The Federal Trade Commission has frozen assets of six companies accused of payday loan fraud. Image: wsavespublicart / Flickr / CC BY

This morning, the Federal Trade Commission filed a fraud lawsuit against a group of several individuals and companies. The FTC says these companies and individuals defrauded customers seeking payday loans. These companies allegedly charged customers for products they did not want or choose.

Alleged violations of FTC Act

A group of companies headed by Michael Bruce Moneymaker, Mike Smith and Michael Bruce Millerd was named in the complaint by the Federal Trade Commission. Among others, these three ran Fortress Secured, Belfort Capital Ventures Inc., Dynamic Online Solutions LLC, HSC Labs Inc., Red Dust Studios Inc. and Seaside Ventures Trust. These companies are accused of obtaining customers’ bank account information through payday loan applications and then misusing it. Most often, the account information was used to charge customers “subscriptions” for services they did not knowingly agree to.

Alleged misuse of Terms of Service agreements

Customers coming to the websites run by the companies and individuals named in the complaint often were required to accept Terms of Service agreements to complete applications. Buried in the Terms of Service were agreements to monthly subscriptions for services like voicemail and airline tickets. These “continuity services” usually had a $40 to $50 subscription fee and another $19.95 per month. Many customers had no idea they were enrolled in the services and only discovered it if they checked their monthly statements. When the customer contacted the companies, they were rarely, if ever, given a refund. The customers were often also told that they were not entitled to refunds because they had agreed to the service.

Specifics of the FTC complaint

Michael Bruce Moneymaker and his associates were charged with five specific crimes:

• Obtaining consumers’ bank account information and debiting their accounts without their informed consent
• Falsely representing that consumers’ authorizations were part of their payday loan applications
• Failing to conspicuously disclose that consumers would be charged for third-party trial offers automatically
• Falsely telling consumers that they were not entitled to refunds because they agreed to enroll in the defendants’ programs and pay for them and had agreed that they could get a refund only if they asked during the initial trial period
• Falsely promising refunds to consumers and not providing them

Protecting yourself from payday loan fraud

Protecting yourself from payday loan and lender fraud takes just a few extra minutes. Be sure to read the full text of any agreement you digitally or physically sign. If you are applying for payday loans or any other financing, be sure that the company you are applying for provides a physical address, phone number and responsive customer service.

Source

FTC.gov

The Lansing Planning and Zoning Board can't hide their true intentions for payday loans. (Photo Credit: CC BY/Albert Bridge/Geograph)

If a legal business offers a product like payday loans – a product for which there is a proven demand – the efforts of local governments to restrict payday lenders through cutthroat zoning policies are at best questionable, says the Payday Pundit. NWI.com reports that the Lansing, Mich., Planning and Zoning Board is looking for ways to revise ordinances to phase bad credit loans out of town. In light of Michigan’s HB 4214 legislation, which enables Gov. Rick Snyder to declare “financial martial law” and install an emergency financial manager (EFM) when a city’s economy fails, kicking legitimate business out of any town becomes problematic.

Revising ‘special use’ provisions

Lansing’s Planning and Zoning Board of Appeals has been poring over the city’s “special use” zoning provisions, ostensibly as a check-up to see if any changes need to be made. It cannot be coincidental, however, that the board’s suggestions for changes primarily targeted payday lenders. Parking near churches in residential neighborhoods and limiting the number of in-home day care centers may have its civic import, but the business of bad credit loans boosts both credit-constrained consumers’ ability to avoid insolvency through credit default and a city’s economy as a whole.

While the proposed zoning change would only prevent new payday loans outlets from locating in Lansing, critics see such a move as the typical first step against an enterprise lawmakers want to covertly torpedo. Passing it off as encouraging “more variety in the types of companies” that call Lansing home, which is how Trustee Mikal Stole explained the proposal to NWI, is a smokescreen.

Where there’s smoke, there’s fire

Michigan House Bill 4214 — which state AFL-CIO president Mark Gaffney called “an assault on democracy” and Detroit Rep. John Conyers warned would give a state government-appointed “financial czar” (EFM) the power to “force a municipality” like Lansing into bankruptcy — has already scorched state soil. The political powers of Benton Harbor, Mich., officials have been superseded by a newly appointed EFM who will take control of the municipality. The economy of the small town may be bad enough to warrant dissolution, a power HB 4214 grants to a governor-appointed EFM.

According to the Rachel Maddow Blog, Benton Harbor’s per capita income is $8,965, the lowest in Michigan. Just across the St. Joseph River from Benton Harbor stands local “Twin City” St. Joseph, which boasts a higher PCI, $24,949. This is significant because Benton Harbor is the home of the Whirlpool company, which is celebrating its 100th anniversary this year. But the company is celebrating it on the “other side of the tracks,” in St. Joseph.

