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The Payday Loan Rule Changes That Only Payday Lenders Want …

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Follow the money: payday lenders gave significant campaign money to legislators who are now trying to undo Washington State’s landmark payday lending reforms.dcwcreations /

Washington State passed some of the strongest payday lending reforms in the nation in 2009. But now a group of lawmakers want to scrap those reforms in favor of a proposal backed by Moneytree, a local payday lender.

The rule changes they’re going after limit the size and frequency of payday loans and provide a free installment plan option to help borrowers who can’t pay back their loan when it’s due.

According to data from the Department of Financial Institutions, these reforms hit payday lenders hard. In fact, before the reforms took effect, payday loans were available at 603 locations across Washington and lenders were making more than $1.3 billion in loans per year. Last year, there were only 173 locations and it was a $331 million industry.

Now, a proposal, sponsored by Rep. Larry Springer, D-Kirkland, and Sen. Marko Liias, D-Lynnwood, would replace the payday loan system in Washington with a “small consumer installment loan” system that would clear the way for lenders like Moneytree to start offering 6-month to 12-month loans with effective interest rates up to 213 percent.

The proposed law would also increase the maximum size of a loan from $700 to $1,000 and remove the current eight-loan cap, effectively removing the circuit breaker keeping borrowers from getting trapped in a debt cycle.

What’s more, instead of the easy-to-understand fee payday loans we have now, the new loans would have a much more complex fee structure consisting of an amortized 15 percent origination fee, a 7.5 percent monthly maintenance fee, and a 36 percent annual interest rate.

It is incomprehensible, after years of working on payday reforms that finally worked in Washington, that lawmakers would throw out that law and replace it with one created by Moneytree.” says Bruce Neas, an attorney with Columbia Legal Services, a group that provides legal assistance to low-income clients.

Proponents say the new system could save borrowers money. And they’re right, technically, since interest and fees accrue over the life of the loan. However, a loan would need to be paid off in around five weeks or less for that to pencil out—and that seems highly unlikely. In Colorado, which has a similar installment loan product, the average loan is carried for 99 days. What’s more, according the National Consumer Law Center, “loan flipping” in Colorado has led to borrowers averaging 333 days in debt per year, or about 10.9 months.

While numerous consumer advocates have spoken out against the proposal—along with payday loan reform hawks like Sen. Sharon Nelson, D-Maury Island, and even the state’s Attorney General—few have voiced support for it. In fact, in recent committee hearings on the proposal, only four people testified in favor of it:

Dennis Bassford, CEO of Moneytree;

Dennis Schaul, CEO of the payday lending trade organization known as the Consumer Financial Services Association of America;

Rep. Larry Springer, prime House sponsor of the proposal and recipient of $2,850 in campaign contributions from Moneytree executives;

Sen. Marko Liias, prime Senate sponsor of the proposal and recipient of $3,800 in campaign contributions from Moneytree executives.

Springer and Liias aren’t the only state legislators Moneytree executives backed with campaign contributions, though. In the past two years, executives with Moneytree have contributed $95,100 to Washington State Legislature races.

At least 65 percent of the money went to Republicans and the Majority Coalition Caucus. Which is expected, since Republicans have been loyal supporters of Moneytree in the past. When a similar proposal was brought to the Senate floor two years ago, only one Republican voted against it.

More telling is where the remaining money went. Of the $33,150 Moneytree gave to Democrats, $20,500 went to 11 of the 16 Democratic House sponsors of the proposal and $5,700 went to two of the four Democratic Senate sponsors.

Both the Senate and House versions of the proposal have cleared their first major hurdles by moving out of the policy committees. The bills are now up for consideration in their respective chamber’s Rules Committee. The Senate version appears to be the one most likely to move to a floor vote first, since the Republican Majority Coalition Caucus controls the Senate.

Regardless of which bill moves first, payday lenders undoubtedly want to see it happen soon.

The Consumer Financial Protection Bureau, established by Congress in response to the Great Recession, is poised to release their initial draft of regulations for payday lenders. Although the agency’s deliberations are private, it is widely believed the rules will crack down on the number and size of loans payday lenders can make.

