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How can I borrow money from my life insurance policy?

A:

While borrowing from your life insurance policy can be a quick and easy way to get cash in hand when you need it, there are a few specifics to know before borrowing. Most importantly, you can only borrow against permanent or whole life insurance. Term life insurance, a cheaper and suitable option for many people, does not have a cash value and expires at the end of the term, generally anywhere from one to 10 years.

A whole life policy is more expensive but has no expiration date. The term lasts the lifetime of the insured. While the monthly premiums may be higher, the money paid in to the policy exceeding what is needed for the death benefit is invested by the life insurance company, creating a cash value after a few years. The whole life policy essentially has two values: the face value, or death benefit, and the cash value that acts as a savings account. Once the money invested increases the amount of the death benefit, the tax-free cash value can then be borrowed against. It is also important to understand that the policy loan is not taken out of your death benefit, but borrowed against it, and the insurance company is using your policy as collateral for the loan.

Unlike a bank loan or credit card, policy loans do not affect your credit and there is no approval process or credit check since you are essentially borrowing from yourself. When borrowing on your policy, no explanation is required about how you plan to use the money, so it can be used for anything from bills to vacation expenses. The loan is also not recognized by the IRS as income, therefore it remains free from tax. However, the policy loan is still expected to be paid back with interest, though the interest rates are typically much lower than on a bank loan or credit card, and there is no mandatory monthly payment.

Even with low interest rates and a flexible payback schedule, it is still important for the loan to be paid back in a timely manner. Unless it is paid out of pocket, interest is added to the balance and accrues whether the bill is being paid monthly or not, putting your loan at risk of exceeding the policy’s cash value and causing your policy to lapse. Insurance companies generally give many opportunities to keep the loan current and prevent lapsing. However, in the event of a policy lapse, taxes must be paid on the cash value. If the loan is not paid back before the insured person’s death, the loan amount plus any interest owed is subtracted from the amount the beneficiaries are set to receive from the death benefit.

[…]

Russia Cash Squeeze Gets First Test Today in Loan Auction

Russian policy makers’ latest bid to shore up the nation’s currency sounds complex but is actually simple: They will take rubles out of the hands of banks.

Fewer rubles means bankers will have less cash to buy dollars. That in turn will stem the selloff in the ruble. Or so goes the argument. On day one, the plan — or at least the unveiling of the plan — worked. The ruble surged 1.7 percent yesterday to 45.8525 per dollar, rebounding from a record low even as policy makers simultaneously took other steps to allow it to trade freely.

More from Bloomberg.com: Predictors of ’29 Crash See 65% Chance of 2015 Recession

The risk is that the strategy could deepen the economy’s slump. Just as bankers will have fewer rubles to buy dollars, they will also have less rubles to lend to companies and consumers, choking off credit in an economy already on the verge of recession amid the strain of international sanctions tied to the Ukraine conflict. The Bank of Russia is offering the least seven-day loans, or repos, in a month at an auction today.

“This is the right thing to do,” Paulo Vieira da Cunha, a former Brazilian central bank board member who is now the chief economist at hedge fund Ice Canyon LLC, said in a phone interview from New York yesterday. “They could squeeze domestic liquidity, but if it’s too hard, some of the firms and banks will go under. I am not sure they are willing to pay the price.”

More from Bloomberg.com: China to Debut Fighter Jet as U.S. Brass Attends Airshow

New Policy

In announcing the policy change yesterday, central bank Governor Elvira Nabiullina revealed few details, saying only that she will limit ruble funding to squeeze speculators betting against the currency. The comments come 10 days after Nabiullina raised the benchmark lending rate 1.5 percentage points to 9.5 percent, showing that she is relying more on monetary tools to defend the ruble.

Previously, the policy had been based more on selling dollars and euros to meet Russians’ demand for foreign currencies, a strategy that has triggered an $83 billion drop in the country’s international reserves this year. The ruble’s 29 percent decline since the end of December has added to inflation pressures, spurred capital outflows and made it more difficult for Russian firms to pay back foreign-currency debt.

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The central bank said yesterday that it will stop selling $350 million daily to support the ruble when it falls beyond its trading band, moving toward a free-floating currency. Policy makers reiterated that they still could intervene in the foreign-exchange market if they deem it necessary to preserve “financial stability.”