The people of Benton Harbor would no doubt like to see its revenue-producing businesses stay home. When it comes to payday loans, Lansing should be concerned about keeping its moneymakers around because a financial czar could be waiting in the wings.

Sources

The Maddow Blog

NWI.com

Payday Pundit

The 2011 NFL lockout may send less financially savvy players into high interest loans, critics claim. (Photo Credit: CC BY-ND/Joshua Hess/JWR Hashkafa)

The average consumer-level same day loan comes with a 15 to 25 percent fee per $100 loaned. Considering the relatively small dollar amount of these instant payday loans, the fee generally doesn’t break the bank. However, the 2011 NFL lockout has given rise to high-dollar variation of such loans, which the media has dubbed “lockout loans,” reports Yahoo! Sports. Players without paychecks because of the labor dispute who find themselves in financial distress are being solicited by lending agents with offers.

Lockout loans: When 36 percent APR is dangerous

While a 36 percent APR attached to consumer same day loan of $300 or $400 produces too little revenue for a lender to operate, NFL lockout loans for more than $60,000 at as much as 36 percent APR generate a lot of interest very quickly. Yet players from at least 16 NFL teams have already applied for such large-scale instant payday loans, writes Yahoo! Sports.

The NFL Players Association lockout fund has helped some players, but clearly the response to high-risk lockout loans indicates that some players haven’t curbed their extravagant lifestyles in the absence of their paychecks. The NFLPA advised players to save at least three game checks from the previous season in anticipation of the 2011 lockout, but insiders report that the advice may not have been heeded. In addition, the NFLPA has urged players to refinance their homes, fly coach and pursue moneymaking opportunities like autograph signings and speaking engagements in this extended off-season, writes MSNBC.

Why do NFL players have money problems?

Sports psychologists suggest that star athletes are surrounded by enablers from a relatively young age. By the time players reach the professional ranks, it is not uncommon for them to lack real world financial knowledge, as they’ve never had to take responsibility for such things. Throwing millions of dollars at someone who may have grown up poor can also open the door to myriad temptations. This is perhaps why as many as 80 percent of retired NFL players have declared bankruptcy, according to a Sports Illustrated estimate. MSNBC indicates that as many as 380 of the NFL’s 1,700 players live from paycheck to paycheck, even though the average NFL annual salary in 2010 was $1.87 million. The rookie average was $320,000, but after taxes and agents, money problems can occur if players aren’t careful.

A dissenting voice in support of lockout loans

Sherard Rogers, a financial adviser to a number of NFL athletes, told Yahoo! Sports that lockout loans are a legitimate product that meets player demand. While franchises will endure, players who live to spend can run into trouble.

“Every NFL team was valued at over $1 billion, so they can weather the storm of a lockout. But could players if there weren’t resources to cover this short-term labor dispute?” asked Rogers. “The key is to figure out how to solve the short-term liquidity issue and put the pieces in place to ensure they don’t have this liquidity issue again.”

Sources

MSNBC

Philly Sports Column

The Real Athlete Blog

Yahoo! Sports

Both sides are feeling the ‘deal heat’

The people of Kentucky still have the freedom to choose payday loans if the product suits them. (Photo Credit: CC BY-ND/EPSCOR)

The recent failure of House Bill 182 in the Kentucky House Banking and Insurance Committee – a bill that would have capped payday loan rates at 36 percent APR, effectively killing the industry in the state – is a sign that the will of the people still means something, suggests Kentucky Community Financial Services Association of America spokesman Kevin Borland. In an op-ed piece for the Lexington Herald-Leader, Borland reminds us that consumers prefer choice, and freedom of choice is a factor in the current battle over the short term loans industry.

Victory against House Bill 182 – for now

While free market capitalism carried the day in a close 13-10 vote against Kentucky House Bill 182, opponents of payday loans insist that they will regroup and re-introduce the same bill in 2012. Such stubbornness illustrates how much Kentucky activists misunderstand payday loans, writes Borland. State law prohibits payday lenders from charging interest. In Kentucky, the product is categorized as a single-payment, fee-based product.

Borland suggests that the opposition’s use of APR as a yardstick is “an attempt to trick legislators and the public” into thinking that short term loan pricing is exorbitant. In reality, a flat fee of $15 to $25 per $100 loaned on a typical two-week payday loan is a 15 to 25 percent fee, depending upon the lender.

Having the CLOUT to be hypocritical

The Citizens of Louisville Organized and United Together (CLOUT) and the Kentucky Coalition for Responsible Lending (KCRL) supported House Bill 182, as did the AARP. Interestingly, CLOUT and the KCRL are heavily funded by banks and credit unions that compete in the short term loans market. While there’s nothing wrong with healthy competition in a free market economy, it’s another matter entirely when CLOUT and KCRL attack payday lenders while accepting money from their competitors. At the very least, a disclaimer about a lack of impartiality should fly front and center, says Borland.

