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Dranoff pays off DRPA loan for Camden building

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Last updated: Tuesday, February 3, 2015, 1:07 AM
Posted: Monday, February 2, 2015, 4:59 PM

Developer Dranoff Properties has repaid a $3 million loan, with $1.28 million in interest, on the Victor Lofts luxury apartment building on the Camden waterfront, the Delaware River Port Authority said Monday.

The DRPA lent Dranoff the money in 2003 to convert the old Radio Corp. of America “Nipper” Building into 341 apartments.

The building was listed for sale last fall, but Carl Dranoff said Monday that his company might keep it.

“We’re considering our options to retain, refinance, or sell it,” he said. “It’s all still under consideration.”

The $3 million loan was part of the DRPA’s controversial “economic development” spending program, which funneled hundreds of millions of dollars into real estate, stadiums, museums, and other projects. The DRPA stopped making those grants and loans in 2011.

The U.S. Attorney’s Office in Philadelphia has been investigating the DRPA’s economic-development spending for nearly two years.

The Victor loan was to be interest-free until 2009, when Dranoff was supposed to start repaying it in monthly installments.

But the agreement with the DRPA stated that Dranoff’s obligation to make payments was limited to the Victor’s “available cash flow,” and Dranoff had not made any payments.

The repayment of $4.28 million announced Monday represents interest of about 3.9 percent a year over the 11 years.

“The loan was paid off on time with all interest, in accordance with the loan documents,” Dranoff said.

The money will be placed in the DRPA’s general fund, DRPA chief financial officer James White said.

In a related development, the DRPA said Monday that a $10 million loan guarantee made by the DRPA to the New Jersey Economic Development Authority in 2001 had been discharged.

That guarantee was part of a financial incentive package to retain L-3 Communications in Camden.

In December, the development authority sold the building previously occupied by L-3 to a private developer, allowing the DRPA to close the loan guarantee.

“Each of these transactions represents a significant step toward permanently concluding the authority’s involvement in economic development,” said John Hanson, chief executive of the DRPA. “Our sole focus is on our core mission – stewardship of important transportation services and facilities – namely our bridges and PATCO.”

The six-story Victor Lofts structure (not including its tower) is part of what little remains of a 58-acre industrial complex.

The building began as the headquarters of Eldridge B. Johnson’s Victor Talking Machine Co. in 1901. The company was sold to RCA in 1929, then morphed into a General Electric aerospace division in 1986.

The building then became the Victor, the commercial-and-residential venture owned by Dranoff Properties, in 2003.

More environmental cleanup is required at the 60,000-square-foot Building 8, another former RCA building awaiting redevelopment, Dranoff said.

No work will be done until additional financing is available, he said.


pnussbaum@phillynews.com 215-854-4587 @nussbaumpaul […]

Apollo Commercial Real Estate Finance, Inc. Closes $50 Million First Mortgage Loan

NEW YORK–(BUSINESS WIRE)–

Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (ARI) today announced the Company closed a $50 million participating first mortgage loan secured by a portfolio of 24 condominiums located in New York City and Maui, Hawaii owned by a luxury destination club. Earlier in the year, ARI provided a $210 million first mortgage loan to the same borrower, secured by an additional portfolio of single-family and condominium destination homes located throughout North America, Central America, England and the Caribbean. With the closing of this transaction, ARI has committed to invest over $1 billion of equity into $1.4 billion of transactions year-to-date.

The fixed-rate, participating first mortgage loan has a five-year term with two one-year extension options and an appraised loan-to-value of 75%. The first mortgage loan was underwritten to generate an internal rate of return (“IRR”)(1) of approximately 8% on an unlevered basis. ARI anticipates financing the loan, and on a levered basis, the loan was underwritten to generate an IRR of approximately 15%.

Loan Repayments

In November, ARI received a $28 million principal repayment and $6 million of deferred interest from a mezzanine loan secured by a hotel in New York City.

About Apollo Commercial Real Estate Finance, Inc.

Apollo Commercial Real Estate Finance, Inc. (ARI) is a real estate investment trust that primarily originates, invests in, acquires and manages performing commercial first mortgage loans, subordinate financings, commercial mortgage-backed securities and other commercial real estate-related debt investments. The Company is externally managed and advised by ACREFI Management, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, LLC, a leading global alternative investment manager with approximately $164 billion of assets under management at September 30, 2014.

