North Carolina's Capitol building. (Photo Credit: CC BY-ND/Ivy Dawned/Flickr)

The North Carolina General Assembly has introduced a bill that would enable installment loan companies in the state to adjust loan fees to compensate for losses to the recession. The Jacksonville Daily News reports that N.C. H810 would amend the North Carolina Consumer Finance Act to allow lenders to increase the processing fee on installment loans of $2,000 or less by as much as $100. Lawmakers are also seeking to add a handling charge of $3 per month for every $100 borrowed.

Increased loan fees have Marines on alert

Marine Corps Installations East director of Legal Assistance Michael Archer took aim at the proposed changes to North Carolina installment loans, claiming that higher loan fees would “encourage usurious lending” and lead borrowers straight into a squalid debtors’ prison, straight out of Charles Dickens. In the process, he also denounced payday lending, which is already illegal in the state and not currently slated to return.

“We have a lot of businesses, particularly lenders, that target military installations, large places like Camp Lejeune and Fort Bragg,” said Archer. “We have a very unsophisticated population as well. They have crosshairs on their backs and they are vulnerable.”

Archer expressed these concerns – however unfounded – in spite of the fact that installations like Camp Lejeune already have tight regulations regarding the proximity of installment loan and military loan companies to the military base. Wherever need exists, however, consumers find a way.

“It’s very difficult, both procedurally and practically, to put a place off limits,” Archer told the Daily News.

Battle turns to education

Camp Lejeune financial counselor Lewis Summerville is prepared to launch a series of educational workshops for Marines and their families should H810 be signed into law. Added education would enable military consumers to make informed decisions regarding the use of installment loans.

Such would be the case if educators like Summerville even considered adopting an even-handed approach to the military lending issue. However, as the Jackson Daily News suggests, the actual education Marine families in North Carolina will receive is the unstudied, “just say no” approach.

“We can only educate and make sure they make the right choice in not taking that loan,” said Summerville.

Do your research

Independent studies have shown that installment loans contribute to financial well-being, rather than causing poverty. If Michael Archer and Lewis Summerville had taken the time to read existing research, perhaps they’d have valuable information to add to the installment and military loan dialogue.

Sources

Jacksonville Daily News

eLobbyist: N.C. H810

North Carolina Consumer Finance Act

North Carolina professionals support installment loans

A new report has been released by the Center for Responsible Lending, slamming payday loans lenders. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

The Center for Responsible Lending has released a new report on payday loans, bashing the product. The CRL is among the chief lobbyists against the payday lending industry, though it allies itself with other consumer credit causes. Payday lending will soon fall under the jurisdiction of the Consumer Financial Protection Bureau.

Payday lenders blasted for lending practices

Payday lending is often reviled as predatory, as opponents accuse payday lenders of trapping people into vicious cycles of debt. One of the leading advocates for reform or eradication of the practice is the Center for Responsible Lending, a consumer advocacy foundation that conducts research and lobbies on behalf of consumers. The organization has released a new report on payday lending, according to Daily Finance, asserting that people who take out payday loans tend to get trapped into debt for more than a single pay period. The report is titled “Payday Loans Inc: Short on Credit, Long on Debt” and is available on the CRL’s website.

Frequent targets

Payday lenders are often targets of increased regulation and of ardent criticism. Some lenders deserve it; the number of violations committed by payday lenders as well as the number of lawsuits including class actions show that not all short term loans lenders are on the level. Many are hoping for payday loans as an industry to get reigned in by the Consumer Financial Protection Bureau when it begins operation later this year, as many advocates have asserted a cap on repeat borrowing will be effective, though the CFPB will not be able to regulate interest rates. The CRL recommends the CFPB should do as much.

Credit involves risks

The scholarly literature that exists on payday loans and similar credit products indicates there is a risk of consumers falling into a fair amount of debt once they begin borrowing from payday lenders. For instance, the CRL report asserts that many people are indebted to a payday lender for one to two years. That’s better than 30 years, the length of the typical mortgage. That is also better than 10 years, the length of time that people are given to repay student loans. However, those debts don’t have the stigma that payday loans have been bestowed with. Credit cards are also seen as more respectable than payday loans even though a minimum payment schedule can keep a person in debt to credit card companies for decades.