‘Painful Measure’

While Nabiullina didn’t elaborate on her plan, Danske Bank A/S and Renaissance Capital Ltd. said the central bank will probably curtail the amount of rubles offered to lenders through repurchase auctions and currency swaps.

At the last offering of week-long repurchase agreements, or repos, on Oct. 31, lenders borrowed 2.85 trillion rubles ($62 billion), up from a nine-month low of 1.83 trillion on Sept. 30. At today’s auction, the central bank is making 2.7 trillion rubles available.

In a repo operation, the central bank buys securities such as government bonds from lenders for a set period, temporarily raising the amount of money available in the banking system. Forcing the banks to return the money at maturity, rather than rolling it over into a new repo, would leave them with less cash in their coffers.

“We consider this as a potentially painful measure,” Oleg Kouzmin, an economist at Renaissance, said by e-mail. In the worst case, it may result in a shortage of rubles in the domestic money market, Kouzmin said.

Putin Speaks

Russia’s central bank has struggled to stem the ruble’s decline as fighting flares anew in Ukraine and crude oil, a major export, trades at a four-year low.

The ruble, which traded 0.7 percent lower at 11:43 a.m. in Moscow, fell 8 percent against the dollar last week and is the world’s second-worst performing currency this year after Ukraine’s hryvnia, according to data compiled by Bloomberg. Russia’s currency is heading for the worst year since 1998, when the country defaulted on $40 billion of local debt.

The selloff has no fundamental basis and volatility will ease as the central bank steps up the fight against speculation, President Vladimir Putin said yesterday at the Asia-Pacific Economic Cooperation summit in Beijing.

While the ruble’s slump helped boost inflation to a three-year high of 8.3 percent last month, the depreciation has benefited state-run energy exporters, who get their revenue in dollars and have mainly ruble-based costs. That has helped the government boost its budget surplus by 70 percent in the first nine months.

Preserving Reserves

“Putin wants the ruble to be weaker, though not to an absurdly low level,” Jean-David Haddad, a strategist at OTCex Group in Paris, said by e-mail. “Only a weaker ruble can partially offset weaker oil prices.”

Policy makers last week brought forward plans for a free-floating currency after a larger-than-estimated interest rate increase on Oct. 31 failed to halt the ruble rout.

The previous policy required the central bank to buy rubles every time it weakened beyond a prescribed trading band, a predictable system that drained reserves and spurred traders to bet on further weakness.

The central bank last week restricted those interventions to once a day, before abolishing them entirely yesterday. It will now intervene in the market with undisclosed quantities to defend against “threats” to financial stability.

“This is a central bank looking to preserve its foreign-exchange reserves as a priority,” Tom Levinson, the chief currency and interest rates strategist at Sberbank CIB in Moscow, said in e-mailed comments. By keeping the ability to sell foreign currency unannounced, “it is accepting elevated volatility, but not persistent extreme volatility,” he said.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net; Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net; Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Daliah Merzaban, Alex Nicholson

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Payday lenders may vanish within year as result of price cap, says …

Price caps on payday loans to be revealed by the regulator on Tuesday could see the controversial lenders disappear from the high street within a year, according to one expert who has worked on the policy with the watchdog.

In July, the Financial Conduct Authority said it was planning to limit interest on short term loans to 0.8% a day and cap the total fees and charges at 100% of the initial loan, starting from January.

In its original assessment, the regulator said that its modelling suggested such a cap would mean that only one high street firm and three online lenders could continue to operate at a profit without changing their business model.

But Dr John Gathergood, an associate professor in economics at the University of Nottingham who has worked with the FCA on the cap, said the assessment was now bleaker for the high street lenders. It may well be the case that there are no high street payday lenders operating in the UK next year as a result of the price cap policy.

He said: “The FCA needs to strike a balance: lowering the price benefits consumers, but lowering the price too much will cause firms to exit the market as it will be unprofitable to lend. This is especially the case for high street lenders who have higher overhead costs.”

The move to consider a price cap that is estimated could save consumers around £193 year came after a U-turn by the government and was put out to a consultation that ended earlier this month.

If the FCA confirms a cap below 1%, it could reverse the recent boom in high street loan shops as hundreds of branches of lenders such as the Money Shop and Cash Converters have sprung up around the UK.

