As our payday loan states article we published earlier, back in June 21st, Illinois governor Pat. Quinn, signed State Law HB 537, which is a bill that supposedly closes a loop hole in that State’s 2005 Payday Loan Act. That bill had passed the general assembly unanimously back in May. This law also prevented taking installment loans , which is similar to payday loans except that the terms are not defined.

This regulation also regulated payday loans in that State that imposes a 99 percent APR cap on the loans and all loans must be under $4000. As the result many payday lenders have downsized the business and some have even closed because that cap is simply not profitable for them.

Although 99 percent APR sounds like a high interest rate, but that is fundamentally wrong to apply APR which stands for Annual Percentage Rate, to a short term loan such as payday loan that is due in two weeks or less.  Payday lenders usually look at their loans interest rates as fees just like as overdraft fee except that payday loans fees are much less than over draft fees.

According to payday lenders downsizing, the demand of small loans are on the rise in that State as the result  the State is considering  and weighting a  “small loan bill” which enables banks and credit unions to provide the same type of short term loans with less fees and interest rates.

The way the bill seems to work is that State banks will be contributing funds to a “small loan pool” to State Assembly where from that loan pool, State will give loans directly to needy families with low fees and interest rates. Banks will get tax right off end of the year from the State and also will clear and improve their image with their people.

Many critics of this bill are worried that this will add more to State governments bureaucracy, which at the end could cost the State Tax payers. This story is developing so we make sure we keep you updated on this payday loan blog as it develops.

Don’t do it!!

Ok, that might have been TOO quick.  Let me go ahead and elaborate a bit.

Debt consolidation services simply seek out your business to capitalize on your situation, and in most cases do what you could do for yourself for free!!  For example, a recent article at the payday pundit mentions a recent piece with Mary Hulburt from Consumer Credit Counseling Services, in which she discusses payday lending.  CCCS is a group which often times portrays itself as “protecting” borrowers (this term is very popular recently!) by helping them get out of debt.

The truth is, when it comes to payday lending debt, you have options!  I have yet to see a single case in which these Consolidation services have actually saved a payday lending customer money.  I have however witnessed many cases of customers paying for a service which they did not need, on top of the debt they already have.

If you ever find yourself in a situation which you are unable to pay back your payday loan on time, I would advise you to do/not do the following….

-DO NOT under any circumstances take out another loan to pay off a loan that you cannot afford!!  Things may seem “hopeless” when you can’t pay off the payday loan you took out when you were already in a bind, but don’t make things worse by entering the debt trap.  Debt traps aren’t traps at all, and they don’t just “happen”.  The so called “debt trap”, which represents a hopeless downward spiral of loans and fees which you cannot ever pay off, happens when someone WILLFULLY as a grown adult makes the decision to sign a contract promising to pay back “x” amount for a loan when they know they cannot afford it.   Either that, or they didn’t take the time to understand what would happen to their interest.  Simple, don’t borrow what you can’t pay back!

-If you do find yourself in the situation where you cannot pay back a loan, contact your lender and discuss “payment plan” options.  Most will work with you, as opposed to risk that you default completely on the loan.

-Contact a state regulator to discuss you rights as a borrower.

Do not pay a third party to “help”.  If you are in debt, paying more will not help.  The idea of consolidating your payments and paying a lower fee SOUNDS great!  It is meant to.  Just remember, anyone offering a loan or consolidation will take care of their interests first so make sure you understand all of the implications of a loan before signing.  Most likely, if you are in debt already, you can find better options yourself and for free.

New rules and regulations will be in place in Colorado effective next month (August) according to NPR. There will be a strict cap placed on payday loan interests at 45 percent when that law will take a place. Many payday lenders in Colorado have plans to close doors for business as 45 percent gap will not be profitable for them to continue their business operations. In fact after taking all their overhead and cost of business, 45 percent could be a loss for many of them.

In fact, many online payday lenders have already ceased offering payday loans in that State already. When we asked for the reason from a Internet Marketing Consultant that focuses payday loan industry he said, “online payday lenders pay a lot more for acquiring their leads, whether it is from email marketing, pay per click, or buying their leads from other lead companies.  A cap of 45% will be pure loss for many online lenders I work with”.

