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No on SB 5899: Payday loans don't solve crisis, they create one …

EDITORIAL


(March 13, 2015) – Remember two years ago, when the Republican-controlled Washington State Senate brought our state to the brink of a government shutdown?

The Senate had a list of ideological policy bills upon which they demanded House action before they would agree to an operating budget. After two overtime sessions, cooler heads finally prevailed and Gov. Jay Inslee signed a deal just hours before the budget cycle ended on July 1, prompting The (Everett) Herald to editorialize, “Ideology and partisanship, especially in the Senate, supplanted pragmatism.”

Good times… good times.

One of those 2013 ideological policy bills is back in 2015, and the more solidly Republican-controlled Senate just sent it to the House. It’s SB 5899, which would relax consumer protections against short-term high-interest payday loans that push low-income working families deeper and deeper into debt. The bill would replace the state’s limited payday loans with “installment loans” that would allow up to a year’s worth of interest and fees.

Washington’s current law limits payday loans to $700 per loan and no more than eight loans per year. Borrowers are charged a $95 fee and typically must pay it off in two weeks. Under SB 5899, a $700 loan would cost borrowers up to a total of $1,195 in principal, interest and fees if paid off in six months, and up to a total of $1,579 if it took a full year.

Organized labor and other advocates for low-income working families have joined anti-poverty and consumer groups in opposing SB 5899. Why? Because payday loans don’t solve a financial crisis, they create one. Borrowers often must take a second loan to pay off the first, and so on, leading to a spiral of debt that sucks them dry.

It also harms the economy.

A 2013 study by the Insight Center for Community Economic Development found that the national burden of repaying payday loans in 2011 led to $774 million in lost consumer spending, the loss of more than 14,000 jobs, and an increase in Chapter 13 bankruptcies. The study found that each dollar of interest paid to payday lenders subtracted $1.94 from the economy due to reduced household spending, while only adding $1.70 to payday lending establishments. It’s an anti-multiplier effect. For every dollar of interest paid in payday loan interest, the economy lost a quarter.

Remember last fall’s election, when voters were demanding greater access to short-term high-interest loans? Neither do we.

The 2015 legislative session was supposed to focus on last fall’s big campaign issues: funding basic education and transportation, addressing income inequality, and making sure our tax dollars (and tax incentives) are efficiently spent. How did promoting payday lending get in there again?

It began last fall, all right. But it didn’t come from the public, it came from Seattle-based payday lender MoneyTree.

Jim Brunner of The Seattle Times wrote an explosive story last week outing Moneytree as leading the full-court lobbying press to relax payday lending laws. He reports that the effort began last fall when the company and its executives, who traditionally direct their political contributions to Republicans, “sought to strengthen ties with Democrats, boosting donations to Democratic legislator campaigns in last fall’s elections, and quietly employing a well-connected Seattle public-affairs firm that includes the political fundraiser for Gov. Jay Inslee and other top Democrats.”

On Tuesday, a heroic effort was made by most of the Senate’s Democratic minority caucus to stop SB 5899 or amend it to lower the interest and fees payday lenders can charge. But those efforts were thwarted, and after a passionate debate that lasted more than two hours, the bill passed the Senate, 30-18, with Democratic Sens. Brian Hatfield, Steve Hobbs, Karen Keiser, Marko Liias, and Kevin Ranker joining all Republicans (except Sen. Kirk Pearson) in voting “yes.”

Now it heads over to the House, where its companion bill died without a floor vote after Wednesday’s cutoff deadline. The question is, given Moneytree’s… outreach… to Democrats, will it again die in their House? Will it again become embroiled in end-game budget negotiations to try to force its passage?

We hope not.

We agree with state Attorney General Bob Ferguson, who sent a letter to legislators opposing the bill, saying our state’s payday-lending system includes important safeguards for consumers “and does not need to be overhauled.”

We also agree with The (Tacoma) News Tribune, which wrote that payday lenders’ efforts to pass SB 5899 “have nothing to do with helping poor people and everything to do with their bottom line. Lawmakers should see this legislation for what it is and reject it. If it passes, Gov. Jay Inslee should veto it.”


The Stand is the news service of the Washington State Labor Council, AFL-CIO.

[…]

NI Executive agrees to £100m loan

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10 October 2014 Last updated at 08:50

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Delicious Digg Facebook reddit StumbleUpon Email Print The Department of Health will receive £60m and the Department of Justice will receive almost £30m

Northern Ireland budget pressure

Treasury loan proposed for Stormont Osborne ‘hears budget plan’ ‘More positive mood’ at talks PM hopes executive will not collapse

The Northern Ireland Executive has agreed to a loan of up to £100m from the Treasury.

