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Rules are coming on payday loans

WASHINGTON — Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.

The Consumer Financial Protection Bureau says state laws governing the $46 billion payday lending industry often fall short, and that fuller disclosures of the interest and fees — often an annual percentage rate of 300 percent or more — may be needed.

Full details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express after accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as “rollovers,” are common.

Legislators in Ohio, Louisiana and South Dakota unsuccessfully tried to broadly restrict the high-cost loans in recent months. According to the Consumer Federation of America, 32 states now permit payday loans at triple-digit interest rates, or with no rate cap at all.

The CFPB isn’t allowed under the law to cap interest rates, but it can deem industry practices unfair, deceptive or abusive to consumers.

“Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” said David Silberman, the bureau’s associate director for research, markets and regulation.

The bureau found more than 80 percent of payday loans are rolled over or followed by another loan within 14 days; half of all payday loans are in a sequence at least 10 loans long.

The agency is considering options that include establishing tighter rules to ensure a consumer has the ability to repay. That could mean requiring credit checks, placing caps on the number of times a borrower can draw credit or finding ways to encourage states or lenders to lower rates.

Payday lenders say they fill a vital need for people who hit a rough financial patch. They want a more equal playing field of rules for both nonbanks and banks, including the way the annual percentage rate is figured.

“We offer a service that, if managed correctly, can be very helpful to a diminished middle class,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents payday lenders.

Maranda Brooks, 40, a records coordinator at a Cleveland college, says she took out a $500 loan through her bank to help pay an electricity bill. With “no threat of loan sharks coming to my house, breaking kneecaps,” she joked, Brooks agreed to the $50 fee.

Two weeks later, Brooks says she was surprised to see the full $550 deducted from her usual $800 paycheck. To cover expenses for herself and four children, she took out another loan, in a debt cycle that lasted nearly a year.

“It was a nightmare of going around and around,” said Brooks, who believes that lenders could do more to help borrowers understand the fees or offer lower-cost installment payments.

Last June, the Ohio Supreme Court upheld a legal maneuver used by payday lenders to skirt a 2008 law that capped the payday loan interest rate at 28 percent annually. By comparison, annual percentage rates on credit cards can range from about 12 percent to 30 percent.

Members of Congress also are looking at payday loans.

Sen. Sherrod Brown of Ohio, the top Democrat on the Senate Banking, Housing and Urban Affairs Committee, plans legislation that would allow Americans to receive an early refund of a portion of their earned income tax credit as an alternative to a payday loan.

Sen. Elizabeth Warren, D-Mass., wants the U.S. Postal Service to offer check-cashing and low-cost small loans. The idea is opposed by many banks and seems unlikely to advance in a Republican-controlled Congress.

[…]

Tighter payday loan rules intended to shield debtors | TribLIVE

WASHINGTON — Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.

The Consumer Financial Protection Bureau said state laws governing the $46 billion payday lending industry often fall short and that fuller disclosures of the interest and fees — often an annual percentage rate of 300 percent or more — may be needed.

Details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express, accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as “rollovers,” are common.

Legislators in Ohio, Louisiana and South Dakota unsuccessfully tried to broadly restrict the high-cost loans in recent months. According to the Consumer Federation of America, 32 states now permit payday loans at triple-digit interest rates, or with no rate cap.

“Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” said David Silberman, the bureau’s associate director for research, markets and regulation.

The agency is considering options that include establishing tighter rules to ensure a consumer has the ability to repay. That could mean requiring credit checks, placing caps on the number of times a borrower can draw credit or finding ways to encourage states or lenders to lower rates.

Payday lenders say they fill a vital need for people who hit a rough financial patch. They want a more equal playing field of rules for both nonbanks and banks, including the way the annual percentage rate is figured.

“We offer a service that, if managed correctly, can be very helpful to a diminished middle class,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents payday lenders.

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[…]

Community Groups Fight For More Protections From Payday Loan …

In an effort to control the damage being done to individuals and communities by payday lenders, community activists rallied outside payday lending storefronts in 10 states Tuesday to increase awareness of the lack of protection many states offer individuals against purveyors of short-term, high-interest loans. National People’s Action (NPA) helped coordinate the protests along with several other organizations.

