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Paying Up: Payday Loans Prey On The Desperate – Blacklisted News

Despite what the talking heads are saying, the economy isn’t doing so well. In this most recent jobs report, the two main sectors of growth were fast food and retail, accounting for a total of about 32.2% of jobs created in October. And due in part to these low-paying jobs, many more people are using payday loans to get by. Why does it matter?

Unfortunately, when it comes time to pay up, many people are paying much more than what they borrowed due to extremely high interest rates. While the issue gets raised in the mainstream media every now and then, rarely has anyone taken a look how payday loans came into existence – and the type of real financial havoc they wreak on people, mainly the poor. We need to realize that payday loans only harm us, and to explore alternatives.

According to a 2007 article in the Journal of Economic Perspectives, the practice of getting credit against one’s next payment goes back to the Great Depression. However, “the spread of direct deposit and electronic funds transfer technologies slowed the growth in the demand for check cashing services,” and payday loans played more of a side role to check-cashing businesses. But in 1798 the situation changed, facilitating the rise of payday lenders.

The Origins of the PayDay Loan

The beginnings of payday loans can be found in the 1978 Supreme Court case Marquette National Bank v. First of Omaha Service Corp, which stated that “national banks were entitled to charge interest rates based on the laws of states where they were physically located, rather than the laws of states where their borrowers lived.” The ruling allowed banks to offer credit cards to anyone they deemed qualified.

A further empowerment came from the Depository Institutions Deregulation and Monetary Control Act of 1980, which allowed banks and financial institutions to decide interest rates based on the market. This laid the foundation for payday loans, since one could now set up a payday loan company and charge high interest rates claiming they were based on the market. Payday lenders could offer loans to literally anyone they wanted, even those with bad credit.

As most of us now know, payday lenders are able to profit off the loans they provide by charging interest – often exorbitant interest, which gets out of control. For example, “for a loan of $300, a typical borrower pays on average $775, with $475 going to pay interest and fees over an average borrowing cycle.” In 1999, the Federal Reserve Bank of Cleveland noted that loans had “annualized interest rates often ranging from 213 percent to 913 percent.” In other words, the interest on a payday loan could vary between 4.4% and 19% – per week.

Today, the situation has only slightly improved as interest on a two-week loan can be between 391% and 521% annually, or 8.14% to 10.85% weekly. When one factors in that “only 14 percent of borrowers can afford enough out of their monthly budgets to repay an average payday loan,” we can see the beginning of a debt cycle where interest quickly and dangerously adds up.

Who’s Getting Hurt?

While it’s known that mainly working-class people and the poor are the primary users of payday loans, that population is spread out over a rather broad spectrum. More specificity, Pew Research in 2012 reported that the majority of payday loan borrowers are 25- to 44-year-old white women, though “there are five groups that have higher odds of having used a payday loan: those without a four-year college degree; home renters; African Americans; those earning below $40,000 annually; and those who are separated or divorced.”

Furthermore, the Journal of Economic Perspectives found that many payday loan borrowers “are seriously debt burdened and have been denied credit or not given as much credit as they applied for in the last five years.” In other words, the victims of payday loans come from groups and communities that are already having economic troubles – even more so due to the current economic climate. As to why and when people take out the loans, the Journal found that “most borrowers use payday loans to cover ordinary living expenses over the course of months, not unexpected emergencies over the course of weeks.” More than anything, perhaps, this speaks to the problem of wages: that people aren’t being paid enough.

Worse still, not only is the bottom line for payday lenders “significantly enhanced by the successful conversion of more and more occasional users into chronic borrowers,” reported the Economic Development Quarterly, “[but] the federal government has found that one of the country’s biggest payday lenders provides financial incentives to its staff to encourage chronic borrowing by individual patrons.” In short, companies are either purposefully seeking – or have a strong financial incentive – to put vulnerable populations into a cycle of poverty that is extremely difficult to get out of.