During the consultation, debt charities told the FCA they believed even the charges capped at 100% would still harm customers and urged the regulator to consider a lower overall limit, particularly on higher loans.

One charity, StepChange, also called for lower default fees for consumers who got into difficulties with their loans. In its submission to the regulator it said it was concerned that while the FCA had found that 50% of payday borrowers had experienced financial detriment, just 11% of people would be prevented from getting a loan as a result of its proposals. “That means that more than four in 10 [payday] borrowers in the price-capped market would remain at risk of real financial detriment as a result of taking out a loan. This is considerably short of the level of consumer protection that we believe is necessary.”

Lenders have suggested the proposed cap could force consumers into the arms of illegal money lenders, including online firms operating from outside the UK. Firms have already been forced to introduce new affordability checks and make changes to how they collect loans, and this has resulted in some borrowers being turned away.

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents some of the best known payday lenders: said: “It’s too early to speculate on the detail but we do know that a cap on the cost of credit will mean many people will struggle to manage who previously borrowed and paid back small sums over short periods.”

He said that demand for credit was unlikely to change even if availability fell. “We know that only a quarter of those turned down for loans since lenders tightened their borrowing decisions said that they were better off not getting the money; the rest racked up charges for missed payments,” he said.

[…]

EZCorp shares drop as it shys from payday loans, focuses on pawn …

Image ezpawn-ez-pawn-cameron-road-2014-2304xx1956-1304-22-0.jpg

Enlarge Photo

Nick Simonite/ABJ

EZCorp has seen a lot of changes at the executive level as the company tries to right ship.

Digital Editor- Austin Business Journal Email | Twitter

Shares of EZCorp Inc. slid about 10 percent Tuesday after the company announced it planned to largely shutter its lucrative, but increasingly scrutinized, online payday loan business operations in the U.S. and the U.K.

EZCorp (Nasdaq: EZPW) shares were trading at $8.96 Wednesday morning in pre-market activity, roughly 10 percent below the approximately $10 share price at the close of markets Monday.

Early Monday evening, officials at the Austin-based pawn shop and payday loan company said they would be exiting, either by sale or draw down, from its Cash Genie online payday loan operation in Great Britain, and a similar U.S.-focused online payday loan operation called EZOnline, according to a filing with the Securities and Exchange Commission.

In its filing, the company highlighted increasing government regulation of the payday loan industry — and its expected impact on revenue streams from such online payday loans — as one of the primary reasons for exiting the industry and focusing on its core pawn shop business. The company is cutting a total of 149 positions relating to those businesses in the coming months.

EZCorp has gone through significant corporate overhaul since July, when shareholders installed a new CEO and a new CFO to try and change the course of the company.

Michael Theis is the Austin Business Journal’s digital editor.

Related links:

Policy, Public Companies

[…]

Opponents keeping up pressure on payday lenders in Texas

Over a dozen payday and auto-title loan stores line a small stretch of South Buckner Boulevard.

With brightly colored storefronts and signs in English and Spanish, they advertise “Cash now!” and “Cash today!” There’s at least one on every block for several miles.

Despite this busy strip, the numbers of these types of stores in Dallas are on the decline.

Since the city passed a landmark ordinance regulating lenders three years ago, dozens of shops have closed. It’s just one way, city officials and consumer advocates said, that the ordinance has affected an industry that they say preys on low-income residents and traps them in a cycle of debt. Yet while they said most lenders are making efforts to comply, some companies have found ways to skirt the restrictions.

Now, the ordinance’s supporters are gearing up for the 2015 Texas legislative session, anticipating pushback from payday lending companies. Dallas City Council member Jerry Allen, who was a major force in passing the ordinance and continues to encourage other cities to join, said he expects companies will lobby for a weak law that would pre-empt local ordinances.

“My goal would be to not go backwards,” he said. “They’ve given up at the local level. They’re going to put a full-court press at the state.”

As the start of the session approaches, Allen said ordinance supporters will work to get more cities to pass ordinances and rally state legislators. At least 18 cities have passed ordinances similar to the one in Dallas.

The industry’s political clout stifled past efforts to create statewide reform.

Rob Norcross, spokesman for the Consumer Service Alliance of Texas, which represents many of the state’s short-term lenders, said city ordinances often leave customers paying more at one time or having to take out multiple loans.

