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Payday loans worry consumers, regulators and lawmakers alike …

It seems that Richard Cordray, the director of Consumer Financial Protection Bureau, CFPB, just couldn’t catch a break this week.

As he’s been trying to get people talking about mobile banking technology, his speeches have been overrun by feisty debates and challenges on the issue of payday loans.

Payday loans are short-term loans, often available in lower-income areas, that feature punishingly high interest rates and put users on a cycle of heavy indebtedness. In 2010, more than 12 million Americans relied on payday lenders for access to credit. According to the Pew Charitable Trust, they took out almost $30bn in loans that year alone.

Despite the loans’ high interest rates and fees, the payday loan industry appeals to poorer Americans who have limited access to the US financial services and banks. Often, one payday loan often leads to another and another and soon the borrower is stuck in a cycle of debt, which was most recently depicted in the documentary ‘Spent.’

On Thursday, while appearing in New Orleans to speak about mobile financial services, Cordray ended up fielding requests for regulation of the payday loan industry across the nation. The debate surrounding the issue of payday loans has been heated in Louisiana, where efforts to reform the industry failed in the recent state legislature session.

Senator Mike Crapo was Cordray’s tormentor-in-chief when Cordray appeared before the Senate Banking committee on Wednesday. Cordray suggested that payday lending is infecting the legitimate alleyways of the financial system.

“There is now the further issue that’s been raised: what about illegal lending that operates by piggybacking on the existing banking payments systems? That’s not something that banks like, it’s not a risk they want to be exposed to.”

When asked by Crapo if the agencies were making a conscious effort to prevent payday lenders from being able to operate, Cordray answered that he did not know.

Unfortunately, there will be some time yet before CFPB is ready to enact any new regulations related with payday loans. During the hearing, Cordray argued for more time.

It’s well worth the additional time in order to make sure that what we do won’t be made a mockery of by the people circumventing [the rules] just by transforming their product slightly.”

More time could also strengthen the opposition. Cordray has several lawmakers lined up to thwart him. Senator Darrell Issa has previously requested that Department of Justice release all of the documents related to its effort to cut off illegal payday lenders and other fraudulent business from access to the US banking system. This effort, known as Operation Chokepoint, has come up under scrutiny as claims that it pressures banks to end relationships with legal businesses such as payday lenders emerged.

A group of payday lenders represented by the Community Financial Services Association recently filed a lawsuit against some of these regulatory agencies, alleging that they were unfairly targeted by Operation Chokepoint which painted them as risky associates for banks. The agencies named in the lawsuit were the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The CFPB was not named.

[…]

More than Cash Advances

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Jan 08, 2014 | Vote0 0More than Cash Advances More than Cash Advances 1-866-205-CASHplay/pause

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It happens to everyone. You’re short on cash and it’s still three days until payday. So you’re at Money Mart for a quick cash advance, but there’s more errands to be done and you’re not only strapped for cash, but time as well. Where else can you trade some unwanted gold for money, exchange foreign currency, process and claim your income tax and register for a new VISA prepaid card? Turns out you’re already there. “I think a lot of people are under the misconception that Money Mart only offers quick and convenient payday loans,” says Nancy Fuschino, Money Mart Senior Product Manager for Precious Metals and Currency Exchange. “But we have many other financial services that are just as convenient and valuable to our clients.”

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National Money Mart

Making it easier than ever to make some quick money is Money Mart’s Cash for Gold program. Any gold or silver jewelry can be brought into the store, assessed on the spot and then traded for instant cash. “The convenience of this service is there’s no credit checks or holds,” says Fuschino. “Once the jewelry is in our hands and assessed, the money is instantly theirs.” If you prefer safely and securely mailing your jewelry instead, simply fill out the online form to receive a mail-in kit, and a cheque will in turn be mailed back. Money Mart customers can also choose to receive a secured cash 365-day loan against the value of their gold, with the option to buy it back at any time within the year, at a low interest rate.

