

The vicious cycle of payday loans By Michelle Singletary, Washington Post March 27, 2015

Obama gives Birmingham pastor shout-out for work against payday lenders By Greg Garrison, March 26, 2015

CFPB ponders proposals to limit predatory lending By Philip Beadle, Silicon Valley Business Journal March 27, 2015

The federal Consumer Finance Protection Bureau announced it would consider proposals that would restrict payday lending and released an outline of possible regulations.   Payday lenders have drawn fire from protesters in San Jose in recent months, including at a storefront picket over the holidays in which people held signs emblazoned with messages including: “Don’t get Scrooged.” The newly proposed regulation, which represents the first steps the CFPB has taken against payday lending, would offer two approaches: Prevention and protection.   Prevention means limiting lenders to only lending to people who would be able to pay the loan back on time — the first time — without sacrificing food, rent or other necessities.   Protection means lenders would be required to offer affordable repayment options without having to “roll over” the loan, meaning they pay extra fees to change the due date or take out a new loan.   The need to verify the borrower’s ability to repay a loan could change the game because four out of five borrowers take out new loans, according to the CFPB.   Kyra Kazantzis of the Law Foundation of Silicon Valley said that was what made the loans predatory. “Our definition of responsible lending has always been that the borrower is able to pay the loan back in an affordable way,” she said. “So bravo for the CFPB for coming around to that definition and taking this step.”   However, Kazantzis said a potential loophole exists in this early draft that would allow short-term lenders to make up to six unaffordable loans to the same borrower.   The provision allows lenders to provide borrowers with three consecutive loans if they can prove the borrower’s financial situation improved, wait sixty days and repeat three more   “That’s the part that we’re worried about. We wish the CFPB had stopped right there and not added these extra provisions, which seem unnecessary, just a way to make it more of a compromise,” Kazantzis explained. “It seems like a compromise without principle.”   Local consumer advocacy groups such as the Coalition Against Payday Predators, in addition to the Law Foundation of Silicon Valley, have been vocal on this issue and have succeeded in getting restrictions on payday lending passed in several Santa Clara County cities, but they say only the state and federal governments have the power to make substantial change to the industry.   “We’ve been asking the CFPB and the state legislature and the federal legislature to get involved, and it looks like someone besides our city officials has finally listened,” Kazantzis said.   The CFPB also proposed similar regulations to prevent debt traps for long-term loans and collection practices. Specifically, the CFPB wants lenders to verify borrowers can afford the loans the way they would have to with short-term loans, and either cap interest rates at 28 percent or not require borrowers to pay back more than five percent of their monthly income in each monthly payment.   New regulation would require lenders to notify borrowers before collecting repayment from their deposit accounts and limit unsuccessful withdrawal attempts to two, which would limit fees associated with each attempt.

Payday loan proposal won’t deter unlikely pair By Joe Sneve, Argus Leader March 27, 2015

A Republican, a Democrat and a short-term lender all see some good in a federal proposal to tighten regulations on companies such as Dollar Loan Center, EZ Money and Dakota Title Loans. The Consumer Finance Protection Bureau (CFPB) announced earlier this week a series of new regulations that it says will better protect payday, title and signature loan borrowers. The rules, which might be years from being adopted, would force loan centers to better vet borrowers and cap loan amounts at $500. It also would prohibit lenders from requiring vehicles as collateral. That’s welcome news for state Rep. Steve Hickey, a Republican from Sioux Falls, and Steve Hildebrand, a prominent South Dakota Democrat who’s worked for both former Sen. Tom Daschle and President Obama. But they both say it’s not enough. “I think the CFPB announcement acknowledges there’s a serious problem with the payday lending trap,” Hickey said. “Their actions recognize the problems … but they do not have the power to do the ultimate fix.” Hickey and Hildebrand together last year founded South Dakotans for Responsible Lending after a push from the Republican lawmaker to tighten short-term lending laws was shot down in the South Dakota Legislature. Now, they’ve chartered South Dakotans for Responsible Lending and are working to let voters decide if high-interest lenders should be sent packing. Hickey said the paperwork was filed with the Secretary of State earlier this month to put a measure on the ballot to cap interest rates for about 250 South Dakota lenders at 36 percent. Petitions, he said, will begin circulating in the coming weeks. “By law they (CFPB) are not able to put any rate cap on so they can forward all the regulations they want, but unless Congress … gives them the power to cap a rate, they’re just never going to be able to do what the South Dakota voters are going to be able to do, which is cap the rate,” Hildebrand said. And that’s why Chuck Brennan, founder of Dollar Loan Center, says the CFPB proposals are more palatable to him, the short-term loan industry and the South Dakota economy in general, though he’s not a supporter of the new rules. “Frankly, in South Dakota, the CFPB rules would be more than welcome compared to what Hickey and Hildebrand are trying to do and just simply put the industry out of business,” he said. “With this CFPB ruling, at least there’s going to be an equal playing field for everybody across the country.” But Brennan isn’t convinced those rules will be adopted any time soon. “I don’t see any ruling coming for at least two years,” he said. “I don’t think anybody is panicking right now on what’s going on.” A task force of industry professionals and other stakeholders will review the proposed rules before CFPB opens a public comment period. According to the Department of Labor’s Banking Division, about 50 short-term lenders are licensed in Sioux Falls

CFPB’s new payday rule gives Ohio voters what they wanted: Plain Dealing By Sheryl Harris, Plain Dealer March 27, 2015

Ohio’s battle to end payday lending was a lot like trench warfare. Everyone wound up dazed and bloodied, and for years afterward, it was hard to say who really won. The fight in 2008 was over the 391 percent interest rates payday lenders charged in Ohio. But thanks to weak laws and industry maneuvering, lenders today can charge even more. So when the Consumer Financial Protection Bureau unveiled plans to crack down on payday and its high-cost cousins this week, veterans of Ohio’s payday battle felt like the cavalry had arrived. “It feels good to see some help is on the way,” said Bill Faith, executive director of COHHIO. “We’ve been in this very difficult spot for a number of years, with no relief in sight.” The bureau’s proposed rule gives lenders a choice: Either verify an applicant can pay back the loan and still have enough money left for household bills or, alternatively, restructure the loans and offer consumers who fall behind chances to catch up without incurring more debt. If you’re used to traditional bank loans, that may not sound like a big deal. But payday and auto title loans aren’t like regular loans. Targeted at people who live paycheck to paycheck, they’re designed to be so hard to repay in full that borrowers repeatedly renew them – incurring new fees and falling deeper into debt each time. When it studied lender records, the CFPB found that 80 percent of all payday loans are rolled over in two weeks (the typical loan term), and 60 percent of all loans are to borrowers who take out at least seven loans in row. A study released last week by Pew Charitable Trusts found that auto title loans are similarly toxic. “If I paid what they claim I still owe, I would pay $4,000 for a $1,500 loan,” one auto title borrower complained to the Ohio attorney general’s office, which has said it is powerless to help. Another problem for borrowers has been overdraft and insufficient funds fees caused when payday lenders reach into their accounts unexpectedly for payments. Under the proposed CFPB rule, lenders would have to give a borrower three days notice before they try to access his account. If a lender reaches into a customer’s account twice for repayment and finds the funds aren’t there, it has to get fresh approval from the borrower before it can tap the account again. The rules would cover short-term loans (those due in less than 45 days) and impose similar conditions on longer-term loans secured by a customer’s bank account, prepaid card or car. In addition to covering payday and auto title loans, the CFPB’s rule will cover high-cost installment loans, payday-style deposit advance loans still offered by a few banks and credit unions, and other credit products structured the same way. “It’s about what you’re doing, not what you’re calling yourself,” said Faith. That’s good news, because states and the Department of Defense have been playing whack-a-mole with payday lenders. When DoD, concerned that payday debt was affecting the readiness of troops, issued rules capping loans to military members at 36 percent, lenders tweaked the products to get around the rules and opened more shops near bases. After 2008, when Ohio capped interest on short-term loans at 28 percent, payday lenders took out licenses as mortgage lenders or credit services organizations (a statute originally built for credit counseling services) so they could continue to lend at exorbitant rates. The CFPB rule is just a draft at this point, and the bureau makes it clear that its still weighing the alternatives to the ability-to-repay standard. You can read the plain-language proposal here. The rule has to clear a number of hurdles before it would go into effect. Expect a fight. Consumer advocacy groups across the country generally like the proposal but fear the options could create loopholes. Payday lenders, meanwhile, have started throwing out the same “access to credit,” “nanny state,” “job killer” buzzwords we heard during Ohio’s payday fight. Because, you know, companies apparently have the

Tom Eblen: If feds, state won’t raise minimum wage, Lexington should By Tom Eblen, Herald-Leader March 29, 2015

A few thoughts on Kentucky issues in the news: The minimum wage has a big impact on low-wage workers, many of whom must rely on public assistance to make ends meet, as well as the overall economy, which is driven largely by consumer spending. The $7.25 federal minimum wage hasn’t been raised since 2009. Its value adjusted for inflation has lost more than 25 percent since its peak in 1968. Congressional Republicans have refused to raise the federal minimum wage. But many states and cities have raised theirs, realizing its importance to both low-wage workers and local economies. The Democrat-led Kentucky House recently approved a state minimum-wage increase that was rejected by the Republican-led Senate. Louisville’s Metro Council in December approved a gradual minimum-wage increase to $9 over three years, which is being challenged in court. Urban County Council member Jennifer Mossotti has proposed gradually raising Lexington’s minimum wage to $10.10 an hour by July 2017 and tying future increases to the consumer price index. The proposal also would gradually raise the $2.13 minimum wage for tipped workers, who haven’t seen an increase since 1991, to $3.09 over three years. Council members are unlikely to consider the issue before June. But when they do, Jason Bailey, director of the Kentucky Center for Economic Policy, has put together a good report about the low-wage Lexington workers who would be affected. Among the highlights: An increase would directly lift wages for about 20 percent of Lexington workers, 90 percent of whom are older than 20 and 30 percent of whom are 35 and older. Fifty-seven percent are women, 54 percent work full-time and 26 percent have children at home. Read the full report at: Businesses usually oppose minimum-wage increases — if not the very idea of a minimum wage — saying that increasing labor costs forces them to put people out of work and raise prices. Studies have generally shown those effects to be negligible, and the economic impact to be positive. A minimum-wage increase is long overdue. If federal and state officials won’t do it, Lexington should join other cities and states that are. Payday lending Legislation to rein in payday lenders, who trap some of Kentucky’s most vulnerable people in cycles of debt, died last week in the state Senate, but federal regulators are now stepping up to the plate. Sen. Alice Forgy Kerr, a Lexington Republican, sponsored a bill that would limit payday loan interest rates, which can approach 400 percent, to 36 percent, the limit the U.S. Department of Defense sets for loans to military personnel. The bill was supported by consumer advocates, as well as by both liberal and conservative church groups on moral grounds. But it died in the State and Local Government Committee. Wonder if that had anything to do with the payday lending industry’s campaign contributions to some legislators? Last Thursday, President Barack Obama and the U.S. Consumer Financial Protection Bureau announced plans for a federal crackdown on payday lenders. U.S. Rep. Andy Barr, a Lexington Republican who has received several hundred thousand dollars in contributions from financial services companies, issued a press release March 19 about proposed legislation to curb the CFPB’s “reckless regulatory overreaches.” Looks more like an attempt to muzzle a watchdog that protects citizens from Barr’s corporate benefactors.

Regulators outline rules on short-term loans By Peggy Heinkel-Wolfe, Denton Record-Chronicle March 26, 2015

Federal regulators unveiled a plan Thursday for new rules meant to end the cycle of debt that often comes with payday and title loans. The Consumer Financial Protection Bureau proposed requiring that lenders operate one of two ways: either make sure the consumer can afford the short-term loan before making it or comply with restrictions that keep the loan’s costs from ballooning and becoming unaffordable. The Denton City Council adopted local regulations in 2013 in response to concerns brought by Denton for Fair Lending, a local coalition of churches, nonprofit groups and others concerned about predatory lending. A Denton Record-Chronicle investigation in 2013 found a sudden proliferation of payday and title lending stores opening in the city, with some residents reporting spending hundreds and even thousands of dollars to repay loans of just $150 to $500. The proposed federal rules represent the agency’s first exercise of its powers under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in relation to short-term lenders. Agency officials held a hearing in Richmond, Virginia, that took more than two hours of testimony from lenders and borrowers alike. Lenders said they provide a needed service to people who need cash and have nowhere else to turn. Borrowers and consumer advocates said the loans needlessly trap people in a cycle of debt that is dangerous to the economy. The announcement represents the first step in a formal process of federal rule-making that is expected to take another six months to a year to complete. Pat Smith, outreach director for Denton Bible Church, said he tries to remain optimistic that the new rules will provide relief. “I believe there will be a lot of pressure to make the rules more favorable to the [financial] industry,” Smith said. He said Denton’s rules had a big impact, with a number of lenders closing their storefronts in the city. Previously, Vision Ministries and Giving Hope — two local charities that help people who are homeless or at risk of becoming homeless — found that about half the people coming to them were in financial trouble because of a payday or title loan. Now, that’s down to about about 1 in 5, Smith said. In addition, he said he accepted an invitation from lawyers for Ace Cash Express to discuss his advocacy over breakfast recently. He said the attorneys, who argued that the business was not predatory, told him their business was down 80 percent in Denton. A trade association sued the city over its ordinance in 2013, and then dropped the case when its standing to do so was questioned. Ace Cash Express filed a lawsuit the same day that the trade association dropped its case. That case remains pending in the Second Court of Appeals. Denton is among about 40 Texas cities that have adopted local rules governing payday and title lenders. Whether the squeeze between local and federal rules will push through reform at the state level remains to be seen, according to Ann Baddour of Texas Appleseed, a nonprofit organization of volunteer lawyers who work on social issues. The Texas Legislature has been unable to adopt any meaningful reforms for years. More than 20 bills have been filed during the current session that regulate some aspect of the business. Texas Appleseed is among a number of community and nonprofit groups that have been working for payday reform, including the AARP, the Texas Catholic Conference, the Christian Life Commission and the Center for Public Policy Priorities. The federal Consumer Financial Protection Bureau doesn’t have the authority to set interest rates as the state does, Baddour said. New research from The Pew Charitable Trusts released this week found that short-term loans made online have been increasingly detrimental to many borrowers, who are charged about 650 percent interest, on average, to repay. About 90 percent of payday loan complaints to the Better Business Bureau came from online borrowers. And 30 percent of those who borrowed online reported being threatened by their lender, according to Pew researchers. House Bill 2808 mirrors key provisions of the municipal ordinances, including Denton’s, by limiting loans to four refinances, requiring 25 percent be paid down with each refinance, and making consumer protections easier to enforce. HB 2808 has been referred to the House Investments and Financial Services Committee but has not yet been heard.

Federal regulators need to protect Americans from predatory lenders: Wade Henderson PennLive March 27, 2015

On Thursday, the federal Consumer Financial Protection Bureau held a hearing on its efforts to protect consumers from predatory payday lending. The ability to obtain and preserve economic security is an essential civil and human right of all Americans, and that strong consumer protection laws are a vital component of securing this right. Unfortunately, communities of color and other economically vulnerable populations have long been subjected to abusive financial services practices that have undermined this security. They have gone from experiencing redlining and other forms of overt lending discrimination to, in more recent years, predatory and deceptive mortgage and consumer lending – often under the guise of “easy access to credit” – with the most devastating consequences resulting from the abusive mortgage lending practices that led to the 2008 financial crisis and Great Recession. While we are encouraged by the improvements to federal and state regulations in the wake of the financial crisis, and while many financial services providers do appear to have learned some of the lessons of the financial crisis, communities of color are still being targeted by predatory lending practices. This has been especially true in the market for small-dollar lending. Payday loans are marketed as an easy solution for financial emergencies, but they too often fail to work as advertised. Payday lenders may argue that they ensure borrowers can repay their loans, but they fail to ensure that borrowers can repay those loans while also meeting their other living expenses. This means borrowers are often left with no choice but to renew their loans at the same high cost, often getting trapped and slowly drained of what limited income and assets they have. Indeed, the very nature of the payday lending business model depends on repeated renewals of existing loans. What is even more troubling is the aggressive marketing of payday loans to communities of color and other economically vulnerable populations – including older Americans who rely on Social Security for their source of income. Studies show that payday lenders are heavily concentrated in African-American and Latino-American communities, where access to banks and other mainstream financial service providers is limited. So the rule we’re beginning to discuss today is profoundly important for the communities The Leadership Conference represents. While we have long argued that loans should be capped at a maximum 36 percent effective annual interest rate – as a number of states have done, and as Congress rightly did with respect to military service members – we realize that this is beyond the CFPB’s authority. What the CFPB is proposing, however, is a very strong step in the right direction. It is a matter of common sense that lenders should ensure that borrowers not simply have enough money to repay their loans, but to ensure that borrowers can repay loans on time without being left in an even worse financial position. Most lenders already follow the Ability-to-Repay principle, and we applaud the CFPB for applying it to small-dollar lending practices as well. At the same time, we are concerned about the impact of any kind of safe harbor provision that could continue to expose some borrowers to prolonged and expensive cycles of debt. We are especially concerned about the impact any loopholes could have in states which already outlaw high-cost payday lending, because they could create an artificially high nationwide “floor” that the industry could exploit to weaken existing state protections. So as the CFPB moves forward with this rule, we urge you to make the most of your authority to protect all Americans, including communities of color, from the scourge of predatory payday loans. Wade Henderson is President and CEO of The Leadership Conference on Civil and Human Rights.

Editorial: Progress on Payday Lending The New York Times March 28, 2015

The Consumer Financial Protection Bureau took the most important step in its brief four-year history this week when it issued a preliminary proposal aimed at protecting the working poor from the payday lending industry, which bills itself as a source of “easy” short-term loans but earns its profits by luring borrowers into debt traps. If finalized, rules based on this proposal would protect millions of people from deceptive, predatory loans that can wreck their already fragile finances. The bureau could better protect consumers by closing one loophole that would allow some lenders of relatively small amounts to keep making high-cost loans. The bureau has been working its way up to this point since 2013, when it began collecting complaints from borrowers who had been hit by unreasonable fees, unauthorized withdrawals from their checking accounts and other abuses. The agency subsequently released a startling study of 12 million payday loans issued all across the country that thoroughly debunked the industry’s claim that the loans were necessary to help people make it to the next payday — customarily two weeks away — at which point they could comfortably pay off what they owed. It turned out that only 15 percent of borrowers could find the money to repay the full debt without borrowing again within 14 days, which meant they were hit with more fees. One in five borrowers eventually defaulted on the loan; nearly two-thirds ended up renewing a loan, some more than 10 times, turning what began as a short-term loan into a long-term debt trap. The debt typically grew as the borrowers moved from one loan to the next, instead of being paid down, as happens with a traditional bank loan. In three-fifths of the cases studied, the fees ended up exceeding the original amount of the loan. The proposal will go before a panel that will gather comments from small businesses and report to the bureau on its findings. As it now stands, the proposal would give short-term lenders two options. One option requires them to confirm the borrower’s ability to pay, based on an analysis of assets and financial obligations. Under the second option, for loans of $500 or less, the lender could skip the ability-to-repay assessment but would be required to provide an affordable repayment schedule and limit the number of loans a borrower could take out consecutively and over the course of a year. This second option is the weak link in the proposal. The ability-to-pay requirement is the very bedrock of fair lending. Offering lenders a way around it would only embolden them to keep up business as usual. Moreover, it would be difficult for the authorities to monitor individual indebtedness to see whether lenders were obeying the rules. A truly strong rule would require short-term lenders to examine the prospective borrower’s ability to repay, without exception, and make sure that all loans carry reasonable costs. Lenders would earn less profit. But far fewer working-class borrowers would be bled dry and driven into bankruptcy.

‘Why I came to Birmingham’ by President Barack Obama March 27, 2015

Earlier this week, I visited Birmingham to speak about what I call “middle-class economics”: the idea that our country does best when everyone gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules. Today, we are in a 60-month streak of private-sector job creation.  Our businesses have added 12 million new jobs.  Nationwide, the unemployment rate has fallen from 10 percent in 2009 to 5.5 percent today.  Our high school graduation rate is at an all-time high.  After five years of the Affordable Care Act, more than 16 million uninsured Americans have gained the security of health coverage. And in perhaps the most hopeful sign of all, wages are finally on the rise. This progress is a direct result of American drive and determination.  It has been a long, hard road, but America is coming back. As any American will tell you, however, we still have work to do.  In our 21st Century economy, middle-class economics means helping working families feel more secure.  It means preparing Americans to earn good jobs, and building a competitive economy so that our businesses can keep churning out high-wage jobs for our workers to fill. These ideas aren’t about ideology.  I’ve proposed them because they work.  Unfortunately, last week Republicans in Congress unveiled a budget that represents the opposite of middle-class economics.  It would hand out big new tax cuts for millionaires and billionaires and let taxes go up for students and working families.  It would cut investments in education to their lowest levels since 2000 and double the number of Americans without health insurance. This week, Republicans put forward another big economic plan, and once again, its centerpiece was another huge tax cut for those at the very top.  This new tax cut would cost more than $250 billion, and it would apply to just one-tenth of one percent of Americans – in Alabama, it would apply to fewer than 50 people per year.  I don’t think our top economic priority should be helping a tiny number of Americans who are already doing extraordinarily well, and asking everybody else to foot the bill.  Our top priority should be helping everybody who works hard get ahead. That priority is what brought me to Birmingham.  Because, as I said during my visit to Lawson State Community College, one way to make sure paychecks go farther is to make sure working families don’t get ripped off. That’s why, five years ago, we passed historic Wall Street reform to turn the page on the kind of recklessness that led to the worst economic crisis in decades.  And as part of that reform, we created an independent consumer watchdog with just one mission: looking out for ordinary Americans.  The Consumer Financial Protection Bureau has already put over $5 billion back in the pockets of more than 15 million families.  And this week, they took an important first steps towards cracking down on some of the most abusive practices involving payday loans. Every year, millions of Americans take out these loans. In Alabama, there are four times as many payday lending stores as there are McDonald’s. In theory, these loans help you deal with a one-time expense, but in reality, most payday loans are taken out, at least in part, to pay for previous loans.  You borrow money to pay for the money you already borrowed.  That means people often end up trapped in a cycle of debt.  If you take out a $500 loan, it’s easy to wind up paying more than $1,000 in interest and fees. The step the CFPB announced this week is designed to change that.  The idea is pretty common sense: if you’re a payday lender preparing to give a loan, you should make sure that the borrower can afford to pay it back first.  It’s one more way Wall Street reform is protecting working families and taxpayers.  And it’s one more reason it makes no sense that the budget Republicans unveiled last week would make it harder, not easier, to crack down on financial fraud and abuse. Protecting consumers and making paychecks go farther should not be a partisan issue.  It’s about shared values of honesty and fair play, a basic bargain that says that in America, hard work pays off and responsibility is rewarded.  When our country lives up to these ideals of fairness and opportunity for all, every one of us is better off for it.  And for every day I have the privilege of serving as your President, I will never stop fighting to make sure ordinary citizens in Alabama, and across our great country, have a fair shot to get ahead.

Think Outside the Box to Solve Americans’ Cash Flow Problems By Sarah Gordon and Janis Bowdler, American Banker March 26, 2015

A bill is due before your next paycheck, and you don’t have the money to cover it. Many Americans have personal experience with this scenario: roughly one-third of the U.S. population have little or no liquid wealth, according to an estimate by the Brookings Institute. The problem of coming up short before your next paycheck is not always caused by insolvency or poverty. It can also be a challenge of timing and cash flow. But for Americans who lack an extra savings cushion or access to reliable credit, there are few affordable solutions. Nearly a third of borrowers use short-term loans to cover regular expenses in order to make it to payday, according to the Center for Financial Services Innovation’s 2013 report on small-dollar credit. Many of these products, such as payday loans and check cashing, carry significant costs. In 2013, consumers with cash flow challenges spent an estimated $7.5 billion on short-term loan products. This constant juggle creates inconvenience, stress, and costly fees and interest rates. To tackle these challenges, research shows that consumers need financial products and services designed to meet their needs and meet them where they are. Technology provides an opportunity to enhance products designed to address these day-to-day financial management challenges with lower costs and more convenience. In fact, a number of companies across the U.S. are already harnessing technology to solve Americans’ cash flow challenges. The Palo Alto, Calif.-based ActiveHours makes an app that allows hourly workers to access their earnings before payday. Users upload photos of their electronic time sheets to their smartphones and choose the amount of money they’d like to withdraw for the hours they’ve already worked. Rather than charging fees for the service, ActiveHours asks users to leave discretionary tips. In San Francisco, Digit helps consumers automate savings by predicting their cash flow and identifying savings opportunities. In Nashville, Emerge Financial Wellness is working with employers to create low-cost credit options as an employee benefit, reducing the stress of managing household finances and improving productivity. Meanwhile, innovative nonprofits are leveraging technology to decrease lending costs, encourage sound financial behaviors and quickly turn effective community-based programs into national models. Mission Asset Fund‘s successful peer lending and saving program in San Francisco has catalyzed legislative change in California and spurred replication of the model in communities throughout the country, including Miami, New York City, Chicago and many others. Chicago’sMoneyThink helps low-income high school students save by enabling positive reinforcement through their own social networks. This approach, which makes use of both in-person mentoring and mobile technology, has helped the organization go from pilot to national recognition in just three years. Such ideas are promising. But there is much more to be done to bring these solutions to the millions of Americans that need them. We need to focus on solving financial pain points that millions of Americans face. Let’s catalyze a burgeoning landscape of innovative solutions that will help consumers better manage their day-to-day income and expenses. Together, we can help Americans take control of their financial health. Janis Bowdler is the head of financial capability initiatives at JPMorgan Chase. Sarah Gordon is the vice president of innovation labs at the CFSI and manages the Financial Solutions Lab.

Government aims to protect users of ‘payday’ loans By Joshua Boak, Associated Press March 26, 2015

WASHINGTON — Each month, more than 200,000 needy U.S. households take out what’s advertised as a brief loan. Many have run out of money between paychecks. So they obtain a “payday” loan to tide them over. Problem is, such loans can often bury them in fees and debts. Their bank accounts can be closed, their cars repossessed. The Consumer Financial Protection Bureau proposed rules Thursday to protect Americans from stumbling into what it calls a “debt trap.” At the heart of the plan is a requirement that payday lenders verify borrowers’ incomes before approving a loan. The government is seeking to set standards for a multibillion-dollar industry that has historically been regulated only at the state level. “The idea is pretty common sense: If you lend out money, you should first make sure that the borrower can afford to pay it back,” President Barack Obama said in remarks prepared for a speech in Birmingham, Alabama. “But if you’re making that profit by trapping hard-working Americans in a vicious cycle of debt, then you need to find a new way of doing business.” The payday industry warns that if the rules are enacted, many impoverished Americans would lose access to any credit. The industry says the CFPB should further study the needs of borrowers before setting additional rules. “The bureau is looking at things through the lens of one-size-fits-all,” argued Dennis Shaul, chief executive of the Community Financial Services Association of America, a trade group for companies that offer small-dollar short-term loans or payday advances. But that lens also reveals some troubling pictures. Wynette Pleas of Oakland, California, says she endured a nightmare after taking out a payday loan in late 2012. A 44-year-old mother of three, including a blind son, Pleas borrowed $255 to buy groceries and pay the electricity bill. But as a part-time nursing assistant, she worked only limited hours. Pleas told her lender she’d be unable to meet the loan’s two-week deadline. The lender then tried to withdraw the repayment straight from her bank account even though Pleas lacked the funds. The result: A $35 overdraft fee and a bounced check. After the incident was repeated five more times, Pleas said the bank closed her account. Collection agencies began phoning Pleas and her family. About six months ago, she learned that the $255 loan had ballooned to a debt of $8,400. At that point, she faced the possibility of jail. “It’s not even worth it,” said Pleas, who is trying to rebuild her finances and her life. Roughly 2.5 million households received a payday loan in 2013, according to an analysis of Census data by the Urban Institute, a Washington-based think tank. The number of households with such loans has surged 19 percent since 2011, even as the U.S. economy has healed from the Great Recession and hiring has steadily improved. “These are predatory loan products,” said Greg Mills, a senior fellow at the Urban Institute. “They rely on the inability of people to pay them off to generate fees and profits for the providers.” The rules would apply not only to payday loans but also to vehicle title loans — in which a car is used as collateral — and other forms of high-cost lending. Before extending a loan due within 45 days, lenders would have to ensure that borrowers could repay the entire debt on schedule. Incomes, borrowing history and other financial obligations would need to be checked to show that borrowers were unlikely to default or roll over the loan. In general, there would be a 60-day “cooling off period” between loans. And lenders would have to provide “affordable repayment options.” Loans couldn’t exceed $500, impose multiple finance charges or require a car as collateral. The CFPB also proposed similar rules to regulate longer-term, high-cost loans with payback terms ranging between 45 days and six months. The proposals would cap either interest rates or repayments as a share of income. All the rules will be reviewed by a panel of small business representatives and other stakeholders before the bureau revises the proposals for public comments and then finalizes them. The proposals follow a 2013 CFPB analysis of payday lending. For an average $392 loan that lasts slightly more than two weeks, borrowers were paying in fees the equivalent of a 339 percent annual interest rate, according to the report. The median borrower earned under $23,000 — beneath the poverty line for a family of four — and 80 percent of the loans were rolled over or renewed, causing the fees to further build. Over 12 months, nearly half of payday borrowers had more than 10 transactions, meaning they either had rolled over existing loans or had borrowed again. “They end up trapping people in longer-term debt,” said Gary Kalman, executive vice president at the nonprofit Center for Responsible Lending. Several states have tried to curb payday lending. Washington and Delaware limit how many loans a borrower can take out each year, according to a report by the Center for Responsible Lending. Arizona and Montana have capped annual interest rates. But other states have looser oversight. In Texas, payday companies filed 1,500 complaints against borrowers to collect money between 2012 and mid-2014, according to Texas Appleseed, a social justice nonprofit. Industry representatives say states are better able to regulate the loans, ensuring that consumers can be protected while lenders can also experiment with new products. “We believe the states are doing a good job regulating the industry,” said Ed D’Alessio, executive director at the Financial Service Centers of America. “They come at it with a standard where the laws governing the industry have made it through the legislative process.”