AARP competes directly with payday loans through its own credit card through Chase Financial. These allow AARP members to obtain cash advances, which Borland says bears a high interest rate.

Consumers make the best financial choice for their situations

While payday loans may not be ideal for every financial scenario, they can be the least expensive option available, particularly among credit constrained consumers. Borland believes that CLOUT, KCRL and AARP would do better to find alternatives if they think short term loans are harmful. The fact that those organizations do not do so may suggest that the attacks are all bark and no bite.

Sources

CLOUT funding

KCRL coalition membership

Lexington Herald-Leader

The CFSA encourages responsible lending and borrowing

An extended payment plan can be the key to avoiding payday loan default. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

Despite planning and the best of intentions, sometimes people find themselves unable to repay their payday loans when they come due. That’s why payday lenders that are members of the Community Financial Services Association of America (CFSA) offer an Extended Payment Plan (EPP). These types of installment loans enable consumers to repay their loans over a period of additional weeks regardless of the reason for default and free of additional charges.

EPP provisions vary by state and lender

Depending upon the state in which payday loans originate and whether the lender is a CFSA member, the stipulations of an Extended Payment Plan will vary. In the event that the laws of that state already provide for an EPP for consumers who get behind on their payday loans, state laws take precedence. CFSA members offer the service as an aid to consumers in states where a specific law does not already exist. CFSA-member extended payment plans generally allow consumers to repay their installment loans in four equal payments over the next four paydays, says eHow Money. If a borrower misses one of the four EPP payments, additional fees may apply.

How to request an EPP from CFSA-member lenders

• Make sure the lender is a CFSA member. The CFSA’s blue oval logo should be on display in the payday lender’s office or on the website. Even if the lender is not a CFSA member, it may offer its own extended payment plan. Ask for details.
• Contact the lender before close of business on the due date. If you’re going to run into trouble repaying your payday loans, contact your lender before close of business on the day before your loan is due. Go to the lending office or contact the lender online. Ask for an extended payment plan. You’ll then need to sign an agreement form that will specify the additional due dates. Read the extended payment plan carefully before signing.

If the lender is a CFSA member and you haven’t used an EPP in the past 12 months, but the lender refuses to offer you an EPP to help you avoid default, you can file a complaint. Contact the CFSA during Eastern time business hours at 888-572-9329 (fax 703-684-1219) or cfsa@multistate.com. Alternatively, contact the CFSA by mail at 515 King St., Suite 300, Alexandria, Va., 22314.

Sources

CFSA Consumer Complaint Form

CFSA: What is an Extended Payment Plan?

eHow Money

Rhode Island legislators will soon debate the merits – or lack thereof – of 2011 H 5562, yet another payday loan rate cap bill. (Photo Credit: CC BY-ND/Patrick Haney/Flickr)

Just as He-Man had his infamous “By the power of Grayskull!” battle cry,  opponents of payday loans continue to cry for cartoon-like 36 percent APR interest – cartoonish because 36 percent has been proven numerous times to be well outside the bounds of practicable business reality. Yet legislators in Rhode Island, led by sponsor Rep. Frank Ferri, D-Warwick, are pursuing yet another bill that would attempt to cap payday loans at the same 36 percent APR. Lenders argue that this will drive them out of the state and drive consumers in need toward unscrupulous loan sharks.

2011 H 5562 would eliminate payday lending in Rhode Island

Volumes of published and unpublished independent research have shown that when companies that offer payday loans with no credit check are driven from a community, the overall financial condition of consumers degrades. Payday lenders don’t need that kind of blow to the bottom line, let alone the state of Rhode Island.

Advance America Vice President Jamie Fulmer told the Associated Press that a 36 percent cap would force Advance America to pull its 20 branches from Rhode Island. As it stands currently, the branches charge $10 for $100 payday loans. If Rep. Ferri’s 2011 H 5562 manages to become law, payday loan businesses could only charge $1.38 per $100 loaned.

“This is not a reform bill; it’s designed to eliminate our industry outright,” said Fulmer.

Anti-payday loans bill offers a single exemption

According to The Providence Journal, 2011 H 5562 offers but a single exemption to the 36 percent APR cap. Organizations that offer payday loans with no credit check can charge as much as 260 percent APR on short term loans. Because such loans come to maturity long before a year is up, the concept of an annual percentage rate on payday loans is not a useful yardstick, however.

Politician cries ‘financial rape,’ business trusts consumers

In a bout of cartoonish exposition, Rep. Lisa Baldelli-Hunt, D-Woonsocket, told local media that payday loans are “financial rape” and that a 36 percent APR is “predatory.” However, as Community Financial Services Association of America spokesman Steven Schlein told The Providence Journal,

“Consumers know what they’re doing. You walk in and you see our rates in big letters on a poster. We’re the most transparent financial service there is.”