There were 11 actions across Idaho, Michigan, Colorado, Iowa, Missouri, Kansas, Maine, Minnesota, Illinois and Nevada calling out the toxic effect payday lenders have on communities. Members wore hazmat suits and taped off payday loan stores as part of a grassroots movement that an NPA statement said was in support of the Consumer Financial Protection Bureau (CFPB) providing “stronger protections against devastating loans.”

Thirty-five states across the country authorize some form of payday lending, and federal laws offer very few restrictions on payday lenders. According to an NPA press release, “Each year, payday lenders make more than $10 billion in fees by trapping an estimated 12 million consumers in a cycle of debt, with annual interest rates near 400 percent. Payday lenders have been known to use tactics like threats, harassment and intimidation in order to push customers to take out more loans.”

Payday lenders’ standard operating procedures are designed to bleed people as much as possible, said Liz Ryan Murray, policy director at National People’s Action. “Their business model is making you a loan and when you can’t pay it back they offer you another loan.”

“We’d also like [the CFPB] to look at where the money’s coming from,” she said, noting how payday lenders “pull the money out of people’s checking accounts whether they have it or not.”

Organizations invested in helping affected people and communities are pushing the CFPB to take concrete steps against predatory lenders. The CFPB is expected to make its first decision to regulate the industry in the coming days.

Participating organizations are against anything “that’s going to say maybe its OK or the first couple loans are OK. That can’t be on the table. Especially in those states where it has been effectively stamped out, a rule like that could open the door for them to get back into those states,” Murray said.

“We look at where payday loans are located and they’re highly concentrated in low income communities of color” Murray said. “I think that they’re preying on the most vulnerable, maybe the lowest political clout and they’re often the most desperate people. They deserve good credit just like everyone else. We often call it back-of-the bus credit.”

If you’re interested in learning more about the issue view NPA’s video on payday loans and view photos from Tuesday’s events. Please sign the petition telling CFPB to offer protections against predatory lenders and email alerts on different steps being taken to combat this issue here.

[…]

Payday Loans Criticized at Grassroots Rallies in US – Equal Voice …

Image PaydayLoanProtest-insert.jpg


Payday Loans Criticized at Grassroots Rallies in U.S.

January 27, 2015 | Filed under: Archive,Community Briefs,National,Politics, Policy, and Elections

National People’s Action

Grassroots activists calling for stronger government limits on the payday loan industry took their message on Tuesday directly to the source: They protested in front of payday loan businesses at events in at least 10 states.

A member of the Colorado Progressive Coalition holds a sign calling for stricter policies governing the payday loan industry during a Tuesday rally in Denver. Photo source: National People’s Action

Their “ask” was straightforward: The federal government needs to protect consumers from an industry in which critics say offer high-interest, short-term loans that put millions of Americans in a debt trap.

The Consumer Financial Protection Bureau (CFPB) is considering new limits on the industry and collecting comments from consumers.

At the Tuesday rallies, community advocates wore bright yellow hazardous material suits and clutched signs that said: “PAYDAY LOANS. COMMUNITY HAZARD. CFPB: CLEAN IT UP.”

National People’s Action (NPA), which works on economic and social justice issues, helped organize the rallies.

“It’s time we started treating predatory payday lenders like the danger to our communities they truly are,” Liz Ryan Murray, NPA policy director, said in a statement.

“These high-interest lenders rob communities and families of their livelihoods and are every bit as toxic as an environmental disaster. The Consumer Financial Protection Bureau was created to protect working families from just this kind of abusive financial practice. Now, it’s time for action. The CFPB should implement real and lasting protections that will free consumers from the payday loan debt trap.”

Photo source: National People’s Action

The CFPB is expected to issue a proposal about the payday lending industry by the end of January. A final rule is expected later in 2015. The federal agency cannot regulate interest rates. But it could limit how long lenders can keep consumers in debt.

NPA said that 35 states permit some type of payday lending.

“While some states and cities have worked to pass local laws capping interest rates, federal laws still largely allow payday lenders to prey on vulnerable communities and benefit from borrowers’ financial hardship,” the grassroots group said in a statement.

NPA estimates that payday lenders earn $10 billion in annual fees by keeping about 12 million consumers in what they say is perpetual debt.