Payday Loan Rules Proposed by Consumer Protection Agency By Michael D Shear and Jessica Silver Greenberg, The New York Times March 26, 2015

BIRMINGHAM, Ala. — The Consumer Financial Protection Bureau, the agency created at President Obama’s urging in the aftermath of the financial crisis, took its most aggressive step yet on behalf of consumers on Thursday, proposing regulations to rein in short-term payday loans that often have interest rates of 400 percent or more. The rules would cover a wide section of the $46 billion payday loan market that serves the working poor, many of whom have no savings and little access to traditional bank loans. The regulations would not ban high-interest, short-term loans, which are often used to cover basic expenses, but would require lenders to make sure that borrowers have the means to repay them. The payday loan initiative — whose outlines were the focus of a front-page article in The New York Times last month — is an important step for a consumer agency still trying to find its footing among other financial regulators while defending itself against fierce attacks from Republicans in Washington. On Thursday, Mr. Obama lent his weight to the consumer bureau’s proposal, saying that it would sharply reduce the number of unaffordable loans that lenders can make each year to Americans desperate for cash. “If you lend out money, you have to first make sure that the borrower can afford to pay it back,” Mr. Obama said in remarks to college students here. “We don’t mind seeing folks make a profit. But if you’re making that profit by trapping hard-working Americans into a vicious cycle of debt, then you got to find a new business model, you need to find a new way of doing business.” The president’s appearance at Lawson State Community College is part of a campaign-style effort to portray Republicans as out of touch with the needs of middle-class Americans. In his remarks, he accused Republicans of backing a federal budget that would benefit the wealthy at the expense of everyone else. And he denounced his adversaries in Congress for seeking to terminate the consumer agency’s automatic funding. “This is just one more way America’s new consumer watchdog is making sure more of your paycheck stays in your pocket,” the president said. “It’s one more reason it makes no sense that the Republican budget would make it harder for the C.F.P.B. to do its job.” He vowed to veto any attempt that “unravels Wall Street reform.” Yet even supporters of the consumer bureau’s mission were critical on Thursday, saying that the proposed payday lending rules do not go far enough. A chorus of consumer groups said that loopholes in the proposal could still leave millions of Americans vulnerable to the expensive loans. Lenders have already shown an ability to work around similar state regulations, they said. “We are concerned that payday lenders will exploit a loophole in the rule that lets lenders make six unaffordable loans a year to borrowers,” said Michael D. Calhoun, the president of the Center for Responsible Lending. Payday lenders say that they welcome sensible regulation, but that any rules should preserve credit, not choke it off. “Consumers thrive when they have more choices, not fewer, and any new regulations must keep this in mind,” said Dennis Shaul, the chief executive of the Community Financial Services Association of America, an industry trade group. The attacks from both directions underscore the challenges facing the bureau, and its director, Richard Cordray, as it works to fulfill its mandate while pressure grows from Congress and financial industry groups. In drafting the rules, the bureau, according to interviews with people briefed on the matter, had to strike a precarious balance, figuring out how to eliminate the most predatory forms of the loans, without choking off the credit entirely. The effort to find that balance can be seen in the choice that lenders have in meeting underwriting requirements under the proposal. Under one option, lenders would be required to assess a customer’s income, other financial obligations and borrowing history to ensure that when the loan comes due, there will be enough money to cover it. The rules would affect certain loans backed by car titles and some installment loans that stretch longer than 45 days. Or the lender could forgo that scrutiny and instead have safety limits on the loan products. Lenders could not offer a loan greater than $500, for example. Under this option, lenders would also be prohibited from rolling over loans more than two times during a 12-month period. Before making a second or third consecutive loan, the rules outline, the lenders would have to provide an affordable way to get out of the debt. For certain longer-term loans — credit that is extended for more than 45 days — the lenders would have to put a ceiling on rates at 28 percent, or structure the loans so that monthly payments do not go beyond 5 percent of borrowers’ pretax income. Driving the proposal was an analysis of 15 million payday loans by the consumer bureau that found that few people who have tapped short-term loans can repay them. Borrowers took out a median of 10 loans during a 12-month span, the bureau said. More than 80 percent of loans were rolled over or renewed within a two-week period. Nearly 70 percent of borrowers use the loans, tied to their next paycheck, to pay for basic expenses, not one-time emergencies — as some within the payday lending industry have claimed. Such precarious financial footing helps explain how one loan can prove so difficult to repay. Borrowers who take out 11 or more loans, the bureau found, account for roughly 75 percent of the fees generated. Until now, payday lending has largely been regulated by the states. The Consumer Financial Protection Bureau’s foray into the regulation has incited concerns among consumer advocates and some state regulators who fear that payday lenders will seize on the federal rules to water down tougher state restrictions. Fifteen states including New York, where the loans are capped at 16 percent, effectively ban the loans. The rules, which will be presented to a review panel of small businesses, are likely to set off a fresh round of lobbying from the industry, said Senator Jeff Merkley, Democrat of Oregon. “They should instead strengthen this proposal by absolutely ensuring it is free of loopholes that would allow these predatory loans to keep trapping American families in a vortex of debt,” he said. Mr. Cordray introduced the rules at a hearing in Richmond, Va., on Thursday, flanked by the state’s attorney general and consumer groups from across the country. At the start of the hearing, Virginia’s attorney general, Mark Herring, said the choice of location was apt, describing the state as “the predatory lending capital of the East Coast,” a description he said was shameful. The hearing offered a rare glimpse at the forces aligning on either side of the payday loan debate. On one side, there was an array of people against the rules, from industry groups to happy customers, to dozens of payday loan store employees — many wearing yellow stickers that read, “Equal Access, Credit For All.” On the other, there were consumer groups, housing counselors, bankruptcy lawyers and individual borrowers, all of them calling for a real crackdown on the high-cost products. Both sides had their horror stories. Some told of stores forced to close, while others described how such loans had caused tremendous pain and fees. At one point, a woman wearing a neon pink hat who gave only the name Shirley burst into tears, saying that without the loans, her cousin with cancer would be dead. Martin Wegbreit, a legal aid lawyer in Virginia, called payday loans “toxic,” noting that “they are the leading cause of bankruptcy right behind medical and credit card debt.”

 Obama pushes payday lending rules in Alabama By Gregory Korte, USA Today March 26, 2015

WASHINGTON — President Obama pushed for stricter payday lending rules Thursday as he defended the federal government’s consumer protection watchdog against Republican efforts to defund the agency. “The idea is pretty common sense: if you lend out money, you should first make sure that the borrower can afford to pay it back,” Obama said at Lawson State Community College in Birmingham, Ala., on Thursday afternoon, according to an advance copy of his speech. Obama’s speech came as the Consumer Financial Protection Bureau outlined a proposal to crack down on payday lending practices that result in what it calls “debt traps.” “As Americans, we don’t mind folks making a profit,” Obama said. “But if you’re making that profit by trapping hardworking Americans in a vicious cycle of debt, then you need to find a new business model. You need to find a new way of doing business.”Most of Obama’s speech in Birmingham followed the template of his recent campaign for “middle-class economics.” But the venue and the timing was deliberate: Birmingham was the site of CFPB’s first field hearing on payday loans in 2012. Obama noted that there are four times as many payday lenders in Alabama as there are McDonald’s restaurants. “One of the main ways to make sure paychecks go farther is to make sure middle-class Americans don’t get ripped off,” he said. By law, the bureau is an independent agency. with a director nominated by the president but with its own budget and regulatory power. White House Press Secretary Josh Earnest said Thursday that while Obama cannot dictate payday lending regulations, “these kinds of rules are right in line with the kinds of priorities the president has established with middle-class economics.” The Obama administration is just as worried about CFPB’s independence from Congress. The House budget proposal, passed by Republicans on a mostly party-line vote Wednesday, would rid the bureau of its automatic funding from fees paid by the Federal Reserve Board. That, the Obama administration warns, would subject the agency to partisan budget-cutting and limit its independence. Obama renewed his promise to block veto any legislation that would roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the agency. “If Republicans in Congress send me a bill that unravels the reforms we put in place,” Obama said, “I will veto it.” The rules advanced by the CFPB Thursday would regulate all forms of short-term lending — including products like payday loans and auto title loans. Lenders would have to determine at the outset that a consumer is not taking on “unaffordable” debt and would limit the number of loans a borrower can take out in a year. CFPB Director Richard Cordray rolled out the proposal at a hearing in Richmond, Va., on Thursday. “Too many short-term and longer-term loans are made based on a lender’s ability to collect and not on a borrower’s ability to pay,” said Cordray. The proposal, which the agency is calling a blueprint, must still be reviewed by a small business panel and be open for comments before it begins an even more formal rulemaking process later this year.But some lenders are already lining up against the proposal, saying it would limit options for people who don’t have access to more traditional forms of credit. “At a time when consumers are demanding choices for flexible, responsible credit products, we’re very concerned that this initial proposal could severely restrict their options,” said Lisa McGreevy, president of the Online Lenders Alliance. Consumer advocates are also expressing concerns, saying even the new rules give lenders too much flexibility to exploit loopholes. “They simply change a few terms in their loans and package them a different way,” said Mike Calhoun, president of the Center for Responsible Lending. “For payday lenders, their best customer is actually the one who doesn’t have the ability to pay off.”

Payday Loans — And Endless Cycles Of Debt — Targeted By Federal Watchdog By Scott Horsley, NPR March 26, 2015

For millions of cash-strapped consumers, short-term loans offer the means to cover purchases or pressing needs. But these deals, typically called payday loans, also pack triple-digit interest rates — and critics say that borrowers often end up trapped in a cycle of high-cost debt as a result. Now, the Consumer Financial Protection Bureau (CFPB) is preparing to unveil a framework of proposed rules to regulate payday lenders and other costly forms of credit. The federal watchdog agency is showcasing those proposals Thursday, the same day that President Obama spoke in Alabama, defending the agency and its work. “The idea is pretty common sense: if you lend out money, you have to first make sure that the borrower can afford to pay it back,” Obama said. “This is just one more way America’s new consumer watchdog is making sure more of your paycheck stays in your pocket.” The new rules would likely affect consumers like Trudy Robideau, who borrowed money from a payday lender in California to help cover an $800 car repair. When she couldn’t repay the money right away, the lender offered to renew the loan for a fee. “Ka-ching,” Robideau said. “You’re hooked. You can feel the hook right in your mouth. And you don’t know it at the time, but it gets deeper and deeper.” Before long, Robideau was shuttling to other payday lenders, eventually shelling out thousands of dollars in fees. “I was having to get one to pay another,” she said. “It’s a real nightmare.” When Robideau first spoke to NPR back in 2001, payday lending was a $14 billion industry. Since then, it has mushroomed into a $46 billion business. Lenders have also branched into other costly forms of credit, such as loans in which a car title is used as collateral. “What we want is for that credit to be able to help consumers, not harm them,” said Richard Cordray, director of the CFPB. “What we find is that consumers who get trapped in a debt cycle — where they’re having to pay again and again, fee after fee — is actually quite detrimental to consumers, and that’s what we’re concerned about.” Cordray suggests that one solution is to require lenders to make sure borrowers can repay a loan on time, along with their other monthly expenses. That kind of review was a “bedrock principle” of traditional lending, Cordray said in remarks prepared for a Richmond, Va., field hearing. But many payday lenders “make loans based not on the consumer’s ability to repay, but on the lender’s ability to collect.” Because payday lenders have automatic access to a borrower’s bank account, they can collect even when a borrower is stretched thin. “If you’re behind on existing bills, for any legitimate lender that’s a red flag,” said Michael Calhoun, president of the Center for Responsible Lending, a consumer advocacy group. “For the payday lenders, that’s often a mark of a vulnerable and profitable customer, because they will be stuck.” Payday lenders say they might be willing to live with an ability-to-pay test, so long as it’s not too costly or intrusive. “It only makes sense to lend if you’re getting your money back,” said Dennis Shaul, CEO of the Community Financial Services Association of America, a payday industry trade group. “Therefore the welfare of the customer is important. Now, so is repeat business.” In fact, repeat borrowers are the heart of the payday business. Government researchers found that 4 out of 5 payday borrowers had to renew their loans, typically before their next paycheck. And 1 in 5 renewed at least seven times, with the accumulated fees often exceeding the amount originally borrowed.Regulators are also considering alternatives to the ability-to-pay standard, including limits on the number of loan renewals, as well as mandatory repayment plans. Other proposed rules would crack down on costly collection practices, requiring lenders to notify borrowers three days before taking money out of their bank accounts and limiting the number of withdrawal attempts. Wynette Pleas of Oakland, Calif., ended up with hundreds of dollars in overdraft fees after a payday lender repeatedly tried to collect from her account. “They make it seem like it’s so convenient, but when you can’t pay it back, then that’s when all the hell breaks loose,” Pleas said. The proposed regulations are still at an early stage, and there will be plenty of pushback. The industry managed to evade earlier efforts at regulation, so Cordray says that he wants the rules to be free of loopholes. “We don’t want to go through all the effort of formulating rules and then find people are working their way around them,” he said.

The payday industry’s money-making model is coming to an end By Chico Harlan, Washington Post March 26, 2015

The payday lending industry markets itself as a helping hand for customers dealing with a short-term cash crunch or one-time emergencies. Lending ads frequently depict dented cars, flat tires, mothers looking worriedly at bills. “We understand that you may be in a tough situation, and we’re here to get cash in your hands quickly,” one major lender, Speedy Cash, says on its Web site. But the U.S. government’s consumer protection agency says such loans are too rarely a one-time thing. After the original loan is taken out, fees mount. Cash-strapped borrowers face debts they can’t afford. They take out new loans to pay for those debts. And the debts mount further, forcing a cycle of repeat borrowing — and escalating fees — that the industry depends on to make its money. The Consumer Financial Protection Bureau’s new (and preliminary)regulations for payday lending mark an attempt to call the industry on its own rhetoric. In short, the rules, as written, attempt to force the short-term loans to actually end in the short-term. Under these rules, unveiled Thursday, borrowers could take out an initial payday loan. And then, as that one becomes due, another one. And then a third. And that’s it. The notion of a back-to-back-to-back payday loan may sound extreme, but it’s actually a fairly average outcome for a borrower. The CFPB’s goal, you might say, is to eliminate the outcomes that are even worse than that. According to CFPB data, 40 percent of borrowers take out only one loan. (A sliver of those, it should be mentioned, default rather than make the full repayment.) About 15 percent take out two loans in sequence. The remaining 45 percent take out three or more. And a full 14 percent takes out more than 11 loans in a row. For that portion, a credit product marketed as a two-week cash advance turns into months of debt, as seen in the CFPB data below. Because they take aim at this pillar of the payday industry’s business model, the new CFPB rules “could shift the market pretty substantially,” said Gary Kalman, an executive vice president at the Center for Responsible Lending. Consumer advocates say borrowers often have little choice about using second and third payday loans to pay for original ones. That’s because borrowers secure their loans by giving lenders either a personal check or authorizing access to a bank account. Once the next paycheck comes in, the lenders collect the money—which might leave borrowers with nothing left to cover other expenses, like mortgage or bill payments. At a hearing Thursday in Richmond to discuss the industry and the CFPB proposals, several payday lending officials said the potential regulation was excessively harsh, and risked choking off credit to low-income consumers who are poorly served by banks. They also defended the pattern of repeat loans, saying that multiple loans in succession don’t necessarily signify a borrower in distress. “Re-borrowing is a decision made by a consumer and simply a matter of choice,” said Edward D’Alessio, executive director of the Financial Service Centers of America, a trade association. Under the CFPB guidelines, lenders would have to obey a 60-day “cooling off” period after the third consecutive loan to a borrower. In its recent federal filings, QC Holdings, Inc., a public company that operates some 400 lending branches across the country, described such “cooling off” regulation as one of the “risk factors” to its business. QC Holdings said its payday loan customers in 2014 on average took out six two-week payday loans. Richard Cordray, the CFPB director, said Thursday in Richmond that it was irresponsible to extend credit in a way that sets up borrowers to fail and “ensnares considerable numbers of them in extended debt traps.” “Consumers need credit that helps them, not harms them,” he said. “If the lender’s success depends on the borrower failing, market dynamics are not functioning properly.”

 Payday Lenders Face New Rules Amid Allegations of Consumer Abuse By Carter Dougherty, Bloomberg March 26, 2015

Payday lenders face their toughest federal regulations to date following a years-long campaign by consumer groups that accused the firms of charging astronomical interest rates and leaving borrowers in an inescapable debt trap. The U.S. Consumer Financial Protection Bureau will propose Thursday that payday lenders verify a borrower’s income, outstanding debts and history of repaying loans before extending them additional credit. The rules are intended to rein in an industry the CFPB said charges rates that can exceed 500 percent on loans ranging from $100 to $500. “Too many short-term and longer-term loans are made based on a lender’s ability to collect and not on a borrower’s ability to repay,” CFPB Director Richard Cordray said in an e-mailed statement. “The proposals we are considering would require lenders to take steps to make sure consumers can pay back their loans.” While far from final, the CFPB rules would probably affect a broad swath of companies if approved, including auto-title lenders and banks that offer advance loans to customers through checking accounts. Payday lenders have repeatedly drawn the ire of politicians and President Barack Obama is slated to discuss the industry and the CFPB’s proposed regulations during a Thursday speech, according to a White House spokesman. Intense Lobbying The CFPB said it’s considering two approaches to regulations. One would require lenders to determine at the outset whether a customer is able to repay a loan, while the other would impose restrictions designed to ensure a consumer can pay off their debt. The rules also could restrict how lenders debit customer checking accounts in order to avoid bank fees. The CFPB isn’t yet proposing a formal regulation. The law requires the agency to first submit its ideas for rules to a government panel that examines whether they would impose an undue burden on small businesses. Still, the proposal will probably set off intense lobbying by payday lenders, who say they are providing a source of borrowing for people who can’t get credit cards or more standard bank loans. “At a time when consumers are demanding choices for flexible, responsible credit products, we’re very concerned that this initial proposal could severely restrict their options,” Lisa McGreevy, the head of the Online Lenders Alliance, said in an e-mailed statement. ‘Debt Trap’ Fifty-six percent of the customers of payday-loan stores earn between $10,000 and $40,000 a year, according to a 2013 CFPB study. Only 8 percent earn more than $50,000 annually. Borrowers are typically required to pay back loans in a few weeks. The short time frame can make it difficult for consumers living paycheck to paycheck to accumulate enough money to repay their debts, the CFPB said. As a result, many loans are rolled over into a new loan or consumers are charged additional fees to extend their due date. So what starts out as a “short-term, emergency loan, turns into an unaffordable, long-term debt trap,” the CFPB said. Complaints about those types of business practices prompted consumer groups to call the regulator’s plan long overdue. “The proposal endorses the principal that payday lenders be expected to do what responsible mortgage and other lenders already do: check a borrower’s ability to repay the loan on the terms it is given,” Mike Calhoun, president of the Center for Responsible Lending, a Durham, North Carolina-based advocacy group, said in an e-mailed statement.

CFPB Outlines ‘Debt Trap’ Regulations for Payday Loans and Auto Title Loans By Catherine Dunn, International Business Times March 26, 2015

new proposal by the Consumer Financial Protection Bureau (CFPB) outlines rules that would curb a large swath of high-cost loan products, including payday loans and auto-title loans, whether they’re offered in stores or online. The proposal, announced Thursday, aims to curtail “debt traps” by requiring lenders to consider whether or not a borrower could actually afford to repay the loan. In an industry known for making loans with triple-digit interest rates to the working poor, those loans are often tendered in exchange for access to a consumer’s bank account, or the title to a borrower’s car, and not based on whether customers can repay the loans, according to the CFPB. This model needs to change, officials say, by making a borrower’s ability to repay loans a core standard of federal regulations in the personal loan market. “Extending credit to people in a way that sets them up to fail and ensnares considerable numbers of them in extended debt traps, is simply not responsible lending,” CFPB Director Richard Cordray said, according to remarks to be delivered at noon on Thursday at a field hearing in Richmond, Virginia. “It harms rather than helps consumers. It has deserved our close attention, and it now leads to a call for action.” The blueprint, unveiled Thursday, will serve as the basis for discussions between regulators and industry as the bureau continues to draft regulations for small-dollar credit products. While the CFPB does not have the authority to limit interest rates, the agency’s focus on loan affordability means that some lenders “would have to change their business models,” Cordray said, rather than “rely on piling up fees.” Payday lending took off as a business in the 1990s, and the CFPB says that lenders earn $8.7 billion a year in interest and fees. The products are marketed as two-week loans, and borrowers hand over a post-dated check, or their bank account details, in return for the quick cash. Industry representatives argue that their services provide access to credit to hard-pressed borrowers who have few financial options available to them. Consumer advocates have maintained that the loans, as the CFPB puts it, are nothing more than debt traps with high fees that force consumers to keep borrowing, or refinancing, just to keep up with the payments. According to the Pew Charitable Trusts, borrowers, on average, wind up in debt for six months, not two weeks. Among the approximately 12 million Americans who turn to payday loans every year, Pew says the average loan consumes 36 percent of the borrower’s next paycheck, leaving little room to cover living expenses, and driving consumers to borrow again. Payday loans are permitted in 36 states, and auto title loans — which cost over 2 million consumers $3 billion a year — are allowed in 25 states. Attempts to regulate the industry at the state level are often described by consumer advocates as a game of whack-a-mole, with lenders tweaking their products to avoid restrictions. Lobbying fights over proposed bills can drag on for years in state legislatures. That dynamic has heightened the anticipation of federal rules, and advocates have clamored for baseline standards that will complement, or encourage, state protections. The CFPB proposal makes clear that rules would apply not only to various types of loans, but would also cover both short-term loans, of 45 days or less, and long-term products that extend beyond that period. In creating an ability-to-repay standard, regulators say they would offer lenders two choices about how to comply: either “debt trap prevention” or “debt trap protection.” Under the “prevention” option, lenders would need to “engage in basic underwriting,” Cordray said. That translates to verifying key information, such as a consumer’s income, borrowing history and whether they can afford the loan payments. If lenders were to choose the “protection” option instead, they would have to “protect against debt traps throughout the lending process,” Cordray said. For example, under one possible scenario for short-term loans, lenders could extend a borrower up to three loans, but the principal amount would decrease each time, and the debt would have to be paid off after the third loan. But some observers are already wary of giving payday lenders any wiggle-room through the “protection” option, rather than requiring all lenders to calculate a borrower’s ability to pay back loans upfront. “These ‘options’ are an invitation to evasion,” Mike Calhoun, president of the Center for Responsible Lending, said in a statement. “If adopted in the final rule, they will undermine the ability to repay standard and strong state laws, which give consumers the best hope for the development of a market that offers access to fair and affordable credit.”

Consumer Financial Protection Bureau Proposes New Payday Lending Rules By Ben Walsh, Huffington Post March 26, 2015

The Consumer Finance Protection Bureau will consider new rules covering payday loans, agency head Richard Cordray said Thursday in a statement. The proposal also covers car title loans and other high-interest, short-term loans. Cordray said that in many cases, “no attempt is made to determine whether the consumer will be able to afford the ensuing payments — only that the payments are likely to be collected.” And when the loan is due, he said, “the lender can trump the consumer’s own discretionary choices about budgeting and spending.” In other words, people who borrowed money because they couldn’t make ends meet are forced to repay those loans instead of making ends meet. In response, the CFBP is proposing two-tracked regulation: protection and prevention. Lenders will be able to choose which system they participate in. The prevention rules, Cordray said, would require lenders to make “reasonable determination that the consumer could repay the loan when it comes due without defaulting or re-borrowing.” All fees, not just interest paid, would have to be taken into consideration when evaluating if a borrower can afford the loan payment, along with other living expenses. These rules, which Cordray referred to as “basic underwriting,” would apply at the moment a person borrows money. Under the protection rules, a consumer who took out three loans quickly would have to wait through a 60-day “cooling off period” before taking out another loan. The protection rules would force lenders to allow consumers to get out of debt over time in an affordable way, and would apply until the loan is fully paid off. If customers needed to borrow more to pay off an existing loan, the new loan would have to be smaller than the initial loan, and payday lenders couldn’t make more than three loans unless the first loan was fully paid off. Alternatively, the lender could provide a no-cost extension to the loan to help the borrower pay it off. The aim of both rule types is to prevent debt traps, in which borrowers get stuck in a devolving cycle of more borrowing to pay off debt. Since payday loans are unsecured loans, without the ability to simply lend ever-increasing amounts to consumers, the lender’s economic incentive is to help the borrower repay the initial loan. The proposed rules would apply to any loan with a repayment period of 45 days or less, and cover both traditional storefront lenders and online lenders. President Barack Obama will also speak about the need for increased payday loan regulations during a trip to Birmingham, Alabama, reported Monday. His comments will add heft to the agency’s new proposed rules. The rules are likely to face strong opposition from the payday lending industry, as well as Congressional Republicans. On Tuesday, House Republicans excoriated the head of the FDIC for his agency’s effort to crack down on fraudulent activities in specific, high-risk industries, including payday lenders, gun dealers, assorted financial scammers and escort services. Mike Calhoun, president of the Center for Responsible Lending, said that if it is made mandatory, forcing lenders to judge if customers can actually repay loans “will help millions of borrowers avoid dangerously high-cost payday and other abusive loans.” Calhoun worried that there were still loopholes for payday lenders to exploit, and noted the industry’s adroitness in adapting abusive practices in response to new regulation. The Washington Post’s Jeff Guo chronicled the ways payday lenders have wriggled through state laws meant to regulate payday loans, including issuing simultaneous loans to get around borrowing limits and calling themselves mortgage lenders. The National Consumer Law Center’s Lauren Saunders pointed out that while promising, the agency’s “proposal would permit a triple-digit six-month installment loan if payments are limited to 5% of the borrower’s gross income, regardless of the borrower’s expenses or debts.” Expenses and other debts, Saunders said, not income alone, are key to understanding if a loan truly is affordable to a borrower. Dennis Shaul, head of the payday lending industry group the Community Financial Services Association of America, said in a statement that payday loans are a crucial, and sometimes the only, source of credit for millions of Americans, and that any new regulation should take into account decreased consumer access to credit. In an indication of what the industry’s argument against the CFPB rules might be, he also warned that “new rules should be grounded in rigorous research, not anecdote or conjecture.”

The Real Battle Over Payday Lending Has Just Begun By Rachel Witkowski, American Banker March 26, 2015

WASHINGTON — The Consumer Financial Protection Bureau’s plans for revamping payday lending set off a fierce debate Thursday over whether the agency had gone too far or not far enough, proving that this is likely to be one of the trickiest rulemakings the agency will ever attempt. Under the proposal, the CFPB would give lenders two options: either ensure borrowers have the ability to repay before issuing credit or comply with limitations after the loan is issued such as restricting how often it can be rolled over or reissued within a certain time frame. Industry representatives wasted no time in declaring that the plan was too broad and would cut off access to small-dollar credit, but consumer groups said the multiple options created “loopholes” for lenders to exploit. “Our preliminary review indicates customer will lose many of the credit options currently available today,” said Edward D’Alessio, executive director of the Financial Service Centers of America, during a field hearing on the issue held by the CFPB. “Our employee base is very diverse. Approximately 80% are women, more than two-thirds are minorities … a rulemaking that causes FSCA members to close their doors will severely impact these hardworking employees and their families.” The CFPB has not formally issued the proposals yet, but instead will discuss its plans during a mandatory Small Business Review Panel review. The agency announced early Thursday how it wanted to regulate the industry, creating parallel sets of rules that either “prevent” a consumer from falling into a debt trap or “protect” them once they take out credit. Consumer groups argued that the CFPB should have mandated an ability-to-repay assessment for all payday-type loans. “Most lenders already follow the ability-to-repay principle, and we applaud the CFPB for applying it to small-dollar lending practices as well. At the same time, we are concerned about the impact of any kind of safe harbor provision that could continue to expose some borrowers to prolonged and expensive cycles of debt,” said Wade Henderson, president and chief executive of the Leadership Conference on Civil and Human Rights, who also appeared at the field hearing. “So as the CFPB moves forward with this rule, we urge you to make the most of your authority to protect all Americans, including communities of color, from the scourge of predatory payday loans.” Although the CFPB is long way from a final rule, its ultimate regulation is likely to remain tough. The agency’s plans immediately received backing from President Obama, state finance departments and attorneys general, some of the strongest support it has received publicly during any rulemaking process. Obama even touted the CFPB’s payday lending plans in a speech Thursday in Alabama. “Today, the CFPB announced that it’s taking an important first step towards protecting consumers from getting stuck in these cycles of debt. The idea is pretty common sense: if you lend out money, you should first make sure that the borrower can afford to pay it back,” said Obama while speaking at the Lawson State Community College in Birmingham. “As Americans, we believe there’s nothing wrong with making a profit. But if you’re making that profit by trapping hardworking Americans in a vicious cycle of debt, then you need to find a new way of doing business.” Virginia Attorney General Mark Herring, meanwhile, spoke at the CFPB’s field hearing in Richmond, endorsing the agency’s approach. He used the hearing to announce that his department would issue a plan to stop “predatory lending” in the state. “By May 1, I will have on my desk a plan for reorganizing and revitalizing my consumer protection section with a core focus on fighting predatory lending,” Herring said. “This is a process that is already underway and we are exploring a number of strategies including enforcement actions against lenders who withhold terms or operate outside of their license … or whether additional legislation is needed to close loopholes that lenders have exploited.” Industry representatives and payday lenders are concerned, however, that some of the requirements the CFPB is considering could conflict with existing state laws. “In my initial read of this document, it will be extremely difficult to mesh these guidelines with state laws if not impossible,” said D. Lynn DeVault, a board member at the Community Financial Services Association of America and Check into Cash. “The CFPB’s proposed rules are not consumer-centered. In fact, they’re more closely centered on the consumer advocacy groups’ belief of what is right for the consumer; and skewed towards those who wish to eliminate the industry, not a fair regulatory environment for consumers and providers.” CFPB Director Richard Cordray heavily emphasized two areas during his own remarks: having an ability-to-repay requirement and stopping lenders from directly withdrawing payments from bank accounts, which can lead to repeat fees. “The true costs, taken in the aggregate, of a lending model that rests on the ability to collect, rather than the ability to repay, must be kept in mind as we assess the effects on consumers, especially those who were already experiencing financial difficulties when they took out the loan in the first place,” he said. “We recognize that consumers have a legitimate need to access credit to meet their particular circumstances. But consumers need credit that helps them, not harms them.” Banks and credit unions have long argued that they have their own underwriting standards before issuing a payday-type loan but those rules have also driven consumers to seek loans outside the traditional banking system. Because of this, some say the CFPB’s plan, which would cover all lenders including storefront and online payday lenders, would at least level the playing field. “One thing we’re suspecting is that this is going to open the door for the banking industry to reenter this marketplace,” said Travis Sabalewski, a partner and member of the financial industry group at Reed Smith. “The traditional banking industry will be on a level playing field and payday lenders will now also be required to do the front-end work of determining a borrower’s ability to repay.”

State joins efforts to curb payday debt traps By Carol Hazard, Richmond Times-Dispatch March 26, 2015

Virginia will develop strategies to combat predatory lending practices that ensnare thousands of people in cycles of debt, Attorney General Mark R. Herring said Thursday at a field hearing in Richmond held by the federal Consumer Financial Protection Bureau. The state’s effort coincides with the federal agency’s announcement at the hearing that it will begin a regulatory process to place limits on high-interest, short-term loans. Proposed rules would cover payday loans, vehicle title loans and certain high-cost installment loans. “Virginia is now considered the predatory lending capital of the East Coast,” Herring said. “I cannot accept that, and we should be ashamed of that.” Too many Virginians find themselves turning to predatory loan products in a moment of need, and they start of cycle of loans and debt from which they can’t escape, Herring said. “Some of these loans are little more than financial quicksand, designed to fail from the second they’re made,” he said. “Virginians deserve better, and I am going to use the resources and authority of my office to make sure they get it.” Herring said he will reorganize the consumer protection section in his office to include a focus on predatory lending. That effort will include enforcement, education and partnerships with the Consumer Financial Protection Bureau, other states and advocacy groups. Richard Cordray, director of the bureau, said federal proposals are aimed at curbing debt traps that plague millions of consumers across the country. “Too many short-term and longer-term loans are made based on a lender’s ability to collect and not on a borrower’s ability to repay,” Cordray said during the meeting at the Greater Richmond Convention Center. The proposals under consideration would require lenders to take steps to make sure consumers can pay back their loans. “These common-sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them,” Cordray said. During a panel discussion, lenders said they were concerned that the proposed federal rules were too restrictive and consumers would lose access to credit. “Some proposals will leave consumers worse off with fewer options,” said D. Lynn DeVault, board member of Check into Cash, a Cleveland, Tenn.-based financial services retailer with 1,100 stores in 30 states. Federal requirements must be supported by data and research, not by anecdotal incidents, she said. “People who have no need for payday loans are leading the charge to eliminate them.” Weighing in on the other side, Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights, said abusive lending practices tend to target communities of color and other economically challenged populations. Henderson said a common-sense approach is needed to ensure that borrowers have enough money to repay loans on time and not get pulled into a prolonged and expensive cycle of debt — “the scourge of predatory payday loans.” A payday loan is a short-term loan, generally for $500 or less, loaned at a high interest rate on the agreement that it will be repaid when the borrower receives the next paycheck. In exchange for cash, borrowers typically write a post-dated personal check in the amount they wish to borrow, plus a fee. “We intend for consumers to have a marketplace that works both for the short-term and longer-term credit products,” Cordray said. “For lenders that sincerely intend to offer responsible options for consumers who need such credit to deal with emergency situations, we are making conscious efforts to keep those options available. … But lenders that rely on piling up fees and profits from ensnaring people in long-term debt traps would have to change their business models.” Herring noted that Virginia-based payday lenders have annually made more than 440,000 loans totaling more than $170 million to more than 137,000 borrowers. Borrowers take out an average of more than three loans a year at an average annual interest rate of 289 percent.

  1. Joseph Face Jr., commissioner of the state Bureau of Financial Institutions, said payday loans were introduced in Virginia through legislation in January 1999. The number of lenders here peaked in 2007 to 84 licensees. By the end of last year, 20 payday lenders were licensed to operate in the state.