Those rules may well affect Moneytree and other payday lenders Washington.

In the likely chance they do, payday lenders could see their profits shrink. Unless, that is, Washington scraps its current system in favor of one carefully crafted by payday lenders looking to avoid federal regulators.


3 Signs Your 'Loan' Is Really a Scam


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[This week is National Consumer Protection Week and so The ABC News Fixer is here to share tips all week long to help keep your money safe in some common financial situations. Check The ABC News Fixer homepage at for these and many, many more financial tips.]

What kind of crook would take money from a poor person?

In one of the most despicable – but unfortunately, common – scams, con artists are offering bogus loans to people with poor credit histories who need cash to pay their bills.

It’s called an “advance-fee loan” but it’s not a loan at all. It’s a scam.

These schemes can be quite sophisticated, using fancy websites, loan applications and even fake “loan officers” who are really just in on the scheme. After the scammers collect an upfront payment from the borrower, they disappear – leaving the consumer in even worse financial shape.

The ABC News Fixer has heard from numerous victims of this scam.

Make sure you don’t fall for it by noting these three red flags:

The supposed lender doesn’t seem to care about your credit history. The lender guarantees you’ll get a loan, no matter what. The lender claims that you’ve been approved for a loan, but then starts demanding fees upfront for vague reasons like “insurance,” “processing” or “paperwork.”


Federal Trade Commission

says a demand for any upfront fee is a clue to walk away.

If you need to borrow money, be sure to deal only with legitimate lenders that disclose all their fees clearly and conspicuously.

A legitimate lender will take its fees from the amount that you borrow – and not ask you to give them your own money in advance to get a loan.

If you have poor credit, you’ll have a hard time getting a legitimate loan. You’ll need to put in time and effort to rebuild your credit history. If you’re falling behind on your bills, contact your creditors to ask for help and consider getting assistance from a nonprofit credit counseling service.

– The ABC News Fixer

Got a consumer problem? The ABC News Fixer may be able to help. Click here to submit your problem online. Letters are edited for length and clarity.


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.


JPMorgan Chase, Wells Fargo fined $35 million after officers took bribes

NEW YORK Federal and state authorities have ordered Wells Fargo and JPMorgan Chase to pay a combined $35.7 million for taking part in a mortgage kickback scheme.

The Consumer Financial Protection Bureau and the Maryland Attorney General said Thursday that loan officers at both banks took cash payments from a now-defunct title company in exchange for business referrals.

Regulators said more than 100 loan officers at Wells Fargo locations in Maryland and Virginia steered thousands of loans to Genuine Title, which went out of business last year, in exchange for cash.

Todd Cohen, a former Wells Fargo banker, allegedly had Genuine Title make “substantial cash payments” to his girlfriend at the time in order to avoid detection. The bureau has ordered Cohen and his now-wife, Elaine Cohen, to pay a $30,000 penalty.

Regulators said Wells Fargo failed to halt the scheme even though it was facing a federal lawsuit over the illegal activity.

“We have fully cooperated with the CFPB in this matter and have taken strong corrective action, including terminating team members,” Wells Fargo said in a statement.

The wrongdoing was less extensive at JPMorgan Chase. The bureau said at least six loan officers at Chase locations in Maryland, Virginia and New York helped steer 200 loans to Genuine Title. The bank has agreed to pay a total of $900,000 in penalties and compensation.

“We are fully committed to ensuring that our mortgage bankers comply with all legal and regulatory requirements,” Chase said in a statement. “These former employees clearly violated our policies, procedures and training.”

The CFPB said a third bank also took kickbacks from Genuine Title. But the bureau said it did not bring an enforcement action against that bank because it “self-identified” and took steps to correct the illegal action.

“These banks allowed their loan officers to focus on their own illegal financial gain rather than on treating consumers fairly,” said CFPB Director Richard Cordray.