Despite all regulations, according to an article by a payday loan blog, payday loans remain in demand in US simply because of the continuous credit crunch. Occasional positive financial news, mainly over stock market, doesn’t mean that average American families aren’t still hurting. Cash flow remains to be a major problem because of both unemployment and under employment. Unemployment continues to be around 10 percent, and underemployment nears 17 percent.

It doesn’t seem that unemployment and underemployment is going to improve anytime soon, specially by all the recent financial restrictions and regulations passing by the States and Federal governments recent financial overhaul, many experts believe, will lead to more layoffs that the financial companies.

According to AboutPaydayLoan.com, A new financial protection bill that has recently passed the senate and has been signed by President Barack Obama has many businesses fearing the outcome that the far-reaching new Consumer Financial Protection Bureau (CFPB) will have on their businesses.  The CFPB,   now being referred to as the Bureau of Consumer Financial Protection (BCFP), is a new agency in response to the sub-prime mortgage crisis and the subsequent economic collapse, which is set to oversee and regulate nearly all consumer financial products, even those who had no ties to our current economic crisis.  It is this far reaching, and rather vague power that has many businesses, including payday loan lenders such as Solomon Internet Funding, wondering what the actual implications of the new BCFP will prove to be.

One of the biggest concerns of most small businesses about the BCFP is that the limits of their regulation and authority are not very clearly defined at this point.  And seeing that this new agency could be governing “loans” from small TV and appliance purchases, all the way to the dentist’s office where many families could sign up for financing for braces and other dental procedures for the family.  Had the bill not been rushed through so quickly and businesses were not only able to see the specific regulatory changes to their particular industry, but at very least know which financial products were to be regulated, only then could businesses properly prepare for the new regulations.  Unfortunately this is not the case, and many business owners are left wondering if they could afford to survive these unknown changes to regulations.  For example, with the struggling economy many small furniture retailers are already feeling the crunch as many Americans have tightened down their spending.  Many of these retailers offer financing in-house through an outside lender, which can represent well over 50% of total sales.  New harsher regulations could make these finance options too expensive to offer, and many retailers would shut their doors across countless industries… industries that have no proven correlation to our economic crisis.

Payday loan industry another industry that may face new and harsh regulations.  Already, many States have capped payday loan APR’s at a mere 36%, which seems high compared to other loans, but at 2 weeks for $100 the 36% cap means lenders could only charge $1.38 which is not enough to cover operating costs.  And although many States have capped APR’s at a rate that would turn payday lending businesses into “lending charities”, no States have offered subsequent “charity” loan programs to the customers payday lenders had served.   In a recent piece attorney Hilary B. Miller examines in-depth why he believe that the payday loan industry will not be regulated out of existence, which is great  payday loan news  to those in the industry or owning a payday loan business.

Although the future financial landscape remains uncertain for many businesses, those in the payday loan industry remain hopeful.  Payday lenders offer small loans to those who can’t get approved anywhere else, and all they need is a job and a bank account.  Their customers default more than other traditional borrowers, which is why lenders must charge at least $15 per $100 to stay in business.  Also, most complaints against this type of lending could be alleviated with simple regulations, mostly toward rollovers or extensions.  And if the past has proven anything, it is that the demand for access to small short-term loans has never decreased which is why payday loans continue to thrive.

Now that financial reform has passed, there have been a few “reports” predicting that banks are going to go after the payday lending customers.  Although this could be the case in a few states or branches, big banks have typically stayed away from anyone with less than perfect credit.

Last year (2009) big banks made upwards of 38 BILLION dollars on overdraft and NSF fees.  With this summer’s enactment of Regulation E, banks are facing huge losses due to customers declining the overdraft protection option.  We’re already seeing a flood of changes to the banking industry, for example most banks have already stopped offering free checking accounts to new customers.  Free checking accounts were the “norm” for the last decade, but now that banks won’t be making money off of potential overdrafts, customers are already paying elsewhere.  New account customers are facing monthly charges, online charges and more in an attempt to salvage revenue losses due to Regulation E.