He said Virginia is engaged in a coordinated effort with other state regulatory agencies to establish payday lending examinations. Herring’s office also is looking more closely at car title loans, which are short-term loans in which the borrower’s car tile is used as collateral. Loans usually are for less than 30 days. If the loan is not repaid, the lender can take ownership of the car and sell it to recoup the loan amount. Virginia-based car title lenders issued more than $206 million in loans in 2013 to more than 150,000 borrowers with an average annual interest rate of 216 percent, the AG’s office said. More than 17,000 borrowers had their cars repossessed, and more than 13,000 had their cars sold. Complaints to the AG’s office have included a Virginia resident who owed $63,000 after borrowing $10,000, another who owed $14,000 after borrowing $2,500, and a third owing $5,000 after borrowing $1,000. Interest often accumulates and late fees and rollover fees are charged. A lawsuit involves Mechanicsville couple stuck in an open-ended loan, according to the AG’s office. They borrowed $2,100 from a payday lender and have paid more than $15,000 in principal and interest over four years. The lender still claims they owe $2,100. Field hearings by the Consumer Financial Protection Bureau, such as the one in Richmond, are being held in cities across the country.

Obama praises payday lender rules, vows veto of limitations By Nedra Pickler, The State March 26, 2015

Embracing proposed new rules aimed at payday lenders, President Barack Obama on Thursday warned Republicans that he would veto attempts to unravel regulations that govern the financial industry. Obama, in excerpts of remarks for delivery later Thursday, praised the Consumer Financial Protection Bureau for its proposal to set standards on a multibillion-dollar industry that has historically been regulated only at the state level. “As Americans, we believe there’s nothing wrong with making a profit,” Obama says, according to the excerpts. “But if you’re making that profit by trapping hard-working Americans in a vicious cycle of debt, then you need to find a new way of doing business.” Obama’s remarks come on the same day the consumer agency was announcing the proposed payday lending rules in a hearing in Richmond, Va. Payday loans provide cash to borrowers who run out of money between paychecks. The short-term loans carry high interest rates. The rule would require lenders to make sure that borrowers can afford to pay the money back. Obama says the Republican budget, a version of which just passed the House of Representatives, would make it harder for the Consumer Financial Protection Bureau to do its job. The budget is a nonbinding measure that serves as a blueprint for ensuing legislation. “If Republicans in Congress send me a bill to unravel Wall Street reform, I will veto it,” he said. Obama also is using his speech in Alabama for a broader attack on the Republican budget. He said Republicans aim to cut taxes for wealthy individuals. “I don’t think our top economic priority should be helping a tiny number of Americans who are already doing extraordinarily well, and asking everybody else to foot the bill,” he said.

Regulators propose crackdown on payday loans By Kelly Avellino, WWBT March 26, 2015

During a conference in Richmond, federal consumer protection regulators proposed a crackdown on payday lenders. Virginia Attorney General Mark Herring is also pitching tougher laws for the industry across the state. Virginia has a reputation as the “predatory loan capital of the east coast,” according to Herring. A new set of regulations is being drawn up to change that. However, some lenders argue that this could do more harm than help, in cases where people really need the money, and have nowhere else to get it. Payday loans are small, short-term loans that people take out and agree to pay back quickly. However, those loans aren’t necessarily cheap. Interest rates can be high, because the risk of not getting repaid is high. However, federal regulators say some payday loan shops take advantage of people like Thomasine Wilson. Wilson took out $200. She ultimately paid back nearly $600, after two years of re-borrowing to pay back mounting interest, and other fees. “Each time I went back in [to the payday loan business] I had to take out another loan, to pay [the initial] loan and be able to pay my regular bills at that time,” said Wilson. Herring says the payday loan industry needs stricter rules so lenders don’t take advantage of vulnerable customers. “The people who take [these kinds of loans] out are often in very necessitous circumstances, with nowhere else to turn, and feel desperate. They’ll agree to terms that no other reasonable person would,” he said. Payday lenders say that not all shops are predatory. Advocates add that more regulations could hurt upstanding operations, which give a critical service to people who otherwise couldn’t get loans from banks. “Without this credit, [customers needing loans] are in a much worse state than they would be with it,” said Dennis Shaul, CEO of the Community Financial Services Association, which represents payday lenders. Shaul says many payday lenders have fair and transparent business practices, when it comes to repaying loans. Shaul says customers should be allowed to make their own choices, and have the freedom to borrow money when they can’t get it anywhere else. “What [regulators] are really saying here, is that the 12 million or so Americans who avail themselves of this product every year, are too dumb to figure out for themselves whether or not this is good for themselves.” Regulators are aiming for rules that wouldn’t allow people to take out loans in the first place, if they don’t have the ability to pay back the money. Laws would also be enforced to allow borrowers a fair payment plan, if they get stuck payments.

Attorney General wants changes in pay-day and title loans process WRIC March 26, 2015

Thousands of Virginians depend on pay-day or car title loans to make ends meet; however, the interest rates on some of these loans are so steep. The Attorney General has decided to intervene. “It was just astronomical outrageous prices,” says Thomasine Wilson, who recently lost her job and thought a $200 pay-day loan seemed like a good idea. “Each time I had to pay that loan back, I had to get a loan to pay a loan, and by the time it got to the end of that year, it was over $500.”. According to the State Corporation Commission, the average car title loan interest rate is 216%. The rate is even higher for payday loans at an average of 289%. “For those consumers who end up in these loans, they are a  huge issue , they can wreak havoc on their lives,” says David Silberman, with the Consumer Financial Protection Bureau. Now the organization and the AG’s office wants to create tougher laws to protect customers, make it harder for companies to break those laws and they also want to educate consumers. “Virginia is being referred to as the predatory loan capital of the east coast. That is a serious blemish on our reputation and more importantly, it means that a lot of Virginians are being hurt,” says Attorney General Mark Herring. Also present at Thursday’s announcement were people who support title and pay-day lenders. “During the time that it was very cold and I didn’t have enough money to  pay my bills, so I went there, they gave it to me and I paid my bill,” say Patricia Bolden. “I think everyone here can agree that what we want is for the borrower to be able to succeed in repaying the loan,” says Lisa McGreevy, the president and CEO of the Online Lenders Alliance. The AG’s team is now working on the final plan which should be complete by May 1st.

Mob sharks: Better rates than Alabama payday lenders By Josh Moon, Montgomery Advertiser March 27, 2015

In September 2000, record promoter and movie producer Joseph Isgro was sentenced by a district court judge in California to 50 months in federal prison for running a loan-sharking business out of a Beverly Hills shopping center. Isgro, who was connected to the Gambino crime family, drove a Cadillac, lived in a Beverly Hills mansion and was, by all accounts, doing quite well when he was arrested. The lone source of his income for at least a five-year period was the interest he made charging down-on-their-luck borrowers an exorbitant interest rate. According to court records, prosecutors told the jury that Isgro “preyed” upon his borrowers by charging as much as 5 percent per week. For that crime in California, Isgro went to federal prison for four years. In Montgomery, and around Alabama, he would’ve been the cheapest game in town. A payday lender in this state can charge a rate that amounts to nearly 9 percent per week. Legally. That’s an annualized rate of 456 percent, nearly double the rate for which police in upstate New York arrested a mob-connected loan shark last September. In a widespread crackdown on organized crime there, barbershop owner Anthony “Harpo” DePalma was picked up for charging 200 percent interest. That’s what those guys get for conducting their shady business in states that care about their citizens, I guess. Luckily, the worse-than-mob-loan sharks payday lenders in Alabama have no such concerns. Because like the old-school mafia guys, today’s payday and title loan lenders learned the secret to conducting a successful shady business: greased palms make people look the other way. Over the last few election cycles, lobbyists for Alabama’s legal loan sharks dumped more than $500,000 into the campaign accounts of legislators, especially those who serve on the Senate’s banking and insurance committee and the House’s financial services committee. Last year, a bill that would have capped rates at 36 percent was killed in the House committee – a committee where seven of the nine members had accepted contributions from the businesses they were to regulate. Just so we understand the nature of today’s politics: former Alabama Gov. Don Siegelman is wilting away in federal prison for allegedly accepting a campaign contribution in exchange for reappointing a guy to a board he had served on under three previous governors, but these dudes – Democrats and Republicans – are within the law to accept contributions from the businesses they regulate. Swell, right? If I’m not mistaken, that’s the sort of nonsense that led to a total collapse of our financial system in 2008. Regulators were far too chummy with the banking executives they were supposed to regulate, leading to one missed warning sign after another, until finally the whole thing came crashing down. That crash led to Democrats pushing through the formation of an oversight group – the Consumer Financial Protection Bureau – that has the responsibility of protecting consumers from predatory lenders and outrageous schemes. On Thursday, President Obama was in Birmingham to push the CFPB’s plan to establish rate caps for payday lenders. And why wouldn’t he come to Alabama to do that? As Obama mentioned, this state has more payday lenders than McDonald’s. Let that sink in. Of course, Republicans in Congress have targeted the CFPB, because there apparently is no government entity or law that protects the country’s middle class or poor that shouldn’t be immediately abolished. And the same holds true in Alabama. Even with more than half of the House signed on as sponsors to that payday bill last year – the one that capped rates at 36 percent – it didn’t make it out of committee for a floor vote. In the meantime, these same men and women trip over themselves to lower the “unfair” tax rates imposed on multi-million dollar businesses and any mention of raising the ridiculous property taxes that have left billionaires paying less for their acres than a middle-class homeowner is met with outrage. But a poor guy who’s paying a 456 percent interest rate, which is literally higher than the mob charged, on a $500 loan he took out to fix his car so he could get to work – a loan that he’s now paid more than $1,000 in interest alone on – is perfectly OK. Well, I should say, it’s OK so long as a little bit of that vig goes towards making the right lawmakers fuhgetaboutit.

President Obama discusses economy, criticizes payday lenders in Birmingham speech WTVM March 26, 2015

BIRMINGHAM, AL (WBRC) -President Barack Obama discussed the nation’s economy, budget and the dangers of payday loans during an address he delivered at Lawson State Community College in Birmingham on Thursday afternoon. Air Force One landed at the Birmingham-Shuttlesworth International Airport around 1:48 p.m. Thursday, a couple minutes ahead of schedule. Alabama Governor Robert Bentley and Birmingham Mayor William Bell greeted the president and Congresswoman Terri Sewell, who traveled with Obama on Air Force One. After landing, the president traveled in his motorcade to Lawson State, where he arrived around 2:30 p.m. Crowds lining the streets cheered as the president’s motorcade passed by. President Obama took to the podium around 3:30 p.m. after being introduced by a local member of the NAACP, who spoke about her experience with payday lending. The doors to Lawson State’s Arthur Shores Fine Arts Building, where the president will speak, opened at noon. By 11 a.m. hundreds of students and faculty were already in line. Those audience members greeted the president with applause and cheers. Obama greeted the crowd and made a joke that he didn’t have the UAB men’s basketball program making it out of the first round, busting his bracket. He then moved on to speaking about the economy, our nation’s budget and the widely discussed pitfalls of payday loans. Obama said the Consumer Financial Protection Bureau proposed new regulations today that would essentially require lenders to make sure a borrower could afford to pay the loan back. He also attacked predatory payday lending, saying that they are ripping off working families. He said Alabama has four times as many payday lending operations as there are McDonald’s. “If you’re making that profit by trapping hardworking Americans into a vicious cycle of debt, you’ve got to find a new business model,” he said. Obama supported the political efforts in Alabama to fight this predatory lending. Obama said he wants to continue to focus on “middle class economics” to keep the middle class strong. But he criticized a Republican-backed budget for chipping away at middle class families. Obama said this plan would hand out huge tax cuts for the “top one-tenth of the top one percent” and also reduce education investments to the lowest levels since 2000. To put it in perspective, he said the $2 million tax breaks would apply to less than 50 people in Alabama. “I don’t think our top economic priority should be helping a tiny number of Americans who are already doing extraordinarily well, and asking everybody else to foot the bill. I think our top priority should be helping everybody who works hard get ahead,” he said. He said he’s worried the proposed budget could be a potential game changer for the CFPB and what they’re trying to do to relieve payday loans. He said the CFPB’s proposed regulations are designed to keep hard-working Americans from being trapped in a “vicious cycle of debt.” “It’s one more way Wall Street reform is protecting working families and taxpayers. And it’s one more reason it makes no sense that the Republican budget would make it harder for the CFPB to do its job, and allow Wall Street to go back to the kind of recklessness that led to the crisis in the first place.” Obama said if Republicans in Congress send him a bill to unravel Wall Street reform, he plans to veto it. Obama was scheduled to fly out from Birmingham-Shuttlesworth International Airport at 4:55 p.m., but his departure may be moved up due to weather. The president visited Selma, AL earlier this month for events surrounding the 50th anniversary of Bloody Sunday.

The vicious cycle of payday loans By Michelle Singletary, Washington Post March 27, 2015

I had a hallelujah moment when I saw that the Consumer Financial Protection Bureau is proposing rules that would require payday lenders to make sure borrowers have the means to repay their loans. I know. You must be thinking what I’ve thought for years: Isn’t it the responsible thing for lenders to determine that people can pay the money back? But because many people are still in a financial bind after paying off the loan, they end up taking out another loan. Repeat borrowing is good business for the lenders. The CFPB found that more than 80 percent of payday loans are followed by another loan within 14 days. Payday loans are relatively small and are supposed to be paid back in full quickly, typically in a few weeks. The lending requirements are pretty skimpy — a bank account and income. Borrowers can give lenders post-dated personal checks or authorize an electronic funds withdrawal. The typical customer spends five months on the payday hamster wheel and pays $520 in fees for an original loan of $375, according to findings from the Pew Charitable Trusts, which has been doing great research on the dangers of these types of loans. Payday loans are big business — $7.4 billion annually, according to Pew. Each year, 12 million Americans take out such loans from storefront locations, Web sites and a growing number of banks. The CFPB proposal pertains to other types of loans, too, including auto title loans, in which people borrow against their paid-off cars. If a customer fails to repay a title loan, the lender can repossess the car. In a recent report, Pew said that more than 2 million people use high-interest automobile title loans, generating $3 billion in revenue for lenders. The average title loan is $1,000. The average borrower spends an estimated $1,200 a year in fees. The businesses that peddle these loans say they are providing a needed service. And even some payday clients I’ve talked to see it that way — or at least many did at first. The regrets come later. “Most people aren’t looking for credit,” said Nick Bourke, director of the small-dollar loans project at Pew. “They are looking for a financial solution for a persistent financial problem.” Under the CFPB’s proposal, lenders would have to look at a person’s income and other financial obligations to determine his or her ability to pay the interest, principal and fees. The agency is also considering imposing limits on how many loans a customer can take out in a year. “For lenders that sincerely intend to offer responsible options for consumers who need such credit to deal with emergency situations, we are making conscious efforts to keep those options available,” CFPB Director Richard Cordray said. “But lenders that rely on piling up fees and profits from ensnaring people in long-term debt traps would have to change their business models.” What the agency is proposing has the ingredients for good reform, according to Bourke and other consumer advocates, such as Consumers Union and the Consumer Federation of America. But they are concerned about a loophole that lenders may exploit. The proposed rule includes a provision allowing a small number of balloon-payment loans that wouldn’t have the ability-to-repay requirement, Bourke pointed out. “None of this is set in stone, but giving lenders the option to make three loans in a row without requiring a straightforward, common-sense ability-to-repay review should not be part of a final rule,” said Tom Feltner of the Consumer Federation of America. I understand that people can get into a financial jam. But if a short-term loan product weren’t available, they might manage their money in a way that doesn’t trap them into more debt. Pew found that both payday and title-loan borrowers usually have other options, including getting the money from family or friends, selling possessions or cutting back on expenses. “Actually we found a large percentage end up using one of those options to get out from under the payday loans,” Bourke said. Payday and title loans are the very definition of robbing Peter to pay Paul. Consider these facts from Pew:

  • The average lump-sum title loan payment consumes 50 percent of an average borrower’s gross monthly income.
  • A typical payday loan payment takes 36 percent of the borrower’s paycheck.

Borrowing against a future paycheck or putting up the title to your car can cause a financial avalanche. Even with better protections, just don’t do it.

Obama gives Birmingham pastor shout-out for work against payday lenders By Greg Garrison, March 26, 2015

One of Alabama’s most outspoken opponents of payday lenders has been the Rev. Shannon Webster, pastor of First Presbyterian Church of Birmingham. President Barack Obama praised Webster’s work and singled him out in the crowd this afternoon during his speech at Lawson State Community College. “One of the people that I met with was Rev. Shannon Webster, of Birmingham’s First Presbyterian Church,” Obama said. “Where’s pastor? There he is in the back. Stand up so everybody can see you.” Obama pointed him out. “Pastor Webster’s one of the pastors leading the effort to protect consumers here in Alabama,” Obama said. “At a public hearing a few years ago, he explained why he decided to work on this issue. ‘When our people are trapped in debt,’ he said, ‘they cannot escape, and we’re all hurt.’ We’re all hurt. And that’s a simple statement but it captures so much of what it means to be an American. We are a country of rugged individuals. We don’t expect folks to give us a handout. We expect people to work hard. We expect that hard work to be rewarded.” Obama invoked scripture for his proposed regulation of payday lending. “You’ve got some very conservative folks here in Alabama, who recognize that, they’re reading their Bible, they’re saying, well, that ain’t right,” Obama said. “The Bible’s not wild about somebody charging $1,000 worth of interest on a $500 loan. Because it feels like you’re taking advantage of somebody.” Obama cited payday lending as one area among many that needs regulation. “One of the main ways to make sure paychecks go farther is to make sure working families don’t get ripped off,” Obama said. “That’s why we’ve taken steps to protect student borrowers from unaffordable debt. We want them to know before they owe….Here in Alabama there are four times as many payday lending stores as there are McDonald’s. Think about that. ‘Cause there are a lot of McDonald’s.” Webster met with Obama as part of a roundtable before the speech, but being called out during the speech floored him. “I had no idea he was going to do that,” Webster said. “I had no idea he was going to call me by name. There were seven of us in a roundtable with him for 40 minutes before the speech. Mainly he was listening to what the local issues were and local experiences.” Webster takes part in The Faith and Credit Roundtable, an effort to reform predatory lending nationwide. Birmingham Faith in Action and the Alliance for Responsible Lending tackle the issue of payday loans here in Alabama. “It’s organized in such a way that we’ve let certain businesses be predators of middle and working-class people,” Webster told Churches and church-run credit unions may be able to offer an alternative, he said. “We have not figured out a way to do that yet,” Webster said. “There are alternatives. It’s a matter of getting the will to do it.” But getting the president’s personal shout-out may give Alabama momentum in addressing the issue, he said. “This has to help,” Webster said. “That kind of attention and focus has to be helpful.”

Clips Roundup: February 27, 2015

Payday Clips
February 27, 2015

CFPB readies first glimpse at payday lending rules
By Jon Prior, Politico Pro
February 26, 2015

Baptists in Kentucky support cap on payday loans
By Bob Allen, Baptist News Global
February 26, 2015

Andrew Feil: How the poor are big business in Fresno
The Fresno Bee
February 26, 2015

Baptists decry “immoral” payday loans
February 24, 2015

Government Crafts New Payday Lending Regulations
By Hady Mawajdeh and Frank Stasio, WUNC
February 24, 2015

FTC sues Payday Support Center, iNfinityCollect for deceptive relief to payday debtors
By Sheryl Harris, Plain Dealer
February 24, 2015

Hit payday lenders with new rules — and new competition
Boston Globe
February 23, 2015

Tom Eblen: Good luck to coalition urging lawmakers to pass payday lending limits
By Tom Eblen, Lexington Herald-Leader
February 22, 2015

Capping interest at 36% is ethical, just
By Rev. Holly Beaumont, Albuquerque Journal
February 22, 2015

Payday loans thwart regulators
By Claudia Buck, Sacramento Bee
February 22, 2015


CFPB readies first glimpse at payday lending rules
By Jon Prior, Politico Pro
February 26, 2015

The Consumer Financial Protection Bureau in the coming weeks is expected to give its first glimpse into how far the agency plans to go in cracking down on payday lenders with a set of new rules, according to industry and consumer advocate sources aware of the plans.

The agency is expected as early as March to hold a meeting of a small business advocacy review panel, as required under federal law, to discuss possible approaches to regulating short-term lenders. It’s not clear whether a formal paper on the rule will be released at that time, but the event is expected to provide the clearest look yet at what the bureau plans to do before a proposed rule is released this summer.

A spokesman for the bureau declined to comment.

While the bureau does not have the authority to set a limit on the interest rates that can be charged on these loans, it is expected to establish a set of requirements these companies must follow to ensure a borrower has the ability to repay what they borrow. This is similar to a set of standards that went into effect for mortgage lenders last year.

Payday lenders have been lobbying the CFPB for two years. They fear that overly restrictive requirements could limit the availability of small-dollar loans and push a bulk of the business back to big banks.

Prior to the creation of the CFPB, the payday lending industry was mostly regulated at the state level.

Advocates say the bureau needs to aggressively curb problems, such as ballooning interest rates and debt traps, that live on in many states that have been reluctant to tighten regulations.

The following are three of the key issues CFPB is expected to address at the meeting of the review panel, according sources familiar with the bureau’s deliberations:

Capping monthly payments

The CFPB may cap the percentage of a borrower’s monthly income that can be dedicated to paying off the loan at 5 percent.

This has been an approach put forward by the Pew Research Center, a nonpartisan think tank. Advocates for tougher rules have held up laws put in place by Colorado as a model for what the CFPB should follow. There, legislators capped monthly payments at 4 percent of a borrower’s income, compared to as much as 36 percent in some other states.

“The results there were tremendous,” said Nick Bourke, who directs the small loans project at Pew.

Some advocates, however, say the bureau should take into consideration that people who take out payday loans often have fluctuating incomes and that other characteristics should be included in a cap on monthly payments. Some may be seasonal workers or rely on tips and could find it difficult to dedicate even 5 percent of their paycheck during a slow month.

“I think that policymakers lose sight of the fact that while policy makers and regulators have stable incomes, these customers usually don’t,” said Joe Valenti, the director of asset building at the center-left Center for American Progress.

The industry has warned that setting this type of limit could significantly reduce the size of the loan a borrower could get in the first place. They’ve pointed to industry research showing that a 5 percent cap on monthly payments would limit a borrower to $54 of credit, assuming the rule was applied to gross pay. The average loan size for most payday loans is $350, according to Advance America lobbyist Jamie Fulmer.

Fulmer said the industry has been putting in place more underwriting standards of its own based on each borrower’s income and expenses to plot out a repayment plan. More lenders are also offering special programs if a borrower falls behind, he added.

“I don’t know where the 5 percent came from,” said Fulmer, whose company is one of the largest payday lenders. “But I don’t think it has any logic.”

Limiting repeat business

The bureau is aiming to limit the amount of times a borrower can take out a payday loan to pay off the first one.

Advocates allege these “debt traps” are the life blood of the payday lending business model.

Nearly three-quarters of all loan fees come from borrowers who make at least 10 transactions over a year, according to a study published by the CFPB in 2013. A transaction for the purpose of the study counted any loan that is rolled over into a new one or when a borrower takes out another loan after paying back the first one.

Nearly half the borrowers surveyed over the 12-month period made more than 10 transactions, and 14 percent had more than 20.

The bureau did note in its study that repeat borrowers are more likely to be counted and could lead researchers to overstate how often these loans are taken out again over the given year. But outside studies have come to the same general conclusions. A report from the Center for Responsible Lending, a liberal advocacy group, showed that 82 percent of payday loans are originated within a month of a borrower paying off a previous one.

“Lenders are completely reliant on that reborrowing dynamic,” said Pew’s Bourke.

The bureau may not ban all repeat transactions but could cap how many times a borrower can take a out a loan to two or three times in a given year, Bourke said.

Fulmer rejects the CFPB findings.

“The model customer, the customer we see on an individual basis most frequently, is someone who uses it one time and we never see them again,” Fulmer said.

When asked for the average amount of Advance America’s loans that went to repeat customers, however, he said it was difficult to determine. On a mean basis, half of the company’s borrowers use the loans five times or more, he said.

Tackling auto title loans

The CFPB is expected to address not just the storefront payday lenders with its new rules but also auto title lenders and online small-dollar lenders, according to advocates and industry officials aware of the discussions.

For an auto title loan, borrowers put up the title to their car in order to get cash from a lender. If they don’t pay it back, the lender takes the car. The vehicle serves as the collateral unlike payday loans, in which a borrower’s paycheck is the collateral.

It’s not known how the bureau plans to expand the rule to other businesses, but Director Richard Cordray told Congress last year that it is a priority. In several states where payday lending rules were put in place to limit ballooning interest rates or other abuses, many of these lenders shifted to offering auto title loans.

“It is taking us somewhat longer, as a result, to address this, but I think it’s well worth a little additional time, in order to make sure that what we do won’t be made a mockery of by people circumventing it through just transforming their products slightly,” Cordray told the Senate Banking Committee last year.

The issue is a priority for advocates who argue short-term lenders shift their business models to avoid new rules and laws at the state level.

“The payday lending industry is incredibly creative,” said Lauren Saunders, associate director at the National Consumer Law Center.

The payday lending, auto title and online lending industries, however, feel their products are different and require separate underwriting procedures to be included under the same ability-to-repay requirements put out by the CFPB.

“Determining the ability to repay must be consistent with Internet technology, and standards should not be rigid or overly prescriptive,” Lisa McGreevy, CEO of the Online Lenders Alliance trade group, wrote in a Feb. 20 letter to Codray.

Fulmer points out that big banks would get an unfair advantage so long as the bureau moves forward with reining in small-dollar rules but drags its feet on new overdraft protections. Borrowers who may be turned away from small-dollar loans because of the new rules are the same types of borrowers who would pay large fees to overdraft their bank accounts.

“Consumers use them in very similar ways,” Fulmer said. “By doing that, they are leaving a big gulf.”

Still, consumer advocates reject the idea that the rules would harm those who rely on these kinds of quick cash loans. Saunders said more debt is not the solution for borrowers who are struggling to meet their obligations.

“It’s harder to budget; it’s harder to do without; it’s harder to go to your mom again,” Saunders said. “But those harder options may be more appropriate than fast cash.”

To view online:

Baptists in Kentucky support cap on payday loans
By Bob Allen, Baptist News Global
February 26, 2015

Members of the Kentucky Baptist Fellowship rallied Tuesday, Feb. 24, at the state capitol in Frankfort, after a Monday afternoon seminar on the “debt trap” created by payday lending.

Speakers at a press conference in the capitol rotunda included Chris Sanders, interim coordinator of the KBF, moderator Bob Fox and Scarlette Jasper, employed by the national CBF global missions department with Together for Hope, the Fellowship’s rural poverty initiative.

Stephen Reeves, associate coordinator of partnerships and advocacy at the Decatur, Ga.,-based CBF, said Cooperative Baptists across the country opposing abuses of the payday loan industry are not anti-business, but, “if your business depends on usury, depends on a trap — if it depends on exploiting your neighbors right when they are at their most desperate and vulnerable — then it’s time for you to find a new business model.”

The KBF delegation, part of a broad-based group called the Kentucky Coalition for Responsible Lending, voiced support for Senate Bill 32, sponsored by Republican Sen. Alice Forgy Kerr, which would cap the annual interest rate on payday loans at 36 percent.

Currently Kentucky allows payday lenders to charge $15 per $100 on short-term loans of up to $500 payable in two weeks, typically used for basic expenses rather than an emergency. The problem, experts say, is most borrowers don’t have the money when the payment is due, so they take out another loan to pay off the first.

Studies show the average payday borrower takes out 10 loans a year. In Kentucky, the short-term fees add up to 390 percent annually.

Kentucky is one of 32 states that allow triple-digit interest rates on payday loans. Previous efforts to reform the industry have been hindered by paid lobbyists, who argue there is a demand for payday loans, people with bad credit don’t have alternatives and in the name of free enterprise.

Lexington Herald-Leader columnist Tom Eblen, a critic of the industry, said Feb. 22 that in fact there are alternatives, and poor people in 18 states with double-digit interest caps have found them.

Some credit unions, banks and community organizations have small loan programs for low-income people, he said. There could be more, he added, if Congress would allow the U.S. Postal Service to offer basic financial services, as done in other countries.

A big-picture solution, Eblen said, would be to raise the minimum wage and rethink policies that widen the gap between the rich and poor, but with the current pro-business Republican majority in Congress he advised readers “don’t hold your breath for that.”

Kerr, a member of CBF-affiliated Calvary Baptist Church in Lexington, Ky., who teaches Sunday school and sings in the choir, said payday loans “have become a scourge on our state.”

“While payday loans are often marketed as a one-time, quick fix for people in trouble, payday lenders’ public reports show they depend on getting people into debt and keeping them there,” she said.

Kerr acknowledged that passing her bill won’t be easy, “but it is urgently needed to stop payday lenders from taking advantage of our people.”

Reeves, who lobbied for payday-lending reform for the Baptist General Convention of Texas before being hired by CBF, said “a sad story has played out” in other states where a courageous lawmaker proposes real reform, momentum builds and then at the last minute pressure from the right lobbyist brings it all to a halt.

“It doesn’t have to be that way here today,” Reeves said. “Money doesn’t have to trump morality.”

“The time is now for Kentucky to have real reform of its own,” he said. “We understand there are people in D.C. working on reform, but I know folks here in Frankfort don’t want to wait around for Washington to do the right thing.”

“A return to a traditional usury limit of 36 percent APR is the best solution,” he urged Kentucky lawmakers. “So give SB 32 a hearing and a committee vote. In the light of day lawmakers know what is right, and we’re confident they will vote accordingly.”

Andrew Feil: How the poor are big business in Fresno
The Fresno Bee
February 26, 2015

Much has been made in the past few years about retail businesses losing ground to Internet competition. But drive through any low-income, working-class neighborhood in Fresno and you will see a strange sort of storefront business that is thriving: The buying and selling of the financial future of the working poor.

Look for the stores that market payday loans, pawning, car title loans, installment loans, rent to own and the list goes on. Investors and entrepreneurs have discovered that “supporting” low-income residents with quick cash is the wild west of the banking industry and they are making a huge amount of money on it.

There are at least 66 payday loan storefronts in Fresno. According to the Insight Center for Community Economic Development, Fresno’s local economy lost over $3.6 million to payday loan establishments in 2011. That’s not to mention the stories of loss — lost homes, shattered dreams, college educations forgone and interrupted.

As a pastor and member of our community I have had enough. That’s why I have become part of a movement of churches, nonprofits and individuals that are spreading a faith-based financial literacy curriculum called Faith and Finances. Our goal is to empower and equip those in our community to end the cycle of debt and to find a sense of financial freedom with the resources they have.

I have watched what the cycle of payday loans can do to a family. According to the Consumer Financial Protection Bureau (CFPB) over 75% of payday loan fees are generated from borrowers with more than 10 loans a year. Ten loans a year is a debt trap, plain and simple. One of the customers I have worked with is Josie De La Fuente.

Josie is mother of a special needs son. She works as an aid with Fresno Unified. Her pastor recommended her for our class because she was caught in a spiral of payday loans. Jumping from one payday store to another, robbing Peter to pay Paul.

Before Faith and Finance, Josie did not have the ability to pay her loans. They knowingly took advantage on her lack of financial knowledge and financial management and continued to offer her loans. Josie herself called payday loans a “trap.” For her, her situation was depressing.

Financial literacy and education are important, but they are not enough. As long as predatory lenders can continue these practices, they will take advantage of hardworking moms like Josie. That’s why we need meaningful local and national reform.

Just last year, Fresno City Council passed a zoning ordinance that restricted the future growth of payday stores, something which Faith in Community and other community leaders championed. The CFPB, which was created after the 2008 financial crisis, is working on federal regulations that would govern predatory payday and online short-term loans. We are hoping the CFPB does a few basic things like ensure a borrower’s ability to repay, protect consumers’ bank accounts and help stop the debt trap.

We need both boots on the ground for financial literacy education like Faith and Finance and substantive policy that protects the most vulnerable in our society.

I can also tell you that there is hope. There is hope as more people speak out against these unjust business practices and as more people get involved in supporting the most vulnerable in our society.

I had the honor of being there when Josie brought in her receipt for her final payday loan payment. I was there as she waved it over her head and loudly proclaimed she was done! May more people in Fresno be able to be free!

I would love to encourage our local elected and community leaders join the movement of those who are standing for the vulnerable in our society by encouraging our members of Congress and the CFPB to take a strong stand against predatory lenders.

