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Online payday loan company forced out of Missouri |

ST. LOUIS, MO (KTVI) – A South Dakota based online lender agrees to stop doing business with Missouri consumers. Attorney General Chris Koster is forcing the payday loan company out of Missouri.

As many as 6,300 Missouri consumers are victims. Each applied for online loans with one or more of the 8 operations run by a single individual.

Martin “Butch” Webb was doing business from a Native American reservation in South Dakota. The computer loans are short term with outragious fees and requires the consumer agree to wage garnishment if needed to ensure payback. Now, the lender must pay $270,000 in restitution and immediately stop collecting on outstanding loan payments.

Koster said Martin A. “Butch” Webb acted through numerous business entities operating from a Native American reservation in South Dakota, including Payday Financial, Western Sky Financial, Lakota Cash, Great Sky Finance, Red Stone Financial, Big Sky Cash, Lakota Cash, and Financial Solutions, none of which were licensed to do business in Missouri.

38.627003 -90.199404


CMA finalises proposals to lower payday loan costs – Press releases …

The measures follow the conclusion of a 20-month investigation into the market by a group of independent Competition and Markets Authority (CMA) panel members. The group published its provisional findings in June 2014 and then consulted on its intended proposals the following October.

Online payday lenders will be ordered by the CMA to publish details of their products on at least one price comparison website (PCW) which is authorised by the Financial Conduct Authority (FCA). To ensure that they operate to appropriate standards, the CMA has recommended to the FCA that authorised PCWs should provide customers with clear, objective and comparable information on all potential loan costs, in particular the total amount payable, and have the ability for customers to compare different loans by searching easily on the most relevant features such as loan amount and duration. The CMA believes that one or more commercial PCWs will emerge and be authorised by the FCA, but if this does not happen, lenders will be obliged to set up an FCA authorised PCW.

The CMA has also made recommendations to the FCA to take steps to:

improve the disclosure of late fees and other additional charges help customers to shop around without unduly affecting their ability to access credit improve real-time data sharing between lenders and credit reference agencies ensure that lead generators – websites which sell potential borrowers’ details to lenders and through which 40% of first-time online borrowers access their loans – explain how they operate much more clearly to customers

Finally, online and high street payday lenders will be ordered by the CMA to provide existing customers with a summary of their cost of borrowing. The summary will tell borrowers what the total cost of their most recent loan was, as well as the cumulative cost of their borrowing with that lender over the previous 12 months and how late repayment affected their cost of borrowing.

The measures are designed to tackle problems identified in the final report, where the CMA found that a lack of price competition between lenders has led to higher costs for borrowers. Most borrowers do not shop around – partly because of the difficulties in accessing clear and comparable information on the cost of borrowing and a lack of awareness of late fees and additional charges. Without the pressure to drive down costs, lenders have tended to price their loans at similar levels whilst competing on other factors such as speed – often the initial priority for borrowers.

The CMA also found that many borrowers believe that lead generators are themselves lenders, rather than simply intermediaries. Even where they understand this, most customers are unaware that, rather than matching borrowers with the most suitable or cheapest loan on offer, lead generators sell borrowers’ details to lenders based on how much lenders are prepared to pay for the details, generally selling them to the highest bidder. As a result the CMA does not consider that lead generators have been effective in promoting price competition between lenders even though they have helped to promote the entry into the market of additional lenders.

The CMA’s remedies follow the FCA’s introduction of a price cap for the sector which came into force on 2 January 2015, which is in addition to a number of other FCA measures to increase customer protection that the FCA has introduced over the past year.

Simon Polito, Chair of the CMA’s Payday Lending Investigation Group, said:

The payday lending market is undergoing substantial change as a result of FCA initiatives to eradicate unacceptable practices. Our actions complement the FCA’s measures and are aimed at making the market more competitive and further driving down costs for borrowers.

We expect that millions of customers will continue to rely on payday loans. Most customers take out several loans a year and the total cost of paying too much for payday loans can build up over time. During our investigation, we found that there was often a substantial difference in this market between the most expensive and cheapest deals.

