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8 On Your Side: Bill could remove payday loan protections

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LAS VEGAS – Taking out a payday loan is rarely a good idea. Many companies charge high interest rates, and customers can easily get in a trap where they spend years paying off the loans.

If you get a payday loan, be warned. These companies may soon have more leverage over customers. Nevada law offers consumers some protections from payday loan companies, but that could change.

If Senate Bill 123 passes, it would allow payday loan companies that offer long-term loans to sue customers who default on their loans.

“Somebody can get sued after paying for twelve to fourteen months on this loan, and then get sued at the end for more interest,” said consumer advocate Venicia Considine.

Considine says this can hurt payday loan customers who are already strapped for cash.

“The average income nationally of people who go to payday loan lenders is about $22,400 a year,” she said.

Considine says she feels the current laws obligate lenders to ensure anyone they give money to can pay it back. Senate Bill 123 would change that, and it could keep people trapped in a cycle of debt for a long time.

“It’s a lose-lose for the consumer,” she said.

You can voice your opposition to the bill by contacting your state lawmaker.

If you are in trouble with payday loans, the Legal Aid Center of Southern Nevada can help. Their services are free.

If you have a problem you want investigated, contact 8 On Your Side at 702-650-1907.

[…]

Cooperative Baptists in Kentucky champion cap on payday loan …

Read More: Cooperative Baptists in Kentucky champion cap on payday loan …

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Wonga to cut third of staff following new clampdown on payday …

Wonga is slashing about a third of its workforce to cut costs as it responds to a wider clampdown on unfair practices in the payday lending market.

The controversial lender said 325 jobs would go, mainly in the UK and Ireland. Wonga’s Dublin office will close as part of the plans, as will its office in Tel Aviv.

Related: Payday lending will shrink but only a complete ban will do

Andy Haste, the lender’s chairman, said: “Wonga can no longer sustain its high cost base, which must be significantly reduced to reflect our evolving business and market.

“Regrettably, this means we’ve had to take tough but necessary decisions about the size of our workforce. We appreciate how difficult this period will be for all of our colleagues and we’ll support them throughout the consultation process.”

Wonga’s decision to cut jobs came on the same day that the Competition and Markets Authority announced new rules to force payday lenders into being more transparent about their charges. The CMA is hoping that it will create more competition in the market, lowering costs for millions of consumers who rely on the loans.

Wonga employs a total of 950 people worldwide, but all the job losses relate to its UK payday loans business, which employs 650 people – about 280 in the UK, 175 in Ireland, 185 in South Africa and 10 in Israel.

It is understood about 100 jobs will go in the UK alone. All jobs will go in Ireland and Israel.

The group is aiming to achieve overall cost savings of at least £25m over the next two years, following a period of rapid expansion that saw costs treble between 2012 and 2014.

When Haste was appointed chairman last July, he said Wonga would become smaller and less profitable as it scaled back the number of customers it extended loans to, imposing stricter lending criteria.

In October the company was forced by the City watchdog, the Financial Conduct Authority, to write off £220m of loans to 375,000 borrowers, who it admitted should never have been given loans.

Wonga also announced on Tuesday that its former chairman Robin Klein was stepping down from the board after eight years.

The payday loans industry is undergoing a major shakeup as regulators seek to make the market fairer for cash-strapped consumers.

Under the new rules announced on Tuesday, lenders will have to list their deals on price-comparison websites and make it easier for customers to compare the total cost of different loans offered by various lenders.

Payday lenders will also have to provide customers with a summary of the total cost of their loans, as well as how additional fees such as late repayment affect the cost.

The recommendations were made after a 20-month inquiry into the payday loans industry by the CMA.

The watchdog concluded that a lack of price competition between lenders had driven costs higher for borrowers, with most people failing to shop around partly owing to a lack of clear information on charges.

Simon Polito, who ran the inquiry, said: “We expect that millions of customers will continue to rely on payday loans. Most customers take out several loans a year and the total cost of paying too much for payday loans can build up over time.”

The CMA’s decision follows an earlier clampdown by the UK financial regulator, the Financial Conduct Authority (FCA).

The authority introduced a price cap on 2 January to ensure that borrowers are never forced to repay more than double the amount of their original loan.

Interest and fees were capped at 0.8% a day, lowering the cost for most borrowers, while the total cost of a loan was limited to 100% of the original sum. Default fees were to be capped at £15 to protect people struggling to repay their debts.

Polito said: “The FCA’s price cap will reduce the overall level of prices and the scale of the price differentials but we want to ensure more competition so that the cap does not simply become the benchmark price set by lenders for payday loans.

“We think costs can be driven lower and want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans. Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.”

Joanna Elson, chief executive of the Money Advice Trust charity, welcomed the action from the CMA and FCA but added a note of caution: “This is good news for the consumer. More competition and transparency in the payday loan market will ensure that the FCA’s cap on the cost of credit remains precisely that– a cap, not the norm.