“The Spirit of the Lord is upon me, because he has anointed me to proclaim good news to the poor. He has sent me to proclaim liberty to the captives and recovering of sight to the blind, to set at liberty those who are oppressed, to proclaim the year of the Lord’s favor.” — Jesus (Luke 4:18-19)

Andrew Feil is pastor at The Well Community Church. Email:

Baptists decry “immoral” payday loans
February 24, 2015

Video here:

Government Crafts New Payday Lending Regulations
By Hady Mawajdeh and Frank Stasio, WUNC
February 24, 2015
Interview with Diane Standaert about payday

Troubled by consumer complaints and loopholes in state laws, the federal government is crafting new rules to protect borrowers of payday loans.

The Consumer Financial Protection Bureau is considering placing caps on the number of times a borrower can take a payday loan and requiring lenders to do credit checks. They also want to encourage states or lenders to lower interest rates on loans.

Host Frank Stasio talks with Diane Standaert, director of state policy at the Center for Responsible Lending, about the history and future of payday loans.

FTC sues Payday Support Center, iNfinityCollect for deceptive relief to payday debtors
By Sheryl Harris, Plain Dealer
February 24, 2015

CLEVELAND, Ohio — The Federal Trade Commission on Tuesday filed its first suit against a debt relief company that targeted people struggling with payday loans.

The FTC sued  Payday Support Center LLC, which has since changed its name to PSC Administrative LLC, and Coastal Acquisitions, an Alabama-based telemarketing company that operates in Ohio as iNfinityCollect.

The suit says Payday Support used cold calls and Internet and radio ads to offer assistance to people juggling multiple payday loans.

Typical radio spots asked, “Are payday loans ruining your life? Do you have more payday loans than you’re able to pay back right now?” People who responded to the ads were told if they had at least two payday loans, they could qualify for the company’s “financial hardship program.”

Debtors were told that if they paid $98 to $160 to Payday Support bi-weekly, the debt settlement company would negotiate “interest-free” payments with payday lenders. But the company did little more than send out debt validation letters — letters that ask creditors to show a debt is really owed, the FTC said in its suit.

Because the company directed clients to stop paying their lenders, but often didn’t forward on payments or negotiate lower debts, clients who paid the fees became even more mired in debt, the FTC said.

Customers who called the company after the four- to six-month program period to find out why their loans hadn’t been paid off were told they misunderstood the program, the suit said.

The FTC’s suit, filed in an Alabama federal court, accuses the companies of violations of the FTC Act and the Telemarketing Sales Rule, which was amended in 2010 to prohibit debt settlement companies that use telemarketing from accepting payments until they have successfully settled or negotiated down a consumer’s debt.

Payday borrowers often borrow serially because they cannot afford to pay off the the pricey loans in full by the deadline. Annual interest rates of 400 percent are typical, but rates can be even higher.

In a report issued last year, the Consumer Financial Protection Bureau found that 80 percent of payday customers borrowed again within 14 days (the typical payday loan due date), and more than 60 percent of borrowers were sucked into seven or more loans in a one-year period.

The CFPB is expected to issue the first-ever federal rules regarding payday lenders soon.

Hit payday lenders with new rules — and new competition
Boston Globe
February 23, 2015

THE PAYDAY loan industry preys on the poorest working Americans, who take cash advances and often find they can never catch up with debts that keep spiraling higher. In much of the United States, payday lenders reap huge profits by charging triple-digit interest rates and high fees, all the while sending borrowers into an inescapable cycle of debt.

In Massachusetts, strict regulations have kept payday lenders mostly at arm’s length. The federal government will soon follow suit, with proposed rules and tighter lending standards issued by the Consumer Financial Protection Bureau. Yet even if the new rules eliminate the payday loan industry, they won’t cure the fundamental problem: the lack of access to credit for the working poor.

It’s the absence of adequate short-term or emergency credit that payday lenders have exploited. That’s why the bureau’s new regulations should go hand-and-hand with a government-sponsored plan to expand credit on reasonable terms.

Indeed, other institutions should see this threat to payday lenders’ future as an opportunity to step into the void. This includes the United States Postal Service.

Senator Elizabeth Warren has pushed for the postal service, with its locations in virtually every community in America, to expand its offerings to include basic banking services, such as bill-paying, check-cashing, and low-cost small loans. Payday lenders defend their existence by saying their services are vital for people who find themselves in a financial bind — yet there’s no reason those same services can’t be offered by a government institution at affordable interest rates.

In countries like the United Kingdom, Switzerland, and Japan, postal offices already offer banking services, and many make good profits from it. In fact, USPS itself offered a savings program for more than a half-century until 1967.

So while the idea is not new, the recent focus on payday lending should bring renewed attention to this sensible proposal, which was outlined in a report issued last year by the postal service’s inspector general.

The money-losing Postal Service certainly could use a profit center. But if transforming a struggling bureaucracy into a quasi-financial institution proves beyond the imagination of policy makers, the private sector should — and will — find a way to serve the market. Retail giant WalMart, for instance, has already expanded into financial services, starting with a partnership with American Express.

Check-cashing stores, payday lenders, and other predatory financial services operations are used by mostly low-income individuals who paid them a staggering $89 billion in interest and fees in 2012, according to the inspector general report. This sizeable and needy market includes the 8 percent of households in the United States that have no access to the mainstream financial system and another 20 percent of households that do use traditional banks, but also resort to these unscrupulous financial providers. A national crackdown on payday lenders is overdue, to be sure. Yet the dearth of credit among millions of low-income Americans won’t go away, and the government should be part of the solution.

Tom Eblen: Good luck to coalition urging lawmakers to pass payday lending limits
By Tom Eblen, Lexington Herald-Leader
February 22, 2015
Quotes CRL research on payday in Kentucky

I love free enterprise, but I believe there is a special place in hell for business people who exploit the poor and vulnerable and politicians who enable them.

A good example is the payday lending industry.

A diverse coalition of Kentuckians, including conservative and liberal religious leaders, plan to gather Tuesday at the state Capitol to urge lawmakers to pass bipartisan legislation limiting the interest and fees on short-term payday loans to an annualized rate of 36 percent.

That is still high compared to normal borrowing costs. But it would be a big improvement over the 400 percent or more that payday lenders can now charge customers.

These two-week loans of $500 or less are designed to help working people cover expenses until their next paycheck. But studies show three-fourths of these loans are renewed or turned into new loans, sometimes trapping borrowers in an endless cycle of debt.

Payday lending emerged as an industry in the 1990s. With about 20,000 storefronts, plus online sites, payday lenders made $40.3 billion in loans and collected $7.4 billion in revenues in 2010, according to the Consumer Federation of America.

Kentucky is one of 32 states that allow triple-digit interest rates on payday loans. The state’s 781 payday lending stores in 2010 made $995.7 million in loans averaging $350 each, according to the Center for Responsible Lending.

Payday lenders collect at least $121 million a year in interest and fees from some of Kentucky’s poorest people, according to the Kentucky Coalition for Responsible Lending. Most profits go out of state — or farther. Advance America, one of Kentucky’s largest payday lenders, is owned by Mexico’s Grupo Elektra.

The Defense Department has limited the interest that can be charged to military personnel at 36 percent, as the Kentucky legislation seeks to do for everyone. Kentucky has put a few restrictions on payday lenders in recent years, but meaningful reform has always been blocked by legislators with lame excuses.

This year’s bill is sponsored by Sen. Alice Forgy Kerr, a Lexington Republican, and co-sponsored by three Senate Democrats, Reginald Thomas of Lexington, Gerald Neal of Louisville and Dennis Parrett of Elizabethtown. Gov. Steve Beshear has supported the interest rate cap since 2009.

Tuesday’s rally is organized by the Kentucky Coalition for Responsible Lending, an impressive list of 89 organizations, including 33 faith groups. Members include statewide associations of Roman Catholics, Baptists, Jews, Presbyterians, Methodists, Episcopalians and Disciples of Christ.

Many of these faith groups disagree on other issues. But the Bible’s Old and New Testaments are clear about the sin of “usury” — charging excessive (or, according to some verses, any) interest on loans to people in need.

With this level of religious support, you would think the bill would be a cinch. But there is a higher power at work: the almighty dollar. Payday lenders spent more than $151,000 last year lobbying legislators and gave them tens of thousands of dollars in campaign contributions.

Legislators who have blocked this bill over the years have had many excuses: there is a demand for payday loans; people with bad credit have few alternatives; it’s free enterprise.

But the truth is there are alternatives, and poor people in the 18 states with double-digit interest caps have found them. Some credit unions, banks and community organizations have small loan programs for low-income people.

There could be more alternatives, too, if Congress would consider ideas such as allowing the Post Office to offer basic financial services, as is done in other countries, or giving poor people an advance on their earned income tax credit.

A bigger-picture solution, of course, would be to raise the minimum wage and rethink trickle-down economic policies that have decimated the middle class and widened the wealth gap to historic levels. But don’t hold your breath for that.

An additional excuse for legislative inaction this year is that Kentucky should wait to see what Congress and federal regulators do. The Consumer Finance Protection Bureau has begun a belated crackdown on payday lending practices.

But only Congress can cap rates at the federal level, and there is little chance of that from the business-friendly Republican majority. Rep. Andy Barr, a Lexington Republican, has been a shameless ally of payday lenders and other financial services companies, which contributed more than $700,000 to his re-election campaign.

I wish the consumer protection advocates and religious leaders good luck Tuesday, but they will need to make many more trips to Frankfort. I just hope they follow the money and keep a good list of which politicians are helping payday lenders prey on Kentucky’s poor and vulnerable — a list they will share widely at election time.

Capping interest at 36% is ethical, just
By Rev. Holly Beaumont, Albuquerque Journal
February 22, 2015
Cites CRL polling on payday

Over 240 faith leaders from across our state have joined together in support of the Loan Interest Rate Cap Act before the 2015 State Legislature.

This legislation will cap annual interest and fees on all non-bank loans at a rate no higher than 36 percent. Eighteen states, including Arizona, and the United States military have interest and fee caps set at 36 percent or lower.

We believe that New Mexico should be the next state to act.

As people of faith, we share deep convictions grounded in scripture warning against predatory usury, which has plagued humankind since biblical times and has reached crisis proportions in New Mexico.

The brutal consequences of predatory lending in our communities – especially as it impacts members of our armed services, working families and others who often live from paycheck to paycheck – takes a toll on all of us by draining our local economy.

Our communities need ethical banks and lenders that serve and strengthen families rather than place on them a burden of debt they cannot bear. The combination of loose lending rules and high poverty rates has made New Mexico a magnet for predatory lenders and had a devastating impact on those who can least afford it.

If a child falls and breaks a bone, or a family automobile breaks down and needs to be repaired, it may result in a financial emergency. People with few options will borrow money from unscrupulous lenders who charge up to 300 percent to 400 percent interest.

The statistics are irrefutable and shocking. One example from the New Mexico Attorney General’s Consumer Protection Division: A New Mexican named Gary took out a $556.82 loan from a loan store in April 2010. Three years and 13 roll-overs later, Gary had made $4,813 in payments and still owed a balance of $2,400. The loan was secured by personal property valued at $2,700.

This is not an aberration; facts demonstrate the breadth of the crisis facing us.

In 2013, 164,500 New Mexicans spent an average of $1,260 to repay the average $653 loan. The typical loan lasted four months and had a 350 percent APR, according to the New Mexico Department of Regulation and Licensing statistics.

There are currently 684 small loan licensees in New Mexico charging 80 percent to 3,000 percent interest registered with the Department of Regulation and Licensing. More than 75 percent of these companies reaping those profits are based out of state. By comparison, there are only 405 fast food locations in New Mexico operated by all the major and minor chains combined.

Some crises we face are hard to solve. Others require only a surge of ethical responsibility and an alternative plan for protecting consumers. The Loan Interest Cap Act offers a reasonable and just way forward.

This is the proven and effective form of regulation.

Just as we need speed limits to protect motorists and catch limits to protect fisheries, we need interest limits to protect borrowers.

All across our state, resolutions are being enacted calling for a cap on interest rates at 36 percent or lower. The list includes Alamogordo, Albuquerque, Bernalillo County, Deming, Doña Ana County, Farmington, Las Cruces, Mesilla, Santa Fe, Silver City, New Mexico Municipal League and the New Mexico Association of Counties.

A poll conducted by the Center for Responsible Lending Public Policy Poling in January shows that 86 percent of New Mexicans support interest caps of 36 percent or less.

Our religious traditions speak with one voice in calling us to do justice and to love kindness. Prophets like Isaiah cry out in no uncertain terms in opposition to those who “deprive the poor of their rights and withhold justice” from them.

We make the prophet’s cry our own and urge those who govern on behalf of the people of New Mexico to pass the Loan Interest Cap Act. There are no good arguments in favor of leaving some of our most vulnerable residents in the grip of lenders whose primary motivation is greed and self-aggrandizement.

The time to act is now.

Payday loans thwart regulators
By Claudia Buck, Sacramento Bee
February 22, 2015

Borrowing money at an annual interest rate of 2,320 percent? Hard to believe, but that’s what state officials say was charged to one California consumer who took out an online payday loan last year.

Charging excessive interest is just one of numerous illegal loan practices perpetrated by unscrupulous online payday lenders, who pop up almost as quickly as state officials try to squash them.

This week, the state Department of Business Oversight announced it had pounced on 18 payday-loan companies in 2014, accusing them of violations that include operating without a license, making loans that exceed the state’s legal limit and charging customers “outrageous” fees. All but three were online lenders, who typically operate beyond the state’s reach.

“It’s an ongoing problem we continue to battle,” said DBO spokesman Tom Dresslar. “They’re charging outrageous fees. They pop up out of nowhere.”

Some online payday lenders operate from as far away as Costa Rica, the West Indies and Malta. Given their elusive online presence, Dresslar said, it’s a problem “that’s really tough to suppress.”

That’s why the DBO is urging borrowers to think twice before answering the enticing online ads from unlicensed payday lenders. They lure distressed consumers with catchy names like,, or, and with promises of “instant cash” and easy access: “Bad Credit OK, Apply Now!”

“Payday borrowers are in dire straits. They’re just trying to get over a hump. It’s a significant consumer-protection problem,” Dresslar said.

Online payday loans can be extremely costly and risky. Because the lenders require debit access to your bank account, they can illegally withdraw funds without permission. And some may sell or steal your personal financial information, says the DBO.

The DBO says most consumers are unaware that a payday loan in California cannot exceed $300 and that fees cannot be more than 15 percent of the principal amount. That means on a $300 loan, consumers cannot be charged more than $45 for a loan that’s typically due in two weeks’ time.

Jacquie McCarley, 33, a Bay Area tech recruiter, said she filed numerous complaints after taking out two payday loans from Cloud 9 Marketing LLC, an online company based in Wilmington, Del. The first time, in 2012, she took out “a super-short loan, literally to float me through the weekend” and paid it back in less than a week. According to McCarley and the DBO’s investigation, she was charged $30 for every $100, a rate that is double the state’s legal maximum. A few months later, she took out a second payday loan and agreed to extend the payments over two months. She said she was charged numerous late fees, which the law prohibits. Ultimately, McCarley owed more in fees – $600 – than the actual loan amount of $200.

“It made me very angry they’re preying upon at-risk people,” McCarley said.

Cloud 9 is one of the online lenders that the DBO ordered last year to stop making loans and repay borrowers. The DBO was unable to serve its order because the company doesn’t have a physical office.

Last August, Dresslar said, the DBO sent letters to eight of the country’s top online search engines, including Google, AOL, Yahoo and Bing, asking them to block from their sites a list of 31 online lenders that are not licensed in California.

The response? “Underwhelming,” Dresslar said. Only one – Yahoo – responded, and it deferred any action to its parent company.

The DBO is making the appeal again, Dresslar said. It’s also revising state regulations that govern the payday loan industry.

Last year, the DBO went after 18 payday lenders with varied sanctions. In some cases, it levied fines or ordered companies to repay fees to borrowers. One company, Quick Cashing Inc. based in Los Angeles, was ordered to pay $30,000 in penalties, void all transactions, return principal and “disgorge” fees back to consumers. A hearing in the case is set for Monday.

As for the loan with the whopping 2,320 percent APR, the DBO said it was issued by Brighton FNL, an unlicensed online lender operating from Salt Lake City. It did did not specify how much the borrower actually paid.

Problem payday lenders – the online variety – have bedeviled state authorities for years. In 2013, DBO spokesman Mark Leyes likened it to “whack-a-mole,” because online companies get shut down, only to change their name and pop back up.

“If it’s a storefront payday lender, you walk in and look someone in the eye,” said Leyes. “But when you go online, you don’t know who you’re dealing with, where they’re located or what their intentions are.”

Clips Roundup: February 20, 2015

Payday Clips
February 20, 2015

Number of payday lenders drops, but installment lenders increase
By Walker Moskop, St Louis Post-Dispatch
February 20, 2015

Consumer Advocates Support Payday Loan
By Edan Schultz, WCTV
February 19, 2015

Payday Loans Entrap the Most Vulnerable | Commentary
By Galen Carey, The Hill
February 19, 2015

Consumer advocates pan reemergence of payday lending alternative
By Lavendrick Smith, News Tribune
February 18, 2015

Payday Lending: The Lie That Binds | Commentary
By Reilly Morse, Roll Call
February 18, 2015

The High Price For Small Loans
By Ben Dunsmoore, Keloland
February 18, 2015

The scourge of payday lending
By Mark Pattison, Catholic News Service
February 17, 2015

Payday Lending Industry Gives Big
By Trip Jennings, KUNM
February 16, 2015

Mississippi needs relief from payday lenders, consumer advocates say
By Anita Lee, Sun Herald
February 14, 2015

The Debt Trap: Texans taken for a ride by auto-title loans
By Yamil Berard, Star Telegram
February 14, 2015

Time for federal intervention to rein in wily payday lenders
February 13, 2015

Number of payday lenders drops, but installment lenders increase
By Walker Moskop, St Louis Post-Dispatch
February 20, 2015

Payday lending volume in Missouri has declined significantly in recent years, according to a state survey released this month.

On first appearance, the survey would appear to be good news to consumer groups that are fighting to limit the availability of high-interest, short-term loans. They argue the loans lure cash-strapped borrowers into cycles of debt.

But the survey numbers paint an incomplete picture.

While payday loan volume and the number of payday loan storefronts have dropped, the number of consumer installment lenders has surged.

Installment loans in Missouri are typically larger than payday loans and are repaid in installments spread across a period of at least 120 days, rather than being due in full after two weeks, such as with payday loans. Both types of loans can have high interest rates when charges are annualized.

“We have seen a massive increase in the number of products that aren’t classified as payday loans,” said Molly Fleming, who leads a payday loan reform campaign for the PICO National Network. She was heavily involved in a 2012 statewide initiative in Missouri to cap interest rates on loans at 36 percent. The measure, which faced well-financed industry opposition, failed to get on the ballot.

The biannual survey from the state division of finance showed the number of payday loans issued in 2014 had dropped 20 percent since 2012, from 2.34 million loans to 1.87 million loans. That’s well below the 2006 total of 2.87 million. And the number of lenders declined from a 2006 peak of 1,275 to 838, as of Thursday.

But the state doesn’t track consumer installment loans, a product that many lenders are moving to in the face of growing public criticism and regulatory scrutiny.

As the number of licensed payday lenders has declined, the number of consumer installment lenders has surged. At the end of 2008, 569 companies were registered as installment lenders. Now, there are 980. Many storefronts across the state offer both products.

Missouri places no caps on interest rates for installment loans, and the state doesn’t track the volume of lending or the typical interest charged on the loans.

Some installment lenders do check borrower credit and income. Interest rates can vary from less than 36 percent, Fleming said, to well into the triple digits.

One of the state’s largest installment lenders, Advance America (also the nation’s largest payday loan company), offers online installment loans with annual interest rates just shy of 300 percent. According to its site, someone who takes out a $1,000 loan in Missouri and repays it in 13 twice-monthly installments would pay $838 in financing charges.

Many state legislatures in recent years have passed measures to rein in payday lending. While Missouri places few restrictions on payday loans, lenders have been wary of eventual action from the federal Consumer Financial Protection Bureau, which is expected to soon release draft regulations aimed at limiting payday loans and potentially other types of short-term loans.

As a result, many companies nationwide have shifted their focus to products that fall under less regulatory scrutiny, said Nick Bourke, a researcher at the Pew Charitable Trusts.

Though installment loans don’t come with the balloon payments that so many payday borrowers struggle with, large origination fees and high interest rates are still possible, Bourke said. “In a state like Missouri, the proper protections are not in place.”

Another of the state’s largest payday and installment lenders is Overland Park, Kan.-based QC Holdings, which has about 100 locations in Missouri.

In a filing with the Securities and Exchange Commission, the company noted that “higher fees and interest from our longer-term, higher-dollar installment products” was helping offset flagging payday loan revenue, which was in part due to the company’s efforts to transition some payday loan customers to installment loans.

According to the filing, the share of the company’s revenue and profit derived from Missouri dropped slightly through the first nine months of 2014 compared with the year before. The company’s general counsel, Matt Wiltanger, attributed the decline to the migration of customers online, to lenders that he said are often unlicensed and unregulated.

Wiltanger declined to discuss the company’s installment revenue, which had grown by 30 percent through the first nine months of 2014.

Payday lenders have long argued that the demand for their products reflects a lack of access to other forms of credit, and that cracking down on them won’t change the fact that millions of Americans are struggling to make ends meet. Lenders have asserted if federal rule changes make loans unprofitable, it will eliminate the only means of borrowing for some consumers.

The Consumer Financial Protection Bureau doesn’t have the ability to place interest rate caps on loans, but it can take other steps. Fleming hopes the bureau will require lenders to take into account a borrower’s ability to repay and remove their ability to access a borrower’s bank accounts, among other measures.

Last year, the Missouri Legislature passed a bill that would have prohibited payday loan renewals and would have lowered the fees that could be charged. Consumer advocates said the bill was riddled with loopholes and called it fake reform. Lenders didn’t bother to lobby against it, and Gov. Jay Nixon vetoed it.

According to state data, the typical payday loan is for $310 and carries an annual interest rate of 452 percent once fees are annualized. That translates to a little more than $17 for every $100 borrowed, assuming the loan isn’t rolled over, which leads to more fees. The typical loan is rolled over between one and two times.

A House bill has been filed this session that proposes capping annual interest rates for payday, installment and title loans at 36 percent. Fleming praised the measure, but acknowledged it’s unlikely to go anywhere.

Another bill passed in the House on Thursday could raise the maximum fee that can be charged on loans with terms of more than 30 days, which would include installment loans, from $75 to $100.

Consumer Advocates Support Payday Loan
By Edan Schultz, WCTV
February 19, 2015

TALLAHASSEE, Fla. — Florida consumer advocates are applauding plans for federal regulation of the payday loan industry.

The advocates say, despite state law, the short term cash advances get many people stuck in a debt trap.

Drive along business districts or past strip malls in most communities and you’ll see short term lenders bearing bright, bold signs offering fast cash.

Alice Vickers with the Florida Alliance for Consumer Protection says statistics show there are more payday loan stores than McDonald’s in this country, and it’s a multi-billion dollar business in Florida alone.

The loans, aimed at low income families, come at too high a price, according to Vickers, who calls it a “vicious cycle.”

She says customers pay interest of up to 400% when calculated as an annual percentage rate.

There are also no limits on the number of loans one customer can take out. She says the average Florida customer takes out nine a year, and 65% borrow once a month on average.

She points to a woman in Jacksonville who came to the alliance for help. She borrowed $500 and ended up paying $1000 in fees over a two year period before her loans were paid off.

“The industry is relying on return customers who they have caught in a debt trap, who must keep taking out loans to meet their basic expenses of utilities and rent and food,” said Vickers.

That’s even though Florida law already limits the size, length and fees on payday loans, which is why Vickers supports proposed federal regulations.

Those could include a rule requiring lenders to consider customers’ ability to pay.

“We’re very encouraged that the Consumer Financial Protection Bureau recognizes this and is wiling to step up to the plate and put some basic protections in place to rein in some of the worst practices.”

An industry spokesman, Ian MacKechnie of the Florida Community Financial Services Association, calls Florida’s current law “tough” and says payday lenders meet a need in a responsible manner.

He says complaints are miniscule compared to the number of transactions, and federal regulators should look to Florida as a model for the rest of the nation.

MacKechnie says payday lenders will be watching closely, hoping new regulations are tough but fair.

The Consumer Financial Protection Bureau is in the early stages of drawing up proposed payday loan regulations.

Those rules have to go through a review and comment period and are not expected to take effect until next year.

Payday Loans Entrap the Most Vulnerable | Commentary
By Galen Carey, The Hill
February 19, 2015

As our economy continues to improve, there is a crushing weight holding many back: payday loans. While state and local leaders have taken up the cause in certain jurisdictions, this is a national problem that requires Congress to act. Unscrupulous lenders lure those who are already facing financial hardship into a debt trap from which it is very difficult to escape.

Drawn by slick marketing, desperate borrowers are induced to accept unfavorable terms they may not fully understand. The cost of a typical payday loan exceeds 300 percent annual percentage rate. By requiring full repayment from the next paycheck, payday lenders virtually guarantee that the borrower will be forced to ask for a new loan, with additional fees and interest, to pay back the old one.

This violates the underwriting standards applied to virtually every other type of loan. Payday loans perpetuate a cycle of debt, poverty and misery.

Three quarters of the fees payday lenders bring in come from borrowers, mostly low income, who have taken out 10 or more loans in a single year. More than half of all payday loans are renewed or rolled over so many times that consumers wind up repaying at least twice the amount they originally borrowed.

We have just come through the busiest season for payday lenders. Their ads promise an easy solution to the pressure of unbudgeted holiday expenses.

Parents understandably want to buy their children Christmas presents, and the lure of readily accessible extra cash masks a real threat to their financial health.

The reality is that a short-term loan almost always creates a debt that the borrower cannot repay in two weeks. Interest and fee payments balloon while the principal remains unpaid. The debt burden often continues long after the Christmas toys have been broken and discarded.

Last October, the National Association of Evangelicals addressed the devastating impact of payday loans with a resolution calling for an end to predatory lending. We are asking churches, charities, employers and government agencies to work together to help our members, neighbors and co-workers in ways that do not exploit them and lead to further misery. Other religious groups, including the Southern Baptist Convention, have made similar appeals.

The Bible prohibits usury, exploitation and oppression of those in need, and there is growing evidence that payday loans, as they are currently structured, often violate biblical justice. Predatory lenders who oppress the poor incur the wrath of God (Exodus 22:21-27). They should apply their expertise and resources to developing stronger communities rather than tearing them down.

Every family needs a rainy day fund to cover unexpected expenses from time to time. Churches should teach the spiritual disciplines of tithing and saving that position members to provide for themselves and generously care for others when special needs arise. It is our responsibility as neighbors and as churches to save and give generously, to provide the neediest among us with every possible opportunity to achieve and succeed. Churches, charities and employers should support households in their communities in times of crisis so as to prevent neighbors from being drawn into long-term debt.

In 2006, Congress passed bipartisan legislation capping the rates on loans issued to service-members at 36 percent annual interest. We need similar leadership from Congress today so that all Americans are protected from financial predators. The Consumer Financial Protection Bureau, an agency established to monitor the increasingly complex array of financial products offered to the American public, plans to unveil a new rule in coming months. We hope the bureau thoroughly investigates the payday industry and establishes just regulations and that Congress supports this process. State agencies should do the same. We need common sense guidelines such as requiring that loans be made at reasonable interest rates, and based on the borrower’s ability to actually repay.

Credit can change lives. It can be a source of opportunity or cause of devastation. How we use and safeguard this powerful tool is our choice. Caring for and lifting up our neighbors is our responsibility.

Galen Carey is vice president of Government Relations for the National Association of Evangelicals. 

Payday Lending: The Lie That Binds | Commentary
By Reilly Morse, Roll Call
February 18, 2015

The Consumer Financial Protection Bureau’s imminent reform of the payday lending industry is welcome news for millions of families burdened by the industry’s exploitative practices in my home state of Mississippi and across the country.

Payday lenders have caused more than their share of misery in Mississippi. At a time when payday lenders vie with fast-food restaurants for dominance of the urban and suburban landscape, we stand out for having the highest concentration of such lenders in the nation. We also have among the highest interest rates, often topping more than 500 percent.

The federal government has an important role to play here because while Congress and some states have taken action to regulate payday lending, the industry has deep pockets to fight effective new laws. When Congress put a cap on predatory loans to military families in 2006, payday lenders found loopholes in it and Congress has not broadened those protections since. Meanwhile, payday lenders have done a great job influencing lawmakers in Mississippi. All of which makes CFPB action urgent and appropriate.

Here in Mississippi the legislature made great show of trying to regulate the industry by amending the governing law in 2011, which established two tiers of loans. The first tier, applying to loans of $250 or less, let lenders require repayment within 14 days. The second, applying to loans that when combined with fees do not exceed $500, let lenders require repayment within 30 days. No sooner did the law go into effect than the industry found a way to circumvent it: by issuing multiple first-tier loans at once to a single borrower. Efforts to close that loophole died in the state legislature just last week. While legislative leaders have acknowledged that this loophole should be fixed, they have stated that they prefer to wait for the CFPB’s new rules on payday lending.

These kinds of loopholes come with harsh, real-life impacts on families. Nearly 60 percent of payday loans in Mississippi are taken out by women, most of whom are single heads of households struggling to provide for themselves and their children. They often can’t pay the full amount of the loan back when it comes due, so they are forced to take out a second loan with additional fees, creating a cycle of debt with an iron-hard grip. These loans become another monthly bill for families whose budgets are already strapped. This is destabilizing for parents and children alike.

Payday lenders in Mississippi follow a playbook familiar to states across the country-setting up shop in strip malls near military bases and in vulnerable parts of town, luring families with quick, small dollar loans that come with risky, sometimes devastating, strings attached.

Americans striving for greater economic security need better ways to access loans in a pinch. Federal researchers, consumer advocates, faith leaders, and supporters of veterans all agree.

To be effective, the CFBP’s promised regulations must set the standards for an industry that plays fast and loose with the law. It should foster lending programs that address the needs of families, providing them with more time to pay back loans and lower fees so that loans can actually be useful in times of financial distress. A 36 percent interest rate cap, the same rate that applies to banks and credit unions, would be a good start. (Lobbyists aggressively blocked a similar cap in Mississippi.)

As we wait for federal attention to this national problem, community organizations in places like Mississippi are taking action to develop alternatives for low-income families, even in the face of loopholes and aggressive lobbies.

Here at the Mississippi Center for Justice, we worked with financial institutions and employers to establish New Roots Credit Partnership, an alternative to payday lending. This program creates a path toward financial security and independence for some of Mississippi’s most vulnerable. Under these partnerships, people can get small loans with reasonable repayment plans at interest rates as low as five percent. These fair policies are a light in the darkness for families who would normally know of no option beyond payday lenders. The working poor don’t have to be vulnerable to unscrupulous lenders. New Roots helps them find options to usurious loans and empowerment for the hard work they do.

The curtain has been pulled aside on the payday lending industry. We all see it for what it is. It’s past time to hold these practitioners accountable. The CFPB should act decisively in the coming days to provide much needed protection for the industry’s victims. Our working families can’t afford to keep waiting. They have been at risk long enough.

Reilly Morse is president of the Mississippi Center for Justice.

The High Price For Small Loans
By Ben Dunsmoore, Keloland
February 18, 2015

SIOUX FALLS, SD – A quick way to take care of your cash flow problems; it’s the message on storefront after storefront in South Dakota’s largest city.

But when many step inside the front doors of a payday loan store, their problems don’t go away.  They often are just beginning.

“I’ve been trapped for two years in it. It’s either do that or have no vehicle,” auto title loan customer Mel Hair said.

In Sioux Falls alone, there are more than 50 payday, title or signature loan shops.  Hair walked into one of them two years ago and he’s still paying the price.

“So, I pretty much had nothing when I got here (to Sioux Falls) and then I pretty much got taken advantage of by them,” Hair said.

Hair hitchhiked to Sioux Falls as a homeless veteran from the Twin Cities a few years ago. He stayed at the Berakhah House to get back on his feet. Once Hair and his girlfriend found their own apartment, he also found North American Title Loan. Using his minivan as collateral it seemed an easy way to get $200.

“I didn’t have pots and pans. I didn’t have a microwave. I didn’t have a lot of the things I needed even just toiletries stuff. I pretty much came in here with nothing,” Hair said.

One title loan turned into three loans totaling more than $2,000. He’s now been making monthly payments of $430 a month for the past two years. He hopes to pay it off this month.

