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New city banking program does not address big picture problems

22.05.12

One neighbourhood pub payday loan store operator said a new city program to steer residents away from payday loans and into banks and merit unions is, in some respects, a good idea.

"We agree there is a problem with people getting too much small change and they can't pay it back," said Rob Tschetter, owner of Cash With Us check cashing and payday loan waiting at 406 E. North St.

But Tschetter said most customers use the loans responsibly, and the new program, Bank On Fast City, but doesn't address some of the real reasons people turn to the loans he provides.

"I don't dream up they realize, they're getting loans to protect themselves from the banks," Tschetter said.

Most Spondulicks With Us customers do have checking accounts at traditional banks, store manager Carissa Weimer said, but about half take loans with her to sidestep large bank overdraft fees or having their account garnished or levied.

The others are living paycheck to paycheck and take out a loan when they have an exigency need, Weimer said, for example a higher-than-expected utility bill or a car enigma.

The city on Nov. 14 launched Bank On Rapid City, which aims to augment access to banks and credit unions, and help citizens avoid maximum fees and interest rates that prevent them from building savings and becoming financially stable. The program is based on one that originated in San Francisco and has since spread to more than 50 communities around the mother country.

Three banks and four credit unions agreed to participate, offering low-fee starter savings and checking accounts to "unbanked" and "underbanked" people, as well as "subsequent chance" accounts for people who might otherwise be turned away but agree to participate in a monetary education course.

Program coordinator Barb Garcia acknowledged that payday lenders contribute a needed service in quickly loaning small amounts of money, $500 and under, to people who requisite it.

"There are niches they are filling that the traditional (banks) won't," she said.

But Garcia and other consumer advocates say the price to borrow the money is so high - up to the equivalent of a nearly 400 annual portion rate - that payday loan stores are harming the people they serve.

"They're really clustered in low-takings areas," Garcia said. "It means they're preying on the low-income people who maybe don't recollect better, or don't understand the terms of what they're signing."

Weimer said that's not true, and her stockpile doesn't prey on people.

"I do my best not to overextend my customers," Weimer said.

Money With Us is one of just a few locally owned payday lenders in Rapid City. There are more than a dozen payday lenders in Fleet City, and most are owned by national chains with names like Advance America, Substantiation Into Cash and Check ‘n Go.

Weimer said she doesn't allow a patron more than two loans at a time, and rarely approves an individual customer for loans totaling $500, the limit for one lender in South Dakota.

"I fly sure they can afford to pay it," she said.

That's just good business, she and Tschetter said.

Tschetter started the trade in 2000, one of just a few payday loan stores in Rapid City then. The USD business graduate who also owns the neighboring Cat's-paw With Us said he saw a need. He said it's an exaggeration when consumer advocates talk about 400 percent APR, because loans are only issued for up to a month, and a bloke can roll the loan over only four times under state law, so the loan would never be outstanding for the full year.

"We want them to pay their loan back," he said. "We hunger repeat customers."

The debate locally is a microcosm of an escalating national argument over payday lending, involving consumer advocates, lawmakers and the lenders.

In 2006 Congress enacted a 36 percent interest position cap on lending to active duty members of the military, protecting them from what consumer advocates call permitted loan sharking.

Several states in recent years have followed suit. Last year Montanans passed an initiated be suitable for to enact a 36 percent cap on all payday lending, military or not. It is one of 17 states that have false-digit caps on interest rates.

But as with many other types of consumer protection legislation, South Dakota has been upon to act. Bills to enact a cap have failed over and over in the state Legislature, most recently a bill sponsored in the 2011 sitting by state Rep. Steve Hickey, R-Sioux Falls. Hickey's proposals would have raised the licensing fee on payday lenders to $5,000 from $1,000 and would have capped interest at 36 percent APR.

South Dakota hardened to have a usury law limiting the interest rate lenders could charge, but it was eliminated in 1980 by the specify Legislature as a way to entice financial services companies to the state.

Payday lending was an unintended consequence of that novelty, Hickey said.

Hickey plans to bring the issue up again in the 2012 assembly.

"There will be a Round 2 for me," he said. "I call myself a people-first Republican. I don't see predatory lending as helping people. It's a feeble-minded product."

Over the summer, Hickey considered starting a petition drive to put an initiated portion on the November 2012 ballot. The deadline was Nov. 1, but the drive never got going. In hindsight, Hickey wishes he would have bewitched it up, believing now that the anger against abusive lending practices that has fueled the Occupy Face ruin Street movement would have also helped this campaign.