Currency exchange is another popular service Money Mart offers. “A lot of banks are trying to get away from exchanging money so we’re able to offer very competitive rates and hold a lot more currencies than they do,” says Fuschino. Money Mart stocks a variety of currencies in store so they are readily available to their customers.

Also available at Money Mart: Titanium+® Visa® prepaid credit cards, tax preparation, electronic bill payment services, and Western Union money transfers and orders. Whatever your financial needs, Money Mart has you covered.

Visit www.moneymart.ca to find the location nearest you or call 1-866-205-CASH. (Pawn service offered in select stores) .

Money Mart® is a registered service mark of National Money Mart Company. Titanium+® is a registered service mark of Nextwave Card Corp. Visa is a registered service mark of Visa International Service Association. Western Union® is a registered service mark of Western Union Holdings, Inc. © 2013 National Money Mart Company. All rights reserved.

[…]

CFPB: Most payday loans rolled over « Bankrate, Inc.

Image pinit_preview_none.png

The majority of payday loan borrowers renew or roll over their loans multiple times in a row, according to a new report from the Consumer Financial Protection Bureau.

And that continued renewal means that some consumers end up paying more in fees than the amount of money initially borrowed, the CFPB says.

Concern over potential ‘debt traps’

“We are concerned that too many borrowers slide into the debt traps that payday loans can become,” CFPB Director Richard Cordray said in a statement about the latest study. “As we work to bring needed reforms to the payday market, we want to ensure consumers have access to small-dollar loans that help them get ahead, not push them farther behind.”

The report marks the CFPB’s latest examination of the payday lending industry, which has come under increased scrutiny recently. In prepared remarks, Cordray signaled that the CFPB is close to establishing rules to crack down on the payday loan industry.

“I will frankly say that we are now in the late stages of our considerations about how we can formulate new rules to bring needed reforms to this market,” Cordray said. He says he understands that small-dollar credit products can be useful to consumers, but adds that “we also need to recognize that loan products which routinely lead consumers into debt traps should have no place in their lives.”

The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency already recently issued guidelines for banks that offer deposit advances, which are seen by many as similar to payday loans. And several months ago, Benjamin M. Lawsky, the New York Superintendent of Financial Services, filed cease and desists against 35 out-of-state online payday lenders for “unlawful activity.”

Cycle of repeated borrowing

This latest CFPB report found that 80 percent of payday loans are rolled over or followed by another loan within 14 days. This cycle of repeated borrowing within two weeks doesn’t appear to be affected much by some states’ laws requiring a cooling-off period in between loans.

More than one-fifth of initial loans are renewed six or more times, the study found. In other words, that could mean a consumer takes out an initial loan and renews it six times, for a total sequence of seven loans, CFPB spokesman Sam Gilford said. Considering that a typical payday loan has a fee of 15 percent, by that seventh loan in the sequence, the person will have paid 105 percent of the original loan amount in interest, Gilford said.

On a more positive note, the study also found that about half of borrowers taking out an initial loan are able to repay the loan with no more than one renewal.

“Our central concern here is not with every payday loan made to a consumer,” Cordray said. “Preserving access to small-dollar loans does mean, after all, that some such loans should be available. Our concern instead is that all too often, those loans lead to a perpetuating sequence.”

Have you ever taken out a payday loan? Are there restrictions or safeguards you think the government should put in place on these products?

Sound off, and follow me on Twitter: @allisonsross.

[…]

Banks bid farewell to payday loans – The Louisiana Weekly


Banks bid farewell to payday loans

3rd February 2014 · 0 Comments

By Charlene Crowell
NNPA Columnist

More good news keeps coming for consumers in early 2014. On the heels of new mortgage rules that took effect January 10, the following week four banks making payday loans pulled their products from the market. Announcing a halt to their triple-digit interest rates were Wells Fargo, Regions, Fifth Third and US Bank. Together, these lenders have combined assets of $2.1 trillion, serving customers through 30,000 branches and more than 21,500 ATMs across the country.

