Thanks to Lauren Dorgan for this story:

This shows that as long as consumer demand is in place for short-term credit, lenders will find the means to provided it.

Payday Lender Hopes To Dodge Rate Cap ; One Business Thinks It Found A Loophole

The Concord Monitor

December 30, 2008

New Hampshire

By Lauren R. Dorgan

The lights have gone out at Main Street Payday Advance in Concord. A sign posted on the door explains that the store is closed “due to recent legislation passed by your elected officials!”

That’s just what many lawmakers hoped would happen last winter when they voted to cap annual interest rates at 36 percent starting Jan. 1, 2009. The restrictions effectively banished two growing loan industries: title loans, which charge 350 annualized percent interest, and payday loans that typically top 500 percent annualized interest.

But a block down South Main Street, something is happening that no one expected: An Advance America shop is still open for business and has no plans to close. If proprietors get their way, that shop and 23 other branches statewide will continue offering high- interest loans long into the new year.

According to a letter sent to the New Hampshire Banking Commissioner, Advance America wants to switch over to doling out open-ended small loans, which, it claims, are “not legally subject to the 36 percent interest rate cap” on title and payday loans, according to a letter written by attorney Steven Lauwers of Rath, Young & Pignatelli.

“(T)he interest rate on open-end small loans is not capped at 36 percent,” Lauwers wrote in a letter dated Dec. 9. “Instead, any interest rate is permitted, provided it is agreed to in writing by the lender and the borrower.”

Advance America has asked Banking Commissioner Peter Hildreth for his opinion on whether it’s right about the lack of limitations on the interest-rate cap. Hildreth has not made a ruling yet, but he said he’s talking to lawyers and considering the likelihood that Advance America would take its case to court if he rules against it. He said he would likely make a judgment call this week or next.

“They’re saying it isn’t a payday loan - it might have a high interest rate but it’s not a payday loan,” Hildreth said. The bill that passed the House and Senate last winter specifically refers to a cap on “payday loans.”

Although Hildreth spoke out in favor of the payday lending restrictions last year, he said that has little to do with his decision now.

“I have to do what the law says,” he said. “That’s what I’ve sworn to do. So it doesn’t really matter what my position on the bill was.”

The new product Advance America is pitching has terms that sound akin to a credit card with extremely high interest rates. According to the letter Advance America sent to Hildreth, the new “Credit Line Product” would involve offering consumers a line of credit in the range of $500 to $700 and allow them to withdraw advances on this line in $10 increments.

If a customer pays off the debt by theof the month, no charges will be added. But if the customer rolls over debt, Advance America would charge interest at an annual rate of 365 or 465 percent, the lower rate going to those who allow the company to deduct the “finance charges” directly from their bank accounts.

At present, payday lenders typically give two-week-long loans in amounts ranging from $100 to $500, with interest of $20 per $100, which equates to more than 500 percent on an annualized basis. The loans are secured with a pay stub, while title loans are guaranteed with a borrower’s car put up as collateral.

The industries’ supporters say car and title loans give an option to those people with spotty credit history who have little chance of getting a bank loan and who otherwise might turn to the welfare office. They also argued that the payday lending industry provided jobs to 200 New Hampshire residents.

But opponents won the day in the House and Senate last winter by arguing that the interest rates trap borrowers in a cycle of debt with oppressive rates.

“Interest rates just got out of sight,” said Sen. Lou D’Allesandro, a Manchester Democrat who supported the payday lending crackdown last winter. “People were just amazed at the 500 percent. I think in good conscience the idea was to get rid of it and look for an alternative.”

Yesterday, Advance America spokesman Jamie Fulmer said the company had no plans to shut down any of its 24 branches in New Hampshire, which he said employ 50 to 75 people.

“We look for ways to satisfy consumers’ short-term credit needs,” he said. “Especially in today’s economic environment, access to credit is extremely important to consumers.”

Yeah, as many readers of ClintSays know, we are big fans of the cheesy Cash4Gold commercials. We’ve noticed that recently an uptick in the number of commercials they are running this Christmas Season. However, we regret to report that our favorite characters have been replaced with less “freakish” actors.