The deal was brokered by the Democratic Unionist Party with the Chancellor, George Obsborne.

It means extra cash for departments, including £60m for the Department of Health and almost £30m for the Department of Justice.

However, the arrangement has been criticised by other parties as an “expensive sticking plaster”.

The Treasury had been asked to supply Stormont with a one-off loan of between £100m and £150m to ease its budgetary crisis.

It is understood that Peter Robinson and Finance Minister Simon Hamilton made the proposal to the chancellor.

Analysis: BBC News NI political editor Mark Devenport

George Osborne said he was concerned the Stormont Executive has found itself in such a dire financial situation.

The money he is willing to lend, he makes clear, will be deducted from the executive’s block grant next year.

The chancellor repeats his intention to levy fines on the executive due to its delay in implementing the UK’s welfare reforms.

Finance Minister Simon Hamilton said he would have preferred a resolution to the dispute over welfare, but he says the loan allows the executive to deal with urgent financial pressures in the health service, the PSNI and services for victims.

Justice Minister David Ford is getting nearly £30m, but he did not like the idea of Stormont running up yet more debt.

The loan will ensure Stormont does not breach its spending limits by more than £200m at the end of the financial year.

However, it will increase the amount Stormont will owe the Treasury next year.

Mr Hamilton said a letter from the chancellor made it clear that Northern Ireland would incur £87m in penalties this year and another £114m next year for a failure to implement welfare reform.

However, he said he was hopeful those penalties might be waived if the parties reach a deal in the near future.

“I hope that if we can get agreement on welfare reform that perhaps those fines may be waived and we may not have to pay that. That would be a tremendous help to public services in Northern Ireland,” he said.

“It wouldn’t solve all of the problems that I face and executive colleagues face, but it certainly would be a great assistance.”

Speaking at a DUP event on Thursday night, First Minister Peter Robinson said the loan was conditional on Stormont agreeing a draft budget for 2015/16 by the end of October.

Justice Minister David Ford said the move was “not good management”

Mr Robinson raised the possibility of opening a voluntary redundancy scheme for the public sector which, he said, could save about £160m a year.

It is also understood that welfare reform is not part of the deal with the Treasury, but instead will feature in the planned political talks due to begin next week.

On Thursday night, Mr Hamilton said: “We had an immediate pressing problem in terms of difficulties within our health services, within victims services, within job creation and within justice.

“We have now been able to cover those pressures to ensure that those problems are now averted, and we can get on with delivering services in Northern Ireland.”

While DUP and Sinn Féin ministers backed the loan deal, Alliance, the SDLP and the Ulster Unionist Party all registered their opposition.

Alliance leader David Ford said taking money from next year for this year was “simply not good management”.

“It’s like borrowing on a second credit card when you reach your limit on a first credit card,” he said.

Regional Development Minister Danny Kennedy of the Ulster Unionist Party said: “I believe that it doesn’t fully deal with the economic issues before us, as an executive.

“It simply seeks to push things down the pipe and put a sticking plaster over what remains a gaping hole.”

[…]

Short-Term Loans Comes at a Heavy Price

Retired and low on cash, Lynn Frampton borrowed $2,600 from online lender CashCall to make ends meet. The loan came with a hefty price tag: a total finance charge of more than $11,000 if she paid it over four years. Her monthly payments were almost $300. The loan carried an annual interest rate of 138.58 percent.

“I can’t believe I agreed to that,” says Frampton, now 67. “It was stupid on our part. The interest is outrageous.”

The Santa Ana resident made her first two payments, then fell behind. Frampton, who eventually resumed payments, says she owes roughly $10,000. Delbert Services, a CashCall affiliate, has offered to settle her debt for $980, she says.

It might seem like a lot less, but she still can’t afford it.

It’s not illegal in California to charge triple-digit interest annually on consumer loans. The trick is to craft a loan of $2,500 or more.

Lenders who are licensed under the California Finance Lenders Law can choose any interest rate they want for consumer loans of $2,500 and over. Most loans under that amount are subject to an interest rate cap of roughly 30 percent.

This $2,500 cut-off played a prominent role in a false advertising complaint filed earlier this summer by the California Commissioner of Business Oversight, which asked that CashCall’s finance lenders licenses be suspended for up to 12 months. The company has asked for a hearing on the matter.

The regulator claims the Orange-based lender falsely advertised loans of up to $2,600. When consumers called the company or went to its website, they were told CashCall did not make such loans.