“Some of these customers are in financial situations that don’t fit the narrow parameters of the ordinance,” he said.

But some change may be coming. The Consumer Financial Protection Bureau, the federal consumer watchdog, is developing rules to regulate the industry. In July, it fined Irving-based ACE Cash Express $10 million for what it described as predatory practices. It also took actions against Fort Worth-based Cash America last November.

Such changes could only help the city regulations, ordinance supporters said.

State and federal laws “are stronger because they come across the board. It doesn’t undermine the benefit of what the cities are doing. It would just make it that much better,” said Ann Baddour, senior policy analyst for Texas Appleseed, an advocate for poor residents.

Some bans

For Sandra Johnson of Irving, a recent payday loan started with a high electricity bill.

Johnson, a receptionist, said money can be tight after rent, bills and food. An unexpected higher bill took her budget over the edge.

She was already paying off other loans. A car-title loan helped her daughter who was out of work. Another payday loan helped when she had surgery.

The loans are easy to get, she said. Paying the high interest, however, was a struggle.

“I understand that when I get a loan, I have to pay it back,” she said. “But when it’s gotten to the point where you have to pay it back or you don’t eat, it makes it hard.”

Marketed as a quick fix to help cover expenses until a person’s next paycheck, the loans often come with costly fees and high interest rates that make it difficult to pay them off.

Consequently, 14 states and Washington, D.C., have banned payday loan stores. But efforts in Texas to rein in the industry have largely failed.

In the past decade, payday and car-title loan companies have used a loophole in state law that allows them to operate without interest rate limits. As a result, a payday loan for $300 may end up costing about $701 — the highest rate in the country, according to an analysis by Pew Charitable Trusts.

In 2011, religious and community groups advocated for state legislation that would limit some of these practices. Ultimately, they were only able to require businesses to be licensed with the state, submit loan data and provide detailed cost disclosures.

The Dallas City Council was already discussing its own ways to regulate the industry. In May 2011, it passed an ordinance that limited where payday loan and car-title companies could open. That June, it passed another ordinance that placed restrictions on actual loans.

Interest limits were out of the city’s power. But the ordinance restricted the amount a person could take out based on income or a car’s value. It also limited renewals and required minimum payments toward the principal.

Dallas sued

Within weeks, the Consumer Service Alliance of Texas and several lenders sued Dallas, arguing that the ordinance conflicted with state law and was intended to put lenders out of business. In May, the Texas 5th District Court of Appeals ruled in the city’s favor and said Dallas is immune from a lawsuit filed by payday lenders.

By then, other cities had joined Dallas. Through efforts by Allen and religious and community groups, many of the state’s largest cities — including Austin, Houston, San Antonio and El Paso — passed similar ordinances.

In North Texas, Denton, Flower Mound and Garland enacted ordinances, while several other cities implemented zoning ordinances.

Limitations

The state doesn’t release specific loan data by cities. But a comparison of licensed stores in Dallas from April 2012, shortly after 2011 state and city regulations went into effect, and July 2014 shows that about a quarter of stores have closed.

The state’s Office of Consumer Credit Commissioner, which oversees the companies, only maintains a current list of store licenses. Texas Appleseed, which regularly requests the data, provided the 2012 list.

In 2012, Dallas had 241 payday and car title loan stores — collectively called Credit Access Businesses in Texas. As of Sept. 18, there were 177 — about a 27 percent decline.

Many of the companies doing business in Dallas closed stores during that time.

In its 2013 annual report, Cash America International said that it closed 36 stores in Texas primarily because city ordinances had reduced the profitability and volume of short-term loans. The company closed three stores in Dallas.

EZCORP also said in its most recent quarterly report that it closed stores as a result of city ordinances.

Multiple calls to companies operating in Dallas were not returned.

But Norcross, the industry representative, said his group projects 46 more stores will close in Dallas by the end of 2014. The ordinance, he said, doesn’t leave companies with much flexibility. With loans limited to four payments, each payment often ends up being too large for customers, he said. It also doesn’t address the differences that come with each loan type.

“It’s a one-size-fits-all approach that is incomplete,” he said.

The time for the group to challenge the Dallas appeals ruling has run out. The group or a lender may be able to refile the lawsuit if a lender gets fined under the ordinance, Norcross said.

Business inspections

Companies have found ways around the ordinance, consumer advocates said.

