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How Payday Loans Leave Cash-Strapped Borrowers Unbankable

From
cash loan – Yahoo News Search Results:

Barry Barker’s flock of macaws and
kites were squawking for food last year when he went online for
a payday loan to save them. The automatic debits got so costly
he had to close his bank account to stop them.

Barker, 71, a field biologist in Florida who runs a
nonprofit shelter for exotic animals, isn’t alone. Thousands of
Americans exit the banking system after turning to last-resort
lenders, according to a study released yesterday by the Pew
Charitable Trusts. Of 252 online payday-loan borrowers surveyed
by Pew as part of a three-year research project, 22 percent
closed a checking account or had one closed for them.

Payday lending is migrating to the Internet as states from
New York to California restrict the costly short-term loans,
which are secured by a borrower’s next paycheck. The websites
charge twice as much on average as payday stores and account for
a disproportionate share of consumer complaints about fraudulent
charges or harassment by debt collectors, according to Pew.

“Abusive practices in the online payday-loan market not
only exist but are widespread,” Nick Bourke, director of the
Pew project, said in a statement.

Pew is releasing the study as the U.S. Consumer Financial
Protection Bureau weighs the first federal payday-loan
guidelines. Regulators should require lenders to make more
affordable loans and disclose the cost clearly, Pew said.

Consumer Demand

Payday lenders say they provide a valuable service to
people who lack access to cheaper forms of credit. The Online
Lenders Alliance, a lobbying group, said in a statement
responding to the Pew study that “its members are working to
ensure consumers are treated fairly.”

Some of the borrowers surveyed by Pew who closed their bank
accounts said lenders were making unauthorized withdrawals,
while others said they couldn’t keep up with the payments.

The average interest on a $100 loan is about $25 every two
weeks, or an annual rate of 652 percent, according to Pew. About
a third of borrowers said their loans were set up to only
withdraw those fees, meaning they ended up making several
payments without reducing the principal.

“Their business model is based on churning — getting
people a loan and then having people re-up it so they stay in
debt indefinitely,” said Liz Murray, policy director for
National People’s Action, a network of community organizations
that ran protests against payday lenders in August that it
called “Shark Week.”

Offshore Address

Pew found that online lenders accounted for 89 percent of
payday-loan complaints made to the Better Business Bureau in
2011, even though they control only a third of the industry.
Some online firms are set up offshore or affiliated with
American Indian tribes, and say state laws don’t apply to them.
Most complaints were about those kinds of lenders, and not
state-licensed companies like Speedy Cash Inc. and Cash America
International Inc. (CSH)
, according to the report.

Barker got his loan through a website called CashJar.com,
which he found by looking on Google for a payday loan. The
website, which has said it’s based in Belize, has been cited by
regulators in at least seven states for making illegal loans.

CashJar was part of a network of payday websites run by
three Americans on the Caribbean island of St. Croix, Bloomberg
News
reported last month, citing people with knowledge of the
matter who asked not to be identified. The company, called Cane
Bay Partners VI LLLP, is part-owned by Vector Capital IV LP, a
private-equity fund that counts Harvard University and the
Massachusetts Institute of Technology among its investors,
according to former employees of Cane Bay and Vector. The Pew
report doesn’t mention Cane Bay or CashJar.

Closing Account

Ronn Torossian, a spokesman for Cane Bay, said the company
does consulting, not payday lending. He declined to say whether
Cane Bay runs CashJar, saying confidentiality agreements prevent
him from discussing any clients. CashJar couldn’t be reached for
comment because its website is down and its phone number now
belongs to another company.

Barker, who ended up filing for bankruptcy, said he had to
close his bank account to stop CashJar from making automatic
debits. He has since found homes for all but seven of the
abandoned birds he was caring for.

“When I closed the checking account, that’s when the phone
calls started,” Barker said. “The threats were unreal. They
said they were going to send the sheriff to my house within 24
hours.”

To contact the reporter on this story:
Zeke Faux in New York at
zfaux@bloomberg.net

To contact the editors responsible for this story:
Peter Eichenbaum at
peichenbaum@bloomberg.net
Steve Dickson, Steven Crabill

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How Payday Loans Leave Cash-Strapped Borrowers Unbankable

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