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January 08, 2009 07:47 PM UTC
57 Comments
Can the Dems manage to regulate and not kill an niche industry that provides jobs, services, products or capital access?
After all the harping on why the free market is broken (heard it on 710 this morning) and why the Dems should look at managed competition we have their first opportunity to act.
I just wonder if they’ll be trying to extend this regulation strategy to the film, software, internet, legal, pawn, used car, WalMart, other banking/finance, etc.. industries.
I have no opinion here b/c on the other hand I have heard they charge customers north of 300% apr interest in some cases.
And the rollover fees.
My guess is a lot of the payday loan industry will leave Colorado if a usury law is passed against them. Some of them will be content with a 39% APR interest cap and will stay, the greedy ones will fold. And nothing of value will have been lost.
Wal-Mart is coming under some scrutiny because it’s big enough to afford health care for its workers, but it doesn’t make health care affordable for its workers. It’s the single biggest source of working Medicaid applicants in the country.
As to the rest: Net Neutrality will be on the table at the Federal level, and that’s a Good Thing. Software and Business Method patent reform is probably on the table, and that’s a Good Thing, too. Banking/Finance reform is definitely on the table, and it’s hard to argue that they don’t need some of that. The rest? Look for sensible reforms where needed, and no reforms where no problems are seen.
There are a lot of big items to cover this session, and Congress will barely be able to get to them all – especially if Senate Republicans are intent on obstructing everything.
And the interest rates are lower.
keeps doctors in business, along with nurses, the people making crutches and wheelchairs, companies making temporary disabled parking signs for the rearview mirror, etc. These things even depend on lending (from actual banks) and run the economy saving America from a prolonged recession.
Wow. Who knew loan-sharking is such an asset to the country?
If that’s the argument for payday loan people, why not the same argument for Paulie Walnuts?
Sadly, I’ve had to use them once or twice. They’re perfectly fine as long as you pay back the loan when you get paid.
But you should see the people who keep rolling it over and rolling it over. I’m not saying that we should make them illegal, I just don’t like some of the predatory aspects of their business. They definitely target the weakest sections of the population, those who need help the most.
The other part of the story that irks me is that it appears the short-term credit lobby is powerful enough to kill the regulations. This is yet another example of a special interest being able to circumvent the need for more control over their business–just because they know who to push, who to press.
But don’t try to make it seem like these businesses are the backbone of the economy–or that making payday loan interest rates reasonable will mean that they’ll all close up shop.
is Jennifer Viega doing in bed with these loan sharks?
I would have expected more from her….
This is only a guess, but I would wager there are a lot of payday loan/check cashing places in SD-31. If a large group of her constituents are business owners who would be adversely affected by a specific piece of legislation, then it’s a little more understandable why she would want to oppose it.
I disagree with the vociferous nature of her attempts to block the legislation though. There are far more people in SD-31 who are being gouged by legal loan sharking than there are payday loan store operators and their employees.
It will be interesting to see if she tries to kill the bill that will be introduced in this session with the same intensity.
Maybe two jobs, one service (at exorbitant cost), no products, and capital access on the order of, hole me down, a couple of hundred dollars.
Get real.
For one thing, give their customers the credit they deserve. Roughly 90% of customers pay off their fee on time. The industry uses a transparent model, every customer knows exactly what the one-time fee is before they receive their money, and there is no APR associated with the transaction. When you get $100 advanced to you until you receive your paycheck, you’re charged a one-time fee of $20, there are no hidden fees, please let’s not get carried away with this 300% APR rhetoric. Even the roll over argument is bogus, to get to 390% APR (fee) a customer would have to roll over a 2-week loan 26 times.
As of today, Colorado’s payday advance industry already operates under one of the most comprehensive and responsible regulatory models in the country with limit fees and a loan amount max. of $500.
It would be irresponsible in a job crisis is to eliminate jobs.
Payday lending bolster’s Colorado’s economy with 561 licensed payday lending operations around the state, if the proposed regulation is enacted there would be a loss of over 1800 paying, full-benefit jobs which is a loss of estimated $55 million in lost payroll tax revenue to the state. Before you say payday lending isn’t at risk of going out of business, consider running a business under this circumstance; capping the APR at 36%, the total fee charged will be $1.38 for a $100 loan, lenders could not cover costs-payroll, benefits, rent.
There is a misnomer about who their clientele, they are hard working middle class folks with incomes between 25,000-50,000 who have medical expenses, car repairs and utility bills. This is a viable credit option for a lot of Coloradoans, not to mention the economic benefits such as quality jobs with benefits and revenue to the state. This proposal doesn’t make any sense in a good economy, but in a recession it’s absolutely ludicrous.