“This is a good example of regulators working together to bring about meaningful change in this sector. However, these improvements in the way that payday loans are regulated must not dilute the core message that payday lending remains an extremely expensive way to borrow,” she said.

Payday lenders will be forced to publish the details of their products on at least one price comparison website, authorised by the FCA. The CMA said on Tuesday it would work closely with the FCA to implement the new recommendations.

[…]

CMA finalises proposals to lower payday loan costs – Press releases …

The measures follow the conclusion of a 20-month investigation into the market by a group of independent Competition and Markets Authority (CMA) panel members. The group published its provisional findings in June 2014 and then consulted on its intended proposals the following October.

Online payday lenders will be ordered by the CMA to publish details of their products on at least one price comparison website (PCW) which is authorised by the Financial Conduct Authority (FCA). To ensure that they operate to appropriate standards, the CMA has recommended to the FCA that authorised PCWs should provide customers with clear, objective and comparable information on all potential loan costs, in particular the total amount payable, and have the ability for customers to compare different loans by searching easily on the most relevant features such as loan amount and duration. The CMA believes that one or more commercial PCWs will emerge and be authorised by the FCA, but if this does not happen, lenders will be obliged to set up an FCA authorised PCW.

The CMA has also made recommendations to the FCA to take steps to:

improve the disclosure of late fees and other additional charges help customers to shop around without unduly affecting their ability to access credit improve real-time data sharing between lenders and credit reference agencies ensure that lead generators – websites which sell potential borrowers’ details to lenders and through which 40% of first-time online borrowers access their loans – explain how they operate much more clearly to customers

Finally, online and high street payday lenders will be ordered by the CMA to provide existing customers with a summary of their cost of borrowing. The summary will tell borrowers what the total cost of their most recent loan was, as well as the cumulative cost of their borrowing with that lender over the previous 12 months and how late repayment affected their cost of borrowing.

The measures are designed to tackle problems identified in the final report, where the CMA found that a lack of price competition between lenders has led to higher costs for borrowers. Most borrowers do not shop around – partly because of the difficulties in accessing clear and comparable information on the cost of borrowing and a lack of awareness of late fees and additional charges. Without the pressure to drive down costs, lenders have tended to price their loans at similar levels whilst competing on other factors such as speed – often the initial priority for borrowers.

The CMA also found that many borrowers believe that lead generators are themselves lenders, rather than simply intermediaries. Even where they understand this, most customers are unaware that, rather than matching borrowers with the most suitable or cheapest loan on offer, lead generators sell borrowers’ details to lenders based on how much lenders are prepared to pay for the details, generally selling them to the highest bidder. As a result the CMA does not consider that lead generators have been effective in promoting price competition between lenders even though they have helped to promote the entry into the market of additional lenders.

The CMA’s remedies follow the FCA’s introduction of a price cap for the sector which came into force on 2 January 2015, which is in addition to a number of other FCA measures to increase customer protection that the FCA has introduced over the past year.

Simon Polito, Chair of the CMA’s Payday Lending Investigation Group, said:

The payday lending market is undergoing substantial change as a result of FCA initiatives to eradicate unacceptable practices. Our actions complement the FCA’s measures and are aimed at making the market more competitive and further driving down costs for borrowers.

We expect that millions of customers will continue to rely on payday loans. Most customers take out several loans a year and the total cost of paying too much for payday loans can build up over time. During our investigation, we found that there was often a substantial difference in this market between the most expensive and cheapest deals.

The FCA’s price cap will reduce the overall level of prices and the scale of the price differentials but we want to ensure more competition so that the cap does not simply become the benchmark price set by lenders for payday loans. We think costs can be driven lower and want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans. Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.

Even where borrowers do shop around at present, it is difficult for them to compare prices between short-term loans given the differences between products and the limited usefulness of the APR in making comparisons. Few customers find their lender via existing price comparison websites, which suffer from a number of limitations.

To help them, we are requiring lenders to be listed on price comparison websites authorised by the FCA and have recommended to the FCA that these websites should carry all the information customers need to compare easily the total cost of different lenders’ loans. This will promote competition and provide the incentive for new and existing lenders to compete to offer lower cost loans and win borrowers’ business. It will also make it easier for new entrants that offer lower cost loans to access customers.

We have worked closely with the FCA throughout the investigation and are pleased that the FCA is fully supportive of the remedies in our final report.

In developing these measures the CMA has carried out customer research to inform the design of its remedy package and has consulted extensively with consumer groups and debt charities, lenders, intermediaries, trade associations and a range of other market participants, as well as with the FCA. The CMA will publish an order within 6 months putting in place its requirements in relation to PCWs and borrowing summaries. The FCA will consult in the summer of 2015 on the measures to be introduced in response to the recommendations. The CMA will work closely with the FCA to implement the recommendations.