Sources

Daily Finance

Center for Responsible Lending (PDF – Requires Adobe Reader)

The Missouri House is considering two payday loan bills, but only one provides reasonable protection for both consumers and business. (Photo Credit: CC BY-ND/Regions of Missouri)

The Missouri House Financial Institutions Committee is prepared to hear two new bills that could affect payday loans in the state, reports the Columbia Daily Tribune. Committee chair Rep. Don Wells (R-Cabool), who is the former owner of a payday loans company, will hear personal loan bills by Rep. Mary Still (D-Columbia) and Rep. Ellen Brandom (R-Sikeston) at 5 p.m. Wednesday at the Jefferson City Capitol Building. While Rep. Still’s HB 132 calls for drastic limits to state payday lenders, Rep. Brandom’s HB 656 takes a more moderate approach.

‘Consumer protections without killing the personal loans industry’

Rep. Wells told the Daily Tribune that any payday loan legislation that makes in through the Missouri Congress should implement “consumer protections without killing the industry.” His ideas are more similar in shape to those in Rep. Brandom’s Missouri HB 656, in that he supports limiting the number of payday loan renewals Missouri consumers can arrange; having at least a two-week “cool off” period; making sure that the fee per $100 borrowed on a personal loan is clearly posted for consumer consideration as a dollar amount, rather than a percentage; and allowing consumers to make long-term repayment arrangements without excessive penalty.

As Brandom told local media, the average payday loan in Missouri costs $17 for every $100 loaned.

“To me, that is the easiest way to understand it,” she said.

Still’s Missouri HB 132 hovers over dangerous 36 percent APR barrier

Rep. Still takes a more hard-line approach to personal loans. Her bill proposal seeks a 5 percent limit to the cost of payday loans, with a cap of $25 total. In addition, interest of more than 36 percent APR would not be allowed, even when the repayment period exceeds 90 days. Numerous studies have shown that a 36 percent APR is not sustainable for a business with any overhead whatsoever, a fact that, if Still’s words are to be believed, shows the FDIC simply does not understand the business model clearly enough to justify an official ruling.

“You can make money at 36 percent,” she said. “Some companies offer money at 18 percent. It is what the FDIC says is a reasonable rate.”

If Rep. Still’s aim is to protect consumers, then driving payday loan companies out of Missouri and forcing consumers with a need for the product to resort to less reputable, unregulated sources is inconsistent with her stated goal. Even the Missouri Catholic Conference, which has entered its own payday lending model for consideration, has not been insistent on a 36 percent APR.

Missouri’s largest personal loan company sounds off

A 36 percent APR would devastate smaller lenders with lower margins, but even the largest high-margin payday lender operating in Missouri – QC Holdings – cannot operate under such restriction. From a 2009 Missouri Better Business Bureau report, a QC Holdings representative said:

“Any federal law that would impose a national 36 percent APR limit on our services … would likely eliminate our ability to continue our current operations.”

Sources

Better Business Bureau

Columbia Daily Tribune

Apply some reason when thinking about payday loans

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

Do you live in one of the top 10 most credit card debt-ridden cities? (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

Credit-card-wielding consumers have found that old habits die hard. That’s why it comes as no surprise that a recent study by credit reporting agency Equifax states that the U.S. is buried $790 billion deep in credit card debt. Broken down by city, here are the top 10 most credit card debt-ridden cities.

10. Winston-Salem, N.C.

On average, credit card debt per household is a robust $6,505. As the median household income is $42,869, the percent of annual income owed to credit card companies is 15.17 percent. Imagine what could have been accomplished with payday loans, rather than high-interest revolving debt that most people nurse along with monthly minimum payments.

9. Fayetteville, N.C.

One of four N.C. cities on this list, Fayetteville has 126,723 households that owe $6,519 per household on credit cards. A sizable percentage (15.34 percent) of median annual income – $42,506 – is paid in attempt to eliminate that credit card debt. With short term loans with a two-week maturity cycle, a great deal of interest debt could have been avoided.

8. Youngstown-Warren-Boardman, Ohio/Penn.

Median income here is lower – $39,304 – but so is the average household credit card debt: $6,142. However, that’s still 15.63 percent of the annual income on credit card debt alone. That’s about $1.4 billion in total debt, citywide.