Sometimes known as advance deposit loans, or trademarked names such as US Bank’s Checking Account Advance or Wells Fargo’s Direct Deposit Advance, the loans operate in the same manner as payday loans hawked by stores. Customers borrow a few hundred dollars and then the bank repays itself from the borrower’s next direct deposit, assessing a fee plus the entire loan amount.

Research by the Center for Res­ponsible Lending (CRL) found that the typical bank payday borrower:

• Is charged a fee of $10 per $100 borrowed, amounting to an annual percentage rate (APR) of 300 percent;

• Has a one in four chance of also being a Social Security recipient;

• Is twice more likely to incur overdraft fees than bank customers as a whole and

• Often remains in debt for six months of a year.

Consumer advocates and civil rights leaders have been shining a bright light on banks that chose to engage in this kind of lending over the past two years. Below are a few examples of that consumer activism.

In early 2012, 250 organizations and individuals sent a letter to federal banking regulators expressing concerns. A year later in 2013, more than 1,000 consumers and organizations told the Consumer Financial Protection Bureau about elder financial abuse, including bank payday lending. CRL in coordination with CREDO, an organization that funds progressive nonprofits, delivered a petition with 150,000 signatures in an appeal to federal regulators.

By April 2013, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency proposed regulatory guidance on bank payday loan criteria. Weeks later amid still-growing consumer concerns, Florida’s U.S. Senator Bill Nelson and Sen. Elizabeth Warren of Massachusetts in May 2013 sent a joint letter to the Office of the Comptroller of the Currency (OCC).

“As Chairman and member of the Senate Special Committee on Aging, we take very seriously our responsibilities to seniors and elderly consumers who expect and deserve fair and transparent financial services,” said the Senators. “Social Security was created to provide seniors with financial support to help them cover basic living expenses not for banks seeking new sources of revenue by exploiting retirees with limited means. Therefore it is critical that banks be discouraged from using government benefits as proof of income, and we would hope such a provision would be included in the final guidance.”

By November 2013, FDIC and OCC finalized regulations and advised banks that a borrower’s ability to repay a loan must be considered when issuing these loans.

In December 2013, the Leadership Conference on Civil and Human Rights (LCCR), representing more than 200 diverse national organizations, unanimously adopted a resolution urging states, Congress and federal agencies to increase regulatory oversight and enforcement of all payday lenders.

“Low-income people and people of color have long been targeted by slick advertising and aggressive marketing campaigns to trap consumers into outrageously high interest loans,” said Wade Henderson, LCCR president and CEO. “We’re simply advocating for reasonable regulatory oversight that ensures that low-income people won’t be swindled out of the little money they do have at their disposal.”

Reactions to the bank decisions resulted in cheers from consumer advocates. For example, Dory Rand, president of the Chicago-based Woodstock Institute, said, “We applaud these decisions to stop offering these dangerous products. For too long, these products – like storefront payday loan products – have wreaked havoc on borrowers’ finances and trapped them in a cycle of debt.”

In short, it was the constant call for consumer protections that ultimately led to banks foregoing payday loans. By combining efforts on a single issue, advocates accomplished together what none might have done alone.

This article originally published in the February 3, 2014 print edition of The Louisiana Weekly newspaper.

[…]

Banks Bid Farewell to Payday Loans | BlackPressUSA

Image nnpa_ccrowell-web-212x300.jpg

By Charlene Crowell

NNPA Columnist

More good news keeps coming for consumers in early 2014. On the heels of new mortgage rules that took effect January 10, the following week four banks making payday loans pulled their products from the market. Announcing a halt to their triple-digit interest rates were Wells Fargo, Regions, Fifth Third and US Bank. Together, these lenders have combined assets of $2.1 trillion, serving customers through 30,000 branches and more than 21,500 ATMs across the country.

Sometimes known as advance deposit loans, or trademarked names such as US Bank’s Checking Account Advance or Wells Fargo’s Direct Deposit Advance, the loans operate in the same manner as payday loans hawked by stores. Customers borrow a few hundred dollars and then the bank repays itself from the borrower’s next direct deposit, assessing a fee plus the entire loan amount.

