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Community Lending in Missouri Borrows from Payday Lenders

Non-Profit Lender Admits Payday Loans Provide Needed Service

by Curtis White on January 25, 2012

In the same week that the new federal Consumer Financial Protection Bureau announced it will consider regulating the payday loan industry, two bills capping interest rates are pending in the Missouri General Assembly. Yet even proponents of the bills admit that payday loans provide a needed service in Kansas City and in municipalities across the country.

“There’s a huge gap between what banks were providing 40 years ago and what payday lenders provide today,” businessman and Fair Community Credit (FCC) board member Ace Wagner told the Kansas City Star.

Central Bank of Kansas City, in conjunction with FCC, has agreed to provide unsecured loans of $300 to $2,500 — the same credit niche currently served by the very payday lenders Wagner’s organization seeks to reign in. The group proposes to lend money for slightly longer durations and at lower interest rates, with the intent of making their loans more affordable.

But unlike private payday lenders, who must cover their own losses when borrowers default, FCC can call upon more than $200,000 in loan guarantees donated by foundations and individuals. The free market offers no such backup for payday lenders currently serving the credit needs of Missouri residents.

FCC told the Star it hopes to provide 500 such loans in its first year of business — far less than consumer needs indicate. According to the Missouri Division of Finance, the payday loan industry issued 2.4 million loans in Missouri alone during 2010.

Another way FCC plans to insulate itself against losses is through offering loans by referral only — no walk-in customers allowed. Again, this approach works for non-profit lenders seeking to fulfill only a tiny fraction of needed consumer credit, but payday lenders who make their services available to any qualified borrower can’t afford such exclusivity.

The payday loan industry has rightly defended itself against charges of exorbitant interest rates by pointing out that annualizing the interest on a short-term loan “makes about as much sense as extrapolating the cost of a short cab ride to what it would cost to rent a cab for an entire year.”

Randy Scherr, a lobbyist for United Payday Lenders of Missouri, put it this way: “The interesting thing about payday loans is they don’t cause bankruptcy, they prevent bankruptcy.”

Charges for borrowing a few hundred dollars with a payday loan are far lower than repeated overdraft fees, late charges, or reconnect charges on utilities incurred when a person’s bank account dries up between paychecks.

“People are very satisfied with the product,” Scherr said. “It’s the simplest, most transparent loan in our society today.”

Both Sides Can Agree: Canada Payday Loans Provide Needed Credit

Government and Industry Have Begun to Recognize the Need for an Emergency Cash Option

by Michael Reubelt on January 20, 2012

As Municipalities such as Esquimalt in Vancouver B.C. consider limiting the number of Canada payday loan providers, it’s worth taking a look at the niche these loans fill for consumers without access to “prime” credit products.

There are currently 1,750 payday loan outlets across Canada. According to Stan Keyes, president of the Canadian Payday Loan Association, there is no data to indicate “any adverse affects stemming from the location or number of payday-loan stores in any municipality.”

Keyes told The Vancouver Sun that, according to his organization’s client surveys, “the typical payday-loan customer is between 18 to 34 years old, makes about $34,000 a year, has more post-secondary education than the average Canadian and is aware of the high interest costs to get a payday loan. But,” Keys emphasized. “They want the product.”

According to Scott Hannah, President of the Credit Counseling Society of B.C. (CCSBC) eliminating payday loan providers is not the solution.”[Banning] looks good in theory, but it doesn’t do anything to curb demand,” Hannah told the Sun. “From a very pragmatic standpoint, there is a high demand for this type of service for a certain segment of the population.”

In the UK, a similar surge in demand for payday loans has moved the industry into the spotlight. According to investment-industry blog, Mindful Money: “People [get payday loans] because they have no choice. High-cost loan customers usually either fail credit card tests or have already maxed their plastic.”

Even the UK government has had to confront the issue, saying that limiting the number of payday lenders by capping interest rates could “force some borrowers into the arms of illegal loan sharks.”

Because a global economic recession has forced many people to stretch their budgets to the limits, consumers have too-often spent beyond their budgetary limits just to cover bills. Unexpected expenses only exacerbate the problems, pushing people further into debt through late penalties and other emergency bills. Without the option of quick cash loans, many consumers’ debt may spiral out of control.

Mindful Money portrays a ban on payday lenders in stark terms: “Withdrawing or putting stringent rules on these loans … might be rather like putting a drug addict into cold turkey. Stores might suffer. There could be evictions, repossessions and mass homelessness. Alternatively, landlords and others would have to cut rents, which could lead to their failure to keep up mortgage payments.”

Before the government in B.C. or elsewhere decides to limit the availability of payday loans, it should ask what alternatives it’s willing to put forward to combat inflation, rising housing costs and stagnant wages?

The CCSBC’s Hannah summed up the dilemma for Canadian households: “Eighty percent of our clients said they tried to get credit other than payday loans, but that they valued [the service] as it was a last stop for credit.”

