Category: Personal Loans

photo credit: Sweet One

Georgia and North Carolina banned cash advance loans in May 2004 and December 2005. The legislators in these states say they were compelled to act for the public good because of the claims from public interest group adversaries that pay day loans are a “predatory debt trap.”

The debt trap critique against payday loan companies seems based on three allegations: payday loans are expensive (”usurious”), payday lenders locate near their customers (”targeting”), and most payday customers are repeat (”trapped”) borrowers. After documenting that the typical customer borrows 8 to 12 times per year, the CRL (Center for Responsible Lending) concluded: borrowers are forced to pay high fees every two weeks just to keep an existing loan outstanding that they cannot afford to pay off. This “debt trap” locks borrowers into revolving high-priced short-term credit instead of reasonably priced longer-term credit.

Although the amount and availability of longer-term credit that may be available to payday loan borrowers, and the precise sources of that alternative credit, was never discussed, the debt trap critique has influenced lawmakers at state and municipal levels to restrict cash advance payday loans in their jurisdictions or to ban them outright.

Oakland and San Francisco limit the number and location of payday stores. Oregon and Pennsylvania recently joined Georgia and North Carolina in banning payday loans. New York, New Jersey, and most New England states have never allowed payday lending. By contrast, some western states (Washington, Idaho, Utah, and until recently New Mexico) have kept their laissez-faire policies toward payday lending.

The national patchwork system of payday loan regulation means that millions of people use payday loans repeatedly in some states, while their counterparts in other states must go without this often only legal source of bad credit loans. However one sees payday credit-as helpful or harmful-the patchwork regulations mean that millions of households are being wrongly treated by payday loan regulations.

The national adversarial controversy continues. Jane Bryant Quinn (financial columnist in Newsweek) recently warned that “payday loans can be a debt trap” (October 8, 2007).

The Federal Reserve Bank of New York Staff* tested the debt-trap claim of the payday advance loan by researching how households in Georgia and North Carolina have fared since those states banned payday loans. Their research investigated patterns of returned (bounced) checks at Federal Reserve check processing centers, complaints against tradional “approved” lenders and debt collectors filed by households with the FTC (Federal Trade Commission), and federal bankruptcy filings.

The monthly complaints data are new to this study; these data were obtained them from the FTC under the Freedom of Information Act. Changes in complaints within a state to identify changes in household welfare (well-being), a distinct advantage compared to the ambiguous measures (interest rates and repeat borrowing) emphasized by critics of payday lending. How do we know when credit is so expensive or burdensome that households are better off without it? The real test should be whether household welfare is higher with or without payday credit, and complaints are a measure of welfare.

Cutting to the chase, FRBNY Staff concluded that compared with households in states where payday lending is permitted, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about approved lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate.

This negative correlation between reduced payday credit supply and increased credit problems, and decline in the general welfare in Georgia and North Carolina contradicts the debt trap critique of payday lending. The official citation to the referenced study is:

*Payday Holiday: How Households Fare after Payday Credit Bans
Federal Reserve Bank of New York Staff Reports, no. 309
November 2007; revised February 2008

Money Savvy

There are many people who find themselves in emergencies. The situation dictates a certain amount of cash but seems to be impossible to acquire. Many of them usually approach payday loans, which will easily tell them that it is quick and easy to borrow; just write a post-dated check and they will provide the case on the spot.

They will hold the check and will not cash it until the next payday. However, what they are not telling is that these people are actually paying outrageous amounts of the loan and might render them unable to look for means on how to get out of payday loan debt. What payday lenders know is that if some of these people do not have enough money during payday, then they would not probably be able to pay their bills, including the loan when the next payday comes.

Payday loan counts on the borrowers to roll the loan over and over and over. The small fee will eventually add up to create a larger sum compared to the original loan. Unfortunately, most, if not all, of these lenders always say that rollovers are very infrequent, which is very far from reality.

How to Get Out of Payday Loan Debt: Pay Them Quickly

In order to know how to get out of payday loan debt, it is very important for you to realize that these kinds of loans, though easily available, are only meant to answer your little and pressing short-term monetary needs. If you are planning to avail a payday loan, you must have an objective to repay the same amount the next payday.