Research by the Center for Responsible Lending (CRL) has found that the typical bank payday borrower:

Is charged a fee of $10 per $100 borrowed, amounting to an annual percentage rate (APR) of 300 percent; Has a one in four chance of also being a Social Security recipient; Is twice more likely to incur overdraft fees than bank customers as a whole and Often remains in debt for six months of a year.

Consumer advocates and civil rights leaders have been shining a bright light on banks that chose to engage in this kind of lending over the past two years. Below are a few examples of that consumer activism.

In early 2012, 250 organizations and individuals sent a letter to federal banking regulators expressing concerns. A year later in 2013, more than 1,000 consumers and organizations told the Consumer Financial Protection Bureau about elder financial abuse, including bank payday lending. CRL in coordination with CREDO, an organization that funds progressive nonprofits, delivered a petition with 150,000 signatures in an appeal to federal regulators.

By April 2013, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency proposed regulatory guidance on bank payday loan criteria. Weeks later amid still-growing consumer concerns, Florida’s U.S. Senator Bill Nelson and Sen. Elizabeth Warren of Massachusetts in May 2013 sent a joint letter to the Office of the Comptroller of the Currency (OCC).

“As Chairman and member of the Senate Special Committee on Aging, we take very seriously our responsibilities to seniors and elderly consumers who expect and deserve fair and transparent financial services,” said the Senators. “Social Security was created to provide seniors with financial support to help them cover basic living expenses not for banks seeking new sources of revenue by exploiting retirees with limited means. Therefore it is critical that banks be discouraged from using government benefits as proof of income, and we would hope such a provision would be included in the final guidance.”

By November 2013, FDIC and OCC finalized regulations and advised banks that a borrower’s ability to repay a loan must be considered when issuing these loans.

In December 2013, the Leadership Conference on Civil and Human Rights (LCCR), representing more than 200 diverse national organizations, unanimously adopted a resolution urging states, Congress and federal agencies to increase regulatory oversight and enforcement of all payday lenders.

“Low-income people and people of color have long been targeted by slick advertising and aggressive marketing campaigns to trap consumers into outrageously high interest loans,” said Wade Henderson, LCCR president and CEO. “We’re simply advocating for reasonable regulatory oversight that ensures that low-income people won’t be swindled out of the little money they do have at their disposal.”

Reactions to the bank decisions resulted in cheers from consumer advocates. For example, Dory Rand, president of the Chicago-based Woodstock Institute, said, “We applaud these decisions to stop offering these dangerous products. For too long, these products – like storefront payday loan products – have wreaked havoc on borrowers’ finances and trapped them in a cycle of debt.”

In short, it was the constant call for consumer protections that ultimately led to banks foregoing payday loans. By combining efforts on a single issue, advocates accomplished together what none might have done alone.

I am hoping the rest of 2014 will be energized by the success of these early 2014 consumer victories. Perhaps federal regulators will soon put an end to all consumer debt traps. As we celebrate this key consumer victory, let us strive towards more financial reforms.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

[…]

Wells Fargo and three other banks discontinue payday loans | North …

Image Charlene-Crowell24.jpg

NNPA Columnist Charlene Crowell

By Charlene Crowell

(NNPA) More good news keeps coming for consumers in early 2014. On the heels of new mortgage rules that took effect January 10, the following week four banks making payday loans pulled their products from the market. Announcing a halt to their triple-digit interest rates were Wells Fargo, Regions, Fifth Third and US Bank. Together, these lenders have combined assets of $2.1 trillion, serving customers through 30,000 branches and more than 21,500 ATMs across the country.

Sometimes known as advance deposit loans, or trademarked names such as US Bank’s Checking Account Advance or Wells Fargo’s Direct Deposit Advance, the loans operate in the same manner as payday loans hawked by stores. Customers borrow a few hundred dollars and then the bank repays itself from the borrower’s next direct deposit, assessing a fee plus the entire loan amount.