The FCA’s price cap will reduce the overall level of prices and the scale of the price differentials but we want to ensure more competition so that the cap does not simply become the benchmark price set by lenders for payday loans. We think costs can be driven lower and want to ensure that customers are able to take advantage of price competition to further reduce the cost of their loans. Only price competition will incentivise lenders to reduce the cost borrowers pay for their loans.

Even where borrowers do shop around at present, it is difficult for them to compare prices between short-term loans given the differences between products and the limited usefulness of the APR in making comparisons. Few customers find their lender via existing price comparison websites, which suffer from a number of limitations.

To help them, we are requiring lenders to be listed on price comparison websites authorised by the FCA and have recommended to the FCA that these websites should carry all the information customers need to compare easily the total cost of different lenders’ loans. This will promote competition and provide the incentive for new and existing lenders to compete to offer lower cost loans and win borrowers’ business. It will also make it easier for new entrants that offer lower cost loans to access customers.

We have worked closely with the FCA throughout the investigation and are pleased that the FCA is fully supportive of the remedies in our final report.

In developing these measures the CMA has carried out customer research to inform the design of its remedy package and has consulted extensively with consumer groups and debt charities, lenders, intermediaries, trade associations and a range of other market participants, as well as with the FCA. The CMA will publish an order within 6 months putting in place its requirements in relation to PCWs and borrowing summaries. The FCA will consult in the summer of 2015 on the measures to be introduced in response to the recommendations. The CMA will work closely with the FCA to implement the recommendations.

The final report and all other information on the investigation are available on the payday lending case page.

Notes for editors

  1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission (CC) and the competition and certain consumer functions of the Office of Fair Trading (OFT), as amended by the Enterprise and Regulatory Reform Act 2013.
  2. The members of the Payday Lending Investigation Group are: Simon Polito (Chairman of the group), Katherine Holmes, Ray King and Tim Tutton. Read more on how market investigations are conducted. The OFT referred the payday lending market to the CC on 27 June 2013.
  3. All the CMA’s functions in market investigations are performed by inquiry groups chosen from the CMA’s panel members. In such investigations, the appointed inquiry group are the decision-makers.
  4. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
  5. Following a market investigation the CMA may take action itself, by making an order or accepting undertakings from parties. The CMA may also recommend that action be taken by others such as government, regulators and public authorities. Where the CMA makes such a recommendation, it will be for the person to whom the recommendation is addressed to decide whether to take the recommended course of action.
  6. The FCA assumed responsibility for consumer credit regulation from 1 April 2014, having announced its proposals for regulating consumer credit in October 2013 and confirming additional rules for payday lenders in July 2014. Measures by the FCA to strengthen consumer protection have meant closer regulation of lenders over issues such as limiting rollovers, restrictions on the use of Continuous Payment Authorities to recover debt from a borrower’s bank account, the carrying out of proper affordability checks and sensitive treatment of debt problems. In November 2014, the FCA confirmed details of the price cap which was subsequently introduced on 2 January 2015. On the same day the FCA also introduced rules to address some of the concerns around lead generators identified in the final report which were first highlighted by the CMA in its provisional findings.
  7. Enquiries should be directed to Rory Taylor, ( or Siobhan Allen, ( or by ringing 020 3738 6798 or 020 3738 6460.
  8. For more information on the CMA, see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on markets cases.


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.


Payday Loan Rules from CFPB Receiving Increased Chatter; Could …

Image payday-loan-cash-advance.jpg

Payday Loan Rules from CFPB Receiving Increased Chatter; Could be Announced Soon

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February 9, 2015

The media chatter regarding the CFPB’s imminent rules for payday lenders was significantly ramped up early Monday as both The New York Times and the Associated Press ran separate but similar stories detailing what is likely to be in the rules.


The timing of the two stories suggests that both outlets received information from the same sources with the CFPB and from consumer advocacy groups working with federal rules writers. It could signal that an announcement on the rules proposals is imminent.