(1) The underwritten IRR for the investments listed in this press release reflect the returns underwritten by ACREFI Management, LLC, the Company’s external manager (the “Manager”), calculated on a weighted average basis assuming no dispositions, early prepayments or defaults. With respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, and assumes no defaults. IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. There can be no assurance that the actual IRRs will equal the underwritten IRRs shown in this press release. See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than anticipated” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments shown in the press release over time.

Forward-Looking Statements

Certain statements contained in this press release constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company’s control. These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When used in this release, the words believe, expect, anticipate, estimate, plan, continue, intend, should, may or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; the Company’s ability to deploy the proceeds of its capital raises or acquire its target assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. For a further list and description of such risks and uncertainties, see the reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

FinanceInvestment & Company Informationmortgage loan Contact: Apollo Commercial Real Estate Finance, Inc.
Hilary Ginsberg, 212-822-0767
Investor Relations […]

Apollo Commercial Real Estate Finance, Inc. Closes Two Loan Transactions Totaling $54.5 Million

NEW YORK, NY–(Marketwired – July 23, 2014) – Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (ARI) today announced the Company closed two commercial real estate loan transactions totaling $54.5 million. Year-to-date, ARI has committed to invest in over $728 million of commercial real estate loan transactions and CMBS.

New Investments
ARI’s new investments include the following:

$20.0 million floating-rate mezzanine loan secured by the equity interest in a 280-key hotel in the NoMad neighborhood of New York City. The mezzanine loan has a two-year initial term and three one-year extension options and an appraised loan-to-value (“LTV”) of 61%. The mezzanine loan was underwritten to generate an internal rate of return (“IRR”)(1) of approximately 12%; and$34.5 million ($30 million of which was funded at closing) floating-rate, first mortgage loan secured by a newly constructed, Class-A, 63-unit multifamily property located in Brooklyn, New York, which also includes approximately 7,300 square feet of retail space and 31 parking spaces. The first mortgage loan has a five-year initial term with three one-year extension options and an appraised LTV of 63% based upon the initial funding. The future funding is contingent upon the property achieving certain occupancy and cash flow hurdles. ARI financed the loan, and on a levered basis, the loan was underwritten to generate an IRR(1)of approximately 12%.

Commenting on the transactions, Scott Weiner, the Chief Investment Officer of the Company’s Manager, said: “New York City continues to be one of the strongest hospitality markets and this transaction is with a well-capitalized, highly regarded sponsor. In addition, Brooklyn has one of the nation’s highest occupancy rates for rental apartments, and the multifamily property securing ARI’s loan is well positioned in a desirable submarket. As the investment portfolio expands, we believe ARI continues to demonstrate the depth of the Company’s commercial real estate finance platform as well as its ability to structure and execute a broad array of transactions.”

About Apollo Commercial Real Estate Finance, Inc.
Apollo Commercial Real Estate Finance, Inc. (ARI) is a real estate investment trust that primarily originates, invests in, acquires and manages performing commercial first mortgage loans, subordinate financings, CMBS and other commercial real estate-related debt investments. The Company is externally managed and advised by ACREFI Management, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, LLC, a leading global alternative investment manager with approximately $159.3 billion of assets under management at March 31, 2014.

(1) The underwritten IRR for the investments listed in this press release reflect the returns underwritten by ACREFI Management, LLC, the Company’s external manager (the “Manager”), calculated on a weighted average basis assuming no dispositions, early prepayments or defaults. With respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, and assumes no defaults. IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. There can be no assurance that the actual IRRs will equal the underwritten IRRs shown in this press release. See “Item 1A-Risk Factors–The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than anticipated” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments shown in the press release over time.

Forward-Looking Statements
Certain statements contained in this press release constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company’s control. These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When used in this release, the words believe, expect, anticipate, estimate, plan, continue, intend, should, may or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; the Company’s ability to deploy the proceeds of its capital raises or acquire its target assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. For a further list and description of such risks and uncertainties, see the reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

FinanceInvestment & Company Informationcommercial real estate Contact:

CONTACT:
Hilary Ginsberg
Investor Relations
(212) 822-0767

[…]

Idaho payday lenders lead nation in highest loan interest | Local …

SALT LAKE CITY (AP) – Idaho, Nevada and Utah have among the nation’s highest interest rates for payday loans, according to a report.

