Blog

  • Illinois payday loan industry clashes

    The HB 537.  What’s interesting about this bill is that it puts 2 groups on opposing sides.  CFSA is supporting the bill that would cap non-payday installment loans to 99% APR, while ISLA (Illinois Small Loan Association) is against it.   The last time these two organization butted heads, the CFSA won and payday loan legislation passed.

    It’s no secret, in Illinois, that most lenders are offering installment loans greater than 121 days.  After the payday loan reform act (PLRA) was passed in 2005 the majority of payday lenders stopped giving out payday loans and opted for an installment product.   The PLRA law limited borrowers to one loan and no renewals.

    This situation is unique compared w/ other states that are fighting legislation, but the CFSA is going to have their hands full.  ISLA is no hump.  It has members like privately held, PLS Financial, which had $219M in revenues in 2009 and publicly held, The Cash Store with $150M in sales.

    You can read more about this legislation in Progress Illinois.

  • Fact versus fiction

    Payday Pundit’s comment of the day is by John Schultz is simple and concise.  There are multiple good points like:

    “Even the nonprofit payday loan offered as a public service by Goodwill Industries has a 252% APR.”

    “These consumer groups need targets to criticize to justify their existence.”

    Sadly, many consumer groups will not even concede that families need a cash advance.  Not to mention, payday loans have done nothing to hurt the economy, unlike Wallstreet and the banks.   The payday industry has nothing to do w/ these two groups.

  • Good read at Payday Pundit

    Payday Pundit found a good article titled “Experts’ Biggest Fear: New Dodd Bill Won’t Stop Another Meltdown, “Epidemic” of Wall Street Fraud.”

    Pundit’s post is titled “The truth about reg reform?”

  • Bridging the gap between credit cards and payday loans

    This post was inspired by an article in Cheklist magazine by Richard Kelsky titled “Sea Change on the Lending Horizon.”  Richard makes the following points:

    1. Payday Lending Exists Everywhere
    2. Credit Can be Abused by the Rich and the Poor
    3. The Need Exists

    He also talks about the need for new alternative products for cash advance lenders.  I wrote about this back in 2008 in an article titled “Payday lenders are filling a huge credit gap.” This is relevant more than ever.  Today, credit card companies are slamming the door in customers’ faces.

    I don’t think payday loans will go away, but there is a need for a $500 and up product that spans 6-24 months.

  • Arizona bill gives back to low income services

    Sen. Russell Pearce, R-Mesa, has proposed an amendment to House Bill 2370 that would cap rates at $15 per $100 borrowed, limit the number of loans a borrower can take out at one time, and give back 1.5% back to low and moderate income services.

    That 1.5% is something new.  I’m not sure if it’s a good or bad idea.  On one hand, if it works, do it.  On the other hand, it perpetuates the stereotype that payday loans prey on low income people; which is not true.

    You can read the article in the Arizona Republic titled New hope for payday lenders.

  • Payday industry fights back

    The New York Times reports “A Consumer Bill Gives Exemption on Payday Loans” that Senator Bob Corker of Tennessee is trying to remove a provision from the draft that would empower the CFPA to oversee payday lenders.

    Payday Pundit highlighted this statement by CFSA spokesman Steven Schlein:

    “The banks caused the financial meltdown, and they’re spending millions and millions to spare themselves from tighter regulation while throwing the consumer lending industry under the bus,” he said. “They’re trying to divert attention to us.”

  • Virginia title loan bill clears house

    “The bill originated in the Senate, which passed it last month. Modeled roughly on a similar law in Tennessee, the legislation would limit the loans to a year’s length, shrink the pool of eligible borrowers, restrict the loan amount to half the car’s value, and prevent new interest from being heaped on after a vehicle has been repossessed. It establishes a tiered interest rate cap that runs from 22 percent per-month for a loan smaller than $700, to a maximum 15 percent per month for higher than $1,400.”

    You can read more in the Washington Examiner.

  • BBB on payday lenders’ case

    The BBB had this to say about payday lending:

    “In many cases, the consumer complaints involved deals that were signed under the initial impression that they would be receiving a one-time payday loan and provided bank information to the website.”

    I do not know what every lender tells or commuicates to their borrowers; but it should be common sense that if you do not pay the loan on the due date that it will extend for another period.

    With this being said, maybe a product that fully amortizes, but is not more than X number of days may be a better product for the customers.  Unfortunately, this is hard to do under the law in many states, so it may be moot.

    Here is an example of a loan that would fully amortize.  If the customer paid in full on the first due date the payoff would be the same as a similarly priced payday loan, which is about $60, in addition to the original advance.

    Federal Truth-in-Lending Statement
    ANNUAL PERCENTAGE
    RATE
    The cost of your credit
    as a yearly rate.
    388.9452%    		 FINANCE CHARGE
    The dollar amount the
    credit will cost you.
    $125.22    		 Amount Financed
    The amount of credit
    provided to you or on your
    behalf.
    $400.00    		 Total of Payments
    The amount you will have paid after you have made all
    payments as scheduled.
    $525.22
    Your payment schedule will be:
    No. of Payments: Amount of Payments: When Payments are Due:
    2 $175.07 Every 2 Weeks Beginning 3/20/2010
    1 $175.08 Final Payment on  4/17/2010

    Here is  similar loan that’s one payment.  This one payment if rolled over another two times will cost the borrower $180 compared to ~$130 for the an amortizing product.

    Federal Truth-in-Lending Statement
    ANNUAL PERCENTAGE
    RATE
    The cost of your credit
    as a yearly rate.
    390.0010%    		 FINANCE CHARGE
    The dollar amount the
    credit will cost you.
    $60.00    		 Amount Financed
    The amount of credit
    provided to you or on your
    behalf.
    $400.00    		 Total of Payments
    The amount you will have paid after you have made all
    payments as scheduled.
    $460.00
    Your payment schedule will be:
    No. of Payments: Amount of Payments: When Payments are Due:
    1 $460.00 Every 2 Weeks Beginning 3/20/2010

    I know the industry does not like looking at the fee as “interest”, but we have to find better products for borrowers where lenders can make money.

  • …they outnumber Starbucks and McDonald’s combined in the state…

    There has been another siting of the infamous “they outnumber Starbucks and McDonald’s combined in the state.”

    Can someone remind me again, what their point is?  I still can not figure it out.

    The article titled “Payday loan bill heads to committee” addresses HB1351 in Colorado. The bill is trying to cap rates at 36%.

  • Payday Loan Opinion in the Baltimore Sun

    In Maryland, lenders are using the CSO model to provide a cash advance to customers.  There is a pretty harsh opinion in the Baltimore Sun.  The comments section is open if you want to give your $0.2.  Here is the article.

    From what I can tell, there are three states where CSO’s are working:  Texas, Maryland and Ohio.  I got this information of Cash Net USA’s website.  Texas is the big one.  We have some customers in Ohio, but their operating under the Second Mortgage Act.