predatory lending: the problem and the plea virginia partnership to encourage responsible lending...
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Predatory Lending:Predatory Lending:The Problem and the PleaThe Problem and the Plea
Virginia Partnership to Encourage Virginia Partnership to Encourage Responsible LendingResponsible Lending
Helen O’Beirne, Responsible Lending Coordinator
Predatory Lending - A Moral IssuePredatory Lending - A Moral Issue
Target:Target: Low-income workersLow-income workers Minorities and immigrantsMinorities and immigrants Women, single mothers receiving benefitsWomen, single mothers receiving benefits ElderlyElderly Military familiesMilitary families College studentsCollege students
Attributes = young or very old, desperate, Attributes = young or very old, desperate, clustered, unbanked, financially immatureclustered, unbanked, financially immature
Signs of PredationSigns of Predation
Triple Digit Interest Rates (300% – 1000%)Triple Digit Interest Rates (300% – 1000%)Collecting Interest From the Loan Proceeds Collecting Interest From the Loan Proceeds No Refund For Early Pay BackNo Refund For Early Pay BackSingle Balloon PaymentSingle Balloon PaymentShort Term Loan – Typically 14 daysShort Term Loan – Typically 14 daysPersonal Check as CollateralPersonal Check as CollateralNo Consideration of Ability to RepayNo Consideration of Ability to Repay Loans are Flipped, Rolled or RefinancedLoans are Flipped, Rolled or Refinanced Simultaneous Borrowing from Multiple LendersSimultaneous Borrowing from Multiple LendersMandatory Arbitration ClauseMandatory Arbitration Clause
Source: Center for Responsible Lending Source: Center for Responsible Lending http://http://www.responsiblelending.orgwww.responsiblelending.org
Triple Digit Interest RatesTriple Digit Interest Rates
Payday Loans = 380 to 790% APRPayday Loans = 380 to 790% APR
Car Title Loans = 360% APRCar Title Loans = 360% APR
Loansharking = 150 to 250% APRLoansharking = 150 to 250% APR
Pawnshops = 18 to 300% APRPawnshops = 18 to 300% APR
Payday Loan ContractPayday Loan Contract
Usury laws have existed for hundreds of years Usury laws have existed for hundreds of years ““Protect the Needy from the Greedy”Protect the Needy from the Greedy”
Bans the charge of interest to the poor.Bans the charge of interest to the poor.
Exodus 22:25Exodus 22:25
"He who increases his wealth by excessive interest "He who increases his wealth by excessive interest gathers it for one who has pity on the poor." gathers it for one who has pity on the poor."
Proverbs 28:8Proverbs 28:8
Single Balloon PaymentSingle Balloon Payment
Full amount DUE at end of loan termFull amount DUE at end of loan term
Installment or partial payments are prohibited Installment or partial payments are prohibited
Have you ever taken out a loan that you had to Have you ever taken out a loan that you had to pay back in one fell swoop?pay back in one fell swoop?
What is the likelihood that a traditional fringe What is the likelihood that a traditional fringe borrower can repay all at once?borrower can repay all at once?
DEBT TRAPDEBT TRAP
““[Predatory loans] are set up so [Predatory loans] are set up so you have to pay the whole thing off you have to pay the whole thing off in two weeks, and they know you in two weeks, and they know you can’t. can’t. It’s bad enough that the interest It’s bad enough that the interest rates are 380 percent, the worst rates are 380 percent, the worst part is that they trap you”.part is that they trap you”.
Jay Speer, Executive Director – Virginia Poverty Jay Speer, Executive Director – Virginia Poverty Law CenterLaw Center
Loans are Flipped, Rolled or Loans are Flipped, Rolled or RefinancedRefinanced
Typical borrower lives from payday to Typical borrower lives from payday to payday and come up short when loan is payday and come up short when loan is duedueTo avoid default (and have their check To avoid default (and have their check presented for payment) the borrower…presented for payment) the borrower…Flips, rolls or refinances the loan by Flips, rolls or refinances the loan by paying interest again, and again, and paying interest again, and again, and again, and again…again, and again…
DEBT TRAPDEBT TRAP
““That’s the Dirty Little Secret”That’s the Dirty Little Secret”
Payday lending is structured so Payday lending is structured so you just pay the interest every two you just pay the interest every two weeks. They never want you to weeks. They never want you to pay back the principalpay back the principal..