New Texas Cash Advance Lender Laws Take Effect in 2012

New Laws Increase Security and Help Educate Consumers

by Kevin Schneider on January 17, 2012

The beginning of a new year marks the beginning of a variety of new laws throughout the United States. In Texas, laws passed during the 2011 legislative session concerning regulation of the payday loan industry have begun. The two main additions to state laws help better inform consumers of the payments associated with their loan and ensure that all lenders in the state are reputable.

Payday loan stores, according to the new legislation, must post the rates and fees associated with their loans in a prominent place. While previous federal law requires that all loan terms be disclosed before a consumer has any obligation to sign a loan contract, the new Texas regulations require interest rates and the cost of said percentages over the life of a loan. In practice, these new charts resemble the menus found in any counter-service eatery.

By presenting customers with the exact rates of their loans and, perhaps more importantly, the translation of that rate to actual dollars owed on sample loan amounts, payday loan stores can help prevent consumers from incorrectly budgeting their income. Late payments, rollovers and defaulting can potentially cost consumers far more than they originally expected to pay. Detailing these rates will help customers better manage their money after taking out a loan.

The other new regulation to start in Texas this year requires all payday lenders to be officially licensed by the state in order to operate. The application for a license will cost each business $800 and involves a background check on the owners to ensure consumers are conducting business with legitimate lenders. Requiring licenses for payday lending helps safeguard the industry from the threat of fly-by-night lenders and scam artists trying to make a quick buck off of consumers in dire financial straits.

While some might assume that new regulations on the industry would be met with criticism by the current lenders operating in the state, the opposite has been true. Due to the recession, many banks and other institutions have tightened their lending policies, often resulting in the exclusion from qualifying for many Texans. A poor credit history, caused in many cases by problems stemming from the recession itself, has forced many consumers in the state to seek alternative methods of quick cash.

Since a cash advance in Texas does not require perfect credit, it has been an important stopgap financial solution for many. New regulations and costs of doing business may result in the closure of some payday lenders in the state, but that is balanced by the increased safety and security for consumers and the overall industry. Payday loans are not meant to force people into a spiral of debt, but rather to help those in need of fast cash to cover an emergency expense.

The new regulations taking effect in Texas this year are another step towards creating a healthy, dynamic payday loan industry in the state. Informing customers of the risks and rewards of payday loans before they take one out allows everyone to conduct more responsible business. Issuing licenses to lenders increases the accountability and security of the cash advance industry as a whole.

New Laws Governing Payday Loans Take Effect for Saskatchewan

New Regulations Aim to Better Protect Canadian Consumers

by Jennifer Case on January 5, 2012

The Saskatchewan government announced the onset of new laws regulating the payday loans industry this week. The new laws took effect Jan. 1 and are intended to make the loan process more transparent and reduce costs for consumers. This marks the first time Saskatchewan has had legislation specific to the payday-loan industry.

Roger Sobotkiewicz, director of the payday-loans division of the Saskatchewan Financial Services Commission, commented to the The StarPhoenix: “It’s part of a cross-Canada trend. Several other provinces have just put in similar legislation or are putting in similar legislation. I think the [payday loan] industry jumped onto the radar screen across Canada at the same time and all the provinces have sort of worked together to move legislation ahead.”

Alberta, B.C., Manitoba, Nova Scotia, and Ontario already have regulations in place governing the payday loan industry.

Payday loans are short-term advances that usually need to be repaid with the borrower’s next paycheque. High interest rates and service fees usually accompany these types of loans. Payday loans were previously regulated under the Trust and Loans Corporation Act, but the new legislation is seen as more specific and comprehensive.

For example, the new laws specify that lenders must display “very large signs” that are visible upon entering the premises, which list all of the fees accompanying any payday loan. That is meant to “allow borrowers to shop around,” Sobotkiewicz said.

Also prominent in the new regulations is a tighter cap on loan fees. Beginning Jan. 1, loan fees must not amount to more than 23 percent of the principal amount borrowed; or $23 on every $100. Under the previous regulations, some lenders could go over the 23 percent cap by adjutsting the loan fees.

The new laws also specify that lenders and borrowers must enter into a written agreement, which includes written disclosure prominently indicating that the payday loan is a high-cost one. This information must be provided prior to documents being finalized, Sobotkiewicz said.

Payday lenders also must explain to the borrower that he or she has a right to cancel the loan within one business day of entering into the agreement, only needing to repay the principal amount in the process. Also significant among the new rules are restrictions on how many times lenders can try to make a pre-authorized debit, and prohibitions on rollover loans and concurrent loans.

Under the new licensing rules, lenders must pay an annual fee of $2,000 for each location they operate. Whether the new licensing fee will slow the proliferation of payday lending sites is yet to be seen.

Borrowers should do their research and become informed of their rights before seeking out a payday loan.

“What we encourage is for borrowers to go to our website, sfsc.gov.sk.ca, because we have information about things borrowers should consider before entering into payday loans,” Sobotkiewicz said. “If they feel their rights weren’t respected, by all means contact us. We would like to know about it.”