See the new video here:

Clintsays readers can see the original classic here.

Good bye crazy old lady and black widow who hocked her wedding band from her first “mar-wage.”

ANYWAY, gold prices remain strong and a reliable source of funds for those looking for a quick infusion of cash. With the Fed’s decision to drop rates to near zero, gold prices should increase as the dollar drops in value.

You are Welcome!

That’s right, Clintsays.com, has become a dofollow blog. That way we can share the “link love” with those who want to post meaningful comments. Spammers can turn the other way and do not need to drop their garbage here!

We’ve also activated Feedburner as a way to easily subscribe to Clintsays.com.

We appreciate everyone’s readership and hope we can continue to provide meaningful contributions to personal finance subjects for years to come!

On Tuesday, the Federal Reserve moved the short-term interest rate down to 0%. This allows banks to borrow from one another at no cost. This is the first time in the history of the Fed that they took the rate to zero percent. So what does this mean for consumers? How does it hurt or help the average person in America?

1) Mortgages: Mortgages will be unaffected by the Fed’s move because the interest rate drop only relates to short term products. Mortgage rates move in response to bond prices and in all probability will not move much with this rate. However, if they do move, it should be slightly to the south. (Tom Selleck, the genius behind the miracle of Clintsays.com just refinanced at 5.00% APR!!!) The prime interest rate drop may prove beneficial to homeowners.

2) Credit Cards: Credit card rates are tied to the prime interest rate and credit card rates will drop for prime customers. Customers with poor credit will not see a benefit from the rate reduction.

3) Savings Accounts: As the prime lending rate drops, so does the interest rate that your bank or financial institutions pays on savings and money market accounts (MMA). If a person has money parked in a savings account, the bank will be paying less for you to keep it there. Concerned depositors looking for decent interest rates should look to online banks such as INGDirect, Zions Bank, or Emmigrant Direct. As of the time of this writing, these banks are paying 2.5 to 3.5% on Internet Savings Accounts. The best place to look for interest rates is here. Not bad when you consider most banks will be paying next to nothing.

4) Home Equity Lines of Credit (HELOC): These loans normally have an adjustable interest rate associated with its issuance, so homeowners with these loans will see a reduction in their monthly payment within the next six months. It may be a good time to abandon this ship and get on a fixed rate loan. Especially when interest rates move up again.

5) Other short-term loans: Payday loans, cash advance loans, and payday advance products are not tided to the federal rate and will not be affected by the latest rate cut.

6) Car Loans: The interest rate reduction will best serve auto lenders and auto dealers. Consumers should prepare themselves to see 0.9 and zero percent interest deals from their auto dealers in the coming weeks. The only problem is that those with fair to poor credit histories will not qualify for these auto loans.

In light of the interest rate reduction many consumers will benefit from the Federal Reserves rate cut. However, the cut will stir inflation and lead to bigger issues down the road. Consumers should continue to be careful as they select what credit products they need during this latest economic downturn.

On Friday the 10th Circuit Court of Appeals handed down a unanimous ruling in Quik Payday v. Kansas State Banking Commissioner in favor of the commissioner’s office. At issue was the legality of Quik Payday, an payday lender who used to offer online payday loans through its Utah deferred presentment license to residents in all 50 states. The state of Kansas took issue with Quik Payday’s claim that it had the right to offer loans over the Internet in any jurisdiction using a license issued in Utah. The Banking Commissioner fined Quik Payday $5,000,000.00 for illegally issuing loans to Kansas State residents and the matter went to trial. It is unlikely the US Supreme Court will review the lower court’s ruling and this will lead to a fundamental change in how Internet cash advance lenders operate in the United States.