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Kroll Bond Rating Agency Assigns Preliminary Ratings to Hyatt Hotel Portfolio Trust 2015-HYT


Kroll Bond Rating Agency, Inc. (KBRA) is pleased to announce the assignment of preliminary ratings to the Hyatt Hotel Portfolio Trust 2015-HYT transaction (see ratings list below). Hyatt Hotel Portfolio Trust 2015-HYT is a CMBS single borrower transaction that is collateralized by a $340.0 million floating rate loan that was originated by JPMorgan Chase Bank, National Association and an affiliate of Goldman Sachs Mortgage Company. The loan has an initial two year term with three, one-year extension options. Proceeds from the mortgage loan, along with $167.0 million of mezzanine financing, $117.7 million of cash equity and a $19.0 million letter of credit contributed by the loan sponsor, were used to facilitate the acquisition of a portfolio of 38 hospitality assets.

The loan is secured by the borrower’s fee simple interests in 35 lodging properties totaling 4,530 keys, as well as the leasehold interest in three assets totaling 420 keys. Twenty-seven of the properties are select-service hotels operated under the Hyatt Place flag. These assets were built between 1990 and 2013, and range in size from 79 to 162 keys. The remaining 11 assets are extended-stay hotels operated under the Hyatt House flag. These assets were built between 1997 and 2010. All of the properties in the portfolio have been renovated since 2007, and a total of $41.0 million ($8,277 per key) has been spent on capital improvements across the portfolio from 2007 to 2014. Over 95% of the collateral properties by ALA are located in markets considered to be primary or secondary by KBRA. The primary market exposure (19.9%) includes two of the ten largest properties by ALA which equates to 9.4% of the portfolio balance. In addition, one of the portfolio’s five largest MSA concentrations is in a primary market, Boston (4.9%).

KBRA’s analysis of the transaction included a detailed evaluation of the properties’ cash flows using our CMBS Property Evaluation Guidelines, and the application of our CMBS Single Borrower & Large Loan Rating Methodology. For the purposes of our analysis, we determined KBRA net cash flow (KNCF) for each asset, and applied KBRA capitalization rates to each property’s KNCF to determine property value. KBRA adjusted this value to give partial credit in the amount of $30.0 million for a capital improvement reserve that was funded at origination. The weighted average variance to the issuer’s NCF was 2.4%, and the weighted average value variance to each property’s third party appraisal values was 34.0%. The analysis produced an aggregate KBRA value of $371.3 million and an in- trust KLTV of 91.6%.

For further details on KBRA’s analysis of the transaction, please see our Pre-Sale Report, entitled Hyatt Hotel Portfolio Trust 2015-HYT, which was published today at

The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of final ratings that differ from the preliminary ratings.

Preliminary Ratings Assigned: Hyatt Hotel Portfolio Trust 2015-HYT

Class Expected Rating Balance (US$) A AAA(sf) $110,070,000 X-CP AAA(sf) $289,000,000(1) X-EXT AAA(sf) $340,000,000(1) B AA-(sf) $40,130,000 C A-(sf) $29,800,000 D BBB-(sf) $43,000,000 E BB-(sf) $62,100,000 F B-(sf) $54,900,000

(1)Notional balance.

17g-7 Disclosure:

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report entitled Hyatt Hotel Portfolio Trust 2015-HYT 17g-7 Disclosure Report.

Related publications: (available at

CMBS Presale: Hyatt Hotel Portfolio Trust 2015-HYT

CMBS Property Evaluation Guidelines, published June 10, 2011

CMBS Single Borrower & Large Loan Rating Methodology, published February 23, 2012

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

BondsFinanceHyatt Hotel Contact: Analytical Contacts:

Laura Wolinsky, (646) 731-2379


Ken Kor, (646) 731-2339


Robin Regan, (646) 731-2358


Michael B. Brown, (646) 731-2307 […]

Students: payday loans are not your only option | Education | The …

The top testimonial for payday loan company Smart Pig is from someone without a surname, who declares in block capitals: “I love you! You are my favourite pig ever! Who needs Peppa when you’re in my life!”

Noor” has clearly only met pigs willing to give her a 782% representative APR loan, a full 1% worse than the offer from Smart Pig.

