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					 Virginia Partnership to Encourage
        Responsible Lending

   Predatory Lending:
The Problem and the Plea

                           Helen O’Beirne,
                           Responsible Lending
                           Coordinator
Predatory Lending - A Moral Issue
Target:
    Low-income workers
    Minorities and immigrants
    Women, single mothers receiving benefits
    Elderly
    Military families
    College students
Attributes = young or very old, desperate,
clustered, unbanked, financially immature
             Signs of Predation
Triple Digit Interest Rates (300% – 1000%)
Collecting Interest From the Loan Proceeds
No Refund For Early Pay Back
Single Balloon Payment
Short Term Loan – Typically 14 days
Personal Check as Collateral
No Consideration of Ability to Repay
Loans are Flipped, Rolled or Refinanced
Simultaneous Borrowing from Multiple Lenders
Mandatory Arbitration Clause
Source: Center for Responsible Lending http://www.responsiblelending.org
Triple Digit Interest Rates

Payday Loans = 380 to 790% APR
Car Title Loans = 360% APR
Loansharking = 150 to 250% APR
Pawnshops = 18 to 300% APR
Payday Loan Contract
Usury laws have existed for hundreds of years
     “Protect the Needy from the Greedy”

                Bans the charge of interest to the poor.

                                             Exodus 22:25

"He who increases his wealth by excessive interest
gathers it for one who has pity on the poor."

                                            Proverbs 28:8
    Single Balloon Payment
Full amount DUE at end of loan term
Installment or partial payments are prohibited

Have you ever taken out a loan that you had to
pay back in one fell swoop?
What is the likelihood that a traditional fringe
borrower can repay all at once?


              DEBT TRAP
“[Predatory loans] are set up so
you have to pay the whole thing off
in two weeks, and they know you
can’t.
It’s bad enough that the interest
rates are 380 percent, the worst
part is that they trap you”.
     Jay Speer, Executive Director – Virginia Poverty
                                          Law Center
  Loans are Flipped, Rolled or
          Refinanced
Typical borrower lives from payday to
payday and come up short when loan is
due
To avoid default (and have their check
presented for payment) the borrower…
Flips, rolls or refinances the loan by
paying interest again, and again, and
again, and again…
          DEBT TRAP
  “That’s the Dirty Little Secret”

Payday lending is structured so
you just pay the interest every two
weeks. They never want you to
pay back the principal.
  John Oxendine, Georgia Insurance Commissioner
  Simultaneous Borrowing from
        Multiple Lenders
   “Borrowing from Peter to pay Paul!”
Exorbitant interest payments eats into
borrower’s paycheck
After a couple of touch ‘n go’s, borrower needs
another loan to fill hole caused by first loans’
interest payments
Can continue for months or years
Some borrowers have upwards of 13
outstanding loans
 Forms of Predatory Lending
Payday Loans
Car title loans
Predatory mortgage lending
Rent-to-own stores
Refund anticipation loans
Buy here, pay here auto dealers
Pawn shops
Payday Lending – The Problem
Bad check as collateral for up to $500
$15 fee for every $100 loaned
Average loan is $300
Average term is 2 weeks
      = $45 every 2 weeks in INTEREST
in 3 months (6 pay periods), already paid back
      amount over the original loan!
             BUT NO PRINCIPAL

               DEBT TRAP
                Payday Loan Tracker
                   Date     Interest Paid

                   Oct 1        $45
Original Loan
                   Oct 15       $90
 = $300            Nov 1        $135

                   Nov 15       $180

                   Dec 1        $225

                   Dec 15       $270        Remaining
                   Jan 1                    Principal
                              $315
                                            = $300
Payday Lending – Other Problems
Hold checking account hostage
Collection practices
Threat of lawsuit
Shame
       How Did This Happen?

Payday Loan Act of 2002
   Loophole / exception / special exemption
   Can accept “bad” check
   Can charge exorbitant interest


       LEGITIMIZED AND LEGALIZED
                INDUSTRY
                                 Payday Statistics
                           12/31/2002       12/31/2003     12/31/2004       12/31/05      6/6/2006

   Total number of
      locations
                              377              596            696             756           776


                         % Increase from
                                               58             17               9             3
                          previous year

Total dollar amount of
 payday loans made        $165,659,916     $655,645,430   $988,135,464   $1,197,105,829


                         % Increase from
                                               296            51              21
                          previous year

  Total number of
individuals to whom
                            124,362          285,798        387,696         445,891
 payday loans were
        made

                         % Increase from
                                               130            36              15
                          previous year

Number of individuals
who received 13 loans                        50,928         76,068          90,859
      or more

                         % Increase from
                                                              49              19
                          previous year
    Payday Lenders in Tidewater
            Locality                           Payday Lending
                                                 Storefronts
Virginia Beach                                       69