John Oxendine, Georgia Insurance CommissionerJohn Oxendine, Georgia Insurance Commissioner
Simultaneous Borrowing from Simultaneous Borrowing from Multiple LendersMultiple Lenders
““Borrowing from Peter to pay Paul!”Borrowing from Peter to pay Paul!”Exorbitant interest payments eats into Exorbitant interest payments eats into borrower’s paycheckborrower’s paycheck
After a couple of touch ‘n go’s, borrower needs After a couple of touch ‘n go’s, borrower needs another loan to fill hole caused by first loans’ another loan to fill hole caused by first loans’ interest paymentsinterest payments
Can continue for months or yearsCan continue for months or years
Some borrowers have upwards of 13 Some borrowers have upwards of 13 outstanding loansoutstanding loans
Forms of Predatory LendingForms of Predatory Lending
Payday Loans Payday Loans
Car title loansCar title loansPredatory mortgage lendingPredatory mortgage lending
Rent-to-own storesRent-to-own stores
Refund anticipation loansRefund anticipation loans
Buy here, pay here auto dealersBuy here, pay here auto dealers
Pawn shopsPawn shops
Payday Lending – The ProblemPayday Lending – The Problem
Bad check as collateral for up to $500Bad check as collateral for up to $500$15 fee for every $100 loaned$15 fee for every $100 loanedAverage loan is $300 Average loan is $300 Average term is 2 weeksAverage term is 2 weeks
= $45 every 2 weeks in INTEREST= $45 every 2 weeks in INTERESTin 3 months (6 pay periods), already paid back in 3 months (6 pay periods), already paid back
amount over the original loanamount over the original loan!!BUT NO PRINCIPALBUT NO PRINCIPAL
DEBT TRAPDEBT TRAP
Payday Loan TrackerPayday Loan TrackerDate Interest Paid
Oct 1 $45
Oct 15 $90
Nov 1 $135
Nov 15 $180
Dec 1 $225
Dec 15 $270
Jan 1 $315
Original Loan
= $300
Remaining Principal
= $300
Payday Lending – Other ProblemsPayday Lending – Other Problems
Hold checking account hostageHold checking account hostage
Collection practicesCollection practices
Threat of lawsuitThreat of lawsuit
ShameShame
How Did This Happen?How Did This Happen?
Payday Loan Act of 2002Payday Loan Act of 2002 Loophole / exception / special exemptionLoophole / exception / special exemption Can accept “bad” checkCan accept “bad” check Can charge exorbitant interestCan charge exorbitant interest
LEGITIMIZED AND LEGALIZED LEGITIMIZED AND LEGALIZED INDUSTRYINDUSTRY
Payday StatisticsPayday Statistics12/31/2002 12/31/2003 12/31/2004 12/31/05 6/6/2006
Total number of locations 377 596 696 756 776
% Increase from previous year
58 17 9 3
Total dollar amount of payday loans made $165,659,916 $655,645,430 $988,135,464 $1,197,105,829
% Increase from previous year
296 51 21
Total number of individuals to whom payday loans were
made
124,362 285,798 387,696 445,891
% Increase from previous year
130 36 15
Number of individuals who received 13 loans
or more50,928 76,068 90,859
% Increase from previous year
49 19
Payday Lenders in TidewaterPayday Lenders in TidewaterLocalityLocality Payday Lending Payday Lending
StorefrontsStorefronts
Virginia BeachVirginia Beach 6969
NorfolkNorfolk 4545
Newport NewsNewport News 4040
ChesapeakeChesapeake 3030
PortsmouthPortsmouth 2828
HamptonHampton 2727
Source: Bureau of Financial Institutions – licensed payday lenders as of 8/06.
Other lenders get word of lenient restrictions Other lenders get word of lenient restrictions for payday loans in Virginia (industry for payday loans in Virginia (industry friendly state)…friendly state)…
Realize they could make a buck, too!Realize they could make a buck, too!