The Anti-Poverty Coalition of Greater Dallas has been sending volunteers to stores to see if they are complying with the regulations.

Last October, Becca Fritze, senior program manager of financial empowerment at the YWCA, went to a store and asked what would happen if she couldn’t pay off the loan within four payments. After her colleagues asked the same question, lenders directed them online.

“For me, it was that they said, ‘Oh, don’t worry. We’ll just refer you to a store outside of Dallas,’” she said.

Norcross said that such interactions might come from a desire not to lose customers. “If a customer says, ‘Look, I’ve got a problem here. What am I going to do?’ they’re going to try to help them out,” he said.

Baddour, of Texas Appleseed, said some companies also have offered what they describe as single-payment loans that end up having multiple fees.

More enforcement, she said, will help close such potential loopholes.

Dallas began inspecting businesses in May 2013. Since then, it has inspected 87 locations, conducted six examinations and issued 34 notices of violation, said assistant city attorney Maureen Milligan. One lender received four criminal citations.

The most common violations have been that lenders didn’t have proper documentation for an applicant’s income or car value, she said.

Most of the companies, however, have been willing to comply, she said.

Online loans

Statewide, lenders have found areas to grow. While Dallas has fewer stores, the numbers across Texas have stayed around 3,300. In North Texas, some cities without ordinances have more stores than in 2012.

Although the number of new loans and refinances dropped last year, the industry had more consumers, according to the Center for Public Policy Priorities’ analysis of industry filings with the state. The fees charged to customers also increased by 12 percent. The Austin-based center is a nonpartisan nonprofit that pushes for public policies to help low- and moderate-income Texans.

Online loans also seem to be growing. Many lenders offer loans through their websites. Consumer advocates describe that as a way to avoid regulation.

As of now, the Dallas ordinance’s application to online loans is only hypothetical, said first assistant city attorney Chris Bowers. The city attorney’s office hasn’t received any borrower complaints about online loans or had a lender try to argue that one was issued outside of city limits because a portion of it was online, he said.

“It will depend on the facts,” he said. “But the mere fact that they’re touching a computer does not insulate them from the ordinance.”

Ultimately, a statewide law is needed, consumer advocates said.

“Having something comprehensive at the state level would potentially prevent operators from setting up shops just outside the jurisdictions of some of these ordinances,” said Oliver Bernstein, spokesman for the Center for Public Policy Priorities.

Yet laws can only go so far without alternative financial solutions, Fritze of the YWCA said.

“You can kind of put those laws in place, but you still need an alternative product. There aren’t a lot of products out there,” she said.

Financial counseling

Some alternatives are in the pipeline. BCL of Texas, for example, is working to bring the Community Loan Center program, a pilot program in Brownsville, to Dallas and Austin by next year. The program would allow employers to provide loans to their employees at an interest rate capped at 18 percent.

Meanwhile, Fritze meets regularly with Johnson for financial counseling sessions. After she pays off her current loans, Johnson said, she won’t take out any more.

The sessions, Johnson said, “have really taught me these life goals about what it takes to make it.”

Overall, the ordinances have raised awareness about the issue and about financial education, supporters said.

Allen said the ordinance also helps encourage economic development.

“If I was corporate America, I would read that as a positive thing that Dallas is doing,” he said. “That’s the image that you want to have.”

[…]

Complaints about payday loan middlemen soar | Money …

Image checking-purse-011.jpg

Financial Ombudsman Service deals with many cases where a consumer finds themselves paying for a service when they thought they were getting a loan. Photograph: MBI/Alamy

Complaints about “payday loan middlemen” websites that take hundreds of pounds from consumers on the promise of finding cheap credit have more than doubled in the last year, the Financial Ombudsman Service said on Tuesday.

So far this year, more than 10,000 people have contacted the ombudsman to complain about credit broking websites, more than twice the number for the whole of 2013.

The service found that many people who had turned to such websites felt “misled” because they thought they were applying for a loan directly and did not realise that they were paying a middleman.

It said consumers were struggling financially and complained of broker websites draining money from their accounts, without providing them with the loan they were looking for.

Common themes in complaints include consumers not recognising the business that took the fee and saying they did not give permission for the fee to be taken.

In some of the worst cases the ombudsman has seen, consumers’ bank accounts were debited multiple times without warning, as their banking details were passed onto other credit broking websites.