The final report and all other information on the investigation are available on the payday lending case page.

Notes for editors

  1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission (CC) and the competition and certain consumer functions of the Office of Fair Trading (OFT), as amended by the Enterprise and Regulatory Reform Act 2013.
  2. The members of the Payday Lending Investigation Group are: Simon Polito (Chairman of the group), Katherine Holmes, Ray King and Tim Tutton. Read more on how market investigations are conducted. The OFT referred the payday lending market to the CC on 27 June 2013.
  3. All the CMA’s functions in market investigations are performed by inquiry groups chosen from the CMA’s panel members. In such investigations, the appointed inquiry group are the decision-makers.
  4. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
  5. Following a market investigation the CMA may take action itself, by making an order or accepting undertakings from parties. The CMA may also recommend that action be taken by others such as government, regulators and public authorities. Where the CMA makes such a recommendation, it will be for the person to whom the recommendation is addressed to decide whether to take the recommended course of action.
  6. The FCA assumed responsibility for consumer credit regulation from 1 April 2014, having announced its proposals for regulating consumer credit in October 2013 and confirming additional rules for payday lenders in July 2014. Measures by the FCA to strengthen consumer protection have meant closer regulation of lenders over issues such as limiting rollovers, restrictions on the use of Continuous Payment Authorities to recover debt from a borrower’s bank account, the carrying out of proper affordability checks and sensitive treatment of debt problems. In November 2014, the FCA confirmed details of the price cap which was subsequently introduced on 2 January 2015. On the same day the FCA also introduced rules to address some of the concerns around lead generators identified in the final report which were first highlighted by the CMA in its provisional findings.
  7. Enquiries should be directed to Rory Taylor, (rory.taylor@cma.gsi.gov.uk) or Siobhan Allen, (siobhan.allen@cma.gsi.gov.uk) or by ringing 020 3738 6798 or 020 3738 6460.
  8. For more information on the CMA, see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on markets cases.

[…]

Payday Loans Entrap the Most Vulnerable – Roll Call


Payday Loans Entrap the Most Vulnerable | Commentary

©Reprints

By Galen Carey

As our economy continues to improve, there is a crushing weight holding many back: payday loans. While state and local leaders have taken up the cause in certain jurisdictions, this is a national problem that requires Congress to act. Unscrupulous lenders lure those who are already facing financial hardship into a debt trap from which it is very difficult to escape.

Drawn by slick marketing, desperate borrowers are induced to accept unfavorable terms they may not fully understand. The cost of a typical payday loan exceeds 300 percent annual percentage rate. By requiring full repayment from the next paycheck, payday lenders virtually guarantee that the borrower will be forced to ask for a new loan, with additional fees and interest, to pay back the old one.

This violates the underwriting standards applied to virtually every other type of loan. Payday loans perpetuate a cycle of debt, poverty and misery.

Three quarters of the fees payday lenders bring in come from borrowers, mostly low income, who have taken out 10 or more loans in a single year. More than half of all payday loans are renewed or rolled over so many times that consumers wind up repaying at least twice the amount they originally borrowed.

We have just come through the busiest season for payday lenders. Their ads promise an easy solution to the pressure of unbudgeted holiday expenses.

Parents understandably want to buy their children Christmas presents, and the lure of readily accessible extra cash masks a real threat to their financial health.

The reality is that a short-term loan almost always creates a debt that the borrower cannot repay in two weeks. Interest and fee payments balloon while the principal remains unpaid. The debt burden often continues long after the Christmas toys have been broken and discarded.

Last October, the National Association of Evangelicals addressed the devastating impact of payday loans with a resolution calling for an end to predatory lending. We are asking churches, charities, employers and government agencies to work together to help our members, neighbors and co-workers in ways that do not exploit them and lead to further misery. Other religious groups, including the Southern Baptist Convention, have made similar appeals.

The Bible prohibits usury, exploitation and oppression of those in need, and there is growing evidence that payday loans, as they are currently structured, often violate biblical justice. Predatory lenders who oppress the poor incur the wrath of God (Exodus 22:21-27). They should apply their expertise and resources to developing stronger communities rather than tearing them down.

Every family needs a rainy day fund to cover unexpected expenses from time to time. Churches should teach the spiritual disciplines of tithing and saving that position members to provide for themselves and generously care for others when special needs arise. It is our responsibility as neighbors and as churches to save and give generously, to provide the neediest among us with every possible opportunity to achieve and succeed. Churches, charities and employers should support households in their communities in times of crisis so as to prevent neighbors from being drawn into long-term debt.