7. Pensacola-Ferry Pass-Brent, Fla.

The 170,817 households in the Pensacola area owe $6,649 each to credit card companies, 15.79 percent of the median household income, $42,106. With personal loans, there would have been no cycle of debt.

6. Asheville, N.C.

North Carolina has heavy anti-payday loan legislation in place, so the credit card debt comes as no shock. Households owe 16.12 percent of annual income.

5. El Paso, Texas

Average credit card debt is lower at $5,349. That’s still 16.15 percent of annual income in El Paso, though.

4. Duluth, Minn.

Median household income: $38,392

Percent owed on credit cards: 16.72 percent

3. Toledo, Ohio

Another state that makes payday lending impossible, Toledo households owe 16.72 percent of annual income on credit cards. If payday lenders were allowed to operate at market rate in Ohio, hitting that percentage would be nearly impossible.

2. Canton-Massillon, Ohio

Median income: $40,912

Percent owed: 17.23 percent

1. Wilmington, N.C.

Households earn $42,392, but owe 17.26 percent on credit cards.

Sources

About.com

Yahoo Finance

‘I’m going to come steal your toys because your mommy didn’t pay her Discover bill’

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

San Diego's economic outlook hasn't made it easy for people to afford beach treats. (Photo Credit: CC BY-SA/Smart Destinations/Flickr)

In keeping with the national trend of recession, San Diego County’s job outlook isn’t exactly as shiny as a new catamaran. However, as University of San Diego economics professor Alan Gin recently told the La Mesa-Foothills Democratic Club, San Diego is no longer shedding jobs at a record pace. As the La Mesa Patch reports, even a net gain of 100 jobs from November 2009 to November 2010 can be viewed as good news.

San Diego’s economic outlook in a holding pattern

Professsor Gin, a respected economic forecaster, says that San Diego’s economic outlook is no longer in free fall. In his PowerPoint presentation to the La Mesa-Foothills Democratic Club audience, Gin predicted that the national job report for December – which will be released Friday – should feature a “really good number” that will in turn bode well for San Diego’s economic recovery.

Referring to his most recent monthly “index of leading economic indicators,” Alan Gin predicted that San Diego home prices would increase by 5 percent to 7 percent this year. In addition, a net gain of 1,000 to 1,500 jobs is on Gin’s radar for 2011. As the city has suffered through three straight years of job shedding – 70,000 jobs were eliminated in 2009 alone – an increase of this magnitude would be precious, indeed.

San Diego job fields to watch in 2011

According to Gin, health care, admin-support and hospitality are San Diego County job fields that will see the most growth in 2011. Yet it is defense/Homeland Security, biotech, communications and green technology businesses that are expected to be the driving forces of the area’s economy. One such green tech company in San Diego that Gin named was EcoATM, a kiosk-based business where consumers can recycle old cell phones for store vouchers.

Reach for your gin, it’s a lackluster GDP forecast

Significant growth in San Diego’s gross domestic product would be a welcome sign of high net job growth, but San Diego isn’t quite there, said Gin. He projected 3- to 3.5-percent growth for 2011, which is hardly enough to allow for job growth. Yet San Diego is no longer spiraling toward even higher unemployment and lower consumer confidence, complete with a decline in spending, investing, hiring and payday lending.

“At this point, we’ve flattened out,” said Gin.

Sources

Alan Gin’s USD homepage

La Mesa Patch

Alan Gin on San Diego avoiding the ‘double-dip’

Payday loan collection scammers are looking to score a quick buck. Image: Flickr / MonyBlogNewz / CC-BY

The federal Internet Crime Complaint Center is tracking a new payday loan scam. The scammers claim to be collecting for an overdue payday loan. This scam appears to be targeting both former customers of short term loans as well as individuals who have never taken out a loan.

Payday loan collection scam

The basics of the new payday loan collection scam are simple. Someone calls from an official-sounding agency such as the Federal Legislative Department, various law firms or even the FBI. The caller will name your bank, account number, social security number, or even family member’s names. They will ask you to remit payment via cash, check, credit card or direct debit from the account they have on file. They will often ask for a signature on a document stating that you will “never dispute the debt,” among other things.

