Convenience-loan companies offer cash-strapped consumers access to funds, but at a hefty price

By Steve Tarter
of the Journal Star

Travel north on the stretch of University Street between Forrest Hill Avenue and War Memorial Drive and you’ll notice plenty of franchise outlets that don’t dispense fast food.

Convenience loans

The half-dozen stores in this area with names like the Cash Store and TitleMax serve money – fast. Welcome to the convenience-loan industry, where you get money in a hurry.

But that convenience comes at a price, say critics. So-called payday loans come with interest rates that average about 300 percent, according to Illinois Legal Aid.

Uncertain financial times are a contributing factor to the popularity of the payday loan business, said Tim Riggenbach, manager at Associated Bank, 125 N. Jefferson St.

“People are losing faith in the establishment. They see these places and understand they can get money there without thinking about the consequences,” he said.
[Ed. Thank you Mr. Riggenbach for telling us that payday loan borrowers are too stupid to know what they are doing. How much did you say your bank charges for an overdraft?]

“There are options to payday loans. People need to talk to their banker,” said Riggenbach.
[Ed. What are those alternative Mr. Riggenbach? And where are they? Payday loan interest rates are high but I have yet to see anybody complaining about them offering an alternative?}

Keeping people in debt

The growth in the payday loan business prompted action in 2005 from the Illinois Legislature, which capped rates at 36 percent on loans up to 120 days only to see loan companies shift to offering a longer-term loan that escapes state restrictions.

"The object is to keep people in debt. If (convenience loans) were structured to be paid off, the payday loan business model wouldn't work," said Don Carlson, executive director of the Central Illinois Organizing Project, a faith-based consumer advocacy group based in Bloomington.

"To understand the amount of interest (payday loan operations) charge, figure that if you borrow $500 by credit card, you'll pay about $17 in interest if you pay that loan off in six months. With a loan from Advance America, the largest of the payday loan stores, you'll pay $1,000 in interest alone. The rate is 400 percent," he said.

Advance America, based in Spartanburg, S.C., operates about 2,800 stores in 32 states, including five in the Peoria area - two along that stretch on University Street. Calls made to Advance America offices were not returned, nor were calls to other payday loan companies.

Advance America recently announced the closing of all 30 of its outlets in Arkansas following the closing of nine outlets in New Mexico after those states passed regulations "that prevent the company from continuing to operate in an economically viable manner," according to a prepared release.

"We regret that the elimination of a regulated and market-based credit option in Arkansas and New Mexico will, unfortunately, leave tens of thousands of consumers without a simple, sensible and responsible avenue for managing short-term financial challenges," said Advance America CEO Ken Compton.

Carlson thinks that "avenue" should be closed here in Illinois, as well. His group plans a "predatory lending summit" Saturday in Springfield to raise the issue with Illinois legislators.

"We're in a dogfight with the Legislature. We had a bill to close the (payday loan) loopholes that passed the Senate but it stalled in the House," said Carlson.

Convenience-loan outlets are not without influence, he said. The loan industry is one of the biggest financial contributors to political campaigns, he said.

Proliferation in Peoria

The proliferation of payday loan and title loan shops has become a problem, said Peoria City Councilwoman Barbara Van Auken, who earlier this year proposed a moratorium (passed by the council) to regulate the number of loan outlets to regulate the number of loan outlets in the city.

"We've gone from 14 to 29 in the last year alone," said Van Auken, referring to the number of "convenience cash" businesses now operating in Peoria.
[Ed. Title loan stores are not payday loan stores. Critics group them together even though they are entirely different business models because it keeps the water muddy.]

It’s no accident that the convenience-loan outlets locate in a group, said Carlson. “People have to flip loans to afford them,” he said, referring to the practice of taking out one loan to pay another.

“It’s walking distance to go from one to another,” said Carlson.