The payday lender might offer you flexibility over the payment terms by allowing you a maximum of two one-month extensions. If so, then this can be beneficial if you are not going to be able to pay off the loan on the next payday. However, it is important to know that extensions will cause a substantial amount to serve as penalty.

How to Get Out of Payday Loan Debt: Consolidate

If, unfortunately, the cash advance debts happen to be too expensive to be paid off through your current income, consolidating these overdue amounts can be a solution; this is probably the best way on how to get out of payday loan debt. It is important, though, that you take action during the right moment; the longer you delay, the deeper your problems will be.

For the process of consolidation, you may only need to pay lower consolidated monthly installment to the debt company. The company will also take further repayments to your lenders. In this way, the consolidation of the debt will bring the ultimate financial peace for you and provide you plenty of time to put your life back together.

If you are looking on ways on how to get out of payday loan debt, then look no further than available payday loan debt consolidation services. You will find this as a solution to all kinds of debts.

Columbus Dispatch

Payday lenders vow second appeal; ruling won’t affect referendum bid
Friday, September 5, 2008 3:10 AM
By Jim Siegel
THE COLUMBUS DISPATCH

Ohio’s attorney general can take 10 business days to review petition summary language needed to gather signatures and qualify a referendum for the November ballot, the Franklin County Court of Appeals ruled yesterday.

Although it is a loss for payday lenders, the decision does not affect their current referendum effort. On Sunday, the lenders’ coalition turned in 422,000 signatures, and county boards of elections will determine whether the group has the 241,366 valid signatures needed to qualify for the ballot.

A payday-lending coalition sued in July, as it started an effort to overturn new regulations on the industry. Attorney General Nancy H. Rogers rejected an initial petition summary submitted by the group, calling it vague and inaccurate, forcing lenders to submit new language and delaying their signature collection.

The group, Ohioans for Financial Freedom, argued that the state law giving Rogers 10 business days to review the summary let her eat up about 15 percent of the 90-day window that the committee had to collect its signatures. The lawsuit argued that impeded the constitutional right of referendum.

The appeals court disagreed, upholding a lower court decision.

“The fact that the 10-business-day provision might work to restrict, rather than facilitate the referendum process under some plausible set of circumstances is insufficient” to overturn the law, said Judge Judith L. French, writing for the 2-1 majority.

Rogers approved a later summary that calls for a partial repeal of House Bill 545, the new payday-lending law.

If the issue makes the ballot and a majority vote “no,” payday lenders could continue charging a 391 percent annual interest rate ($15 per $100 on a two-week loan). If a majority votes “yes,” lenders could charge 28 percent plus a $15 origination fee. The fee difference on a $300, two-week loan is $45 versus $18.

Kim Norris, spokeswoman for the payday coalition, said the group will appeal.

“The court got it right in some areas, in that they agree that the law creates a burden for Ohioans who want to use the petition process to repeal a bad law,” she said. “Where they got it wrong is the burden should be on the state to justify the restrictions, not on the people of Ohio who want to exercise their constitutional rights.”

jsiegel@dispatch.com

The Columbus Dispatch

Sunday, August 31, 2008 8:55 PM
By Jim Siegel
THE COLUMBUS DISPATCH

A new state payday-lending law hailed by consumer advocates as one of the best in the nation takes effect Monday, but lenders in Ohio can pretty much ignore it for now.

A key section of House Bill 545 is on hold because a payday coalition filed more than 400,000 signatures with the Ohio secretary of state’s office today in its effort to qualify a referendum for the November ballot.

Over the next three weeks, county election boards will determine if lenders have the 241,365 valid signatures they need to make the ballot.

A referendum at least temporarily prevents a law from taking effect. In this case, lenders are pushing for only a partial repeal of HB 545 - the section that would eliminate Ohio’s check-cashing lender law and no longer allow lenders to charge a 391 percent annual interest rate.

While other parts of the bill, including a 28 percent interest rate and a limit on the number of loans per year, are technically in effect, they are largely meaningless. Payday lenders can continue business as usual unless their referendum is not certified for the ballot, or a majority vote “yes” on the issue in November.

“This effort was a great opportunity to hear from Ohioans, and it’s clear from this massive number of signatures there is a strong sentiment among voters that politicians need to stop killing jobs and financial choices in the state,” said Bridgette Roman, legal counsel for Dublin-based Checksmart and a lead member of the payday coalition.

