Archive for August 2016
By Charlene Crowell (NNPA News Wire Columnist)
News – we read it, talk about it, even complain about it from time to time. But if you look close enough, the good news can still be found – like Olympic gold medalists of all colors winning in Rio, or a series of voter suppression laws ruled unconstitutional in several states.
And there’s even more good news on the financial front. New research finds that 90 million consumers are saving $2.2 billion each year. These savings didn’t come from pay raises or bonuses, or new jobs. Instead, these financial gains came when a pernicious form predatory lending became illegal.
Let’s call these locales “shark-free” states where interest rates on small-dollar payday loans are legally limited to no more than 36 percent. Instead of living on financial tightropes from one payday to the next, these consumers are paying off bills and even saving some money on a regular basis.
Call me old-fashioned, but when bills are paid and I’ve still got money to call my own, I feel like things are going OK. I’m betting others do too. As one of my colleagues recently remarked, “When $2.2 billion of fees go away, who wouldn’t feel better?”
That colleague’s name is Robin Howarth, and she’s a senior researcher with the Center for Responsible Lending (CRL). She and another colleague, Delvin Davis, also a senior researcher are co-authors of the policy brief, “Shark-Free Waters: States are Better Off without Payday Lending.” Working together, the two of them found that consumers in payday-free states have found multiple ways to manage temporary cash shortfalls and at a fraction of the cost of payday loans. Their conclusions were informed by a series of academic studies, surveys and focus group results.
Contrary to the claims of industry supporters, consumers are satisfied with the respective state bans. In North Carolina, 9 out of 10 low and moderate-income consumers expressed that payday lending was not in their best interest. “They’re there basically to rob people that need money,” noted one North Carolina consumer.
According to another focus group participant from Arkansas, “I found that I really could do better without them [payday loans]. . . .I have actually paid off debts by a little at a time.”
As shared in earlier columns, consumers of color are especially hard hit payday lending’s debt trap. Earlier studies have shown that in states allowing payday lending, such as Florida and California, Black and Latino neighborhoods have twice the concentration of payday stores than their white counterparts.
On the positive side, other states now benefitting from consumer-friendly payday loan reforms are Arizona, Arkansas, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia. Among these states, 12 also limit interest rates for car-title loans, thereby further boosting consumer savings even further each year.
For example, in New York, the most populous state of the 14 with rate caps, consumers save a total of $789,995, 328 in combined fees for payday and car title loans. Lower, but substantial savings were also found in Pennsylvania ($489,497,834), North Carolina ($457,729,960) and New Jersey ($346,587,204).
By contrast, where payday loans remain legal, borrowers pay fees of over $4.1 billion annually, with the average customer taking out 10 loans a year. The repeat borrowing cycle creates a debt trap for consumers that is easy to access, but extremely difficult to retire.
Imagine what could happen if all communities and states became financially free of fees that bite your finances just as hard as a shark could in the ocean. The financial bleeding would stop and you’d likely gain real choices for things that have seemed like distant dreams.
“When payday loans are not available, a substantial portion of former payday borrowers in the range of 20-35 percent would immediately have access to either savings or mainstream credit as an alternative source of liquidity without applying for any new credit,” states the report. “There is also evidence that former payday borrowers may be able to access new mainstream credit, perhaps because of improved financial conditions combined with an increased willingness to search for new forms of credit after a payday ban.”
“We can only imagine that these significant savings to consumers bring about greater financial stability and are the measurable basis for consumer satisfaction,” added Howarth.
“Over the years, CRL’s payday research has focused on the ills of these predatory loans,” said Davis. “This policy brief points out the benefits consumers gained by limiting interest rates – whether by voter referendum or state legislation. Money stayed in their pockets, instead of paying high-cost fees.”
To borrow a line from a Samuel Jackson Capitol One commercial, “What’s in your wallet?”