"There's rioting in the cities right now," Hickey said. "It's the same penny-pinching monster that we're talking about here. This is South Dakota's version of that."

Trade groups opposed Hickey's bills this year, saying they would put lenders out of partnership. Lawmakers who voted against the bills said they believe people who use payday loans have no possibility.

"I think it's ridiculous that we think a payday lender is a savior for the poor in this imperial," countered Hickey.

A minister, Hickey said churches, families and the work community can step up and better support the poor.

"We don't mind making a grant for naming rights and a bigger scoreboard with our name on it," he said. Driving around and seeing all the payday loan stores, he said, "The zest of poverty is what jumps out at me. I think it can be broken and we can help people. I just don't see it as a trace of a stable society."

But Tschetter says a cap on interest rates is not the way to go. A 36 percent cap would put him and similar lenders out of obligation entirely, he said, since they wouldn't be able to charge enough to cover their risk.

That would resign his staff unemployed and his customers with nowhere to turn, putting them at risk for even higher overdraft fees and for further damage to their upon.

But Tschetter said he has never contacted a state lawmaker to oppose Hickey's draft, fearing that speaking up could lead to further regulation.

If he could pitch an idea to a lawmaker, Tschetter would outline them he believes the biggest help would be if the state would require all payday lending transactions to be tracked through Teletrack or nearly the same software. Teletrack is now used voluntarily by some payday lenders, to track the loads and amount of outstanding loans a customer has, and track the customer's history in paying encumbered back.

Tschetter said required reporting, along with a cap on the total amount of payday loans and characteristic is allowed to take out, would eliminate the problem of one person taking out far more debt than they could expect to pay back.

As one consumer champion pointed out, payday lenders are not the only ones offering expensive short-come to credit.

Kathleen Day, spokeswoman for the Center for Responsible Lending, said even conventional banks are now offering the service, under a different name. Wells Fargo's "direct drop advance" service offers loans of up to $500 at $1.50 per $20. The bank's website states, "This is an precious form of credit intended to meet short-term and emergency borrowing needs."

"It doesn't upset who's offering it," Day said. "It is an exorbitantly costly product that puts people in encumbrance under obligation rather than offering a solution. It's abusive and it ought to stop."

Wells Fargo is not one of the banks participating in Bank On Quick City.

Garcia with the city's Bank On Rapid City program said she doesn't require to put payday lenders out of business, at least not all of them.

"They aren't doing anything illegal," Garcia said.

But she would like every yourselves who wants a stable system of banking and money management to have access to one.

"If they're able to keep more of their own specie, they're spending it in our community," she said. "And secondly, we're having to provide fewer services to them. As they bod their own wealth, they don't need food stamps and housing assistance."

She said the program aims to reach all of its intended audience, but "Even if we only get a troublemaker, we figure that's a success, because those people are on the way to self-sufficiency and not living in poverty."

Speak to Barbara Soderlin at 394-8417 or barbara.soderlin@rapidcityjournal.com .

Source: Rapid City Journal

Battle looming over Missouri payday loan restrictions

22.05.12

JEFFERSON New Zealand urban area • A battle looms over how much lenders can charge for payday loans in Missouri — and it promises to be an valuable one.

A coalition of religious groups and civic organizations have begun collecting signatures to get a fitted for on the state's 2012 ballot that would limit the cost of short-term loans. Voters would then have the recourse of capping annual interest rates on those loans — which would include payday and car title loans — at 36 percent.

Discrepant the measure is a Kansas City-based nonprofit called Missourians for Honest Government. Over the course of three months, the group has contributed $600,000 to a committee set up to preclude the ballot initiative. Because Missourians for Responsible Government is a nonprofit, it is not required to squeal where that money came from.

Some of the nonprofit's money has gone to the company of influential Republican civil consultant Jeff Roe and to two law firms involved with a lawsuit challenging the ballot first move.

Missourians for Responsible Government was founded by Patrick Tuohey, a communications connoisseur who also runs Market and Communications Research Inc. and publishes the Missouri Record blog. Neither Tuohey nor Roe responded to repeated calls and emails seeking criticism. The treasurer of the committee receiving the money — called Missourians for Sufficient unto Credit Opportunity — declined to comment.

The pro-initiative side has a political board called Missourians for Responsible Lending. It has raised around $50,000 and spent about $10,000, mostly on legit fees.