One of the new convenience-loan outlets on University Street is Cash America, a business that’s also walking distance from a very sound neighborhood, said Van Auken. “Cash America is also a pawn shop that, once licensed, will be able to trade in guns. That poses a daunting problem for a nice neighborhood just 30 feet away,” she said.

Steve Tarter can be reached at 686-3260 or starter@pjstar.com

Source: Journal Star

“I use it to pay bills, my telephone bills, because it’s convenient,” said Van Marie Jackson.

Jackson said she uses check cashing and payday advance services despite high finance rates and
she said more of her friends are doing the same.

From the comfort of your home you can find thousands of cash advance Web sites promising easy money with the click of a mouse. So will people turn to these companies if credit markets seize up? The Vice President of Communications for Ace Cash Express, Eric Norrington, said their customer base is growing.

Payday advance stores are licensed and regulated by the state of Louisiana. Financial experts warn consumers about using online payday advance companies, because some of those sites are managed off-shore in international waters, where there are little or no regulations.

Source: wdsu.com

The online payday loan and cash advance loan are under attack by state regulators who make outlaws of lenders who make loans to the guy with more day than pay. Cash is good, but sometimes a credit line to borrow from is the only way to make ends meets until the next payday. Short term business lending happens all the time as receivables financing.

Those lucky enough to have a friend or a relative to play bank keep under the radar, but even here there is a high interest rate paid in pride and self-respect. The law doesn’t consider the hit on self respect a borrowing charge. Relatives may demand low or no fees but what about the self reliant person who doesn’t want to borrow from relatives or make their personal financial situation somebody else’s ear full? An online payday loan application form doesn’t talk and the net doesn’t gossip about money.

The pay day loan borrower isn’t measuring quality of life as an APR. Maybe it means keeping the lights on or having the car running to get to work on Monday. Yep. Payday lenders only make loans to customers with a regular job and a bank account. Middle America without the high limit credit card or the open home equity line they can go to in an emergency. Should they be denied this cash advance loan service because a state regulator doen’t like the fee they would owe? Who should say that the online payday loan borrower is better off paying $35 to Bank of America for a bounced check fee, or $35 extra to the utility company, than the $35 fee to a pay day lender? Is that the proper role of state government?

Blurb from from the Washington, DC NBC affiliate:

Payday lenders are turning to the ballot to preserve their interest rates. Liz Crenshaw has the details on that.

Let’s start with payday loans. These are loans that charge between 300 and 500 percent interest and, which critics say, target the poor. The Payday Loan industry has pretty much been driven out of business in our area and several other states by laws that have either banned them or capped interest rates. However the industry is now trying to bypass state laws by taking the issue directly to voters. The pitch is that the loans are an individual financial choice that shouldn’t be taken away by lawmakers. If the industry is successful this November, critics say it will begin placing the issue on state ballots around the country.

NBC4.com

[Ed. In truth, the typical payday advance customer represents the lion's share of America's middle class. A typical payday loan customer is a hard working, family raising adult who does not have savings or disposable income to use as a safety net when an unexpected expense occurs.

Here are the facts:

The majority of payday advance customers earn between $25,000 and $50,000 annually;

Sixty-eight percent are under 45 years old; only 4 percent are over 65, compared to 20 percent of the population;

Ninety-four percent have a high school diploma or better, with 56 percent having some college or a degree;

Forty-two percent own their own homes;

The majority are married and 64 percent have children in the household; and,

One hundred percent have steady incomes and active checking accounts, both of which are required to receive a payday advance. *

*Source: The Credit Research Center, McDonough School of Business, Georgetown University, Gregory Elliehausen and Edward C. Lawrence. Payday Advance Credit in America: An Analysis of Customer Demand. April 2001." ]

Source: The Typical Payday Loan Borrower is – You

(C.O.A.S.T.) on Tuesday said it will urge a “no” vote for Issue 5 on the November ballot. Voting no would repeal the recently passed Ohio law regulating payday lenders.