The annual interest rates for some loans can top 400 percent and there have been reports of lenders using pressure tactics against consumers so that they will continue to borrow more money, according to NPA.

Tuesday rallies were held in Colorado, Iowa, Missouri, Kansas, Maine, Minnesota, Illinois, Nevada, Idaho and Michigan.

National People’s Action is a network of grassroots organizations that works on economic and racial justice issues.

[…]

Protesters speak out against the payday loan industry

Tuesday, January 27, 2015 | 10:00 p.m. CST; updated 11:53 p.m. CST, Tuesday, January 27, 2015

COLUMBIA — Two men in hazardous materials suits approached the Quik Cash at 219 E. Broadway on Tuesday afternoon with a roll of yellow caution tape in their hands.

The men were “quarantining” what they consider a toxic payday loan business, joined by about 10 other consumer advocates and Grass Roots Organizing protesters hoping to incite changes in the practices of the payday loan industry.

The group chanted as cars drove by and honked their support.

“Say no to payday lender lies! They only want their fees to rise! They offer toxic loans to poor and wonder why we say no more!” the protesters shouted.

“We have been working on this issue for a long time,” organizer Robin Acree said. “We wanted to raise attention to the toxic loans in Missouri and the debt trap that they cause. They are taking advantage of a low-income workforce.”

Payday loan businesses such as Quik Cash offer short-term, high-interest loans to walk-in customers who secure the loans with their next paycheck. In 2012, the average 14-day loan issued in Missouri held an average annual percentage rate of approximately 455 percent, according to a state Division of Finance report.

The protesters said the businesses intentionally give loans to people who cannot afford to make the payments, add the high interest rates and continually loan out more money to pay for the original debt when the customer cannot pay.

Missouri caps interest rates at 75 percent for the duration of the loan, but that cap corresponds to an annual percentage rate of 1,950 percent for a 14-day loan.

Acree said she does not want the payday loans industry to do business in Columbia and would rather low-income wages be raised to prevent people from needing the loans.

The Rev. Joseph Wilson spoke at the protest representing Faith Voices of Columbia and told the protesters about his own problems with payday loans. He said he took out a loan for $700 for regular expenses and it took him almost three years and $3,500 to pay it off.

“We were fortunate to get out of it. I had several loans all around town under the stress of trying to get out of it, and I couldn’t,” Wilson said. “It was a trap, and if I’d have known then what I know now, I never would have done it. It’s not set up to get you out.”

Gov. Jay Nixon vetoed a bill last year that would have reduced the interest rate limit to 35 percent for the duration of the loan, or 912 percent on a 14-day loan, and banned loan renewals. But the bill would have also repealed a law limiting loans to six rollovers and allowed extended payment plans.

New bills aiming to reform the payday loan industry entered both houses of the Missouri General Assembly earlier this month.

Senate Bill 187 would prohibit payday loan operators to charge interest and bar renewals on the loans, eliminating the current allowance of six renewals. Under the bill, payday loaners would only be able to charge fees that would be refunded to a borrower when a loan is repaid.

The bill would also extend loan periods to 30, 60 or 90 days from the current 14 and 31-day standards and prohibit lenders from making more than one loan to a single customer.

House Bill 91 would classify any loan less than $750 as a payday loan, up from the current $500 standard. It would allow for two loan renewals, but borrowers would not be allowed to have more than $750 in outstanding loans at one time.

It would also prohibit a lender from making a loan to a customer who already has one unsecured loan.

But the protesters weren’t looking to state legislators for help. They called through a megaphone for Consumer Financial Protection Bureau director Richard Cordray to make the changes that legislation has yet to accomplish.

“Payday loans are toxic! They make me sick! CFPD, show me logic and make rules quick!” they chanted.

Supervising editor is Austin Huguelet.

[…]

Easyhome Enters Into Binding Agreement To Buy Cash Store Locations

By RTT News, January 18, 2015, 07:59:00 PM EDT

AAA

(RTTNews.com) – easyhome Ltd. (EH.TO) announced that its subsidiary, easyfinancial Services Inc., has entered into a binding agreement to purchase the lease rights and obligations for up to 47 retail locations across Canada, together with certain related assets at certain locations from The Cash Store Financial Services Inc.