Smart Pig is just one of a number of high interest payday lenders now offering their services to students. Their adverts, which have been reported to the Advertising Standards Agency (ASA), highlight prizes you can get your hands on, including the opportunity to “win a term’s rent”. All in a space they could have used to explain their APR.

Targeting Students

A worrying number of undergraduates are turning to payday loans. Around 2% of undergraduates used them last year, according to a survey by the National Union of Students (NUS). This may not sound like a lot, until you consider this means up to 46,000 students are risking the debt spiral associated with payday loans.

Despite a NUS campaign in 2013 to ban payday loan adverts on campuses, payday lenders are still heavily targeting students.

Peachy Loans have recently had complaints upheld against them by the ASA for an advert they ran on sandwich wrappers in cafes opposite university campuses and colleges. The campaign, it was found, encouraged a casual attitude to taking out a loan. Its slogan was: “Small bites put a smile on your lips! You can now get a loan from £50 to £500 and pay it back in small bits…” emanating from a cartoon mouth.

People willing to take financial advice from their sandwich wrappers may seem like a financially unsound group unlikely to return your investment but, unfortunately, these are probably the same group of well-meaning but naïve people that will incur late fees.

Scam techniques

There’s a reason payday loans companies use such trite campaigns, and it’s the same reason email scams are so poorly written. You and I may realise the emails are obviously a scam, but that’s because we’re supposed to.

Scammers deliberately use terrible spelling and implausible stories because it weeds out “false positives”, according to research from Microsoft. These are people who will likely figure out it’s a scam before they send off their money.

In the same way, adverts for payday loans weed out the people they’re not interested in, until all they’re left with are the incredibly desperate or the young and unreasonably optimistic.

There is money to be gained from the people optimistic enough to think APR won’t apply to them, as implied by Wonga’s now banned advert which claimed their 5,853% APR was “irrelevant”.

Payday loan companies aren’t looking to attract people who might look up what their interest rate actually means. They’re looking for more vulnerable people.

People who look at smiling pigs with top hats carrying bags of cash and don’t see a monumentally large danger sign. People who are paying attention to the singing Austrian girls handing people wads of money in TV adverts, and not the alarming text at the bottom of the screen.

Or they’re looking for people far too desperate to care. All too often students fit into this latter category.

Other options are available

Student Money Saver’s advice is to go to your university or student union for financial help. No matter how desperate things seem, advice and financial help will be available.

Hardship funds are available to you from your university when you are in dire financial circumstances. Hardship funds are lump sums or installments paid to you when you can’t afford the essentials, such as rent payment, utility bills or food.

Usually these are lump sums or installments paid to you, which you won’t have to pay back. In some cases your university will give you money as a loan, but without the massive rates of interest offered by payday lenders. Talk to your university and they will help you.

You can also request a higher bank overdraft if you haven’t done so already. Banks know students are likely to be high earners when they graduate, and so are likely to allow you this extension as an investment in your loyalty. If one bank won’t offer you an extended overdraft, shop around for a bank that will.

James Felton is the content editor of student finance website Student Money Saver.


Can HELOC unlock door to second home?


Dear Dr. Don,
I’m wondering whether my husband and I should refinance our home. The current mortgage is $212,000 at 3.75 percent. We would like a cash-out refinancing, using $50,000 to buy a small house in Mexico. The interest rate on the new mortgage will be at 4.75 percent. We’d pay a higher rate because of our credit scores. The bank’s appraisal of our current home is $345,000. I don’t want to sign the paperwork if this is a bad decision.

— Lucy Loans

Dear Lucy,
I can’t speak directly regarding an investment in Mexican real estate, but I don’t like the idea of using a cash-out refinancing to fund the home purchase.

Instead, you should look into a home equity line of credit or home equity loan to raise the money.

The reason for this approach is twofold. First, why pay extra interest on your $212,000 first mortgage balance to borrow an additional $50,000?

The table below illustrates why you should stick with your current mortgage and use a home equity line or loan to borrow the $50,000. I’m assuming a rate of 6.15 percent for a home equity loan. The rate of 4.81 percent (recently the national average) for a home equity line of credit, or HELOC, would increase savings.