A “no” vote on the issue would allow lenders to continue charging a 391 percent annual interest rate ($15 per $100 on a two-week loan). A “yes” vote would limit lenders to a maximum 28 percent plus a $15 origination fee on a two-week loan. The fee difference on a $300 loan is $45 versus $18.

The payday industry argues it could not survive under the lower rate, putting 6,000 people out of work and closing off a vital credit option for people with nowhere else to turn. Payday opponents say the two-week loans trap too many borrowers in a cycle of debt, where they repeatedly need new loans to pay off old ones.

A wide-ranging coalition, including advocates for the poor and homeless, the conservative Ohio Roundtable, Ohio Farm Bureau, United Methodist Church and the AARP, will fight the ballot issue. Republican legislative leaders and Democratic Gov. Ted Strickland,also are urging a “yes” vote.

“The payday-lending industry brought on state regulations by failing to regulate itself,” said David Zanotti, president and CEO of the Ohio Roundtable. ”Taking advantage of people in real financial need cannot be defended in the marketplace.”

Even if payday lenders win on Nov. 4, some lawmakers are already saying they would take aim at the industry again when they return after the election.

Rep. Christopher R. Widener, R-Springfield, the sponsor of HB 545, and Sen. Jeff Jacobson, R-Vandalia, said they expect that many people who would vote “no” on the issue in November would do so out of confusion rather than support for payday lenders.

“If the ballot language had listed 28 percent and 391 percent then I would say yes, the voters got a chance to look at this issue and decide on its face what they want,” Widener said. But the ballot language, he said, is “not a fair test of what the issue is.”

Jacobson said he expects payday lenders will run deceptive ads.

“If they win by misleading voters, I think we’ll have strong justification for revisiting the topic,” he said. “If they argue that they should be allowed to screw over people every day of the year maybe then they can argue that people really do like them.”

Meanwhile, the Department of Commerce will soon ask Attorney General Nancy H. Rogers to clarify some regulatory issues related to the new payday law.

Because lawmakers never intended to have the check-cashing law remain in effect, HB 545 strikes several references to it in other sections of law. An analysis by the Legislative Service Commission found the bill:

- Strikes check-cashing licensees from the definition of “consumer finance company.”

- No longer carries a criminal penalty for payday lenders who violate the check-cashing lender law.

- No longer gives the Department of Commerce authority to administer fees, charges, penalties and forfeitures collected from payday lenders.

jsiegel@dispatch.com

Salt Lake Tribune

By Donald W. Meyers
The Salt Lake Tribune
Article Last Updated: 08/31/2008 03:21:03 AM MDT

PROVO - Myla Dutton is no great fan of payday lenders.
Dutton sees check-cashing stores and other short-term lenders as predators who single out the most vulnerable - the poor. She said 15 percent of the people who come to Community Action Services and Food Bank - Dutton is executive director - regularly use such lenders.
“It is unfortunate that the people with the least amount of income utilize the lenders with the highest interest rates,” Dutton said.
So, it was no surprise that Dutton applauds the city’s interest. Provo would become the second Utah County city to regulate the lenders, joining Salt Lake County and communities in limiting where and how many check-cashing operations can set up shop.
While advocates for the poor support city ordinances, they warn that the quotas won’t make much of a difference - as long as the businesses can still charge annual interest rates in excess of 500 percent.
But the Utah Consumer Lending Association, a trade group representing payday lenders, says cities are actually hurting people who can’t go anywhere else to get emergency loans.
“Competition in Utah among payday lenders is what is best for the consumer,” the association said in an e-mail statement in response to questions from The Salt Lake Tribune, in an already highly regulated market does not help the customer.”
But Cindy Richards is willing to look at restrictions to protect low-income residents.
Richards, Provo’s Municipal Council chairwoman, asked the city to look into the issue after receiving complaints from constituents in her central Provo district. Some 13 payday lenders are licensed in the city, and Richards said her constituents worry that more are popping up near low-income neighborhoods.
“Some in Provo would be surprised at the level of crisis some people have to live with in my area,” Richards said.
All the cities with payday-lender restrictions have a quota of one for every 10,000 people.
In Salt Lake County, the stores can’t be closer than 600 feet to each other.
Orem goes a bit further; check cashers have to put a half-mile between their businesses.
Orem City Manager James Reams said the ordinance was enacted last year with relatively minor opposition from the lending industry.
“We’re up to the limit,” Reams said. “Those who want to come in have to wait for the population to grow or someone to close.”
Linda Hilton, director of the Coalition of Religious Communities, said such ordinances are good in that they keep a community from appearing blighted, but they don’t fully protect people from what she sees as predatory lenders.
Nor does relying on market forces to police the industry, as payday lenders say, help people avoid crippling interest payments.
“There is a buyer beware, but people get into financial products they don’t understand,” Hilton said. “Look at subprime lending.”
dmeyers@sltrib.com