The study, released this week by the Pew Charitable Trusts, found their rates are so high mainly because they’re among only seven states that impose no legal limits on them.

Idaho payday lenders charge an average 582 percent annual interest on their loans to lead the nation, The Salt Lake Tribune reported.

That’s followed by South Dakota and Wisconsin, both 574 percent; Nevada, 521 percent; Delaware, 517 percent; and Utah, 474 percent.

Among states with storefront payday lenders, the lowest average interest charged is Colorado at 129 percent, which matches its legal limit. The next lowest are Oregon at 156 percent and Maine at 217 percent.

Fifteen states either ban payday loans or cap interest rates at 36 percent. None of them has any storefront lenders.

Without a limit on interest rates, competition among lenders does not tend to lower rates much, according to the research.

Representatives of the Alexandria, Va.,-based Community Financial Services Association of America did not immediately respond to requests for comment Sunday.

The study also found the nation’s four largest payday loan companies charge similar rates to each other within any given state, usually at the maximum allowed by law. States with higher limits have more stores, but the rates remain higher and competition does not lower them much.

“This new research shows that payday loan markets are not competitive,” Nick Bourke, project director for Pew, told The Tribune

The study urges states to limit payments to “an affordable percentage of a borrower’s periodic income,” saying monthly payments above 5 percent of gross monthly income are unaffordable.

On average, a payday loan takes 36 percent of a person’s pre-tax paycheck, Bourke said.

“Customers simply cannot afford to pay that back and still afford their other financial obligations,” he said. “This is why you see people ending up borrowing the loans over and over again.”

___

Information from: The Salt Lake Tribune

[…]

Idaho payday loan interest rates highest in the nation – Eye On Boise …

Idaho’s payday lenders charge the highest interest rate in the nation – an average 582 percent, according to a study from the Pew Charitable Trusts. The trusts found that Idaho, Nevada and Utah had the nation’s highest interest rates for payday loans; the three states are among seven that put no limits on those rates. Click below for a full report from the Salt Lake Tribune via the Associated Press; the Tribune reported that 15 states either ban payday loans or cap interest rates at 36 percent. The news comes after a payday loan reform bill that contains no caps on interest rates passed the Idaho Legislature this year amid much controversy; opponents said the bill, backed by major payday lenders, didn’t go far enough to reform the business in Idaho. SB 1314, which passed the House by just one vote, was signed into law by Gov. Butch Otter on March 26.

The new law, which takes effect July 1, limits borrowers taking out payday loans to an amount not to exceed 25 percent of their gross income, with the borrower to provide the proof of that; and requires lenders to offer borrowers who can’t repay their loans on time a once-a-year option for an extended payment plan without additional fees.

ID, NV, UT have among highest payday loan rates

SALT LAKE CITY (AP) — Idaho, Nevada and Utah have among the nation’s highest interest rates for payday loans, according to a report.

The study, released this week by the Pew Charitable Trusts, found their rates are so high mainly because they’re among only seven states that impose no legal limits on them.

Idaho payday lenders charge an average 582 percent annual interest on their loans to lead the nation, The Salt Lake Tribune reported (http://bit.ly/1fcSc3d ).

That’s followed by South Dakota and Wisconsin, both 574 percent; Nevada, 521 percent; Delaware, 517 percent; and Utah, 474 percent.

Among states with storefront payday lenders, the lowest average interest charged is Colorado at 129 percent, which matches its legal limit. The next lowest are Oregon at 156 percent and Maine at 217 percent.

Fifteen states either ban payday loans or cap interest rates at 36 percent. None of them has any storefront lenders.

Without a limit on interest rates, competition among lenders does not tend to lower rates much, according to the research.

Representatives of the Alexandria, Va.,-based Community Financial Services Association of America did not immediately respond to requests for comment Sunday.

The study also found the nation’s four largest payday loan companies charge similar rates to each other within any given state, usually at the maximum allowed by law. States with higher limits have more stores, but the rates remain higher and competition does not lower them much.

“This new research shows that payday loan markets are not competitive,” Nick Bourke, project director for Pew, told The Tribune.The study urges states to limit payments to “an affordable percentage of a borrower’s periodic income,” saying monthly payments above 5 percent of gross monthly income are unaffordable.