There has been some attempt by state governments to regulate payday loans. Some states have banned them outright, whereas others have limited interest rates. The lenders, though, are getting smart and attempting to avoid regulation by “making surface changes to their businesses that don’t alter their core products: high-cost, small-dollar loans for people who aren’t able to pay them back.”

Who Are the Culprits?

It should be noted that payday lenders are no small chumps in the financial world. Not only did their industry have [a revenue of $9.3 billion(http://www.bloomberg.com/news/2013-04-24/payday-loan-curbs-considered-by…) in 2012, but for a while even major banks were involved in payday lending including Wells Fargo, Bank of America, US Bank, JP Morgan Chase and National City (PNC Financial Services Group). These mega-banks were able to finance 38% of the entire payday lending industry, and even that is considered a conservative estimate.

In January of this year, the big banks bowed out of the industry after being warned by federal regulators who were looking to see if the loans violated consumer protection laws. But despite these Wall Street players leaving the industry, the problem doesn’t end there. There are also middlemen involved, which operate on behalf of the payday companies.

In April, Responsible Lending reported that a lawsuit was being filed against Money Mutual which “[claimed] the company [was] operating as an unlicensed lender by arranging loans that violate a [Illinois] state law that restricts borrower fees.” Money Mutual is itself not a lender, but “a lead generator that sells sensitive customer information, like bank-account numbers and email addresses, to payday lenders, and federal and state officials increasingly are cracking down on these businesses.” Middlemen like Money Mutual can be paid $50 to $150 per “lead,” even if a person doesn’t take out a loan.

And the numbers can quickly add up. In 2012, Bloomberg News found that “lead generators in financial services take in $100 million a year, with the market growing by more than 16 percent annually.” Yet this is just with storefront lenders, and many new problems arise when one delves even deeper into the world of online payday lending.

Many online payday lenders “attempt to skirt the rules and charge exorbitant fees, amongst other affronts to regulations that leave many a consumer seeking payday loan legal help.” The Pew Research Center also “found that about 30 percent of Internet payday loan borrowers claim they have received at least one threat from the lender,” whether in the form of arrest or that the debtor’s employer would be contacted.

One of the worst problems with online payday lenders is theft. Take the story of Jeannie Morris of Kansas City. She entered personal information on websites that offered to match her up with payday lenders. The situation took a turn for the worse when, “without asking her approval, two unrelated online lenders based in Kansas City had plopped $300 each into her bank account. Together, they began withdrawing $360 a month in interest payments,” and after her account was wiped clean, Jeannie was hounded by collection companies.

But Jeannie is not alone, as “many consumers reported that loans they’d never authorized had been dropped into their bank accounts. Then those accounts often evaporated as the lenders snatched out money for interest payments while never applying any of the money to the loan principal.” In short, online payday lenders can lend people money without asking them – then clean out those people’s bank accounts, effectively stealing from families.

Some Alternative Solutions

The situation may seem hopeless, but there are alternatives to payday loans. One way to avoid them is through credit union loans, whereby members are allowed to borrow up to $500 each month and each loan is “connected to a SALO cash account, which automatically deducts 5 percent of the loan and places it in a savings account to create a ‘rainy day fund’ for the borrower.”

Small consumer loans are another option. They are a lot less expensive than payday loans; for example, “a person can borrow $1,000 from a finance company for a year and pay less than a $200-$300 payday loan over the same period.” Some people can also get a cash advance on their credit card. In the long term, credit counseling can help people create debt repayment plans and find a way to balance their budget.

Most agree that payday lenders are a major problem: they prey on the desperate in order to make money. For this reason, people need to organize and fight for their economic freedom. Consumer watchdog groups, payday borrowers and victims of payday theft need to come together to end the practice that creates a never-ending cycle of debt. To quote the rallying cry of IWW songwriter Joe Hill: “Don’t mourn, organize!”

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Cash Outflows Return To Leveraged Loan Funds; ETFs Provide YTD Bright Spot

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Cash outflows for bank loan funds totaled $440 million for the week ended July 16, marking a return to negative territory after a small inflow of $49 million last week. Mutual funds accounted for the vast majority of the outflow, at $419 million, while exchange-traded funds saw an outflow of just $21 million.