Research by the Center for Responsible Lending (CRL) has found that the typical bank payday borrower:

Is charged a fee of $10 per $100 borrowed, amounting to an annual percentage rate (APR) of 300 percent; Has a one in four chance of also being a Social Security recipient; Is twice more likely to incur overdraft fees than bank customers as a whole and Often remains in debt for six months of a year.

Consumer advocates and civil rights leaders have been shining a bright light on banks that chose to engage in this kind of lending over the past two years. Below are a few examples of that consumer activism.

In early 2012, 250 organizations and individuals sent a letter to federal banking regulators expressing concerns. A year later in 2013, more than 1,000 consumers and organizations told the Consumer Financial Protection Bureau about elder financial abuse, including bank payday lending. CRL in coordination with CREDO, an organization that funds progressive nonprofits, delivered a petition with 150,000 signatures in an appeal to federal regulators.

By April 2013, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency proposed regulatory guidance on bank payday loan criteria. Weeks later amid still-growing consumer concerns, Florida’s U.S. Senator Bill Nelson and Sen. Elizabeth Warren of Massachusetts in May 2013 sent a joint letter to the Office of the Comptroller of the Currency (OCC).

“As Chairman and member of the Senate Special Committee on Aging, we take very seriously our responsibilities to seniors and elderly consumers who expect and deserve fair and transparent financial services,” said the Senators. “Social Security was created to provide seniors with financial support to help them cover basic living expenses not for banks seeking new sources of revenue by exploiting retirees with limited means. Therefore it is critical that banks be discouraged from using government benefits as proof of income, and we would hope such a provision would be included in the final guidance.”

By November 2013, FDIC and OCC finalized regulations and advised banks that a borrower’s ability to repay a loan must be considered when issuing these loans.

In December 2013, the Leadership Conference on Civil and Human Rights (LCCR), representing more than 200 diverse national organizations, unanimously adopted a resolution urging states, Congress and federal agencies to increase regulatory oversight and enforcement of all payday lenders.

“Low-income people and people of color have long been targeted by slick advertising and aggressive marketing campaigns to trap consumers into outrageously high interest loans,” said Wade Henderson, LCCR president and CEO. “We’re simply advocating for reasonable regulatory oversight that ensures that low-income people won’t be swindled out of the little money they do have at their disposal.”

Reactions to the bank decisions resulted in cheers from consumer advocates. For example, Dory Rand, president of the Chicago-based Woodstock Institute, said, “We applaud these decisions to stop offering these dangerous products. For too long, these products – like storefront payday loan products – have wreaked havoc on borrowers’ finances and trapped them in a cycle of debt.”

In short, it was the constant call for consumer protections that ultimately led to banks foregoing payday loans. By combining efforts on a single issue, advocates accomplished together what none might have done alone.

I am hoping the rest of 2014 will be energized by the success of these early 2014 consumer victories. Perhaps federal regulators will soon put an end to all consumer debt traps. As we celebrate this key consumer victory, let us strive towards more financial reforms.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

[…]

Payday Lending and Overdraft Protection – The Volokh Conspiracy

I’ve noted previously, I have a forthcoming paper with former Comptroller of the Currency Robert Clarke that examines competition between payday lending and bank overdraft protection. The central point is easy to grasp–payday lending and overdraft protection are products offered by different providers but which compete for the same customers. And evidence indicates that in choosing between the two products consumers generally choose rationally.

The point came to mind (yet again) reading the Wall Street Journal yesterday, “Hefty Bank Fees Waylay Solders.” According to the article, many members of the military are frequent users of bank overdraft protection, which has caused some concern in some quarters. The article provides no hard evidence that usage of overdraft protection has risen in recent years, but implies that the general impression is that it has.

Assuming that the perception is correct that usage of overdraft protection by military members has risen in recent years, why would that be? Well, how about the enactment of the Military Lending Act in 2007, which imposed a 36% APR cap on payday loans to military members, effectively outlawing payday loans (and some other products for military members):

Congress cracked down with the Military Lending Act, which, starting in 2007, limited to 36% the APR interest on many payday-style loans to military members.