Sources

Associated Press

The Providence Journal

Rhode Island General Assembly

Republicans accuse Elizabeth Warren of having a “radical pro-consumer” agenda. (Photo Credit: CC BY-ND/David Quintana/Lost in the Ozone)

CNBC reports that the White House is struggling to fill the director’s chair for both the Consumer Financial Protection Bureau and the Office of Financial Research. Harvard professor and Obama adviser Elizabeth Warren may not have the stranglehold on the former, as was once thought, while multiple candidates for the latter position have balked at the prospect of six years of political infighting. Without clear leadership, both organizations will at best be all sound and fury, signifying nothing but the status quo for financially bruised consumers.

Fighting for political turf turns off OFR, CFPB candidates

The Office of Financial Research, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act, will be charged with improving the quality of financial data available to policymakers, such as information regarding credit cards, cash advances and the payday cash advance industry.

However, if the White House fails to fill the leadership chair, the OFR will never reach its potential. Such high-profile candidates as Yale economist Robert Shiller (of Case-Shiller Home Price Index) have excused themselves from White House consideration because they think the six-year commitment and Washington war games aren’t worth the hassle.

An anonymous source close to the appointment process told CNBC that the OFR post requires a very particular type.

The position “needs a tough-guy-like attorney” who isn’t afraid of dogfights, said the source.

Check your radical pro-consumer agenda at the door

Republican critics of Elizabeth Warren claim that she’d be inappropriate for the office of Consumer Financial Protection Bureau director because of a “radical pro-consumer agenda” that would drown every consumer finance industry from credit card companies to payday cash advance lenders in penalty fees. Even though Prof. Warren is very close to the appointment process – President Obama has put her in charge of the search – Republicans and now even some Democrats and Independents are uncertain that Warren’s appointment would be confirmed.

Republican Sen. Judd Gregg of New Hampshire told ABC News that even considering Elizabeth Warren for the Consumer Financial Protection Bureau position is “a terrible adulteration of the process.” Such big-budget power (estimated as high as $500 million) in the hands of an appointee that can operate outside the bounds of Congressional oversight is unacceptable, said Gregg.

“My concern is that she would use the agency for the purposes of promoting social justice versus for the purposes of promoting better credit and having a stronger financial system,” said Gregg.

Enter Richard Shelby

Senate Republican Richard Shelby, the senior GOP member of the Senate banking committee, is considered the top Republican choice to head the Consumer Financial Protection Bureau. According to ABC News, Shelby vetoed the nomination of Joseph Smith to the Federal Housing Finance Administration and opposed appointing Nobel Prize-winning economist Peter Diamond to the Federal Reserve board. Clearly, Shelby knows how to oppose Democrat-favored appointees.

Sources

ABC News

CNBC

Credit.com News

‘Consumers need a cop on the beat’

Mississippi legislators didn't buy the so-called Biblical argument against payday loans. (Photo Credit: CC BY-SA/Ken Lund/Flickr)

Opponents of no credit check payday loans frequently support their arguments by referencing religious documents, such as the Bible, that claim payday lenders practice usury – charging an “exorbitant or unlawful rate of interest.” Charlie Mitchell of the Mississippi Clarion-Ledger makes this mistake in his recent criticism of Mississippi House Bill 455, which will enable payday lenders to continue to do business in the state. Upon closer inspection, it becomes clear that interest-bearing no credit check payday loans are neither usurious nor “sinful” in the Biblical sense.

No credit check payday loans and interest rates

The crux of Mitchell’s argument is that payday lenders charge too much interest on an annual basis, and short term loans are sinful devices that impoverish the working man. This ignores the fact that payday loans are not intended to be paid off over the course of 12 months; most have terms ranging from two weeks to 90 days. If the lender charges the borrower $15 to $25 per $100 loaned, the borrower is paying a 15 to 25 percent fee, not a 500 percent APR as Mitchell claims.

The Bible does not condemn payday loans

Because Mitchell’s facts regarding online payday loan terms are lacking, he is left with the Biblical avenue of attack. While it is true that there are numerous Bible scriptures that forbid usury (Exodus 22:25, Ezekiel 22:16-31, Ezekiel 18:8-17), the prime Biblical parable that critics as noteworthy as MSNBC’s Rachel Maddow have used to attack payday loans is found at Nehemiah 5:9-10. This frequently misinterpreted scripture refers to an excessive and unreasonable temple tax levied against the Jews by the Romans that caused the Jews to become financially destitute. Critics of online payday loans, like Maddow, mistakenly replace “tax” with “interest-bearing loans,” and claim that the interest is what brought dark days to the Israelites.

Not only were Hebrews not being oppressed by interest-bearing loans, their God permitted them to lend and charge interest. Consider Deuteronomy 23:30:

“Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest.”

So long as the borrower was a Gentile, everything was fine with God.