On average, a payday loan takes 36 percent of a person’s pre-tax paycheck, Bourke said.

“Customers simply cannot afford to pay that back and still afford their other financial obligations,” he said. “This is why you see people ending up borrowing the loans over and over again.”

___

Information from: The Salt Lake Tribune, http://www.sltrib.com

Copyright 2014 The Associated Press

[…]

How Payday Lenders Escape State Crackdowns | Mother Jones

Image paydayloans630.jpg

Thomas Hawk/Flickr

This story first appeared on the ProPublica website and in the St. Louis Post-Dispatch.

In 2008, payday lenders suffered a major defeat when the Ohio legislature banned high-cost loans. That same year, they lost again when they dumped more than $20 million into an effort to roll back the law: The public voted against it by nearly two-to-one.

But five years later, hundreds of payday loan stores still operate in Ohio, charging annual rates that can approach 700 percent.

It’s just one example of the industry’s resilience. In state after state where lenders have confronted unwanted regulation, they have found ways to continue to deliver high-cost loans.

Sometimes, as in Ohio, lenders have exploited loopholes in the law. But more often, they have reacted to laws targeted at one type of high-cost loan by churning out other products that feature triple-digit annual rates.

To be sure, there are states that have successfully banned high-cost lenders. Today Arkansas is an island, surrounded by six other states where ads scream “Cash!” and high-cost lenders dot the strip malls. Arkansas’ constitution caps non-bank rates at 17 percent.

But even there, the industry managed to operate for nearly a decade until the state Supreme Court finally declared those loans usurious in 2008.

The state-by-state skirmishes are crucial, because high-cost lenders operate primarily under state law. On the federal level, the recently formed Consumer Financial Protection Bureau can address “unfair, deceptive or abusive practices,” said a spokeswoman. But the agency is prohibited from capping interest rates.

In Ohio, the lenders continue to offer payday loans via loopholes in laws written to regulate far different companies — mortgage lenders and credit repair organizations. The latter peddle their services to people struggling with debt, but they can charge unrestricted fees for helping consumers obtain new loans into which borrowers can consolidate their debt.

Today, Ohio lenders often charge even higher annual rates (for example, nearly 700 percent for a two-week loan) than they did before the reforms, according to a report by the nonprofit Policy Matters Ohio. In addition, other breeds of high-cost lending, such as auto-title loans, have recently moved into the state for the first time.

Earlier this year, the Ohio Supreme Court agreed to hear a case challenging the use of the mortgage law by a payday lender named Cashland. But even if the court rules the tactic illegal, the companies might simply find a new loophole. In its recent annual report, Cash America, the parent company of Cashland, addressed the consequences of losing the case: “if the Company is unable to continue making short-term loans under this law, it will have to alter its short-term loan product in Ohio.”

Amy Cantu, a spokeswoman for the Community Financial Services Association, the trade group representing the major payday lenders, said members are “regulated and licensed in every state where they conduct business and have worked with state regulators for more than two decades.”

“Second generation” products
When unrestrained by regulation, the typical two-week payday loan can be immensely profitable for lenders. The key to that profitability is for borrowers to take out loans over and over. When the CFPB studied a sample of payday loans earlier this year, it found that three-quarters of loan fees came from borrowers who had more than 10 payday loans in a 12-month period.

But because that type of loan has come under intense scrutiny, many lenders have developed what payday lender EZCorp chief executive Paul Rothamel calls “second generation” products. In early 2011, the traditional two-week payday loan accounted for about 90 percent of the company’s loan balance, he said in a recent call with analysts. By 2013, it had dropped below 50 percent. Eventually, he said, it would likely drop to 25 percent.

But like payday loans, which have annual rates typically ranging from 300 to 700 percent, the new products come at an extremely high cost. Cash America, for example, offers a “line of credit” in at least four states that works like a credit card — but with a 299 percent annual percentage rate. A number of payday lenders have embraced auto-title loans, which are secured by the borrower’s car and typically carry annual rates around 300 percent.

The most popular alternative to payday loans, however, are “longer term, but still very high-cost, installment loans,” said Tom Feltner, director of financial services at the Consumer Federation of America.

Last year, Delaware passed a major payday lending reform bill. For consumer advocates, it was the culmination of over a decade of effort and a badly needed measure to protect vulnerable borrowers. The bill limited the number of payday loans borrowers can take out each year to five.