Charlene Crowell is the communications deputy director with the Center for Responsible Lending. She can be reached at #67;h#97;r#108;e#x6e;e#x2e;c#x72;o#x77;e#x6c;l#x40;r#x65;s#x70;o#x6e;s#x69;b#x6c;e#x6c;e#x6e;d#x69;n#x67;.#x6f;r#x67;.
Congressman Patrick McHenry held a town hall meeting Thursday night at the Gaston County Courthouse. More than 60 people turned out for the 90-minute meeting with questions coming from Republicans and Democrats alike.
McHenry seeks a seventh term representing the US House against a Democratic challenge from Andy Millard of Polk County.
Do you support Donald Trump?
One of the lighter moments of the 90-minute meeting came when Ashley Barlowe asked McHenry on what issues he and Trump disagreed.
Oh Lord, McHenry said after a slight pause.
He called both Trump and Democratic nominee Hillary Clinton imperfect choices, but said Trump was the better candidate because he would appoint better judges to the Supreme Court and was more likely to support tax reforms.
McHenry questioned Trumps commitment to pro life and Israel and said he had personally talked to the GOP nominee about those two issues.
But McHenry said he has always supported the Republican nominee for president, even though he has also differed with the GOP choice on at least one issue.
He said neither Trump nor Clinton is fiscally conservative enough for his liking.
From my brand of fiscal conservatism, I dont think either nominee is sufficiently strong on balancing the budget, McHenry said.
Queenie Trotman asked McHenry why he took campaign contributions from payday lending groups, an industry banned from doing business in North Carolina since 2006.
Community banks and other traditional lending institutions do not help people who need loans to make it just a few days until their paycheck. McHenry told a story about growing up and seeing his father loan one of his landscape company employees $20 on a Thursday to make it to Fridays paycheck and how that helped.
Im worried about somebody who has a car that breaks down, who has a refrigerator break down and they have two kids at home who need to eat, and they need to make it to Friday to get their paycheck, McHenry said.
He said people living on the edges need a regulated way to make it to their next paycheck. Those against payday lending dont know what it feels like to live from paycheck to paycheck, he added.
Cuts to EPA
Susan Maxon, a Democratic challeger to Republican Rep. Dana Bumgardner in the state 109th House District, questioned McHenry on his support for cuts to the Environmental Protection Agency in light of the states current coal ash controversy.
McHenry said the EPA has not dealt with coal ash from Duke Energys coal-burning plants, since the state regulates those plants. But the congressman lashed out at the EPA for over-regulation, saying it has made everything from farming to building a home to hard.
I think what the EPA is largely doing is destructive to our economy and not a part of its mission, McHenry said. They have way overreached their bounds, and thats why I voted to cut their funding.
Maxon rebutted that she hoped the EPA would be around if the state needs the federal agency to protect air quality and clean water.
Sheriff Alan Cloninger
The countys only elected Democrat in a partisan office introduced McHenry to the crowd, calling the congressman very approachable and someone who represents us well.
But Cloninger said he does not endorse candidates, although he thinks McHenry has done a good job in Washington.
Im not going to tell you who Im going to vote for. Thats a big none of your business, Cloninger said Friday.
As county sheriff, Cloninger said he represents everyone in Gaston County, adding that if the governor was in town, hed be there too.
You can reach Kevin Ellis at 704-869-1823 or Twitter.com/TheGazetteKevin.#xa0;
Months before a federal agency proposed a
new rule threatening the profits of exploitative payday lenders across America, the
industrys leaders gathered at a
posh resort in the Bahamas to prepare for war.
At the March strategy session, Gil Rudolph of Greenberg Traurig, one of several law firms
working with the lenders, described the coming storm this way: Its like a
tennis match. Every time you hit a ball, hopefully it comes back. Our job is to
hit the ball back hard.