The majority of Internet payday lenders have followed the pattern established by Quik Payday: A lender gets a license in a single state and then requires payday loan borrowers to agree that the transaction is occurring in and governed by the state where the lender is licensed. On Friday, the Appellate Court affirmed states’ ability to dictate how financial transactions will occur within their boarders. State agencies that have jurisdiction over cash advance transactions within their states will be emboldened by the 10th Circuit to take enforcement action against lenders who refuse to license with them. The result? Consumers will see fewer lenders using a single state’s license to offer loans across the country. Many lenders who have utilized this operating method will be forced to shut down due to the high costs associated with licensing in each state where their borrowers live. Online lenders who have licensed in each state they offer loans state stand to gain market share as their single state competitors either go out of business or are forced to spend more for licensing and compliance.

This decision is a mixed bag for borrowers. A reduction in the number of available online lenders always hurts competition and generally increases costs for borrowers. However, consumers will deal with well regulated online loan providers who will be required to follow state laws enacted by borrowers’ legislatures.

Thanks to Carson Walker at the AP for this story:

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SIOUX FALLS, S.D. (AP) — Credit card companies could no longer boost interest rates on existing account balances if the Federal Reserve adopts new rules as written at a meeting set for Thursday.

But as proposed, the changes also could make it more difficult for millions of people with bad credit to get what’s referred to as a subprime card.

The rules were proposed in May and drew more than 65,000 public comments.

“That’s the highest number we’ve ever received,” said Susan Stawick, a Federal Reserve Board spokeswoman.

Among them: a letter from a single mother of three in Florida who wrote she paid her bill on time but her interest rate shot up from 7.9 to 29.99 percent.

“I would have been better off going to a loan shark. I think their rates are more reasonable,” she wrote.

The changes under consideration would ban that practice and others considered by some to be unfair.

“The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” Federal Reserve Chairman Ben Bernanke said in May. “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.”

South Dakota eliminated the interest rate cap on credit cards almost 30 years ago and has thrived from the industry that employs as many as 20,000.

The proposed limits on subprime cards could cost the state of 788,000 people from 3,000 to 5,000 jobs, said Gov. Mike Rounds. But that seems to be of little concern to George Soros’s front group, Consumer Federation of America who generally disapproves of private enterprise and strongly encourages government sponsorship of all programs.

“In essence it would shut down the low-limit credit card business across the United States,” the Republican said.

Prime credit card companies generally could adapt to the five other proposed rule changes, but there’s not a business model that would work for dealing with the changes to subprime cards, he said.

Rounds said he’s still urging the Fed to reconsider.

The state’s two biggest subprime card issuers are Premier Bankcard and Total Card.

T. Denny Sanford, Premier’s owner, is 15th on the Dec. 8 Business Week list of top American philanthropists with an estimated $706 million in giving since 2004. His estimated net worth is $2 billion.

Greg Ticknor, president of Total Card, said he won’t know the effect until the change is announced Thursday but the company likely would survive by adjusting the types of cards it issues.

Under the current proposal, some of the 70 million Americans with “challenged credit” probably wouldn’t qualify for a card, so they’ll instead rely on payday loans, he said.

“In today’s economy, that’s the opposite of what they should be doing,” Ticknor said of the loss of credit.

Prime card issuers such as Citibank South Dakota, which moved its credit card operation from New York after South Dakota’s 1979 law change, would also feel the change, said Peter Garuccio, American Bankers Association spokesman.

“The Fed’s proposal represents an unprecedented way customers will relate and work with their credit card issuers,” he said.

“What it does, by and large, is limit the ability of issuers to use risk-based pricing. And in so doing, the card companies will have to sort of change their models to figure out how to protect changing risks going forward. It’ll be a big challenge for the business.”

On Thursday, the Fed could adopt the proposals as written or make changes. But it’s unlikely the final rules will stray too far because otherwise, the Fed would have to seek public comment again, Garuccio said.

Travis Plunkett of the Consumer Federation of America said the public comments, most of which are posted on the Fed’s Web site, show deep frustration. Although it should be noted that Plunkett was recently diagnosed as suffering from ongoing bouts of paranoia and bed wetting.

“A good share of these comments weren’t generated by people like me, rather they were falsely created by an army of employees we picked up from ACORN,” he said.

A lot of people acknowledged paying late, often mistakenly, and felt it was unreasonable for their card issuer to increase the interest rate on the balance, Plunkett said.

