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Payday Loan Executive: The US Federal Scrutiny Can Check Us Out
May 15th, 2011
Payday loans are always the subject of scrutiny by consumer protection groups. They criticize the payday loan system and call on the new U.S. consumer watchdog agency to crack down on the expensive products that they believe pull struggling consumers into the trap of debt. There is at least one payday loan industry executive who says he’s ready for scrutiny by the new U.S. federal agency. “I am sure that my company will thrive under the new regime.”
Consumer Financial Protection Bureau
In an interview this week, William Webster, Chairman of Advance America Cash Advance Centers, Inc. (AEA) said, “I am sure that AEA stands to benefit from the Consumer Financial Protection Bureau, who will write and enforce consumer protection laws and root out fraudulent financial practices.” Although the financial industry largely opposed the creation of the new consumer bureau, Webster had positive things to say about the agency and its chief architect, Elizabeth Warren, whom the president could tap to spearhead it.
Transparency
“What we’ve heard from professor Warren is that she’s focused on issues we think are critical: transparency, disclosure, fairness, making sure customers can compare products in a simple way and also treating similar banking products similarly,” he said.
Advance America
Advance America has more than 2,000 stores in 30 states. But like many payday loan providers, it has been facing new restrictions as more states decide to limit interest rates on the loans. State regulation has led to greater disclosure of the company’s prices, said Webster. “My company is required to disclose fees and the annual percentage rates to customers that obtain payday loans, which typically provide cash-crunched consumers a few hundred dollars until their next paycheck.”
Credit products
Webster said that not all small dollar credit products are as transparent, and he wants the new consumer agency to equalize terms so that various short-term credit products such as overdraft loans offered by banks and payday loans offered over the Internet all face the same kind of federal oversight. “The first casualty will be and should be unregulated Internet lending,” he said. “Every element is wholly unregulated.”
Problems for consumers.
A coalition of consumer groups including Consumer Federation of America, the Center for Responsible Lending and the National Consumer Law Center, raised concerns about payday lenders that seek to skirt state interest rate caps by offering loans online. When consumers supply their Social Security numbers and bank account numbers online, the information is easier to steal, the groups said. They also said “complaints about unauthorized withdrawals from accounts, coercive collection tactics and inability to stop withdrawals from bank accounts are common.”
National Consumer Law Center
National Consumer Law Center managing attorney Lauren Saunders says. “We think all payday lending is dangerous, but internet payday lending has special dangers above and beyond the brick and mortar lenders.”
Interest rates
Warren has also raised concerns about payday loans. In written testimony to the House Financial Services Committee in 2009, Warren highlighted a survey that found that payday loan customers are aware of finance charges but often unaware of annual percentage rates. And in her 2008 “Making Credit Safer” article in Harvard Magazine, Warren accused a lender of trying to hide a 485.450% interest rate.
Capping interest rates
Many consumer advocates argue that payday loan interest rates should be capped at 36%, just as they are for military families, but Webster says such a move would kill the industry. “A 36% rate, and the consumer advocates know this, is not regulation; it’s prohibition. Payday loans are not aimed at trapping consumers.”
Disclosure
“We disclose to the consumer at the point of sale and on their financial contract that if they can’t pay us back in two weeks, they have a unilateral right to modification.” said Webster.
Abusive?
Saunders of the National Consumer Law Center predicts significant changes in the payday lending industry. Saunders added, “It is true that a public-traded company can be at an advantage compared to one that doesn’t have to reveal as much about their operations. We don’t think any payday loan, the way they’re currently structured, can really stand the light of day. And when the true cost and risks of those are made apparent, we think they’re all going to have to change.”
The financial markets cop
It’s unclear how the consumer bureau, set to launch on July 21 as a new financial markets cop, will address payday loans. The agency cannot cap rates as many states are doing, but it does have authority to prevent “abusive” financial practices, a power that is somewhat concerning to Webster.
Bill to Increase Cost of Payday Loans Fails To Pass
May 9th, 2011
Consumer protection
According to Corrine Fowler of the Colorado Progressive Coalition, “Despite the desperate and aggressive efforts of the payday lending industry lobbyists, progressive advocates coached the community for months to make sure that our senators understood the implications of HB 1290.” She added, “We thank each and every member of the General Assembly who listened to their constituents and stood up against the industry lobbyists and ensured that this important protection measure did not pass. This is a matter of vital protection for the public and especially for the less fortunate among us.”
Death of the payday loan increase proposal
Thursday was the day when the proposal of lenders of payday loans for fee increases came to an end. The bill cannot be raised again for the rest of this year. The bill was moved by Democrats and sponsored by Sen. Rollie Heath, D-Boulder, from its scheduled committee on Tuesday. It took some weeks of heavy input from constituents, but legislators finally stopped the bill. The Senate Local Government Committee said they had no interest in increasing the fees on a class of people already suffering from financial strain.
No intent to destroy the industry
Destroying the industry was not his intent said Heath. “The industry is a needed resource for people.” He said he simply wasn’t buying the argument that people were going to go to churches and family for loans as opposed to payday lenders.
Fair fees
Heath said that his negotiations last year with payday lenders resulted in a deal that allowed lenders to keep a stipulated origination fee that he said was fair. But payday loan detractors said the bill would have actually increased the APR on those wanting to pay a loan back in two weeks. “I certainly had no intention of negotiating something that made the situation worse,” said Heath. He explained that he expected that the attorney general would eventually overturn a ruling on the statutory language he created.
Exaggerated request
Currently, borrowers who pay off a $300 loan in 30 days have to pay $21.25, which amounts to an annual percentage rate (APR) of 86 percent. The proposed legislation would have increased that fee to $71.25 on a 30-day loan, or an APR of 289 percent. If a borrower holds a loan for 180 days under either the proposed or current law, they will pay $240 in fees and interest (162 percent APR) for the loan.
Triple digit interest
Rich Jones of The Bell Policy Center said, “The two week, triple digit interest rate payday loan that traps so many borrowers in debt has gone from Colorado, and today we made sure these protections remain.”
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