Risk of identity theft from the scam

The payday loan collection scam carries many potential risks. Not only could paying the scammers mean you lose money, but the amount of available information means you are at risk for identity theft. Some of the scammers even threaten physical injury. If you are contacted by these scammers, you should immediately take steps to protect your identity. Contact all three credit reporting agencies and put an alert on your account. Contact your bank and alert them. Finally, file a complaint with your local law enforcement and IC3.

Collection practices of legitimate payday lenders

Payday lending is a risky business. By offering credit products to consumers who have little or no credit history, short term credit locations take a big risk. About 20 percent of payday loans end up in default, and payday lenders have little recourse. A legitimate payday loan store, such as those that operate in Reno, Nevada, may contact you if you default on a payday loan debt. However, it will comply with all local and national laws concerning debt collection. Never be afraid to ask for verification or follow-up with anyone claiming to hold one of your debts.

Sources

IC3
2010 statistical analysis of payday lending

Consumer groups want the British government to crack down on payday lenders. (Photo Credit: CC BY/Andrew Magill/Flickr)

Groups such as the Consumer Credit Counseling Service (CCCS) and campaign organizations such as End Legal Loan Sharking are pressuring the British government to crack down on the short-term consumer credit market, reports This is Money U.K. A lower interest rate cap on “doorstep lenders and payday loan firms” is currently being pursued in proposed legislation. While these loans may be legal, argues End Legal Loan Sharking, the rate charged to high-risk consumers is far from reasonable.

Legal loan sharking is not payday lending

The mainstream media and consumer interest groups such as End Legal Loan Sharking tend to place payday loans and loan sharking into the same boat. That is the same mistake politically motivated consumer groups make in the U.S. The payday loan industry is governed by numerous legislative bodies in the U.K., notes Payday Loan Advances. The British Cheque Cashers Association (BCCA) and Insolvency Practitioner’s Association (IPA) regulate the function of payday loan companies in the United Kingdom. Thus, when compared with loan sharking, such payday loan features as APR are more highly regulated.

No fees are good fees, argues the establishment

According to End Legal Loan Sharking’s figures, “loan sharks” can charge as much as £82 ($132) in interest and fees for every £100 ($160) borrowed. What This is Money fails to report is that such loans are typically offered at high risk to the payday lending organization. Hence, protection must be built in.

Instituting a ‘Ten Minute Rule’

Labour MP Stella Creasy has championed a Ten Minute Rule that will reach British Parliament on Wednesday. The rule is designed to open up the U.K. consumer credit market, giving even those consumers with less than perfect credit access to affordable credit. It’s called a Ten Minute Rule because the supporter has 10 minutes to make the case for the bill in question.

“The Government needs to understand action is needed now to address the high cost of lending which exploits some of the poorest people in our communities who can least afford the charges door step lenders set,” Creasy told the British media.

The proposed Ten Minute Rule would cap payday lending APRs and fees. It would also empower local authorities to restrict payday loan business licenses and expand consumer access to credit union loans.

Sources

Payday Loan Advances UK

This is Money UK

Urban blight and cash advance loans have as much to do with each other as chocolate and the fall of the Roman Empire. Image from wikimedia commons.

The universe operates on a system of cause and effect, which contradicts one of the claims some make about cash advance loans. For instance, there are people who blame a phenomenon called “urban blight” on cash advance loan lenders. The phenomenon of urban blight, or urban decay, began far before the cash advance industry even existed. That claim uses what is called a logical fallacy.

Cash advance loans blamed for urban blight

Numerous people have pointed to the cash advance loans industry as a culprit of urban blight. In fact, some cities have run cash advance and payday loan stores out of town because they believe that idea. Urban blight or urban decay is a phenomenon that has usually been associated more with a weakened economy, rather than the emergence of a single factor such as payday lending. It often goes without saying that this kind of decay really began decades before payday loans, as a product, even existed. It isn’t known where the first actual payday loan store was opened, but it is believed that among the first was Q.C. Holdings in 1988.

Fallacy of logic

The idea that payday loan lenders cause urban decay is a logical fallacy called “cum hoc ergo propter hoc.” Literally it means “with this, therefore because of this.” Basically, it means that because two things coincide, there must be a cause and effect relationship. If that were true, then a Pepsi commercial could cause a football team to lose the Super Bowl. There’s no evidence that payday lending is a cause of poverty, proximate or otherwise. One has to bear in mind that there was abysmal, wretched poverty in the world, including the United States, long before payday lenders arrived and even before the modern financial system did.