The Times, in a piece titled “Consumer Protection Agency Seeks Limits on Payday Lenders,” details what those familiar with the discussion will likely be presented to the public. The new rules will focus on short-term loans, many backed by car titles, with annual interest rates over 36 percent.

One of the main new requirements will be that lenders assess whether a borrower can fully repay the loan over two weeks, the typical term for payday loans. Loan writers would be required to review borrower income, other debts, and payment history, similar to standards required by banks.

The Associated Press, in a similar piece titled “Rules readied to shield borrowers from payday loans,” noted that the CFPB is not allowed under law to cap interest rates, but it can use its UDAAP authority to target specific practices.

Similar to the Times piece, AP’s sources say that loan underwriting requirements will be featured in new rules.

The CFPB’s rules on payday lending are very important for the ARM industry. Payday loans are a large market segment for debt buyers and collectors. But it could also signal what kind of disruption is to be expected when the CFPB issues its rules specifically for the debt collection industry.

Debt collection rules, initially expected by the end of 2014, are now expected to be released late in the first quarter of 2015. It could be possible that the recent surge in news about payday lending rules may mean that those rule proposals will come before debt collection rules.

Depending on how far the CFPB rules use UDAAP justification versus statutory language, the ARM industry could also get a glimpse into how far away from the FDCPA new regulations may go.

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Posted in CFPB, Collection Laws and Regulations, Credit Grantors, Featured Post .


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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.


Pay Attention to Payday Loan Terms

Many cash-strapped consumers may find themselves in need of a small loan to pay off their holiday purchases. While payday lenders may seem like an easy way to get cash fast, for many, it ends up being a burden. BBB encourages consumers to pay close attention – many payday lenders charge high interest rates, set unaffordable payment terms and use high-pressure collection tactics – making these debts impossible to pay off.

Payday loans are small loans subject to state regulation. In the US, thirteen (13) states have banned payday lending and several others have restrictions on the interest rate or associated fees. Traditionally, states cap small loan rates and require installment repayment schedules be given to borrowers, according to the Consumer Federation of America.

Texas is one of few states that does not have any statewide regulations on payday loans. Individual cities have enacted their own ordinances to keep interest rates down for consumers.

“Some payday lenders target people whose credit may not be good enough to obtain a credit card or bank loan and who therefore rely on advance short-term loans to get by”, said Mechele Agbayani Mills, President and CEO of BBB Serving Central East Texas. “Often, people take these loans in desperate circumstances without realizing these high interest rates come with fees and may trap them in a cycle of debt.”

Before you borrow, your BBB offers the following advice:

Start with trust. Check out a lender’s BBB Business Review to see its rating, history of complaints, ad-related issues and consumer reviews.

Consider another loan source. Consider banks and credit unions who offer short-term loans for small amounts at competitive rates. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds. In any case, weigh all your options first and compare all available offers.

Never pay an upfront fee. Some short-term lenders ask for a post-dated check to cover the amount you borrowed, plus interest and fees. However, if any lender asks for those fees in cash before giving you any money, walk away. Charging undisclosed upfront fees is illegal according to the Federal Truth in Lending Act (TILA).

Limit the amount you borrow. Only borrow what you know you can pay off with your first paycheck. If you allow your balance to roll over for several weeks or months, the company may tack on fees each time which can result in you owing several times more than what you borrowed in the first place.

Read the fine print. Pay close attention to fees and consequences of nonpayment. According to TILA, lenders must disclose the cost of the loan. Payday lenders must give you the finance charge (a dollar amount) and the annual percentage rate in writing before you sign for the loan.

Keep your documentation. Protect yourself by having documentation that all loans were paid in full, as there may be attempts by scammers to collect a debt that is not owed.

For more tips on how to be a savvy consumer, go to To report fraudulent activity or unscrupulous business practices, please call the BBB Hotline: (903) 581-5888, and remember to Look for the Seal.


Payday loan caps come into force | Money | The Guardian

Well over a million people will see the cost of their borrowing fall now that new price caps on payday loans have taken effect.