In 2006, Congress passed bipartisan legislation capping the rates on loans issued to service-members at 36 percent annual interest. We need similar leadership from Congress today so that all Americans are protected from financial predators. The Consumer Financial Protection Bureau, an agency established to monitor the increasingly complex array of financial products offered to the American public, plans to unveil a new rule in coming months. We hope the bureau thoroughly investigates the payday industry and establishes just regulations and that Congress supports this process. State agencies should do the same. We need common sense guidelines such as requiring that loans be made at reasonable interest rates, and based on the borrower’s ability to actually repay.

Credit can change lives. It can be a source of opportunity or cause of devastation. How we use and safeguard this powerful tool is our choice. Caring for and lifting up our neighbors is our responsibility.

Galen Carey is vice president of Government Relations for the National Association of Evangelicals.

The 114th: CQ Roll Call’s Guide to the New Congress

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© ReprintsGuest Observer […]

Dangers of applying for an online payday loan

As consumers move their financial activities online, applying online for a payday loan may seem like the natural thing for a cash-strapped person to do.

But you could be setting yourself up for a world of hurt, from paying exorbitant interest rates to having funds swiped from your bank account to being threatened by debt collectors. Just filling out an application could be enough to begin the harassment and thievery.

“Absolutely the worst thing you can do is apply for an online payday loan,” says Jay Speer, executive director of the Virginia Poverty Law Center.

Most online payday loan sites aren’t even operated by lenders. They’re run by “lead generators,” who seek your personal information, such as Social Security number, driver’s license number and bank account details. They then sell that information to lenders.

“Your email and telephone explode after that,” Speer says, as lenders vie to offer you cash. That can happen even if you live in one of the 15 states where payday loans are illegal.

Lenders aren’t the only ones in the market for your personal information. “There’s a good chance they sell to fraudsters — people who come after you months or years later,” he says.

Sandra Green (not her real name) has experienced this firsthand. The Virginia woman turned to online payday loans after her husband was injured and couldn’t work for two years. Their credit was damaged and they couldn’t get cash to pay their bills from traditional financial institutions.

Green took out several loans totaling $3,000 to $4,000 starting around 2010. The lenders that she received cash from took their payments from her bank account — but they weren’t the only ones. A company she had never heard of swiped money from her account, creating an overdraft.

She filled out a request for the bank to stop payment. That worked for about six months, and then the withdrawals started again. “People will change the identity of the company and then they’ll hit it (the account) again. Once they do this it’s a never-ending cycle,” she says.

Companies she’d never done business with would call her at work and at home, harassing her. One threatened to file papers with the local sheriff’s office if she didn’t pay immediately.

“They get really belligerent when you don’t do what they want you to do,” Green recalls.

She feared she’d wind up in bankruptcy because of the loans and finally sought help from Blue Ridge Legal Services, a Virginia legal aid society, in 2013. Blue Ridge connected her with the Virginia Poverty Law Center.

Speer says of online payday lenders: “These people are like sharks. If you give them some money it’s like throwing blood in the water.”

Payday loans are generally described as small, short-term loans. A consumer writes a check for the amount borrowed, plus a fee. The lender advances money against the check and the check is held until the next payday, when the loan and fees must be paid. Or, in the practice used by most online lenders, a consumer can grant the lender access to his bank account, and the lender electronically accesses the account to deposit money and withdraw payment.

Even paying back legitimate loans carries astronomical costs. Green took out a loan of $350. It took six weeks for her to pay it back, and she paid nearly $300 in fees.

Online payday loans boom
Her experiences are not uncommon. “Fraud and Abuse Online: Harmful Practices in Internet Payday Lending,” a 2014 study by the Pew Charitable Trusts, found online installment payday loans typically have an APR of 300 percent to more than 700 percent. Online lump-sum payday loans have a typical APR of 650 percent, or $25 per $100 borrowed per pay period. Exorbitant fees are also charged, and initial payments might not be applied to the loan’s principal.

Online payday lending is big business. Revenue tripled from $1.4 billion in 2006 to $4.1 billion, according to Pew.

Of the more than 250 online payday borrowers surveyed by Pew, almost 40 percent said their personal information was sold to a third party without their knowledge. Nearly one-third had an unauthorized withdrawal from their account.

Threats were common, with 30 percent of those surveyed saying they were threatened by an online lender or debt collector.

“Harassment and fraud are really concentrated in the online lending market,” says Nick Bourke, project director for Pew’s study on payday loans.

Part of the problem stems from the fact that there’s no control over who can get your information once you apply for an online payday loan. “People’s personal information can be spread far and wide,” Bourke says.

Even if the loans are fraudulent, a consumer’s failure to pay them may be reported to one of the three main credit bureaus, Speer says, which can impact a consumer’s ability to rent an apartment or land a job.

Many storefront payday lenders are fed up with the behavior of these online payday lenders.