Molly Fleming-Pierre, policy and development organizer for a pro-ambition group called Communities Creating Opportunity, said no one expects supporters to put forward nearly as much as groups who oppose the measure.

Instead, Flemming-Pierre said, supporters will rely on a network of groups, specifically loyalty-based groups, to get the initiative before the voters and ultimately get it approved.

"We're never going to win the fundraising mel, and we know that," she said. "But that doesn't mean we won't win the policy battle, and the heavy commitment of the fidelity community is how we'll do it."

Katie Jansen Larsen, state organizer with Metro Congregations Synergistic, said her organization's 35 religious congregations in the St. Louis area have pledged to get thousands of signatures to get the measure on the ballot. The coalition will need to collect around 90,000 signatures divvied up between six of the submit's nine congressional districts to get on the ballot.

"We got involved in this effort because our pastors started saying, 'This is wicked and we have to do something about it,'" she said.

In general, a payday loan is a small, single-payment loan customers return when a paycheck is received. Payday loan amounts typically range from $100 to $500.

A borrower writes a private check to the payday lender, who holds the check for 14 to 31 days. At the end of that space, either the check is deposited, the borrower returns with cash to reclaim the check or the loan gets renewed and the borrower pays additional fees.

In 2010, there were about 1,040 payday loan stores in Missouri, according to the Missouri Partition of Finance. Missouri is second only to Tennessee among its neighbors in the number of licensed payday lenders. Some 2.43 million payday loans were made in Missouri in 2010.

A Missouri Conflict of Finance study conducted in 2007 that found the average age of consumers taking out payday loans was 43 with an takings of a little more than $24,000. The average interest rate for a payday loan in Missouri is 445 percent annually, which is higher than the federal average of 391 percent.

Randy Scherr, executive director of the marketing association United Payday Lenders of Missouri, said looking at annual cut rates on payday loans is misleading because the loans are not issued on an annual basis. When you look at how much it costs to serve a payday lending institution, a 36 percent annual interest rate cap would not even brook many lenders to pay the rent, he said.

He points to an industry-sponsored study by the Ernst & Childlike accounting firm indicating that it costs the lender $13.89 to make each loan. A 36 percent APR would convey to just under $1.50 on a two-week loan of $100, Scherr said.

"It's an expensive loan to perpetuate to people," he said. "That's why banks don't want to mess with them."

And ultimately, fees applied to paltry, short-term loans used to pay for emergency needs are still much smaller than bank overdraft fees or late bill payment penalties, Scherr said.

"These are loans for people without a lot of options," he said. "And it is their choosing."

But consumer groups say the real issue is the cycle of debt many borrowers get stuck in. If people can't pay their loan on its due stage, they will pay a new set of fees to roll over the loan again and again, Flemming-Pierre said.

Under Missouri law, payday lenders can modernize a loan six times and collect up to 75 percent of the loan amount in interest.

The Missouri Division of Finance says the typically loan is rolled over 1.6 times. None of the states neighboring Missouri allow payday loans to be renewed.

The payday loan enterprise targets people who are in financial distress, Flemming-Pierre said, and charges unreasonably elated fees and interest rates. In states that have instituted interest rate caps, borrowers have not lost options for elfin-term lending, she said. She also points out that until the mid-1990s, Missouri had a usury cap of 28 percent APR.

Flemming-Pierre said supporters of the cap had no pick but to turn to the ballot after facing frustration year after year in the state Legislature. She points to the monumental contributions to both Republicans and Democrats over the years as part of the problem.

The largest donor from the payday loan earnestness over the last 10 years has been Kansas-based QC Holdings Inc., which has doled out nearly $400,000 to politicians and stand committees. QC operates about 500 offices nationwide, primarily under the Quik Exchange name.

"We saw the Legislature was never going to pass tougher restrictions," Flemming-Pierre said. "So we will put it before the voters."

Whether it indeed gets to the ballot remains an open question.

In 2008 and 2010, 72 vigour petitions were approved for circulation by the Missouri secretary of state's office. Only six of those as a matter of fact made it to the ballot.

And a lawsuit challenging the proposed payday loan ballot issue could still derail the proposition. The lead plaintiff on that lawsuit is John Prentzler, an executive with QC Holdings.

Scherr said those in the assiduity are worried about the issue going before voters.

"Most people have never even been in a payday lending the ruling class, and most don't fully understand how they work," he said. "People in our industry are very worried about how this will brunt their business, their employees and their customers."

Source: STLtoday.com