Deferred Deposits, Delayed Justice?

2010 General Assembly Facing Tough Issues

From the KY Gazette  (November 2009)

 by Laura Cullen Glasscock at glasscock@kentuckygazette.com, 

Deferred Deposits [ 2010 General Assembly]

The provisions of the check-cashing and deferred deposit statutes are currently contained in Subtitle 9 of KRS Chapter 286 that authorizes licensed deferred deposit businesses to charge a service fee not to exceed $15 per $100 borrowed. The service fee is for a period of 14 days. Borrowers may obtain one loan not to exceed $500 at any one time, and rollovers are prohibited. The deferred deposit transaction statutes were amended in 2009, effective July 1, 2010, by House Bill 444 to expand regulation of the industry. The legislation also provides for a 10-year moratorium on licensure of new businesses after July 1, 2009. A review by staff of the Kentucky Office of Financial Institutions annual reports found the number of licensed payday locations in Kentucky increased from 214 in 1998 to 754 currently.

On its face, a $15 fee per $100 borrowed appears to be interest in the amount of 15 percent. However, because of the 14-day loan term, a new loan can be obtained 26 times per year, which results in an annual percentage rate of 391 percent. Reportedly, most borrowers are unable to repay the loan with their next paycheck. As a result, borrowers often take out a new loan before their next paycheck, resulting in an additional fee. Several sources report that 87 percent of new loans are opened within two weeks or before the borrower’s next payday, indicating they are unable to repay the original or previous loan and sustain the cost of living expenses without taking out a new loan. This common practice is referred to as “rollover” Making multiple rollovers, referred to as “churning,” results in an annual percentage rate of 391 percent in Kentucky. Nationwide, churning accounts for 76 percent of the deferred deposit total loan volume.

There are alternative methods of providing small, short-term loans up to $1,000. In an effort to reach the unbanked population, the Federal Deposit Insurance Corporation is currently conducting a two-year pilot program for banks to provide small loans up to $1,000 to borrowers, even if they have poor credit. Thirty-one banks in 15 states are enrolled in the project, including two banks in Kentucky, Citizens Union Bank in Shelbyville and Kentucky Bank in Paris.

Owensboro Legislator Files Financial Literacy Bill in 2010

Representative Jim Glenn urges financial literacy, files bill in 2010 General Assembly

James Mayse, Messenger-Inquirer Published: Monday, October 26, 2009

Rep. Jim Glenn

Rep. Jim Glenn is hoping the third time is a charm for his financial literacy bill. Earlier this month, Glenn, an Owensboro Democrat, prefiled a bill for the 2010 General Assembly session that would encourage universities to give incoming students information on financial literacy.

This will be the third time Glenn has introduced the bill. The bill managed to pass the House of Representatives in both 2007 and 2008 but died for lack of action in the state Senate. Glenn, who is a professor at Owensboro Community & Technical College, said students entering college — and the general population — need education on matters such as debt management, credit cards and saving for retirement. “I teach finance, and it’s always something that’s needed in our society,” Glenn said Friday. “Our society has changed in how we look at finance, and our students need to be up to speed.” The bill is not a mandate. Rather, the bill encourages universities to provide incoming freshmen with materials on debt management and credit cards and to conduct seminars on financial matters during orientation. “The way it is structured, it’s asking the colleges — when the freshmen come in — to give them a week of financial literacy,” Glenn said.

The sessions and material would be for every freshman, regardless of their major. “This is to help protect them,” Glenn said. “Credit cards … they give you a $1,000 credit limit just with your signature — and if you overrun it, they require you to pay it back immediately.” Glenn said his concern is that credit card debt among college students forces some to take jobs and switch from being full time to part-time students — with the end result of some of those students not finishing their degree requirements. “We have to make sure we don’t have any more barriers to prevent them from getting a college degree,” Glenn said. “It costs the state no money,” Glenn said of his plan. “The banking system is on board and said they would help. They’re interested in making sure students are financially literate because it helps (the banks) in the long haul.”

Glenn’s goal for the upcoming legislative session is to find a member of the Senate who will help champion the bill. “On the House side, I’ve passed the bill two years in a row,” he said. “I have to get the Senate side on board.” With legislators’ focus surely to be on the state’s financial troubles, gaining attention for the bill will be a challenge. “Anything that’s not state budget or budget-related is going to be put on the back burner,” Glenn said. “I have to push (to show this is) a priority item for the state of Kentucky.”

James Mayse, 691-7303, jmayse@messenger-inquirer.com

Listen to KCRL on State of Affairs

Listen to Archive copy of  - WFPL 89.3 State of Affairs -  http://www.wfpl.org/state-of-affairs 

http://www.wfpl.org/2009/11/16/be-wise-when-borrowing-money/

 

State of Affair’s Show – Be Wise When Borrowing Money
We all need to borrow money from time to time. But as you get older, it’s not just $2 from Mom to buy some candy, it might be $100,000 from a bank for a home or $15,000 from a car dealer for a car, or for some it’s $200 from a payday lender just to get through the week.