Jason Gloyd, chairman of the Cincinnati-based anti-tax group, said at a news conference that the law contains “Orwellian” provisions, such as the establishment of a database of loan transactions with personal information; the limiting of payday loans to four per person per year; and an education program for anyone who takes out a second loan within 90 days.

“Let us make our own decisions and stop interfering with our lives,” Gloyd said in a statement released after the news conference. “Most importantly, stop tracking our behavior – and stop trying to modify it.”

Ohio lawmakers in May passed H.B. 545, which caps the annual percentage rate on payday loans in the state at 28 percent, down from the 391 percent maximum formerly permitted. Among other provisions, the bill also limits consumer borrowing at $500 or 25 percent of base monthly pay per loan, restricts borrowing to four times per calendar year and extends the term of a loan to 31 days from 14 days.

Payday lending companies in June launched a petition drive to get the referendum on the ballot for November.

Bill Faith, executive director of the Ohio Coalition on Homelessness and Housing in Ohio, and a proponent of the law, said the issue is that payday lenders can no longer charge the higher rate of interest.

“Payday lenders already operate their own database, and the newly required database will monitor payday loans – no matter what happens to Issue 5,” Faith said in a news release, adding that the lenders make the bulk of their money when customers take out multiple loans.

Business Courier

By STEPHEN MAJORS
The Associated Press

COLUMBUS, Ohio (AP) — The payday loan industry is bankrolling ballot issue campaigns in Ohio and Arizona to preserve the average 391 percent annual interest rates they charge, as the two states become the focus of industry watchers and consumer advocates.

The industry is trying to get an issue on the November ballot in Ohio to overturn a law that would cut the annual interest rate to 28 percent. Lenders have already succeeded in getting an issue on the Arizona ballot that would enable them to continue charging the higher interest rate. Without passage, the ability of lenders to charge 391 percent will expire in 2010 and they won’t be able to charge higher than 36 percent annual interest.

A total of 15 states and the District of Columbia have already adopted laws cracking down on payday lending. Four more states considering legislation, including Colorado and Virginia, are watching the ballot issues in Ohio and Arizona.

“It’s fair to say that a lot of people are going to look at it, and that a lot of people are going to draw conclusions on it,” said Uriah King, policy associate at the Center for Responsible Lending in Durham, N.C., a group that lobbies against payday lending. “Ohio is a bellwether state, so that, coupled with the ballot referendum, would make a powerful argument.”

The outcome of the initiatives in Ohio and Arizona will determine whether the payday industry believes it can go around lawmakers who have rebuffed them and present its case successfully to voters, said David Higuera, political director for the campaign opposing the industry ballot issue in Arizona.

“I do believe if they’re successful here they will go to many more state ballots next time,” Higuera said.

In Ohio, the state’s most powerful politicians — Gov. Ted Strickland, House Speaker Jon Husted and Senate President Bill Harris — have come out against the payday industry’s efforts. But the payday industry will do what they will not: spend a lot of money on television advertisements to influence public opinion.

The payday committee, registered as the Reject House Bill 545, is underwritten by the Community Financial Services Association, an industry group, which gave $850,000 to the campaign in June. Further fundraising reports has not yet been required.

The payday industry has not yet gotten the required number of signatures certified to place the issue on the ballot in Ohio. But those fighting the industry efforts fully expect that they will.

Ohioans for Financial Freedom, the industry-backed group trying to get the issue on the ballot, agreed to strike 13,000 signatures from its total after opponents challenged signatures gathered by California-based Arno Political Consultants. And at least two Ohio counties checking the signatures said it was the lowest validation rate for a ballot issue in memory, even forwarding possible instances of fraud to county prosecutors.

Still, lenders turned in 422,000 signatures to Ohio Secretary of State Jennifer Brunner. They only need about 241,000 valid signatures to have the issue placed on the ballot.