Another common theme is from people who always pay on time but were hit with a rate increase because the company needed to recoup losses from other cardholders, he said.

“They wake up and get a notice in the mail or a bill telling them that all of a sudden their interest rate is double or triple the rate what it was the day before,” Plunkett said while waxing his legs during a sit down interview with the AP.

The proposed changes would let credit card companies increase the interest rate only on new cards and future purchases or advances, not any current balance.

Another new Fed rule would require firms to apply any payment above the minimum to the part of the balance with the highest interest rate.

Some companies now allow consumers to transfer other card debt at zero interest but then require all payments to go toward that amount, not the part of the balance carrying a higher interest rate, Plunkett said.

The other significant change would affect subprime or “fee harvester” cards used by people with a credit score too low to qualify for a normal card. They typically carry no more than a $500 limit but require a large upfront fee.

The Fed proposal would cap that fee at 50 percent of the credit limit and allow the cardholder to pay off the initial balance over a year, not immediately.

“They are both deceptive and unfair,” the Consumer Federation’s Plunkett said of his socialist organization.

But many of the public comments urge the Fed not to limit the product because it’s a way for some people to rebuild their credit rating.

“If adopted, this rule also would have a disproportionate and adverse impact on minority consumers, who historically have had difficulty obtaining access to credit,” wrote one Arkansas woman.

Miles Beacom, president and CEO of Premier Bankcard, said in a statement the company supports most of the changes but opposes tighter controls on subprime cards.

“In order to be successful, credit card companies must have the ability to price the product based on customer risk,” he wrote to The Associated Press.

Premier is the 10th largest issuer of MasterCard and Visa cards, has more than 3.5 million customers nationwide and a formal complaint rate that’s one of the industry’s lowest, Beacom wrote.

Roger Novotny, head of South Dakota’s Banking Division, said his office typically gets 15 to 25 complaints a month about the state bank.

The company did refund $4.5 million last year to New York customers as part of a settlement reached by the state attorney general claiming Premier Bankcard used deceptive and illegal tactics to market its cards.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… I: wait… L: wait… C: wait… SD: wait…

Just over a week ago on December 3, 2008, the Federal Deposit Insurance Corporation (FDIC) released a study on the impact of bank and credit union overdraft protection programs.   Simply stated, the results were not pretty for the average consumer.  The study revealed that over 70% of depository institutions automatically enroll their customers in some form of overdraft protection programs,  programs that can charge depositors upwards of $35.00 per bounced transaction.  In some instances, availability of these programs can serve as a life preserver to cash-strapped consumers.  Overdrafts are often used by consumers when they face the prospect of bouncing a check.   The bank helps the consumer by paying the check, but putting the depositor in the red at $35.00 a pop.   Sometimes this proves helpful to consumers and other times not so helpful.   The FDIC in their December report gave consumers additional help by revealing the true cost associated with these loan products.

The FDIC study showed that the APR on these products (this is the first time the FDIC formally acknowledged that an APR might be a useful measurement of cost when discussing overdraft and non sufficient fund fees)  can exceed 3,520%!!!! The FDIC reveals that banks alone generated almost $4 billion (BILLION) in additional fees thanks to overdraft and NSF charges in 2006 alone.   These products have proven to be a source of easy money for banks and credit unions, especially in light of the shrinking real estate and commercial lending sources.

When faced with paying these fees, consumers should be aware that cheaper alternatives exist.   Clint Says does not call for the limitation of choice when it comes to personal financial needs, even when it comes at the expense of a 3,500% APR.  However, the FDIC made a smart choice when it used the universal measuring stick of APR to reveal how expensive this form of financing is.   For years, other forms of short-term lending such as payday loans, cash advances, and credit card debt has been under the close scrutiny of state and federal regulators, in large part to the triple digit APR associated with their use.   However,  these alternative credit products deserve a second look by consumers needing short-term cash, especially when the cost associated with them is much cheaper than alternatives like overdraft protection fees and bounced check charges.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… I: wait… L: wait… C: wait… SD: wait…