“It was probably the best we could get here,” said Rashmi Rangan, executive director of the nonprofit Delaware Community Reinvestment Action Council.

But Cash America declared in its annual statement this year that the bill “only affects the Company’s short-term loan product in Delaware (and does not affect its installment loan product in that state).” The company currently offers a seven-month installment loan there at an annual rate of 398 percent.

Lenders can adapt their products with surprising alacrity. In Texas, where regulation is lax, lenders make more than eight times as many payday loans as installment loans, according to the most recent state data. Contrast that with Illinois, where the legislature passed a bill in 2005 that imposed a number of restraints on payday loans. By 2012, triple-digit-rate installment loans in the state outnumbered payday loans almost three to one.

In New Mexico, a 2007 law triggered the same rapid shift. QC Holdings’ payday loan stores dot that state, but just a year after the law, the president of the company told analysts that installment loans had “taken the place of payday loans” in that state.

New Mexico’s attorney general cracked down, filing suits against two lenders, charging in court documents that their long-term products were “unconscionable.” One loan from Cash Loans Now in early 2008 carried an annual percentage rate of 1,147 percent; after borrowing $50, the customer owed nearly $600 in total payments to be paid over the course of a year. FastBucks charged a 650 percent annual rate over two years for a $500 loan.

The products reflect a basic fact: Many low-income borrowers are desperate enough to accept any terms. In a recent Pew Charitable Trusts survey, 37 percent of payday loan borrowers responded that they’d pay any price for a loan.

[…]

Whack-a-Mole: How Payday Lenders Bounce Back When States …

In state after state that has tried to ban payday and similar loans, the industry has found ways to continue to peddle them. (Thomas Hawk via Flickr)

A version of this story was co-published with the St. Louis Post-Dispatch.

In 2008, payday lenders suffered a major defeat when the Ohio legislature banned high-cost loans. That same year, they lost again when they dumped more than $20 million into an effort to roll back the law: The public voted against it by nearly two-to-one.

But five years later, hundreds of payday loan stores still operate in Ohio, charging annual rates that can approach 700 percent.

It’s just one example of the industry’s resilience. In state after state where lenders have confronted unwanted regulation, they have found ways to continue to deliver high-cost loans.

Sometimes, as in Ohio, lenders have exploited loopholes in the law. But more often, they have reacted to laws targeted at one type of high-cost loan by churning out other products that feature triple-digit annual rates.

To be sure, there are states that have successfully banned high-cost lenders. Today Arkansas is an island, surrounded by six other states where ads scream “Cash!” and high-cost lenders dot the strip malls. Arkansas’ constitution caps non-bank rates at 17 percent.

But even there, the industry managed to operate for nearly a decade until the state Supreme Court finally declared those loans usurious in 2008.

The state-by-state skirmishes are crucial, because high-cost lenders operate primarily under state law. On the federal level, the recently formed Consumer Financial Protection Bureau can address “unfair, deceptive or abusive practices,” said a spokeswoman. But the agency is prohibited from capping interest rates.

In Ohio, the lenders continue to offer payday loans via loopholes in laws written to regulate far different companies — mortgage lenders and credit repair organizations. The latter peddle their services to people struggling with debt, but they can charge unrestricted fees for helping consumers obtain new loans into which borrowers can consolidate their debt.

Today, Ohio lenders often charge even higher annual rates (for example, nearly 700 percent for a two-week loan) than they did before the reforms, according to a report by the nonprofit Policy Matters Ohio. In addition, other breeds of high-cost lending, such as auto-title loans, have recently moved into the state for the first time.

Earlier this year, the Ohio Supreme Court agreed to hear a case challenging the use of the mortgage law by a payday lender named Cashland. But even if the court rules the tactic illegal, the companies might simply find a new loophole. In its recent annual report, Cash America, the parent company of Cashland, addressed the consequences of losing the case: “if the Company is unable to continue making short-term loans under this law, it will have to alter its short-term loan product in Ohio.”

Amy Cantu, a spokeswoman for the Community Financial Services Association, the trade group representing the major payday lenders, said members are “regulated and licensed in every state where they conduct business and have worked with state regulators for more than two decades.”