Even if it’s discovered that lenders don’t have enough signatures later this week, they still have another 10 days to get the required number.

“It’s been a very challenging process, but we are working very hard,” said Kim Norris, spokeswoman for Ohioans for Financial Freedom.

Lenders have argued that payday loans are an individual financial choice that shouldn’t be taken away by lawmakers, running a series of ads that trumpet personal responsibility over government mandates. They have argued it’s a viable option for someone in a bind who needs quick cash to take care of an unforeseen problem, such as car trouble. Lenders also criticize the new law because it limits how many loans a customer can take out by enabling the tracking of financial decisions.

Opponents have said the industry’s business model is reliant upon trapping customers in a cycle of debt so they take one loan out after another to pay for the principle and interest on the previous loan.

In Colorado, a bill to cut the interest rate lenders can charge to 45 percent passed out of the House by a couple of votes this year but was watered down, and then killed, in the Senate.

“We had a tough fought battle last session and I said I’m probably bringing something back next year so I’ll be watching what happens in other states,” said state Rep. Mark Ferrandino, a Denver Democrat.

Source: Cleveland.com

Posted by Cheryl Costa September 22, 2008 08:49 AM

These days, if you miss even one payment on your credit card, you could be receiving a call from your bank instead of a letter. That is because more and more people are now defaulting on their credit card debt. A recent article in the Wall Street Journal stated that 4.5 percent of bank credit card accounts are now delinquent.

Banks are so anxious to see balances paid down that some are offering payment incentives. Citibank has been contacting some of its credit card holders and offering to match a percentage of the payments made over the minimum amount due if the cardholder agrees to pay off a percentage of their balances quickly. There is a cap on the match ($550) and the cardholder usually has to agree to at least temporarily stop using their card.

Another bank has realized that cardholders are using caller ID and answering machines to avoid collection calls so they are mailing phone and gift cards to late payers to get them to call back. The trick is that the gift cards are not activated until the account holder contacts the lender.

The point is that if you are struggling with credit card debt, you should contact the bank as soon as you can. Companies are definitely trying harder to work deals that will work for you. Some will offer temporarily lower payments until you catch up on your debt. At the end of the day, the credit card companies want the debt paid off just as quickly as you do.

Boston Globe

Excerpt from article…

Payday lenders and other corporations that specialize in predatory lending have only one really useful argument in defending their business practices, and it goes like this: They provide a public service by catering to the “unbanked” and other financially underserved communities–i.e., those discriminated against by white banks that won’t make loans to African Americans. Without payday or other subprime lenders, they argue, many poor minorities would have no way of buying homes or keeping their lights on in an emergency.

It’s a seductive argument, in part because it’s based on a kernel of truth. Black Americans in particular have indeed been shut out of mainstream banks for decades. But as Corbett notes, loans with 300 percent interest rates are hardly a desirable alternative. Nonetheless, the subprime and payday loan industries have been somewhat successful in fending off stricter regulation, in large part because they have recruited African Americans and civil rights groups to make the argument for them.

Atlantic.com

By Malcolm Maclachlan (published Thursday, September 18, 2008)

Sacramento can’t claim to have started too many trends. But there is an idea that started here that has now spread statewide: payday loans for legislative staffers during our annual budget crisis.

Golden 1 Credit Union started the trends in the early 1990s, offering low-to-no interest loans to legislative staffers who weren’t getting paid during a budget standoff. The Sacramento-based Golden 1 still remains the largest provider of such “payday” loans. But credit unions across the state are now getting into the act, sometimes offering the service to just a few members.

“It was often the district folks who said, hey, I belong to a credit union in Redwood City or San Diego, do you think they would do it?” said Keri Bailey, director of state government affairs for the California Credit Union League. “New credit unions came online this year that had never done it before.”

While there have long been payday services available to Sacramento-based staff, recent years have seen some anecdotal evidence of district staffers being left out in the cold. This is something local credit unions have been trying to address—and maybe use to attract members in the process.