Most of us have a vague sense that corporate America doesnt
like being told what to do, but rarely do we get a front-row seat into how the playbook for resisting federal regulation is written. VICE has
obtained exclusive transcripts of this years annual
meeting of the Community Financial Services Association of America (CFSA), the payday lending industrys trade group, at the Atlantis Paradise Island Resort. Thats where lenders were taught exactly what it might take to beat back an existential threat to their business.
Payday loan customers typically borrow about $350 for a short-term deal, usually until their next paycheck.
As a condition of the loan, they generally give the lender access to their bank account to extract fees of between $10 and $30 for every $100 borrowed. If borrowers cant pay the loan when it comes due, they
can roll over into another loan, triggering more fees and getting trapped in
what critics call a cycle of debt. The average payday or auto-title loan (where the customer uses their car as collateral) carries an annual percentage
interest rate between 300 and 400 percent.
This June, the federal Consumer Financial Protection Bureau
that payday lenders can only issue loans to people they expect to actually be able to pay them back–while
also meeting their other financial obligations. The number of additional loans would
also be capped, and a 30-day cooling off period established to help prevent that vicious debt cycle, among other changes.
The industry decried
the rule when it went public, highlighting a government
simulation suggesting that 69 to 84 percent of storefront short-term payday loan volume would fall, potentially devastating their business. But the transcripts show lenders were already discussing how to prevent the rule from taking effect at the Atlantis back in March.
For starters, the industry plotted to bombard the Consumer Bureau with comments and
studies suggesting regular people would be the real losers–even if their own oversized
profits were obviously the focal point. The bureau has illustrated its knee-jerk
hostility to this industry, said Noel Francisco of corporate defense firm Jones
Day. So it is critical to point out the flaws… and include all of the evidence
showing the enormous benefits that payday loans have to offer the consumers who
Under the Small Business Regulatory Enforcement Fairness Act
(SBREFA), the feds must talk to small businesses affected by their rules, in
this case payday lenders, and respond to concerns. In addition, most proposed
federal regulations allow the public to make comments. At the Atlantis, leaders stressed the need to deliver hundreds of thousands of such comments before the
deadline on the payday rule, which is this
October 7. They suggested getting employees, landlords, suppliers, bankers,
neighbors, state and local politicians, and even pastors to write letters. (We
cant let them have all the ministers, said Tony Dias of Jones Day, referring
to faith groups who support the feds.)
But the biggest resources for this project, according to the
industrys leaders, are the customers who borrow against their future
In a breakout session called Take Action in the Rulemaking
Process Comment Period, Dias asked lenders to get every customer
that comes into your store… to write out a handwritten letter and tell the
bureau why they use the product, how they use the product, and why this will be
a detriment to their financial stability. A handout given to attendees featured
talking points for use in such letters, and Dias promised to send labels to every store
with the proper reference number so comments could be mailed in. We
will have a team of three full-time writers in our office, to assist them, he noted. Thousands
of these comments have already
It doesnt appear lenders were encouraged to explicitly demand their customers write a letter as a condition of getting their loan, but some may have danced up against the line. Theres precedent with that kind of thing, of course: In
Arizona earlier this year, lawmakers received boxes of letters from borrowers claiming to support a bill that would have
re-instituted high-interest payday loans eliminated in a 2008 ballot measure.
When the borrowers were contacted, many said they had no idea what they were signing, and some expressed opposition to the
Overwhelming the feds with comments serves three purposes,
as was driven home throughout the sessions in the Bahamas. First, it puts pressure on the
feds to change the rule in response to public outcry. Just as important, it
sets a basis for litigation after the fact–by submitting comments contradicting
the governments claims, the industry can argue that the Consumer Bureau violated the Administrative
Procedures Act by instituting a rule arbitrarily, and without basing it on
The third and perhaps most critical goal is to delay the
rule itself–that is, to keep the payday loan party going. If the agency has to wade through hundreds of thousands of comments–from homeowners to political officials and academics–to which they must respond, then they are necessarily bogged down, as Dennis Shaul, CEO of the industry trade group, put in the Bahamas. Delay does not
just force the feds to mull over the details, he added: If the rule is
delayed, operators are still continuing to be in existence and presumptively to
make a profit.