“Second generation” products

When unrestrained by regulation, the typical two-week payday loan can be immensely profitable for lenders. The key to that profitability is for borrowers to take out loans over and over. When the CFPB studied a sample of payday loans earlier this year, it found that three-quarters of loan fees came from borrowers who had more than 10 payday loans in a 12-month period.

But because that type of loan has come under intense scrutiny, many lenders have developed what payday lender EZCorp chief executive Paul Rothamel calls “second generation” products. In early 2011, the traditional two-week payday loan accounted for about 90 percent of the company’s loan balance, he said in a recent call with analysts. By 2013, it had dropped below 50 percent. Eventually, he said, it would likely drop to 25 percent.

But like payday loans, which have annual rates typically ranging from 300 to 700 percent, the new products come at an extremely high cost. Cash America, for example, offers a “line of credit” in at least four states that works like a credit card — but with a 299 percent annual percentage rate. A number of payday lenders have embraced auto-title loans, which are secured by the borrower’s car and typically carry annual rates around 300 percent.

The most popular alternative to payday loans, however, are “longer term, but still very high-cost, installment loans,” said Tom Feltner, director of financial services at the Consumer Federation of America.

Last year, Delaware passed a major payday lending reform bill. For consumer advocates, it was the culmination of over a decade of effort and a badly needed measure to protect vulnerable borrowers. The bill limited the number of payday loans borrowers can take out each year to five.

“It was probably the best we could get here,” said Rashmi Rangan, executive director of the nonprofit Delaware Community Reinvestment Action Council.

But Cash America declared in its annual statement this year that the bill “only affects the Company’s short-term loan product in Delaware (and does not affect its installment loan product in that state).” The company currently offers a seven-month installment loan there at an annual rate of 398 percent.

Lenders can adapt their products with surprising alacrity. In Texas, where regulation is lax, lenders make more than eight times as many payday loans as installment loans, according to the most recent state data. Contrast that with Illinois, where the legislature passed a bill in 2005 that imposed a number of restraints on payday loans. By 2012, triple-digit-rate installment loans in the state outnumbered payday loans almost three to one.

In New Mexico, a 2007 law triggered the same rapid shift. QC Holdings’ payday loan stores dot that state, but just a year after the law, the president of the company told analysts that installment loans had “taken the place of payday loans” in that state.

New Mexico’s attorney general cracked down, filing suits against two lenders, charging in court documents that their long-term products were “unconscionable.” One loan from Cash Loans Now in early 2008 carried an annual percentage rate of 1,147 percent; after borrowing $50, the customer owed nearly $600 in total payments to be paid over the course of a year. FastBucks charged a 650 percent annual rate over two years for a $500 loan.

The products reflect a basic fact: Many low-income borrowers are desperate enough to accept any terms. In a recent Pew Charitable Trusts survey, 37 percent of payday loan borrowers responded that they’d pay any price for a loan.

The loans were unconscionable for a reason beyond the extremely high rates, the suits alleged. Employees did everything they could to keep borrowers on the hook. As one FastBucks employee testified, “We just basically don’t let anybody pay off.”

“Inherent in the model is repeated lending to folks who do not have the financial means to repay the loan,” said Karen Meyers, director of the New Mexico attorney general’s consumer protection division. “Borrowers often end up paying off one loan by taking out another loan. The goal is keeping people in debt indefinitely.”

In both cases, the judges agreed that the lenders had illegally preyed on unsophisticated borrowers. Cash Loans Now’s parent company has appealed the decision. FastBucks filed for bankruptcy protection after the judge ruled that it owed restitution to its customers for illegally circumventing the state’s payday loan law. The attorney general’s office estimates that the company owes over $20 million. Both companies declined to comment.

Despite the attorney general’s victories, similar types of loans are still widely available in New Mexico. The Cash Store, which has over 280 locations in seven states, offers an installment loan there with annual rates ranging from 520 percent to 780 percent. A 2012 QC loan in New Mexico reviewed by ProPublica carried a 425 percent annual rate.

“Playing Cat and Mouse”

When states — such as Washington, New York and New Hampshire — have laws prohibiting high-cost installment loans, the industry has tried to change them.

A bill introduced in Washington’s state senate early this year proposed allowing “small consumer installment loans” that could carry an annual rate of more than 200 percent. Though touted as a lower-cost alternative to payday loans, the bill’s primary backer was Moneytree, a Seattle-based payday lender. The bill passed the state senate, but stalled in the house.