Upon completion of the Transaction, these retail locations will be opened as new easyfinancial branches providing consumer loans to Canadian consumers.

easyfinancial noted that it submitted its proposal in accordance with Cash Store’s secondary sale process conducted under Cash Store’s proceeding under the Companies Creditors Arrangement Act (Canada). The Agreement and the completion of the Transaction remain subject to Court approval in Canada and the satisfaction of certain closing conditions customary to transactions of this nature. The Company anticipates closing the Transaction within the first quarter of 2015.

As per the terms of the Agreement, easyfinancial will assume the lease rights and obligations for up to 32 retail locations currently occupied by Cash Store immediately upon closing, subject to, among other conditions, Court approval. Additionally, the Company will also assume the lease rights and obligations for up to a further 15 retail locations currently occupied by Cash Store upon successful negotiation of lease extension or new agreements with the relevant landlords. The purchase price will not be disclosed until the Transaction closes.

“We are excited by the opportunity to acquire additional locations in Canada,” said David Ingram, easyhome’s President and Chief Executive Officer. “This acquisition will allow us to accelerate our retail footprint at easyfinancial as we were able to carefully select the best locations to match our unfilled targeted geography. The timing aligns very well as consumer demand for an alternative to banks and payday loans has grown significantly over the last 12 months and these branches will provide further access and convenience.”

The Company expects the Transaction to be accretive to earnings over the long term, as it accelerates loan book growth and provides further economies of scale. As a result of the Transaction, easyfinancial will increase its 2015 new easyfinancial openings from 40-45 to 60-65 branches and the loan book target for 2015 will increase from C$260 million -C$270 million to C$280 million- C$295 million.

In the short term, the new store drag associated with the incremental 20 store openings is expected to reduce earnings per share in 2015 by approximately C$0.10, but increase earnings per share by approximately C$0.15 in 2016 and add C$0.25 in 2017.

For comments and feedback: contact editorial@rttnews.com

http://www.rttnews.com

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Tight For Cash? Avoid Payday Loans With These 4 Alternatives

View photo. As the New Year is underway, personal financial security once more comes to the forefront of financial consciousness. Holiday spending often leaves many in uncomfortable positions, especially if nickel-and-dime budgeting is not a personal forte. While adequate planning is ideal, January often rushes in and meets the well-intended with an emaciated pocketbook ledger. It is important in these situations to prudently remember that quick fixes can lead to debt traps that could quicksand tight budgeting practices. Instead of letting anxiety run rampant and potentially ruin volatile financial situations, take time to consider all available options. Related Link: Spend Too Much On Gifts? Here’s How To Recover From A Broken Holiday Budget

1. Avoid Payday Loans

Often advertising too-good-to-be-true promises, payday advance loan companies feed upon the desperate and those in search of a momentary (vs. permanent) fix. Recently, these companies have come under severe scrutiny from the Better Business Bureau , various Centers for Lending Responsibility and federal agencies — calling them out for exorbitant fees and interest rates.

According to the federal agency Consumer Financial Protection Bureau, 62 percent of payday loans, “are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed.” The report continued by stating that more than 80 percent of all loans go unpaid by the next pay-period.

Because of this spiraling trend, 22 states have limited or completely banned payday advance loan practices. Unfortunately, that still leaves the practice fairly accessible to vulnerable individuals. Before considering payday loans, consider looking into other, more reliable and permanent solutions.

2. Credit Union Loans

While most other small loan options will require a credit check, the fees and interest rates are inevitably lower than payday loans. Additionally, because of the checks involved in the practice, promptly repaying federal credit union loans can boost credit scores. Receiving a small line of credit or a STS (Short-Term Small) loan from a credit union is an attractive alternative for decreasing momentary financial right spots.

Each credit union functions differently, but there are federal regulations that all federal credit unions must follow, such as the maximum allowable APR percentage, set caps and a minimum enrollment period with the credit union. These stipulations are in place to protect the credit unions and the individuals looking to borrow. According to the federal credit unions’ government-run website, these practices are in place to provide “consumers with an alternative to borrowing from potentially predatory payday lenders.”