Car Title Lending – The ProblemCar Title Lending – The Problem
Payday lending’s little brotherPayday lending’s little brother
25% “fee” up front; tacked onto principal25% “fee” up front; tacked onto principal
25% fee per month = 360% APR25% fee per month = 360% APRON A ON A SECUREDSECURED LOAN LOAN
(they have title and extra set of keys)(they have title and extra set of keys)
Repossession = loss of vital assetRepossession = loss of vital asset
How Did This HappenHow Did This Happen
Loophole = “motor vehicle equity line of Loophole = “motor vehicle equity line of credit”credit”
No caps on open-ended loans (meant for No caps on open-ended loans (meant for credit cards)credit cards)
All other small loans capped at 36% APR All other small loans capped at 36% APR via the Consumer Finance Actvia the Consumer Finance Act
Industry hoping to be regulated = Industry hoping to be regulated = NEXT NEXT PAYDAY LENDING CRISISPAYDAY LENDING CRISIS
Car Title StatisticsCar Title Statistics
Currently unregulatedCurrently unregulated
Estimated 150 locationsEstimated 150 locations
Could be us: Tennessee passed car title Could be us: Tennessee passed car title authorizing legislation and there are now authorizing legislation and there are now over 900 car title lenders in Tennessee. In over 900 car title lenders in Tennessee. In 2004, Tennessee car title lenders 2004, Tennessee car title lenders repossessed 17,313 cars. repossessed 17,313 cars.
Three lawsuits settled secretlyThree lawsuits settled secretly
StoriesStories
Ms. C is 58, Ms. C is 58, disableddisabled, lives on a meager $1019 , lives on a meager $1019 per month in per month in Social SecuritySocial Security. She now has . She now has outstanding payday loans with 5 companies and outstanding payday loans with 5 companies and pays $400 a month just to keep them afloatpays $400 a month just to keep them afloat. . Every two weeks, she Every two weeks, she renews one to pay renews one to pay anotheranother. Ms. C finds it takes almost an entire . Ms. C finds it takes almost an entire day to visit each lender with a modest payment. day to visit each lender with a modest payment. A payday collector yesterday told her on the A payday collector yesterday told her on the phone that someone who didn't pay ended up phone that someone who didn't pay ended up downtown in jail. Ms. C is downtown in jail. Ms. C is terrifiedterrified that she will that she will spend the last years of her life behind bars. spend the last years of her life behind bars.
StoriesStories
A recent client (VPLC) was discovered to A recent client (VPLC) was discovered to have have 5 outstanding loans5 outstanding loans: o: one for $500, ne for $500, another for $345, another for $230 and 2 another for $345, another for $230 and 2 for $115 each. She gets a monthly social for $115 each. She gets a monthly social security check of $626. She borrowed security check of $626. She borrowed money because she was temporarily money because she was temporarily taking care of her granddaughter and taking care of her granddaughter and needed money for the related expenses. needed money for the related expenses.
StoriesStories
Janet Ruiz borrowed $2,950 in February, Janet Ruiz borrowed $2,950 in February, 2005 and was charged a 2005 and was charged a cash advance cash advance fee of $737.50fee of $737.50. Her monthly payments . Her monthly payments (interest only) were $1,106.25. By the end (interest only) were $1,106.25. By the end of the year, she owed more than $12,500. of the year, she owed more than $12,500. By April, 2006, By April, 2006, her debt hit $16,000her debt hit $16,000. .
Stories - StressStories - Stress
““I have been a nervous wreck for 2 days and I have been a nervous wreck for 2 days and have cried my eyes out. The thoughts of going have cried my eyes out. The thoughts of going to jail--almost made me suicidal thinking if I was to jail--almost made me suicidal thinking if I was dead my daughter could draw my social dead my daughter could draw my social security. This threat was a real threat to my security. This threat was a real threat to my entire life you see. Please don't think I am entire life you see. Please don't think I am suicidal--but it made me think what if someone suicidal--but it made me think what if someone that was not stable was in this situation thinking that was not stable was in this situation thinking they would go to jail? Somebody else might go they would go to jail? Somebody else might go through with it.” through with it.”
