Payday Lenders begin to turn the Tide against Proposed CFPB Regulations

Payday lenders have been living with the pressure of a very real threat to their industry for some time now. The threat is the new regulations that the CFPB has cooked up for the industry. In the mainstream media and in some court hearings, the payday lenders have taken quite a beating from the CFPB so far. It looks, however, like the lenders have finally had it, and they have started to take action to push back against the CFPB and its proposed payday lending industry regulations.

Jennifer Sons is from Chino Valley Arizona and she is also a payday loan customer. She wrote a note that got delivered to D.C. via a Cincinnati group called Axcess Financial. Part of that note read, “These loans are life savers!! Do not change anything please!”

Another payday loan customer, Kathy Walsh of Shellsburg, Iowa wrote, “If I did not have the advantage of a payday loan, I wouldn’t be able to pay for things like my medicine when I run out, especially since I get paid twice a month!”

There have been so many personal notes and comments posted online that the federal government’s website, Regulations.gov, has them all listed under a section of the site called “What’s trending.” At last count, there were more than 22,500 comments and a minimum of 830 handwritten notes that were sent through via Axcess. This group runs the Check ‘n Go and Allied Cash Advance Locations. An additional 800 comments were posted by customers of Advance Financial in Nashville. Some of these notes had straight-to-the-point text, like “I have bills to pay,” and “Leave me alone!”

The correspondence was recently reviewed and it was determined that the letters were from consumers who were concerned about their access to lines of credit going away. Those types of letters and comments far outweighed the comments from critics of the payday loan industry. The critics, mostly consumer watchdog/advocate groups, believe that the lenders are leading consumers down the wrong path and they say that credit for working class people will not go away. They claim that new financial products will offer people the chance to borrow money with more affordable fees.

Providers in the payday lending industry, however, say that the rule will force legitimate lenders to close down their companies. They also say that the rule will prevent lower income consumers from having access to emergency cash and lines of credit. In this battle the lenders have found that the borrowers are their most powerful weapon.

Cullen Earnest is the VP of public policy for Advance Financial. He said, “This is just the tip of the iceberg!” The last day that the CFPB will accept public comments on the rule is October 7th. Earnest warns that there will be many more consumer letters and comments before that day arrives.

As things now stand in most states, payday lending companies can make shorter term, smaller dollar loans to just about any person who has a job. If borrowers are unable to pay back their loans on time, they can roll the loan over into a new one. Opponents of payday lending say that this process creates cycles of debt for poor people. They hope that the new rules will put an end to the creation of these cycles. It is important to know, however, that most people who take out payday loans do so with understanding of the fees and the loan terms. They also usually pay back their loans on time. Those who roll loans over often do so willingly, and fully understanding that it will take them additional time to pay the loans back. This is no different than if someone chooses to skip a credit card payment; except that the CFPB would rather target the payday lending industry with stiff regulations than it would larger providers of financial services, like big banks and credit card companies.

Do not be fooled by Scammers pretending to be the IRS

There are three letters, when spoken or printed together that can frighten nearly everyone – IRS. Yes, the Internal Revenue Service is not an organization to take lightly. Even if you are an honest taxpayer who does everything by the book, the thought of a phone call from the IRS can probably send chills down your spine. The IRS is fully authorized to collect tax debt, and there is a valid reason for all of us to take this government agency very seriously.

It is the bit of fear that we all have of the IRS that has given scammers the ability to con people out of their hard earned cash. The scam is usually a variation of someone calling you, pretending to be from the IRS, telling you that you owe them money and then working to bilk you out of your cash. People who get nervous at the thought of an audit or who simply don’t understand how these kinds of scams work wind up getting suckered into forking over their hard earned money.

It is important to know how to identify a tax scam. Here are some tips that should help you to do so with ease…

  • Remember that the IRS does not practice calling people on the phone about tax debts. Instead, they send professional, courteous letters to inform you of these types of issues. They will even follow up with additional letters if you don’t respond, but they should never be calling you on the phone out of the blue.
  • The IRS would not demand that you wire money to take care of tax debt. The phone scammers seek this form of payment quite frequently.
  • The IRS does not threaten to have the police come to take you in. If you get on the line with a phony IRS person who talks about having you arrested, ignore them and hang up the phone.
  • The IRS does not accept iTunes cards or other types of gift/debit cards as payment for tax money that is owed to them. Believe it or not, a lot of scammers demand payment in iTunes cards, and people actually believe them!

As is often the case, many of the victims of these kinds of scams happen to be senior citizens. These scenarios can be quite sad. Here is a story about one such situation that happened recently – “A member of our family was targeted and unfortunately fell for this scam not long ago. Being elderly he didn’t understand that the IRS is NEVER going to call you to demand money. Fortunately for him, the bank teller stopped the transaction when she realized it was indeed a scam.”

Folks – scammers of all sorts love to target older people. If you have older friends and relatives, be sure to let them know about these kinds of scams, and inform them how to avoid them. These calls often come in the middle of the morning or early afternoon. However, there are so many groups working to pull off these kinds of scams that the calls can come in at any time. Many of the people who make these calls have very heavy accents and some have a difficult time understanding English. Not every person who calls that has an accent is a scammer, but it is fair to mention this in an article that is about the most recent wave of IRS phone scams.