Related Link:3 Reasons Why You Shouldn’t Overlook Checkbook Balancing

3. Unsecured Personal Loans

These small loans are typically available to those with high credit scores and do not use property as collateral. The benefit of these loans is the extended amount of time granted to repay the amount borrows and a fixed payment schedule. The interest for unsecured personal loans is higher than HELOC loans. As with credit union loans, each institution functions uniquely; therefore, looking into more than one bank and comparing terms and interest rates is recommended.

4. Personal Lines Of Credit

While the downfalls of holding credit cards are widely publicized, one attractive benefit of opening a personal line of credit is that the interest rates only apply to the amount borrowed. Unlike personal loans (either through a credit union or bank), borrowing the credit limit is possible without applying for a new loan. In other words, if a line of credit has a $5,000 cap, the borrower can perpetually borrow $5,000 as long as the previously borrowed amount is repaid.Used wisely, personal lines of credit can help individuals get out temporary tight spots.

Whatever method is chosen to ease minor financial discomfort, take the time to explore all options and compare the long-term implications before prematurely digging yourself deeper into unnecessary, near-impossible-to-repay debt. Momentary financial issues do not need to be death sentences for your financial health. Invest in yourself and research all available options before acting impulsively.

See more from Benzinga

3 Tips For A Year-End Tax CheckupSpent Too Much On Gifts? Here’s How To Recover From A Broken Holiday Budget5 Holiday Gift Ideas That Will Help, Not Hinder, Family Budgeting

FinanceLoansPayday LoansUnsecured Personal Loans […]

Tight For Cash? Avoid Payday Loans With These 3 Alternatives

Thumbnail

View photo. As the New Year is underway, personal financial security once more comes to the forefront of financial consciousness. Holiday spending often leaves many in uncomfortable positions, especially if nickel-and-dime budgeting is not a personal forte. While adequate planning is ideal, January often rushes in and meets the well-intended with an emaciated pocketbook ledger. It is important in these situations to prudently remember that quick fixes can lead to debt traps that could quicksand tight budgeting practices. Instead of letting anxiety run rampant and potentially ruin volatile financial situations, take time to consider all available options. Related Link: Spend Too Much On Gifts? Here’s How To Recover From A Broken Holiday Budget

Avoid Payday Loans

Often advertising too-good-to-be-true promises, payday advance loan companies feed upon the desperate and those in search of a momentary (vs. permanent) fix. Recently, these companies have come under severe scrutiny from the Better Business Bureau , various Centers for Lending Responsibility and federal agencies — calling them out for exorbitant fees and interest rates.

According to the federal agency Consumer Financial Protection Bureau, 62 percent of payday loans, “are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed.” The report continued by stating that more than 80 percent of all loans go unpaid by the next pay-period.

Because of this spiraling trend, 22 states have limited or completely banned payday advance loan practices. Unfortunately, that still leaves the practice fairly accessible to vulnerable individuals. Before considering payday loans, consider looking into other, more reliable and permanent solutions.

1. Credit Union Loans

While most other small loan options will require a credit check, the fees and interest rates are inevitably lower than payday loans. Additionally, because of the checks involved in the practice, promptly repaying federal credit union loans can boost credit scores. Receiving a small line of credit or a STS (Short-Term Small) loan from a credit union is an attractive alternative for decreasing momentary financial right spots.

Each credit union functions differently, but there are federal regulations that all federal credit unions must follow, such as the maximum allowable APR percentage, set caps and a minimum enrollment period with the credit union. These stipulations are in place to protect the credit unions and the individuals looking to borrow. According to the federal credit unions’ government-run website, these practices are in place to provide “consumers with an alternative to borrowing from potentially predatory payday lenders.”

Related Link:3 Reasons Why You Shouldn’t Overlook Checkbook Balancing

2. Unsecured Personal Loans

These small loans are typically available to those with high credit scores and do not use property as collateral. The benefit of these loans is the extended amount of time granted to repay the amount borrows and a fixed payment schedule. The interest for unsecured personal loans is higher than HELOC loans. As with credit union loans, each institution functions uniquely; therefore, looking into more than one bank and comparing terms and interest rates is recommended.