Controlling the spread

Local governments that have enacted ordinances regulating payday lenders:
* Salt Lake County
* Draper
* Midvale
* Orem
* Sandy
* South Salt Lake
* South Jordan
* Taylorsville
* West Jordan
* West Valley City

Seacoastonline

August 31, 2008 6:00 AM

PORTSMOUTH — Service Credit Union received the 2007 Army Credit Union of the Year Award last week at the Defense Credit Union Council meeting in Chicago.

Service Credit Union’s wide range of products and services, designed especially for the military, was one of the many reasons for the award. Among these products and services are early payday checking, military community emergency loans, relocation loans, and early payday loans as well as free 24/7 live person contact centers and free online banking and mobile banking with MobileBanc24, so service members can access their accounts from anywhere in the world.

Service Credit Union also offers Euro Bill Pay so members can pay bills in euros from wherever they may be around the world. This unique capability is an exclusive Service Credit Union service and a huge benefit to its mobile military community.

In addition, Service Credit Union is a strong corporate citizen within their military communities.

In 2007, Service Credit Union contributed more than $130,000 for overseas military events and programs including Fisher House, Special Olympics, Month of the Military Child, Military Saves Week and 2007 Noncommissioned Officer/Soldier of the Year Award.

Cleveland Plain Dealer

Posted by The editors August 31, 2008 05:03AM

Endorsement

Issue 5 on Ohio’s November ballot, the payday-lending issue, is a stark face-off between fairness and greed. A “yes” vote is a vote for fairness. “Yes” on Issue 5 is the vote Ohioans should cast.

“Yes” on Issue 5 will keep a 28 percent annual-percentage-rate lid on payday loans in Ohio. A “no” would let payday lenders, whose greed rivals OPEC’s, keep charging Ohioans APRs of up to 391 percent.

The Republican-run General Assembly and Democratic Gov. Ted Strickland united last spring behind a 28 percent APR cap. Allied with Strickland in backing a 28 percent cap are House Speaker Jon Husted of suburban Dayton and Senate President Bill Harris of Ashland, both Republicans. And a key architect of the 28 percent cap is Rep. William G. Batchelder, a Medina Republican and iconic Ohio conservative — Mr. Free Markets himself.

Ohio legislators authorized payday lending in 1995. That measure was so obnoxiously tilted to favor lenders that then-Gov. George V. Voinovich let it become law without his signature. No wonder. For ordinary Ohioans, payday loans at an APR of 391 percent are a passport to debt-slavery. And lending at such rates is legalized loan-sharking. Exploitative payday loans are so grotesquely profitable that by 2007 Ohio had more payday-loan outlets than its combined total of McDonald’s, Burger King and Wendy’s restaurants, according to the Housing Research & Advocacy Center and Policy Matters Ohio.

Data such as those and the tireless work of the Ohio Coalition for Responsible Lending persuaded Strickland, Husted and Harris to cap payday-loan APRs at 28 percent. Payday lenders, who’d had a license to print money at Ohioans’ expense, balked. So they collected signatures to put the cap on November’s ballot.

It should be impossible for anyone to persuade Ohioans that allowing an APR of 391 percent is good for them. But confusion is the lenders’ pal, no thanks to hair-splitting by Secretary of State Jennifer Brunner and the panel that writes Ohio’s ballot language.

So here’s Issue 5 in plain English: The pro-consumer vote is “yes.” The pro-borrower vote is “yes.” The pro-Ohio vote on Issue 5 is “yes.” Anyone who says otherwise just wants you to run up debt — at 391 percent APR.

[Ed. When the municpal owned utility company charges a $50 turn on fee on a $100 bill is that 700%+ APR a concern for anybody?