Bottom line – even if you do owe money to the IRS they are not going to cold call you. Don’t verify any information, give credit/debit card information, wire money to or purchase any gift cards for any of these types of tax scam telephone calls.

Payday Lenders out of the Crosshairs in Minnesota?

Recent moves by the Minnesota Legislature – moves that were dead set on imposing reform on the payday lending industry fell by the wayside at the end of 2014. In fact, the proposed reform actually failed to get going at all at the beginning of 2015. This turn of events represents a significant set back for a group of religious and community advocate groups that had their eye on demanding concessions from payday lending companies. These folks believe that when people get small dollar loans for a few weeks that the payday loan customers wind up in a never ending spiral of debt due to loan fees and late fees.

Last year, the Minnesota House, with the DFL pulling their strings, passed a bill that was backed up by the Minnesota Chamber of Commerce. Lobbyists and advocates for the payday loan industry, however, were not able to reach a place of common ground, so the Senate passed. Fast forward to this year and the different parties involved were not even talking about the bill, with no hearings being held to date.

Commerce Commissioner Mike Rothman said, “I’m still committed to this. This goes to my goals for building [family] financial capability. The dialogue [between the industry and consumer groups] got difficult when it came to the interest rate and the number of loans. Families do need affordable credit. It’s troublesome when they are caught in debt traps.”

The group of payday lending companies, led by the successful Payday America company, with 15 locations owned by the same family that owns Pawn America, have pushed back against changes that would effectively limited how many loans a borrower could take out and that significantly lowered interest rates to cap out at only 30 percent. A Payday America executive, Chuck Armstrong, along with Paul Cassidy, a lobbyist for the company indicated that the proposed bill would essentially destroy the Minnesota short term lending industry. The industry has put forth a concession that was to put a common reporting system into place, so that borrowers would not be able to successfully apply for loans if they had existing loans open with other lending companies.

Armstrong said, “We don’t want to keep people in a debt spiral. “Oftentimes it takes more than one loan cycle for a family to get out of debt. Our opponents are manufacturing hysteria.”

Payday lending companies always check to make sure that borrowers have a form of income. Currently, there are no caps in Minnesota to put limits on the volume of rollover loans that a person has, which can have an effect on compound interest rates. With the average payday loan being for roughly $300, the loan fees figure in somewhere around $26.50. Some critics say that this amounts to an APR of over 225 percent. However, it is important to note that most borrowers tend to pay off their loans on time, so the loan fees can only be considered a one-time charge and not a fee that compounds interest on an annual basis.

Even though there is not a lot of action taking place with regards to the proposed sanctions as of right now, payday lenders probably are not completely in the clear in Minnesota just yet. The CFPB still has its eye on imposing reform on the short term lending industry. However, perhaps alternative financial service providers, like payday lenders, can concentrate on simply offering their services to the people who really need them for the time being; instead of focusing on yet another legal fight with parties who seem to have nothing better to do than to limit the financial choices available to lower and middle income households.

Are Payday Loans More Affordable Than Traditional Loans?

Let’s face it – the media has pretty much vilified the payday lending industry in recent years. Even people who never use the services of a short term lender know that online news sites and other media outlets routinely trash this particular industry. A new study that the Federal Reserve Bank of New York conducted seems to prove that many of the widely accepted beliefs about the payday lending industry are not true at all. In fact, the report actually demonstrates some situations and scenarios where payday loans can actually be more affordable than a traditional bank checking account.

Overdraft Fees are not cheap

The NY Federal Reserve Bank’s report revealed that the median overdraft fee on most checking accounts is around $27 for every returned check. And that amount does not even include the flat-rate fees that banks charge for these types of transactions. If you compare a typical payday loan, where someone gets charged around $15 for every $100 borrowed, it is easy to see that payday loans can certainly be more affordable than overdraft fees.

There is no other way to say it; the cost of bouncing a check or two is a lot more costly than paying the flat rate fees that payday lenders charge. Perhaps that is why so many people are taking out these types of short term loans lately. They know that their banks are taking them to the cleaners for bounced checks, so it makes more sense to get a payday loan to avoid draining their checking accounts. This may not be the case for everyone who takes out payday loans, but there are undoubtedly a lot of folks out there who have caught on to how the banks are raking them over the coals for even the smallest of overdrafts.

The study we mentioned was underwritten by the Community Financial Services Association of America. In the interest of transparency, it is only fair to mention that this group is a trade group for payday lending companies. An industry spokesperson, Johnny Gordon said, “When used correctly and for relatively small amounts, cash advance or payday loans can be both economical and convenient.”

The study went on to prove that payday loans are more accessible to people than traditional checking accounts and bank loans are. Gordon summed it up by stating, “Overdraft and other similar programs require extensive credit checks and comprehensive income documentation.”