Are no credit check payday loans usurious?

Usury is often defined an “exorbitant” or “unlawful” rate of interest. No credit check payday loans are regulated by federal and state laws that clearly establish terms and fees that can be charged, so the product is not unlawful.

As to whether online payday loan fees are exorbitant, the answer is relative. If potential borrowers think an interest rate is unreasonable, they have the option to abstain. If an online payday loan originator cannot lend at a rate that is reasonable for business, loans will not be issued. A mutually agreeable interest rate will always be found in the U.S. free market economy. No credit check payday loans are neither exorbitant nor unlawful, thus not usurious.

Sources

Andrew Breitbart Presents Big Journalism

Crooks and Liars

Mississippi Clarion-Ledger

How no credit check payday loans work

Mississippi consumers will still have access to payday loans, thanks to a new law signed by Gov. Haley Barbour. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

The Associated Press reports that Mississippi Gov. Haley Barbour has signed into law a bill that saves payday lending in the state for at least three more years. The new law will also change certain regulations by which payday loan companies must operate. The new Mississippi payday loan law will go into effect Jan. 1, 2012.

Extending payday lending, maintaining Mississippi jobs

Payday lending law on the books before Gov. Haley Barbour signed the extension would have expired at the beginning of 2012. A 36 percent APR would have been imposed, which would have shut down all but the most diversified payday loan outlets. Approximately 3,000 Mississippi jobs would have been lost as a result of payday loan business closures.

Only through a thorough review of the effects that expulsion of payday lenders would have had on Mississippi were regulators able to decide upon the bill to send to Barbour. While some origination fees have been reduced, payday loans will remain a choice for consumers

“This time, it was the will of the Legislature that the consumers get reduced fees,” said Sen. Walter Michel (R-Jackson). “The bill that was passed will enable about 3,000 jobs to remain intact.”

What a Mississippi payday loan will cost consumers

Payday loan customers were accustomed to paying $21.95 per $100 borrowed, with a 14-day term. Under the new legislation, fees are capped at $20 per $100 borrowed for loans up to $250. For amounts from $251 to $500, the $21.95 fee remains. However, the term has been increased considerably, to 30 days. This effectively reduces the APR by half, which satisfies federal regulators, even though payday loan fees cannot be logically measured in terms of APR.

In addition to the rate changes, the Mississippi payday loan law will mandate that a hotline be in place for consumers to reach the state attorney general in the event that abuses occur.

It’s all out in the open

Dan Robinson of the Financial Services Centers of Mississippi doesn’t understand why critics imply that payday loans are so deceptive.

“There’s no fine print. No hidden charges. No documentation fees,” he said. “It’s a very transparent transaction. We don’t collect our money until people pay the check.”

Source

Bloomberg

Lawmakers know Mississippi payday loans are legitimate

The Kentucky capitol building was alive with debate as House Bill 182 went down in defeat. (Photo Credit: CC BY-SA/Peterfitzgerald/Wikitravel)

Kentucky lawmakers who stood behind House Bill 182 are now wallowing in the agony of defeat, reports the Louisville Courier-Journal. The proposed legislation that would have cut the APR payday lenders may charge to 36 percent was voted down 13-10 in the Kentucky House Banking and Insurance Committee. Military loans remain capped at 36 percent APR, per federal law.

Payday loan companies will remain open

Louisville Democrat Rep. Darryl Owens, who served as the sponsor of House Bill 182, compared the payday loans bill to a cooked piece of meat.

“It’s done. You can stick a fork in it,” he said.

Despite numerous extant studies that illustrate that payday lending is much less expensive than comparable alternatives and that a legitimate, non-exploitative market for the product exists, Rep. Owens and others cling to the belief that payday loan interest rates are “obscene.” While it may be true that some people who use payday loans are in difficult financial straits, industry surveys indicate that not only do most users have sufficient income to repay their loans in a timely fashion, but defaults and rollovers are rare.

Kentucky disagrees with Rep. Owens and company

House Bill 182 would have been “a job killer,” said John Rabenold of the Kentucky Deferred Deposit Association, a payday lending industry group. An APR of 36 percent on payday loans would only generate a single dollar and change in profit for every $100 loaned. After a payday loan business takes care of its operational and salary expenses, such “profit” is negated entirely. The bulk of the roughly 650 payday lending outlets in the state would be forced to shut down, which would cost Kentucky as many as 2,000 jobs. No politicians who plan to run for office again want that on their resumes.

The need for payday loans in Kentucky

Consumers whose access to traditional credit has been restricted because of credit history will inevitably experience financial shocks from time to time, particularly when emergency expenses arise. From medical bills to car repairs, the need for quick cash from payday loans exists. Democratic Rep. Jim Gooch told the Courier-Journal that he feared lack of access would leave Kentucky families without access to money during just such an emergency.