Cost of equity loan vs. cash-out refi

Existing first mortgage$212,0003.75%$7,950Home equity loan$50,0006.15%$3,075Combined$262,000 $11,025 Cash-out first mortgage$262,0004.75%$12,445Amount saved with equity loan $1,420

Secondly, a new cash-out first mortgage will have much higher closing costs than a home equity line or loan. Bankrate’s recent national average for closing costs on a new first mortgage is $2,539. Closing costs on a HELOC should be minimal. The closing costs on a home equity loan should be somewhere between the cash-out refinancing and the HELOC.

A HELOC is an adjustable-rate loan, with interest-only payments during the draw period, usually the first 10 years of the loan. At the end of the draw period, the loan typically becomes an amortized loan, meaning the monthly payment is increased to a level that covers the repayment of the loan balance over the remaining loan term.

A home equity loan is a fixed-rate loan, with amortized payments over the loan term. I’d lean toward the HELOC, but I suggest you work at paying down principal during the draw period.


Wonkblog: Soaring mortgage fees could cost first-time buyers hundreds of dollars more a month


The fees borrowers must pony up for mortgages backed by the Federal Housing Administration have gotten so high that consumer advocates and the housing industry’s most prominent trade groups want the agency to consider lowering the costs.

FHA loans have been a popular source of financing for first-time home buyers and low-income families because they require a down payment of only 3.5 percent. Even borrowers with credit scores as low as 500 can qualify if they put more money down.

But when the FHA’s finances took a hit after the housing bust, the agency tried to beef up its cash cushion by raising the “annual premiums” it charges borrowers. Those fees, which are tacked onto the monthly mortgage payment, were raised five times since 2010. They jumped from .55 percent of a loan’s value to 1.35 percent.

This surge translates into big bucks for FHA borrowers, and shuts too many people out of the housing market, the industry says.

For instance, a borrower who took out a $200,000 loan paid an annual premium of $91.66 per month before 2010. This year, a borrower who gets a loan of that size pays $225 per month in premiums. That’s a 145 percent increase.

The FHA does not make loans. It insures lenders against losses should the loans go bad, and it uses borrower fees to cover those losses. But last year the agency’s cash reserves fell so low that it had to turn to taxpayers for help for the first time in its 80-year history. It drew $1.7 billion from the Treasury.

The FHA’s finances have improved since then. The agency recently announced that its cash reserves are back in the black for the first time in two years. Now, consumer groups — including the Center for American Progress and Enterprise Community Partners — are pushing the FHA to consider lowering its borrower fees.

“It’s time for FHA to do as deep an analysis as possible on this issue,” said Julia Gordon, CAP’s director of housing finance and policy. “We’re very concerned that people are being unnecessarily shut out. It’s important for taxpayers to be protected. But at the same time, the people being shut out are also taxpayers.”

The Mortgage Bankers Association and the National Association of Realtors have been saying the same thing for months. The Realtors group estimates that the high fees may have kept up to 375,000 potential buyers from using FHA loans last year, some of whom could not secure other financing. The group also says that the share of people who use FHA loans to buy their first homes shrank from 56 percent to 39 percent during the past four years.

In a report submitted to Congress last month, FHA put a positive spin on how much it helped first-time buyers, emphasizing that 81 percent (or 480,000) of the home purchase loans the agency insured last fiscal year went to that core market.

But that’s 46 percent less than in 2010 (when FHA’s popularity soared) and 30 percent less than in 2000 (more normal times), said Brian Chappelle, a banking industry consultant and a former FHA official. It’s unlikely that the high fees are the only reason behind the drops. Other factors are holding back potential buyers, including tight lending standards and a weak job market. But the fees couldn’t be helping, Chappelle said.

This chart shows that the number of FHA-backed loans for first-time buyers has been shrinking in the past few years:

In its report to Congress, the FHA also said it is trying to scale back its role in the housing market in hopes that the private sector will fill the void. The chart below shows that the agency’s share of the market has diminished. In 2010, the agency had 40 percent of all home purchase loans. It now has about 22 percent.