Dubious attrition

Poverty has a multitude of causes. Given that many negative economic conditions have nothing to do with short term consumer lending, crediting payday loans with urban blight it is a dubious attrition. You can read more in the Payday Loan Facts and Statistics report on Personal Money Market.

A ban on payday advance loans would only add more to the unemployment line. Image from Wikimedia Commons.

There are a lot of people who would like to ban any and all payday advance loans. Social crusades, no matter how noble the impulse, almost always have consequences that are worse than the original issue. Banning cash advance lending will not have the positive effects that people think. More checks get bounced and overdraft fees assessed. A nationwide ban on payday lending would have other disastrous economic effects as well.

Payday lenders create jobs

Payday lending as an industry, in 2007, employed more than 77,000 in-store workers and created more than $10 billion of the GDP of the U.S. Payday lenders paid more than $2.6 billion in taxes (local, state and federal), and on average, employed at least three people per store. Payday lenders paid $2.9 billion in wages, averaging out to $25,521 per year, per store employee, excluding benefits, which more than 75 percent of payday loan store employees received from their employers. A total ban on payday advance loans would be a disaster for an already beleaguered labor market.

Bans have negative effects

Studies have shown that bans on credit like short term loans and personal loans do more harm than good. One study of bans found that in Oregon and Georgia, consumers bounced more checks after the payday lending ban than before it. The study, by Morgan and Strain, also found that more filings for Chapter 7 bankruptcy were filed in areas where payday lending was banned. Bank overdraft fees can add up to far more in interest than any cash advance or payday loan. Bear in mind that Bank of America, one of the largest banks in the world, charges $35 per overdraft. The average person also has up to 12 overdrafts per year.

Better off with payday loans

Humans have a habit of finding ways to satisfy demand. Payday loans create jobs, and keep people from bouncing checks and overdrafting accounts. They also keep real criminal loan sharks out of a job. You can read more in the payday loan facts and statistical data report on Personal Money Market.

Advance America is forced to desert 122 stores after Arizona banned their trade from the state. Image from Wikimedia Commons

After the Arizona ban on payday lending went into effect, and new legislation is being passed in Colorado, Advance America announced it was closing more than 100 store locations nationwide.  One of the nation’s largest payday lenders, and one of the few that grew large enough to be publicly traded, is shutting down 122 stores in Arizona, Washington and Colorado.  The stock price for Advance America then quickly tumbled on the New York Stock Exchange or NYSE, dipped 5 percent. Advance America has been in a stock lull so far this year

Advance America to shutter 122 stores

Advance America announced it would close 122 stores. The affected states are Washington, Arizona and Colorado. The state of Arizona recently let a law lapse that allowed payday lenders to operate in the state. The law was not renewed, and payday lending is now illegal in Arizona which has forced numerous payday loan stores to close their doors. Advance America will be closing 47 stores in Arizona and 75 other locations in Colorado and Washington state. The company will incur up to $5 million in closing costs in doing so.

Stock price dips

Advance America announced the store closures on July 9, after an all time low for the year. The share price for the firm was down to $3.55 on the NYSE. As of July 22, the stock price had climbed back up to $3.66. Publicly traded payday lending companies are thought to be at great risk with the creation of the Bureau of Consumer Financial Protection, as some believe the newly created agency will regulate cash advance lenders out of business. Since the average payday loan store employs at least 3 people, 366 people are now going to be out of work due to these closures.

State governments starting to slip the noose

Payday lending has been under fire for more than a decade. While no one relishes the idea of high cost lending, payday lenders entered into a market that the banks had left. One wonders what options will be left if the finance market that is not Wall Street is driven out of existence.

Further Reading

Advance America closures

NYSE

Will an Arizona style ban on payday lending happen with the Consumer Financial Reform bill? Image from Wikimedia Commons

The state of Arizona recently allowed the licenses of payday lenders for the entire state to lapse. Payday loan stores are in the process of closing their doors all over the state and are moving on to different pastures. Currently, the financial reform bill is awaiting the president’s signature. Part of the bill will create a new consumer financial protection agency within the Federal Reserve that will regulate consumer lending, and there is concern that a fate similar to Arizona payday lenders’ awaits all payday loan lenders nationwide.

