Author: admin

  • I Tip My Hat to the Army

    The government capped interest rates on the military at 36%. This basically eliminated payday lending to the military. The demand never went away, but it’s nice to hear that the Army is doing something about it. Actually, they’ve been loaning money to their soldiers for quite a while.

    This program is called the Army Emergency Relief fund or AER. Andrew Cohen, deputy director for finance and the treasurer of this fund says “Every Soldier that has a valid need has gotten assistance, so the needs of our Soldiers are being met.”

    I’m not sure what valid need means. I can’t beleive that this money is made available to the soldiers in an instant.

    One caveat is that the money is raised from donations, so at the end of the day, it’s free money.

  • More Ohio Drama

    Anyone that’s following the Ohio drama knows the situation. I have two smaller issues and a bigger one with this article.

    Small issue number is that the law prohibits lenders from charging interest rates above 28%. An annual percentage rate is not an interest rate. The APR is the present value of the future cash flows of the payments. Although, the cost of credit is still the same as before the interest rate cap, the interest rates are still below the 28% cap. What people do not realize is that the lenders in Ohio are following the law. IT IS NOT A LOOPHOLE. They’re operating under two other, non related laws.

    Issue number two is the Ohio Attorney General, Richard Cordray’s response, “We have been receiving complaints from consumers, and from them we have discovered that some lenders are still charging fees and interest on small loans that may add up to an annual percentage rate of in excess of 300 percent. “This is substantially equivalent to the fees charged by payday lenders under their previous business model.”

    Instead of saying, don’t take the loan out if you do not like the terms, he’s going to write a letter and try and force people to lend money below a 28% APR? It’s probably going to be law suits. What a great use the tax payer dollars. This leads into the the major problem I have with the article.

    If the state thinks that 28% payday loans are so profitable, why don’t they offer them. They can use this money to chip away at their budget deficits.

    I am all for a level playing field, but the legislature is taking the wrong approach. A hybrid between interest and fees would solve many components of what people have a problem with this industry. Maybe allowing a substantial fee to be charged on the first loan and then any rollovers accruing interest at an interest rate that makes sense to lenders.

  • Ohio’s Payday Alternative Model Under Attack

    In Ohio a bill was passed to cap interest rates. Fortunately, for short term lenders, this cap does not apply to annual percentage rates.

    Lenders, formerly offering payday loans, are offering loans under two seperate laws that allow for certain fees to be charged in connection with a loan. These fees range from 15-25 dollars for loans up to $500 and 30-40 dollars for loans $500 to $1000. If the borrower wants the money immediately, they can pay a check cashing fee to the lender.

    Jim Siegel of the Ohio Dispatch writes in his article titled, Agency suggests it can’t stop lenders from using older statute.

    “The Ohio Department of Commerce told state legislators yesterday that if
    they think there is a problem with new payday-lending regulations, the fix needs
    to come from the General Assembly.”

    Let’s face it, 28% is never going to work. Lenders need a way to add more fees. The cost of doing business in this industry is just too hight.

  • Fast Cash Loans Settles $2.5M Class Action Suit

    Local news 5 broke the story regarding a $2.5M settlement by a payday lender, Pacific Financial Holding dba Fast Cash Loans.

    What’s remarkable is that the plantiff’s attoneys got 10,000 people to participate. I don’t know a lot about class action law suits, but each person will probably get $200 and the attorney’s will split up $500k. This does not include the attorney’s fees for the defendants.

    I guess the practical advice is don’t leave voicemails, don’t send threatening letters and be nice to people, whether they pay you or not.

    Part of the dilema for payday lenders is that if they outsource their collections, they tend to start throwing good money after bad money. This is one way to hedge your loan companies exposure.

    A collection agency out of Florida collection agency was sued in Illinois for threatening people. There did not seem to be any suits filed against the lender, in this situation.

  • CSO’s in Texas going strong

    I read an pretty well written opinion by Rebecca Lightsey titled: High-cost lenders profit from desperate times.