However, early indications are that many of the sector’s bigger players will be charging the maximum amount allowed to under the new regime, rather taking the opportunity to set their fees below the cap.

Interest and fees on all high-cost short-term credit loans are now capped at 0.8% per day of the amount borrowed. If borrowers do not repay their loans on time, default charges must not exceed £15.

In addition, the total cost (fees, interest etc) is capped at 100% of the original sum, which means no borrower will ever pay back more than twice what they borrowed, said the Financial Conduct Authority (FCA), which has introduced the new rules.

Someone taking out a £100 loan for 30 days and paying it back on time will not pay more than £24 in fees and charges.

Payday lending is a multibillion-pound sector: the Competition & Markets Authority said there were 1.8 million payday loan customers in 2012-13, while the FCA estimates that in 2013, 1.6 million customers took out around 10m loans. However, some lenders quit the market before the changes took place. These include Minicredit, which ceased its lending on 10 December.

Consumer organisation Which? said the new regime “comes not a moment too soon”. Richard Lloyd, Which? executive director, said: “The regulator has clearly shown it is prepared to take tough action to stamp out unscrupulous practices, and they must keep the new price cap under close review.”

Which? carried out research into the amounts payday lenders were charging just before Christmas, to see if they had cut the cost of borrowing ahead of the price caps taking effect. It found that some of the bigger payday lenders had already brought their charges in line with the price caps. Wonga, QuickQuid, PaydayUK and MyJar were charging the maximum £24 to borrow £100 for 30 days, with default fees charged at £15.

When the Guardian checked some of the lender websites on 31 December, it found some had not yet updated their pricing.’s website was quoting a cost of £135 for a £100 loan over 30 days, while showed a cost of £134.70 and Safeloans quoted £130.

Which? said London Mutual credit union was the only payday loan provider it looked at that charged less than the maximum allowed under the cap, with borrowers having to pay just £3 in interest on a loan of £100 over one month, with no default fees.

Martin Wheatley, chief executive of the FCA, said the new caps would make the cost of a loan cheaper for most consumers. “Anyone who gets into difficulty and is unable to pay back on time, will not see the interest and fees on their loan spiral out of control – no consumer will ever owe more than double the original loan amount,” he added.

However, it appears the new regime will not spell the end of the huge annualised interest rates quoted on payday loan websites. Despite the changes, Wonga is still able to charge a representative APR of 1,509%, while QuickQuid’s site was promoting an APR of 1,212%.

New rules covering payday loan brokers have also taken effect after the regulator was deluged with complaints over practices such as imposing charges that consumers often knew nothing about until they checked their bank account.

These firms cannot now request an individual’s bank details or take a payment from their account without their explicit consent first. Payday loan brokers will also have to include their legal name, not just their trading name, in all advertising and other communications with customers, and state prominently in their ads that they are a broker, not a lender.


BBB Warns of the Pitfalls of Payday Loans

Some payday loans carry interest rates as much as 400% to 700% and may not allow early pay offs.

Southfield, MI (PRWEB) December 19, 2014

Consumers who have financial trouble during the holidays may be enticed to bridge the gap between paychecks by obtaining a payday loan. Better Business Bureau (BBB) Serving Eastern Michigan is warning consumers to be cautious, as these loans typically have very high fees and interest rates as well as questionable sales and collection tactics that confuse and intimidate borrowers.

Payday loans are loans of short duration, usually two weeks, and can be obtained from a physical payday loan store or on the internet. Better Business Bureau receives hundreds of complaints against payday loan companies alleging threats of arrest and notifications to employers about their debt. Complaints also state that consumers who apply for loans online, may not see the full disclosure of interest rates or fees until after they have signed the documents and that there are unauthorized withdrawals from their bank accounts.