Rocky Mountain News

By STEPHEN MAJORS
Originally published 01:14 p.m., August 31, 2008
Updated 02:03 p.m., August 31, 2008

COLUMBUS, Ohio (AP) _ Payday lenders turned in 422,000 petition signatures on Sunday in an attempt to repeal part of a lending law that is one of the strictest of its kind in the nation.

Lenders will now wait to see if Ohio Secretary of State Jennifer Brunner certifies the signatures and enables the repeal of the law to be placed on the November ballot. They need a little more than 241,000 signatures from at least 44 of Ohio’s 88 counties to qualify for the ballot.

Gov. Ted Strickland signed in June a law that restricts the annual percentage rate that lenders can charge to 28 percent, and limits the number of loans customers can take to four per year.

Lenders have been charging what amounts to a 391 percent annual rate, which critics said all too often traps customers in a cycle of debt. Lenders argue that people should be able to make their own financial choices, and that allowing the restrictions to go through will force businesses to close and 6,000 employees to lose their jobs.

“It’s clear from this massive number of signatures there is a strong sentiment among voters that politicians need to stop killing jobs and financial choices in the state — especially when the economy is faltering and businesses are fleeing Ohio,” said Bridgette Roman, a committee member of Ohioans for Financial Freedom.

Opponents of the lenders made their presence known at the filing of the signatures with a scarlet-and-gray shark mascot wearing a sign that read, “391 percent APR Loan Sharking.”

“It’s not about choice. It’s about greed,” said Sandy Theis, spokeswoman for the Vote YES on Issue 5 Campaign. “We think even though we’re going to be outspent remarkably we’re still going to win if they get on the ballot.”

The submission of the petition signatures comes in the wake of an often bitter campaign between the lenders and the industry’s opponents, who made several claims that lenders had violated the law by misleading people into signing the petition, and in some cases, paying voters to sign it.

Lenders have already embarked on an expensive television ad campaign, using a farmer and a mother to argue that the loans are their own personal financial choices. The Coalition on Homelessness and Housing in Ohio created a YouTube video telling voters who felt they were misled into signing the lenders’ petition how they could get their names removed.

The lenders have denied any wrongdoing.

Several organizations joined the campaign against the lenders’ repeal efforts Sunday, including the AARP, a conservative-leaning public policy organization called The Ohio Roundtable, and the Ohio Association of Second Harvest Food Banks.

“Many of the Ohioans we serve are coming to food banks in record numbers because too much of their income is going to pay the huge fees and interest on payday loans,” Second Harvest Executive Director Lisa Hamler-Fugitt said in a statement.

The Motley Fool
By Chuck Saletta

Online person-to-person lending seemed like a terrific concept. People with a bit of available cash could have the opportunity to loan their money to folks who needed it. Without the expensive branches and staffs of brick-and-mortar banks, an online intermediary could keep its costs low. In theory, that would result in higher-than-bank-interest returns for the folks who could lend cash and lower-than-bank-interest costs for the people who needed to borrow it.

If it worked, it would have been a tremendous win for all involved. It’s too bad that online-lending pioneer Prosper.com botched the execution of that concept. Sure, any start-up will have growing pains. It’s how a company responds and adapts to those pains that really matters.

On that count, Prosper has earned an F.

Perjury or fraud?
The most egregious misstep by the company happened in May of this year. In a filing in United States bankruptcy court, Prosper denied it directly loaned money to either a man who was declaring bankruptcy or to his wife, whom he accused of stealing his identity. Instead, Prosper claimed that it was acting as the authorized agent of individual lenders who loaned the money.

That may seem straightforward, but it’s actually directly contrary to the contract that Prosper had with the people who bought the loans it originated. Prosper may call those folks “lenders,” but as the contract states, Prosper was the lender and the people it called lenders were really loan purchasers.

So was Prosper misrepresenting itself to the bankruptcy court, or did it execute phony contracts with the people who purchased loans through its service? Either way, if you were looking to get into the money-lending business, you might think twice about whether that’s the kind of company you should want to do business with — especially since you need to give it personal information like:

your name,
your Social Security number,
your bank account information, and
your home address.