Check it out everybody, the sockpuppets are back! I think I speak for the whole community when I say, it just wasn’t the same without you.
Someone wants to discuss their facts and you shout them down like this?
maybe if you argued better consumer communication is needed or ripped their facts … but to deny a voice to be heard is not like you.
A person signs up just before the post.
Said post is chock full of statistics about lending and payday loans.
Said post defends a business type that is at best, somewhat immoral.
Said post spins, claiming that a $20 charge on a $100 loan for one week is not 390%. Oh, I see, a service fee. Walks, talks, like a duck to me. It’s interest.
Now, do you carry these facts around in your head? Do you know them? Does anyone except said puppet know them?
No, only a shill for the industry would be such a poster.
we even have our own payday lending shill now.
usury is not a “viable credit option” for anyone.
The bill hasn’t even been introduced yet and the industry apologists are arriving.
The “payday lenders” are a scourge; they need to be heavily regulated and put under a 26% max interest rate. At this time when people are hard pressed to survive, these businesses come in to destroy more lives through predatory actions.
Regulation and usury limits are needed immediately to control those existing and prevent the spread of these companies.
All those captive finance (usury) villains should have their interest and fees heavily regulated … right?
Didn’t think so.
my mistake
back to unions. Predictable.
Other people looked you up and flagged you as a lobbyist for the loan-sharking industry.
…is that many banks and credit unions now decide who they will take and not. (How many businesses turn away potential customers?) At some rough credit times in my life I was turned by several institutions – including one I worked for once!
Couple that with the increase of people w/o documents, i.e., illegal immigrants, there was a need for the services of these bastards.
I’ve never had to use them, but I had a friend who worked for one. They can be used responsibly, but as already been mentioned, it can quickly turn into a bad deal.
Let’s say you take out a loan and can’t pay the full amount back. You’ve paid 50% though, and you just don’t have the money to pay the rest. No problem, renew the loan. The downside? You renew for the orginal amount, and they pocket the 50% you’ve already paid back.
Sure, the industry provides jobs and such which is a good thing. But at what cost?
I had the opportunity to talk to a lobbyist for a payday loan place. It was one of the most uncomfortable conversations I’ve ever had. All he could talk about was how so many people thought it was ok to not repay a loan. He couldn’t or wouldn’t comment on the interest rates, other to say that percentage wise it was more to pay an overdraft fee from a bank.
If I were in the House or Senate, I would take a long hard look at this bill. Depending on the regulation, I would seriously consider voting for it.
OK, seriously, I think a lot of Coloradans of all stripes think those businesses are immoral. Not in principle, but in practice.
For the sake of argument, lets say a bill passes and the folks that own these businesses close up shop and move out of state because they fell they are too restrcted and can’t make the profit that they want to here.
What is going to happen to the folks that have been using these places for shirt term loans?
Will a new law be put into place forcing more prominent institutions to do business with those who do not have sufficient credit history to qualify for a loan?
Or do you all expect that the government will now be in the business of making short-term loans to those who need it?
They way I see it, these businesses do fill a need, even though I disagree with their practices, but it would be short sighted to remove the businesses without a plan to fulfill the need that they cover.
OK, have at me…
“Shirt term loans.” (sic) Couldn’t resist.
Depending on the new law specifics, I wouldn’t expect all of them to pack up and leave. Maybe a few, some will figure out work arounds, some owners will have fewer meals at Ruth Crists.
I’ve used payday advance a couple of times in the past; i was about to receive a hefty fee for an overdraft so I took out an advance on my paycheck and ended up saving money. The experience was very transparent, I knew exactly how much the fee was going to be from the start and it was only $15 bucks. The APR argument is kind of like saying a doctor charges a fee of 400% APR when they provide their services. From what i’ve heard, the industry is already being regulated. All in all, I find this bill a little ironic in a time of economic collapse, we need every job we can get.
In Colorado, the haul on a short-term loan can be 20% per loan period, and that period cannot be longer than 40 days. The loan can be renewed once. That’s a minimum 40% for 3 months, 120% per year, assuming you pay back the loan. I can’t tell from the summary I’m reading if the 20% per loan period is a fee on top of cashing the check in the event of failure to repay… Colorado also allows passing on full court and recovery costs on bad checks. And Colorado does not require any specific franchise licensing terms.
It wouldn’t hurt these companies terminally to limit their take. In Connecticut, payday loans are subject to regular usury laws. In Florida, the interest rate per period is 10%. In most states the limit is 15% per period or lower, and most states limit collection fees to a fixed amount. And most states require that payday lenders maintain a bond in order to keep their license.