FHA acknowledged that even as it’s pulling back, the home-buying market has not returned to normal. The volume of loans used to buy single family homes was 44 percent lower in 2008 through 2013 than it was from 1996 through 2001 – the pre-housing bubble era.

Housing officials have not said much about their future plan for borrower fees, even after the report was released. “FHA has made no decisions regarding the premiums,” said Cameron French, a spokesman for the Department of Housing and Urban Development, which includes FHA. “We are regularly evaluating a number of factors to ensure our premiums are at the right levels. As a result of the most recent annual report, we are looking through new information and will use that to inform any future decisions.” The FHA is in a tough spot as it weighs what it should do next. While it said it no longer needs taxpayer help, its cash cushion still remains well below the level required by law. That cushion should equal 2 percent of all the loans backed by the agency. Instead it equals just 0.41 percent. The FHA has not hit the required 2 percent level since 2009, and an independent audit of the agency’s finances predicts it won’t reach that target until 2016. If the agency’s leadership lowers the premiums before boosting its cash reserves to the mandated level, it may please consumer advocates and the housing industry. But it’s likely to anger lawmakers who control HUD’s budget. That leaves the agency in a Catch 22, Chappelle said. The agency had to raise its fees to help increase its cash reserves, but its cash reserves stayed low because it did less business when it raised its fees.

Dina ElBoghdady covers housing policy for The Washington Post.


New Mexico urged to limit ‘payday’ loan rates



MARTIN: Encouraged by some developments

One of the worst things a person without the financial wherewithal to repay a loan can do is take out a so-called “payday” or “storefront” loan to buy Christmas gifts.

But, with the holidays here, and because it is so easy to get such loans, that’s exactly what many low-income people are likely to do. Predatory lenders encourage the practice.

That’s the message University of New Mexico law professor Nathalie Martin hopes to get out to would-be borrowers. She would also like to see interest rates capped statewide at 36 percent.

“I think it’s getting a little more likely that the state Legislature will act,” she said.

Martin – and others – are encouraged by a number of developments:

In 2007, with broad bipartisan support, President Bush signed the Military Lending Act, placing a 36 percent limit on interest rates on loans to armed forces personnel. In September, with lenders seeking to circumvent the MLA, the Defense Department proposed new and stronger regulations to shore up the law. The cities of Albuquerque, Santa Fe, Alamogordo and Las Cruces, and Doña Ana County – and the New Mexico Municipal League and Association of Counties – have adopted resolutions supporting a 36 percent annual percentage rate cap. Eighteen states have imposed interest rate limits of 36 percent or lower, most of them in recent years. In Georgia, it is now a crime to charge exorbitant interest on loans to people without the means to pay them back. In 2007, New Mexico enacted a law capping interest rates on “payday” loans at 400 percent. Many of the lenders quickly changed the loan descriptions from “payday” to “installment,” “title” or “signature” to get around the law.

But this past summer, the New Mexico Supreme Court, citing studies by Martin, held that “signature” loans issued by B&B Investment Group were “unconscionable.” B&B’s interest rates were 1,000 percent or higher.

High-interest lenders argue that they provide a much-needed source of funds for people who would not ordinarily qualify for loans, even those who are truly in need. One lender, Cash Store, in an ad typical for the industry promises borrowers that they can get “cash in hand in as little as 20 minutes during our regular business hours – no waiting overnight for the money you need” and boasts a loan approval rate of over 90 percent. It also offers “competitive terms and NO credit required. Be treated with respect by friendly store associates. Installment loans are a fast, easy way to get up to $2,500.”

Pushing a cap

Martin teaches commercial and consumer law. She also works in the law school’s “live clinic,” where she first came into contact with those she calls “real-life clients,” people who had fallen into the trap of payday loans.

“I would never have thought in my wildest dreams that this was legal, interest rates of 500 percent, 1,000 percent or even higher,” she said.

Martin is not alone in fighting sky-high interest rates and supporting a 36 percent cap.

Assistant Attorney General Karen Meyers of the Consumer Protection Division noted that it wasn’t simply interest rates that the Supreme Court unanimously objected to as procedurally unconscionable in New Mexico v. B&B Investment Group.