“These unlawful lenders roam the Internet trolling for customers. They are scammers. They are fraudsters,” says Amy Cantu, spokeswoman for the Community Financial Services Association of America, which represents more than half of the country’s storefront payday lenders.

Though online payday lenders represent just one-third of the marketplace, 90 percent of payday lending complaints filed with the Better Business Bureau are aimed at them, according to Pew.

Self-regulation efforts
Association members vow to adhere to the organization’s best practices, which include complying with state and federal laws, being licensed in each state in which they do business and adhering to acceptable debt collection practices.

Some of the association’s larger members also have an online presence, she says, but those sites also adhere to the organization’s best practices.

Cantu says she understands that consumers with financial troubles may prefer the anonymity of the Internet when seeking cash, rather than walking into a storefront payday lender. But online lenders are supposed to only operate in the states that allow payday lending.

Her organization wants the federal consumer watchdog agency, the Consumer Financial Protection Bureau, to crack down on illegal lenders.

Agencies crack down
Already the CFPB and the Federal Trade Commission are stepping up action against fraudsters. In a joint news conference in September, the agencies announced they’d filed suit against two online payday lenders.

The CFPB sued Kansas City-based Hydra Group, while the FTC sued CWB Services, also based in Kansas City.

The CFPB received more than 1,300 consumer complaints about the Hydra Group.

At the news conference, CFBP Director Richard Cordray accused the Hydra Group of “running an illegal cash-grab scam to force purported loans on people without their prior consent. It is an incredibly brazen and deceptive scheme.”

Both the Hydra Group and CWB Services were accused of buying personal information, including bank account numbers, from lead generators. The companies would deposit money into consumers’ bank accounts without any signed agreements, and then make unauthorized withdrawals from the accounts. If a consumer complained, the companies would produce false loan documents.

In 15 months, the Hydra Group made $97.3 million in loans and collected $115.4 million from consumers.

Even if consumers closed their accounts, their information might have been sold to debt collectors, who then attempted to collect more money.

A federal judge temporarily shut down the Hydra Group, freezing its assets. The CFPB is requesting a permanent shutdown, along with penalties imposed upon the company and refunds made to consumers.

With CWB Services, the federal court froze the company’s assets and appointed a receivership and the FTC is requesting consumers’ money be refunded. The company had raked in $46 million in 11 months, said Jessica Rich, the FTC’s director of the Bureau of Consumer Protection.

Bourke says the CFPB should ensure that small loans are tailored to the borrower’s ability to pay them off and should provide more protection to consumers, particularly against illegal debt collection practices.

“The core of the problem is that payday loans don’t help people. They drive people further into debt and distress,” he says.

See related:Know your credit card fraudster

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Know your rights under the Truth in Lending Act

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New protections from financial ‘gotchas’ in 2015Dangers of applying for an online payday loanCFPB orders refunds for 98,000 subprime cardholdersFighting back against the growing threat of tax fraudFinanceLoanspayday loanbank account […]

Bipartisan bill puts payday loan industry before people | The Stand

Image moneytree-payday-loans.jpg

By JOHN BURBANK


(Feb. 12, 2015) — If your friend told you that she could get a payday loan of $700, and that the interest would be 36%, plus a small loan origination fee of 15%, plus a monthly maintenance fee of 7.5%, you might advise her to get out her calculator. Here’s why: That $700 loan could cost her $1,687, even if she makes all her payments on time. Right now, under state law, she can get the same loan and it will cost her $795 in all.

Which loan would you choose? That seems like an easy question to answer. But a lot of legislators have failed this test in Olympia. They are sponsoring a bill, HB 1922, to enable MoneyTree to sell “small consumer installment loans,” with high interest, maintenance fees, and origination fees.

Why would these legislators — 36 in the House and 12 in the Senate, both Democrats and Republicans — want to enhance the revenue of the payday loan industry? State Rep. Larry Springer (D-Kirkland) is the prime sponsor of this legislation. He says that “(o)ur current payday lending system is broken. Too often it leaves consumers in a never-ending cycle of debt.”

Unfortunately, HB 1922 makes matters worse, not better, for borrowers.

Rep. Springer may not know how well the law that he helped pass in 2009 reformed payday loan practices. That law leashed in the payday loan industry, with new standards that helped to make sure that people with loans did not get pushed deeper and deeper into debt. The industry didn’t like it, as the total amount of loans fell by more than $1 billion, from $1.3 billion in 2009 to $300 million in 2013. The amount of fees that the industry collected dropped by $136 million annually. The number of payday loan storefronts has fallen from over 600 in 2009 to less than 200 now. The total number of loans has fallen from 3.2 million in 2009 to 870,000 in 2013. That’s a lot of money for people to keep in their communities, rather than giving it to MoneyTree.