3. Personal Lines Of Credit

While the downfalls of holding credit cards are widely publicized, one attractive benefit of opening a personal line of credit is that the interest rates only apply to the amount borrowed. Unlike personal loans (either through a credit union or bank), borrowing the credit limit is possible without applying for a new loan. In other words, if a line of credit has a $5,000 cap, the borrower can perpetually borrow $5,000 as long as the previously borrowed amount is repaid.Used wisely, personal lines of credit can help individuals get out temporary tight spots.

Whatever method is chosen to ease minor financial discomfort, take the time to explore all options and compare the long-term implications before prematurely digging yourself deeper into unnecessary, near-impossible-to-repay debt. Momentary financial issues do not need to be death sentences for your financial health. Invest in yourself and research all available options before acting impulsively.

See more from Benzinga

3 Tips For A Year-End Tax CheckupSpent Too Much On Gifts? Here’s How To Recover From A Broken Holiday Budget5 Holiday Gift Ideas That Will Help, Not Hinder, Family Budgeting

FinanceLoansPayday LoansUnsecured Personal Loans […]

A new way to prey on poor: car title loans

The rusting 1994 Oldsmobile sitting in a driveway just outside St. Louis was an unlikely cash machine. That was until the car’s owner, a 30-year-old hospital lab technician, saw a television commercial describing how to get cash from just such a car, in the form of a short-term loan.

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The lab technician, Caroline O’Connor, who needed about $1,000 to cover her rent and electricity bills, believed she had found a financial lifeline. “It was a relief,” she said. “I did not have to beg everyone for the money.”

Her loan carried an annual interest rate of 171 percent. More than two years and $992.78 in debt later, her car was repossessed.

“These companies put people in a hole that they can’t get out of,” O’Connor said.

The automobile is at the center of the biggest boom in subprime lending since the mortgage crisis. The market for loans to buy used cars is growing rapidly. And similar to how a red-hot mortgage market once coaxed millions of borrowers into recklessly tapping the equity in their homes, the new boom is also leading people to take out risky lines of credit known as title loans.

In these loans, which can last as long as two years or as little as a month, borrowers turn over the title of their cars in exchange for cash — typically a percentage of the cars’ estimated resale values.

“Turn your car title into holiday cash,” TitleMax, a large title lender, declared in a recent television commercial, showing a Christmas stocking overflowing with money.

More than 1.1 million households in the United States used auto title loans in 2013, according to a survey by the Federal Deposit Insurance Corporation.

For many borrowers, title loans are having ruinous financial consequences, causing owners to lose their vehicles and plunging them further into debt. A review by the New York Times of more than three dozen loan agreements found that after factoring in various fees, the effective interest rates ranged from nearly 80 percent to over 500 percent. While some loans come with terms of 30 days, many borrowers, unable to pay the full loan and interest payments, say that they are forced to renew the loans at the end of each month, incurring a new round of fees.

Many people find that they are struggling to keep up almost as soon as they drive off with the cash. As a result, roughly one in every six title-loan borrowers will have the car repossessed, according to an analysis of title loans by the Center for Responsible Lending, a nonprofit in Durham, N.C.

“This is nothing but government-authorized loan sharking,” said Scott A. Surovell, a Virginia lawmaker who has proposed bills that would further rein in title lenders.

The lenders argue that they are providing a source of credit for people who cannot obtain less-expensive loans from banks. The high interest rates, the lenders say, are necessary to offset the risk that borrowers will stop paying their bills.

• • •

The title lending industry thrives because of the car’s importance.

While people seeking title loans are often at their most desperate — dealing with a job loss, a divorce or a family illness — the lenders are willing to extend them loans because they know that most borrowers will pay their bill to keep their cars. Some lenders do not even bother to assess a borrower’s credit history.

“The threat of repossession turns the borrower into an annuity for the lenders,” said Diane Standaert, the director of state policy at the Center for Responsible Lending.

Unable to raise the thousands of dollars he needed to repair his car, Ken Chicosky, a 39-year-old Army veteran, felt desperate. He received a $4,000 loan from Cash America, a lender with a storefront in his Austin, Tex., neighborhood.

The loan, which came with an annual interest rate of 98 percent, helped him fix up the 2008 Audi that he relied on for work, but it has sunk his credit score. Chicosky, who is also attending college, uses some of his financial aid money to pay his title-loan bill.