The court also addressed the way the loans were marketed and the fact that B&B “aggressively pursued borrowers to get them to increase the principal of their loans,” all of which constitutes a violation of law.

In another lawsuit from 2012, New Mexico v. FastBucks, the judge found the loans to be “Unfair or deceptive trade practices and unconscionable trade practices (which) are unlawful.”

Long legal road

Both the B&B and Fastbucks cases were filed in 2009 and ultimately went to trial. The time period indicates the commitment of the Attorney General’s Office and how long it takes a case to wend its way through the legal system.

Each of the cases dealt with one business entity, although they often do business under several names. B&B, for example, an Illinois company, operated as Cash Loans Now and American Cash Loans.

According to the president of B&B, James Bartlett, the company came to New Mexico to do business because “there was no usury cap” here.

Early this year, a survey by Public Policy Polling found that 86 percent of New Mexicans support capping interest at an annual rate of 36 percent. Many people think that is too high.

Meyers said predatory lending profits depend on repeat loans. Analysts estimate that the business only becomes profitable when customers have rolled over their loans four or five times.

‘Really heartbreaking’

“We have interviewed a lot of consumers,” she said. “It’s really heartbreaking.”

Steve Fischman, a former state senator and chairman of the New Mexico Fair Lending Coalition, said three-fourths of short-term borrowers in the state roll over loans into new loans, which is precisely what predatory lenders want.

“New Mexico is one of the worst states when it comes to such loans, because we have the weakest law,” he said.

The coalition is working with lawmakers to draft a bill that would impose the 36 percent cap. It is likely to come up in the next session. But the chances of passage, despite popular sentiment, are unknown.

The Legislature has failed to act in the past, Fischman said, largely because of the many paid lobbyists – including former lawmakers – working for the lenders. He described the Roundhouse back-slapping as “bipartisan corruption.”

The National Institute on Money in State Politics, a nonpartisan national archive of such donations, reports that, thus far this year, payday lenders have made 122 contributions totalling $97,630 to state lawmakers.

Opponents of storefront loans say one way some lenders entice the poor into taking out loans is to cajole them with smiles and misinformation. Loan offices – often in lower-income neighborhoods – often become places for people to hang out and socialize. Agents behind the loan office desks pass themselves off as friends.

But, Fischman said, “A lot of people thought Bernie Madoff was their friend.”

Creating crises

The Pew Charitable Trust and the Center for Responsible Lending, acting independently, reported last year that the cost of the loans turn temporary financial shortfalls into long-term crises. After rolling their initial loans over, perhaps more than once, borrowers find that they’re paying up to 40 percent of their paychecks to repay the loans.

Prosperity Works, an Albuquerque-based nonprofit striving to improve financial circumstances for lower-income New Mexicans, is a strong supporter of the effort to cap loans.

President and CEO Ona Porter said one drawback of the short-term, high-interest loans is the effect they often have on individuals’ credit ratings. “And credit scores are now used as a primary screen for employment,” she said.

The loans do little, if anything, to boost the state’s economy. A 2013 study by the Center for Community Economic Development found that, for every dollar spent on storefront loan fees, 24 cents is subtracted from economic activity.

UNM’s Martin has conducted five studies related to high-cost lending practices. She firmly believes that low-income people are better off if they don’t take out unlimited numbers of high-cost loans and that such forms of credit cause more harm than good.

“They are neither safe nor affordable,” she said.


Kroll Bond Rating Agency Assigns Preliminary Ratings to COMM 2014-FL5


Kroll Bond Rating Agency, Inc. (KBRA) is pleased to announce the assignment of preliminary ratings to five classes of the COMM 2014-FL5 securitization, a $557.1 million large loan floating rate CMBS transaction (see ratings listed below).

The collateral for the transaction consists of six first-lien mortgage loans, five of which have been bifurcated into a senior pooled component and one or more subordinate non-pooled components totaling $377.9 million and $119.2 million, respectively. Each subordinate non-pooled loan component serves as the sole source of cash flow for a loan-specific class of certificates, none of which are rated by KBRA. In addition, one loan Sava II Portfolio ($60.0 million), will not be pooled and proceeds received with respect to this loan are the sole source of cash flow for the Class “SV” certificates which are not rated by KBRA. As a result, the trust loan counts, balances and percentages herein exclude the non-pooled Sava II Portfolio loan.