So what should you know before borrowing money? How do you avoid predatory lenders; and what if you need a loan, but you have poor or no credit? Join us on Monday as we talk about borrowing money.

Related Links:

• Center for Responsible Lending
• Louisville Asset Building Coalition
  

Economic Security Later in Life, New Report on Short-term Loans

 Improving Economic Security Later in Life: Meeting the Credit and Financial Services Needs of Older Persons

The Woodstock Insititute’s new report examines financial products that take advantage of the economic vulnerability of older persons and highlights key features of some alternatives. It is based on extensive conversations with leading members of the policy and advocacy community, financialservices industry, and bank regulatory agencies. The report concludes with recommendations for both bank regulatory andfinancial institution policy to advance financial products that protect the economic security of older persons.

Checking accounts with high-cost overdraft fees are increasing older persons’ economic vulnerability, says a new report from Woodstock Institute, “Improving Economic Security Later in Life: Meeting the Credit and Financial Services Needs of Older Persons.” The controversial overdraft fees, recently under fire from Senator Chris Dodd (D-CT), particularly burden beneficiaries of Social Security payments and low-income older persons.

 

Automatic enrollment in overdraft programs means that many older persons are being charged high fees for products that do not want or need.  In fact, 75 percent of older persons would prefer to have a transaction declined than incur overdraft fees. Persons aged 55 and over pay $4.5 billion in overdraft fees each year. Over $513 million of these overdraft fees are levied on recipients of Social Security benefits.

The report, based on extensive conversations with leading members of the policy and advocacy community, financial services industry, and bank regulatory agencies, found that the availability of transparent checking and savings accounts is a key financial concern for many older people. 

As the national debate on consumer protections for financial products continues, this report lays out several key concerns of older persons that should be included in any reform efforts.

The full report is online at the Woodstock Institute – http://www.woodstockinst.org/publications/research-reports/

   Improving Economic Security Later in Life: Meeting the Credit and Financial Services Needs of Older Persons

Editorial – Gov. Beshear should stick to interest cap pledge

  

Beshear should stick to interest cap pledge

Editorial from the Owensboro Messenger-Inquirer

Published: Wednesday, September 30, 2009

Gov. Steve Beshear isn’t delaying his efforts at securing a second term in 2011.

Since announcing his running mate in July, Beshear has begun raising funds for his run for re-election. Those efforts included a fundraiser last week at the Tennessee home of the head of a national payday lending company.

Beshear’s relationship with the payday lending industry stretches back for years, but that familiarity and his desire for a second term shouldn’t stand in the way of further efforts to restrict payday lending in Kentucky.

Kentucky isn’t the first or the only state to look at addressing the exorbitant costs and predatory practices of many in the payday lending industry.

These short-term loans, which typically must be repaid within two weeks, are marketed as a bridge to payday, but instead can drag consumers into a cycle of debt. Loans are capped at $500, and the interest rate when annualized can be as high as 390 percent.

The payday lending industry markets the loans as a short-term solution to minor financial challenges, but instead the loans are often “flipped.” This practice has consumers taking out new payday loans to repay old, and they can quickly find themselves spiraling into deeper debt.

Beshear, as a lawyer in private practice, was a lobbyist for the payday lending industry in the 1990s. That connection is likely to raise some eyebrows given the fundraiser last week at the home of Garry McNabb, the chief executive officer of Cash Express, a payday lending outfit that has more than 100 outlets in Kentucky.

McNabb and the Beshear administration both downplayed the idea that the fundraiser was an attempt to gain access to the governor’s office.

“I can assure you there has not been the first hint that the fundraiser being tied to any kind of business,” McNabb told the Louisville Courier-Journal.

Chad Aull, the political director for the Beshear re-election campaign, also dismissed any impropriety, and said Beshear supports capping annualized interest rates for payday loans at 36 percent.

That cap is a goal of consumer advocates including the Kentucky Coalition for Responsible Lending, but one that was unrealized in legislative changes made this year. House Bill 444, a stripped down version of tighter restrictions offered in 2008, was passed and created a statewide database to help ensure lenders and consumers were abiding by limits on multiple loans.

With House Bill 444’s passage, Beshear said he would continue to work with the legislature to impose the 36 percent cap, and hopefully this fundraiser isn’t an indication he has other intentions. His actions once a legislative proposal is offered next year should bear out the assertions of McNabb and Aull.

“In the future, I believe we must take the next step of imposing caps on these lenders to afford consumers even stronger protections,” Beshear said in a statement about House Bill 444 in March.

More optimistically, Beshear’s connections to the payday lending industry could offer an advantage to Kentucky consumers. The governor should use his influence with his industry connections to ensure their acceptance of the cap rather than letting their influence sway him.

Copyright © 2009 – Messenger Inquirer

Personal Stories from the Payday Lending Trap

A Lawrenceburg wife and mother used a payday lender in 2001 to borrow less than $200 to cover her musician husband’s transportation expenses.  She wasn’t able to repay it within the two weeks and had to renew the loan.  She got caught in a cycle of paying minimum amounts and renewing the loan.  This went on for 18 months.  During that time, she was amassing other debts as well.  In the end, she had to refinance her home to pay off those debts as well as the payday loan.  In all, she paid back almost ten times the original loan in fees and interest.