VaPERLVaPERL
Virginia Partnership to Encourage Responsible LendingVirginia Partnership to Encourage Responsible Lending member organizations include:member organizations include:
AARP, AARP, Virginia Poverty Law CenterVirginia Poverty Law Center, Virginia Interfaith Center for , Virginia Interfaith Center for Public Policy, Public Policy, Housing Opportunities Made EqualHousing Opportunities Made Equal, Richmond , Richmond Better Business Bureau, Better Business Bureau, CHIP of VirginiaCHIP of Virginia, Legal Aid Justice , Legal Aid Justice
Center, Center, Virginia Organizing ProjectVirginia Organizing Project, Virginia Citizens Consumer , Virginia Citizens Consumer Council, Council, NAACP Virginia State ConferenceNAACP Virginia State Conference, Piedmont Housing , Piedmont Housing Alliance, Alliance, Virginia Muslim Coalition for Public AffairsVirginia Muslim Coalition for Public Affairs, Peninsula , Peninsula Community Development Corporation, Community Development Corporation, New River Community New River Community
ActionAction, Greene County Alliance of Church and Community , Greene County Alliance of Church and Community Efforts (GRACE), Efforts (GRACE), Virginia Area Agencies on Aging (V4A)Virginia Area Agencies on Aging (V4A), ,
Voices for Virginia’s Children, Voices for Virginia’s Children, Tidewater Sowers of JusticeTidewater Sowers of Justice, and , and others. others.
VaPERL at the GA – The PleaVaPERL at the GA – The Plea
Repeal the Payday Loan Act of 2002Repeal the Payday Loan Act of 2002
Delegate O’Bannon’s HB 619Delegate O’Bannon’s HB 619 Undo special exception for industryUndo special exception for industry Avoid passing loose reforms (HB 1621)Avoid passing loose reforms (HB 1621)
Cap car title loan APRs at 36%Cap car title loan APRs at 36%
Delegate Morgan’s HB 325Delegate Morgan’s HB 325 Close loophole to open-ended creditClose loophole to open-ended credit Avoid codifying current practice (HB 1514)Avoid codifying current practice (HB 1514)
ChallengesChallenges
They say…They say…Legitimate need fulfilledLegitimate need fulfilledNo alternativesNo alternativesPersonal responsibilityPersonal responsibilityLost revenueLost revenueFree marketFree marketCompromiseCompromiseReforms not repealReforms not repeal
Countdown to Dec 5Countdown to Dec 5thth
House Commerce & Labor Committee will House Commerce & Labor Committee will vote on HB 619 & HB 325 vote on HB 619 & HB 325
Call, write, and emailCall, write, and email your legislators and your legislators and members of the C&L Committee NOW!members of the C&L Committee NOW! Delegates in your area: Alexander, Purkey, Delegates in your area: Alexander, Purkey,
Suit, Joannou, Melvin, Morgan, TataSuit, Joannou, Melvin, Morgan, Tata
Join VaPERL listserv for more information: Join VaPERL listserv for more information: www.VirginiaFairLoans.orgwww.VirginiaFairLoans.org
““Payday lending is like any other vice – Payday lending is like any other vice – it’s instant gratification, but it’s a bad it’s instant gratification, but it’s a bad deal over the long term. There are not deal over the long term. There are not adequate limitations to protect against adequate limitations to protect against gross abuse. People in financial crisis gross abuse. People in financial crisis need financial counseling, not a quick need financial counseling, not a quick fix. Not a loan that is financial fix. Not a loan that is financial cocaine.”cocaine.”
Bill Whalen, Senior Staff Attorney, Pisgah Legal Bill Whalen, Senior Staff Attorney, Pisgah Legal Services, Ashville, N.C.Services, Ashville, N.C.
THANK YOU FOR YOUR THANK YOU FOR YOUR ATTENTION AND INTEREST ATTENTION AND INTEREST
(the good kind)!(the good kind)!
ANY QUESTIONS?ANY QUESTIONS?