Since then, overdraft programs have replaced payday lending as the leading financial problem for many military personnel, says Adm. Abbot of the Navy-Marine relief society. Some financial institutions serving the military have reined in overdraft fees, he says, while others are engaged in “predatory or punitive overdraft practices.”

Eliminating access to a particular product (payday loans) doesn’t eliminate the need for credit. It is entirely predictable that eliminating payday loans to service members will result in increased use of bank overdraft protection–just as it does for civilians.

Moreover, as we note in the article, in many situations payday loans are less expensive than overdraft protection (it appears from the article that the break even point in favor of overdraft protection is lower than for payday loans because overdraft fees on military bases are lower than typical market rates) and consumers understand this and use the products rationally. So the net impact of the MLA in some cases will be to take away a less expensive product and lead to greater use of a more-expensive product.

In the end, the article doesn’t report the data as to whether usage of overdraft protection rose after the MLA was enacted. But it would violate the predictions of economics if it didn’t.

[…]

Better policing needed for payday lending | Star Tribune

Debt and debtors have been a concern of the faith community since the days of Moses. That manifested itself anew this week at the State Capitol, as the Joint Religious Legislative Coalition (JRLC) and Holy Trinity Lutheran Church of Minneapolis called on lawmakers to crack down on payday lending.

Payday loans are short-term, small-amount, high-interest loans that some banks have offered since the Great Depression but that began to proliferate in storefront operations about 20 years ago and online more recently. Many, though not all, such loans require payment in full when the borrower’s next paycheck arrives, often via the borrower providing the lender with a postdated check. They are targeted at low-income consumers who have little or no access to conventional sources of credit. Twelve million Americans used payday loans in 2012, according to the Pew Charitable Trust, including 39,000 in Minnesota.

The reason such loans have come under fire from religious groups is revealed by some additional numbers: Those 39,000 Minnesotans took out 371,000 separate loans last year, for an average of nearly 10 per borrower. Those repeat borrowers carried loan balances at an annualized interest rate that routinely exceeds 400 percent, according to a new JRLC report. Clearly, this high-cost borrowing has become routine for some people who can ill-afford its high costs.

“People get trapped,” charged Brian Rusche of JRLC. He painted a grim picture of borrowers so financially desperate and/or poorly informed that they take on debt burdens that exceed their ability to promptly repay. They frequently refinance their original loans, each time racking up additional fees that, industrywide, average $17 for every $100 extended. Repeat borrowers can wind up spending substantially more on interest than on the original principal, Rusche said.

That’s not a fair or complete picture, Minnesota industry sources counter. Payday lending services satisfy a genuine need for emergency financial assistance within a population that has few other alternatives in the financial marketplace. Further, they said, reputable lenders strive to help borrowers make informed decisions.

But they acknowledge that their industry includes some bad actors who are escaping regulation and overcharging borrowers. They said they would welcome a leveling of the regulatory playing field. That plea should be heeded by state and federal officials.

Payday lending has doubled in size in Minnesota in the last five years. That explosive growth alone warrants scrutiny from the Legislature. Payday lending is already on the regulatory radar of the new federal Consumer Financial Protection Bureau; the Office of the Comptroller of the Currency, which regulates U.S.-chartered banks, and the state Commerce Department. Commerce Commissioner Michael Rothman says that on his watch, his department has stepped up its efforts to police payday lenders.

Government’s goal should not be to eliminate payday lending. Not even the JRLC critics would go that far. Rather, JRLC urges that limits on fees and other regulations that now apply to banks be extended to storefront and online payday lenders as well. The difference can be seen in Wells Fargo’s Direct Deposit Advance program. It charges a fee of $7.50 per $100 extended, $10 below the industry average, a spokesperson said.

Minnesota should also consider following the lead of Colorado, whose 2010 payday lending statute won praise from the Pew Charitable Trust last month. The law requires lenders to offer payday borrowers a six-month installment repayment plan in addition to the standard lump-sum repayment.