‘I Fell Into That Same Trap’

“One, two, three, four, five, six, seven, eight; eight loans,” payday loan customer Kim Brust said earlier this month as she tallied her payday loan agreements. Brust says she fell into the same cycle as Hair.

The mother and grandmother started taking out short-term, high-interest loans three years ago. At the time, her social security and disability checks weren’t enough to cover the costs of the children and family members that moved in with her.

“I fell into that same trap and I know better.  I’m not stupid, but I was stressing about money. I was wondering sometimes where the next meal was coming from,” Brust said.

Brust has taken out loans from four different stores in Sioux Falls. The interest rates range from 247 percent to as much as 608 percent over the course of a year.

“It just sneaks up on you and one day I just laid out all the papers and I go, ‘Oh, my Lord what have I done,'” Brust said.

KELOLAND News contacted North American Title Loan, Money Lenders, Dakota Auto Title Loan, Dollar Loan Center and Advance America – all of the companies that loaned money to both Brust and Hair – and none of them wanted to offer a comment for this story.

In South Dakota, there are virtually no regulations on this type of lending, but the stories of both Brust and Hair are also why there is a push both nationally and locally to regulate this industry.

‘Pushing For A 36% Rate Cap’

A group called South Dakotans for Responsible Lending plans to start a petition drive to cap the interest rates on these short-term loans at 36 percent this spring. That’s the same cap the federal government has put on the product for active-duty military members.

“Because South Dakota has no cap on interest these companies can do whatever they want to do. It doesn’t matter if it’s 600, 800, 1,000 percent, all they care about is making money. These companies are very wealthy and it’s all on the backs of poor people,” Steve Hildebrand with South Dakotans for Responsible Lending said.

The federal Consumer Financial Protection Bureau is also reportedly looking into new national regulations this year designed to crack down on the high-interest rate and potentially ongoing cycle of payday lending.

“You walk in with a payment and say, ‘I’m not going to rewrite it. I’m just going to pay it,’ and they say, ‘We’ve got this deal going on,’ and then you do it; you rewrite it. Then you look at the paperwork and you say, ‘Oh man, I just got screwed,'” Brust said.

“Every time you go in there, they ask you, ‘Do you want more money?’ A couple times we had to do that and finally I made sure I walked in there with her (Hair’s girlfriend) when we made this payment because I said, ‘No, don’t even ask me that anymore,'” Hair said.

It’s why customers say others should borrow their advice before borrowing another payday loan.

“If you want to get ripped off and hand over your money for the next couple years go ahead, but I wouldn’t recommend that,” Hair said.

A recommendation that comes from those who have been paying the price.

The scourge of payday lending
By Mark Pattison, Catholic News Service
February 17, 2015

Payday lending really pulls in people who need help and feel they have nowhere else to turn.

The Rev. Lloyd Fields, pastor of Greater Gilgal Missionary Baptist Church in Kansas City, Missouri, remembers when he turned to that  type of  financing.

Now 73 years old, he can remember a half-century ago when he was a married deacon with a wife and four children to support. He had a mentor in his denomination, another deacon, “If I ever needed anything, I could always go to Deacon Williams,” Rev. Fields recalled. “But after so many times going to him, I was embarrassed to go to Deacon Williams. So I went to the payday loan company.”

Fifty years later Rev. Fields cannot remember how much he needed, but it was for necessities. “I had a low-paying job and a family. I needed money to pay the light bill, the gas bill, to keep food in the house. And I didn’t have adequate credit to go to the upstanding loan companies.”

Rev. Fields can’t recall the interest rate he was charged. Not that it mattered at the time to him. “I didn’t know. I didn’t care,” he said. “It was the max. And I always had to borrow up to the max,” because as another two weeks passed, he didn’t have enough money to pay off the loan, not to mention the mounting interest.

For Rev. Fields, salvation came in the form of a better-paying government job. And with the job came the opportunity to join a credit union. When he went to the credit union, he got a bit of bad news: “They told me I had to be employed for six months before I could join,” he recalled. By this time, he had gone to a second payday loan company to pay off the first one.

But “the first day after the sixth month,” Rev. Fields returned to the credit union to join. He got a loan to consolidate his payday-lending debts, and the credit union “put me on a payroll deduction. It was one of the happiest days of my life.”

Another Kansas City resident, Elliott Clark of Christ the King Parish, told of his five-year struggle to pay off his payday loan in an op-ed article that appeared in the Kansas City Star. It can be read by going to

Rev. Fields, too, have never forgotten his payday-lending experience. He was involved in the unsuccessful 2012 effort to get a referendum on the Missouri ballot to put a 36 percent interest-rate ceiling on payday loans; the average interest rate in the state is 455 percent. “While we were fighting it, one young lady came to me and cried and almost apologized because she had to take out a payday loan while we were fighting the payday loan companies.” he said.

He said he told her not to be sorry. “It’s just not right for them (payday lenders) to charge enormous interest and fees to people who are just trying to make a life for themselves and their families,” Rev. Fields said. “This is ungodly. … I don’t mind you making a profit, but if you make it off the backs of people, it’s dishonest.”

With no lobbying restrictions in Missouri, and no limits on campaign contributions, Rev. Fields fears lawmakers won’t take action. He’s looking to the federal Consumer Financial Protection Board to set nationwide rules on payday lending.

Rev. Fields recalls when preachers “used to talk about taverns on every corner. Now we talk about payday loan companies on every corner.” He added that in Missouri, “there are more payday loan companies than McDonald’s, Wal-Marts and Starbucks combined. In fact, there are almost twice as many.”

Today’s borrowers are no different than he was in the 1960s. They don’t hear the interest rate being charged, and they don’t notice until it’s too late. “They get eaten up to death,” Rev. Fields said.

He plans to take part in a daylong training session Feb. 21 with about 50 others and sponsored by the Center for Responsible Lending to try to protect and inform others about payday loans.

Payday Lending Industry Gives Big
By Trip Jennings, KUNM
February 16, 2015

Storefront lending companies and affiliated associations gave nearly $140,000 to New Mexico public officials and political action committees in 2013 and 2014, according to an analysis of data from the New Mexico Secretary of State’s office.

The bulk of that — $115,805 — went to dozens of elected officials, including Republican Gov. Susana Martinez, Democratic Attorney General Hector Balderas and more than half of the members of the New Mexico Legislature, Democrats and Republicans alike.

The 18 companies and associations also gave $23,333 to political action committees closely tied to Democrats and Republicans, a New Mexico In Depth analysis shows.

The industry’s spending offers insight into the ongoing fight in the Roundhouse over whether the state should cap at 36 percent the interest rate such lenders can charge. It also reveals how money often plays a role in politics.

Supporters of the cap say the rates lenders ultimately charge on some loans are in excess of 1,000 percent, with the average hovering around 350 percent. Most borrowers, advocates say, are  low-income people of color.

The companies and associations oppose the rate cap idea and have hired a small army of lobbyists to work on the issue. They and their employers say many storefront lenders would go out of business if New Mexico adopted the cap. And if they go away, a population that already can’t get loans from main street banks and financial institutions would lose a resource for loans for such things as emergencies.

So far, bills to cap interest rates have stalled in both House and Senate legislative committees. Rep. Yvette Herrell, the Republican chairwoman of the House Regulatory and Public Affairs committee, which rejected two rate-cap bills, said earlier this month she wanted to see legislation written by the industry.

Republican Gov. Susana Martinez reaped the most from the industry, $27,225. She was followed by New Mexico’s Democratic attorney general, Hector Balderas, who collected $15,700, the analysis shows.

Among state lawmakers, two Democrats topped the list — Rep. Patricia Lundstrom of Gallup collected $3,550 and Rep. Debbie Rodella of Española received $3,300.

Republicans Kelly Fajardo of Belen and House Majority Leader Nate Gentry of Albuquerque took the third and fourth spots, with $2,900 and $2,500, respectively.

About half of the $115,000 in contributions to individual campaigns came from two sources — the Consumer Lending Alliance Inc. and Fast Bucks Inc.

Records show the Alliance contributed $30,400 in 2013 and 2014 and was Balderas’ biggest contributor among industry donors, giving him three contributions of $5,200, $3,000 and $2,000 for a total of $10,200 over that period.

Fast Bucks, meanwhile, gave $29,450. It was the governor’s largest contributor among the industry donors, giving two contributions of $3,000 and $5,200 for a total of $8,200 to the second-term Republican over that period.

The industry also contributed to the campaigns of around 60 current state lawmakers in the 112-member Legislature, with nearly 40 Republicans and around 25 Democrats receiving money, the analysis shows.

Heather Ferguson of Common Cause New Mexico said campaign contributions don’t equate to votes on legislation. But they do give contributors the opportunity to talk to public officials about their issues.

In the Roundhouse, relationships matter. And campaign contributions help build and maintain relationships.

“It can serve to be an avenue that can be used to have an audience to discuss more of your issue, thus taking power away or the ability to communicate easily with legislators from the common citizens,” Ferguson said.

Mississippi needs relief from payday lenders, consumer advocates say
By Anita Lee, Sun Herald
February 14, 2015

Consumer advocates say they are relying on the federal government to loosen the grip of payday lenders on Mississippi residents least able to afford the fees.

The federal Consumer Financial Protection Bureau will soon release proposed regulations for the industry, the New York Times has reported. Payday lenders have found ways around state regulations, including a 2011 law in Mississippi that was supposed to give borrowers 30 days instead of two weeks to repay some small-dollar loans.

A 2006 federal law protects the military by capping their rates at 36 percent for short-term loans.

Payday lenders argue their rates for civilians are lower than those banks charge for bounced checks. People need their service, these lenders

say, for emergencies and to make ends meet.

Gulfport resident Franklin Dwyer is one of those borrowers.

Dwyer wrote a post-dated check for $365 to get $300 from Cash Inc., a payday lender in Gulfport. He said it was his second payday loan. Dwyer works as a porter at two casinos, but found himself unable to keep up with rent because his wife was not working and her two children moved in.

Everyone is now situated with jobs, so he doesn’t expect to be back for a third loan.

He doesn’t have a credit card. He said he was glad a friend told him about the payday loan service. “We’re still behind,” he said, “but things are picking up.”

Dwyer’s experience is unusual, according to the Mississippi Center for Justice and a nonprofit Pew Charitable Trusts study on payday lending.

The Pew study found that, on average, a payday loan customer takes out eight loans a year of $375 each, paying a total of $520 in interest. The study found most people turn to payday lenders to meet regular expenses, not because of emergencies.

“If faced with a cash shortfall and payday loans were unavailable,” the study says, “81 percent of borrowers say they would cut back on expenses. Many also would delay paying some bills, rely on friends and family, or sell personal possessions.”

$100 costs $120

Mississippi is one of 27 states with permissive regulations of payday lending, the Pew study found.

The 15 states with the most restrictive regulations have no pay-day storefronts, the Pew study says. The numbers are based on research from 2012 and 2013.

“It’s remarkable to me that we allow an industry like this to exist within our borders,” said Paheadra Robinson, director of consumer protection for the Mississippi Center for Justice.

Mississippi’s 2011 law established two tiers of payday loans.

Loans of $250 or less typically have a two-week repayment term and loans of $251 to $500 must be repaid in 28 to 30 days. A customer must prove they have a job and income source to borrow the money.

They offer a check, or an automatic withdrawal from their checking account, dated to coincide with their payday and the loan’s time frame. The fee to borrow money for two weeks is $20 for each $100 borrowed. For 30-day loans, the fee is $21.95 per $100.

When the fee is expressed as an annual percentage rate, interest amounts to 521 percent for a two-week, $200 loan.

Payday lenders have to clearly show these rates on loan applications. The fees also are posted in their offices.

Robinson said most borrowers are unable to repay the loans in such a short time, so they take out more loans.

“You’re giving people a loan knowing you are accepting a bad check for the loan,” she said. “Any industry modeled on that is not a good business. You’re waiting for them to get paid to honor the debt.”

While the 2011 Mississippi law required lenders to allow 30 days for repayment of $250 or more, they can get around it by offering multiple loans in smaller amounts, consumer protection advocates say.

Lenders also are prohibited from offering a new loan before the old one is paid. But it is perfectly acceptable to pay off a loan with one paycheck, then take out a new loan because that paycheck will no cover other expenses.

Borrowers need relief

Such permissiveness for payday lenders only exacerbates the financial situations of poor people in the nation’s poorest state, consumer advocates say.

“One of my greatest concerns about our small dollar loan industry – particularly those of less than $500 – is that there is currently no mechanism to track the number and dollar of loans that a borrower has outstanding and no mechanism to determine whether or not a borrower can afford to repay a loan,” Ed Sivak, chief policy and communications officer for Hope Enterprise Corp., said in testimony before the state House Banking and Financial Services Committee.

“While there are loan limits, the current law allows borrowers to move from lender to lender amassing an insurmountable level of debt.”

Hope, a nonprofit community development finance institute, encounters these borrowers when they come to Hope Federal Credit Union looking for a way out.

Sivak recommended to the House committee a cap on the total amount of loans outstanding, based on a percentage of monthly income.

He also said borrowers should be allowed to repay the loans in equal installments over six months, with a fee structure that would discourage lenders from issuing new loans before the old ones are paid.

Nobody, Sivak told the Sun Herald, denies that small loans should be available. He also thinks the Legislature has been receptive in listening to proposals that would improve the business for consumers.

But, in the end, he said: “If you look at our payday lending laws relative to other states, they’re definitely tilted in favor of the lenders.

“It’s pretty clear that the only way Mississippi consumers are going to get any relief is through federal intervention.”

The Debt Trap: Texans taken for a ride by auto-title loans
By Yamil Berard, Star Telegram
February 14, 2015

Editor’s note: One study shows that the average Texan is about $40,000 in debt. Some of them fell prey to the easy money available through auto title loans, and that number is rising. In 2013, Texans paid as much as $360 million in fees to auto title businesses — $53 million more than in 2012. The Debt Trap is a collaborative project by the Star-Telegram, WFAA and the Austin American-Statesman aimed at shining a light on loans that either help the economically disadvantaged or devastate them, depending on whom you ask. This installment explores car-title loans. Upcoming installments will look at reverse mortgages and student loans.

Mary Dixon was hours away from losing her 2007 silver Mercury Mountaineer on Feb. 6.

Dixon, 47, of Mansfield, had borrowed $2,994.95 on Dec. 2 to cover a family emergency. By January, she had already doled out a prepaid finance charge of more than $300. Now she owed a final balloon payment of $3,351.28 to a title storefront on East Lancaster Avenue.

She had a lot of company. In Texas, nearly 380,000 borrowers paid as much as $360 million in fees alone to hand over the titles to their cars for fast cash, 2013 state data show. That’s a $53 million jump in fees from 2012 to 2013, according to state data for 2012 and 2013. Those fees do not include finance charges because the state does not keep track of them.

Not surprisingly, vehicle repossessions by auto title businesses have also gone up. In the first three quarters of 2014, Texas payday and auto-title businesses reported more than 32,100 repos to the Office of Consumer Credit Commissioner.

“Losing a vehicle, for a family that’s living very close financially to the edge, it’s devastating to people. They can’t get to work; they can’t take the kids to school; they can’t go to doctor’s appointments,” said Ann Baddour, director of the fair financial services program for Texas Appleseed, an Austin group that advocates for the poor.

Whereas some cities including Dallas and Austin have ordinances to regulate auto title loans and payday loans, which are similar, the state offers no protections for consumers. The state does not enforce a rate cap, nor does it tell businesses how much they can charge or how to structure the loans. The result: Virtually any rate or fee can be applied to a loan.

Proponents say the loans are a lifeline to people who need them or, like Arlington City Councilman Robert Rivera, they say any crackdown on title businesses won’t matter unless people learn to make good financial decisions.

Fort Worth Mayor Betsy Price opposes local restrictions on title businesses. Like Rivera, she prefers to look at educating the public.

Arlington Mayor Robert Cluck has a different take: “I’m not at all in favor of [title loans and payday loans],” Cluck said. “It’s almost criminal the way they take advantage of underprivileged people.

“Shame on us for allowing this to to continue.”

‘No credit check’

It’s easy. All you need is a car title to take out an auto title loan. Nobody checks your credit or how much money you have in the bank. You have lots of unpaid bills? No matter.

Title businesses lure customers with slogans such as “more cash,” “instant approval,” “no credit check” and “keep driving your car.”

But the interest charges you may owe before all is said and done can be alarming. In the Fort Worth/Arlington metropolitan area, the average amount advanced for a single payment auto title loan is $1,222, state records show. The borrower is likely to pay an average of $16.63 per $100 borrowed. The average term of a loan is about 29 days.

A borrower who pays within 29 days would owe about $202 in simple interest alone. After 120 days, the interest grows to about $808 and keeps mounting. By then, the title loan is costing the borrower $2,030. In simple interest, that would be a rate of about 66 percent over four months. Over 12 months, that’s 198 percent in simple interest — but businesses sometimes may use compound interest, which would make the amounts even greater.

The finance charges and types of interest vary because title businesses offer different types of loans. If the borrower misses a payment, makes a late payment or doesn’t pay at all, the car belongs to the lender.

One day, you might be at the grocery store, and “you come out and your car is gone,” said Paul Randle, an asset manager at Business & Community Lenders of Texas, which has a Dallas office and provides loans at 18 percent to local borrowers.

James Morris of Dallas said he wasn’t paying attention when his girlfriend took out a small title loan to repair the fuel pump on their car, a 1999 white Buick LeSabre.
Morris, 58, thought it would be OK to pay $30 a month on a $200 title loan. But many months later, he still owed money, he said.

He went to speak with the title lender and was told he had only been paying interest — no principal — for a year.

“I told them and her [his girlfriend], ‘Y’all done lost your mind.’”

After that, he stepped up the payments. “You know what I mean? You’re not taking the car.”

All told, he ended up paying more than $560, Morris said.

Feds, legislators look at the issue

The ease of obtaining title loans has caught the attention of the U.S. Consumer Financial Protection Bureau. The federal regulator says it is on the brink of writing new rules that would cut into the profits of the $46 billion payday and title loan industry.

In Texas, state lawmakers, including Reps. Helen Giddings, D-DeSoto, and Ruth Jones McClendon, D-San Antonio, Sens. Rodney Ellis, D-Houston, and Royce West, D-Dallas, want to put restrictions on payday and auto-title lenders..

Robert Norcross, who represents the Consumer Service Alliance, made up of 3,000 payday and car title lenders in Texas, acknowledged that “we absolutely need to do a better job … to create some sort of safety net for those people who, for whatever reason, fall into a problem.’’

West has introduced Senate Bill 1221, which is intended to restrict high-interest loans that can balloon on borrowers. McClendon has filed a bill to protects military personnel from abusive practices. But last session, a bill that proposed statewide limits on payday lending, filed by then-Sen. John Carona, R-Dallas, failed in the House.

Norcross said he expects the Legislature to make some changes.

“There’s definitely more regulation on the way from the federal level, so for folks who are wondering, hoping, theorizing about whether there’s going to be more regulation for small short-term loans, it’s coming and it’s coming from a couple of different directions,” he said.

A good compromise would likely upset both sides, he said. “In 2013, we spent so much time making everybody happy that the bill ended up being 48 pages long. Once you get to that point, in my opinion, you’ve messed it up.”

Meanwhile, state Sen. Don Huffines, R-Dallas, has introduced a bill that would bar local governments from implementing ordinances that are more stringent than state law on the same subject.

If passed and signed into law, Senate Bill 343 likely would repeal ordinances to restrict payday and auto title loan businesses in cities such as Dallas, Flower Mound, Saginaw and Watauga. In Dallas, borrowers are also required to meet certain income guidelines before a loan can be issued.

The industry has sued cities that have adopted restrictions, but the challenges have largely failed.

‘That’s all I had’

For her part, Dixon had been due to pay up $3,355.42 on Jan. 2 to settle her loan, but she didn’t have the money, so she paid more than $300 to extend it. By Feb. 6, owing more than she had, she called the lending company to try to cut a deal.

She told TitleBucks of Texas that she would write a check for money she had socked away — $3,000 — if the company would give her back the title to her car.

“That’s all I had,’’ said Dixon, a tax preparer. She had hoped to settle the debt with a tax refund check that had not arrived.

General manager Chauncy Jones of TitleMax of Texas, doing business as TitleBucks, did not respond to repeated requests for comment.

Efforts to contact the Savannah, Ga.-based company were unsuccessful.

Norcross said he has repeatedly told the public to look for alternatives if they fall in to a debt trap.

“Look, if you borrow $300 and you feel like you … you can’t pay it back and you’re just paying the $50 of interest and fees over and over and over again, look do that three times, and then walk back to the store where you got the loan and say ‘Look, I can’t do this,’” Norcross said.

“Whatever financial thing happened, just go in and say: ‘Look, my financial situation is not the same today as it was when I borrowed the money, can we work something out. Can we do a payment plan?’”

If she could not pay in full, the only alternative for Dixon was to renew the title loan, she said.

As separate fees and interest charges mount, the Mansfield grandmother is likely to pay out more than $3,300 to borrow $2,994.95, based on the loan amount, prepaid finance charges and finance charges in the loan agreement. On Friday, she said she eventually repaid the loan in full amount.

But, looking back, she added, “I would not find myself in that again.

“I would do it differently,’’ she said. “I just rushed out on my own because of the stress that I was under.”

Time for federal intervention to rein in wily payday lenders
February 13, 2015

Plenty of predatory payday lend- ers hit pay dirt by profiting from people’s pain.

For years, critics have lodged that general complaint against the growing $46 billion short-term cash-advance business in this country. For just as long, payday loan institutions have used their wiles to thwart attempt after attempt after attempt by state governments and other regulators to rein in their practices, some of which have widely been viewed as unfair, abusive and deceptive.

In Ohio, for example, the conflict has been longstanding. In 2008, two-thirds of Ohio voters approved an initiative upholding a payday-loan reform law that capped annual percentage rates at 28 percent, down from rates as astronomically high as 400 percent. Not to be defeated, the payday industry reinvented itself by registering under state mortgage-lending laws. In so doing, they managed to assume new legal identities but keep their same questionable practices and same sky-high interest rates.

Then last year, the Ohio Supreme Court supported the industry by ruling that its practice is legal, overturning an appeals court verdict. Other states’ attempts to clamp down on payday lenders have met with similar results that fly in the face of consumer protection.

Fortunately, this nation’s new Consumer Financial Protection Board, led by highly capable former Ohio Attorney General Richard Cordray, has decided enough is finally enough. Earlier this month, the CFPB announced its plans to release in the near future a first draft of proposed federal regulations to govern short-term loan businesses.

Such action is long overdue. As Cordray noted in hearings on storefront lenders last year, “The business model of the payday loan industry depends on people becoming stuck in these loans for the long term. Most of the industry’s revenue comes from keeping borrowers on the hook and getting them to pay fees that very often dwarf the amount of the original loan.”

Clips Roundup: February 7, 2015

Payday Clips
February 7, 2015

The Debt Trap: The cost of payday lending
By Jason Wheeler, WFAA
February 5, 2015

Payday Loan Cap On Hold Despite Prayers
By Gwyneth Doland, KUNM – Albuquerque/Santa Fe
February 4, 2015

Report: CFPB To Release Rules Governing Payday Loan Industry Soon
By Ashlee Kieler, Consumerist
February 2, 2015

Federal regulators to propose 1st set of rules to aid payday lenders
By Hunter Hackney, News Maine
February 2, 2015

Elliott Clark: Beware the debt trap of payday loan firms
Kansas City Star
February 1, 2015

Regulators Prepare Rules on Payday Loans to Shield Borrowers
By Hope Yen, Associated Press
February 1, 2015

FTC crackdown on car title lenders means little in Ohio
By Amber Hunt, Cincinnati Enquirer
January 31, 2015

Payday stores put barriers between clients and repayment: Plain Dealing
By Sheryl Harris, The Plain Dealer
January 30, 2015

The Debt Trap: The cost of payday lending
By Jason Wheeler, WFAA
February 5, 2015

So many people struggle in that space between one paycheck and the next. Unable to make it, some turn to a payday loan.

But that short-term solution can put them in long-term debt.

“I didn’t read the fine print when I applied for the loan,” said Thomas Richards of Dallas.

He got a payday loan he thought he could repay right away. But it took him more than half-a-year to pay back the $250 he initially borrowed, plus the additional $334 in interest and fees.

He vows to never do it again.

“No, no, no, no. After that experience and the teaching I got from that? No,” he said. “I won’t take out another one.”

But many other people will. In 2013, there were 2,543,855 payday loans made in Texas. In that year, there were also 2,927,741 payday loan refinances in Texas — cases where borrowers needed more time to pay back.

And more time is more compounded interest.

If you pay off a payday loan in two weeks, you’re looking at about 22 percent interest. But data from the federal Consumer Financial Protection Bureau shows payday borrowers stay in debt an average of 11 months or longer.

If it takes you a year to pay off a payday loan, a state of Texas worksheet warns your interest rate could rise to a whopping 700 percent.

“The truth is, there are very few realistic options for the folks in this marketplace,” said Rob Norcross, a spokesman with the Consumer Service Alliance of Texas, which represents most of the 3,500 payday and title lending stores in Texas.

He says they’re helping people who can’t borrow money from more traditional lenders. But Norcross acknowledges payday loans don’t come cheaply.

“You need to look at all of your options,” he said. “You need to see the options that are best for you. This is a comparatively-expensive product.”

Because of that, critics argue payday loans ought to be carefully regulated and capped.

In 2013, state data shows the vast majority of payday loans were for $500 or less, yet in that year payday lenders in Texas made $1,126,138,783 in interest and fees. Past attempts by state legislators to put more stringent regulations on the industry have failed.

In the absence of strong state limitations, 32 Texas cities have adopted their own payday lending rules.

Dallas has some of the strongest regulations, requiring lenders to register and strictly limiting the size and duration of loans. Since the Dallas ordinance passed in 2011, scores of the lending locations have closed shop, and dozens of others have gotten violation notices. Establishments can be fined up to $500 a day for each infraction. The industry sued to stop the ordinance. but lost in 2014.

Ironically, the big lenders had argued before the court that the financial penalties in the Dallas statute “could easily grow so large they could cause economic ruin.”

Thomas Richards will tell you that sounds a lot like what a payday loan does. He advises against the loans, but recommends if you decide get one anyway, make sure to do what he didn’t: “I advise anyone takes out a payday loan to check the small print. Read it!” Richards said.

For an in-depth look at the difficulties of further regulating payday lenders in Fort Worth and for resources for payday borrowers, look for the debt series report from our media partners at the Star-Telegram in the Sunday edition of the paper.



Payday Loan Cap On Hold Despite Prayers
By Gwyneth Doland, KUNM – Albuquerque/Santa Fe
February 4, 2015

Despite the vocal support of a group of religious leaders, a legislative panel decided on a party-line vote Wednesday to set aside two proposals (HB 24 and HB36) that would have limited interest rates on short-term loans.

Alamogordo Republican Yvette Herrell, chair of the House Regulatory and Public Affairs Committee, said she wanted to wait to see what the lending industry proposes before moving forward.

Lobbyists and other representatives of the industry that limiting the amount of interest they can charge on car title loans, installment loans and tax-return-anticipation loans would put them out of business, kill local jobs and give their customers nowhere else to turn.

But faith leaders told that high interest rates take unfair advantage of the most vulnerable, trapping them in a cycle of poverty.

Many religious groups will help people who are in crisis and in need of short-term help with bills and emergencies, said Allen Sanchez of the New Mexico Conference of Catholic Bishops. He specifically mentioned the Society of St. Vincent de Paul, a group of Catholic parishioners who help those in need, sometimes with cash assistance.

“If you need $350 bucks to fill that propane tank with gas, that’s where you go,” Allen told committee members. “If you have an electric bill you can talk to the electric company and if that’s not working you can go to Catholic Charities,” he said.

In a press conference held shortly before the committee meeting, House Minority Leader Brian Egolf included the lending reforms as part of a package of economic initiatives put forward by Democrats and described lending at unusually high interest rates as “immoral.”

That theme was echoed by representatives of various faiths who packed the committee chambers.

“Predatory usury has plagued humankind since biblical times,” the Rev. Holly Beaumont told the People, Power and Democracy project.

Beaumont had harsh words for the loan companies who charge an average of 340 percent interest in New Mexico, saying, “Those who exploit the most vulnerable among us are, to use biblical language, an abomination to God.”

Beaumont gave the committee members a copy of a letter signed by 100 religious leaders in support of capping interest rates at 36 percent.

This story is part of a reporting partnership between New Mexico In Depth, KUNM and NMPBS, People, Power and Democracy, that attempts to pull back the curtain on how the New Mexico Legislature works and, in some cases, doesn’t. It’s funded by the Thornburg Foundation and the Loeks Family Fund.


Report: CFPB To Release Rules Governing Payday Loan Industry Soon
By Ashlee Kieler, Consumerist
February 2, 2015

Last March, the Consumer Financial Protection Bureau said it was in the “late stages” of crafting rules to rein in the often predatory payday lending industry. Nearly a year, later the agency is reportedly on the cusp of announcing said rules.

The Associated Press reports that the Bureau is ready to put its metaphorical foot down on the $46 billion industry after receiving continuous reports of consumer complaints and loopholes in state laws.

The full rules, which are expected to be announced early this year, will mark the first time the Bureau has used its authority to regulate the industry as a whole.

“Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” David Silberman, the bureau’s associate director for research, markets and regulation, tells the AP.

Last year, the Bureau released a report that found four out of five payday loans are made to consumer already caught in the debt trap; meaning their payday loans are rolled over or renewed every 14 days.

The CFPB found that by renewing or rolling over loans the average monthly borrower is likely to stay in debt for 11 months or longer. More than 80% of payday loans are rolled over or renewed within two weeks regardless of state restrictions.

While the CFPB isn’t allowed under law to cap interest rates, it can deem practices used by the industry to be unfair, deceptive and abusive.

According to the AP, the agency is considering rules that could establish tighter restrictions to ensure consumer have the ability to repay the often debt-cycle enduring loans.

Other rules could require payday lenders would be required to perform credit checks, placing caps on the number of times a borrower can draw credit and finding ways to encourage states or lenders to lower rates.

Over the last year, the CFPB has taken action against individual lenders for a variety of infractions such as deceptive advertising and harassing borrowers.

Last July, the Bureau ordered ACE Express to pay $10 million for allegedly pushing borrowers into the cycle of debt.

Before that, in March 2013, the CFPB announced it was investigating World Acceptance Corp.(aka World Finance), one of the nation’s largest high-interest installment lenders.



Federal regulators to propose 1st set of rules to aid payday lenders
By Hunter Hackney, News Maine
February 2, 2015

Federal regulators are putting together the first-ever rules on payday loans to reduce consumer complaints and fix loopholes in state laws.

The rules aim to help cash-strapped borrowers avoid falling into a cycle of high-rate debt. According to the Consumer Financial Protection Bureau (CFPB), there is shortage of state laws that govern the $46 billion payday lending industry.

There is requirement of fuller disclosures of the interest and fees, often an annual percentage rate of 300% or more.

The full details of the proposed rules are expected early this year. The rules would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans.

The agency has tried to set up an enforcement including a $10 million settlement with ACE Cash Express in recent months after accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance. They can also permit the lender to debit their bank accounts.

The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as rollovers, are common.

According to the Consumer Federation of America, 32 states in the US now permit payday loans at triple-digit interest rates, or with no rate cap at all.

Under the law, CFPB isn’t allowed to cap interest rates. However, it can deem industry practices unfair, deceptive or abusive to consumers.

David Silberman, associate director for research, said, “Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap”.



Elliott Clark: Beware the debt trap of payday loan firms
Kansas City Star
February 1, 2015

“Quick Cash for a New Year.” “Easy, instant holiday loan$.”

Some neighborhoods got lights and wreaths over the holidays. My neighborhood was decorated with signs like these, in payday lending storefronts, promising a way out for the needy and the desperate. Now the holidays are over, and some people are discovering that those signs probably should have said, “Warning: Financial Quicksand.”

Believe me, I know.

I made the mistake of walking into a too-good-to-be-true debt trap from which it took me five years and approximately $30,000 to escape. The fact was, the option was there and I had nowhere else to turn. I am a disabled Vietnam vet — Marine Corps. I had two children in college. My wife broke her ankle in two places and couldn’t work. The light bill was due. The mortgage was due. The girls needed textbooks. Something had to give and it did. Me. I took out a payday loan. Then another, and another.

We owe it to others to keep them from making the same mistake and to provide them with decent alternatives.