But very quietly last year, the owners and executive staff of MoneyTree, principally the Bassford family, dropped $81,700 in campaign contributions to both Democrats and Republicans. Many of the beneficiaries of this largesse are sponsoring the MoneyTree bill, HB 1922. In fact, the chief sponsor in the Senate, Sen. Marko Liias (D-Edmonds) received $3,800 from the Bassfords.

What would be the result of the bill that Rep. Springer and Sen. Liias are pushing? For a $700 loan, what now costs a total of $795 could cost $1,687. The poor person (literally) who gets this loan would end up paying $252 in interest, $105 in origination fees, and $630 in monthly maintenance fees, as well as, of course, the original one-year loan of $700. From 2017 on, the fees on these loans will be automatically raised through the consumer price index.

MoneyTree’s investment of $81,700 in campaigns could result in literally hundreds of millions of dollars in revenue. That’s quite a cost-benefit equation for the Bassfords. How about the working people who take out these loans? Their average monthly income is $2,934, or about $35,000 a year. With this bill, legislators punish the already poor for being poor, while enhancing the wealth of the payday loan perpetrators.

The legislation pretends to be helpful to borrowers by requiring this notice to be included in loan documents: “A SMALL CONSUMER INSTALLMENT LOAN SHOULD BE USED ONLY TO MEET SHORT-TERM CASH NEEDS.” Now isn’t that helpful! What is not helpful is that this bill was scheduled to be voted out of committee Thursday, even before the committee heard the bill on Wednesday, and even before any bill analysis was developed by legislative staff.

Our current payday loan system may be broken from MoneyTree’s perspective. But, while it is not perfect for low-income borrowers, it works, and it is a lot better than the previous system. Perhaps some responsible legislators will slow down the fast-track on the MoneyTree bill, and put people ahead of MoneyTree profits.


John Burbank is the executive director and founder of the Economic Opportunity Institute in Seattle. John can be reached at john@eoionline.org.

[…]

Populist messaging, auditing the Fed, payday loans – Daily Kos

By Rachel Goldfarb, originally published on Next New Deal

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

How Democratic Progressives Survived a Landslide (TAP)

Bob Moser says that populist, localized campaign messages, not the party’s own turnout strategy, saved a few key Democratic races in the 2014 midterm elections.

After every election, the losing side naturally tends to brood over where and how things went wrong. For Democrats this year, there’s no shortage of theories about the party’s avalanche of key losses in Senate, House, and statehouse contests. Perhaps it was wrong to sideline President Obama so thoroughly. Perhaps they shouldn’t have run away from the Affordable Care Act. Perhaps they still haven’t found the formula for turning out young and minority voters in midterms. Maybe it was just a bad map that couldn’t be overcome. Or maybe there had been, as the pundits chorused, no “coherent national message” for Democrats to run on.

You can find shards of truth in these tidbits of conventional wisdom, but it’s a gauzy, overgeneralized kind of truth. It’s more instructive to take a long look at what did work in 2014—at the candidates and campaigns that overcame the Republican drift. How did Democrats beat their odds in Arizona, Minnesota, New Hampshire, and Michigan even as they fell short in Iowa, Wisconsin, Florida, and Colorado? The closer you look, the clearer the picture becomes: They did it the way Kirkpatrick did. They ran with their populist boots on.

Roosevelt Take: Moser references Roosevelt Institute Senior Fellow Richard Kirsch’s post-election analysis on winning populist messaging.

Follow below the fold for more.

What ‘Audit the Fed’ Really Means – and Threatens (WSJ)

Robert Litan explains that Senator Paul’s proposal calls on Government Accountability Office economists to go outside their expertise to report on the Fed’s activity and minimize its independence.

Payday Loans Are Bleeding American Workers Dry. Finally, the Obama Administration Is Cracking Down. (TNR)

Danny Vinik breaks down how payday loans harm consumers: the initial loan might not be so bad, but the repeated roll-overs have a high cost. Limiting those roll-overs is one potential regulation.

The “War on Women” is a Fiscal Nightmare: Taxpayers on the Hook for Millions as Republicans Gut Family Planning (Salon)

Katie McDonough looks at Kansas as an example of where legal fees to fight for potentially unconstitutional abortion restrictions and cuts to family planning services create massive costs.

Is Republican Concern About Middle-Class Wage Stagnation Just a Big Con? (MoJo)

Kevin Drum doesn’t think this is a sign of Republican reformers succeeding in shifting the party in a populist direction, and says that the more likely explanation is an attempt to defuse Democrats.

New on Next New Deal

The Politics of Responsibility – Not Envy

Roosevelt Institute Senior Fellow Richard Kirsch argues that voters are responding not to envy, but to the knowledge that everyone needs to take a fair share of responsibility for shared prosperity.