Pew recommended capping the size of installments at 5 percent of gross periodic income. JRLC also endorsed converting recurring payday loans to installment loans, something the Wells Fargo program does after a customer uses the service for three consecutive statement cycles.

While those regulations are worth pursuing, a key defense against predatory payday lenders is a financially literate public. That’s why we applaud the involvement of churches like Holy Trinity and other community organizations in efforts to spread the word about the true cost of short-term borrowing, and to help borrowers pursue less costly options. The state Commerce Department’s recent emphasis on educating young people about financial matters is also welcome.

Such efforts have become more important as the ranks of the near-poor have grown in recent years to include people unaccustomed to coping with scarce resources. Before there were storefronts and websites luring those people with lending come-ons, there were employers, faith communities, charities, unions and other neighborhood sources to which households in financial trouble could turn. In an economy that has not been kind to low-wage workers, those local resources are still needed, perhaps more than ever.

[…]

Payday Loans Prey on the Vulnerable | Legal News | Lawyers.com

Image payday-loans-sign-300.jpg

iStock/Thinkstock

Financially-strapped individuals turn to payday loans when they need cash between paychecks and have exhausted every other option. These borrowers are rarely eligible for other kinds of credit, and don’t want to borrow from family and friends.

Each year, about 12 million borrowers take out payday loans. The U.S. Consumer Financial Protection Bureau calls payday loans “debt traps.” Research shows that they often push low-income borrowers off the financial cliff, into bankruptcy or default.

Only about 14 percent of borrowers are able to repay payday loans on time. The average borrower, by comparison, carries a debt for five months. During this time, the loan adds new fees. By the fifth month, a person who borrowed $375 will have paid an additional $520 in interest, on top of the amount borrowed.

What Is a Payday Loan?

A payday loan is a relatively small but very high-cost loan, typically due in two weeks. It is made with a borrower’s post-dated check or access to the borrower’s bank account as collateral.

Payday loans are known by many names, including cash advance loans, check advance loans, post-dated check loans or deferred deposit loans. Many people seek payday loans from storefront check cashing operations. Increasingly, however, people seek them from banks or even online.

Storefront Payday Lenders

Payday lending is regulated by the states. Payday loans first appeared as storefront products about 20 years ago. They are illegal as “predatory” in 15 states and the District of Columbia. Nine other states allow payday lending with restrictions, such as limits on loan amounts, interest rates, loan terms and the number of loans a person may take out. In the remaining states, payday loans are largely unregulated.

Major Banks See Opportunity

Now that the CFPB has restricted the fees banks may charge on debit and credit cards, some large banks are trying to make up for these losses by offering payday loans — a product that they call deposit advances. The bank advances the money and repays itself (plus fees) when an electronic deposit — a paycheck, or a Social Security or disability payment — is made into the borrower’s account.

The Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency in 2013 proposed new guidelines for banks offering deposit advances.

Under the proposed guidelines, banks will be required to assess the consumer’s ability to repay before making a loan. They must wait 30 days before making another loan, and cannot extend loans to borrowers who have not paid off their previous obligations. Finally, they will be required to disclose to borrowers the actual costs of the loans.

Payday Loans on the Internet

Nearly 40 percent of payday loans as of 2012 are made online. By 2016, this number is predicted to be 60 percent. To bypass state restrictions and caps on interest rates, lenders have set up online operations in unregulated states or offshore locations like Belize, Malta and the West Indies. Native American tribes have also used their sovereign status to avoid state laws and set up online payroll lending operations.

After making a payday loan, these lenders use “automatic withdrawal” privileges at the borrower’s bank (even in states where payday lending is banned or restricted) to retrieve their payments. The bank then collects overdraft fees. Under federal law, borrowers should be able to revoke the lender’s automatic withdrawal privileges or close the account, but many have found it difficult to do so.

The proposed “Safe Lending Act” would require that online lenders comply with state laws.

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direct lender payday loans online concern condition or … – webiln.com

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