In one case the service said it has seen, a woman was charged on around 20 occasions for fees and up to £70 was taken from her account each time.

The service said that in two-thirds of complaints it investigated, the ombudsman agreed that the consumer had been treated unfairly.

In the majority of cases, the business running the websites refunded the cash they had taken as soon as the ombudsman got involved.

Senior ombudsman Juliana Francis said: “It’s disappointing that people who are already struggling to make ends meet are being misled into thinking that these websites will get them a loan.

“In too many of the cases we sort out, no loan is provided and people’s bank accounts have been charged a high fee, often multiple times.

“If money has been taken from your account unfairly or without warning, the good news is the ombudsman is here to help. Give us a call and we can put things right quickly.”

Russell Hamblin-Boone, chief executive of the Consumer Finance Association (CFA), which represents short-term lenders such as the Money Shop, Quick Quid, Cash Converters, Payday UK, Peachy and Sunny, but does not represent credit brokers, said: “The problems caused by some brokers and lead generators bring the whole market into disrepute not least because it is hard for most customers to tell the difference between lenders and these middlemen.”

He said the CFA agrees that middlemen companies should be clear that they are not lenders.

Hamblin-Boone said anyone looking to arrange a loan should take time to check that the business is properly authorised to operate.

Peter Tutton, head of policy at StepChange Debt Charity, said: “We continue to see numerous cases where financially vulnerable people suffer at the hands of brokers who take money from their accounts but fail to deliver on the promise of a loan.

“This is a well known problem, but it continues to get worse. The time has come for government and the regulator to ban credit brokers from charging up-front fees.”

[…]

Citizens rally against payday loans | The Advance

Image Rally-300x169.jpg

About 250 attendees gather before a rally on predatory lending practices in the state starts Monday, Aug. 11, at Calvary Baptist Church. The rally was organized by the grassroots group , Tuscaloosa Citizens Against Predatory Lending. Photo by Jasmin Washington.

TUSCALOOSA – Calvary Baptist Church was the site of a rally to protest so-called payday loans and provide information about the statewide practice on Monday evening, Aug. 11.

One of the purposes of the hour-long session was to sign a petition urging a cap on the high interest rates, up to 36 percent, that payday loans charge. The rally was hosted by the grassroots group, Tuscaloosa Citizens Against Predatory Lending.

Since a state law was passed in 2003 that made payday loans legal in Alabama, many college students and wage earners in low-income brackets have made use of payday loans, which contribute to financial instability for many borrowers.

Stephen Stetson a policy analyst with Alabama Arise, an advocacy group for children, and Stephen Black, director and founder of the Center for Ethics & Social Responsibility at The University of Alabama were guest speakers.

Audience members listened as a video on Predatory Loans was presented. In the film, borrowers described their experiences with paying back loans and lenders discussed the guilt they felt for issuing them out.

Following the video, Beebe McKinley, TCAPP member and longtime Tuscaloosa resident, introduced speaker Stephen Stetson, Alabama Arise Policy Analyst.

Stetson presented a slide show presentation on predatory practices, which contained a brief history and description of payday loans. His talk included the following points:

Concept of payday loans originated in the 1990s in Cleveland, Tenn. The state of Alabama passed a law in 2003 approving payday loans. A payday loan is a small amount of cash that is expected to be repaid with the person’s next pay check. Payday loans are easy to get since they do not require a credit check. The average borrower remains in payday loan debt for 212 days out the year.

Stephen Black, of UA’s Center for Ethics & Social Responsibility, is highly concerned about what he describes as an unethical practice.

“I don’t want to be in a state where we pray amongst the weak,” Black said. “This is about fairness.”

Stetson, whose organization focuses on issues affecting low-income people, said that payday-loan borrowers in Alabama can end up paying 456 percent in annual interest because they will take out new loans to repay the previous ones.

By Jasmin Washington, senior writer

[…]

Ace Cash Express agrees to pay $10 million to settle allegations

Irving payday lender Ace Cash Express has agreed to pay $10 million to settle what federal regulators called “appalling” predatory tactics to induce borrowers into debt traps.

The consent order with the Consumer Financial Protection Bureau, announced Thursday, comes amid a crackdown by federal and local regulators on aggressive payday lending practices.