Typically, payday lenders do not perform a credit check but ask borrowers to write them a post-dated check for the amount they borrow plus a borrowing and account set-up fee. The lenders will then deposit the check after the borrower’s payday if they have not already paid off the loan. If the borrower’s bank account cannot cover the amount of the loan, they will then owe the original loan plus added interest and they may also incur overdraft fees from their bank. Borrowers can chose to pay more fees to renew the loan if they know they cannot pay it off in time. This practice creates a cycle of consumer refinancing and continuous debt.

Payday loans are regulated in Michigan in most cases. For example, a payday lender can only have one outstanding payday loan per customer for a loan amount of up to $600. A customer may take out a second loan with a different payday lender, and can only have two outstanding payday loans at any given time. The payday lender may charge up to 15% on the first $100, 14% on the second $100, 13% on the third $100, 12% on the fourth $100, and 11% on the fifth and sixth $100.

Consumers should be aware that some payday loan companies, such as those operated by Native American tribes, may have tribal sovereign immunity from laws that govern other lenders. These loans often carry interest rates as much as 400% to 700% and may not allow early pay offs, resulting in a cycle of perpetual debt for the borrower. The Consumer Financial Protection Bureau recently released a report that analyzed payday lending and found that four out of five payday loans are rolled over or renewed within 14 days.

Alternatives to Payday Loans

Before you decide to take out a payday loan, consider some alternatives:

1. Consider a small loan from your credit union or a small loan company. Some banks may offer short-term loans for small amounts at competitive rates. A local community-based organization may make small business loans to people. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds: find out the terms before you decide. In any case, shop first and compare all available offers.

2. Shop for the credit offer with the lowest cost. Compare the APR and the finance charge, which includes loan fees, interest and other credit costs. You are looking for the lowest APR. Military personnel have special protections against high fees or rates, and all consumers in some states and the District of Columbia have some protections dealing with limits on rates. Other credit offers may come with lower rates and costs.

3. Contact your creditors or loan servicer as quickly as possible if you are having trouble with your payments, and ask for more time. Many may be willing to work with consumers who they believe are acting in good faith. They may offer an extension on your bills; make sure to find out what the charges would be for that service — a late charge, an additional finance charge, or a higher interest rate.

4. Contact your local consumer credit counseling service if you need help working out a debt repayment plan with creditors or developing a budget. Non-profit groups in every state offer credit guidance to consumers for no or low cost. You may want to check with your employer, credit union, or housing authority for no- or low-cost credit counseling programs, too.

5. Make a realistic budget, including your monthly and daily expenditures, and plan, plan, plan. Try to avoid unnecessary purchases: the costs of small, every-day items like a cup of coffee add up. At the same time, try to build some savings: small deposits do help. A savings plan — however modest — can help you avoid borrowing for emergencies. Saving the fee on a $300 payday loan for six months, for example, can help you create a buffer against financial emergencies.

6. Find out if you have — or if your bank will offer you — overdraft protection on your checking account. If you are using most or all the funds in your account regularly and you make a mistake in your account records, overdraft protection can help protect you from further credit problems. Find out the terms of the overdraft protection available to you — both what it costs and what it covers. Some banks offer “bounce protection,” which may cover individual overdrafts from checks or electronic withdrawals, generally for a fee. It can be costly, and may not guarantee that the bank automatically will pay the overdraft.

The bottom line on payday loans: Try to find an alternative. If you must use one, try to limit the amount. Borrow only as much as you can afford to pay with your next paycheck — and still have enough to make it to next payday.

Collection activities are subject to the federal Fair Debt Collection Practices Act. Therefore, if you have questions regarding debt collection laws please contact the Federal Trade Commission at 1-877-FTC HELP, or online at Debt collectors cannot state or imply that failure to pay a debt is a crime.


5 'Band-Aid' Fixes That Hurt Your Finances

You’re short on cash, but there is something important you need to spend money on, like your mortgage or an electric bill or groceries. So you settle on what’s often called a “Band-Aid” fix. That is, you come up with a very short-term solution that solves your financial dilemma today.

The trouble with Band-Aid fixes is that they sometimes lead to further bleeding and can make your problem much worse. You may feel it’s worth the risk, but it’s still helpful to think through the possible consequences. So in the interest of being aware of potential problems ahead, here are five common Band-Aid fixes to carefully consider before applying.