The pooled senior loan components consist of K Hospitality Portfolio ($113.9 million), Peachtree Center Portfolio ($117.4 million), Hilton Fort Lauderdale ($58.3 million), Park Central ($50.9 million), and Marriott Fairview Park ($37.5 million). The majority of the pool consists of lodging properties (61.9%) which serve as collateral for three loans, K Hospitality Portfolio ($113.9 million, 20 assets), Hilton Fort Lauderdale ($58.3 million, 1 asset), and Marriott Fairview Park ($37.5 million, 1 asset). Office assets (32.9%) secure the Marriott Fairview Park loan ($37.5 million, 1 asset) and a large component of the Peachtree Center Portfolio loan ($117.4 million, 6 assets). The remaining property type exposures consist of the parking (2.7%, 3 assets) and retail (2.4%, 1 asset) components of the Peachtree Center Portfolio loan. The properties are located in seven states with three individual state exposures that represent more than 10.0% of the pool balance: Texas (32.2%), Georgia (25.3%) and Florida (17.5%).

KBRA’s analysis of the transaction involved a detailed evaluation of the underlying cash flows using our CMBS Property Evaluation Guidelines and the application of our CMBS Single-Borrower & Large Loan Rating Methodology. The results of the analysis yielded a KNCF for the underlying collateral properties that was, on average, 3.4% less than the issuer cash flow for the pooled loan components. KBRA applied our stressed capitalization rates to the KNCF to arrive at valuations of the underlying properties. The KBRA values were, on average, 34.9% less than the appraiser’s as-is valuation for the pooled loan components. The resulting KBRA in-trust loan to value (KLTV) was 68.9% for the pooled loan components and the KLTV was 90.9% for the total in-trust balance, inclusive of the subordinate loan components. Four of the five pooled loans have additional financing in place in the form of mezzanine debt. Inclusive of this additional debt, the weighted average all-in KLTV for the trust assets was 114.9%. As part of our analysis of the transaction, we also reviewed and considered third party engineering and environmental reports, our analysts’ site visits to the collateral properties, and the transaction structure.

For complete details on the analysis, please see our presale report, COMM 2014-FL5 published today at The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of final ratings that differ from the preliminary ratings.

Preliminary Ratings Assigned: COMM 2014-FL5

Class Balance Expected Rating A $210,399,000 AAA(sf) X-CP(1) $377,863,000 AAA(sf) X-EXT(1) $377,863,000 AAA(sf) B $60,706,000 AA-(sf) C $31,547,000 A-(sf) D $75,211,000 NR KH1(2) $32,750,000 NR KH2(2) $21,045,200 NR HFL1(2) $16,772,000 NR HFL2(2) $11,959,000 NR MFP1(2) $10,375,000 NR MFP2(2) $5,098,000 NR PC1(2) $9,197,000 NR PC2(2) $3,390,000 NR PCH(2) $8,632,000 NR SV1(3) $25,622,000 NR SV-X-CP(3) $60,000,000 NR SV-X-EXT(3) $60,000,000 NR SV2(3) $10,018,000 NR SV3(3) $10,356,000 NR SV4(3) $13,995,000 NR 1 Notional amount 2 Represents a loan-specific class of certificates and is only entitled to distributions from the corresponding subordinate non-pooled component of the related mortgage loan.

3 Represents a loan-specific class that is only entitled to proceeds received with respect to the Sava II Portfolio loan.

17g-7 Disclosure

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found here.

Related publications (available at

CMBS: COMM 2014-FL5 Presale Report
CMBS: Single Borrower & Large Loan Rating Methodology, published August 8, 2011
CMBS Property Evaluation Guidelines, published June 10, 2011

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

BondsLoansCMBS Contact: Kroll Bond Rating Agency

Aleksandra Simanovsky, 646-731-2434


Robin Regan, 646-731-2358


Michael Brown

John Grosso

646-731-2307 […]