The bureau took enforcement action in November against Fort Worth-based payday lender Cash America. In that case, Cash America agreed to pay $19 million to settle allegations of improper debt collection lawsuits and overcharges of military customers.

The bureau said Ace harassed overdue borrowers and threatened lawsuits or criminal prosecution to pressure them to take out additional loans to pay off old ones.

“Ace used false threats, intimidation and harassing calls to bully payday borrowers into a cycle of debt,” CFPB Director Richard Cordray said in a statement. “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”

In a two-page statement, Ace said its policies prevent delinquent borrowers from taking out new loans. The company did not admit or deny any wrongdoing in agreeing to the consent order. Ace agreed to pay $5 million in consumer refunds and a $5 million penalty.

“We settled this matter in order to focus on serving our customers and providing the products and services they count on,” CEO Jay B. Shipowitz said in a statement.

Ace is one of the largest payday lenders in the country. It provides payday loans and other alternative financial products online and at 1,500 stores in Texas and 35 other states as well as the District of Columbia. The company has an annual transaction volume of $14 billion and saw 40 million customer visits over the past year.

Payday loans are meant to address short-term cash needs. They can offer quick access to credit in small amounts that must be repaid in full in a short time.

But critics say these high-interest products bury many consumers under a mountain of debt.

In March, the bureau’s study found 4 of 5 payday loans were being rolled over or renewed within 14 days. It also found that a majority of payday loans were being made to borrowers who end up paying more in fees than the loan’s original amount because they renew the loan so many times.

Consumer advocates applauded the bureau’s latest action against a payday lender.

“I don’t think there’s any question that these companies are on notice that it’s not going to be the Wild West as it was pre-bureau,” said Don Baylor Jr., senior policy analyst at the Austin-based Center for Public Policy Priorities. “Now, you actually have a federal bureau with actual teeth.”

The investigation and enforcement action against Ace resulted from the bureau’s examination of the company, which is part of the agency’s oversight responsibilities.

The bureau said Ace’s training manuals instructed debt collectors to “create a sense of urgency” when contacting overdue borrowers. The bureau found a graphic illustration in a 2011 training manual that spelled out the loan process. It directs employees to offer consumers the option to refinance or extend the loan if borrowers cannot repay.

Ace said in its statement that the bureau’s allegations relate to some of the company’s collection practices before March 2012.

The company retained an independent consultant to review a random sample of the company’s collection calls in response to the bureau’s concerns. Deloitte Financial Advisory Services’ review found that more than 96 percent of Ace’s calls during the review period met “relevant collections standards,” according to the company.

Moreover, the company analyzed data from March 2011 through February 2012 to ensure that its polices preventing a delinquent borrower from taking out new loans were working.

Since 2011, the company said, it also has taken voluntary steps to shore up its compliance program, including hiring full-time legal analysts outside the collections department to monitor calls.

Follow Hanah Cho on Twitter at @hanahcho.

[…]

'Appalling' predatory lending practices cost Ace Cash Express $10M in settlement with feds

Irving payday lender Ace Cash Express has agreed to pay $10 million to settle what federal regulators called “appalling” predatory tactics to induce borrowers into debt traps.

The consent order with the Consumer Financial Protection Bureau, announced Thursday, comes amid a crackdown by federal and local regulators on aggressive payday lending practices.

The bureau took enforcement action in November against Fort Worth-based payday lender Cash America. In that case, Cash America agreed to pay $19 million to settle allegations of improper debt collection lawsuits and overcharges of military customers.

The bureau said Ace harassed overdue borrowers and threatened lawsuits or criminal prosecution to pressure them to take out additional loans to pay off old ones.

“Ace used false threats, intimidation and harassing calls to bully payday borrowers into a cycle of debt,” CFPB Director Richard Cordray said in a statement. “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”

In a two-page statement, Ace said its policies prevent delinquent borrowers from taking out new loans. The company did not admit or deny any wrongdoing in agreeing to the consent order. Ace agreed to pay $5 million in consumer refunds and a $5 million penalty.

“We settled this matter in order to focus on serving our customers and providing the products and services they count on,” CEO Jay B. Shipowitz said in a statement.

Ace is one of the largest payday lenders in the country. It provides payday loans and other alternative financial products online and at 1,500 stores in Texas and 35 other states as well as the District of Columbia. The company has an annual transaction volume of $14 billion and saw 40 million customer visits over the past year.