One important fact that never gets brought up when people report on the payday lending industry is the fact that millions of people in this country either don’t have access to traditional banks or they choose not to use local bank branches to manage their finances. For these types of people, short term loans are often the best resources available when they are in need of fast cash for emergency expenses or simply to get by from one paycheck until the next one.

Without access to alternative financial services, like those that are regularly offered by payday lenders – both local locations and online lending websites – people who do not do business with the big banks, either by choice or because of their financial situations – would have no way to procure money to take care of their bills and other expense. It is a shame that so many people are working so hard to eliminate these types of lenders that may very well be the only sources of financial services that some families will ever have access to. These are the kinds of facts that need to be reported when people write articles to unfairly target the payday lending industry.

Payday Loan Customers are Smarter Than Some People Think

If there is a subject that the mainstream media and some governmental bureaus love to harp on about it is the payday lending industry. All you have to do is go online, watch a news program on television or open up the newspaper to see some sort of article or story about how payday lenders are the worst kind of people in the world. We’ve all seen stories about these “predatory lenders” charging sky-high interest rates and other fees, all the while keeping their regular customers in bondage to a never-ending cycle of escalating debt.

That’s pretty heavy stuff, right? But is it true? Are payday lenders preying on the poor and pulling a fast one on people who need access to fast money? And perhaps more importantly, are payday loan customers just a bunch of poor, uneducated people who are constantly being scammed by short term lending companies?

To find answers to these questions we need to turn to the governmental bureau that has been tasked with monitoring financial misconduct – the CFPB. This bureau receives thousands of complaints from people all over the country. The question, though, is whether or not a large volume of those complaints are related to the short term lending industry. Guess what, they’re not!

Recent data posted by the Consumers Financial Protection Bureau indicates that payday lending is way down on the totem pole with regards to complaints from actual customers. This data, which analyzed the first three years’ worth of complaints to the CFPB indicates that only about one percent of the complaints received are related to payday lending companies. To put that in perspective, the vast majority, around 66 percent of complaints, were filed against mainstream banks, credit card companies, debt collection companies and other established financial organizations.

Stop to think for just a minute what the only alternative to payday loans is for many people. That alternative would be withdrawing money from a traditional checking account to the point of a negative balance. We all know this practice better as paying overdraft fees to our friendly neighborhood banks. If the APR on overdraft fees were calculated the same way that payday loan fees are the worst case scenarios would see people paying upwards of 1700 percent for overdraft protection. Compare that to the much lower calculated APR on some payday loans (around 350 percent) and it is easy to see that overdraft protection fees are far more predatory than any payday loan could ever be.

The CFPB has even done somewhat of an about face when it comes to the payday loan industry. The bureau now suggests that using overblown APR data to understand short term payday loans is not all that accurate. This is because payday loan customers actually understand what they are getting when they apply for these types of loans. The average payday loan customer evaluates these types of loans with regard to fees charged, rather than calculating the APR that they could potentially pay on a short term loan.

While no one expects the CFPB to back down from its mission to protect consumers from predatory financial practices, it is nice to know that the hard data collected by this bureau proves to vindicate the payday lending industry a bit. It may be too late for some smaller lending companies that were forced out of business due to Operation Choke Point, but the message is clear – payday lending companies are not preying on their customers, and those same customers understand the short term lending industry better than many so-called financial experts out there.

Staying Out Of The Holiday Woe’s

 

When one is looking to put together a budget for the upcoming holiday season, they need to figure out how much money they can spend, not how much money that they want to spend.

While it is nice to have an amount that you would like to spend on gifts for friends and family members, it is important to recognize that that number is going to go out the door when you head to the store to start buying gifts.

While it is nice to think that you can stick to the low-end of the budget, you are much better off coming up with the maximum amount that you can spend without causing yourself harm in terms of your monthly bills and finances.

While you want to stay as far away from this number as possible, it is a much better way to do your holiday finances then coming up with some small number that you are never going to stick to.

By figuring out the most that you can spend, you tend to stay away from the Holiday woe’s. When you set a budget that is on the low end of the spectrum, you always end up going over it.

The thing is, while going over the budget may seem like a given, if you go over it too much you end up eating into the money you actually need to survive.

When you come up with a number you absolutely can’t go over, you run a better chance of being able to stay out of financial danger.

The Right Time To Take Out A Loan

The idea of taking out a payday loan in order to pay for holiday gifts is never a good idea. Because you never want to make a habit out of taking out a payday loan, you should leave that option for after the holidays when you may really need it. While taking out a payday loan in order to get a small advance to pay bills on time is a smart idea, using that amount of money to buy gifts is not, if only because you view it as “free money”.

 

Loans are never free money, and while a payday loan may be one of the smartest loans that you can take out, it is not for gifts or holiday spending, it should be saved for when you really need it.

When you are dealing with the financial Holiday woe’s in January and February, you want to save a payday loan for a situation where you may not be able to pay a bill on time. Instead of taking the late payment penalty, taking out the loan may save you money, especially considering that you know that you will have the money to pay it off when your next paycheck comes in. While it may take a couple of months to get your finances back in order, when you take out a payday loan in December just to buy more gifts, you run the risk of making the situation worse in the months after the holidays, causing you to go further into debt.