Source

Louisville Courier-Journal

Payday lending has been extended in Mississippi for two and a half years. (Photo Credit: Public Domain/U.S. Department of the Interior)

Payday lending in Mississippi has been extended for two and a half years thanks to House Bill 455, reports The Clarion-Ledger. In a compromise with opponents, the new law  lowers the maximum allowable APR to 572 percent, but that still doesn’t sit well with religious and consumer advocates who railed against the bill. Payday lending opponent Rep. John Mayo called payday loans “the new slavery” and lenders “no better than plantation commissaries,” a comparison black colleagues like Rep. Omeria Scott found offensive.

Mississippi payday loans continue to serve consumer need

While critics of Mississippi House Bill 455 believe the only acceptable outcome short of banning payday loans entirely would have been a 36 percent APR (which numerous studies have shown to be untenable). Supporters of the bill are happy that such a low rate cap was not the ultimate result, as consumers with emergency financial needs look to such small loans to avoid trouble.

Additional provisions of House Bill 455 include a cap of $20 per $100 loaned up to $250 and a cap of $21.95 per $100 in payday loan cash received above $250. The lending cap rises from $400 to $500. Consumers who take out larger payday loans are given 28 to 30 days to repay. The fee structure matches Mississippi law for all types of small loans. The requirement that payday lenders provide printed materials that spell out the payday lending law and a contact number for the Mississippi Department of Banking and Consumer Finance in case of problems is in keeping with related federal payday loan laws.

Maintaining a consumer’s right to choose

Mississippi House Banking and Financial Services Committee Chairman George Flaggs recognized that while the new legislation spelled out in House Bill 455 isn’t perfect, it is better than the previous law that bore higher interest rates. The two-tiered fee system was hailed by payday loan advocacy group Borrow Smart Mississippi as groundbreaking, in that it both protects consumers and maintains their right to choose.

If the Mississippi Senate passes House Bill 455 and Gov. Haley Barbour signs it into law, it would go into effect Jan. 1, 2012 and expire July 1, 2015.

Source

The Clarion-Ledger

Payday lenders are having to turn to Indian tribes to form partnerships that can keep their businesses open. Photo: Chika/Flickr.com/CC-BY

In order to circumvent state regulations, payday lenders are turning to Indian tribes to stay in business. Indian tribes are protected legally by a doctrine known as sovereign immunity, which exempts them from some state and federal laws. Demand is well established for payday loans, but states are starting to regulate them out of business.

Stifling regulation sends payday lenders to tribes for legal shelter

Payday lenders have been subject to an increasing amount of regulation, to the point it is difficult for operators to keep their doors open. Some lenders are beginning to form business partnerships with Indian tribes in order to circumvent strict regulation that prevent lenders from being able to make a living in the payday loans industry, according to the Wall Street Journal. Indian tribes are protected by a legal doctrine called sovereign immunity, which grants certain exemptions from regulation and lawsuits. Payday loan lenders need only incorporate their business on tribal lands and form an agreement with the tribe in order to offer a cash advance in whatever manner the firm sees fit.

Sovereign immunity

Essentially,  an entity with the protection of sovereign immunity is protected from prosecution or lawsuit, but the extent of immunity varies. Native American tribes and reservations are considered nations unto themselves, and businesses incorporated on tribal lands are not subjected to the laws of the state or states the reservation is located in. For instance, say a short term loan lender incorporates on a reservation located in Arizona but doesn’t have offices on the reservation. Even though the loan company is not located on a reservation, it is incorporated on tribal land. Sovereign immunity exempts the company from having to comply with Arizona law regarding small loans.

The scourge of payday loans

Payday loans are treated like a leper by some within the financial services industry. Even though the demand for the services is well established and similar businesses existed before the Statue of Liberty was built, many have called for the industry to be legislated out of existence. Payday lending as an industry represents more than $10 billion in the U.S. economy as a whole.

Sources

Wall Street Journal

When it comes to an even-handed approach to consumer lending like payday loans, in Elizabeth Warren we trust. (Photo Credit: CC BY-ND/robertj1954/The Right Spin for Americans)

Elizabeth Warren, Harvard law professor and chair of the Obama administration’s Consumer Financial Protection Bureau, isn’t a fan of hidden charges or complicated consumer credit agreements. Thanks to the reform introduced by the Dodd-Frank Act, Warren’s charge starting July 21 will be policing credit cards, banks, mortgages and non-traditional consumer credit products like payday loans — if she is named the permanent head of the CFPB. In a recent Associated Press interview, Warren underscored the need for simplicity in the consumer credit market.

Credit cards and the need for full disclosure

Elizabeth Warren pointed to the elephantine length of credit card agreements today. The font is tiny and the legal verbiage fills too many pages. Yet within such agreements, there are terms that can make or break a consumer’s finances. “Clearing out the shrubbery” is something Warren wants for U.S. consumers, and this may include improvements in the Schumer box on credit card literature that includes the APR and other periodic information.