The CBO complaint states that when consumers told CashCall they wanted a loan for less than $2,600, the company routinely told them that on the day of funding or shortly thereafter, borrowers could give back whatever amount they didn’t want as a prepayment. On these loans, CashCall charged up to 179 percent interest.

CashCall declined to comment.

LENDING OPTIONS

The industry of small-dollar lenders has insisted it provides a valuable service for borrowers, and that higher interest rates counter the risk of loaning money to consumers with lower credit scores.

Small-dollar loans are a topic “near and dear to my heart,” says state Sen. Lou Correa, D-Santa Ana. A member and former chairman of the State Senate Committee on Banking and Financial Institutions, Correa said he believes these loans are a form of credit for people who don’t have other options.

“My perspective is to do everything we can to assure that people can borrow money — that people have access to capital,” Correa says. “When you begin to talk about caps on fees, what people should charge, what they should not charge … you may actually be limiting people’s ability to borrow. There may not be loans if lenders aren’t interested in lending money.”

Correa said it can be difficult for lenders to cover their costs when faced with interest-rate caps for loans under $2,500.

RATE CAP HISTORY

The $2,500 line in the lending sand dates to 1985.

When the late Democratic state Sen. Rose Ann Vuich authored a bill to lower the ceiling on regulated loans to $2,500 — increasing the number of loans with unlimited rates — supporters said they thought it would open up competition and eventually push rates down. In fact, the limit had been lowered to $5,000 from $10,000 in 1983.

“Rates above $5,000 are now set competitively in the marketplace and are generally below the former statutory rate ceilings,” Vuich wrote in a letter to then-Gov. George Deukmejian. The current bill “is expected to lead similarly to lower rates for loans in the $2,500 to $5,000 bracket.”

The state Department of Corporations at the time argued in favor of the 1985 bill, stating “rate regulation provides very little consumer protection and may even work against consumers since lenders tend to lend money at the maximum allowable rate irrespective of the credit worthiness of the borrower.”

THE SWEATBOX

Critics contend that on small-dollar loans, repayment is not a priority.

A 2008 class action lawsuit filed against CashCall in San Francisco federal court claims CashCall made loans with unconscionable loan terms including unconscionable usury rates. The suit partly involves California residents who borrowed from $2,500 to $2,600 from CashCall at an interest rate of 90 percent or higher from 2004 to 2011 for personal, family or household use.

In a counterclaim, CashCall denied the allegations, requested they be dismissed and asked for damages resulting from two of the plaintiff’s alleged breach of contract when they defaulted on their loans. The parties are currently in settlement talks.

Paul Leonard, the California director of the Center for Responsible Lending, has been following the lawsuit against CashCall.

He notes the litigation has brought to light a high level of defaults on the lender’s $2,600 loan products. According to a judge’s recent order from the suit, “the default rate for the $2,600 loan product has been 35 percent to 45 percent” from 2004 to the present.

Leonard asks at what point do excessive levels of charge-offs (debts written off as a loss by the lender) suggest these loans are being given to consumers without properly analyzing their ability to repay them.

He compares the loan process to the so called “sweatbox” model.

Georgetown University law professor Adam Levitin used the term in congressional testimony on abusive credit card practices. Coined by another law professor, “the sweatbox model does not aim to have the principal repaid,” Levitin wrote in his testimony on the credit card industry in 2009.

Levitin explains that in this model, a lender is counting on interest and fees to make back enough money should the consumer default and never repay the principal. Ultimately the principal gets discharged in bankruptcy, and the lender still makes a profit. By using high interest rates and high fees, the lender keeps the borrower in a proverbial sweatbox as long as possible.

“The business model is based on the idea that they’re going to eat really high levels of losses and still make a profit,” Leonard says. “Maybe it’s profitable for the business, but for the borrowers it’s horrific.”

CashCall’s website states borrowers must provide an active bank account statement and proof of income as part of its qualification process for unsecured personal loans.

AUTO TITLE LOANS

Auto title lenders are another group that seem to be capitalizing on California’s $2,500 and higher lending loophole. These loans, which use the borrower’s car title as collateral, are usually for less than 30 days and allow the lender to take ownership of the borrower’s car if the loan is not repaid. The lender can then sell the car to recoup the loan amount.

These loans are based on the value of a borrower’s car that is owned free and clear, rather than the ability of the borrower to repay the loan, according to a 2013 report by the Center for Responsible Lending. The report analyzed records from more than 500 auto title borrowers made public during a suit against a Delaware-based lender. The median loan size was $845.