This will take more than a warning sign. It will take action from the government. My faith in our state government to do the job has been shaken by experience. The campaign cash payday lenders dispense appears to have done what it was meant to do — shut down opposition to payday lending. The average interest annual interest for a payday loan in Missouri is 455 percent.

The good news is that the federal government, specifically the Consumer Financial Protection Bureau, is working on a new set of rules that, if done right, could curb the worst abuses of payday lenders. Such legislation has the potential to open up the market to responsible credit products. I could have used one.

This kind of repeat borrowing is how payday lenders make their money. They advertise a two-week loan, but the average borrower is still paying it off six months later. The lender has access to your bank account. They get paid back whether or not your lights stay on or your mortgage gets paid.

A $300 loan costs on average $345 the first time you get one. When they go into your account to get paid back after two weeks, you are $45 poorer, with nothing to show for it. The bills still need to be paid. So you go back for another loan. This is not a side effect of payday lending — it is the business model of payday lending.

Eventually, I was working full-time just to pay off the lenders. I worked hard all my life, served my country, but somehow I still lost my home and my car. I felt helpless and hopeless. I made it through by the grace of God and can now hold my head up with dignity, but I cannot sit by and allow others to make the same mistake.

I urge you to join me in this battle, to write to your senators and members of Congress — including those, like Rep. Kevin Yoder, who take payday lending campaign cash. Tell them we need a strong payday lending rule that requires payday lenders to make the same kind of responsible lending decisions regular banks do every day — to consider a borrower’s ability to repay before making a loan. With a few simple changes, we could make a marketplace where it was profitable to make small dollar loans that people could actually pay off if there was an emergency and they needed the help. That’s the short game.

The long game is to make a better world where a broken bone would not bankrupt a hard-working family. In this better, fairer world, a payday lender wouldn’t advertise quick Christmas cash. They wouldn’t be able to make a living because no one would need them.


Regulators Prepare Rules on Payday Loans to Shield Borrowers
By Hope Yen, Associated Press
February 1, 2015

Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first-ever rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.

The Consumer Financial Protection Bureau says state laws governing the $46 billion payday lending industry often fall short, and that fuller disclosures of the interest and fees — often an annual percentage rate of 300 percent or more — may be needed.

Full details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express after accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as “rollovers,” are common.

Legislators in Ohio, Louisiana and South Dakota unsuccessfully tried to broadly restrict the high-cost loans in recent months. According to the Consumer Federation of America, 32 states now permit payday loans at triple-digit interest rates, or with no rate cap at all.

The CFPB isn’t allowed under the law to cap interest rates, but it can deem industry practices unfair, deceptive or abusive to consumers.

“Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” said David Silberman, the bureau’s associate director for research, markets and regulation. The bureau found more than 80 percent of payday loans are rolled over or followed by another loan within 14 days; half of all payday loans are in a sequence at least 10 loans long.

The agency is considering options that include establishing tighter rules to ensure a consumer has the ability to repay. That could mean requiring credit checks, placing caps on the number of times a borrower can draw credit or finding ways to encourage states or lenders to lower rates.

Payday lenders say they fill a vital need for people who hit a rough financial patch. They want a more equal playing field of rules for both nonbanks and banks, including the way the annual percentage rate is figured.

“We offer a service that, if managed correctly, can be very helpful to a diminished middle class,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents payday lenders.

Maranda Brooks, 40, a records coordinator at a Cleveland college, says she took out a $500 loan through her bank to help pay an electricity bill. With “no threat of loan sharks coming to my house, breaking kneecaps,” she joked, Brooks agreed to the $50 fee.

Two weeks later, Brooks says she was surprised to see the full $550 deducted from her usual $800 paycheck. To cover expenses for herself and four children, she took out another loan, in a debt cycle that lasted nearly a year.

“It was a nightmare of going around and around,” said Brooks, who believes that lenders could do more to help borrowers understand the fees or offer lower-cost installment payments.

Last June, the Ohio Supreme Court upheld a legal maneuver used by payday lenders to skirt a 2008 law that capped the payday loan interest rate at 28 percent annually. By comparison, annual percentage rates on credit cards can range from about 12 percent to 30 percent.

Members of Congress also are looking at payday loans.

Sen. Sherrod Brown of Ohio, the top Democrat on the Senate Banking, Housing and Urban Affairs Committee, plans legislation that would allow Americans to receive an early refund of a portion of their earned income tax credit as an alternative to a payday loan.

Sen. Elizabeth Warren, D-Mass., wants the U.S. Postal Service to offer check-cashing and low-cost small loans. The idea is opposed by many banks and seems unlikely to advance in a Republican-controlled Congress.



FTC crackdown on car title lenders means little in Ohio
By Amber Hunt, Cincinnati Enquirer
January 31, 2015


Consumer advocates in Ohio are applauding the Federal Trade Commission’s decision Friday to target two car title lenders on allegations they deceived borrowers.

But the celebration is tempered by a simple fact: It probably won’t change much here.

That’s because the targeted lenders – First American Title Lending and Finance Select Inc., both based in Georgia – aren’t known to do much business in Ohio. More than that, they operate under a different business model than most car title lenders in the state.

Linda Cook, senior staff attorney with the Ohio Poverty Center, said that the Georgia outfits are direct lenders. In Ohio, most car title lenders use a credit services organization, or a middleman that works with the loan applicant and the lender. That’s legal under Ohio law so long as the organization and lender are separate.

“The storefront that you see, the one that advertises title loans, that storefront will take your information and determine how much you can borrow with your car as collateral,” Cook said. “You’re paying an intermediary to arrange a loan for you.”

The fee is rolled into the loan repayment. The typical borrower often pays more than a 300 percent annual percentage rate, according to a joint study by the Center for Responsible Lending and the Consumer Federation of America.

Here’s how the loans typically work: Someone who owns a car brings the title into a store, which either makes a loan directly or facilitates a loan with a lender, usually at no more than 50 percent of the vehicle’s value. The title loans must be repaid within a few months, with a large balloon payment capping off monthly installments.

If the borrower can’t afford that balloon payment, he either forfeits his car, which the lender then sells at auction, or he scrambles for an alternative – often by way of refinancing the loan or paying to extend it, and entering a cycle of debt that critics say can be insurmountable.

The Ohio Consumer Lenders Association – an organization to which several car-title lenders belong – has defended the loans as filling a void left by traditional banks and credit companies by giving often-neglected consumers a chance to borrow money. The product is designed for people having trouble getting a credit card, bank loan or home-equity line of credit through traditional means.

Car title loans gained popularity in Ohio in 2008 after the Legislature attempted to curb payday loans by creating the Short-Term Lender Act. That law, which was challenged by payday lenders but approved by voters, capped the annual percentage rate on paycheck loans at 28 percent.

Lenders got around this by using cars as collateral and the lender middlemen Cook described, the fee for which could be much higher than 28 percent. (Last summer, theOhio Supreme Court ruled that “ambiguous language” in older mortgage lending laws made the 2008 Lender Act moot anyway, and payday lenders can operate under the Mortgage Loan Act instead.)

The FTC hadn’t cracked down on car title lenders until Friday, when it announced it reached a settlement with the two Georgia lenders. The agreement requires the companies to overhaul h.ow they advertise and promote their loans.

“This type of loan is risky for consumers because if they fail to pay, they could lose their car – an asset many of them can’t live without,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a news release. “Without proper disclosures, consumers can’t know what they’re getting, so when we see deceptive marketing of these loans, we’re going to take action to stop it.”

The FTC charged that the companies advertised 0 percent interest rates for a 30-day car title loan without disclosing important loan conditions or the increased finance charge imposed after the introductory period ended. The lenders also failed to disclose that the borrower had to be a new customer, repay the loan within 30 days and pay with a money order or certified funds, not cash or a personal check.

Borrowers failing to meet the conditions would be required to pay a finance charge from the start of the loan.

The FTC involvement was unprecedented, marking the first time that the federal agency took action against auto title lenders, for whom business is booming: More than 1.1 million households nationwide took out a car title loan in 2013, according to the Federal Deposit Insurance Corp.

“We get a lot more complaints in payday loan cases,” Helen Wong of the FTC’s Bureau of Consumer Protection told The Enquirer. She said the settlements announced Friday came about because “the advertisements were just so deceptive, with billboards in both Spanish and English … that implied you could get a loan for free when that just wasn’t the case.”

Cook, of the Ohio Poverty Center, said that even though the settlement likely won’t change much in the Tri-State region directly, she credits the FTC for stepping in on behalf of consumers and hopes that the action at least raises public awareness.

“I’m always happy to see a predatory lender called to task on abusive practices,” she said.

Help yourself

Need money? Car-title loans sure make it easy. Most states don’t require proof of employment or regular bank accounts. Here are some things to weigh before borrowing against your car:

Plan ahead to build your credit. About half of car-title loan borrowers don’t have bank accounts, which is usually required for folks wanting to qualify for bank loans or credit cards that often charge far less in annual interest. Get a bank account, even if you don’t use it much, and consider having an emergency credit card on hand in case you’re ever in a bind.

Exhaust all other options. Ask relatives for help, no matter how embarrassed you feel. After all, if you’re having to hit them up later for rides because your car’s been repossessed, you won’t be saving much face.

Don’t think you’re special. The average consumer who pulls out an auto title loan doesn’t repay the loan in 30 days – and instead renews the loan an average of eight times. There’s a reason these loans are so popular with lenders: They cost consumers a lot of money.

Do the math. Lenders might accurately disclose the loan’s interest rate, but they might not include the hefty fees that accompany the loans in that rate. Find out precisely how much you’ll be paying at the loan’s end for your money, and weigh whether your situation is truly dire enough to warrant losing hundreds in fees and interest, not to mention risking your wheels.

If you’ve already pulled out a loan, pay it off. Reach out to your local banks and credit unions if you don’t have the spare cash to see if anyone can help you before you start repeatedly refinancing.

Do your research. Make sure the lender you’re considering is actually licensed by calling the Ohio Consumer Lenders Association at 1-866-595-1301 or online Also, shop around for the best rates. Because car-title loans are approved within minutes, it’s easy to be lured by the convenience of a nearly instantaneous approval, making you less likely to consider the competition.



Payday stores put barriers between clients and repayment: Plain Dealing
By Sheryl Harris, The Plain Dealer
January 30, 2015

When the Hebrew Free Loan Association began helping people escape high-interest payday loans, it encountered an unexpected problem.

Payday lenders refused its payments.

“They’re making it so hard to pay them off,” says Michal Marcus, director of the association, which last year launched an interest-free loan program to help senior citizens get out of payday debt.

HFLA pays off clients’ creditors with lump-sum cashier’s checks made out to the payday lender.

“I send it to the office and they lose it. Or they forget to tell the store, so the people get harassed (for nonpayment),” she said.

One lender told her to send a check to a P.O. Box. “They never went and picked it up. It eventually came back,” she said. “Every day, it’s accruing interest.”

The biggest fight, though, is getting payday stores to accept cashier’s checks – prepaid checks guaranteed by a bank.

“The storefronts are refusing to take it – it’s not like they can’t,” Marcus said. “They’re just refusing to.” That refusal can add hundreds of dollars to a client’s total tab because of the quirky way payday lending works.

In payday store chains, storefronts frequently offer discount coupons. Those coupons aren’t available for payments made to the corporate offices. So having a storefront refuse a cashier’s check means a borrower loses the discount. That loss hit one client, a senior in her 70s, particularly hard.

“Had she paid it off in the storefront, it would have been $819.94,” Marcus said. “Because we had to mail it in, it was $1,365.65.”

Although HFLA loans are interest-free, they’re not handouts. Clients have to pay back the amount they borrow. For that client, that’s an extra $545.

As the Consumer Financial Protection Bureau prepares to write the first rules specifically governing the payday industry, it should pay close attention to barriers lenders throw in front of borrowers trying to pay off loans.

Those barriers come in many forms.

Amos, another HFLA client, took a cashier’s check to a payday store to pay off his loan, and the store demanded he pay an extra $50 as a check-cashing fee.

What other type of lender charges customers a fee to make a payment? The cashier’s check, remember, is guaranteed by the bank and made out to the lender.

“We called the corporate office to see if we could mail it in,” Marcus said, “and the corporate office said yes, but the payoff would be $1,100 instead of the $860 at the store, as the store offers early pay off coupons and the corporate office doesn’t.”

So, Amos said, he went to the store with the $860 cashier’s check and still owes $50.

“I didn’t understand why they wouldn’t take a check,” said Amos, who like other borrowers didn’t want his full name used. “You have to give them cash money.”

Payday loans are expensive – annual interest rates are north of 400 percent, and payday borrowers get sucked into re-borrowing to stay ahead of payments.

CFPB studies of payday lenders’ records show that one of five borrowers on monthly benefits like Social Security will end up spending a year in debt after taking out a payday loan.

Amos, for example, said said he originally took out a payday loan to help chip in for a relative’s funeral.

“I was redoing it every month,” he said. “When I got my Social Security, I would use that to pay some of my bills, but then, first thing I would do is go pay the payday loan – and I would have to take the money back out to pay the other ones.”

When he turned to HFLA for help, he owed $2,300 to three lenders. At $75 for every $500 renewal, “discount” or not, payday lenders made a hefty profit on Amos.

Another of Amos’ lenders demanded an $80 check-cashing fee for him to pay off a $1,000 loan – even after the corporate office assured Marcus the store would accept the check without a fee.

Amos said he had to argue at the counter for 45 minutes. “They told me I had to leave because I was holding up the line,” Amos said. He waited another hour for the store to clear out and had to call Marcus before the manager finally relented.

HFLA doesn’t just hand clients cash and hope they pay their loans, Marcus said. To get a loan, a client must have a co-signor.

“There’s a reason we don’t write a check directly to an applicant,” Marcus said. “We want to make sure the money is being used to pay off the loans.”

Marcus said dealing with payday lenders is more time-consuming than dealing with any of other types of creditors.

“Each time I deal with it, it’s been hours and hours on the phone,” she said. “This is across the board.”

Sherrie, who turned to HFLA for help paying off payday loans, described a conference call in which she and Marcus were transferred from office to office just to get a payoff amount.

“Trying to get this paid off was harder than getting the loan,” Sherrie said. “Michal had to get really stern with them. She said, ‘Give me a payoff number right now.'”

Marcus said she’s concluded payday lenders want the process to be frustrating.

“They don’t want to get paid off,” Marcus said. “They want these people to renew.”

Clips Roundup: January 30, 2015

Payday Clips
January 30, 2015

Stricter federal laws needed to rein in unscrupulous payday lenders
By Mark Sullivan, Kennebec Journal
January 29, 2015

Plain Talk: Don’t allow payday lenders to gouge soldiers — or the poor
By Dave Sweifel, Capital Times
January 28, 2015

Imprisoned by Payday
Fort Worth Weekly
January 28, 2015

Protesters Rally Against Payday Lenders In Mpls.
CBS Minnesota
January 27, 2015

Religious leaders protest at Minneapolis payday loan store, demand more protections
By Joe Kimball, Minnesota Post

Protesters speak out against the payday loan industry
By Allen Fennewald, Missourian
 January 27, 2015

Local consumer activists protest payday loan companies
By Mauricio Marin, KLAS-TV
January 27, 2015

Community activists rally for more protections from payday lenders
By Denise Wong, KTNV
January 27, 2015

Protestors Demand Payday and Title Loan Changes
January 27, 2015

Activists say payday loans prey on poor; protest planned in Detroit
By Gus Burns, Michigan Live
January 26, 2015

Rally takes aim at practices of payday loan stores
Wichita Eagle
January 26, 2015

Faith leaders are secret weapon in fight against payday lending
By Deborah Sutton, Deseret News
January 23, 2015

FTC Reaches Its Largest-Ever Payday Lending Settlement
By Kevin Wack, American Banker
January 16, 2015

Stricter federal laws needed to rein in unscrupulous payday lenders
By Mark Sullivan, Kennebec Journal
January 29, 2015

The holidays are over, along with the traditional telecasts of Charles Dickens’ “A Christmas Carol.” It is never made clear exactly what Ebenezer Scrooge’s business was. The ghost of Jacob Marley, Scrooge’s dead partner, refers to it as a “counting house.” I always assumed they were 19th century loan sharks. As the holiday bills come due in the New Year, it is timely to take a closer look at an especially avaricious 21st century version of Scrooge and Marley: “payday lenders.”
Payday lenders are companies that make small, short-term, unsecured loans (sometimes known as cash advances) with repayment at outrageous interest rates (some as high as 400 percent or more) that usually come due within a few weeks after receipt of the loan. While states like Maine have long upheld strong protections, some consumers fall prey to companies that fall outside of state jurisdiction. This year, the federal Consumer Financial Protection Bureau will propose national rules to rein in dubious lending practices and protect borrowers, especially those who can least afford it, from crippling loan debt.

This is important since unlicensed and unscrupulous lenders still operate in the state. For example, the Maine Department of Professional and Financial Regulation reports investigating consumers who pay as much as $200 in interest over two months on a $100 payday loan, yet still owe the original debt of $100. What seems to be a short-term fix turns into a long-term debt “trap” for those least able to secure the financial resources to escape. One-fourth of consumers seeking assistance with payday loans owe money to more than one lender; some are in debt to five or more separate lenders totaling into the thousands.

Maine law applies rigorous oversight and regulation of consumer lenders, including payday lenders. All payday lenders doing business with Maine residents, including those from out of state, must be licensed. State law also caps interest rates for small loans at 30 percent and loans greater than $4,000 at 18 percent. Over the years, Mainers have worked hard to prevent out-of-state lenders from loosening these laws, saving borrowers in the state $25 million every year in fees that otherwise would go to out-of-state companies that operate payday loan stores. That’s good for borrowers and good for Maine.

And yet, unlicensed lenders still continue to operate in the state. While Maine law prohibits unlicensed lenders from collecting any more from the consumer than the amount of the original loan principal, forgiving of all interest, too many consumers are unaware of these protections and succumb to debt collectors’ harassment and scare tactics.

While Maine has remained steadfast in sensible protections against high-cost lending practices, Congress has failed to enact strong, enforceable laws and to sufficiently empower and support federal regulators. This would help curtail some of the abuses of lenders who currently skirt state regulations.

The Maine Center for Economic Policy asks consumers to contact our Congress members and appeal to them to support the Consumer Financial Protection Bureau’s proposed rules. It is critically important that any such federal rules not undermine our state laws, but also work to protect borrowers no matter where they live. The protection bureau should require that payday lenders check a borrower’s ability to repay a loan before making it, and ban payday lenders from direct access to a borrower’s bank accounts, so they can’t take their fees before consumers can pay for the rent, utilities and other basic necessities.

The Consumer Financial Protection Bureau needs help demonstrating to the media, policymakers and other consumers how unregulated, ruthless payday lenders prey on people trying to make ends meet, often with devastating impacts upon their victims and their families. People who have experience with a payday lender have been asked toshare their stories with the protection bureau.

Our greatest protection from devious payday lenders lies in strong regulatory reform. Congress must not allow payday loan debt to become a nightmare more frightening than Scrooge’s and leave borrowers with a chain of debt as long and as heavy as that Marley drags through eternity. We urge the Consumer Financial Protection Bureau to adopt strict federal regulations and apply robust enforcement against unscrupulous lenders and ask our elected leaders in Congress to support them.

Mark Sullivan is communications director at the Maine Center for Economic Policy.
Plain Talk: Don’t allow payday lenders to gouge soldiers — or the poor
By Dave Sweifel, Capital Times
January 28, 2015
The Consumer Financial Protection Bureau, the new federal agency that’s aimed at protecting consumers from unscrupulous money changers, issued a disturbing report early this month about one of my favorite targets — payday lenders.
It seems that the payday loan folks, who seem to have more lives than a cat, have been exploiting loopholes in the Military Lending Act, which limits interest rates to 36 percent on loans made to military personnel.

One of the main problems is that the act defines payday loans as loans of 91 or fewer days. So the clever payday lenders are writing the loans for more than 91 days and then charging interest rates at whatever percentage they can get, sometimes more than 500 percent.

This shouldn’t have come as a surprise, though, to either the military establishment or the CFPB. That’s exactly what the industry has been doing in Wisconsin to avoid our already-weak payday loan regulations, regulations made even weaker by this Republican-controlled Legislature and a governor who worries more about big business interests and the money they wield than the poor families trying to make ends meet.

To be fair, the Democrats in the Legislature were as bad as the Republicans in coming to grips with the problem. But they finally did pass a bill in 2010 (Wisconsin was the only state in the nation without a payday loan law at the time), when they controlled both houses of the Legislature. The bill limited interest rates to 36 percent and, among other provisions, forbid the companies from re-doing a loan more than once, a practice that often drove already-obscene interest and fees even higher, driving the borrower deeper and deeper in debt.

But they also defined payday loans as being fewer than 90 days in length. Realizing that the 90-day provision was a convenient loophole, Democratic Gov. Jim Doyle used his line-item veto power to eliminate it. He also removed a provision that allowed the lenders to use auto titles as collateral. (If a person defaults on such a loan, the lender can, of course, confiscate the car.)

Wisconsin voters, however, put Republicans back in charge of the Legislature in 2010 and elected Scott Walker governor. One of the first things the new leadership did was to approve the 90-day provision and remove the prohibition on title loans.

And guess what? The subprime loan industry is flourishing by writing loans greater than 90 days, calling them “installment” loans, and saddling the desperate borrowers with interest rates as high as 590 percent. Plus, they can rewrite the loans as often as the borrower asks.

Gouging poor civilians is bad enough, but the military is especially concerned about the impact excessive indebtedness can have on a soldier’s morale, which is the reason for the 36 percent interest cap. Young troops are particularly vulnerable to these kinds of loans, often running out of money between paychecks and in need a few bucks to get through the month.

The CFPB cited the example of a California company that lent $2,600 to a service member for more than 90 days and charged an annual percentage rate of 219 percent. The trooper paid $3,966.84 to borrow the $2,600 for one year, the bureau said.

In a letter to the Defense Department, the CFPB recommended that the Pentagon close the loopholes and put a cap of 36 percent — a figure that in itself is well above today’s interest rates — on all loans to military folks.

The working poor in Wisconsin, though, can expect no such help as long as the current Republican crew is controlling the Capitol.


Imprisoned by Payday
Fort Worth Weekly
January 28, 2015
The right to not be imprisoned for debt has been guaranteed to Texans since the adoption in 1836 of the Republic of Texas Constitution. But that hasn’t stopped some payday lenders in recent years from illegally filing theft-by-check complaints against borrowers who don’t pay up.

Just threatening criminal charges is against the law, but Texas Appleseed has found rampant abuse of theft-by-check charges in a recent investigation. The nonprofit group filed a complaint in December about the practice with the federal Consumer Financial Protection Bureau, the Federal Trade Commission, the state Office of Consumer Credit Commissioner, and the Texas Attorney General’s office.

According to the Texas Finance Code, a contract between a borrower and a payday lender must state that “a person may not threaten or pursue criminal charges against a consumer related to a check or other debit authorization provided by the consumer as security for a transaction in the absence of forgery, fraud, theft, or other criminal conduct.”

It’s not just a single nonprofit organization that’s worried about the practice. The state consumer credit watchdogs issued an advisory against it in 2013, and last year a major Irving-based lender was ordered to pay $10 million in refunds and penalties because of its use of the practice.

Theft-by-check charges get involved because payday lenders often require borrowers to write one or more post-dated checks to cover what is supposed to be paid back. If a lender tries to cash a check but cannot because of insufficient funds, the lender then files a complaint asking that the borrower be charged with theft by check. District attorney’s offices are not required to accept the cases — in fact, Texas Appleseed and others say it is illegal for them to file such charges — but the group’s investigators found that DAs often do accept them because the fees charged help financially support the offices’ “hot check” divisions.

In its investigation, Texas Appleseed, sampling from just eight counties, found more than 1,500 criminal complaints against borrowers between 2012 and 2014. Those improper complaints represent only a tip of the iceberg, said Ann Baddour, director of fair financial services at Texas Appleseed.

Investigators found that in some courts almost half the theft-by-check cases were based on payday lenders’ complaints. Baddour said that to qualify as a crime, a borrower’s action must constitute fraud, not simply a lack of funds or failure to make loan payments on time.

Southern Methodist University law professor Mary Spector said that true theft by check is much different than just taking out a loan and not being able to repay it.

“Payday lenders have been using the criminal courts as a means to collect debt,” she said. “That kind of debt collection has been made unlawful by the federal Fair Debt Collection Practices Act,” which passed in 1977.

She said the Texas Bill of Rights protects residents from criminal prosecution for debt but that enforcement of the laws on debt collection has been weak in Texas, allowing payday lenders to use unlawful tactics to collect civil debt.

Baddour said such tactics have been a longtime practice of the industry. “This started very soon after the payday lending industry gained its footing,” she said.

The Office of Consumer Credit Commissioner issued an advisory in 2013 saying that payday lenders “should not use a district attorney’s hot-check division simply as a means for collecting debt.”

ACE Cash Express was the Irving-based lender ordered to pay $10 million in refunds and penalties by the federal Consumer Financial Protection Bureau for the practice of criminalizing debt in 2014.

At the time, the Texas Observer quoted CFPB director Richard Cordray as saying that ACE Cash Express used “false threats, intimidation, and harassing calls to bully payday borrowers into a cycle of debt.”

The agency found that the threat of criminal charges was widely used to collect debt, even though the company didn’t file civil suits against customers over non-payment.

ACE Cash Express officials did not return calls or e-mails from Fort Worth Weekly seeking comment for this story.

The Consumer Services Alliance of Texas, which speaks for almost 80 percent of the payday loan industry in this state, issued a statement in response to Texas Appleseed’s investigation and complaint, saying that “best-practice” guidelines prohibit their member businesses from threatening or filing criminal complaints against borrowers and that lenders are subject to expulsion from the group for the practice.

Baddour said that state regulatory agencies have received only about one complaint for every 500 abuses that her organization found. She attributed the discrepancy to the intimidation tactics of the payday industry. Additionally, she said, most customers don’t know that the practice is illegal.

The regulatory agencies don’t grasp how pervasive the practice is, Baddour said.

Payday lenders’ theft-by-check complaints represent a cash stream that prosecutors don’t want to give up, the state consumer credit agency concluded in 2013.

Austin attorney Tracey Whitely represented a client for theft-by-check charges from a payday lender, and in that case the charges were dismissed.
“The payday lenders are using the power of the courts to collect debt,” she said. “A lot of people who are afraid of criminal charges end up paying more in fees.”

Whitely said the practice of criminal prosecution also adds to the cycle of debt being fostered by the payday loan industry. The fees from criminal cases are just piled onto the enormous fees charged by the lenders, she said.

Julie Hillrichs, a spokesperson for the Consumer Services Alliance, argued that those practices are not commonly used by lenders.

“I’m not going to speak [about] individual companies,” she said. “Our companies understand our best practices. There are repercussions for not following the guidelines and all applicable state and federal law. The laws work in Texas and at the federal level. They’ve resulted in complaints. The complaints have been resolved. … I believe that our members unanimously approved the guidelines with the intention of following them in good faith.”

She said there are cases when borrowers do engage in fraud — for instance, by writing a post-dated check for a payday loan and then closing the account before the check is due to be cashed.

Baddour said that more investigation and enforcement of existing laws and policies are needed. She said that justice of the peace courts are a big part of the criminalization of debt problem but are harder to investigate.

She urged consumers to be aware and to fight back against the practice. Borrowers, she said, can go to the Texas Fair Lending Alliance website ( to arm themselves with the information and tools to make informed decisions about borrowing money.

“It’s a place where people can go to obtain help to fight against being wrongly threatened,” Baddour said. “I think what’s so insidious about this practice is that it’s using our faith in the criminal justice system to wrongfully collect a debt.”

Protesters Rally Against Payday Lenders In Mpls.
CBS Minnesota
January 27, 2015
MINNEAPOLIS (WCCO) — A number of community leaders came together Tuesday to speak out against what they call predatory loans that target the poor.
The group held a protest outside a Payday America in Minneapolis, where they accused payday lenders of charging unreasonably-high interest rates and fees for emergency loans.

They say the loans trap 12 million consumers a year in a cycle of debt they can’t escape.

“People have to have a fair chance, and it is not good enough to say to our poorest people, the people who are on the edge, that it’s OK to pay 4, 5, 6, 700 percent interest rates,” Rev. Grant Stevensen said.

The group, made up of area faith leaders and clergy, sent a letter to Rep. Keith Ellison and the ConsumerFinancial Protection Bureau.

They want more regulation on the payday loan industry, including a cap on the maximuminterest rate.





Religious leaders protest at Minneapolis payday loan store, demand more protections
By Joe Kimball, Minnesota Post
January 27, 2015
A group of religious leaders and advocates for the poor are protesting today at a Payday America store in Minneapolis to bring attention to what they call predatory lending practices at such payday lending stores, where short-term loans — from payday to payday — with interest rates that can be as high as 400 percent, can lead to a cycle of debt.

They want the Consumer Financial Protection Bureau, which is crafting new rules for the lending practice, to produce stronger regulations and protections. They also want to remind people of alternatives to the payday lenders, such as Exodus Lending, organized by Holy Trinity Lutheran Church to offer short-term low-interest loans and credit counseling.

Organizers from ISAIAH, the Minnesota State Baptist Convention, and Exodus Lending have organized the protest and rally at 11:15 a.m. today, outside the store at 2600 Nicollet Ave.

Leaders scheduled to speak are:

Rev. Billy Russel, President of the Minnesota State Baptist Convention and Pastor of Greater Friendship, Minneapolis

Rev. Runney Patterson, Vice President of the Minnesota State Baptist Convention and Pastor of New Hope Baptist, St. Paul

Rev. Jay Carlson, Holy Trinity Lutheran Church, Minneapolis

Rev. Adam Rao, Executive Director of Exodus Lending

Rev. Paul Slack, President of ISAIAH and Pastor of New Creation Church

Rev. Grant Stevensen, ISAIAH


Protesters speak out against the payday loan industry
By Allen Fennewald, Missourian
January 27, 2015

COLUMBIA — Two men in hazardous materials suits approached the Quik Cash at 219 E. Broadway on Tuesday afternoon with a roll of yellow caution tape in their hands.

The men were “quarantining” what they consider a toxic payday loan business, joined by about 10 other consumer advocates and Grass Roots Organizing protesters hoping to incite changes in the practices of the payday loan industry.

The group chanted as cars drove by and honked their support.

“Say no to payday lender lies! They only want their fees to rise! They offer toxic loans to poor and wonder why we say no more!” the protesters shouted.

“We have been working on this issue for a long time,” organizer Robin Acree said. “We wanted to raise attention to the toxic loans in Missouri and the debt trap that they cause. They are taking advantage of a low-income workforce.”

Payday loan businesses such as Quik Cash offer short-term, high-interest loans to walk-in customers who secure the loans with their next paycheck. In 2012, the average 14-day loan issued in Missouri held an average annual percentage rate of approximately 455 percent, according to a state Division of Finance report.

The protesters said the businesses intentionally give loans to people who cannot afford to make the payments, add the high interest rates and continually loan out more money to pay for the original debt when the customer cannot pay.

Missouri caps interest rates at 75 percent for the duration of the loan, but that cap corresponds to an annual percentage rate of 1,950 percent for a 14-day loan.

Acree said she does not want the payday loans industry to do business in Columbia and would rather low-income wages be raised to prevent people from needing the loans.

The Rev. Joseph Wilson spoke at the protest representing Faith Voices of Columbia and told the protesters about his own problems with payday loans. He said he took out a loan for $700 for regular expenses and it took him almost three years and $3,500 to pay it off.

“We were fortunate to get out of it. I had several loans all around town under the stress of trying to get out of it, and I couldn’t,” Wilson said. “It was a trap, and if I’d have known then what I know now, I never would have done it. It’s not set up to get you out.”

Gov. Jay Nixon vetoed a bill last year that would have reduced the interest rate limit to 35 percent for the duration of the loan, or 912 percent on a 14-day loan, and banned loan renewals. The bill would have also repealed a law limiting loans to six rollovers and allowed extended payment plans.

Nixon said he vetoed the bill, which he described as “sham reform,” because it didn’t go far enough in addressing predatory practices by payday loan companies.

New bills aiming to reform the payday loan industry entered both houses of the Missouri General Assembly earlier this month.

Senate Bill 187 would prohibit payday loan operators to charge interest and bar renewals on the loans, eliminating the current allowance of six renewals. Under the bill, payday loaners would only be able to charge fees that would be refunded to a borrower when a loan is repaid.

