Tim Miller’s letter to the Wall Street Journal takes a mathmatical approach to the whole triple digit APR issue. This is the biggest argument consumer groups make.
A payday loan is intened to cover a borrower for a short period of time. When you annualize a product that spans between 2-10 weeks, it does not tell the whole story.
The CFSA has best practices in place. One of the requirements of their members is that a loan can only be extended 4 times for a total of 5 concurrent loans.
John Nyhan, a California attorney for two Indian tribes told the newspaper that the lenders “have immunity” from state laws.
Fifth Third Bank is now offering payday loans. They call it “Early Access Checking”. I think this is great. More competition means the customer wins.
Here’s how their product works: You must have a job and direct deposit. The term of the loan is 35 days and the rate is 120% or $10 per $100 borrowed. The full advance is automatically debited from your account.
Now, they can offer the product at this price point b/c they have total control over the customers bank account. Non-depository payday lenders do not have that luxury, so of course, their loan losses are going to be higher.
You can read the full article in bizjournals here.
A few months ago, President Obama made it sound like he would systematically take care of everything wrong with America. One of those items is payday loans. Well, the economy sucks and if it does not get better, he’ll have bigger problems to deal with, like not getting re-elected.
Now, there are a few bills out there. Coincidentally, they’re spearheaded by two Illinois congressmen. One is a US Senator, Dick Durbin; and the other is Representative Luis Gutierrez who is top Democrat on the Financial Services subcommittee. Dick Durbin wants to cap rates at 36%, while Luis Guteirrz has put together a real bill that addresses the issue.
If you want to read Luis Gutierrez proposal, you can do it here. Personally, I think the industry should back him unconditionally. He really stuck his neck out, in my opinion.
Unfortunately, the Associated Press is all over him, so this article titled, The Influence game, is surfacing on pretty much every major newspaper.
I wonder if the passing of this bill would allow payday lending to happen again in the black out states, like Arkansas, Connecticut, District of Columbia, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Vermont, West Virgnia, Puerto Rico? Doesn’t federal law trump state law?
It’s great that this credit union is offering a lower cost payday product. Let’s keep two things in mind: the money is being subsidized by a $20M investment by the state treasury. Also, 18% interest on $500 for 90 days is around $22. I don’t know where they get $42. They must be charging an additional fee on the loan.
They also do not say who qualifies for the loan. This is an important part of the story.
Here is the full article from Pittsburgh Channel 4.
Here’s what the West Virginia state’s attorney had to say about payday lending in the Times West Virginia:
“It’s a very very shadowy industry, and it operates very much off the grid. The only answer to payday lending is to ban it.”
Talk about taking the moral high ground.
Now, payday loans are illegal in West Virginia and lenders should respect that; but I don’t think the DA, acting as a voice of the state, is right. He should just stick to “It’s illegal in West Viriginia.”
The Internet companies being accused of either making or collecting Internet payday loans in West Virginia are Cash Advance Now, Debt Doctor, Direct ROI, E Smart Credit Network, Island Payday, Platinum Finance payday business, Sonic Cash, A.C.A. Recovery, Capital Collections, Covenant Management Group, Oasis Financial Solutions and Westbury Ventures.
The state has been successful in driving Internet lenders out. For example, Wisconsin just recently settled a class action law suit against and Internet lender. You can read the post here.
This should go under my WTF post of the week. Illinois has been laying on the fines. This pdf is on the front page of the Illinois state’s site for January, 2009.
All the payday lender fines start on page 3. Here’s just a taste:
QC Financial Services, Inc., Waukegan – PLRA license (1265) fined $43,650 for the following violations: lender did not verify that the loan was permissible, lender did not enter into the database that the borrower’s loan was paid in full or cancelled on the day the transaction was made,lender made a payday loan that resulted in the borrower having outstanding payday loan(s) more than 45 consecutive days, loans over 25% of borrower’s income, lender made a payday loan resulting in the borrower having a combined outstanding payday loan principal balances greater than 25% of borrower’s gross monthly income, lender did not properly enter loan(s) into the database onthe day made, and official income documentation was not the required type for a payday loan or was not for income for the 30 days preceding the loan.
Illinois’ new motto should be protecting consumers long enough to get our cut.
This article in Seatle Weekly prompted me to write this. I think the state would be better off creating incentives for people to create saving’s accounts than making payday loans tougher to get. These legislative sessions are a joke. What’s the point in making lenders miserable over frivolous laws?
These law makers are trying to save a small percentage of borrowers, through the legislative process, that are just looking for a bailout.; but what’s new in this country.
The more legislators feel sorry for people that get themselves into a spiral of debt, the less responsibility these borrowers take. These people get weeded out of the system naturally through credit services like Teletrack and CL Verify.
If you take the mortgage industry for example, I believe that it’s not high interest rates that’s causing people to default on their loans. They’re either losing their jobs, which is understandable. Or they want to walk away from a house that their upside down on b/c they bought it with very little or no money down. They figure why keep paying the mortgage if I will owe the bank $30k when I sell it? Living for free for 12 months until they foreclose is a better deal for them. I find it hard to believe that the bank gives a person $300k to buy a house; and now that person is mad at the bank?
In the end, when people don’t pay their obligations, they’re really only screwing other people that want to get a loan.
TheState.com reports that a senate subcommittee removed half of a provision that would limit borrowers to 25% of their gross paycheck. Now the bill limits a loan to a $500 max.
Other provisions worth noting is a 2-day cooling off period.
I think Jamie Fulmer of Advance America says it best, “It still places a whole host of arbitrary limits on the industry.”
Regardless, it looks like the state is willing to atleast work with both sides.
I think this is a very good letter by Lawrence Meyers. Please check it out here.
The Ohio legislators are taking the moral high ground on payday loans. They’re obviously not looking at the facts. You have to question their motives when they are so adamant in getting rid of payday lenders. The Red Herring are banks and their overdraft fees.
Lawrence also sites two reports that educate people about payday loans. The Morgan report is here. It claims that households in states that have banned payday loans have higher overdraft fees. The other report, “Study by Yale and Dartmouth Economists Finds High-Risk Borrowers Benefit From High-Rate Loans: Borrowers see wide-ranging long-term benefits” basically says it all in the title.
You can read other posts by Lawrence here.