The Department of Business Oversight’s 2012 annual report shows that registered California lenders made less than 1,000 auto title loans under $2,500, and about 8,000 loans of $5,000 to $9,999 and 1,000 loans of $10,000 or more. But they made more than 54,000 for loans of $2,500 to $4,999.

According to the Center for Responsible Lending, 16 states explicitly allow auto title lending at triple-digit interest rates and four others, including California, allow it through a legislative loophole. Yes, that very same loophole.

PILOT PROGRAM

Seeing a need for more consumer loans in the $300 to $2,500 bracket, the Legislature created a pilot program for Increased Access to Responsible Small Dollar Loans earlier this year. The program targets loans subject to interest rate caps, which might be less attractive to lenders. (Payday loans, which are $300 or less, are an exception to the interest rate cap rule, hence the pilot program’s range.)

The program requires approved licensed lenders to provide some financial education to consumers, and an assessment of the ability to repay in exchange for a slightly higher maximum interest rate of 36 percent. So far, four firms have qualified for the program.

Leonard says there are simple alternatives to small-dollar loans: Ask friends and family or consider different decisions about spending and the urgency of spending.

“Everybody who needs money doesn’t necessarily need a loan to solve their problem,” Leonard adds. Especially if they don’t have the money to pay it off.

Contact the writer: musheroff@ocregister.com

Original headline: $2,500 is a costly line in consumer lending

[…]

Deal reports $3.9M in cash for re-election bid

ATLANTA (AP) – Gov. Nathan Deal on Monday reported $3.9 million in cash for his re-election bid, after raising about $84,000 in 11 days since the legislative session ended.

Deal is facing two Republican challengers in the May 20 primary. Democrat Jason Carter, who is running uncontested, was expected to report about $1.6 million in cash for his gubernatorial campaign. Carter, a state senator, outraised Deal over those 11 days and was expected to report about $416,000 in contributions for the period.

Deal campaign spokeswoman Jen Talaber said 100 percent of its contributions came from within Georgia and criticized the Carter campaign for promoting a fundraiser before the session ended. By law, legislators and statewide officials are prohibited from raising money during the session, which began Jan. 13 and ended March 20.

“We followed the rules about not lining up fundraisers during session. Carter for Governor had no such concerns,” Talaber said. “Our cash-on-hand advantage allows the governor to dedicate this month to reviewing and signing bills that will benefit the people of Georgia and keep us the number one place to do business.”

Carter campaign spokesman Bryan Thomas dismissed the criticism, noting the fundraiser was for the Democratic Party of Georgia and that Deal had attended a fundraiser during the session for the Republican Governors Association.

“These numbers show that Jason has all the momentum in this race,” Thomas said. “Our campaign has seen an outpouring of grass-roots support from people who are tired of the governor’s scandals and are looking for real leadership.”

In the Republican primary, Deal faces state schools Superintendent John Barge and former Dalton Mayor David Pennington. Barge, who has spoken about the challenge of persuading donors to give to a candidate challenging the governor, reported just under $18,000 in contributions. That included a $5,800 loan, and Barge had about $16,000 in cash with just six weeks to go before the election.

Pennington reported about $67,500 in contributions, which included a $3,000 loan. He had about $208,000 in cash for the campaign, a small increase over his Jan. 31 report.

In recent days, Deal’s opponents have sought to capitalize on a jury verdict in favor of a former employee of the state ethics commission who claimed retaliation for work investigating the governor’s 2010 personal and campaign finance reports. Deal was not a defendant in the civil lawsuit and has denied any involvement, but his opponents have used to the case to raise questions about his administration. Carter cited the verdict in a recent fundraising email to supporters.

On Monday, Deal announced a proposal to overhaul the ethics commission by allowing each branch of state government to appoint four members. The current five-person commission would grow to 12 under the plan, which would require legislative approval. The Carter campaign said Deal’s proposal was an attempt to blunt the criticism, and Carter planned to detail his proposal Tuesday.

___

Follow Christina Almeida Cassidy on Twitter: http://twitter.com/AP_Christina.

[…]

BEAM: Next Up Is Payday Loans – The Hayride


BEAM: Next Up Is Payday Loans

Posted by: Jim Beam on Monday, March 24, 2014, 9:51

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Payday loans will be a hot topic for the coming week at the Louisiana Legislature. The industry has offices all over the place, sometimes three at the same location. Obviously, there is a demand for their services, but at what cost?

Those are short-term, highinterest loans that are based on the borrower’s next paycheck. A person can get a quick $100 loan to help pay his bills by writing a postdated check, including the interest, that the loan office agrees not to cash until payday. The interest on that $100 varies, but it has been reported that a typical loan of that amount costs $30 in interest, which is more than 780 percent annually.