The bill would also extend loan periods to 30, 60 or 90 days from the current 14 and 31-day standards and prohibit lenders from making more than one loan to a single customer.

House Bill 91 would classify any loan less than $750 as a payday loan, up from the current $500 standard. It would allow for two loan renewals, but borrowers would not be allowed to have more than $750 in outstanding loans at one time.

It would also prohibit a lender from making a loan to a customer who already has one unsecured loan.

But the protesters weren’t looking to state legislators for help. They called through a megaphone for Consumer Financial Protection Bureau director Richard Cordray to make the changes that legislation has yet to accomplish.

“Payday loans are toxic! They make me sick! CFPD, show me logic and make rules quick!” they chanted.

Local consumer activists protest payday loan companies
By Mauricio Marin, KLAS-TV
January 27, 2015

LAS VEGAS — A group of people protested the practices of payday loan companies outside of a Money Tree store on Tuesday.

They were demonstrating against what many call “unfair” business practices. Currently in Nevada, there isn’t a limit on how much interest a payday loan company can charge, so activist are pushing to change the law.

Jose Matias said his family used to turn to payday loans when they were in desperate need of money to pay their bills.

“Sometimes it’s hard to cover the total cost of everything when it’s the first of the month.  You have to pay the rent, all of the bills, and you still have to put food on the table,” Matias said.

Demonstrators said payday lenders take advantage of vulnerable people in the community.

“They charge up to 500% in interest, and they have predatory practices of going after consumers who are unable to pay back their loans, said Laura Martin, protesting payday loans. “They’re taking too much wealth out of our community and causing fear.”

Matias said he joined the protest on Tuesday because he wanted to prevent others from getting into debt from loans with high-interest rates.

Barbara Buckley, the Executive Director of the Legal Aid Center of Southern Nevada, said the loans are designed for maximum profit at the expense of poor people.

“They make their money by having people pay interest rates that are higher than the amount they borrowed,” according to Buckley.

Buckley said she was able to help people get their money back from bad loans in the past.

“We helped a 98-year-old woman who took out a payday loan to eat. There were a number of violations the company made, so they were forced to refund her money, but she died the day before she received it,” said Buckley.

Nevada only has a few laws in place that regulate payday loans.

“They can’t threaten to imprison anyone and when someone defaults on the loan, the interest rate has to drop.”

But according to Buckley, this isn’t enough, and state lawmakers need to do more to protect payday loan consumers.

“We haven’t done what a lot of other states are doing which is regulate the amount of interest on the initial loan from the first day it was obtained.”

Community activists rally for more protections from payday lenders
BY Denise Wong, KTNV
January 27, 2015

Las Vegas, NV (KTNV) — A handful of protesters rallied outside of the Moneytree office on Sahara near Valley View on Tuesday morning.

They were there to rally for more protections for consumers when it comes to short-term lending at payday loan offices.

“It’s extracting wealth from our community, it’s preying on our most vulnerable,” said Laura Martin with the Progressive Leadership Alliance of Nevada. “Payday loans are presented as a short-term solution to a financial problem but the way their business model is set up is they want to trap you into a continuously revolving loan, so the problem just escalates.”

Amy Cantu, the communications director for the Community Financial Services Association of America, which is a trade group representing short-term lenders, disputes this.

“CFSA members take great pride in offering a credit product that often represents the most financially sound choice a consumer can make. Payday loans, which generally cost $15 for every $100 borrowed, are in many cases less expensive than incurring overdraft fees or bouncing a check. Our members uphold the highest lending standards in the industry and ensure important consumer protections for borrowers,” responded Cantu in a statement.

The protest in Las Vegas was part of a day of action coordinated by National People’s Action as the Consumer Financial Protection Bureau works to craft new rules that could limit payday lenders’ abilities when it comes to collecting from consumers.

In Clark County, there are 195 check cashing services registered with the county. That does not include the number of similar services in Las Vegas and Henderson.

Protestors Demand Payday and Title Loan Changes
January 27, 2015

PEORIA – A group of community activists are demanding more regulations for pay day and title loans. Illinois People’s Action wants the Consumer Financial Protection Bureau to take action.

One woman says she fell into a trap at a vulnerable time in her life  and now she faces thousands of dollars of debt.

“They took advantage of me. They knew I needed them. They knew that once I staretd, I would need them again. And I am angry. If there’s things that they can do, the CFPB can do to protect people like me, I want them to do it,” Candice Byrd said.

The group says Peoria has 37 payday loan businesses in town, which is a lot for a city of this size.

We did reach out to title max — but they declined to comment.

But the group Community Financial Services Association of America, which represents payday and title loan businesses, say the businesses have controls in place to prevent people from becoming trapped in debt.

Activists say payday loans prey on poor; protest planned in Detroit
By Gus Burns, Michigan Live
January 26, 2015

DETROIT, MI — Using names like Check ‘n Go, Cash Advance and Payday Loans, there are companies throughout Detroit and beyond that specialize in immediate, high-cost, shot-term loans with interest rates often reaching 30 percent or more.
Michigan United, an activist organization, is asking government officials to create rules limiting “payday lenders’ ability to prey on vulnerable consumers” and plan a protest outside Advance America at 3959 Vernor Highway in Detroit, at 11:15 a.m. Tuesday.

Protesters plan to dress in hazmat suits armed with caution tape to make their point.

“Michigan is one of 35 states across the country that authorizes payday lending in some form,” Michigan United said in a statement Monday. “While some states and cities have worked to put a stop to predatory lending, federal laws still largely allow payday lenders to prey on vulnerable communities and benefit from borrowers’ financial hardship – with annual interest rates that routinely reach 400 percent or more.”

Michigan United says the industry thrives on the poor, entraps them in a “cycle of debt.” It did not outline in Monday’s statement exactly what limits it would like to see imposed.

A Google search for of payday loan centers yields nearly 70 such businesses located in Detroit, some operating 24 hours a day. Their loans are accessible online with automatic bank deposits. In-person cash loans are available at on-site locations.

Most require proof of a steady income and establishment of a bank account before loan approval.

Correction: An earlier version of this story stated TV talk show host Montel Williams was a spokesman for the incorrect company. He is the spokesman MoneyMutual, which offers overnight 60-day loans but has no physical locations.

Rally takes aim at practices of payday loan stores
Wichita Eagle
January 26, 2015

An activist group plans to protest Tuesday as a way to pressure federal regulators to apply more stringent rules to payday loan companies.

Members of Sunflower Community Action in Kansas plan to rally at 4:30 p.m. Tuesday outside a store on east 21st, according to a news release from Fitzgibbon Media, a group based in Washington, D.C.

Officials at Fitzgibbon said the Wichita rally is part of protests planned across the country Tuesday.

Activists want the Consumer Financial Protection Bureau to propose and implement rules that would limit the fees and interest rates that payday loan companies can charge customers.





Faith leaders are secret weapon in fight against payday lending
By Deborah Sutton, Deseret News
January 23, 2015

When Pastor Chad Chaddick was ordained, he expected to be a teacher, a caretaker of the sick and elderly, a counselor and an evangelist to his community.

But a phone call four years ago about a financially desperate church member unexpectedly propelled Chaddick to add political activist to his list of pastoral duties.
The member was a father of 10 children who had taken out a payday loan and risked losing his home because he had been drained of $1,400 in interest and fees without making a dent in paying back the $700 principal. He turned to Pastor Chaddick’s Northeast Baptist Church of San Antonio for help.

“That can’t be legal,” recalled Pastor Chaddick, who ended up joining a growing group of religious leaders who offer advice and lobby for stricter regulations on the burgeoning business of payday lending.

Payday lenders, who say they are often the only option for high-risk borrowers, have become as ubiquitous as Starbucks and McDonald’s since many states repealed traditional usury laws in the 1990s, according to Rachel Anderson, director of faith-based outreach at the Center for Responsible Lending. But the increase in payday lending is a worrying trend for church leaders who view high-interest lending as an immoral practice. In response, faith leaders from various religions and denominations are branching into political activism, financial education and lending to prevent members from resorting to high-interest payday loans.

“From pretty early on, as payday lending began to grow, churches were the first people sounding the alarms that predatory lending was a problem,” Ms. Anderson said. “The Bible speaks very strongly against unjust lending and taking advantage of others through debt. (The way payday loans trap) vulnerable people through debt really offends scriptural and religious teaching.”
Political Advocacy

In the process of helping the family in need, Pastor Chaddick was recruited to testify in front of Texas House and Senate committees. His local political efforts helped to pass a San Antonio ordinance that limits payday loans to 20 percent of a person’s income. It’s a small victory for Pastor Chaddick, who continues to fight for further regulations statewide.

State laws on payday lending range from complete prohibition to no limits whatsoever, said Stephen Reeves, coordinator of advocacy at the Cooperative Baptist Fellowship. Legal interest rates can be as low as 36 percent and as high as 1,000 percent.

Advocates argue that such high-interest rates and other fees can turn one loan into a series of multiple loans that ensnares a borrower into a cycle of debt impossible to repay.

“It’s a form of servitude for people who get trapped in excessive debt,” said Chuck Bentley, CEO of Crown Financial Ministries.

A verse in the Old Testament Book of Leviticus commands one to “not lend him your money at interest.” Both Jews and Christians, who share the text, oppose usury, a biblical term for predatory interest rates. Usury is also forbidden under Islam; the book of al-Nisa in the Koran warns that those who practice usury will face “painful retribution.”

Faith leaders have responded by working across religious divides to change lending laws. In November, 80 faith leaders and consumer advocates gathered at a conference organized by the Center for Responsible Lending in Washington, D.C. They hope to influence the Consumer Financial Protection Bureau in proposing legislation that caps interest rates at 36 percent nationwide.

“We see (political advocacy on payday lending) as an extension of our faith, our concern for the poor and vulnerable,” said Dylan Corbett, outreach manager for the U.S. Conference of Catholic Bishops.

Various faith groups, such as the St. Louis-based Metropolitan Congregations United, are also working to educate the public and influence state legislation.

The work of the religious community in raising awareness and calling for policy reform “predates the work of the Center for Responsible Lending,” Ms. Anderson said, noting that religious groups had previously worked fairly independently. “One of (the center’s) roles is to connect those leaders so they can band together to address this issue.”

Payday lenders see themselves as an option for people with poor credit who have nowhere else to go. Sometimes, they argue, a payday loan is the “smartest option when consumers consider the often higher costs of bouncing a check, paying overdraft protection fees, or incurring late payment penalties,” Amy Cantu, spokeswoman for the Community Financial Services Association, a trade group that represents payday lenders, wrote in an email.

There is a great need for short-term credit to help millions of Americans who are living paycheck to paycheck, she explained. Industry numbers support that claim. CFSA analysts estimate that 19 million American households take out $38.5 billion in payday loans annually.

“Lenders who are members of CFSA are regulated and licensed, and they uphold a strict set of mandatory best practices that ensure important protections for consumers,” Ms. Cantu said. “This includes an extended payment plan — at no charge — for any borrower who may want more time to pay back their loan.”

Financial planning

The current Jewish calendar is in the year of shmitta. Once in seven years, the Bible “commands the land to be left fallow and debts to be canceled,” said Rabbi Ari Hart, co-founder of the Jewish social justice organization Uri L’Tzedek. It’s a verse in Deuteronomy that both Jews and Christians share, he said. People follow that commandment by erasing debt from their lives and communities.

Rabbi Hart is helping believers and non-believers through the process of shmittat kessafim, or the release of money, by offering financial literacy training and seminars on debt and money management at synagogues and community centers in New York City.

Motivated by the rise of payday lending, other faith leaders are teaching similar financial principles from their pulpits and in weeknight classes.

Crown Financial Ministries is a nonprofit, interdenominational organization that provides financial education materials to churches. “Over the last 40 years of our existence, around 150,000 churches in the U.S. alone have used some form of our teaching materials,” Bentley said.

The Liberty Baptist Church in Hampton, Virginia, uses Crown materials to hold multiple financial education courses throughout the year.

“We teach Biblical principles of money and what God wants us to do with the money he has entrusted to us,” said Gerald Compton, the church coordinator for the Liberty Baptist Church. God’s principles are to “spend less than you earn, create a savings plan, and then use the resources to minister to your family and to the community in which you live.”

While faith-based advocates say that payday lending burdens families with unmangeable debt, the CFSA website says that 90 percent of payday advances are repaid when due.

Payday loan alternatives

Many churches have benevolence funds to help church members in need. In some churches, benevolence funds are restricted to paying rent and utility bills or buying food. For other churches, benevolence funds also include small cash handouts to those in desperate situations.

Seeing a need, some churches are expanding beyond charitable giving and entering the realm of small loan lending.

Providing alternative loan products “is a difficult thing for a church to do. Some churches have done it successfully, but they’re often very big, very sophisticated churches with a lot of resources,” Mr. Reeves said.

Jewish synagogues have long provided interest free loans to their members. Members of the Jewish faith who are mired in debt can seek financial help from their rabbi or from organizations such as The Hebrew Free Loan Society.

In January, as a direct reaction to predatory lending in the United Kingdom, the Church of England opened a churchwide credit union that offers low-interest loans to its parishioners, the Deseret News National reported.

Churches that cannot afford to create their own financial institutions “often pair with or refer folks to a local community credit union,” Mr. Reeves said.

The Catholic Holy Rosary Credit Union, based in Kansas City, Missouri, was initially established in 1943 as a trustworthy financial institution for immigrants. In 2009, Carole Wight, president of Holy Rosary, saw the need for an alternative payday-lending program.

“All you need to do is work in a financial institution and you see that (payday lending) is a huge problem,” Ms. Wight said. “It’s the saddest thing in the world. Once you get into that spiral, there’s no getting out of it. I tell people, ‘if you’re hungry, don’t get a payday loan because you’ll be hungry forever.’ ”

As an alternative, Holy Rosary provides low-interest alternative payday loans and payday loan consolidation. It’s an expensive but needed service, Ms. Wight said.

“Providing payday lending alternative loans is the hardest thing I’ve ever done. It doesn’t pay for itself,” she said. “If Catholic charities didn’t help us, we couldn’t continue.”

That religious groups across the country are working together to develop alternative loan services from within chapels, cathedrals, mosques and synagogues signals how serious faith leaders are in combating commercial payday lending.

“To me it’s a testament of how harmful these products have been in these communities,” Mr. Reeves said. “If churches are going to take this incredible step to become lenders, then things must be real bad.”

FTC Reaches Its Largest-Ever Payday Lending Settlement
By Kevin Wack, American Banker
January 16, 2015

The Federal Trade Commission announced its largest-ever payday lending settlement on Friday, as two companies agreed to pay $21 million and waive another $285 million in charges that were never collected from customers.

The agreement marks a key point in a long-running legal battle between the FTC and firms connected to the Miami Tribe of Oklahoma and Scott A. Tucker, a Kansas man who has reportedly used payday lending profits to bankroll his own race-car driving career.

In the lawsuit, the FTC alleged that the firms, AMG Services Inc., and MNE Services Inc., misrepresented how much loans would cost consumers — for example, charging $975 when the contract stated that the loan would cost $300 to repay. The FTC contends that deceptive loan documents were used in connection with at least five million loans.

“It should be self-evident that payday lenders may not describe their loans as having a certain cost and then turn around and charge consumers substantially more,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a news release.

The proposed settlement, which has yet to be approved by a federal judge, follows a May 2014 court ruling that found the loan agreements were indeed deceptive.

MNE Services lent to consumers under the names Ameriloan, United Cash Loans, US Fast Cash, Advantage Cash Services and Star Cash Processing, the FTC said. Websites for each of those names remained active Friday.

The loans were serviced by AMG Services, according to the FTC.

Going forward, the settlement agreement bars the defendants from misrepresenting the terms of their loans. The $21 million payment is to be used to compensate borrowers who were harmed, though the FTC did not say how many consumers will receive a payment, or how much money affected consumers will receive.

Emilee Truelove, a spokeswoman for the Miami Tribe of Oklahoma, declined to comment on the settlement. Bradley Weidenhammer, a lawyer for both AMG Services and MNE Services, did not immediately respond to messages seeking comment.

Several other corporate entities that were named as defendants by the FTC remain in litigation with the agency.

Two payday lending trade groups — the Community Financial Services Association of America and the Online Lenders Alliance — distanced themselves Friday from AMG Services and MNE Services, saying that the two companies are not members of their organizations.




Clips Roundup: January 23, 2015

Payday Clips
January 23, 2015

Banks Are Cutting Off The Payday Lending Industry’s Access To Customer Data To Avoid Illegal Activity By Ashlee Kieler, Consumerist
January 22, 2015

Banks Stop Selling Account Data to Payday Lenders
By Zeke Faux, Bloomberg
January 21, 2015

A Financial Start-Up That Provides the Illusion of a Salary
By Kyle Chayka, Pacific Standard
January 21, 2015

Want to end poverty in America? It’s pretty simple.
By Jeff Spross, The Week
January 21, 2015

Room for Debate: The Allure of Easy Money
The New York Times
January 20, 2015

End Predatory Practices
By Gary Kalman, The New York Times
January 20, 2015

Noninflationary Payday Loans Fill Gap Caused By Employers’ Scoffing At Bible – And Response
By David Tulis, The Chattanoogan
January 20, 2015

Big Data Underwriting for Payday Loans
By Steve Lohr, The New York Times
January 19, 2015

For Scott Tucker, payday lender, reckoning is overdue
The Kansas City Star
January 19, 2015

Banking Start-Ups Adopt New Tools for Lending
By Steve Lohr, The New York Times
January 18, 2015

St. Anthony: Sunrise Banks introduces alternative to payday loans
By Neal St. Anthony, Star Tribune
January 18, 2015

Payday Lenders Linked To Miami Tribe To Pay Millions To Settle Claims Of Deceiving Borrowers
By Brianna Bailey, The Oklahoman
January 18, 2015

Kansas payday lending operation agrees to $21 million settlement
Associated Press
January 17, 2015

Payday lenders must forgive $285M in charges
By Mitch Lipka, CBS MoneyWatch
January 16, 2015

Overland Park’s AMG Services agrees to record settlement over payday loans
By Lindsay Wise, Kansas City Star
January 16, 2015


Banks Are Cutting Off The Payday Lending Industry’s Access To Customer Data To Avoid Illegal Activity
By Ashlee Kieler, Consumerist
January 22, 2015

Banks across the United States are distancing themselves from the unscrupulous payday lending industry by cutting off lenders’ access to a database of customer account information used to assess potential borrowers.

Bloomberg News reports that Early Warning Services LLC, a large database of consumer financial information owned by Bank of America, JPMorgan Chase, Wells Fargo, BB&T and Capital One Financial, is in the process of severing ties with payday lenders in order to avoid unintentionally facilitating fraud or other illegal activity.

Nearly half of the consumers in the U.S. with bank accounts are tracked by Early Warning Services, with hundreds of banks using the database as a way to prevent fraud by sharing customer data.

In the past, payday lenders – who access the data through alternative credit bureaus – have used the information to select potential borrowers by reviewing their credit scores and observing how their accounts are used.

People with direct knowledge of Early Warning data usage tell Bloomberg that the data is more useful to the short-term lenders than credit reports because most payday loan borrowers have low scores anyway.

Beginning last year, Early Warning Services began asking alternative credit bureaus to stop sharing the database’s information with lenders that charge high interest rates to make sure the company isn’t party to any potentially illegal activity.

“We’ve been discontinuing service one by one,” Kyle Thomas, chief of marketing and sales for Early Warning, tells Bloomberg. “The way we’re going through it reflects both the wishes of our data contributors as well as various regulators.”

Early Warning Service’s move to discontinue its relationship with payday lenders falls in line with regulators’ “Operation Choke Point” campaign, which has put pressure on banks to stop dealing with such short-term lenders.

A former employee of Early Warning says it doesn’t come as a surprise that the company and banks would want to distance themselves from the often predatory lenders.

“The use of their data is very strictly limited,” the former employee tells Bloomberg. “If there is a perception that there is reputational risk or potential harm to consumers that could come from the use of that data, the banks tend to be very sensitive about that.”

Bloomberg reports Early Warning Services was used by several payday lending companies that have recently faced scrutiny from federal and state regulators.

One such user was Think Finance Inc., the company behind company behind a number of payday loan-like lenders including RISE Credit. In November, the company was sued by Pennsylvania’s attorney general for allegedly using tribes as cover for an “illegal payday-loan scheme.”

Sources also tell Bloomberg that Carey Vaughn Brown, who was indicted last year in New York for allegedly conspiring to make illegal loans through offshore companies, also accessed the data.

Banks Stop Selling Account Data to Payday Lenders
By Zeke Faux, Bloomberg
January 21, 2015

U.S. banks are cutting off payday lenders’ access to a database of account information used to evaluate potential borrowers as regulators seek to rein in abusive practices.

About half the people with bank accounts in the U.S. are tracked by Early Warning Services LLC, owned by five of the nation’s biggest banks. Some payday lenders use Early Warning data rather than credit reports to select borrowers, according to four people with direct knowledge of the practice who asked not to be named because the arrangements are private.

“We’ve been discontinuing service one by one,” Kyle Thomas, chief of marketing and sales at Scottsdale, Arizona-based Early Warning, said in a telephone interview. “The way we’re going through it reflects both the wishes of our data contributors as well as various regulators.”

Hundreds of banks use Early Warning to prevent fraud by sharing their customer data, Thomas said. The company is owned by Bank of America Corp. (BAC)JPMorgan Chase & Co. (JPM)Wells Fargo & Co. (WFC), BB&T Corp. and Capital One Financial Corp.

Payday loans, intended to be repaid with a borrower’s next paycheck, can ensnare people in a cycle of debt as they struggle to cover charges. Like other firms, payday lenders use an applicant’s bank-account number to access data including a score that reflects how the account is used.

The payday lenders don’t buy Early Warning’s data directly, the people said. They access it through alternative credit bureaus such as Clarity Services Inc. and FactorTrust Inc., which compile data on borrowers who use short-term loans. The data is more useful than credit reports because most short-term borrowers have low scores anyway, the people said.

Complex Rules

Early Warning has been telling the middlemen that it wants to stop dealing with lenders that charge high interest rates to make sure it doesn’t unintentionally facilitate fraud or other illegal activity, according to a letter dated last year and obtained by Bloomberg News. The company said in the letter that regulations are too complex, and it’s difficult to tell if short-term lenders are following the law.

“The use of their data is very strictly limited,” said Julie Conroy, a former Early Warning employee who’s now research director at Aite Group LLC. “If there is a perception that there is reputational risk or potential harm to consumers that could come from the use of that data, the banks tend to be very sensitive about that.”

Susana Walls, Clarity’s head of marketing, said in a telephone interview that no one was available to comment. Carrie Crabill, a spokeswoman for FactorTrust, said the company wouldn’t be affected by Early Warning’s decision because it has many customers outside the payday industry.

Moving Offshore

The move by Early Warning will hurt payday lenders that already face mounting regulatory scrutiny. That’s prompted some firms to move offshore or to make deals with American Indian tribes which can claim sovereign immunity protects them from state interest-rate caps.

Mark Curry’s MacFarlane Group Inc. was among firms that used Early Warning data, two of the people said. That company struck a deal with a tribe in Oklahoma to set up websites that charge more than 700 percent interest a year, Bloomberg News reported in November. Curry said at the time that he and his firm are consultants, not payday lenders, and that any deals he has with American Indians are legal.

“This decision does not impact MacFarlane Group as we are not a lender,” Joseph Lilly, a company spokesman, said in an e-mail.

Genuine Accounts

“We are disappointed that the banks who offer Early Warning Services have chosen to end it for some types of online lenders,” said Lisa McGreevy, president of the Online Lenders Alliance, a lobbying group that Curry helped found. “The service is used to ensure that customer accounts are genuine and have adequate funds to pay.”

The Federal Deposit Insurance Corp. and other regulators have pressured banks to stop dealing with payday lenders in a drive called “Operation Choke Point.”

While regulators said they were concerned about fraud, Republicans in Congress said in a report last year that the campaign was an attempt to shut down legal businesses.

The main payday-lending trade group sued U.S. banking regulators last year, accusing them of applying back-room pressure to drive lenders out of business. The case is pending in federal court in Washington, D.C.

One of the users of Early Warning data was payday lender Carey Vaughn Brown, according to a former Clarity employee. Brown was indicted last year in New York for allegedly conspiring to make illegal loans through offshore companies.

Think Finance Inc. also used the data, the person said. It was sued last year by Pennsylvania’s attorney general for allegedly using tribes as cover for an “illegal payday-loan scheme.”

Paul Shechtman, Brown’s lawyer, didn’t respond to requests for comment. He told the New York Times last year that Brown acted in good faith and would show his innocence. Jennifer Burner, a spokeswoman for Think Finance, declined to comment.


A Financial Start-Up That Provides the Illusion of a Salary
By Kyle Chayka, Pacific Standard
January 21, 2015

Financial technologies like digital wallets and crypto-currencies are supposed to be changing how we spend money. And others are aiming to change how we save. The business plan of a new company called Even is to have hourly workers loan their incomes to the start-up plus pay a weekly fee of $5 in exchange for being paid the money back as a consistent salary. It’s a banking start-up for our precarious times.

It’s often said that we’re living in the ascendancy of the “1099 economy,” a job market made up of part-time employees eking out work wherever they can find it, particularly under the aegis of decentralized service-providing companies like Uber and Homejoy. The number of independent workers in the United States, including temporary, on-call, and contract employees, rose to 17.7 million in 2013, up from 16 million two years before, according to Harvard Business Review. Some estimates predict this statistic will grow six percent annually over the next five years.

The perception of what a job should be is also changing. Hence the desirability of a business like Even, catering to what has been called the “precariat,” the social class of temporary workers whose economic lives are constantly in danger of falling apart. Even provides a measure of stability—with budgeting and money-saving help—to those who are usually forced to find it on their own.

Even will pay out a regular amount of money based on the hourly- or contract-based wages someone like a Starbucks barista earns, then bank the excess if they earn more and extend interest-free loans and emergency payments should they fall short. It’s a one-stop money manager for freelancers. The problem remains, however: The service shouldn’t have to exist in the first place.

QUINTEN FARMER IS A co-founder of Even, as well as a former dishwasher, landscaper, and developer. “I was experiencing this problem of, the restaurant closes down early a couple nights, all of a sudden I’m getting a bad paycheck and rent’s a little tight,” he says. “We felt like we needed to tackle that problem.”

After determining a user’s average weekly income based on a six-month sliding scale, “Even is going to deposit that number to you every Friday, then when the paycheck does get deposited, we will remove that from your account,” Farmer says.

The central bank account where Even holds its users’ capital is the equivalent of a checking account, so neither the company nor the clients will earn interest on inactive funds. “We have no interest in making money off of the floats,” Farmer says.

“The bigger theme is that so many people get into debt through really simple timing mismatches,” Farmer says. The gap between a paycheck and rent being due pushes many to predatory payday loans. Even is trying to fix that problem with its small-loan service, but it’s unclear how the interest-free loans will be supported save the company’s excess holdings or its venture capital (it has raised $1.5 million). Clients will have to be maintained in a strictly low level of debt for the service to survive on a large scale.

Even’s weekly payments aren’t quite as stable as they first appear, or as marketing might suggest. “If someone adds a second job or hours get cut permanently, goes to school, or is not working Fridays anymore, that’s a point where we’ll inform the users based on this new info that your [salary] number’s going to change,” Farmer says. “We have to figure out how much warning is going to be ideal for them.”

The service provides the illusion of added stability over the fundamental experience of being unsalaried, but unlike an actual salary, Even’s payments will still be variable. Still, there’s some peace of mind benefits. “We talk a lot about removing the mental overhead of people’s money management,” Farmer says.

EVEN IS CURRENTLY IN a closed beta as the first clients test out the system and Farmer’s team modifies it accordingly. The product certainly fulfills a need that our country has created for itself. It’s paranoiac technology for a time of justifiable economic paranoia. But useful as it might sound, I wish we didn’t need the start-up.

It would be great to see Even’s functionality built in to the services of large banks—perhaps an acquisition in the company’s future would make this happen—or even incorporated into the central government. After all, the company is essentially levying weekly taxes in exchange for security, the role one hopes our national financial infrastructure would play—however often it fails at the task—or our employers, which lately have appeared less willing to take on the burden of full-time employees.

Rather than fixing the cause of our insecurity Even is providing a temporary solution and hoping to profit from it, whether through its own fees or a future acquisition. That shouldn’t be the most we can hope for from our tech start-ups.

Want to end poverty in America? It’s pretty simple.
By Jeff Spross, The Week
January 21, 2015

Last week, The Washington Post’s Max Ehrenfreund caught a Reddit thread that reveals how brutally simple it is to eradicate American poverty, and yet how muddled American policy-making can be on the subject.

In short, if you’re poor in America, the economy works in a fundamentally different way than if you have means: rather than giving you opportunities to build up savings and capital, it treats you as an unending source of regular small-bore profit, bleeding you for what little you have.

The thread — essentially a chronicle of stories from impoverished Americans — included experiences like buying a cheap $15 pair of shoes at Walmart, and then having to repair them again and again, because poor people are rarely, if ever, able to afford the one-time $60 expense for good shoes. Or buying paper towels one roll at a time, rather than in bulk, because the poor can’t afford the latter — ultimately leading them to “actually pay more than others for common staple goods.”

Then there’s the proliferation of rent-to-own stores: the American poor can’t afford to drop a one-time payment of $1,500 on a sofa, but they can afford monthly installments of $110 that ultimately add up to over $4,500 for a sofa over time.

At a presentation to the conservative American Enterprise Institute (AEI) a few months back, journalist Megan McArdle provided similar examples: if you’re poor, you can’t afford the deposit on an apartment, so you rent out a hotel or motel room per week for less, which winds up costing way more over the long haul. Or you buy a $500 car that needs repairs every few months, because you can’t afford the more reliable $8,000 car.

Perhaps most perversely, poorer Americans are so cash-constrained and have so few opportunities to save, that many banks don’t even see the point in opening in their area. A combined 68 million Americans have either no access to traditional banking services, or limited access. Instead, to cash checks or take out loans, they rely on a mishmash of pawn shops, payday lenders, and other unsavory firms, who cumulatively suck up an enormous portion of poor Americans’ incomes through user fees and exorbitant interest rates.

McArdle’s speech is especially interesting, since she emphasizes the ways poor people adapt to communal scarcity by establishing really strong reciprocal sharing norms. It operates as a form of insurance: if one person has a good month, she will help out family and neighbors, on the assumption the social network will reciprocate when she is having a bad month. But this also comes with consequences. It means poor people often give up good opportunities that come along — say a shot at college, or a better job with benefits — to help others. Or they lose any savings they’ve built up by giving it to friends and family, thus preventing them from ever accumulating capital.

The point is that scarcity has its own relentless internal logic. Whether it’s firms in the private market trying to figure out ways to get goods and services to the poor that will actually turn a profit, or the social adaptation of the poor themselves, scarcity shapes negative feedback loops around itself that perpetuate poverty.

But McArdle also illustrates how short-sighted people have become in trying to design policy to break these impasses. She recommends redesigning IRAs and the Earned Income Tax Credit to essentially short-circuit the sharing impulse — to use policy to goad the poor into practicing a certain bourgeois selfishness.
A smarter approach would be to simply acknowledge that a lack of capital is the underlying problem here, and thus the solution should be to flood these communities with, well, capital.

The first thing the poor need is a place to park their capital when they get it. But if the private sector is unable to provide banking and credit in a manner that isn’t destructive, then the rather obvious answer is to have the public sector provide them. David Dayen has already done yeoman’sreporting laying out how basic banking services could be layered atop the current infrastructure of the United States Postal Service. The proposals — including one backed by the Postal Service’s own inspector general — encompass basic checking account and debit card services, the provision of savings accounts, and small-dollar loan services. Post offices already exist in many of the poorer areas traditional banks have abandoned, and the Postal Service actually served a similar function through much of the 20th century. It could provide these services for just 10 percent of what pawnshops, check-cashers, and payday lenders charge for them.

Next, the poor would need something to put in their savings accounts. Auniversal basic income — a regular check from the government with no strings attached — could provide a modest bit of non-market income as a cushion against day-to-day expenses, while extra allotments could be added for families with children. And current tax credits could be expanded (or replaced with wage subsidies) to bulk up the income people get from their jobs. The Democrats have already proposed such an expansion, including a bonus if people sock a certain portion of the money from the credits into savings. Between those multiple streams of cash and the bonus, people in impoverished areas would hopefully be able to start building up at least some capital.