Payday loans are meant to address short-term cash needs. They can offer quick access to credit in small amounts that must be repaid in full in a short time.

But critics say these high-interest products bury many consumers under a mountain of debt.

In March, the bureau’s study found 4 of 5 payday loans were being rolled over or renewed within 14 days. It also found that a majority of payday loans were being made to borrowers who end up paying more in fees than the loan’s original amount because they renew the loan so many times.

Consumer advocates applauded the bureau’s latest action against a payday lender.

“I don’t think there’s any question that these companies are on notice that it’s not going to be the Wild West as it was pre-bureau,” said Don Baylor Jr., senior policy analyst at the Austin-based Center for Public Policy Priorities. “Now, you actually have a federal bureau with actual teeth.”

The investigation and enforcement action against Ace resulted from the bureau’s examination of the company, which is part of the agency’s oversight responsibilities.

The bureau said Ace’s training manuals instructed debt collectors to “create a sense of urgency” when contacting overdue borrowers. The bureau found a graphic illustration in a 2011 training manual that spelled out the loan process. It directs employees to offer consumers the option to refinance or extend the loan if borrowers cannot repay.

Ace said in its statement that the bureau’s allegations relate to some of the company’s collection practices before March 2012.

The company retained an independent consultant to review a random sample of the company’s collection calls in response to the bureau’s concerns. Deloitte Financial Advisory Services’ review found that more than 96 percent of Ace’s calls during the review period met “relevant collections standards,” according to the company.

Moreover, the company analyzed data from March 2011 through February 2012 to ensure that its polices preventing a delinquent borrower from taking out new loans were working.

Since 2011, the company said, it also has taken voluntary steps to shore up its compliance program, including hiring full-time legal analysts outside the collections department to monitor calls.

Follow Hanah Cho on Twitter at @hanahcho.

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The In's And Out's Of Getting A Payday Loan | Payday Loans Guide

Payday loans have become extremely popular over the last twenty years or so. The Internet has made obtaining these types of loans easier than ever with simplistic applications and timely approval. The fact that there are no credit checks when borrowing this way is also a contributing factor to the popularity of these quick cash loans.

But like any other type of borrowing, knowing what you are getting yourself into means doing your homework and educating yourself on the process in which a payday loan is given out. Payday lender locations run the gamut all over the country and even offshore.

Thousands of payday loan lenders can be found online and hundreds servicing customers in brick-and-mortar locations. Consumers can also look to Tribal based companies as well as offshore lenders. How do you choose? Who can you trust? Are all lenders the same? Consider the following when looking for the right payday loan and payday lender:

*Make sure they are the lender- Finding a reputable lender starts with making sure they are the ones loaning you the money. Many online companies are “third-party” meaning they take your information and sell it to a lender who will actually fund your loan. Keep in mind, the lender who buys the loan nay not be licensed in your state. This can lead to higher interest rates, less customer support and the possibility of your personal information being sender sold to multiple parties.

*Find their license number- States that allow payday lenders to operate have passed strict laws in regards to payday loan lending. Each state determines, on their own, how much a consumer can borrow and caps are put on interest rates and fees in order to protect the borrower. Taking out a loan with an uninsured lender can cause the borrower to be charged illegally high interest rates as well has having problems with loan payoff. You should also be able to see how much it will cost you to borrow. Good lenders will have an example of a loan amount with the interest and fees attached.

*Locate their physical address- Any reputable online lender should have a physical address as well. If they don’t have one listed on their website, this is a warning sign. Try looking on the “about us” or “FAQs” pages.

*Read the privacy policy- This gives the consumer the option to opt-out of marketing communications and information sharing. Even if you don’t read the policy, making sure the lender has one on their site or visible in their storefront location is a good indicator that they are reputable. If they don’t have one in place? Move onto finding another lender.

*Find out how it works- Make sure you have a clear grasp on what the lenders’ loan policies are and how the application process works. Prepare yourself ahead of time to understand what information you will need to give, how long you will have to pay back and what will happen should you be unable to repay.

Someone once said… “Knowledge is key”. When you arm yourself with information you are much more likely have a good experience and feel good about the choices you have made. This too rings true when it comes to getting a payday loan!

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