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Payday Loans Are Bleeding American Workers Dry. Finally, the …

We’ve all seen the ads. “Need cash fast?” a speaker asks. “Have bad credit? You can get up to $1,000 within 24 hours.” The ad then directs you to a sketchy-sounding website, like 44cash.com, or a slightly-less-sketchy-sounding business, like PLS Loan Store. Most of us roll our eyes or go grab another beer when these commercials air. But 12 million people a year turn to payday lenders, who disguise the real cost of these loans. Borrowers often become saddled with unaffordable loans that have sky-high interest rates.

For years, states have tried to crack down on these deceptive business practices. Now, the Consumer Financial Protection Bureau (CFPB) is giving it a shot. On Monday, the New York Times reported that the CFPB will soon issue the first draft of new regulations on the $46 billion payday-lending industry. The rules are being designed to ensure borrowers have a better understanding of the real cost of payday loans and to promote a transparent and fair short-term lending market.

On the surface, payday loans sound like a good idea to many cash-strapped Americans. They offer a short-term loan—generally two weeks in length—for a fixed fee, with payment generally due on the borrower’s next payday. The average borrower takes out a $375 two-week loan with a fee of $55, according to the Pew Charitable Trust’s Safe Small-Dollar Loans Research Project which has put out multiple reports on payday lenders over the past few years. But payday lenders confuse borrowers in a couple of ways.

First, borrowers are rarely able to pay back their loans in two weeks. So they “roll over” the payday loan by paying just the $55 fee. Now, they don’t owe the $375 principal for another two weeks, but they’re hit with another $55 fee. That two-week, $375 loan with a $55 fee just effectively became a four-week, $375 loan with a $110 fee. If, after another two weeks, they still can’t repay the principal, then they will roll it over again for yet another $55 fee. You can see how quickly this can spiral out of control. What started as a two-week loan can last for months at a time—and the fees borrowers incur along the way end up dwarfing the principle. Pew found that the average borrower paid $520 in fees for the $375 loan, which was rolled over an average of eight times. In fact, using data from Oklahoma, Pew found that “more borrowers use at least 17 loans in a year than just one.”

Second, borrowers are often confused about the cost of the loan. The $55 fee—payday lenders often advertise a fee of $15 per $100 borrowed—sounds like a reasonable price for a quick infusion of cash, especially compared to a credit card with a 24-percent annual percentage rate (APR). But that’s actually an extremely high price. Consider the standard two-week, $375 loan with a $55 fee. If you were to roll that loan over for an entire year, you would pay $1,430 in fees ($55 times 26). That’s 3.81 times the original $375 loan—an APR of 381 percent.

Many borrowers, who badly need money to hold them over until their next paycheck, don’t think about when they’ll actually be able to pull it back or how many fees they’ll accumulate. “A lot of people who are taking out the loan focus on the idea that the payday loan is short-term or that it has a fixed $55 fee on average,” said Nick Bourke, the director of the Pew research project. “And they make their choice based on that.”

Lenders advertise the loans as a short-term fix—but their business model actually depends on borrowers accruing fees. That was the conclusion of a 2009 study by the Federal Reserve of Kansas City. Other research has backed up the study’s findings. “They don’t achieve profitability unless their average customer is in debt for months, not weeks,” said Bourke. That’s because payday lending is an inefficient business. Most lenders serve only 500 unique customers a year, Pew found. But they have high overhead costs like renting store space, maintaining working computers, and payroll. That means lenders have to make a significant profit on each borrower.

It’s also why banks and other large companies can offer short-term loans at better prices. Some banks are offering a product called a “deposit advance loan” which is nearly identical to a payday loan. But the fees on those loans are far smaller than traditional payday loans—around $7.50-$10 per $100 loan per two-week borrowing period compared with $15 per $100 loan per two-week period. Yet short-term borrowers are often unaware of these alternatives. In the end, they often opt for payday loans, which are much better advertised.

The CFPB can learn a lot about how to (and how not to) formulate its upcoming regulations from state efforts to crack down on payday lenders. Fourteen states and the District of Columbia have implemented restrictive rules, like setting an interest-rate cap at 36 percent APR, that have shutdown the payday-loan business almost entirely. Another eight states have created hybrid systems that impose some regulations on payday lenders, like requiring longer repayment periods or lower fees, but have not put them out of business. The remaining 28 states have few, if any, restrictions on payday lending:

The CFPB doesn’t have the power to set an interest rate cap nationally, so it won’t be able to stop payday lending altogether. But that probably shouldn’t be the Bureau’s goal anyways. For one, eliminating payday lending could have unintended consequences, such as by driving the lending into other unregulated markets. In some states, that seems to have already happened, with payday lenders registering as car title lenders, offering the same loans under a different name. Whether it would happen on a large scale is less clear. In states that have effectively outlawed payday lending, 95 percent of borrowers said they do not use payday loans elsewhere, whether from online payday lenders or other borrowers. “Part of the reason for that is people who get payday loans [are] pretty much mainstream consumers,” Bourke said. “They have a checking account. They have income, which is usually from employment. They’re attracted to the idea of doing business with a licensed lender in their community. And if the stores in the community go away, they’re not very disposed towards doing business with unlicensed lenders or some kind of loan shark.”