In fact, policy-makers could go ever further: Norm Ornstein has suggested simply providing every American with a modestly stocked savings or investment account at birth, which could then be drawn upon for critical pivot points like buying a home or a car or paying for an education. That, too, could be folded into a public banking system.

Finally, the most straightforward way to ensure impoverished areas have a job market would be a jobs guarantee: using federal finance, in coordination with local communities and nonprofit organizations, to provide jobs.

Taken together, these policies could give Americans a cushion against the relentless extractive logic of life in impoverished areas, while helping them begin to build up savings, and attracting enough economic ferment to encourage private sector job growth. If the problem with these areas is a lack of capital so desperate that any savings are immediately dissolved and dispersed, like a drop of water hitting a totally dry sponge, then the most obvious answer — however radical — is to simply soak the sponge.

Room for Debate: The Allure of Easy Money
The New York Times
January 20, 2015
Feature on payday lending

In his State of the Union address, President Obama presented a series of initiatives aimed at the middle class and the growing income inequality in the United States.

One thing on the minds of many working-class Americans is greater federal regulation of payday loans, the small, short-term high-interest loans that are currently under state jurisdiction. Critics of payday loans say they lead to a cycle of ballooning debt for consumers, who can rarely afford to pay them back and must take out more loans to stay afloat. But payday lenders say that strict rules would eliminate the industry and with it, the only viable lending option for people with bad credit.

Should payday loans be federally regulated?

End Predatory Practices
By Gary Kalman, The New York Times
January 20, 2015

The CFPB should create tough new standards for payday loans, which are often deceptively sold as small dollar solutions to cash flow problems for low-income households.

In reality, a majority of borrowers ultimately have to turn to many of the same options available to them at the outset of their troubles to dig themselves out of the payday loan debt trap: They rely on friends or family or cut back on other expenses. Some receive a tax refund or other influx of cash that would have covered the shortfall. Even still, with interest rates that average 391 percent, payday borrowers fall so far into debt that the loans often undermine any hope of regaining financial stability.

New rules must include limits on repeat borrowing and duration of indebtedness to keep predatory lenders from pushing consumers into increased risk of losing bank accounts, their foothold into the mainstream financial system, and of entering bankruptcy.

The CFPB should also instate specific protections when lenders have access to borrower bank accounts: With direct access to borrowers’ bank accounts, payday lenders are in a position to pull out funds as soon as a paycheck comes in, leaving little to cover critical needs such as food and utilities. This payment status allows lenders to focus only on one’s paycheck and not whether there is a genuine ability to repay the loan while meeting other ongoing expenses.

Payday lenders have a long history of dodging regulation that targets abusive practice. To ensure any new rule is effective — whether loans are made online, at a store or in a bank — it must be comprehensive to protect against attempted evasions. It cannot allow any loopholes or sanction high-cost, poorly underwritten loans. The CFPB must add protections for borrowers and not undermine strong, existing state laws that have helped curb the debt trap.

Noninflationary Payday Loans Fill Gap Caused By Employers’ Scoffing At Bible – And Response
By David Tulis, The Chattanoogan
January 20, 2015

A plan before Chattanooga City Council to restrict payday lenders touches at consequences of quick-cash loans but overlooks a cause — namely the abuse of employers’ holding back.

The proposal restricts all sorts of quick-cash lenders by corralling them into a “alternative financial services” category and seeing them “permitted as special exceptions” by City Council.
Members Carol Berz and Russell Gilbert want a freeze on the marketplace by preventing clustering of like outfits in the future as they serve a large group of customers who rely on quick loans to make ends meet before payday.

The pair tell City Council that pawnbrokers and check cashers bring neighborhood deterioration, prey on the poor, are “hurting us economically,” and charge outrageous fees and interest rates. Mr. Gilbert says payday loans trap poor people on a debt treadmill. Interest rates in Tennessee are capped at 15 percent per year, but lenders charge fees giving an effective higher rate.

The alternative financial services industry serves people who have bad or no credit. To account for high risks and cover losses, paydays charge more than banks and credit unions patronized by wealthier people.

Existing capital, not hot money

Elected officials are indignant that customers of quick-cash shops pay more effective interest rates than higher-quality people who patronize banks. But in serving these borrowers, companies such as Advance Financial do not participate in inflationary loan creation. Banks, credit unions and savings and loans operate on a fractional reserve and has effectively a license to steal. That is to say, a license to create circulating money ex nihilo, from nothing, in the extension of loans. Banks are inflationary, paydays are not. Banks participate the the debasing of the currency and the loss of buying power that injures the great and the small. Payday lenders lend not hot money, but existing money.

Cullen Earnest of Advance Financial says the payday company uses banks and borrows for operating needs. But it does not create “new money” and inflation when it extends a loan. Paydays, then, do not profit from the fraud upon the public as practiced by banks that debase the paper dollar.

Serving need caused by evil custom

Paydays also serve a need created by employers who do not pay wages and salaries at the end of the workday. A few pay weekly. Many pay semimonthly. Some hold workers’ wages a month.

The scriptures reveal the mind of God as to masters are to treat servants. In law, employment is a master-servant relationship. Employers are to hold to a policy of quick payment of wages. Greed is prohibited in the 10th commandment, which begins: “Thou shalt not covet.” For true equity and justice to reign, wage payments must be timely.

— “Do not withhold good from those to whom it is due, When it is in the power of your hand to do so. Do not say to your neighbor, “Go, and come back, And tomorrow I will give it,” When you have it with you.” Proverbs 3:27, 28
— “Wealth gained by dishonesty will be diminished, But he who gathers by labor will increase.” Proverbs 13:11

The scriptures favor justice among people, especially as between a superior and an inferior. Wages are to be paid daily.

— “You shall not oppress a hired servant who is poor and needy, whether one of your brethren or one of the aliens who is in your land within your gates. Each day you shall give him his wages, and not let the sun go down on it, for he is poor and has set his heart on it; lest he cry out against you to the Lord, and it be sin to you.” Deut. 24:14, 15
— “’You shall not cheat your neighbor, nor rob him. The wages of him who is hired shall not remain with you all night until morning.” Leviticus 19:13

One “who exploit[s] wage earners and widows and orphans” is likened to the sorcerer, adulterer, perjurer and one who turns away an alien (Malachi 3:5).

The law of God is clear that masters have a duty to Him to pay swiftly lest judgment come. Is it true that such a sophisticated people as Americans cannot allow a worker to receive a direct deposit at 5 p.m. minus the nibblings from statutory locusts? The software would not need be complex, and would account for and direct wage payments.

Mayor Andy Berke agrees with the two City Council members, blaming many of Chattanooga’s ills on payday lenders. But paydays don’t steal from the working man by corroding his buying power via inflation. And if their field is attended with blight, we can blame Bible-minded employers who carelessly disregard their godly duty to the poor.

—David Tulis hosts 1 to 3 p.m. weekdays on Hot News Talk Radio 1240 910 an 1190 AM, a show that covers local economy and free markets in Chattanooga and beyond.

Big Data Underwriting for Payday Loans
By Steve Lohr, The New York Times
January 19, 2015

ZestFinance traces its origins to a phone call Douglas Merrill received one winter day from his sister-in-law, Victoria, who needed new snow tires to drive to work and was short of cash. When Mr. Merrill asked what she would have done had she not been able to reach him, she replied that she would have taken out a “payday loan.”

Mr. Merrill, a former chief information officer at Google, and earlier a senior vice president at Charles Schwab, knows finance as well as technology. His relative’s call prompted him to study the payday lending market. Payday loans are made to people with jobs, but with poor credit ratings or none at all.

The payday market is a niche compared with mainstream consumer and credit-card loans, two markets where start-ups are now applying data science to lending, as I wrote about in an article on Monday.

Still, the payday market is a sizable niche. At any given time, there are an estimated 22 million payday loans outstanding, and the fees paid by payday borrowers amount to about $8 billion a year — a lot of money for those in the working population least able to afford it. Mr. Merrill saw a market in need of greater efficiency, a business opportunity — and the potential to lower costs to borrowers.

ZestFinance has been practicing big data-style underwriting longer than most other start-ups. Founded in 2009, ZestFinance made its first loan in late 2010 and has increased its lending steadily since, having underwritten more than 100,000 loans. Its loans are called ZestCash, and the company is authorized to be a direct lender in seven states including Texas, Louisiana and Missouri. ZestFinance also handles the underwriting for Spotloan, an online lender that is part of BlueChip Financial, which is owned by the Turtle Mountain Band of the Chippewa Indian tribe of North Dakota.

Winning over state regulators has been a slow process. “We’re showing up with a different kind of math,” said Mr. Merrill, who is now the chief executive of ZestFinance. “And that’s going to make it more difficult from a regulatory standpoint.”

A healthy dose of caution is in order, policy analysts say. A recent report, by Robinson & Yu, a policy consulting firm, looked at new data methods as a way to make credit available to more Americans. In the report, supported by the Ford Foundation, ZestFinance was the featured example of big data underwriting, which it called “fringe alternative scoring models.”

“I have no doubt that they have come up with neat correlations that are predictive,” said Aaron Rieke, co-author of the report and a former lawyer at the Federal Trade Commission. But the concern about ZestFinance and other start-up lenders using big data methods, Mr. Rieke said, is that “we have no idea how to talk about or assess the fairness of their predictions.”

Mr. Merrill believes that such qualms will fade as data science lenders build a track record of offering lower costs and greater convenience to borrowers.

The typical payday loan, Mr. Merrill explains, is for a few hundred dollars for two weeks, and rolls over 10 times on average, or 22 weeks. In a traditional payday loan, all the fees are paid upfront with the principal paid at the end, in a “balloon” payment.

With ZestCash loans, borrowers are paying down principal with every payment, which reduces the cost. It also charges lower fees. In a traditional payday loan, Mr. Merrill said, a person would typically pay $1,500 to borrow $500 for 22 weeks. Using ZestCash, he says, a borrower generally pays $920 to borrow $500 for 22 weeks — still hefty fees, but far less than a standard payday loan.

ZestFinance can charge less, Mr. Merrill said, largely because its data-sifting algorithms reduce the risk of default by more than 40 percent compared with a typical payday loan, and the software is being constantly tweaked to improve further.

Borrowing candidates are asked to fill out an online form with their name, address, Social Security number, bank account information and a few other questions. ZestFinance then combines that with streams of information from data brokers and online sources, and sets its algorithms to work.

The automated risk analysis, Mr. Merrill said, is done in a matter of seconds. The person is informed of the decision online. If approved, a customer service representative soon calls to verify the borrower’s identity, double check on numbers, and go through the loan terms again by phone.

The data signals used to assess risk in the payday market are different than for most consumer loans. “In our space,” Mr. Merrill observed, “virtually everyone has a bankruptcy.” In payday underwriting, by contrast, signs of financial stability would include how long a person has had his or her current cellphone number or the length of time on a current job.

Angela Pyle, 47, a single mother from Venus, Tex., has worked for a large telecommunications company for 22 years, currently as a facilities coordinator. Her yearly income is more than $60,000.

But 16 years ago, Ms. Pyle declared personal bankruptcy. Credit card debt, she said, was her downfall. The minimum monthly payments on credit card balances were small, $50 or $100 at first, but the balances just kept mounting out of control.

The money, Ms. Pyle said, went for everything from restaurant meals to gambling debt. “It was for all my wants,” she recalled, “I did it because I could. I learned a lifelong lesson the hard way, and I’m not going to do it again.”

Ms. Pyle is an occasional payday borrower. Three months ago, she took out a $700 ZestCash loan to buy the sand, concrete and other materials to build a tool shed in her backyard, which she made herself. She found the online form easy to fill out, the approval came almost immediately, and a ZestFinance representative called within an hour. She also praised the customer service, which included email or phone alerts three or four days before a payment came due.

Ms. Pyle is a disciplined borrower. She doesn’t borrow more than she can pay back within a month or two of paydays. The $700 ZestCash loan, she said, was paid back in six weeks. The total cost, she said, was about $975.

“If you let it drag out for six or nine months, that’s crazy,” Ms. Pyle said. “That’s how payday loans can end up costing you three or four times as much as the original loan.”

For Scott Tucker, payday lender, reckoning is overdue
The Kansas City Star
January 19, 2015

A groundbreaking federal settlement with an Overland Park-based online payday lending company will bring some badly needed relief to consumers who were deceived by businessman Scott Tucker and AMG Services Inc.

Fortunately, the agreement with the Federal Trade Commission is only the latest step in a government crackdown on online lenders who gained vast personal fortunes through outrageous schemes to drain the banking accounts of mostly low-income people. In part because of Tucker’s ostentatious success, the Kansas City area became an early hub for the predatory industry.

In the largest ever FTC settlement with a payday lender, announced last week, two of Tucker’s companies, AMG Services and MNE Services of Miami, Okla., agreed to pay $21 million as refunds to customers and to forgive $285 million in outstanding fines and loans.

The $21 million is disproportionately small for the money Tucker is believed to have made from his disreputable businesses. But he remains a defendant in more FTC litigation, as do other of his entities, including Level 5 Motorsports, Tucker’s world-class auto racing team. The FTC alleges he transferred more than $40 million from his payday loan companies to his racing operation.

Level 5 last year put a collection of sports cars and other equipment up for sale, soon after a federal grand jury in New York subpoenaed AMG as part of a separate criminal investigation said to involve possible wire fraud, racketeering and money laundering.

Tucker deserves no sympathy. The FTC alleges his companies made him a fortune by dinging customers for fees and interest rates they weren’t told about up front. A $300 loan could end up costing close to $1,000. When state regulators tried to stop Tucker, he arranged to become an “employee” of sovereign Indian tribes. He used profits from his businesses to finance his race car fleet, a private Learjet and an $8 million vacation home in Colorado.

Tucker’s get-rich-quick story attracted a host of local imitators, some of whom are now fighting legal actions brought by federal agencies.

These people found willing help within the region’s upper business and civic echelons. Missouri Bank & Trust, based in Kansas City, is one of several banks nationwide to have been sued for allegedly helping online payday lenders break laws by processing their transactions. The bank says the claims are without merit but has ceased working with the controversial businesses.

Even some local schools and churches turned a blind eye as newly super-rich parishioners financed capital projects with donations gained from usurious businesses.

The struggles of Tucker and other area payday lenders should be considered a warning against embracing blatantly unethical practices. As Tucker is learning along with his customers, quick cash can come at a great cost.

Banking Start-Ups Adopt New Tools for Lending
By Steve Lohr, The New York Times
January 18, 2015

SAN FRANCISCO — When bankers of the future decide whether to make a loan, they may look to see if potential customers use only capital letters when filling out forms, or at the amount of time they spend online reading terms and conditions — and not so much at credit history.

These signals about behavior — picked up by sophisticated software that can scan thousands of pieces of data about online and offline lives — are the focus of a handful of start-ups that are creating new models of lending.

No single signal is definitive, but each is a piece in a mosaic, a predictive picture, compiled by collecting an array of information from diverse sources, including household buying habits, bill-paying records and social network connections. It amounts to a digital-age spin on the most basic principle of banking: Know your customer.

“We’re building the consumer bank of the future,” said Louis Beryl, chief executive of Earnest, one of the new lenders.

And in that bank, whether a customer uses proper capitalization and spends time reading terms and conditions of a loan may make him or her more creditworthy.
Yet the technology is so new that the potential is unproved. Also, applying the modern techniques of data science to consumer lending raises questions, especially for regulators who enforce anti-discrimination laws.

None of the new start-ups are consumer banks in the full-service sense of taking deposits. Instead, they are focused on transforming the economics of underwriting and the experience of consumer borrowing — and hope to make more loans available at lower cost for millions of Americans.

Earnest uses the new tools to make personal loans. Affirm, another start-up, offers alternatives to credit cards for online purchases. And another, ZestFinance, has focused on the relative niche market of payday loans.

They all envision consumer finance fueled by abundant information and clever software — the tools of data science, or big data — as opposed to the traditional math of creditworthiness, which relies mainly on a person’s credit history.

The new technology, proponents say, can open the door to far more accurate assessments of creditworthiness. Better risk analysis, they say, will broaden the lending market and reduce the cost of borrowing.

“The potential is there to save millions of people billions of dollars,” said Rajeev V. Date, a venture investor and former banker, who also was deputy director of the Consumer Financial Protection Bureau.

Investors certainly see the potential; money and talent are flowing into this emerging market. Major banks, credit card companies and Internet giants are watching the upstarts and studying their techniques — and watching for the perils.

By law, lenders cannot discriminate against loan applicants on the basis of race, religion, national origin, sex, marital status, age or the receipt of public assistance. Big-data lending, though, relies on software algorithms largely working on their own and learning as they go.

The danger is that with so much data and so much complexity, an automated system is in control. The software could end up discriminating against certain racial or ethnic groups without being programmed to do so.

Even enthusiasts acknowledge that pitfall. “A decision is made about you, and you have no idea why it was done,” Mr. Date said. “That is disquieting.”

The data scientists focus on finding reliable correlations in the data rather than trying to determine why, for instance, proper capitalization may be a hint of creditworthiness.

“It is important to maintain the discipline of not trying to explain too much,” said Max Levchin, chief executive of Affirm. Adding human assumptions, he noted, could introduce bias into the data analysis.

Regulators are waiting to see how the new technology performs. The Consumer Financial Protection Bureau wants to encourage innovation but is monitoring the emerging market closely, said Patrice A. Ficklin, head of its fair lending office.

The data-driven lending start-ups see opportunity. As many as 70 million Americans either have no credit score or a slender paper trail of credit history that depresses their score, according to estimates from the National Consumer Reporting Association, a trade organization. Two groups that typically have thin credit files are immigrants and recent college graduates.

Affirm’s office in San Francisco looks nothing like a bank, occupying a couple of floors in an old red brick building. The work space is open with high ceilings, bare wood floors and rows of benchlike tables, where workers are hunched over computers.

The start-up began its credit card alternative for online purchases in July, but it is growing fast and has ambitious plans.

Affirm says it is on track to lend $100 million during its first 12 months. More than 100 online merchants are now using its installment loan product, Buy With Affirm. Next up, the company says, will be student loans.

These are the first steps in a larger plan. “The long game is to use data and software to chew up and revolutionize the financial ecosystem,” said Mr. Levchin, co-founder of PayPal, the leading Internet payment service.

Mr. Beryl of Earnest got turned down for a loan to pay for education expenses when he was getting both an M.B.A. and a public policy degree at Harvard. By then, Mr. Beryl, who majored in financial engineering at Princeton, had worked for a few years on Wall Street. As a graduate student, he was adding to a résumé that screamed earning potential, investing in himself.

The lesson he took from the loan rejection was that traditional banks take a narrow view of loan applicants, and that loans are too hard to get and too expensive for many Americans.

Earnest was founded in 2013, and began lending last year. In 2014, its loans reached $8 million, growing gradually. By December the month-to-month growth rate was 70 percent, Mr. Beryl said. The typical Earnest loan is for a few thousand dollars, though they can range up to $30,000. Many of the loans are for relocation expenses and for professional training.

So far, Earnest’s borrowers are mainly college graduates, ages 22 to 34. The youth focus, Mr. Beryl said, also reflects the best business opportunity. “The most mispriced group in the loan market is financially responsible young people,” he said.

Early customers of the new data lenders speak of the speed and simplicity of the borrowing experience, as well as low rates. They are often young adults who are comfortable with buying online and sharing information.

Ananta Pandey, 22, used a loan from Affirm in August to buy an $850 mattress from Casper, an online retailer. Ms. Pandey graduated last year from Barnard College, where she majored in computer science, and she now works as a software engineer for a start-up in New York. The mattress was for a move into an apartment that she shares with three roommates.

Ms. Pandey has only one credit card that she got not long ago, and it has a low limit of about $1,000. The setup costs for the apartment were a temporary spike in her expenses, and the Affirm loan, Ms. Pandey said, gave her financial flexibility.

Ms. Pandey also appreciated the “very seamless” Affirm loan process. Affirm asks borrowers for their cellphone number, their name, date of birth and the last four digits of their Social Security number. Affirm then asks the applicant to reply to a text message, to authenticate the person’s identity.

Affirm makes the underwriting decision almost immediately. The entire process is generally completed in two minutes or less.

St. Anthony: Sunrise Banks introduces alternative to payday loans
By Neal St. Anthony, Star Tribune
January 18, 2015

St. Paul-based Sunrise Banks, which aims to make a buck doing good as it grows its consumer loan portfolio, plans to take on the payday lenders this year with a new product that it has tested on its own employees and several other pilot employers.

“We’re strongly opposed to predatory lending and that’s how we view payday-loan lenders,” said Joyce Norals, chief human resources officer at Lutheran Social Service of Minnesota.

LSS has moved from a pilot employer to including the Sunrise plan as an employee-benefit option this year.

“As we learned about what Sunrise was offering, it seemed like a safe alternative,” Norals said. “Most of us who have options would be just shocked to hear what people may encounter through payday lending. As we learned about what Sunrise was offering it seemed like a safe alternative. We started as a pilot and we launched the program [during benefits enrollment in November].”

David Reiling, a veteran urban banker whose family has owned Sunrise since the 1980s, has spent more than $1.25 million to prepare and test a product over three years that he asserts is far more economical and safe for consumers.

That’s a significant investment in a new product for an institution that last year made about $8 million on its $800 million in assets.

The “TrueConnect Employee Benefit Program” also could help Reiling ­profitably grow his bank.

Sunrise has branded its new loan product, not as a high-interest unsecured consumer loan, but as an employment benefit.

“It’s a consumer installment loan at the end of the day,” Reiling said in a recent interview. “But it’s a much better deal than a payday loan. And it must be paid off by the end of the year. It’s also fair and transparent.”

Much has been written about nonbank payday lenders, and sometimes the big bankers who finance them, and effective interest rates that can skyrocket to 400 percent, when working-class people fall behind on payments to the largely unregulated lenders.

Payday loans are defined as small dollar loans due on the borrower’s next payday. In Minnesota, an average payday loan is $380 and, for two weeks, carries a finance charge that computes to a 273 percent annual percentage rate (APR).

Minnesota Department of Commerce data show that payday loan borrowers take an average of 10 loans per year and are in debt for 20 weeks or more at triple-digit APRs, according to an Associated Press story last year. By the end of 20 weeks, an individual will pay $397.90 in charges for the average $380 loan. Borrowers can find themselves caught in a debt trap, which can result in default or bankruptcy, lured by the prospect of getting proceeds from their paycheck a little bit early.

The Sunrise TrueConnect product, offered through employers, is a loan against future salary in amounts of $1,000 to as much as $3,000. It depends upon the employer and how much the employee makes, but not more than 8 percent of gross pay. The loan is retired through pay deductions over the course of a year.

The maximum interest rate is 25 percent over the one-year term. That would be $125 in interest on a declining-balance loan of $1,000 over 12 months. Employers will position the loan as something to be tapped in an emergency to cover a car repair, medical bill or other one-time expense.

The maximum rate, such as on credit cards, is 36 percent for small loans offered by Sunrise and thousands of other federally insured depositories.

Sunrise is using a third-party software firm that established the electronic-and-administrative infrastructure. Sunrise loans the money and collects payments.

Reiling said Sunrise has apprised its federal regulator, the Office of the Comptroller of the Currency, and also developed the program under the eye of the federal Consumer Financial Protection Board, as well as several consumer groups.

Sunrise has several hundred loans already in place from its first four employers, including Lutheran Social Service and a nonprofit housing agency in Cleveland. Employers are attracted because the program doesn’t cost them anything other than setting up payroll deduction.

The loan can be processed and the cash disbursed within 24 hours through Sunrise and Employee Loans Solutions, the software company.

Reiling, traditionally a small-business lender, also sees the TrueConnect program helping him build a profitable consumer loan portfolio that could rival his $450 million commercial loan portfolio.

“This business is one in which you have to do at scale to be financially viable, even though you’re talking about interest rates in the credit card range,” he said. “But these loans are small and there’s a higher default rate, and a ton of consumer compliance and infrastructure that needs to be in place. The IT and data security investment for a program like this are significant.

“The payday lending industry is $30 billion annually. We would be a very small slice of that. But we think we can grow it to $450 million. Using the employer channel allows us to win trusted partners and to achieve the scale we need.”

Norals said she still considers 24.9 percent a high interest rate, but not compared to payday loans.

“This is for emergency situations, we’ve stressed to employees,” she said. “Under this plan, you know your payments. And the amount you borrow is limited and there are strict guidelines. It’s still a new program, but so far so good.”

Payday Lenders Linked To Miami Tribe To Pay Millions To Settle Claims Of Deceiving Borrowers
By Brianna Bailey, The Oklahoman
January 18, 2015

Two online payday lending companies affiliated with the Miami Tribe of Oklahoma have settled Federal Trade Commission charges that they broke the law by charging consumers undisclosed and inflated fees.

Under the proposed settlement, AMG Services Inc. and MNE Services Inc. will pay $21 million — the largest Federal Trade Commission recovery in a payday lending case — and will waive another $285 million in charges that were assessed but not collected from customers.

“The settlement requires these companies to turn over millions of dollars that they took from financially distressed consumers, and waive hundreds of millions in other charges,” Jessica Rich, director of the commission’s Bureau of Consumer Protection, said in a statement. “It should be self evident that payday lenders may not describe their loans as having a certain cost and then turn around and charge consumers substantially more.”

The Miami Tribe declined to comment on the settlement Friday.

The Federal Trade Commission moved to sue the Miami Tribe payday lenders in federal court in Nevada in 2012. The agency claimed AMG and MNE Services and several other co-defendants violated federal law by misrepresenting to consumers how much loans would cost them and by failing to disclose annual interest rates and other loan terms.

MNE Services loaned to consumers under the trade names Ameriloan, United Cash Loans, US Fast Cash, Advantage Cash Services, and Star Cash Processing. AMG serviced the loans.

In May 2014, a U.S. district court judge held that the defendants’ loan documents were deceptive and violated the Truth in Lending Act, as the FTC had charged in its complaint.

In addition to the $21 million payment and estimated $285 million in waived charges, the settlement also bans defendants from misrepresenting the terms of their loans.

The Federal Trade Commission is continuing to pursue legal action against several co-defendants in the case, including the online payday lender Red Cedar Services, Inc., affiliated with the Oklahoma-based Modoc Tribe, and Kansas race car driver Scott A. Tucker, who founded the lucrative online payday lending companies and then transferred ownership to the tribes.

Kansas payday lending operation agrees to $21 million settlement
Associated Press
January 17, 2015

OVERLAND PARK, Kan. (AP) — Two payday lending companies with ties to racecar driver Scott Tucker have agreed to pay $21 million and waive another $285 million in charges to settle federal claims that they misled consumers.

The Federal Trade Commission announced Friday that the proposed settlement with AMG Services Inc. of Overland Park, Kansas, and MNE Services Inc. of Miami, Oklahoma, includes the agency’s largest recovery in a payday lending case. An attorney for the lenders didn’t immediately return a phone call from The Associated Press. The lenders had claimed immunity from legal action because of their affiliation with Native American tribes.

A 2012 FTC complaint filed in Nevada said Tucker used $40 million collected from borrowers to sponsor his racing team. Tucker hasn’t settled the FTC charges against him.

Payday lenders must forgive $285M in charges
By Mitch Lipka, CBS MoneyWatch
January 16, 2015

It’s the Federal Trade Commission’s largest recovery of money from payday lenders: Two companies settled allegations that they duped consumers and must drop $285 million in charges and pay another $21 million, the agency said on Friday.

AMG Services and MNE Services were accused of misleading borrowers about how much the loans would cost. Consumers, for example, were told that a $300 loan would cost $390 to repay but were actually charged $975, the FTC said.

“The settlement requires these companies to turn over millions of dollars that they took from financially-distressed consumers, and waive hundreds of millions in other charges,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection said in a statement. “It should be self-evident that payday lenders may not describe their loans as having a certain cost and then turn around and charge consumers substantially more.”

In addition to being accused of duping consumers, the companies were charged with violating the Truth in Lending Act. The law requires the accurate disclosure of the the annual percentage rate and other terms of the loans.

MNE Services operated under the following names: Ameriloan, United Cash Loans, US Fast Cash, Advantage Cash Services, and Star Cash Processing. AMG was the loan servicer.

Payday lending, which is aimed at those who can least afford the often onerous terms, may soon face regulation from the federal government for the first time. The industry has a poor reputation for trapping desperate-for-cash consumers in a repetitive cycle of borrowing with loan terms that often exceed 200 percent interest.

Overland Park’s AMG Services agrees to record settlement over payday loans
By Lindsay Wise, Kansas City Star
January 16, 2015

An Overland Park-based online payday lending operation accused of deceiving borrowers by charging inflated fees has agreed to pay federal regulators $21 million, the largest such settlement ever.

Most of the record payout will be returned to borrowers as refunds. AMG Services Inc. of Overland Park and its partner company, MNE Services of Miami, Okla., also will forgive $285 million in unpaid fines and loans still owed by customers, according to the settlement announced Friday by the Federal Trade Commission.

“The settlement requires these companies to turn over millions of dollars that they took from financially distressed consumers, and waive hundreds of millions in other charges,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a prepared statement.

“It should be self-evident,” Rich said, “that payday lenders may not describe their loans as having a certain cost and then turn around and charge consumers substantially more.”

Unexpected fees and higher-than-advertised interest rates often left customers with debts that more than tripled the amounts they had originally borrowed, the FTC alleged in court documents.

The settlement includes no admission of guilt by the companies. Efforts to reach a company attorney late Friday were unsuccessful.

In legal filings, AMG had argued that its affiliation with American Indian tribes should make the company immune to legal action.

It said the tribes’ sovereign status meant they weren’t subject to state or federal laws. A federal magistrate judge disagreed, ruling in 2013 that the lenders had to obey federal consumer protection statutes, even if they were affiliated with tribes. A U.S. District Court judge upheld that ruling last year.

AMG claimed to be owned by the Miami and Modoc tribes of Oklahoma and the Santee Sioux of Nebraska. But the tribes reportedly received only 1 to 2 percent of the revenue from each loan.

The real beneficiary allegedly was race car driver Scott Tucker, who used $40 million collected from borrowers to sponsor his racing team, according to a 2012 complaint filed by the FTC. Tucker has not settled the FTC charges against him. His case is pending before a federal judge in Nevada.

Lawyers for Tucker have previously said the business practices of the tribes were “fully compliant with federal law” and they would contest the allegations.

A growing number of payday lenders have migrated from storefronts to the Internet in recent years in a bid to sidestep state laws designed to curb predatory loans. Some companies exploit ties with tribes to avoid federal regulation, consumer advocates say.

Friday’s record payday loan settlement is significant because it shows that tribal immunity is not working as a business model for payday lenders, said Ed Mierzwinski, consumer program director of the consumer advocacy group U.S. PIRG.

“Online payday lenders have tremendous power to reach into consumer bank accounts illegally and take excess fees,” Mierzwinski said. “Fortunately, FTC and the courts rejected this one’s claims of tribal immunity from the law.”

Law enforcement officials across the country have received more than 7,500 consumer complaints about the firms in Friday’s settlement, according to the FTC.

The FTC said the two companies are both part of the same lending operation. The agency said AMG serviced cash advance payday loans offered by MNE on websites using the trade names Ameriloan, United Cash Loans, US Fast Cash, Advantage Cash Services, and Star Cash Processing.

The websites advertised a one-time finance fee and promised that customers could get loans “even with bad credit, slow credit or no credit.”

But the FTC says borrowers were misled about the real annual percentage rate of the loans and didn’t realize they would be charged additional finance fees every time the companies made withdrawals from their bank accounts.

Contracts with borrowers indicated that a $300 loan would cost $390 to repay, for example, when it really cost $975, according to the FTC.

The agency also alleges that the companies illegally made pre-authorized withdrawals from customers’ bank accounts as a condition of credit.

The Community Financial Services Association of America, a trade group for the payday lending industry, issued a statement Friday that distanced the group from the two companies involved in the settlement and expressed support for the FTC’s actions.

“These unscrupulous practices are not representative of the entire payday lending industry nor the online sector of it, and they harm the reputations of (association) members who uphold the highest lending standards in the industry,” the statement said. “More importantly, these bad actors create an even more confusing environment for consumers, making them more susceptible to fraud and abuse.”

AMG previously had reached a partial settlement with the FTC in 2013 over allegations that the company had illegally threatened borrowers with arrest and lawsuits. That settlement prohibited AMG from using such tactics to collect debts.