401(k) loans. It’s easy to see why some people borrow from their 401(k) if they’re facing a cash shortage or need a cash infusion for, say, a down payment on a home.

“These loans are offered by many corporate-sponsored 401(k) plans at fairly low rates,” says Pam Friedman, a certified financial planner and partner at Silicon Hills Wealth Management in Austin, Texas. She adds that you can generally borrow up to 50 percent of your vested balance or sometimes up to a maximum amount, and these loans let consumers pay themselves back over five years.

“The employee pays the interest to him or herself, which makes 401(k) loans very attractive to employees,” Friedman says.

Why this may not be a good short-term fix: There’s a lot to like about this type of loan, but before you get too excited, Friedman says, “There is a hitch. Actually, more than one.”

She says if you leave the company for another job, the loan you could have taken five years to repay typically needs to be paid back within 60 days or the remaining balance will be considered a withdrawal.

What’s so bad about that? “For most workers, that means the remaining loan balance will be taxed as ordinary income of the employee’s and assessed a 10 percent penalty,” Friedman says.

She adds that even if you repay your 401(k) loan on time, you may reduce your contributions in the meantime, which hurts your retirement savings. “That’s an expensive loan,” she says.

Deferring loan payments. In this case, you contact your lender and ask permission to stop payments for a period. It’s frequently done with student loans but can also apply to car payments and even mortgages.

Why this may not be a good short-term fix. With student loans, the interest will typically still pile up and be added to the principal, which will stretch the length of your loan.

Your auto lender will usually attach the deferred monthly payment to the end of the loan, so when you reach that point and you’re ready for the loan to be paid off, you may well regret the decision — especially if you deferred multiple payments throughout the life of the loan.

With mortgages, it’s harder to get a deferral. But if you manage to get one and you’re still making monthly private mortgage insurance payments, you will likely prolong the amount of time you’re making those PMI payments, possibly by a couple years.

Payday loans. If you have a family to feed and next to nothing in your bank account, a payday loan may seem tempting. Payday loan centers aren’t concerned with your credit — they will ask for proof of employment, residency and references. Assuming you pass muster, they’ll give you cold, hard cash.

Why this may not be a good short-term fix. If you think it’s tough getting by on no cash now, wait until you have to pay back the loan. “Unless you have a solid plan to repay this kind of loan quickly, it’s most likely only going to worsen your debt situation,” says Katie Ross, education and development manager at American Consumer Credit Counseling, a financial education nonprofit based in Auburndale, Massachusetts.

According to the Consumer Financial Protection Bureau, the median payday loan amount is $350. The larger your paycheck, the better your odds of paying back the loan, unless you simply have too many bills to be paid. But if your paycheck isn’t much more than what you’re borrowing, you can see where the trouble starts. You may get stuck, constantly taking out loans to pay back the payday lender.

Borrowing from friends and family. This can be a great idea for you and your creditor, who gets paid. And as Ross says, “A good friend of family member is likely to offer very favorable conditions when lending money.”

Why this may not be a good short-term fix. It’s not such a great deal for your friend or family member. If you can repay the loan in short order, it may strengthen your bonds. But what if you can’t? You may not lose money in the long run, but you may still pay a high price.

“Entering a financial agreement with a friend or family member can put a significant strain on the relationship,” Ross says.

Overdrawing your account. This often isn’t done on purpose, but some consumers likely overdraw their bank account knowing that while they’ll be hit with a fee, at least they’ve made the electric company happy by paying their bill. Other consumers may find themselves playing a cat-and-mouse game with their bank account, hoping they won’t be overdrawn but betting on the fact that transactions sometimes take days to post.

Why this isn’t a good short-term fix. This short-term fix often leads consumers to take out loans, defer payments and borrow from friends and family.