These companies are still in business in all of these states – we’re not going to kill them by seeing they’re a little less predatory.
According to AG Suthers’ report last year, the average APR on a payday loan was 345%!!!!! You could max out at 390%.
That’s obscene.
Payday advances are two week, not annual loans. For each $100 advanced, customers pay a typical fee of $15-$17. Because payday loans are two-week loans they cannot be offered at the same annual rates as annual credit products such as credit cards, auto loans and home mortgages.The only way to reach the much-hyped triple digit APR is to take out one advance and continue to renew the same advance every two weeks for an entire year. State law and industry best practices do not allow this to happen.
As noted elsewhere in the comments, the typical payday loan user takes out at least 5 loans per year. At your quoted rates and assuming the same loan amount per period, that’s 75% APR, minimum.
If the customer rolls over the loan and desperately takes out a second loan elsewhere, it can rack up pretty quick.
There is no reason, with a constant flow of loans coming in and out, that the effective APR on these loans should be much higher than the top credit APR of ~39%.
BTW, welcome shill.
At a 36% APR, the total fee charged on a $100 two-week advance would be $1.38. If you multiply that by your 5 loans stat you have a grand total of $6.90. It’s not nearly enough to support a business that provides full benefits and a good salary to their employees. There is no reason why folks who are in a tough spot shouldn’t have this as another credit option or a last-best credit option.
The discussion is whether people who use the option are being taken advantage of. As I understand, the bill is not to eliminate the industry.
If you’re our new resident expert, can you tell me where Attorney General John Suthers’s numbers are wrong?
Can you justify a loan program that could lead an already struggling person to pay 300% interest?
Are you the lobbyist I talked to?
You’re trying to put forward a false perception: that you have to pay employees on that single transaction, and that the transaction size is only $100. You don’t, and it’s not.
Banks get by on far less than 36% interest and investment per year. Last I checked, First Bank was still financially sound even in these bad investment times.
And I’d like to see the same limits applied everywhere – medical bills, bank overdrafts, etc. Lets level that playing field.
As to the payday loan companies, I’ve talked to a couple of owners and their approach is incredibly lazy – they loan to most anyone. No effort is made to determine what criteria would constitute a reasonable risk. A limit on interest would force them to do a better job.
Predatory lenders claim the high rates they charge are necessary because there’s a high default rate on payday loans.
Except there isn’t. The default rate for payday loans is six percent. That’s about the same default rate as for credit cards. Payday loans are no more risky than credit cards from the point of view of risk to the lender.
The real reason why payday lenders charge exorbitant rates and fees is simply because they can. And because their customers are desperate and can’t shop around.
Remember that a lot of what people “hear” comes directly from the payday lender propaganda machine.
There’s a good deal of useful real information at The Center for Responsible Lending.
The section on payday lending is here.
I thought this was very telling:
That means they’re not simply providing a much-needed service, as some commenters above suggested. If you are getting 5 or more of these loans a year, then you need some sort of financial planning help. Maybe that’s a way we can help them.
Regardless, they are obviously targeting high-risk customers who have no other place to go, because if they could get a credit card then they wouldn’t need payday loans. If you have bad credit, it’s pretty much your only option if an unexpected expense comes up.
Military families.
I came across this pertaining to the military: In 2007, Congress capped all payday loans interest at 36% for the military and their families.
n/t
Good thing Congress is looking out for our military families…….
The FY2007 law caps ANNUAL rates to military members at 36%. It also makes payday loans and vehicle title loans to military members ILLEGAL by prohibiting lenders from requiring checks or other access to their accounts as collateral.
State Legislature should cap all annual rates at 36%. To everyone. Current military get 36% annual interest rate at Pay Day Loan Sharks, but, it is ok to stick it to the veteran (as long as their not active military)400% interest? I hope our legislators are reading this blog. Come on ladies and gentlemen. Do the right thing! Wouldn’t it be nice to be able to look at yourself in the mirror this summer after the session is over? It’s just not right to allow these lenders to abuse our working families. These Pay Day lenders can stay in business, keep employing people, just do business in a fair manner.
We are talking about a one time fee for a 2 week loan or in other words until you get your paycheck. $15 dollars up front on a $100 dollar loan is pretty straight forward and fair. If you’ve ever gone into one of these stores you would notice that every thing is transparent, you know exactly how much the fee is before you get your money.
Compounded over many loans, collected in two-week periods.