Arizona stores closing up shop

A recent article on azcentral.com highlighted the effects of the new usury cap, or percentage rate cap the state of Arizona has imposed. At 36 percent interest, or rather, 36 percent annualized interest (on a two week loan), any payday lenders in Arizona are having a hard time keeping their doors open. Check’N'Go, one of the largest payday loan, cash advance and check cashing franchises in the country, immediately closed 11 of its 34 locations. The company employs more than 100 employees in Arizona, and all stores will be closed by the end of the summer. The remaining stores in the state will have to either resort to making car title loans or close their doors completely. Studies have shown greater incidents of bankruptcy, bounced checks, and debt collections after bans on payday credit.

Financial reform bill

Part of the financial reform bill is a new Consumer Financial Protection Agency, that will be housed inside the Federal Reserve. The bill, recently passed by the Senate, is awaiting the President’s signature. Payday lending will then fall out of the hands of the states, and into Federal jurisdiction. If the rate cap were to be imposed nationally, the entire industry will fold.

Who will the ban benefit?

It is thought that consumers will no longer be trapped by awful loans and high interest, or at least payday lenders will have to follow the same standards applied to mortgages and credit cards to cash advance loans. The only problem with that is that it costs almost $14 to lend $100 of payday credit, and 36 percent APR only yields a couple dollars per $100 loaned. Since payday customers aren’t accessing first tier credit because they don’t want to or can’t, what is going to take the place of short term loan lenders if they can’t lend and keep their doors open?

Further reading

AZ Central

Consumer Affairs

If USA Today's payday loan alternatives actually saved you money, they'd be on to something. (Photo: ThinkStock)

Opponents of payday lending tend to argue that there are cheaper payday loan alternatives available. Their argument may apply to consumers with sufficient credit to grant the financial flexibility needed to obtain cheaper short term loans, but for consumers operating under great credit constraints, payday lending is a more practical option. Unfortunately, a great deal of misinformation regarding payday loan alternatives exists in the mainstream media, and a recent piece by USA Today underscores this trend. As we’ll see, their suggestions aren’t necessarily all they’re cracked up to be.

Payday loan alternatives myth No. 1: 401(k) loans

Consumers who are serious about payday loan alternatives like 401(k) loans should realize that there can be dire consequences. True, it is possible to borrow up to $50,000 or half of what’s in your 401(k) plan (whichever is the lesser) at an initially low interest rate with no credit check. But as The Money Alert warns, “You can’t contribute again until you repay.”  Your retirement savings (more vital today than ever, considering the recessionary economy) can take a big hit. No additional contributions, no employer matching – nothing – unless you repay the borrowed sum first.

Furthermore, your take home pay will shrink during the repayment period, as payroll deductions are commonly used for repayment. That may work, unless you lose your job. Then you’ll only have 60 days to pay everything back or the 401(k) loan will be considered an early withdrawal. Think penalties and the possibility of being thrown into a higher tax bracket once you report the amount of the withdrawal penalty as taxable income on your next tax return. That’ll cost you. Payday loans, on the other hand, are a proven inexpensive alternative, according to the University of Michigan and the Federal Reserve. They’re much more practical for small-scale loans, too.

No. 2: What about credit card cash advances?

USA Today offers this up as one of their payday loan alternatives. While credit card cash advance can be convenient (credit card companies even send you blank checks in order to use an advance), there are numerous things that a consumer must keep in mind. First, credit card cash advance APRs are always higher than the APR for standard credit card purchases. Second, if you use an ATM to obtain a credit card cash advance, there are additional fees. It’s very important to read the fine print in your credit card’s terms and conditions before springing for a credit card cash advance, suggests Young Money. If you need money and want payday loan alternatives, try using an installment loan instead. Furthermore, you cannot pay the balance of your credit card cash advance until after you have paid off every other charge on the card (the ones with a lower APR).

