CashAdvance.com Blog Industry Updates

The Return of Debtors Prisons?

Collection Agencies Using Imprisonment to Intimidate Debtors

by Derek Campbell on April 27, 2012

You might have heard the infuriating story this week about Lisa Lindsay, an Illinois breast cancer survivor who was taken to prison over a $280 medical bill—one that she didn’t even owe. The bill was nonetheless forwarded to to a collection agency and, eventually, state troopers arrived at her door and took her away in handcuffs. Lindsay ended up having to pay $600, including legal fees, just to make sure the episode could never be repeated.

If you thought stories of people being imprisoned over trivial debts was a vestige of the 19^th century; guess again. The number of debts referred to third-party collection agencies has doubled since 2000. A third of U.S. states currently allow debtors to be imprisoned.

Judges can issue an arrest warrant when a borrower misses court-ordered payments or doesn’t show up in court after being sued for outstanding debt. The Wall Street Journal claims that judges have issued more than 5,000 debt-related warrants since 2010.

Disabled roofer Jack Hinton, another Illinois resident, was recently put in prison for not paying a $300 bill owed to a lumberyard, according to the AP.

The problem has become so widespread in this troubled economy that the Illinois House of Representatives recently passed a bill to prevent debtors from going to jail. HB 5434 would require subpoenas to be served directly to the debtor rather than being mailed (people move, and letters get lost). The bill also would require that any arrest warrant issued for failing to appear must expire after a year, and most bond money posted would be returned to the debtor rather than going to a collection agency. The bill has yet to clear the state Senate.

Illinois Attorney General Lisa Madigan, a supporter of the bill, said her office was receiving reports of impoverished people pursued through the courts for back rent, medical debt and other bills. Another Illinois woman who owed money on a vacuum cleaner spent weeks in jail before finally being offered pro bono legal services.

A similar bill was passed in Washington state’s House of Representatives in a 98-0 vote. The bill would require companies to provide proof a borrower has been notified about lawsuits before a judge could issue an arrest warrant. Tellingly, a trade group representing debt collectors came out in support of the bill, saying the changes are needed because unscrupulous companies are abusing Washington’s existing laws by improperly arresting borrowers.

Given the tactics some lenders and collection agencies are willing to sink to, it’s imperative to choose a cash advance service that adheres to all state and federal lending laws. All the lenders in the CashAdvance.com network are thoroughly vetted for honest business practices. We also provide a free scam report where you can contact us if you’ve been the victim of harassment or unfair collection practices.

Oregon Senator Introduces New Law to Encourage Responsible Lending

Proposed Bill Would Cut Down on Illicit Offshore Lending and Unfair Debt Collecting Practices

by Lee Avery on April 2, 2012

Oregon Senator Jeff Merkley (D) has introduced a bill in the United States Senate aimed at better regulating the payday lending industry. The bill, if passed, would close loopholes for online lenders, stop offshore lenders, and force banks and other lenders to maintain healthy lending habits. The senator also sent a letter to Richard Cordray, director of the Consumer Financial Protection Bureau calling for further action at the federal level.

In his letter, Merkley writes that, “…it is critically important that we expand access to affordable credit and the mainstream banking system, as well as strengthen financial literacy across the board.  The Dodd-Frank Act included important tools in these areas as well, and they should be fully funded, strengthened, and expanded.”

The Dodd-Frank Wall Street Reform Act provides rules governing the availability of fair credit to consumers.

Sen. Merkley served as the Speaker of the House for the Oregon House of Representatives and oversaw the implementation of some of the strongest regulations on payday lending in the country. Payday loans in the state cannot charge more than 36 percent interest.

Oregon and other states may have strong laws helping make the payday lending industry a safer place to conduct business, but offshore lenders have begun abusing loopholes. According to Sen. Merkley, these lenders may be doing the bulk of their business in the United States, and me even be located in the country as well, but through certain loopholes, are able to avoid falling under the regulations of other lenders. This allows them to engage in illicit lending activities without oversight, such as charging higher interest rates than state laws allow.

“Millions of Americans are affected by the abusive and deceptive payday lending practices across our country and over the Internet,” said Merkley. “While Oregon is lucky to have state legislation in place to stop the worse practices, there are still loopholes and offshore websites that are dragging Oregon families into black holes of debt. We have to bring order to the Wild West of the lending market.”

Merkley also pointed out that many banks have, which had previously ceased lending payday loans, have begun offering “check advance” services. According to his letter to the CFPB, “Federally chartered institutions then rely on overbroad preemption interpretations or other loopholes to avoid the constraints of state lending law limits.”

CashAdvance.com works hard to make sure that all consumers are fully aware of their rights and the regulations surrounding the loans they take out. While we are not an actual lender, we help connect seekers to the best loans possible. Apart from convenient access to lenders, the site also houses numerous resources meant to keep users informed.

For example, our Your Finances section offers a host of free articles designed to help consumers maintain healthy financial habits. From keeping your life cheap and environmentally friendly, to providing advice on taxes and budgeting for retirement, the resource is just one way that CashAdvance.com strives to be a constructive force in the financial futures of our consumers.

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.

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.

Birmingham Looks to Ban New Payday Loan Stores

City Council Hopes Ordinance Will Inhibit Growth of the Industry

by Kevin Schneider on September 14, 2011

The Birmingham City Council has decided that it does not want any more payday lenders within the city limits. A recent ordinance will prohibit payday lenders from opening new stores in the Alabama city. The move will limit the options available to Birmingham consumers in need of emergency loans, but may also help curb the threat of predatory lenders.

“Our folks have been bamboozled and hoodwinked about these pay day loan operations,” said councilman Steven Hoyt. The city council feels that the number of payday loan stores has reached a critical mass. Says Councilwoman Lashunda Scales, “Our communities have been inundated throughout the city of Birmingham with these types of institutions.”

The council will not be able to institute a full ban on the industry, however, as state law allows payday lenders to operate in much the same as in other states.

“This ordinance does not deal with the existing businesses of this type,” says Scales, “however it does restrict anymore of those kind of businesses to come into our city.”

The ordinance is not without its share of critics. Charles Hunter, who works for Borrow Smart Alabama, an industry group for payday lenders in Alabama, has said the ordinance will cause people to live with one less way of making ends meet. “They’re in every community in this state,” said Hunter, “providing short day cash loans to people who cannot get short term loans any place else.”

As recent Census Bureau statistics report, there are over 46 million Americans currently living below the poverty line. Alabama and other southern states all rank high in the amount of people living with poverty within their borders. While not quite so high as neighbors Mississippi, Louisiana, and Georgia, which are the top 3 highest, Alabama nonetheless struggles with the problem.

The hope of the Birmingham City Council is not to force people to stay poor, of course, instead the council hopes to stop predatory lender from unlicensed lenders. While most cash advance locations are legitimate business, as with any industry, counterfeit products arise. To learn more about protecting yourself from scams when getting any type of loan, visit the CashAdvance.com Scam Report.