Now, some are guessing that banks will turn to the 20 million payday loan customers now that the financial protection bill is signed, and aiming to regulate small loan options such as payday loans (cash advances).  I personally feel, as well as the editor’s of the Payday Pundit our industry’s news site run by the CFSA (Consumer Financial Services  Association of America) which promotes responsible lending practices throughout our industry, that banks will most likely stick to their habit of shying away from customers with bad credit.  The few banks that have tried to offer payday loan type products in the past have done so with rarely a sign of success.  After all, most people with credit problems who need just a little cash until payday would not even think to waste time stepping foot inside of a bank lobby.   Also, our industry has a very high rate of satisfaction and a very low number of registered complaints, meaning that our customers are very happy with what we offer!  Many in our industry can attest to this, and anyone who has ever worked in a PDL storefront has certainly heard a sincere “thank you” for providing a much needed service to folks who can’t get approved anywhere else.

You want our customers big banks?  Go ahead and try!

President Obama this morning signed the financial overhaul into law one of the most sweeping overhaul of financial regulations since the Great Depression. This law was mainly pursued by the democrats, which supposedly is to protect the consumers from both the Wall Street and the Main Street Lenders.

President Obama called “the strongest consumer protections in history”. He also said “Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes”.

Many experts believe that this bill misses the point, and that is to truly reform the Wall Street that was responsible for the financial meltdown in 2008. Also they believe this bill will have too much burden on smaller banks and lenders, including the payday lenders.

Many payday lenders, already over regulated by their own States, believe that addition of regulations by federal government may hurt their business, shrinking their business, or even worse driving them out of business which will result in more job loss.

The federal government maybe sending prepaid debit cards or electronic payments instead of paychecks to senior citizens. Critics and consumers organizations such as NCLC fear that may lead to more “predatory” payday lending.
“While federal law protects Social Security and other benefits from seizure by creditors, banks regularly take those benefits as repayment for what are essentially payday loans that they have made without even assessing borrowers’ ability to afford those loans,” said Margot Saunders, an attorney with NCLC . She further said “Treasury must stop banks from making these high-cost, short-term loans to Social Security recipients,”.

What is The National Consumer Law Center?
The National Consumer Law Center, also known as NCLC, is a non-profit organization that supposedly protects consumers that “seeks marketplace justice on behalf of vulnerable Americans.”

Senior citizens are one of the most targeted group when it comes to predatory lending and if you are a senior citizen you must know that predatory lending is not limited to payday loans or other short term loans. Even the traditional lenders such as banks have long history of engagement in predatory lending and result of that was the deep recession of 2008.

Today the Senate voted 60-38 to end debate on the new financial overhaul bill.  The bill will go to a final vote most likely this week, and most are predicting the bill will be passed and signed within the week.

The new financial reform bill has been widely debated and criticized by the media, financial analysts, small businesses, big business and even by many Senators and members of Congress.  One of the most frequent objections to this bill is that it seemingly penalizes every facet of consumer credit OTHER than those responsible for our economic crisis.  Of course the Democrats pushing the bill through claim that it is simply “too complicated” to address those issues now, and that we simply must push this bill through as quickly as possible for the (so-called) “protection” of American consumers.

I cannot fathom the logic behind this rush.  Sure the economy is a mess, but I can’t understand the avoidance to actually tackle those responsible for our economic crisis, and how we would therefore benefit from regulating businesses and eliminating more jobs.  I for one do not believe that the following will help our economy, and completely misses the mark as a true form of financial protection for Americans.

For example, many Americans already have restricted access to credit, especially short-term credit.  The payday loan industry is already closely regulated (in many cases, “over” regulated) by each State.  States which have allowed regulated payday lending have very few complaints against our industry.  We disclose all terms, in a clear and easy manner.

If financial reform tackled those responsible for our economic crisis, rather than push it off “until later” I may be more apt to support it.  But to this point all I see is the typical avoidance of real issues, and a crackdown on a vast network of small consumer financial products, that to date have been just fine as is, which will eliminate thousands of jobs when we least need it.  I hope I am wrong, but I fear I am not.