According to the CFPB, the median bank overdraft fee is $34. Rack up a few of those every month, and the amount of money you’re forking over starts to look obscene. If you’re really having trouble managing your money, the best fix is to contact your creditor and explain your situation, says Jay Sidhu, CEO of BankMobile, a division of Customers Bank, headquartered in Phoenixville, Pennsylvania.

“Nine times out of 10, they will be empathetic to your issues and grant you the grace period you are looking for with no penalties or cost to you,” Sidhu says. Based on his 20-plus years in banking, he says first-time offenders generally get a break. However, “make sure you don’t make this a habit,” he cautions.

But what if relying on short-term fixes to solve your money problems is becoming a habit? The diagnosis isn’t pretty, and you may need far more than bandages. You may need the equivalent of a doctor or a hospital — a new budget, a new job and a new way of thinking about money.

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Payday loan policy and the art of legislative compromise | The …

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DENVER — De Jimenez is a single mother of three. She works in medical records and one of her children is in college. She recently took out a payday loan and she’s kicking herself, knowing she has paid about $70 to borrow $100.

“For rent,” she says of her last loan. “I get them to cover basic needs, really basic needs — food, water, shelter. They’re not for a car payment or anything like that, just to make ends meet because sometimes kids get sick. It goes back to not having paid sick days. I guess it’s a glass half full situation: If they weren’t there, I don’t know where I’d get the extra income, but at the same time, the interest rate is just so high.”

In 2010 the Colorado legislature passed payday loan consumer protections that lengthen the term of a payday loan to six months minimum from the typical two weeks — at which point a borrower has to pay that roughly $70 start-up fee to “roll over” the loan for two more weeks. The average borrower repeated that process for three to six months.

Jimenez feels more could still be done to lower the cost of payday loans, which are still about five times more expensive than credit card debt. Even so, she says the reforms made a crucial difference between just being able to manage the loans and getting caught by them.

“Before, it was like you could see a light at the end of the tunnel but it was so small it looked like a pinhole. Then you were taking out another payday loan just to pay off the first one. It was a vicious, vicious cycle,” she remembers. “At least now the light is a little brighter and the goal a little more easily attainable.”

In addition to setting minimum six-month terms for the loans, the laws also required borrowers be able to pay down the debt in installments, instead of one lump sum, and that they have the option to pay off the loan early in full without paying any fines. Since enacted, borrowers have been saving an estimated $40 million a year on what are still the most expensive loans available on the market.

Now Colorado’s law, considered a compromise between industry interests and consumer protections, may serve as a national model as the Consumer Financial Protection Bureau weighs regulations on payday loans coast to coast.

“The key lesson from Colorado is that successful reform requires tackling the fundamental unaffordability of payday loans,” said Nick Bourke, who has researched the topic for PEW Charitable Trust. “Federal regulations should require a strong ability-to-repay standard and require lenders to make loans repayable over a period of time.”

PEW’s research shows that, of the 12 million Americans who take payday loans each year, most borrowers are asking for about $375 to cover routine expenses. The loans typically are made for a period of two weeks, at which point the lump sum is due or borrowers can re-up the loan by paying the initial fee again, usually in the region of $75. But, PEW found, borrowers can rarely afford to repay the loans after two weeks, since the loan amounts typically account for a third of their take-home pay. As a result, folks end up rolling over their loans for an average of half a year, ultimately racking up “interest” rates that exceed 300 percent. The interest on credit card debt, largely considered expensive, is more like 24 percent.

Most states’ payday loan consumer protections, if they have them, focus on capping that interest rate. This approach has received some push back, with opponents saying it effectively drives payday lenders out of the regulated state. In Oregon, for example, a 2007 law capping interest at 36 percent reduced the number of payday lenders from 346 to 82 in its first year on the books.

“The question is, are those people better off without credit? Current economics hasn’t answered that question yet. Some studies say people do better, that they go to friends and family or just scrape by, others say they do worse, that they get kicked out their apartment, etcetera,” said Jim Hawkins, a law professor at the University of Houston who focuses on banking.

That concern thwarted years of attempts to pass a rate cap in Colorado and ultimately motivated the compromise bill that has garnered so much national attention, according to the measure’s sponsor, House Speaker Mark Ferrandino (D-Denver).