In addition, borrowers value payday lending. In Pew’s survey, 56 percent of borrowers said that the loan relieved stress compared to just 31 percent who said it was a source of stress. Forty-eight percent said payday loans helped borrowers, with 41 percent saying they hurt them. In other words, the short-term, high-cost lending market has value. But borrowers also feel that lenders take advantage of them and the vast majority want more regulation.

So what should that regulation look like? Bourke points to Colorado as an example. Lawmakers there capped the annual interest payment at 45 percent while allowing strict origination and maintenance fees. Even more importantly, Colorado requires lenders to allow borrowers to repay the loans over at least six months, with payments over time slowly reducing the principal. These reforms have been a major success. Average APR rates in Colorado fell from 319 percent to 129 percent and borrowers spent $41.9 million less in 2012 than in 2009, before the changes. That’s a 44 percent drop in payments. At the same time, the number of loans per borrower dropped by 71 percent, from 7.8 to 2.3.

The Colorado law did reduce the number of licensed locations by 53 percent, from 505 to 238. Yet, the number of individual consumers fell just 15 percent. Overall, that leads to an 81 percent increase in borrowers per store, making the industry far more efficient and allowing payday lenders to earn a profit even with lower interest rates and a longer repayment period.

Bourke proposes that the CFPB emulate Colorado’s law by requiring the lenders to allow borrowers to repay the loans over a longer period. But he also thinks the Bureau could improve upon the law by capping payments at 5 percent of borrower’s pretax income, known as an ability-to-repay standard. For example, a monthly payment should not exceed 5 percent of monthly, pretax income. Lenders should also be required to clearly disclose the terms of the loan, including the periodic payment due, the total cost of the loan (all fee and interest payments plus principal), and the effective APR.

The CFPB hasn’t announced the rules yet. But the Times report indicated that the Bureau is considering an ability-to-repay standard. The CFPB may also include car title lenders in the regulation with the hope of reducing payday lenders’ ability to circumvent the rules. However, instead of requiring longer payment periods, the agency may instead limit the number of times a lender could roll over a borrower’s loan. In other words, borrowers may only be able to roll over the loan three or four times a year, preventing them from repeatedly paying the fee.

If the Bureau opts for that rule, it could limit the effectiveness of the law. “That kind of tries to tackle a problem of repeat borrowing and long-term borrowing but that’s a symptom,” Bourke said. “That’s not really the core disease. The core disease is unaffordable payments.” In addition, it could prevent a transparent market from emerging, as payday lenders continue to take advantage of borrowers’ ignorance over these loans. “The market will remain in this mire,” Burke added, “where it’s dominated by a deceptive balloon payment product that makes it difficult for consumers to make good choices but also makes it difficult for better types of lenders to compete with the more fair and transparent product.” Ultimately, that’s in the CFPB’s hands.

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Borrower beware with payday loans

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REGINA – It’s a quick way to get cash when you’re short before a payday. However, the Saskatchewan government wants people to think twice before borrowing money from a payday loan lender.

In Saskatchewan, lenders can charge up to $23.00 in interest and fees for every one-hundred dollars borrowed. On a four-hundred dollar loan, that adds up to $92.00.

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The loan, plus interest and fees, is due on your next payday and is withdrawn automatically from your bank account. If a loan is defaulted, the lender can charge up to a maximum of 30 per cent per annum on the loan principle and up to $50.00 for a NSF cheque or if a pre-authorized debit is dishonoured.

IN DEPTH: Chequed out: Inside the payday loan cycle

“Sometimes people don’t have a lot of options when it comes to borrowing money,” says Cory Peters, the consumer credit division director for the Financial and Consumer Affairs Authority of Saskatchewan.

“We want to make sure that people are aware of the fees and re-payment timeframes that are associated with payday loans.”

A Global News analysis by Patrick Cain has found a striking correlation between payday lenders and low-income, high-social-assistance areas.

Payday loan stores and welfare rates »

Payday loan stores and welfare rates

Payday loan stores and income »

Payday loan stores and income

The Saskatchewan government has six tips for those using payday loans:

  1. Use a licensed Saskatchewan lender;
  2. Know the costs – frequent use adds up over time;
  3. Loans are due on your next regular payday;
  4. Don’t take out a second payday loan to pay for the first one;
  5. Read the fine print;
  6. If you change your mind, you have until the end of the next business day to return the money and cancel the loan.

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