EZ Money Loans in Federal Heights has a 912.5% ANNUAL rate! The only way you only pay the one time fee is if you can pay off the entire loan your FIRST pay check. Example: You take out a $300 loan today on Januarry 8, 2009. Your next pay date is January 16th. You must pay back the original loan of $300 plus $60 for a total of $360 on January 16th. This is the ONLY scenerio that you pay the minimum possible 20% interest rate there. If you are only able to pay $60 on the 16th you must pay another $60 on the 30th. And, you still owe the $300. The annual rate is disclosed on the top of the document they have people sign and the annual rate is 912.5% (THE 912.5% ANNUAL INTEREST RATE IS NOT ADVERTISED ON THE WALL, YOU ONLY SEE IT AFTER YOU START THE PAPERWORK) If you do not believe me lets meet at EZMONEY Pay Day Loans 8490 N. Pecos St. Federal Heights tomorrow evening after I get off work and we will check it out together. Please Reply back before 9pm tonight and we can set up a time to meet there tomorrow evening.
Make your arguments in the lobby of the legislature, as you get paid to do. You’re not going to convince too many people here.
I was wondering why they had me sign a document that stated that my spouse and I were not in the military. The employee said she didn’t know why they had that form. I guess they wanted to know if they would be able to stick it to me if I was unable to pay the loan off entirely with interest on the first payday without rolling over/extending the loan.
with these kinds of loans and stuff like it. She ended up in court for one of them and the judge offered to make her pay it all at once (plus extra fees), or to set up a payment plan, get the creditors to drop the most of the fees she’d already incurred and she had to take a financial planning class. She took the deal. Turns out she saves between $500 and 750 every month by not using short term credit and making sure her bank account stays in the black. She quit a second job and opened a saving account.
Most financial planning classes cost around $150, or four overdraft fees.
She appears to consistently oppose financial reform in certain industries. I think she is typically a solid dem but when it comes to things like banking, insurance, pay day lenders she works to shut down reform. It seems unlike her in other ways. Does it have anything to do with law firm business?
And it’s true that her work on civil rights shouldn’t be glossed over just because some disagree with her on this issue.
tough position. As someone else pointed out, Veiga’s district has a good share of these businesses and the people that use them out of desperation. When it’s all done, if the lenders leave town some people will be worse off, if only in the short term. People are honestly scared of them leaving. I imagine it’s hard to do what you know is right without being able to offer an alternative. I’ve never heard her speak of this issue flippantly, it’s just rough.
We at the Bell Policy Center have studied payday lending, we worked on last year’s reform effort and we are involved with a coalition, Coloradans for Payday Lending Reform, that will be back at it this year.
Here are some facts about points raised in this discussion. Most of this information comes from the Colorado attorney general’s office, which regulates payday lending in the state.
• The average payday loan in Colorado in 2007 was $362 with an average APR of 318 percent. According to data released by the AG in February 2008, the average payday borrower paid $573 in fees on a $354 loan.
• In 2007, 32% of the loans were rolled over and another 37% were either same day as payoff loans, or what the attorney general calls “refinance type” loans. This means that 69% of all payday loans are refinance or rollover loans. Clearly, most borrowers do not or cannot pay them off on time.
• Renewing loans, paying a new fee each time, leads to cycle of debt that is very difficult to get out of – 11% of borrowers in 2007 were in debt to payday lenders for at least six months of the year, with 13 or more loans from the same lender.
• According the the Center for Responsible Lending, Colorado borrowers paid about $80 million in excessive fees last year – money that could have been spent on food, clothing and other important items, helping Colorado’s economy.
Finally, here is a quote from Dan Feehan, CEO of Cash Amerca: “And the theory in the business is you’ve got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that’s really where the profitability is.”
Read our report, The Truth About Payday Loans: How Hard-working Coloradans Take the Bait and Get Caught in a Cycle of Debt, at http://www.thebell.org
Jeez…
I used to work for a Member of Congress who would say, “it’s immoral to profit from other people’s misery.”
The Payday Thieves take advantage of other peoples’ misery and desperation. If it was good enough for the military to crack down and cap their rates, it should be good enough for the rest of us.
If a 36% interest rate isn’t enough for you, you should find another line of work.
There are people who want to put payday loan out of business. But if we were going to eliminate payday loan it would create another problem like unemployment. Payday loan has been useful to us especially in times that we are in dire need of money. The economy is slipping further into trouble. After several countries have seen banks fail, or in the case of Iceland – all of the banks failed. The stock exchange values keep dropping, faster than a payday loan can keep up with. There doesn’t seem to be too much good news on the economic horizon, but it will get better. In the meantime, you can get a payday loan if you need one. Read more about the economy and payday loans at the Money Blog.