Americans for Financial Reform report
News 12 at 6 o’clock / Friday, Dec. 19, 2014
AUGUSTA, Ga. (WRDW) — Some folks rely on payday and title loans to get from one paycheck to the next.
For Christene McCullough, taking out a title loan has been one big nightmare.
“Some nights I lay there and I cry,” said McCullough. “It’s gotten to the point where it’s hard to pay it (loan) because bus transfers are like $50 a month.”
In June, after her SUV broke down, McCullough borrowed $1,500 from TitleMax to get the vehicle fixed. It is still in the shop.
So, now she borrows a friends car which helps. But being on disability and raising two children, she does not have the money to make her $220 a month payment to TitleMax, because she said the interest is too high.
“You’re paying like $189 in interest and whatever else you pay over, that’s what goes to the loan,” McCullough said.
“I will never do that again,” Darrell Mayfield said.
He took out a $400 payday loan during Christmas several years ago.
“It was a necessity. I needed the money,” McCullough said.
But he too ran into some hardship.
“I called and let them know that I was going to give them the money the next day,” McCullough said.
Which he said led to dozens of harassing phone calls and even worse.
“Once you miss a payment, the interest level just skyrockets,” McCullough said. To as much as 500 percent.
According to a new report by non profit Americans for Reform, the “debt trap is an essential element of the quick-fix lending industry, and with its “extremely high fees, many people end up paying far more in loan charges than they originally borrowed; and because of strong arm collection tactics, payments to these predatory lenders often take priority over rent, utilities and other necessities.”
“The ability to pay is difficult so they get caught in that thing of trying to pay them back,” Mayfield said.
The industry has spent millions on lobbying and campaign contributions to 50 members of congress, in what AFR calls an effort to “line the pockets of powerful Washington politicians.”
Meanwhile McCullough says she has learned an expensive lesson. “If you are trying to get a loan from a loan place, don’t do it, said McCullough.
We called and or emailed TitleMax, Advance America and several other title pawn and payday lenders, but have not heard back from any of them yet.
Americans for Financial Reform report.
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12 OYS: Payday loan users caught in vicious quick-cash, high interest cycle
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Some payday loans carry interest rates as much as 400% to 700% and may not allow early pay offs.
Southfield, MI (PRWEB) December 19, 2014
Consumers who have financial trouble during the holidays may be enticed to bridge the gap between paychecks by obtaining a payday loan. Better Business Bureau (BBB) Serving Eastern Michigan is warning consumers to be cautious, as these loans typically have very high fees and interest rates as well as questionable sales and collection tactics that confuse and intimidate borrowers.
Payday loans are loans of short duration, usually two weeks, and can be obtained from a physical payday loan store or on the internet. Better Business Bureau receives hundreds of complaints against payday loan companies alleging threats of arrest and notifications to employers about their debt. Complaints also state that consumers who apply for loans online, may not see the full disclosure of interest rates or fees until after they have signed the documents and that there are unauthorized withdrawals from their bank accounts.
Typically, payday lenders do not perform a credit check but ask borrowers to write them a post-dated check for the amount they borrow plus a borrowing and account set-up fee. The lenders will then deposit the check after the borrower’s payday if they have not already paid off the loan. If the borrower’s bank account cannot cover the amount of the loan, they will then owe the original loan plus added interest and they may also incur overdraft fees from their bank. Borrowers can chose to pay more fees to renew the loan if they know they cannot pay it off in time. This practice creates a cycle of consumer refinancing and continuous debt.
Payday loans are regulated in Michigan in most cases. For example, a payday lender can only have one outstanding payday loan per customer for a loan amount of up to $600. A customer may take out a second loan with a different payday lender, and can only have two outstanding payday loans at any given time. The payday lender may charge up to 15% on the first $100, 14% on the second $100, 13% on the third $100, 12% on the fourth $100, and 11% on the fifth and sixth $100.
Consumers should be aware that some payday loan companies, such as those operated by Native American tribes, may have tribal sovereign immunity from laws that govern other lenders. These loans often carry interest rates as much as 400% to 700% and may not allow early pay offs, resulting in a cycle of perpetual debt for the borrower. The Consumer Financial Protection Bureau recently released a report that analyzed payday lending and found that four out of five payday loans are rolled over or renewed within 14 days.
Alternatives to Payday Loans
Before you decide to take out a payday loan, consider some alternatives:
1. Consider a small loan from your credit union or a small loan company. Some banks may offer short-term loans for small amounts at competitive rates. A local community-based organization may make small business loans to people. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds: find out the terms before you decide. In any case, shop first and compare all available offers.
2. Shop for the credit offer with the lowest cost. Compare the APR and the finance charge, which includes loan fees, interest and other credit costs. You are looking for the lowest APR. Military personnel have special protections against high fees or rates, and all consumers in some states and the District of Columbia have some protections dealing with limits on rates. Other credit offers may come with lower rates and costs.
3. Contact your creditors or loan servicer as quickly as possible if you are having trouble with your payments, and ask for more time. Many may be willing to work with consumers who they believe are acting in good faith. They may offer an extension on your bills; make sure to find out what the charges would be for that service — a late charge, an additional finance charge, or a higher interest rate.