Industry spokesmen deny the rates are that high. Troy McCullen, the owner of 31 pay day loan locations in Louisiana, said state law prohibits much of what the companies are alleged to be doing.

Two bills that will be heard at the Legislature should help clear the air, but their sponsors insist the industry definitely needs tougher regulations. Most of the citizens who take out pay day loans are already in desperate financial situations and don’t need to get deeper in debt.

A number of organizations are pushing for tighter controls. They include AARP Louisiana, the Louisiana Budget Project, Habitat for Humanity, Catholic bishops, ministers and community organizers and United Way of Southeast Louisiana. They make up the Louisiana Coalition for Responsible Lending.

Together Baton Rouge, another member, said Louisiana families paid over $196 million in fees and interest on pay day loans in 2011 and 57,000 households take out loans each year.

Senate Bill 84 by Sen. Ben Nevers, D-Bogalusa, is scheduled for a Tuesday hearing before the Senate Commerce Committee. A similar measure (House Bill 239) has been filed by Rep. Ted James, D-Baton Rouge. They want to cap the annual interest rate at 36 percent.

The Louisiana House Democratic Caucus said the state has one of the highest concentrations of pay day loan storefronts in the nation, with more than four of them for every McDonald’s. Jan Moller, executive director of the Budget Project, told The Advocate there are some 1,000 storefront pay day lenders operating in Louisiana.

James said, “State law allows pay day lenders to get away with charging customers interest rates of more than 300 percent, compared to 24 percent for credit cards. These outrageous interest rates trap many hard-working people into long-term debt.”

When those who borrow don’t repay the loans, they really get into deep debt. The Budget Project said on average, borrowers recycle loans nine times, which translates to paying $270 in fees on a $100 loan. They pay fees to renew their loans and then renew them again and again, or take out more pay day loans.

The proposed legislation would prohibit lenders from rolling over the loans and improve the way loans are handled.

The last serious effort the Legislature made to tighten controls on pay day loans came in 1999. Foster Campbell, a current member of the Louisiana Public Service Commission and former state senator, wanted to limit the annual interest rate to 72 percent. He said the prime interest rate at the time was 7.75 percent.

“If you can’t make it on nine times the prime, I feel sorry for you,” Campbell said at the time.

State Rep. John Travis, D-Jackson, had a House bill in 1999 that set the annual loan rate at 180 percent, which was 16.75 percent for the two- to fourweek life of the loans. He said it was deceiving to compare interest rates because the loans are short-term transactions. His bill passed unanimously and he was opposed to the 6 percent rate that was approved by the Senate.

“Anybody who votes to kill this bill (with the 16.75 percent) wants things to continue as they are,” Travis told House members. He won out in the end.

The Associated Press in 2000 said before the change pushed by Travis it was routine for borrowers to pay $45 in fees to get $201 for 14 days, which translates to an annual percentage rate of 583.7 percent. Under the Travis bill, a lender could charge up to $40.44 on the same loans, or an annual rate of 523.1 percent, not much of a change.

Fees are another problem. There was an effort to curb them in 1999, but legislators took action in 2010 that allowed increased fees.

Some who take out pay day loans don’t want the government to get more involved. And the industry said tougher regulations will drive their customers to loan sharks. However, some critics of the loans believe the pay day companies are loan sharks themselves.

LaPolitics Weekly reported last week the pay day loan bills are the most “lobbied up” measures at the legislative session so far. It said at least 40 lobbyists representing the companies met for a strategy session. So, you know we are talking big bucks here.

Most legislators in office in 1999 supported the bills by Campbell and Travis, because they made some improvements in the pay day loan business. However, Travis wouldn’t agree to any major changes. We will soon find out how serious legislators are this time around about reforming a loan system that takes unfair advantage of people who are already down on their luck.

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[…]

Loan shark crackdown on the cards

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Parliament is considering taking to task a burgeoning industry of microlenders that is ­capitalising on a legal loophole to charge exorbitant interest rates to vulnerable consumers.

Industry experts are concerned that a growing market of lenders is crippling cash-strapped South Africans by charging fees four or five times the legal limit, and that this is undetected by regulators.

The topic has come under scrutiny over the past few weeks as the trade and industry parliamentary portfolio committee has deliberated the National Credit Amendment Bill 2013, which will replace the National Credit Act (NCA) of 2007.

