Payday Loan Lowdown

How could the payday lending industry sit tight while the Senate and the Defense Department hurl accusations at them? Recently, supporters of the payday lending industry petitioned members of the Senate to block proposed limits on short-term loans to troops, saying the Defense Department is overreacting to the problems of a small number of servicemembers. Estripes.com reports:

On Thursday, industry representatives testified before the Senate Banking, Housing and Urban Affairs about the report, saying it lacks any real data showing that servicemembers are at risk. “We think potentially far-reaching decisions regarding the availability of consumer credit should only be made after an even-handed analysis of such data,” said Hilary Miller, president of the Payday Loan Bar Association. “But this report presents only the point of view of [industry] opponents.”

Read more: Senators consider payday loan limits, criticize industry

California Department of Corporations (DOC) recently ordered four online Payday Loan companies to stop making loans to California residents. The reason cited was that the stores have not been licensed in the state. Rtoonline.com reports:

Payday loan companies are required to be licensed by DOC under the California Deferred Deposit Transaction Law. To date, DOC has issued enforcement actions to 40 payday lenders operating in violation of state law

Read more:California Orders Online Payday Loan Stores to Stop Lending in State

This is a story that repeats itself across small towns and suburbs of America. Till two years ago, you’d not be able to find a single payday loan company in these places and suddenly, they’ve mushroomed all over the place. With increasing frequency, payday loan stores — offering short-term loans at high interest rates — are surfacing across the country. So, weren’t these guys supposed to be in low-income neighborhoods — areas where people were usually short of cash and would need help from the store? And what are these stores doing in moderate-income neighborhoods? Well, according to experts, the businesses have now saturated low-income neighborhoods. So, they are forced to expand into moderate-income communities where more families are piling up debt.

However, the payday loan industry does take umbrage to this description of theirs. Some payday lenders are quick to point out that you HAVE to qualify for that loan and that they don’t attract trashy people (just what they mean by trashy people is a mystery to me). Well, so is that why they are now proliferating into moderate-income neighborhoods?

A recent report by the Brookings institution shows that there is a huge number of payday loans and check-cashing services in these kind of suburbs. So, is this the beginning of a new trend? Experts believe it is as middle-income households are now looking for new ways to borrow money. That’s because their wages are falling behind inflation and many have maxed out their credit cards.

In reality, these guys don’t have a choice. They cannot use their credit cards, their income is not enough to stretch across the month and they need to pay for at least the necessities. So what do you do? Borrow from the payday-lending store next door, of course!

A recent measure to curb payday-loan industry practices that target the military collapsed in the Legislature after some key backers shunned its weakened form. An Oceanside state senator who served in the Marines also refused pleas by Camp Pendleton officers to support a crackdown. So, while senators battle out their differences, they seem to have forgotten the fact that military families are still left unprotected. The push for the bill was bolstered by examples of troops paying as much as 400 percent interest on loans.

So what exactly happened for the legislators to oppose the bill? For one, the interest rate cap of 36 percent was eliminated. This made some initial supporters back off. The protections offered in the bill were not sufficient for the military. And there is also the fact that passing something weaker in California would undermine efforts to get stronger protections in Washington. Signonsandiego.com reports:

In Washington, Congress is considering imposing a 36 percent interest rate cap as part of a broad Department of Defense Appropriations measure. Final action is scheduled this month.

Read more: Weakened payday-loan measure fails

The payday loan problem now seems to have reached gargantuan proportions with the Pentagon creating a report stating that these loan centers are preying on members of the armed services. According to the report, nearly one in five members of the armed services have had their finances screwed up by payday loan stores. These stores charge cash-strapped military families interest of 400% or more, the report found.

This problem has become more acute during the Iraq war when the military struggled to fill its ranks. Troops with debt troubles cannot be deployed overseas, so a huge number of soldiers had to perforce stay back. The report says payday loan stores have sprung up by the thousands around military bases and elsewhere in the past decade. The report cites estimates 13% to 19% of service members — at least 175,000 people — took out high-interest, short-term loans last year. USAToday.com reports:

Master Sgt. Leah Caldwell, who manages training and deployment for a squadron of the Missouri Air National Guard, says she has had several airmen get so deep into debt with the loans that they lost their security clearances, jeopardizing their deployment. One airman, she says, took out a $500 loan and after refinancing it several times saw it grow to a $2,600 debt.

Read more: Pentagon sees risk in troops’ loan debt

In a bid to ensure that the industry doesn’t earn a bad name, a few payday lenders in Michigan have come forth to ensure that a set of state regulations came into effect. According to industry sources, a few payday lenders who were charging exorbitant rates ensured that the entire industry got a bad name. Mlive.com reports:

The legislation allows loans to have annual interest rates of up to 375 percent on a $250 loan, plus various fees. It also limits the number and amount of loans a consumer can take out and forbids threats of criminal prosecution against people who fail to pay.

Read more: New rules police ‘cash to go’ lenders

A recent report on predatory lending by the Department of Defense provides evidence that there is a high concentration of payday loan outlets at the entrances of military bases around the country. According to the report, military personnel are several times more likely to use payday loan outlets than other segments of the population. Rtohq.org reports:

"Predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all volunteer fighting force. Education, counseling, assistance from aid societies, and sound alternatives are necessary but not sufficient to protect service members from predatory lending practices or products that are aggressively marketed to consumers in general and to military personnel directly."

Read more: Department of Defense report on predatory lending includes rent-to-own

QC Holdings Inc., a payday loan company recently announced that its board of directors has increased the company’s common stock repurchase program to $30 million. During August, QC said it repurchased 850,000 shares of its common stock for approximately $10.3 million. Kansascity.com reports:

The program, which recently was extended to June 30, 2007, would have been completed upon reaching $20 million.

Read more: OP payday loan company boosts stock buyback to $30 million

I don’t care what people say about Canada and Canadians, the one thing I find quite impressive about the country and its people is the way they have tackled the payday loan problem. Here we are still confused about what the ‘exactly’ right course of action would be while the Canadians have gone right ahead and tried to work out solutions to their payday woes. A few months back, Manitoba’s provincial government introduced a legislation that would limit the amount of interest payday loan companies can charge.

And now, a Supreme Court judge recently ruled that a B.C. payday loan company was charging “criminal” rates of interest to clients borrowing to make it through to their next paycheck. This first class-action civil ruling is expected to create a ripple effect for the multi-million-dollar payday loan industry in the country. During the trial in April, the court heard that the payday loan company, A OK charges a 21 percent interest rate and a processing fee of $9.50 for every $50 borrowed. Justice Brenda Brown ruled the processing fees and late fees charged by the A OK Payday Loans Inc. were interest. Fftimes.com reports:

A OK denied the fees were a form of interest and argued the Criminal Code section that it was being applied was not aimed at businesses like theirs but for the loan-sharking industry.

Read more: Payday loan company charging ‘criminal’ interest rate: court

The payday loan business is booming and the number of outlets now offering the sub prime low-dollar, super-quick loans has doubled to over 20,000 in the last four years. Cash Now has integrated a payday loan verify database that will allow the company to interface with payday loan sub prime credit reporting agencies and identify potential bad loans and reduce loss exposure. Rtoonline.com reports:

According to Cash Now, the negative database (accounts with returned checks) includes more than 22 million accounts. The positive database contains more than 138 million DDA consumer accounts. The package, called Loan Verify, uses data from 120,000 merchants and 260 collection agencies.

Read more: Cash Now Integrates Sub Prime Database