 

A single mother of three in Owensboro borrowed about  $200 from a payday lender.  She wasn’t able to pay it off immediately; instead she made payments when she could.  The interest was adding up and over the course of 6 months, she paid back between $500 and $600, but still hadn’t paid the loan off.  Finally a relative paid the total in full for her, and she was able to repay him interest-free

Govenor Beshear Reaffirms Support for 36% Cap

Beshear Pledges Support for Payday Lender Cap Despite Fund-raiser

Governor Steve Beshear

Bluegrass Politics Oct. 2009 [FRANKFORT] — Gov. Steve Beshear said Wednesday (9-30-09) that he remains committed to stricter regulation of payday lenders even though his re-election campaign held a fund-raiser last week at the Tennessee home of a payday lending executive who does business in Kentucky. Beshear said he was not reluctant to hold the fund-raiser at the Cookeville, Tenn., home of Garry McNabb, chief executive officer of Cash Express, which has more than 100 outlets in Kentucky. It also is registered to lobby the executive and legislative branches in Kentucky.

The Democratic governor, who is seeking re-election in 2011, said McNabb was one of several hosts of the event. Several consumer advocates who have pushed for more restrictions on payday lenders — which can charge upward of 400 percent interest — have expressed concern about the fund-raiser.

Beshear, who was a lobbyist for the payday lending industry in 1998, said he still supports legislation to cap the annual interest rates payday lenders can charge at 36 percent — the amount Congress has implemented for military families. The industry claims a cap on payday advances would drive lenders from the state and deprive families of access to emergency credit, increasing bounced checks and bankruptcies. “We are going to move forward to creating further and stronger regulations, capping interest rates” in next year’s legislative session, Beshear said.

Read the story at:http://bluegrasspolitics.bloginky.com/2009/10/01/beshear-pledges-support-for-payday-lender-cap-despite-fund-raiser/

Eight Ways to Avoid the Payday Loan Debt Trap

 Thousands of Americas take out payday loans every week.  These small loans are often used to get the consumer out of a bind- perhaps by paying an overdue bill or helping with the cost of car repairs.  Even though many consumers have the intention of paying the loan back with their next pay check, many are unable to repay the loans on time.  The interest rates on these loans are huge and  thse loans end up costing consumers millions of dollars a year.  Click here to learn eight tips to avoid the trap of payday loans.  Source: WREX.com

KCRL Invites Organizations to Get Involved & Take Action

The Kentucky Coalition for Responsible Lending (KCRL) is a statewide coalition dedicated to protecting family assets by eliminating abusive financial practices.

Organizations are invited to join KCRL and take action to close the PayDay Lending Trap for Kentucky consumers.

Click here to download KCRL Membership form_09 the KCRL Coalition Application Form -   and take action for Kentucky consumers.

Click here to find your your state legislators.

Click here to find KCRL on Facebook – http://tinyurl.com/kpuoaq

Virginia’s Proposed Payday Regulations Aim to Keep Industry Honest

Center for Responsible Lending  Applauds Virginia’s Effort to Protect Consumers

August 6, 2009 – The proposed regulations issued Tuesday, August 4 by the Virginia Bureau of Financial Institutions (BFI) confirm that payday lenders continue at every turn to avoid regulation. The Center for Responsible Lending applauds BFI for providing guidance and oversight of this industry, particularly when the legislature has allowed so many loopholes. The proposed regulations will:

• Prevent the industry’s practice of avoiding state laws and regulation under cover of affiliate relationships.
• Prevent the industry from avoiding the 2008 and 2009 reforms by adding ancillary products such as life insurance to the cost of the loan.
• Prevent faux car title loans that have been pushed by the payday loan industry.
• Require that all companies making auto loans follow the same filing rules.
• Prevent check cashers from making payday loans.

Unsatisfied with the 300 percent APR that resulted from the General Assembly’s minor reforms of 2008, within months of the changes, payday lenders began steering customers away from the traditional payday product toward an open-end loan product, typically a $750 loan with interest rates even higher than a payday loan – and completely unregulated. The industry was able to introduce this new product because Virginia has no underlying small loan interest rate cap.

In 2009, the Virginia legislature sought to close this loophole by passing a law that prohibits payday loans and open-end loans from being made by payday lenders. However, in an effort to protect car-title lenders, the legislature created a carve-out for that industry, allowing predatory practices to continue in the Commonwealth. Within days, payday lenders began marketing these same open-end products as “car-title” loans.

Consumer lending issues will again return to the 2010 Virginia General Assembly. The Center for Responsible Lending strongly advocates the only reform that has proven effective against predatory small dollar lending is a 36 percent interest rate cap for all small dollar lending in the Commonwealth. Virginia will not need to continue its patchwork payday reforms or create a separate, car title authorization statute when it has a reasonable double-digit small loan interest rate cap in place.

Click here for more information: Charlene Crowell at (919) 313-8523 or charlene.crowell@responsiblelending.org.