“Redwood Credit Union has done this for years,” said that company’s COO, Anne Benjamin. “We look at it as a member service. It’s really core to what the credit union is all about.”

Benjamin said Redwood has offered the service since about 2002. This year, they have five members taking advantage of it—out of 143,000 customers, with $1.8 billion under deposit.

That’s a fraction of what Golden1 is dealing with. CEO Teresa Halleck said they serve about 1,100 legislative staffers who have taken advantage of the program this year, borrowing a total of about $9 since the budget went delinquent back on July 1. Members who already banked with Golden1 when the standoff started and had direct deposit are eligible for zero-interest loans. Other legislative staff can get very low-interest loans, she said.

There is a cost to the company, Halleck said. Because this is $9 million the company can’t loan or invest elsewhere, they have lost an estimated $45,000 so far. But this money is pretty insignificant compared to what the company and their customers get out of it, she said.

“The budget loans started at Golden1,” Halleck said. “For the state employees who have been around a few years and know that, it means a lot to them and they’re very loyal.”

So loyal, in fact, that some make sure new staffers know about the program. Take Mercedes Florez. A self-describer Capitol “old-timer,” she’s now the capitol director for freshman Assemblyman Tony Mendoza, D-Artesia. Some of Mendoza’s staff had never experienced life in the Capitol—or the late summer/early fall pay disruption that now seems to be an annual event. “Because I made sure everyone went through Golden1, that’s not a problem for us,” Florez said.

Some larger banks are now offerings the loans as well, including Washington Mutual and Bank of America. But where the practice really seems to have caught on is with credit unions, which are popular with public employees around the state.

Another local credit union, Schools Financial, has been offering the loans since 1995. Spokesman Nathan Schmidt said they have 35 members who have taken out about $100,000 under the program. Schmidt said they have similar loan programs to benefit their main customer base, teachers and other school employees. With some teachers being laid off earlier this year due to budget cutbacks, and others going through a semi-annual process of being laid off and hired back as districts wrestle with their budgets, these loans can be important to getting teachers through tough times. But many try not to use the programs, he added, trying to live off of savings as much as possible.

“Teachers are pretty conservative with their funds,” Schmidt said. “Members weren’t coming in bombarding us or anything.”

While the cost-benefit analysis seems pretty clear for most of these credit unions, that equation could have been greatly changed if Schwarzenegger had gotten his wish and been able to reduce all but a few state workers to the federal minimum wage of $6.55 an hour. Controller John Chiang blocked the move, and the governor’s order is now tied up in court.

If the order had gone through, Halleck said, Golden1 would have started taking losses of $250,000 a month. That’s because the company’s policy is to offer the low-to-no interest loans to all state workers facing budget-related pay disruptions. This was a leftover from the early 1990s, when a delayed state budget caused all state workers to get only IOUs.

“We would have to go out and borrow that money, about $100 million if the state workers were affected in mass,” Halleck said.

Source: Capitol Weekly

Have your ducks in a row before you apply for a home loan

FINANCING BY ELLEN JAMES MARTIN
September 19, 2008

By now, many economists had projected that the “credit crunch” would have eased. But prospective home buyers—including those with stable jobs and decent credit—still confront unusually high hurdles to gain approval on their home-loan applications.

“People in the mortgage industry are extremely hungry for business. But they’re also extremely picky who they lend to. The last thing they want are more foreclosures coming back to haunt them,” says Blaine Rickford, president of an independent mortgage firm.

Mortgage officers—those who take loan applications and deal with the public—prepare files on would-be borrowers. Yet no file is ever approved by a bank unless its underwriters give the green light.

“You never get to meet the underwriters—these loan supervisors are off-limits to borrowers. But mortgage officers talk to them directly and can plead your case if they think you’re a good bet,” says Rickford, who’s worked in the mortgage field since 1978.