Chicosky said he knew the loan was a bad decision when he received the first bill. It detailed how he would have to pay a total of $9,346 — a sum made up of principal, interest and other fees. “When you are in a situation like that, you don’t ask very many questions,” he said.

The title lenders are benefiting as state authorities restrict payday loans, effectively pushing payday lenders out of many states. While title loans share many of the same features — in some cases carrying rates that eclipse those on payday loans — they have so far escaped a similar crackdown.

In 21 states, car title lending is expressly permitted, with title lenders charging interest of up to 300 percent a year. In most other states, lenders can make loans with cars as collateral, but at lower interest rates.

Johanna Pimentel said she and both of her brothers had taken out multiple title loans.

“They are everywhere, like liquor stores,” she said.

Pimentel, 32, had moved her family out of Ferguson, Mo., to a higher-priced suburb of St. Louis that promised better schools. But after a divorce, she had trouble paying her rent.

Pimentel took out a $3,461 title loan using her 2002 Suburban as collateral. After falling behind, she woke up one morning last March to find that the car had been repossessed. Without it, she could not continue to run her day care business.

A new way to prey on poor: car title loans 01/05/15 [Last modified: Monday, January 5, 2015 4:07pm]
Photo reprints | Article reprints

[…]

Kansas Catholic Conference pursuing tougher laws for payday loans

The Kansas Catholic Conference plans to push for tougher state regulations on the payday loan industry on the grounds that the loans prey on the poor.

The loans, which are short term and have high interest rates, take advantage of people’s desperation, with a business model that is “designed around ensnaring people into a trap that they can never escape from,” said Michael Schuttloffel, executive director of the Catholic Conference, which represents the state’s bishops.

Many people who take out a payday loan get stuck in a cycle in which they have to keep taking out more loans to pay back the first, he said.

“We just think it’s bad for society,” Schuttloffel said.

Whitney Damron, a lobbyist who represents the Kansas Community Financial Services Association, said short-term loans of $100 can be life-saving for some of the people who use them.

“What do you want these people to do when the baby formula runs out?” Damron said. “… They don’t have an alternative.”

Kansas has some restrictions on payday loans. State statute caps short-term loans (seven to 30 days) at $500. It sets 15 percent as the maximum finance rate, meaning that a person will owe $15 for every $100 in loan money.

People may not have more than two loans at a time. Lenders must provide forms in both Spanish and English.

Still, Schuttloffel and others say the loans need better regulations. The annual finance rates can be as high as 390 percent in Kansas, according to the Consumer Federation of America.

Damron said it is misrepresentative to judge a one-month loan by a 12-month rate.

He noted that people have 24 hours to back out of the loans and said adults should have the right to enter into these agreements. He said it is typical business practice, though not law, for lenders to require that a person has a job and checking account before granting a loan.

“Our position has been this is a straightforward transaction. The consumer understands it’s capped at $500 … and our customers are satisfied with the product,” he said.

The Legislature convenes Jan. 12. Schuttloffel said his organization hasn’t drafted legislation and is still introducing lawmakers to the issue. But he is hopeful they can act on changes this year.

Lawmakers from across the political spectrum have expressed interest in tackling the issue. The topic got a hearing last year, but no legislation was put forward.

Sen. Steve Fitzgerald, R-Leavenworth, a conservative, said it’s important to distinguish between predatory loans and high-risk loans. “It’s a matter of attempting to find people who can be preyed upon … rather than just high risk loans,” he said. He is interested in studying the issue to make sure the law draws a clear dividing line.

Rep. Louis Ruiz, D-Kansas City, an outspoken progressive, expressed interest in a bill tightening regulations on payday loans.

“I don’t know where it’s going to come from or who’s going to bring it to the forefront, but I think there needs to be some regulation on that and also regulation on other industries that prey on people,” Ruiz said, pointing to car dealers who offer loans he called predatory. “They’re preying upon people who can’t afford anything different.”

Senate President Susan Wagle, R-Wichita, would not say whether she would support a bill. She said she’d have to see it first.

Schuttloffel said that he thinks the issue can be a rare example of bipartisanship in Topeka.

“We’re real hopeful we can work with people, left, right, in between and of all faiths,” he said.

Reach Bryan Lowry at 785-296-3006 or blowry@wichitaeagle.com. Follow him on Twitter: @BryanLowry3.

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