4. Contact your local consumer credit counseling service if you need help working out a debt repayment plan with creditors or developing a budget. Non-profit groups in every state offer credit guidance to consumers for no or low cost. You may want to check with your employer, credit union, or housing authority for no- or low-cost credit counseling programs, too.
5. Make a realistic budget, including your monthly and daily expenditures, and plan, plan, plan. Try to avoid unnecessary purchases: the costs of small, every-day items like a cup of coffee add up. At the same time, try to build some savings: small deposits do help. A savings plan — however modest — can help you avoid borrowing for emergencies. Saving the fee on a $300 payday loan for six months, for example, can help you create a buffer against financial emergencies.
6. Find out if you have — or if your bank will offer you — overdraft protection on your checking account. If you are using most or all the funds in your account regularly and you make a mistake in your account records, overdraft protection can help protect you from further credit problems. Find out the terms of the overdraft protection available to you — both what it costs and what it covers. Some banks offer “bounce protection,” which may cover individual overdrafts from checks or electronic withdrawals, generally for a fee. It can be costly, and may not guarantee that the bank automatically will pay the overdraft.
The bottom line on payday loans: Try to find an alternative. If you must use one, try to limit the amount. Borrow only as much as you can afford to pay with your next paycheck — and still have enough to make it to next payday.
Collection activities are subject to the federal Fair Debt Collection Practices Act. Therefore, if you have questions regarding debt collection laws please contact the Federal Trade Commission at 1-877-FTC HELP, or online at http://www.ftc.gov. Debt collectors cannot state or imply that failure to pay a debt is a crime.
BBB Warns of the Pitfalls of Payday Loans
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Discover Financial’s strength lies in its strong inorganic growth story and solid cash position that also enables efficient capital deployment. However, weakness prevailing in the Payment Services segment and escalating expenses raise caution. Its third-quarter earnings surpassed the Zacks Consensus Estimate on lower share count and card loan growth. Moreover, the company’s quality services keeps it cushioned against high customer attrition. An extensive student loan portfolio, global expansions, prudent capital management and increased card sales position it well for long-term growth. Additionally, implementation of the core banking platform supports all the deposit products, thus accelerating customer service. However, competition, lawsuit damages and regulatory challenges remain headwinds. We maintain our Neutral recommendation on the stock.
Founded in 1986 and based in Riverwoods, IL, Discover Financial Services is a direct banking and payment services company in the United States. The company offers credit cards, personal, student and home loans as well as deposit products. In Mar 2009, Discover Financial became a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act in connection with its participation in the U.S. Treasury’s Capital Purchase Program.
Discover Financial offers its products and services with acceptance in more than 185 countries and territories. The company operates through three networks:
The Discover Network Discover Financial’s credit card payment network.
The PULSE network Discover Financial’s ATM, debit and electronic funds transfer network.
Diners Club International Discover Financial’s global payment network.
Discover Financial manages its business activities in two segments:
The Direct Banking segment (accounted for 96% of total revenue in 2013), formerly referred to as the U.S. Card segment, includes Discover card-branded credit cards issued to individuals and small businesses in the Discover Network. The segment also offers personal loans, student loans, home loans, prepaid cards and other consumer lending and deposit products.
The Payment Services segment (4%), formerly referred to as the Third-Party Payments segment, includes PULSE, Diners Club and its network partners business (previously referred to as the third-party issuing business), which includes credit, debit and prepaid cards issued by the third parties on the Discover Network.
Discover Financial continues to grow inorganically through acquisitions. In Dec 2010, the company acquired The Student Loan Corporation (SLC) in a merger transaction for $600 million and received a purchase price closing adjustment in a cash payment of approximately $234 million from Citibank, the 80% owner of SLC before the merger, resulting in a net cash outlay of approximately $366 million for the acquisition of SLC. In the transaction, Discover Financial acquired SLC’s ongoing private student loan business and approximately $4.2 billion of private student loans and other assets, along with approximately $3.4 billion of SLC’s existing asset-backed securitization debt funding and other liabilities. It also acquired the loans and other assets at an 8.5% discount. SLC is now a wholly owned subsidiary of Discover Bank.
In June 2012, Discover Financial announced the completion of the purchase of almost all operating and related assets of Tree.com Inc.’s subsidiary Home Loan Center. The company has already paid $49 million for the deal, including payments made prior to the closing. Another $10 million was paid on the first anniversary of the closing date, that is, June 2013. Home Loan Center originates and processes residential mortgage loans across all 50 U.S. states as well as the District of Columbia.
Following the acquisition of Home Loan Center, Discover Financial expanded its product portfolio to include residential mortgage with the launch of Discover Home Loans in June 2012. The company now offers commercial and Federal Housing Administration loans with both variable and fixed rates.
In Dec 2012, Discover Financial’s board approved a change in its fiscal year to Jan 1 Dec 31, effective from Jan 2013. Earlier, the company’s fiscal year ended on Nov 30. Due to the change, Dec 2012 was a transition period and was reported separately with the financial results for the first quarter of 2013 and full-year 2013.
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