Predatory Lending - A Moral Issue. Target:Low-income workersMinorities and immigrantsWomen, single mothers receiving benefitsElderlyMilitary familiesCollege studentsAttributes = young or very old, desperate, clustered, unbanked, financially immature. Signs of Predation. Triple Digit Interest
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1. Predatory Lending: The Problem and the Plea Virginia Partnership to Encourage Responsible Lending
2. Predatory Lending - A Moral Issue Target:
Minorities and immigrants
Women, single mothers receiving benefits
Attributes = young or very old, desperate, clustered, unbanked, financially immature
3. 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
4. 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
5. 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.
"He who increases his wealth by excessive interest gathers it for one who has pity on the poor."
7. 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?
8. “[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
9. 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…
10. “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
11. 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
12. Forms of Predatory Lending Payday Loans
Car title loans
Predatory mortgage lending
Refund anticipation loans
Buy here, pay here auto dealers
13. 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
14. Payday Loan Tracker
15. Payday Lending – Other Problems Hold checking account hostage
Threat of lawsuit
16. 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
17. Payday Statistics
18. Payday Lenders in Tidewater
19. Other lenders get word of lenient restrictions for payday loans in Virginia (industry friendly state)…
Realize they could make a buck, too!
20. 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
21. 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
22. 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
23. 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.
24. 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.
25. 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.
26. 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.”
27. 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.
28. 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)
29. Challenges They say…
Legitimate need fulfilled
Reforms not repeal
30. 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
31. “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.
32. THANK YOU FOR YOUR ATTENTION AND INTEREST
(the good kind)!