It seemed like a good plan–assuming you arent stuck in a cycle of
The industry complains about all this paperwork, these
900-page rules, Georgetown law professor Adam Levitin, who sits on the CFPBs
Consumer Advisory Board, told VICE. But by flooding with comments, they
contribute to it. Theyre trying to make government less efficient.
Inside the Atlantis, Shaul noted with pride the various ways
in which his group had already helped delay the rule: filing requests under the
Freedom of Information Act (FOIA) to divert agency resources, issuing petitions
and press releases and reports that require a rebuttal, and seeking meetings with
regulatory personnel to argue their side. All of that, plus the comment period, could
move the final rule beyond the 2016 elections, at which point Shaul expressed hope for wholesale
changes in regulatory personnel, perhaps leading to even longer delays. (A CFSA spokeswoman declined to comment for this story.)
Perhaps the conferences most interesting panel was called
Federal Rulemaking in 2016: What to Expect and What Alternative Products to Consider, run by Blake Sims
and Justin Hosie of the consumer finance law firm Hudson Cook. This was a
master class in how to exploit and manipulate regulatory loopholes.
For example, Hosie recommended that long-term installment
loans could earn similar rates of return as the classic payday product, if structured correctly. An eight-week loan with four installment payments is
effectively the same as a two-week payday loan rolled over three times, and if
you add fees on top of the interest rate, borrowers could still pay over 300 percent interest on a $500 loan–even if the new rule goes into
effect and gets enforced. Indeed,
lenders have wasted no time beginning to experiment with these products while the rule sits in limbo. Payday and auto title companies are
already making installment loans in 26 of the 39 states where they operate,
Nick Bourke, director of the small dollar loans research project at Pew Charitable
Trusts, a public policy research organization, told me. The rule makes it far
too easy to make a high-cost loan.
Even if lenders abide by the humane ability-to-repay standard,
theres wiggle room within it, Sims suggested at the resort. Customers could make
themselves eligible for a loan by agreeing to cancel their cable or cellphone
service, which would obviously reduce their overhead. (Of course, they could always
re-up those bills once the loan got approved.) Borrowers could also find
co-signers, whose income would be factored into the ability-to-repay test. And
if a borrower had no co-signers, the payday lender could rent one to them, using an affiliated company inside the store to
issue a guarantee of credit offered for a fee to the consumer, Hosie said.
Other ideas included having customers pay a membership fee
to access a payday storefront, recouping some of the lost profits from
lower-cost loans. Or lenders could put online kiosks in stores to help people buy
physical products. If we cant give you a loan for $300, but youre going to
use that for a new tire over here, we can finance the acquisition of that tire
for you, as Hosie put it. That might technically be considered a form of credit, rather than a
loan covered by the rule. The product could even be a prepaid card, Hosie noted, meaning that the consumer would essentially
buy money on credit, to get around the payday loan restrictions.
The abundance of creative ways the payday industry tries to avoid regulation is no surprise given how active its been at the state level, as a recent
report from Democrats in Congress shows. If you halt payday loans, they
gravitate to title loans. If you halt title loans, they gravitate to Internet
loans, Democratic US senator Jeff Merkley, who has introduced legislation
to prevent loans that dont comply with state laws, told me. Its a hell of
The feds have launched
a probe into high-cost products not covered by the pending rule, including
long-term installment loans. And they have anti-evasion measures baked into the new regulation, giving the Consumer Bureau extensive powers to catch trickery.
But that all depends on proper enforcement. And even if the rule works, its likely to catch companies after they have prospered
by running a train on peoples financial lives for months
Thats their business model, said Gynnie Robnett, who directs the payday lending campaign at Americans for Financial Reform, a coalition of consumer groups. And they seem determined to
preserve it, any weasel-y way they can.
Follow David Dayen on Twitter.