Norfolk                                                   45

Newport News                                              40

Chesapeake                                                30
Portsmouth                                                28

Hampton                                                   27
Source: Bureau of Financial Institutions – licensed payday lenders as of 8/06.
Other lenders get word of lenient restrictions
 for payday loans in Virginia (industry
 friendly state)…

Realize they could make a buck, too!
Car Title Lending – The Problem
Payday lending’s little brother
25% “fee” up front; tacked onto principal
25% fee per month = 360% APR
            ON A SECURED LOAN
     (they have title and extra set of keys)
Repossession = loss of vital asset
     How Did This Happen
Loophole = “motor vehicle equity line of
credit”
No caps on open-ended loans (meant for
credit cards)
All other small loans capped at 36% APR
via the Consumer Finance Act
Industry hoping to be regulated = NEXT
PAYDAY LENDING CRISIS
        Car Title Statistics
Currently unregulated
Estimated 150 locations
Could be us: Tennessee passed car title
authorizing legislation and there are now
over 900 car title lenders in Tennessee. In
2004, Tennessee car title lenders
repossessed 17,313 cars.
Three lawsuits settled secretly
                  Stories
Ms. C is 58, disabled, lives on a meager $1019
per month in Social Security. She now has
outstanding payday loans with 5 companies and
pays $400 a month just to keep them afloat.
Every two weeks, she renews one to pay
another. Ms. C finds it takes almost an entire
day to visit each lender with a modest payment.
A payday collector yesterday told her on the
phone that someone who didn't pay ended up
downtown in jail. Ms. C is terrified that she will
spend the last years of her life behind bars.
               Stories
A recent client (VPLC) was discovered to
have 5 outstanding loans: one for $500,
another for $345, another for $230 and 2
for $115 each. She gets a monthly social
security check of $626. She borrowed
money because she was temporarily
taking care of her granddaughter and
needed money for the related expenses.
               Stories
Janet Ruiz borrowed $2,950 in February,
2005 and was charged a cash advance
fee of $737.50. Her monthly payments
(interest only) were $1,106.25. By the end
of the year, she owed more than $12,500.
By April, 2006, her debt hit $16,000.
           Stories - Stress
“I have been a nervous wreck for 2 days and
have cried my eyes out. The thoughts of going
to jail--almost made me suicidal thinking if I was
dead my daughter could draw my social
security. This threat was a real threat to my
entire life you see. Please don't think I am
suicidal--but it made me think what if someone
that was not stable was in this situation thinking
they would go to jail? Somebody else might go
through with it.”
                       VaPERL
 Virginia Partnership to Encourage Responsible Lending
 member organizations include:

AARP, Virginia Poverty Law Center, Virginia Interfaith Center for
   Public Policy, Housing Opportunities Made Equal, Richmond
   Better Business Bureau, CHIP of Virginia, Legal Aid Justice
 Center, Virginia Organizing Project, Virginia Citizens Consumer
  Council, NAACP Virginia State Conference, Piedmont Housing
 Alliance, Virginia Muslim Coalition for Public Affairs, Peninsula
  Community Development Corporation, New River Community
    Action, Greene County Alliance of Church and Community
     Efforts (GRACE), Virginia Area Agencies on Aging (V4A),
 Voices for Virginia’s Children, Tidewater Sowers of Justice, and
                              others.
VaPERL at the GA – The Plea
Repeal the Payday Loan Act of 2002
Delegate O’Bannon’s HB 619
   Undo special exception for industry
   Avoid passing loose reforms (HB 1621)

Cap car title loan APRs at 36%
Delegate Morgan’s HB 325
   Close loophole to open-ended credit
   Avoid codifying current practice (HB 1514)
              Challenges
They say…
 Legitimate need fulfilled
 No alternatives
 Personal responsibility
 Lost revenue
 Free market
 Compromise
 Reforms not repeal
       Countdown to Dec 5th
House Commerce & Labor Committee will
vote on HB 619 & HB 325
Call, write, and email your legislators and
members of the C&L Committee NOW!
   Delegates in your area: Alexander, Purkey,
    Suit, Joannou, Melvin, Morgan, Tata
Join VaPERL listserv for more information:
        www.VirginiaFairLoans.org
“Payday lending is like any other vice –
  it’s instant gratification, but it’s a bad
  deal over the long term. There are not
  adequate limitations to protect against
  gross abuse. People in financial crisis
  need financial counseling, not a quick
  fix. Not a loan that is financial
  cocaine.”
         Bill Whalen, Senior Staff Attorney, Pisgah Legal
                                  Services, Ashville, N.C.
 THANK YOU FOR YOUR
ATTENTION AND INTEREST
      (the good kind)!



   ANY QUESTIONS?

				
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