Bank and credit union small loans

Here’s where a consumer’s credit history comes into play. USA Today points out that the interest rate for small loans from a traditional financial institution can be cheaper than payday loans, but what the news daily barely deigns to mention is that such short term loans are not generally available to credit-constrained consumers. In the case of payday loans, they can even be used in conjunction with a consumer’s efforts to repair credit. Those with less-than-perfect credit should explore the possibility, something the USA Today apparently neglected in the process of researching their story.

Sources:

USA Today

The Money Alert

Young Money

Learn more about 401(k) loans, if you dare:

South Carolina Governor Mark Sanford attempted to defend payday lending with his veto of the H.3790 bill, but the SC House overturned his veto. (Photo: Wikipedia)

On June 7, South Carolina Governor Mark Sanford issued a veto of H.3790, a payday loan bill that would have extended the payment term of the standard loans to an untenable 120 days or more while still requiring the same fees. Furthermore, H.3790 would have eliminated unsecured loans in South Carolina and outlawed the common practice of a customer presenting a lender with a post-dated check. However, S.C. Politics Today reports that the South Carolina House of Representatives has overridden Gov. Sanford’s veto. The bill also affected regulation of licensing fees for the state’s mortgage industry.

Why Mark Sanford said no to payday loan-crippling H.3790

In a letter to the state House, Governor Mark Sanford writes regarding his veto of the payday loan bill that

“Although this type of regulation is intended to protect the public, these kinds of laws ultimately decrease the number and type of available financing options and make it harder for new lenders to enter the market. In other words, consumers have fewer choices and the available options become more expensive. … Some people will benefit from payday–style loans and some will not, and we continue to believe that individual consumers are better equipped than a government bureaucracy to know whether a short-term loan is a wise decision in any given circumstance.”

Allow the people to decide

As state legislators are less likely than credit-constrained consumers to have ever had the need for a payday loan or similar loans with no credit check – whether they are unsecured loans or not – it seems more logical that consumers should be allowed to decide whether the payday loan is a good deal for them. Governor Sanford clearly sees the matter in those terms, even if his state’s legislature does not. Currently, the payday loan regulation in South Carolina limits borrowers to $550 at a time, and they can only have a single active loan. This activity is tracked in an electronic database.

Another bill, another overturned veto

Another overturned veto ventures into territory of Mark Sanford’s alleged history of impropriety with South Carolina taxpayer funds. The House nixed Gov. Sanford’s veto of a bill that would “allow information to be made public in a state ethics investigation of the governor when it indicates possible cause that a violation may have occurred,” reports S.C. Politics Today. The vote against Sanford’s veto of the governor investigation bill was a landslide, 102-2 in favor of overturning his veto. Sanford has gone on record as saying that he vetoed the bill because he wanted the language of that bill expanded to include all state lawmakers, not just the governor.

Sources:

S.C. Politics Today

State of South Carolina – Office of the Governor

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Enjoy capitalism. Payday loan customers do. (Photo: Flickr)

Payday loan rate cap laws have circulated in various forms through the halls of state-level politics in the U.S. for years. However, not all countries that allow payday lending to serve consumers in need of easy loans are so eager to institute a rate cap that could stifle the natural price controls present within a free market economy. The Guardian newspaper reports that the UK’s Office of Fair Trading (OFT) has found that an interest rate cap on payday lending is unnecessary, claiming that a lack of competition would harm that sector of the financial marketplace.

Payday loan competition not perfect, but works ‘reasonably well’

Access to easy loans and other forms of consumer credit that fall under the general payday loan banner is important for credit-constrained consumers. The OFT recognizes that market competition has helped regulate payday loan prices. The level of competition between easy loan outlets may not be as effective as it could be, but the OFT is confident in their assessment that payday lending markets work “reasonably well.” Despite resistance from the Archbishop of Canterbury, the Financial Inclusion Centre and the debt charity coalition Debt On Our Doorstep, the OFT concluded that the payday lending market did not need a more stringent rate cap. However, the OFT did recommend further investigation into how an industry-wide “code of practice” could be instituted for the UK payday loan industry.

Finance & Lending Association agrees with OFT decision

Fiona Hoyle, Head of Consumer Finance for the Finance & Lending Association, told The Guardian that a payday loan rate cap “would have adverse unintended consequences for consumers, including for the cost and availability of credit.” If governments follow the Office of Fair Trading’s lead regarding rate caps – and take note of the Dartmouth University study in the U.S. on the effects of payday loan rate caps in Washington and Oregon State – perhaps they’ll see just how maintaining competition can aid the consumer while still allowing easy loans outlets to reasonably profit.