In New Hampshire, which banned high-cost payday loans in 2008, the governor vetoed a bill last year that would have allowed installment loans with annual rates above 400 percent. But that wasn’t the only bill that high-cost lenders had pushed: One to allow auto-title loans, also vetoed by the governor, passed with a supermajority in the legislature. As a result, in 2012, New Hampshire joined states like Georgia and Arizona that have banned triple-digit-rate payday loans but allow similarly structured triple-digit-rate auto-title loans.

Texas has a law strictly limiting payday loans. But since it limits lenders to a fraction of what they prefer to charge, for more than a decade they have ignored it. To shirk the law, first they partnered with banks, since banks, which are regulated by the federal government, can legally offer loans exceeding state interest caps. But when federal regulators cracked down on the practice in 2005, the lenders had to find a new loophole.

Just as in Ohio, Texas lenders started defining themselves as credit repair organizations, which, under Texas law, can charge steep fees. Texas now has nearly 3,500 of such businesses, almost all of which are, effectively, high-cost lenders. And the industry has successfully fought off all efforts to cap their rates.

Seeing the lenders’ statehouse clout, a number of cities, including Dallas, San Antonio and Austin, have passed local ordinances that aim to break the cycle of payday debt by limiting the number of times a borrower can take out a loan. Speaking to analysts early this year, EZCorp’sRothamel said the ordinances had cut his company’s profit in Austin and Dallas by 90 percent.

But the company had a three-pronged counterattack plan, he said. The company had tweaked the product it offered in its brick-and-mortar outlets, and it had also begun to aggressively market online loans to customers in those cities. And the industry was pushing a statewide law to pre-empt the local rules, he said, so payday companies could stop “playing cat and mouse with the cities.”

Jerry Allen, the Dallas councilman who sponsored the city’s payday lending ordinance in 2011, said he wasn’t surprised by the industry’s response. “I’m just a lil’ ol’ local guy in Dallas, Texas,” he said. “I can only punch them the way I can punch them.”

But Allen, a political independent, said he hoped to persuade still more cities to join the effort. Eventually, he hopes the cities will force the state legislature’s hand, but he expects a fight: “Texas is a prime state for these folks. It’s a battleground. There’s a lot of money on the table.”

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Pa. budget-related bill hung up over payday loans | GoErie.com/Erie …

HARRISBURG — A budget-related bill is hung up in the Pennsylvania Legislature after the Senate on Wednesday stripped out a provision inserted by the House that suggested that House and Senate Republican leaders support the legalization of high-interest “payday” loans in Pennsylvania.

As a result, the bill, which otherwise guides how hundreds of millions of dollars in public money is to be spent, headed back to the House. There Republican leaders will determine how time-sensitive the bill is before recalling rank-and-file members to Harrisburg to vote on it, a spokesman said.

Senate Majority Leader Dominic Pileggi, R-Delaware, told reporters that the statement on payday lending was not true and had not been agreed to by Senate Republicans.

“I think words are important … and that language was inaccurate and should not be in” the bill, Pileggi said.

The fiscal year began Monday, and the House and Senate both recessed until Sept. 23.

The 57-page bill emerged publicly Monday evening, just before the Republican-controlled House approved it over Democratic opposition.

The House GOP spokesman, Steve Miskin, said he could not explain why the payday lending provision was in the bill or who inserted it. The Philadelphia Inquirer reported that a lobbyist for one payday lending company organized a golf-outing fundraiser in February for House Speaker Sam Smith, R-Jefferson, in Pebble Beach, Calif.

Many consumer groups oppose payday lending, and Pennsylvania has some of the nation’s strongest laws against payday lending, despite repeated efforts by financial services companies to loosen state laws and do business here.

The bill also directs $45 million to Philadelphia schools as part of a rescue package for the district, and delay of passage holds up $235 million in aid to higher education institutions, Gov. Tom Corbett’s office said.

Corbett, who has promised voters on-time budgets, signed the general appropriations bill in a $28.4 billion budget package on Sunday night. But the general appropriations bill just is one piece in a legislative package that authorizes the state’s spending.

In a statement Wednesday, Corbett asked legislative leaders “to resolve their differences and act responsibly” to send the bill to his desk for approval as soon as possible. His budget secretary, Charles Zogby, said failure to promptly pass the bill “could have significant implications on commonwealth spending and revenues.”