Develop a positive rapport with you’re mortgage lender and you’re more likely to reach your home-buying goal, says Leo Berard, charter president of the National Association of Exclusive Buyer Agents (naeba.org).

“You don’t want to torpedo your chances of owning a home because of some financing glitch. Those who win in the mortgage process take a businesslike approach,” Berard says.

Here are pointers for home-loan applicants at a time of tight credit:

Educate yourself on the basics of mortgages before you apply. Many buyers, and particularly novices, are in the dark about mortgages and how lending works. Because they feel ignorant on the topic, they hesitate to pose important questions.

But as Berard says, the basic concepts of mortgage lending aren’t so complex that you can’t grasp them in a short period of time. Start with the Internet, taking a look at the “mortgage” entry in Wikipedia (wikipedia.org), the free online encyclopedia, and its related links. You can also go to the U.S. Department of Housing and Urban Development’s Web site at hud.gov.

Also, Berard encourages you to stop by your local library to check out a book or two on the topic, such as “Mortgages for Dummies,” co-authored by Ray Brown and Eric Tyson.

Knowing a bit about mortgages before you apply will help you be more adept at choosing the best possible home-loan product for your situation. You’ll also be less vulnerable to unscrupulous lenders, Berard says.

Arrange a face-to-face meeting with your mortgage lender. Many mortgage officers are happy to entertain applications from would-be borrowers they’ve never met. Technically, there’s no reason you can’t apply for a home loan over the phone.

“But for important business transactions, it’s always to your advantage to meet one-on-one,” says Berard, a veteran real estate broker.

A face-to-face meeting is especially important for those expecting to confront unusual barriers to loan approval, Rickford says. These include people who are self-employed, have credit scores below 720, or have limited assets—such as savings—on which to fall back if they can’t meet their mortgage payments.

“An in-person interview adds to your credibility as a borrower. You’ll be more believable when you attempt to explain your financial issues,” Rickford says.

Also remember to dress the part when you go to the lender’s office. You needn’t wear a business suit but you should look neat.

Have your documents ready when you reach the lender’s office. Mortgage officers are working harder than ever to assemble files that meet the exacting requirements of their underwriters. They’re very appreciative of borrowers who make their jobs easier by showing up well-prepared.

Rickford says ideal loan applicants arrive at their initial appointment with extra copies of the essential documents their lender will need. These include the most recent month’s worth of pay stubs and W-2s for the last two calendar years. You’re also likely to be asked for two years’ worth of tax returns, along with statements showing the present value of your holdings—such as savings accounts, stocks, bonds and retirement funds.

Mortgage officers are also impressed by loan applicants who’ve scrutinized their credit reports in advance of a meeting. Under federal law, you’re entitled each year to one free credit report from each of the three large credit bureaus: Equifax, Experian and TransUnion. Just go to this Web site: annualcreditreport.com.

You’ll also want to access your credit scores. Such scores, which draw on data from the credit bureaus, provide lenders with a quantitative measure of a person’s credit risk. Most lenders use FICO scores, pioneered by the Fair Isaac Corp.

Stay in close touch with your lender until your mortgage is approved. Given the recent turmoil in the mortgage industry, buyers are less likely than before to get early approval for financing on a home they’ve picked out. More questions will probably arise as you go through the application process, and some will require a written response from you.

For instance, suppose your credit reports show that you were late in making a payment on a car loan or credit card. The processing of your mortgage could be held up until you draft a justification for such credit blemishes, such as a temporary lapse in employment when you were between jobs.

Lenders appreciate loan applicants who stay in close touch and are proactive about resolving issues that surface along the way, Berard says.

“Call your lender once or twice a week. Ask politely if you can do anything to help get your mortgage through. Like anyone in a service field, lenders much prefer dealing with folks who are cooperative,” he says.

Universal Press Syndicate
Source: Chicago Tribune