“The concern is those unregulated, unregistered companies dishing out loans,” said Kobus Marais, the spokesperson representing the Democratic Alliance in the portfolio committee discussions regarding the Bill. “It’s a major market.”

Underground operators
Hennie Ferreira, the chief executive of industry body MicroFinance South Africa, agrees.

“The guys who are legal and do their returns and are in the eye of the regulator stick to the terms, I am fairly confident of that,” he said. “But underground, there’s a burgeoning market. They make up their own rates based on … supply and demand.”

The current Act sets out a formula that stipulates the maximum amount of interest that lenders can charge for various types of credit.

It also requires all credit providers with a loan book of more than R500?000 and more than 100 loans to register as a credit provider, which is overseen by the National Credit Regulator (NCR).

But many of the companies guilty of overcharging are small or one-person businesses that do not meet these thresholds and are therefore not required to be registered.

The result is a group of lenders that fly under the radar of the law and are not regulated by industry bodies or the NCR. According to Ferreira, the segment is growing.

Unregistered credit providers
“There are at least 50?000 unregistered credit providers in the country. The guys in the rural areas say there are many more.

“Once, on a trip to rural KwaZulu-Natal, I saw 30 loan sharks in the space of a rugby field. They were operating from their jeans pockets or the boot of their car.”

The NCA currently sets maximum allowable interest levels based on the repo rate. Rates change according to the type of credit extended.

The formula multiplies the repo rate by 2.2 and adds a varying ­percentage depending on the type of loan (see graphic).

According to the Act, the current maximum interest allowed to be charged on mortgage loans is 17.1%, on credit facilities it’s 22.1%, and for an unsecured loan, it’s 32.1%.

Lenders extending short-term loans cannot derive capital of more than R8?000 from the transaction, and the loan agreement must be for six months or less.

There are also limits on the initiation fee charged, and a maximum of R50 may be charged as a monthly administration fee. But the poor are often the recipients of rates much higher than this, and are thus forced to service high rates of debt they can ill afford.

Although all agree there should be a clampdown against such practices, Ferreira cautions that interest on small loans should not only be viewed as a percentage figure.

“The problem with small loans is when you annualise the percentage charged for interest, it looks horrific,” he said.

“I’m not defending them … but it’s a comparative thing. If you lend someone one cent on Monday, and he pays you back two cents on Tuesday, you’ve made interest of 100%, but you’ve still only made one cent. There’s a discussion about affordability [for the ­borrowers] versus sustainability [for the lenders].”

Change underway
Industry experts agree that it is extremely difficult to gauge the extent to which these businesses are over-charging when they do not fall under a regulatory body. It is unclear whether this so-called loophole will be addressed in the Bill, although the government has indicated its concern.

“Parliament is concerned about the high cost of credit, especially to the poor,” said Zodwa Ntuli, the deputy director of policy and legislation at the department of trade and industry.

The department is calling for the Bill to review the various caps on interest. It is not yet known whether they will come as adjustments to current caps or whether they will take a different form altogether.

According to Ntuli, “this is a consultative process and it is not possible to pre-empt the changes”.

The department is also calling for the Bill to better police the selling of loan books, something that is common practice among financial institutions.

“There is no intention to do away with the selling of loan books, but when such happens, the obligation must be on the credit provider to make sure that loan book does not include debt that has expired or been written off,” said Ntuli.


Transparency has made up for a lot

The National Credit Act (NCA) has been a vast improvement on the law it replaced, according to Angela Itzikowitz, an executive in the banking and finance department of legal firm ENSAfrica.

The Usury Act of 1968, which was repealed and replaced by the NCA in 2005, called for lower terms of interest than the NCA does.

It allowed the repo rate to be multiplied by a third. The NCA calls for the repo rate to be multiplied by 2.2. But the NCA provides transparency that the previous law did not, she said.

“While the interest rate might have been lower under the Usury Act, people used to include all sorts of other peripheral charges — transaction fees, initiation fees, fees for vetting the property, and property insurance was incredibly high,” said Itzikowitz.

“Now the NCA is prescriptive about the kinds of charges that can be levied and no additional charges can be added.”

The National Credit Regulator has also called for a code of conduct requiring “lenders to subscribe to a code where the credit assessment measures are now far more prescriptive,” Itzikowitz said.

Adhering to the code will make lenders less likely to hand out unaffordable loans to consumers.

“I think we are adhering to international best practice,” she said. “A number of jurisdictions, such as China, have looked to South Africa when putting their own [laws governing credit] in place.”

But some changes being proposed in the Bill, such as the removal of adverse credit information from the records of errant payers who have proved sufficiently that they have been “rehabilitated”, are a step backwards, she said.