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Payday loans are back on Harrisburg's docket – Philly.com

“There is a theological basis for usury,” said Steve Drachler, executive director of United Methodist Advocacy in Pennsylvania. “When Jesus went to the Temple, one of the few instances where he showed anger was in driving out the money lenders. This is no different than that.”

Now, say Drachler and others, industry lobbyists are trying to muzzle them with threatening letters and personal attacks online and in newspapers.

“It smacks of desperation to personally attack people in the faith community who are speaking out against payday lending,” said the Rev. Sandra Strauss, a Presbyterian minister and public advocacy director for the Pennsylvania Council of Churches.

Al Bowman, executive director of the Pennsylvania Consumer Credit Association, said the bill would make affordable loans available to needy people now turning to loan sharks or questionable online lenders.

And he accused faith groups of throwing the first public stones.

“I have a serious issue when a reverend comes out and calls someone a sinner for something that would benefit 300,000 people,” he said, referring to an estimate produced by the Pew Charitable Trusts of the number of Pennsylvanians who took out payday loans between 2006 and 2012.

Bowman was referring to Strauss, who in an opinion piece in the Harrisburg Patriot-News wrote that allowing “unscrupulous lenders” to exploit the poor goes against the biblical concept of “love thy neighbor.”

Bowman wrote to Strauss and others asking them to “cease and desist spreading inaccurate and blatantly false information.”

To Drachler, once spokesman for now-imprisoned former House Speaker John M. Perzel, that smacked of the worst kind of negative attack in a political campaign.

Bowman, a former House Republican staff member who served a term under house arrest for his role in the Perzel scheme to develop a campaign database with public money, said lenders who want to provide a regulated service are being singled out.

“The Lutheran Church isn’t calling Wells Fargo a sinner,” he said.

Despite universal disapproval by groups that represent the poor and those on fixed incomes, including AARP, Community Legal Services, and the Housing Alliance of Pennsylvania, the bill was narrowly voted out of the Senate Finance Committee within days of its introduction this month.

Senate sources, however, say it is unlikely to get a vote before the summer recess.

Bill supporters cite thousands of struggling Pennsylvanians going to Delaware (New Jersey prohibits such loans) or borrowing through fly-by-night outfits on the Internet.

Payday lenders closed up shop in Pennsylvania after the state Supreme Court ruling upheld a law requiring lenders to be licensed and capped interest rates significantly below the usual payday loan rates.

The bill, sponsored by Sen. Pat Brown (R., Lehigh), would cap interest rates at 28 percent and fees at 5 percent of the loan amount. Borrowers would be barred from receiving a second short-term loan to pay off an existing loan. Loans could also be rescinded the next day without penalty or fee, and the bill calls for an extended repayment option.

“It would be the most regulated state in nation,” Bowman said.

Kerry Smith, a staff lawyer for Community Legal Services Inc., said that with interest and fees, the cost of the loans could reach 300 percent.

And, she said, the legislation would give lenders access to a borrower’s bank account, which means payday lenders would get paid first while rent and utilities would go unpaid, which could lead to shutoffs and eviction or foreclosure.


Contact Amy Worden at 717-783-2584 or aworden@phillynews.com or follow @inkyamy on Twitter.

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MutualFirst Financial, Inc. Declares Cash Dividend

MUNCIE, Ind., May 10, 2013 /PRNewswire/ — MutualFirst Financial, Inc. (MFSF), the holding company of MutualBank, has announced the Company will pay a cash dividend of $ .06 per share for the second quarter of 2013. The dividend will be payable on June 28, 2013 to shareholders of record on June 14, 2013.

The Company’s subsidiary, MutualBank, is well capitalized and strong by all regulatory standards.

MutualBank, an Indiana-based financial institution, has thirty-one full-service retail financial centers in Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash Counties in Indiana. MutualBank also has two Wealth Management and Trust offices located in Carmel and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan. MutualBank is a leading residential lender in each of the market areas it serves, and provides a full range of financial services including business banking, wealth management and trust services and Internet banking services. The Company’s stock is traded on the NASDAQ National Market under the symbol “MFSF” and can be found on the internet at www.bankwithmutual.com.

Statements contained in this release, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those currently anticipated due to a number of factors, which include, but are not limited to factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time.

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