Why it really matters
In this particular case, whether it was truly identity theft is tough to discern. If it was, Prosper would be on the hook to buy back the loan through its identity-theft guarantee. That’s important to the people who bought the loan from Prosper, but it’s truly a secondary concern to the real problem unveiled by Prosper’s statement to the court.

The real problem is this: Only Prosper knows the true identity of and has the ability to directly verify any claims (such as income) made by anyone looking to borrow money on its site. With Prosper as the original creditor on its older loans (WebBank originates the newer ones), it has rights to attempt to collect under the Fair Debt Collection Practices Act. By its agreement with its loan buyers, in fact, Prosper does administer collections on loans that go sour.

And far too many of those loans are going sour — fast. Fully 18.5% of all dollars loaned on Prosper between its inception and the end of June 2008 have gone delinquent. Some individual months look substantially worse: More than 35% of the dollars loaned in February 2007 are in some stage of evaporating.

Customers are not amused
Prosper.com member Fred93, who has apparently invested more than $800,000 in Prosper loans, has repeatedly called into question the efficacy of Prosper’s collections. Likewise, Prosper.com member ira01, who has also reportedly invested a decent chunk of change, has posted to a discussion forum about several areas in which he says the company is not living up to customer expectations. They include:

Misleading advertising
The (now defunct) process for selling off non-performing loans
Poor identity and income verification
Erasing the old discussion forums where borrowers and loan purchasers could interact

With Prosper now denying in court that it even made a particular loan, the problems that customers like Fred93 and ira01 raise take on an even sharper focus. Issues that may once have been excused as start-up pains can’t be so easily overlooked. While some loan buyers trust Prosper as if it were their fiduciary, Prosper’s statements before the court seem to confirm that it does not act with full fiduciary care of its loan buyers’ money.

A better way to loan money
A standard Prosper loan lasts three years. If you have money to loan and that you won’t need for three years, an FDIC-insured bank CD is certainly a safer option than buying a Prosper loan. And given the tremendous rates of non-payment on Prosper loans, you just might see a higher return in any of these CDs:

Press of Atlantic City

Dear Consumer Action:

Do I have to pay a medical bill that is more than two years old? My insurance company paid its portion of the bill, but the doctor took about a year to start billing me for my portion.

I have heard consumers don’t have to pay medical debt if it’s more than two years old. What is the statute of limitations on such debt? - E.R., Vineland

In New Jersey, the statute of limitations on court action to collect most types of debt is six years.

So your medical debt is still collectible in court. Not paying it can also damage your credit report. If it’s a legitimate debt, do your best to pay it.

You can try calling the office and making payment arrangements. You can even offer a lesser amount as payment in full (but be sure to get the agreement in writing before sending money).

You are probably thinking of the statute of limitations in New Jersey to file a complaint for personal injury. That is two years. An individual has two years from the date of an incident or accident that results in injury or death to sue over it in court. If that two-year period elapses and the complaint has not been filed, the claim can no longer be made. There are special rules that apply to infants and those who are considered incompetent under the law.

Even if the debt were more than six years old, the debtor or a collection agency could try to collect it - and could even file suit against you. But as long as you showed up in court to ask that the suit be dismissed, on the grounds that the debt is more than six years old, it would likely be dismissed.

The best thing to do if you are contacted about an illegitimate or old debt is to send a certified letter to the collector within 30 days either a) denying knowledge of the debt and demanding proof of it; or b) stating that it is too old to be collectible in court, and that you don’t want to be contacted about it anymore.

Unless you are sure the debt is yours and want to repay it, don’t agree to make a partial payment. That will restart the clock on the statute of limitations, giving the collector much more time to eventually sue you.

Collection agencies often buy old debts for pennies on the dollar. When consumers respond with strong letters denying the debt and demanding proof of it, the agencies often drop collection efforts, because they buy the debt with little documentation. They often cannot provide the proof required by law without spending a lot of money to do further research.

However, if a consumer doesn’t respond to the agency’s initial contact, and ignores a court summons, he can find that a court has awarded the company a judgment. And in New Jersey, judgments have their own statute of limitations of 14 years.

So don’t hide your head in the sand if a collector comes knocking - particularly on older debt.

For information on your rights regarding collection agencies, visit

www.ftc.gov

or call 877-FTC-HELP and ask for information on the “Fair Debt Collection Practices Act.”