There have now been 12 weeks of outflows over the past 14 weeks, for a combined negative $6 billion over that span, which follows a 95-week inflow streak totaling $66.7 billion.

This week’s outflow amount sits between outflows of $424 million and $457 million for the weeks of June 25 and July 2, respectively.

The trailing four-week average widens to negative $318 million this week from negative $300 million last week, but remains narrower than the negative $618 million seen two weeks ago.

Year-to-date inflows now total just $765 million, of which $762 million, or nearly 100% of the sum, is ETF-related. In the comparable year-ago period, inflows were $30 billion, with just 12% tied to ETFs.

The change due to market conditions was negative $57 million this week compared to total assets of $108.4 billion at the end of the observation period, with ETFs comprising $8.2 billion of the total, or approximately

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Credit union pilots cheaper “payday” loans – Credit Today

A pilot payday loan product offered by London Mutual Credit Union (LMCU) over 12 months found that borrowers were encouraged to spread repayments more affordably over a longer period.

The pilot short-term loan offered by LMCU received 6,087 applications, asking for an average loan amount of £238.

The scheme, which was funded by charity Friends Provident Foundation and the Barclays Community Finance Fund and produced by research firm the Financial Inclusion Centre, distributed a total of 2,923 loans short-term loans with a value of £687,757 over the course of a year to 1,219 different borrowers.

The results showed that 59% of applicants chose to repay their loan over three months, while 29% asked to repay in one month.

Some 331 new members went onto place a combined total of £18,000 in savings accounts with the credit union, while 27% took a longer term loan with LMCU, rising to 40% after six months’ membership and 52% after nine months with the credit union.

The scheme claimed that by borrowing through the credit union instead of a high-cost payday lender, 1,219 people collectively saved some £145,000 in interest charges, equivalent to almost £119 per borrower.

Lucky Chandrasekera, chief executive of London Mutual Credit Union, said: “An increase in the use of payday loans by those already in debt, as well as the growing number of our own members turning to this form of short-term credit, persuaded us to develop an affordable alternative.

“Following the success of the pilot, we plan to roll out the service to many more potential customers.”

When surveyed, 66% of applicants said the low cost compared to other payday lenders was their main reason for borrowing through LMCU, while 19% liked the fact it was a credit union and 10% favoured the longer repayment option.

Before accessing their first LMCU loan, 74% of the borrowers surveyed had taken an average of 3.2 loans in the previous 12 months, while 17% had taken out six or more loans.

Andrew Thompson, grants manager at Friends Provident Foundation, said: “We are delighted by the success of the pilot scheme, which demonstrates that it is financially viable for this kind of responsible, affordable lending to be delivered by not-for-profit, member-owned-and-run providers.

“The model seems to have great potential for wider roll out and we look forward to seeing if credit unions across the country can find a way to offer a similar service.”

By Ellie Duncan

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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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Arkansas Attorney General Investigating Payday Lending Companies

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Arkansas Attorney General Investigating Payday Lending Companies

October 26, 2012Posted in: Featured, News & Events

LITTLE ROCK – Attorney General Dustin McDaniel today asked a Pulaski County Circuit Court judge to compel three companies associated with the payday lending industry to respond to requests for information about the companies’ activities.

Money Mutual LLC, Selling Source LLC and Partner Weekly LLC, all based from the same address in Las Vegas, are “lead generators” for payday lenders. Through aggressive advertising – Money Mutual has television talk-show host Montel Williams as its spokesman – the companies market the availability of payday loans and solicit applications for those loans.

In a court filing, McDaniel asked that the companies be required to fully respond to a Civil Investigative Demand sent to them by his office on Aug. 9. He asked the court to prohibit the companies from continuing to do business in Arkansas until they respond to the Civil Investigative Demand.