“We were definitely going down,” remembered Ferrandino. “We’d tried for years to get a bill passed. It failed two years in a row and was on the cusp of failing again. So we sat down with key votes in Senate and said: ‘Our goal is to end the cycle of debt. We have no problem with payday loans continuing or with people having access to capital, but let’s not let folks get caught in this cycle. If that’s our shared goal, what are policies we can do to get that done?’”

Legislators focused on affordability, extending the terms of the loans and making them payable in installments. The law acknowledged the 45 percent interest cap the state placed on all loans but is also give payday lenders ways to charge more fees so that the de facto interest rates for payday loans in Colorado now hover around 129 percent.

“Borrowers have been pretty happy with the changes to the loans. They reported that they were more manageable, that they could actually be paid off and were ultimately much cheaper,” said Rich Jones at the Bell Policy Center, who helped draft the bill.

PEW’s national research indicates that 90 percent of borrowers want more time to repay their loans and 80 percent say regulation should require those payments to be affordable — more like 5 percent of a borrower’s monthly income than 33 percent.

Colorado’s bill did end up taking a big bite out of the payday loan industry in the state, halving the number of stores and reducing the total number of loans from 1.57 million a year before the law to 444,000 per year. Even so, supporters of the bill note that the industry fared better in Colorado than it did in other regulated states and that borrowers’ overall access to lenders went largely unchanged.

“It was not uncommon to go to parts of Denver and see a payday lending store on all four corners of a busy intersection,” said Jones. “Now maybe there’s just one or two stores in a block instead of four or five.”

“The fact that we had more payday loan stores than Starbucks didn’t make sense,” quipped Ferrandino.

“Seventy percent of the population still lives within 10 miles of a payday loan store and that figure is roughly the same as under the old law,” said Jones.

Under Dodd-Frank federal law, the CFPB does not have the authority to set the interest rate caps other states have used to regulate payday loans. They can, however, take a leaf out of Colorado statute and require that lenders give borrowers the option to pay down the loans over an extended period of time. In fact, the CFPB could go even further and require that those payments meet an affordability standard based on the borrower’s income.

Bourke says PEW wants to see the CFPB make these kinds of changes in their next round of rulemaking and notes that the agency’s own studies indicate they’re moving that direction.

“They see there’s tremendous evidence of the problems and potential harm in this market and they intend to do something about it,” said Bourke. “I think there’s a good chance they’ll put in the repayment standard.”

Bourke isn’t the only one with his eye on the CFPB. Folks in the academy are also closely watching the issue.

Hawkins noted that while Texas has very minimal regulations on how much lenders are allowed to charge for payday loans, they’ve tried alternative routes to protecting consumers based on behavioral economics. In Texas, lenders are required to tell borrowers how long it usually takes for people to repay the loans and to provide direct cost comparisons to the same loan taken on a credit card.

“To me that’s an exciting innovation that doesn’t hamper the industry, but still ensures that folks are educated,” said Hawkins, adding that initial research indicates the information does impact borrowers’ decisions.

Hawkins also noted that Colorado’s law hit the industry in fairly specific ways — namely, it vastly reduced the number of small, local lenders. PEW research backs this up. Before the law was passed, large lenders owned just over half the stores in Colorado. Today they own closer to 75 percent.

“It’s just another policy choice. Do you want to only have big companies?” asked Hawkins, noting that the CFPB has made a point of focusing on small businesses.

In all likelihood, the CFPB will be working on this issue for much of the next year, which means they’ll be making these rules while Republicans, who will take control of the Senate next session, continue to chip away at the agency’s authority.

To that end, there might be more to learn from Colorado than policy alone.

“There’s this attitude in Colorado when it comes to policy issues that you don’t have to go all the way or have nothing at all, that you can come up with meaningful compromise,” said Ferrandino. “I think what we were able to do here proves that what the CFPB is looking at is reasonable.”

[Photo by Tom Magliery]

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