Regulating the payday lending industry

For those underserved by the traditional banking system, Warren says that the CFPB will ensure that those consumers will continue to have access to payday loans and will not be taken advantage of. Destroying the payday lending industry isn’t on the agenda, as the alternatives can be dangerous.

“It can force people into unregulated markets, including ‘Jimmy the Leg Breaker,’ which is not where we want people to be,” Warren told the AP.

So long as the terms of a loan are spelled out clearly up front and the consumer is fully informed by the lender as required by law, the payday loan business is as legitimate as any other federally regulated consumer credit.

Small loans where the need is greatest

Extending the kind of short term loans consumers demand into areas that have not been well-served is another issue that will be on Elizabeth Warren’s agenda when the CFPB comes into power on July 21. Warren sees smaller community banks filling the role in part, but payday loan businesses also fit the bill.

Ultimately, great change is predicted in the ways that financial institutions interact with consumers. Warren sees changes coming in terms of online banking, expansions and added security. The way that lenders offer their services to customers will continue to change radically from the traditional model.

Sources

Associated Press

Payday Pundit

Elizabeth Warren on problems with U.S. banking system

The Iowa Catholic Conference would be happy if payday lending disappeared. (Photo Credit: CC BY-SA/stallio/Flickr)

Bloomberg reports that payday lending is under fire in Iowa, a state where lending laws are already among the tightest in the nation. Payday loan rollovers are forbidden and fee limits are less than permissive, but consumer advocates that include members of the Iowa Catholic Conference and National Association of Social Workers are lobbying the Iowa Legislature to clamp down the rate cap on payday loans to 36 percent APR.

Iowa payday loans bill sponsored by 16 senators

Sixteen unnamed Iowa State senators have co-sponsored a measure that will be brought before the state Senate this week. The measure would limit the rate cap on payday loans to 36 percent APR. While various advocates claim this is fair, the mathematics are far from practicable. Applied to a two-week loan, a 36 percent APR amounts to $1.38 that a payday lender earns for every $100 loaned. That’s less than 10 cents per day, and it doesn’t  take into account a payday loan company’s operating costs, including employee salaries.

Personal responsibility is paramount

While it is true that some borrowers use payday loans irresponsibly, current independent payday lending research suggests that this is far from the norm. As rollovers – where a second loan is taken out to repay the first – are not allowed with Iowa payday loans, those who argue the “cycle of debt” in that state are misinformed.

What payday lending comes down to is personal responsibility on the part of Iowa consumers. While the Iowa Catholic Conference and others argue that government must protect people from themselves, nanny-state style, Republican Iowa Sen. Brad Zaun of Urbandale sees through the endless legislative loop, reports Payday Pundit.

“It’s just more government regulation,” Zaun said. “There has to be some personal responsibility.”

If a consumer only borrows what they can afford to repay and only resorts to the use of credit in essential situations, they’re exercising financial responsibility.

Sources

Bloomberg

Payday Pundit

Payday loans discussion at the 2010 Iowa Catholic Conference

FiSCA, the payday lending industry and others wait in D.C. for new financial rule. (Photo Credit: Public Domain/U.S. Bureau of Land Management)

The Financial Service Center of America (FiSCA), a trade association that represents check cashing and payday lending stores, has moved from its 20-year home in Hackensack, N.J., to Washington, D.C. Bloomberg Business reports that this will place FiSCA a mere two blocks from the newly formed Consumer Financial Protection Bureau. According to FiSCA general counsel Ed D’Alessio, the move enables the association to meet the increased levels of financial regulation that are on the way for the financial services industry.

FiSCA awaits a flurry of regulatory moves

FiSCA, which had been regulated primarily on the state level before the Obama administration’s financial reforms, handles approximately $106 billion annually in transactions for more than 30 million customers via such transactions as payday loans, investments and other financial arrangements. The payday lending industry and other groups represented by FiSCA are hopeful that new regulations will enable them to take market share from traditional banks that offer similar services, but financial legislation will determine the success of this endeavor.

The Dodd-Frank Wall Street Reform Act (aka the Dodd-Frank law) sketched the new regulatory landscape only in broad strokes. Thus, Bloomberg reports that there are as many as 330 new rules on the way by July that will affect payday lending, derivatives trading and mortgage lending, to name but a few industries. Some industries will benefit from Dodd-Frank, while others will face greater restrictions. As financial regulation expert Douglas Elliott of the Brookings Institution told Bloomberg, what happens to bankers could play a significant role in the U.S. economic recovery.

“Bankers could be hurt badly or could come away without too much damage, and the economy could be helped or hurt, depending on those choices,” said Elliott.