The proposed changes were announced in the summer of 2011, but first required a federal government exemption from a Criminal Code provision governing interest rate caps, before they could take effect.

Will Capital One’s Takeover of ING Preserve Sensible Overdraft Practices?

Consumers Turn to Cash Advances to Avoid Costly Overdrafts

by Jennifer Case on December 27, 2011

Last June, Capital One announced plans to acquire ING Group’s online banking unit for $6.2 billion. The proposed acquisition spurred an immediate response from consumer groups and community banks, who warned that the deal could create another “too-big-to-fail” financial institution.

“Our main concern with the acquisition today concerns systemic risk,” Christopher Cole, senior vice president for the Independent Community Bankers of America, stated at the Federal Reserve’s hearing held Sept. 20, 2011 in Washington, D.C. Mr. Cole called for a “moratorium” on any acquisitions involving banks with more than $100 billion in assets.

The Center for Responsible Lending also weighed in on the proposed merger. “We are concerned that Capital One’s current overdraft practices are out of step with significant reforms other large institutions have recently implemented,” the group’s website states.  “These practices include continuing to charge high overdraft fees on debit card point-of-sale and ATM transactions, and posting transactions from largest to smallest, which maximizes overdraft fees.  While other large banks have curbed these practices, Capital One has not.”

Unlike Capital One, ING Direct has been applauded for its sensible overdraft practices, which have earned the respect of customers and consumer groups alike.  ING Direct does not charge high-cost overdraft fees; instead, its customers are offered an overdraft line of credit, at a reasonable annual percentage rate, currently 11.25%, with no additional fees.

Here are some common bank overdraft fees to watch out for:

• No Warning on Overdraft Charges: Many banks charge an overdraft fee for debit card transactions without giving customers a chance to cancel.

• Disproportionate Fees: The average overdraft shortfall is $17, while many banks charge $34.

• Subtracting Largest Debits First: Many banks subtract debits in order of largest to smallest dollar amount, instead of processing transactions in the order they occurred. This often increases the number of overdraft fees the bank can charge its customers.

• Holding Deposits Longer than Necessary: Some banks hold customer deposits even when no delay is necessary. This also can increase the number of overdraft fees collected by keeping customers in the red longer, even when they have already deposited sufficient funds.

Whatever your feelings on the proposed Capital One/ING merger, chances are your bank already has overdraft fees in place that can soak you for up to $45 with each occurrence. Often, the best way to avoid incurring those spurious charges is to make sure you have enough funds in your account to cover any outstanding bills or purchases. A payday loan can get you the cash needed to replenish your checking account within 24 hours.

CashAdvance.com Processing $1 Million in Applications Every Day During December

Holiday Stress Eased by Access to Short-term Loans.

by Derek Campbell on December 19, 2011

CashAdvance.com is averaging $1 million per day in loan applications during December — helping hardworking households like yours manage their holiday spending without adding to credit card debt. Since 1997, we’ve specialized in connecting people with lenders who fund short-term loans of $100 – $1,500 within minutes, with the loan repaid automatically with the borrower’s next paycheck.

“It’s great to be able to help so many households manage their expenses during the holidays,” says company spokesperson Jeffrey Hodges. “We’re available online right from your home or workplace, so you won’t have to use your lunch break or day off driving around town looking for the best payday loan.”

CashAdvance.com employs proprietary software to match prospective borrowers with lenders that provide payday loans with no security required. And given that our online loan application can be completed in five minutes with no fee or obligation, it’s an easy alternative to applying for more credit cards or borrowing from a bank or credit union.

Accepting a loan is as simple as appending an e-signature to the lender’s online contract. After which, borrowers will see the funds direct-deposited into their checking account within 24 hours.

“We strive to make the loan process as quick and easy as possible,” Hodges continued. “We know people are pressed for time, and it’s a lot easier to fill out a loan application in the comfort and privacy of your home.”

The Cash Advance industry suffered from an image problem in the past due to the higher interest rates charged for short-term, unsecured loans. But at an average fee of only $20 per $100 borrowed, a cash advance can easily pay for itself in the face of $45 fees for a bounced check, or late fees on rent checks, credit card payments, and the myriad other bills that keep a household solvent.

A cash advance, also known as a payday loan, is meant to cover shortfalls in a household’s budget by using the borrower’s next paycheck as their security. On the pre-arranged repayment date, typically within two weeks to one month, the loan amount and applicable fees are automatically deducted from the borrower’s checking account. This eliminates the need to mail a check on time, and with it the possibility of incurring unwanted late fees. Borrowers who are unable to repay their loan on time can request an extension through their lender, albeit for an additional fee.

“Due to the growth we’re experiencing, our website will continue to add new features and useful content for consumers in 2012,” Hodges concluded. “People still need access to funds after the holidays, and we want to remain their trusted source for getting the best payday loan rates with the fastest turnaround times year ‘round.”