The investigation into Money Mutual, Selling Source and Partner Weekly is a part of the Attorney General’s continuing effort to prevent usurious and illegal payday lending in Arkansas.

“We believe that these companies are luring Arkansans into applying for loans that only push consumers further and further into debt,” McDaniel said. “The companies appear to be advertising for loans that are unconstitutional in Arkansas. We will continue to take actions to ensure that organizations related to payday lending do not harm our State’s consumers.”

Payday loans are high-interest, short-term loans with annual interest rates and fees that most often exceed 300 percent. The Arkansas Constitution prohibits lenders from setting annual interest rates higher than 17 percent.

In its advertisements, Money Mutual touts itself as having a network of 100 lenders that provide short-term, cash loans. The companies advertise their services directly to Arkansas consumers through their television and radio ads.

McDaniel requests that the companies be required to turn over information pertaining to their ownership structure, business operations, lending partners and dealings with Arkansas consumers.

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The Truth About Pay Day Loans

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www.payplan.com — fantastic resource for any financial issues, including budgeting advice, legal advice and information on financial products and services. www.turn2us.org.uk — information about benefits and grants […]

Cut thousands from your home loan

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Paul Clitheroe

Put a cap on credit card debt Moneysmart week Plug the spending leaks Get to know your super Changes to credit card statements Smart money habits for kids Mutual banks give consumers choice Shop around for home loans Shop around for Car Loans Minimise your tax Nearly 160 cars stolen daily Good advice is always good value To fix or not to fix? Low rate may cause cash rethink

IN A tough lending environment, borrowers who are prepared to negotiate a rate discount can pocket savings worth thousands of dollars on their home loan.

The official cash rate has maintained a holding pattern at 3.5% for the third consecutive month. It means we’re unlikely to see any rate cuts from lenders this month, but spring is traditionally a busy period for buying and selling residential property, and lenders are hungry for your business.

The home loan market has been flat for the past few years. Government figures show fewer than 50,000 home loans have been written each month since the end of 2009, making it relatively lean pickings for the nation’s many mortgage lenders.

That makes it worth negotiating for a better deal on home loan interest rates rather than simply accepting a lender’s advertised rate. You just might get lucky.

Comparison site RateCity have done the sums, saying that if you can secure a 0.4% rate discount on a $300,000 loan, you could potentially trim a rate of 6.35% down to 5.95%. This would cut the monthly repayments by $78 – an annual saving of around $1,000.

Lenders are more likely to offer a discount if you’re taking out a large loan, or if you have a number of products with the same institution – like a mortgage, a credit card and transaction account, and maybe some savings on deposit.

Even if you feel you’re not in a great position to negotiate you can still save a small fortune in loan interest just by shopping around.

The average standard variable rate is currently 6.35%. But there are around 60 loans that charge far less. Like Suncorp’s 5.85% mortgage or loans.com.au’s home loan costing 5.65%. There are also some appealing rates for those refinancing, through UBank (5.62%) and BankMecu (5.74%).

The rate you pay should always be a major consideration with a home loan though it isn’t the only factor to look at. Lenders are coming up with an ever-expanding range of innovative features. These can make your loan easier to live with, and in many cases help you save money in the long run.

As a guide, QT Mutual offer a Mortgage Breaker loan that lets borrowers have a 3-month repayment holiday after they have held the loan for over 12 months. BankMecu offers an ‘eco pause’ giving borrowers a break from repayments to help meet the cost of installing energy or water saving appliances.

Even fixed loans are becoming more flexible. A number of lenders like ANZ Bank offer a mortgage offset with a fixed loan. It lets you use personal savings to reduce the interest expense and pay the balance off sooner.

The key is to look at both sides of a home loan – the costs and the benefits, to work out which gives you the best result.

For more on getting the best deal on your home loan take a look at my book Making Money. Or, to see why paying off your loan ahead of schedule is such a useful strategy download my free e-book ‘Ten Steps to Financial Security’ at www.paulsmoney.com.au

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit www.paulsmoney.com.au for more information.

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