The WTA reports that the board of selectmen, in West Point, Mississippi, are deliberating a proposal, first brought up in early June, to consider banning new payday loans companies in the city. Opponents of the payday lending industry blame, and claim to have linked, payday loans, and other types of high interest loans, to the increase of overdraft fees and bankruptcies within the state. Keep in mind, the payday loan opposition has not provided documented data or evidence for these claims.

A payday loan consultant, and frequent contributor to AboutPaydayLoan.com, says that it’s all rubbish. “People taking payday loans are already troubled by bank over draft fees and are facing serious financial difficulties, their last resort is to take out a payday to get out of their financial emergency.”

He goes on to say, “There are plenty of good payday lenders out there, these lenders offer payday loans at low rates and disclose all of the fees associated with the loan. There are payday lenders that charge high fees, these lenders prey on a persons’ financial hardship, but it shouldn’t be a reason to penalize all payday lenders when it’s only a few bad apples.”
It appears that Mississippi law allows payday lenders to charge very high fees and one of the highest interest rates in the country, as some payday lenders are offering loans for an annual interest rate of up to 572%. It is important to know that Mississippi also has the most payday loan lenders per capita in the country. In West Point alone, there are about 10 payday loan lenders to serve consumers.

The proponents of payday loans continue to argue that payday loans are not the reason for the financial hardships of the residents of West Point, and they have something to prove it with. According to the Mississippi Economic Policy Center, unemployment and underemployment are to blame for the economical hardships that have lead to financial problems to the residents of West Point, Mississippi. The financial problems cause by unemployment and underemployment are the reason why residents have to take a payday loan in the first place.

The backers of the payday industry claim that payday loans are usually used by politicians as a scapegoat for the financial crisis. They push for payday loan reform just to show the people that they are doing something about the financial crisis. The truth is that they can’t really deal with the big Wall Street based banks, so they tend to pick on smaller financial institutions like payday lenders.

AboutPaydayLoan.com – The current economic situation in America is worsening as job losses continue to rise, and despite Democrats push quickly to pass the new financial reform bill analysts are not predicting a fast recovery.  But regardless of how dismal our economic crisis may currently seem, it has never been an American tradition to “back down” or “give up”, as many families are demonstrating while fighting to keep their finances afloat.  Some recent figures from the Federal Reserve state that consumer debt is up, but interestingly enough one of the only forms of consumer credit that have seen an increase in the last five months is “non-revolving” credit, such as payday loans offered by direct payday lenders such as Pay1day.com.

These types of “non-revolving” credit which include student loans, auto loans, and payday or cash advance loans have increased a staggering $9.4 billion in April, which could also be described as a 7.1% annual growth rate.  These figures represent a growing need, amidst this struggling economic backdrop, for consumers to access short term credit to either assist them with a purchase, as in the case of auto finance or even at the dentist’s office, or to help make ends meet in between paychecks as in the case of payday lending.  Unfortunately for those Americans without access to credit elsewhere, there are many State’s that have adapted legislation and regulations against credit such as payday lending, and without addressing actual “need” for short-term credit, nor attempting to replace the already limited options for credit in the States of which payday lending has been banned.

Recent studies have shown that State’s which have banned payday lending have actually led to more consumer complaints against creditors, and eliminates jobs in those States in the subsequent years.  Unfortunately it seems that this same tactic may soon be applied beyond specific state borders if a new financial protection bill is passed.  The bill attempts to oversee and regulate nearly all consumer finance, large and small, regardless of their impact on the current crisis.  In fact, the firms responsible for the subprime mortgage crash are not even being dealt with at this time, just the few consumer credit options American’s have left.

We can only hope that consumer demand will speak loud enough to keep some options alive.  After all, with most of these types of credit the borrower is required to have a bank account and a job in order to be approved, so the borrower is an informed and responsible consumer with the means to pay back the loan promptly.  Also, as with payday loans, the lender by law must fully disclose all terms of the loan clearly at the time of the loan.

If the demand for credit exists and is currently increasing, we should perhaps begin to address and regulate any existing issues rather than eliminate more jobs.  Over-regulating consumer credit options has only traditionally harmed our economy.