The Democratic Alliance is in favour of the change, which it believes will give consumers the chance to turn over a new leaf. But the party opposes putting a cap on the interest charged for loans.

DA spokesperson Kobus Marais said: “We’re not in favour of over-regulating because consumers must make their own choices. You must disincentivise irresponsible lenders and incentivise people to only buy from registered lenders. The government must promote education [of consumers] … which is easier said than done.”


Thalia Holmes is a business reporter for the Mail & Guardian.

Read more from Thalia HolmesTwitter: @ThaliaHolmes […]

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.”

[…]

Bills Limiting Payday Loans Dead in Legislature | CBS 8 News …

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Bills Limiting Payday Loans Dead in Legislature | CBS 8 News | CBS 8 Montgomery Newsroom

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Bills Limiting Payday Loans Dead in Legislature

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By Alabama News Network
By Jamie Langley

Story Created: May 6, 2013 at 7:30 AM CDT

Story Updated: May 6, 2013 at 7:30 AM CDT

MONTGOMERY, Ala. (AP) – Efforts by some legislators to put new restrictions on payday loans and title loans are dead for the 2013 session of the Alabama Legislature.

Two Democratic representatives from Birmingham, Rod Scott and Patricia Todd, sponsored bills to lower the interest rates that could be charged on payday loans and title loans to 36 percent annually. The bills stalled in a House committee after industry leaders said the bills would put them out of business.

Then Senate President Pro Tem Del Marsh of Anniston offered a bill to lower rates on payday loans, but not as much as the House legislation. His bill also drew industry opposition. Marsh said his bill is dead because there isn’t enough support or time left in the session to pass it.

(Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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Supporters try to save bills regulating pay day loans – Gadsden Times

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The Rev. Hugh Morals speaks out against a pay day loan bill during a rally attended by several dozen demonstrators at the Alabama Statehouse in Montgomery, Ala., Tuesday, April 2, 2013. The pay day loan is expected to come up before the Senate sometime soon. (AP Photo/Dave Martin)

AP

Published: Saturday, April 13, 2013 at 9:36 p.m.
Last Modified: Saturday, April 13, 2013 at 9:38 p.m.

MONTGOMERY — Two bills to further regulate the payday loan and title pawn industries and lower interest rates for those transactions were referred to an Alabama Legislature subcommittee last week, a process that sometimes means death for legislation.

But supporters of the measures said they remain hopeful that something will be done in the current session to make the loan transactions more consumer-friendly.

The House Financial Services Committee voted after a public hearing Wednesday to send the bills to a subcommittee. Committee chairman Republican Rep. Lesley Vance of Phenix City said the purpose was to give the bills more study. He said the intention was not to kill the bills, but some legislators said sending bills to subcommittee is a tactic often used to kill legislation.

Supporters want to lower interest rates on the loans, which sometimes are as high as 300 percent for title pawn loans and 400 percent for payday loans. That’s compared to 36 percent or lower for a similar bank loan.

A payday loan is when money is borrowed with the promise to pay it back with money from the next paycheck. Title pawn loans are usually made using automobile titles, jewelry or other goods as collateral.

Sara Zampierin, an attorney for the Southern Poverty Law Center, which supports the bills, said she’s not optimistic about the fate of the legislation.

“Generally when bills are sent to subcommittee they are sent to die,” she said. “The committee has not appeared willing to enact changes consumer advocates believe are needed to protect consumers.”

The proposed bills would lower interest rates to 36 percent, limit the number of loans a person could take out and create a database to track loans.

The Legislature has been considering bills to further regulate the loans for years, but has been unable to come up with an ultimate solution.

Charles Hunter, a spokesman for the tile pawn and payday loan industries, said those businesses supported a different bill to keep interest rates where they are.

Hunter said if the payday loan businesses were forced to close it would cost thousands in Alabama their jobs. He said the people who borrow money from business need cash right away.

“They don’t need it tomorrow, they need it today,” Hunter said.

Shay Farley of Alabama Appleseed, which supports the bills to lower the interest rates, said she knows the current session is more than two-thirds complete, but she said supporters are continuing to ask legislators to help them get the bills out of the Financial Services committee.

“It’s obvious the committee wanted the bills to die, but hopefully other legislators have an interest,” Farley said.

Democratic Rep. Rod Scott of Birmingham, who sponsored one of the bills, said the vote to send the bills to subcommittee was not a good sign, but he’s not willing to give up.

“I will continue making myself available to anyone who wants to discuss the issue,” Scott said.