Mortgages: A blip on the consumer protection radar

Wells Fargo would like the Consumer Financial Protection Bureau to allow banks to retain a stake in home loans sold into mortgage-backed securities. U.S. Bancorp and SunTrust Banks are lobbying to exempt a wide array of mortgages from crackdown, while Wells Fargo is seeking to exempt only those riskier mortgage loans with a 30 percent or higher down payment. Smaller banks want the extra exemptions because they are less equipped to handle risk.

Sources

Bloomberg Businessweek

Wikipedia entry for the Dodd-Frank Act

Dodd-Frank and the danger of making bank decisions on political grounds

Don't get lost in the hype critics spread about payday loans and APR. (Photo Credit: CC BY-SA/Brian Robert Marshall/Geograph)

A payday loan is a simple product that fills a specific financial niche for consumers who need quick cash but find themselves unable to obtain it via a traditional bank. Payday loans typically come to term after two weeks, and payment plus convenience fee is due at that time – usually on the consumer’s next payday – in a lump sum. The federal Truth in Lending Act of 1968 (TILA) requires that loan fees be expressed in terms of an annual percentage rate (APR), so payday lenders are required to list a loan APR for customers. As Louisville, Ky., Consumer Financial Services Association chapter spokesman Kevin Borland pointed out to the Lexington Herald-Leader in a Jan. 18 letter to the editor, this has caused no small amount of confusion for critics of the payday lending industry.

What the media doesn’t understand about APR and payday loans

Responding to a Jan. 4 editorial entitled “Put interest cap on payday loans,” Borland points to the media’s rampant payday lending confusion:

“Placing an annual percentage rate (APR) cap on a financial product with a two-week term is tantamount to charging a yearly rate for a night’s stay at a hotel. APRs are designed for mortgages and auto loans — not short-term credit,” he says.

Yet TILA requires an APR to be listed for payday loans and installment loans. Regarding payday loans, more specific payday lending laws don’t even allow for interest rates, says Borland. Thus, payday loans are fee based – it’s the only way such businesses can keep their doors open, and people have proven they’re willing to pay a premium for emergency cash.

Full disclosure

While payday loan companies clearly disclose what products cost, opponents continue to distort the truth, says Borland. While a two-week payday loan would reach a triple-digit APR if a consumer took out one loan and continued to pay a fee on that loan every two weeks for a whole year, laws in Kentucky and many other states forbid such loan renewal.

Learn the truth about payday loans

The truth of how payday loans work on a statistical level has been studied at some length over the past decade. Rather than leaping to conclusions about “massive” APR numbers, critics would do well to read the evidence against high-cost theory with payday loans firsthand.

Source

Lexington Herald-Leader

APR explanations in animated form

Under House Bill 132, a Missouri payday lender would make less than this for every $100 loaned to a customer. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

In her campaign speeches, Missouri Rep. Mary Still claims that she supports a free market economy. However, as Payday Pundit points out, Rep. Still’s stance on Missouri House Bill 132 – yet another state piece of legislation that would place an industry-killing cap on payday loans – is inconsistent with free market competition. Rep. Still is endorsing the bill on behalf of the “young working people” in alleged danger of being fleeced by a financial bogeyman.

The dangers ‘financially unsophisticated’ Missourians face

According to Rep. Still, payday loan companies “prey on young working people” who allegedly lack the sophistication to avoid being taken to the cleaners by financial predators. Clearly, Mary Still isn’t aware of the most recent research regarding the payday loans industry – research that disproves dramatic claims that payday lenders are predatory and unregulated by bodies that protect consumers from excessive rates and dishonest business practices.

It appears what’s really bothering Rep. Still is that some Missouri residents take payday loans from out-of-state lenders. This means that Missouri isn’t getting its cut of the money. That appears to be what Rep. Still wants – a cut for the “Show Me” (the money) state.

What Missouri House Bill 132 requires

HB 132 proposes several reasonable policies that would protect Missouri payday loan customers from being taken advantage of. But in a move that would shut down payday lenders, House Bill 132 requires the following payment term, rate cap and fee schedule:

“A lender shall give a borrower a minimum of ninety days to repay a loan. A payment shall be required every two weeks so that the loan will fully amortize in ninety days… A lender may charge and receive on each loan interest at a simple annual rate not to exceed thirty-six percent… A lender may charge a loan set-up fee equal to five percent of the loan up to a maximum of twenty-five dollars.”

As Advance America Director of Public Affairs Jamie Fulmer told the Missourian, no payday lender could afford to operate under such terms and employees, landlords, insurance and more. This bill would would cost Missouri jobs.

“If you apply 36 percent APR on a two-week loan, it breaks down to $1.38 we’d charge to loan someone $100. That would break down to less than 10 cents a day,” said Fulmer.

Sources

Columbia Missourian

Missouri House Bill 132

Payday Pundit

Meet Missouri Rep. Mary Still

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