Simply clamping down isn’t the answer

Marie Burton, financial services specialist at the consumer group Consumer Focus – which operates independently from the payday lending industry – told The Guardian that the OFT has exposed just how hard it is to both promote competition and help drive down consumer cost. While that is the ideal, additional research into the workings of the short-term consumer finance industry in the UK may be necessary. Pulling banks and credit unions into competition by encouraging them to offer low-cost, low-hassle payday loan products would be most ideal for the free market, although banks and credit unions have failed at this before, considering America’s example.

Sources:

The Guardian

Related Video:

Know where payday loans are legal in the United States with the handy reference chart in this article. (Photo: ThinkStock)

Hard-working Americans sometimes find themselves in situations where they need the extra cash payday lending can provide. Other options are sometimes available, but if the consumer is credit constrained, those options are few and far between. Thus, it pays to know where payday lending (whether it is for a payday loan, installment loan or similar consumer loan product) is practiced. If you know where payday loans are legal – in which states, specifically – then you’re that much closer to obtaining fast cash when unforeseen events strike at your budget.

Payday lending – the American tale

Current as of May 27, 2010, Fox Business has compiled a list of the legal status of payday lending. Some of the information has changed based upon current payday loan legislation, and a general summary of those changes are noted below for the Arizona, Colorado and Wisconsin state entries. For your convenience, Personal Money Market includes a summary of the Fox list for your payday loan needs, including the maximum amount allowed by each state for a payday loan:

Alabama: Legal, $500 maximum
Alaska: Legal, $500 maximum
Arizona: Legal until June 30, due to Operation Sunset; $500 maximum
Arkansas: Legal for check cashers only, $400 maximum
California: Legal, $300 maximum
Colorado: Essentially prohibited, as Colorado House Bill 1351 caps APR at 45 percent and requires six-month payment term; $500 maximum
Connecticut: Prohibited
Delaware: Legal under small loan act/licensing law; $500 maximum
Florida: Legal, $500 maximum
Georgia: Prohibited
Hawaii: Legal for check cashers only, $600 maximum
Idaho: Legal, $1,000 maximum
Illinois: Legal, the lesser of either $1,000 or 25 percent of applicant’s gross monthly income, maximum
Indiana: Legal, $550 maximum
Iowa: Legal, $500 maximum
Kansas: Legal, $500 maximum
Kentucky:  Legal for check cashers only), $500 maximum
Louisiana: Legal, $350 maximum
Maine: Prohibited, except from selected supervised lenders
Maryland: Prohibited
Massachusetts: Prohibited
Michigan: Legal, $600 maximum
Minnesota: Legal, $350 maximum
Mississippi: Legal for check cashers only, $400 maximum
Missouri: Legal, $500 maximum
Montana: Legal, $300 maximum
Nebraska:  Legal, $500 maximum
Nevada: Legal, 25 percent of gross monthly income maximum
New Hampshire:  Legal, $500 maximum
New Jersey:  Prohibited
New Mexico: Legal, $2,500 maximum
New York: Prohibited
North Carolina: Prohibited
North Dakota: Legal, $500 maximum
Ohio: Legal for 31-day minimum term, $500 maximum amount
Oklahoma: Legal, $500 maximum
Oregon: Legal, unspecified maximum
Pennsylvania: Prohibited
Rhode Island: Legal for check cashers only), $500 maximum
South Carolina: Legal, $300 maximum
South Dakota: Legal under small loan act/licensing law; $500 maximum
Tennessee: Legal, $500 maximum
Texas: Legal, unspecified maximum
Utah: Legal for check cashers only, Unlimited maximum
Vermont: Prohibited
Virginia: Legal, $500 maximum
Washington: Legal, $700 maximum
West Virginia: Prohibited
Wisconsin: Legal, $1,500 or 35 percent of gross monthly income maximum. See other recent law changes regarding payday lending in Wisconsin
Wyoming: Legal, unspecified maximum

Sources:

Fox Business

Payday Loan Consumer Information

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