    I think it’s pretty well written, although I do not agree that payday lenders are benefiting from the bad economy. First, payday lenders rely on their borrowers having a job. If people don’t have a job, they can not get a loan.

    Regardless, this should be a call to action for CSO’s (Credit Services Organizations) to add value to a cash advance transaction. If they don’t, they will be eliminated. This is a good model and if the CSOs do not protect it, by creating some guidelines to follow, it’s only a matter of time.

  • Ohio Payday Alternative Model Becomes an Issue

    Ohio capped the rates at 28% and the people voted down payday lending last November. No longer will anyone charge more than 28% annual interest on a loan. Now, there is a payday loan alternative.

    Some feel as if the people had finally spoken, but this doesn’t mean they got it right. I’m sure many issues were initially not popular before they become law. For example, it took seventy years for women’s activist to finally get the vote. Today, this would be an abomination.

    Now, I’m not saying that payday lending and women’s right to vote is the same type of issue, but the popular thing is not always the right thing to do.

    Fortunately, for Ohio lenders, they can still charge an orgination fee between $15-30 and, in some cases, a $10 credit investigation fee. If the borrower wants his or her money “on the spot”, they will have to pay a 3-5% check cashing fee to get it.

    Call a a loophole or call it following the letter of the law, we’ll see how this will unfold in Ohio. For the record, the interest rates were capped, not the APRs. These two items are not the same thing.

  • Internet Lender hit with $60k class action suit

    Tremont Financial settled a class action law suit for $60k. The state of Wisconsin alleges that the company’s loan contracts violated certain provisions of the Wisconsin Consumer Act. Each borrower that paid them will get $329.81 and they will forgive all the debt for their other outstanding loans.

    Now, I’m pretty sure Tremont is an internet lender b/c I found their site here. Maybe they were doing loans in Wisconsin without a license, but originating them in South Dakota.

    I would love to know if they get their original principal back? If you know anything, please leave a comment.

  • A Note on Capping Rates

    In Ontario they’re debating about capping rates on payday loans. On the surface this may seem like a good thing, but my opinion is that it disables market forces and will effectively never make price competition a factor.

    I’ve felt that most regulation is aimed at making payday loan companies less profitable, when they should really focus on educating consumers.

    You can talk about usury, but there is a cost of doing these loans that isn’t profitable when charging double digit interest rates alone.

  • Payday loans playing the scape goat again

    The Associated press released an article titled Brother, can you spare a payday loan? It’s pretty much making a case against payday loans. The point here is the hypocracy of it all. Many people do not have a problem with credit card balances and medical bills, but payday loans are somehow different.

    Notice in the example they use in this article:

    The Kroekers’ problems began in 2006 and snowballed until their January 2007 bankruptcy filing. When the couple filed for bankruptcy, they had a mortgage, credit card debt and medical bills to pay. They also had nearly $2,000 in payday loan debt, plus hundreds more in fees and interest.

    Don’t bother telling us their credit card and medical bill balances because it would not make these people look like the victims they want us to believe. The reality is that these people did file bankruptcy and got out of paying everyone, including the payday lenders. So who is the victim. I’ll go a step further and say that these people would file bankruptcy with our without payday loans.

    My brother, Gus, is a bankruptcy attorney. I asked him if a lot of his clients have payday loans. I was surprised to learn that they did not. In fact, he agreed with a comment I made that most of his clients will take out a payday loan to pay his attorney’s fees right before they file. Since they’re payday debt is within 60 days, it typically is not included in the bankruptcy.

  • More people using payday loans

    An article in the IndyStar claims that more middle class families are using payday loans. I will agree that more people are using payday loans, but it’s always been middle class. Middle class is the 80% of people.

    I believe this to be the misconception about payday loans is that they prey on the poor. Payday lenders love high income earners. Many of their borrowers make great money, but they just can’t manage it correctly.

    Payday lenders rely on low unemployment, so the economy has hit many of their customers.