The sponsor of the other bill, Democratic Rep. Patricia Todd of Birmingham, said committee members want the bills to be dead, but said she would continue to work to get them out of the committee.

“I’ve got to keep hope alive,” she said.

[…]

Neither Party Has Cash for Student Loan Rate Fix

Incoming college freshmen could end up paying $5,000 more for the same student loans their older siblings have if Congress doesn’t stop interest rates from doubling.

Sound familiar? The same warnings came last year. But now the presidential election is over and mandatory budget cuts are taking place, making a deal to avert a doubling of interest rates much more elusive before a July 1 deadline.

“What is definitely clear, this time around, there doesn’t seem to be as much outcry,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators. “We’re advising our members to tell students that the interest rates are going to double on new student loans, to 6.8 percent.”

That rate hike only hits students taking out new subsidized loans. Students with outstanding subsidized loans are not expected to see their loan rates increase unless they take out a new subsidized Stafford loan. Students’ non-subsidized loans are not expected to change, nor are loans taken from commercial lenders.

The difference between 3.4 percent and 6.8 percent interest rates is a $6 billion tab for taxpayers — set against a backdrop of budget negotiations that have pitted the two parties in a standoff. President Barack Obama is expected to release his budget proposal in the coming weeks, adding another perspective to the debate.

Last year, with the presidential and congressional elections looming, students got a one-year reprieve on the doubling of interest rates. That expires July 1.

Neither party’s budget proposal in Congress has money specifically set aside to keep student loans at their current rate. House Republicans’ budget would double the interest rates on newly issued subsidized loans to help balance the federal budget in a decade. Senate Democrats say they want to keep the interest rates at their current levels but the budget they passed last week does not set aside money to keep the rates low.

In any event, neither side is likely to get what it wants. And that could lead to confusion for students as they receive their college admission letters and financial aid packages.

House Republicans, led by Budget Committee Chairman Paul Ryan, have outlined a spending plan that would shift the interest rates back to their pre-2008 levels. Congress in 2007 lowered the rate to 6 percent for new loans started during the 2008 academic year, then down to 5.6 percent in 2009, down to 4.5 percent in 2010 and then to the current 3.4 percent a year later.

Some two-thirds of students are graduating with loans exceeding $25,000; one in 10 borrowers owes more than $54,000 in loans. And student loan debt now tops $1 trillion. For those students, the rates make significant differences in how much they have to pay back each month.

For some, the rates seem arbitrary and have little to do with interest rates available for other purchases such as homes or cars.

“Burdening students with 6.8 percent loans when interest rates in the economy are at historic lows makes no sense,” said Lauren Asher, president of the Institute for College Access and Success, a nonprofit organization.

Both House Education Committee Chairman John Kline of Minnesota and his Democratic counterpart, Rep. George Miller of California, prefer to keep rates at their current levels but have not outlined how they might accomplish that goal.

Rep. Karen Bass, a California Democrat, last week introduced a proposal that would permanently cap the interest rate at 3.4 percent.

Senate Democrats say their budget proposal would permanently keep the student rates low. But their budget document doesn’t explicitly cover the $6 billion annual cost. Instead, its committee report included a window for the Senate Health Education and Pension Committee to pass a student loan rate fix down the road.

But so far, the money isn’t there. And if the committee wants to keep the rates where they are, they will have to find a way to pay for them, either through cuts to programs in the budget or by adding new taxes.

“Spending is measured in numbers, not words,” said Jason Delisle, a former Republican staffer on the Senate Budget Committee and now director of the New America Foundation’s Federal Budget Project. “The Murray budget does not include funding for any changes to student loans.”

The Congressional Budget Office estimates that of the almost $113 billion in new student loans the government made this year, more than $38 billion will be lost to defaults, even after Washington collects what it can through wage garnishments.

The net cost to taxpayers after most students pay back their loans with interest is $5.7 billion. If the rate increases, Washington will be collecting more interest from new students’ loans.

But those who lobbied lawmakers a year ago said they were pessimistic before Obama and his Republican challenger Mitt Romney both came out in support of keeping the rates low.

“We were at this point and we knew this issue was looming. But it wasn’t anything we had any real traction with,” said Tobin Van Ostern, deputy director of Campus Progress at the liberal Center for American Progress. “At this point, I didn’t think we’d prevent them from doubling.”

This time, he’s looking at the July 1 deadline with the same concern.

“Having a deadline does help. It’s much easier to deal with one specific date,” Van Ostern said. “But if Congress can’t come together … interest rates are going to double. There tends to be a tendency for inaction.”

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