Payday loans cause huge rise in calls to National Debtline

Growing popularity of short-term, high-cost loans leads to double the number of people seeking help with payment problems

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The number of people contacting National Debtline with problems involving payday loans almost doubled in 2012, with some consumers reporting they had taken out the short-term, high-cost loans despite being bankrupt or having missed past payments.
The free advice service said it took 20,013 calls related to payday loans over the year, a 94% increase, and up 4,200% since the financial crisis began in 2007. Many callers reported that they had more than 10 payday loans, while some said that they had taken as many as 80 over a short period.

While just 465 people approached National Debtline with payday loan problems in 2007, in 2012 it dealt with almost 100 calls on the subject every day of the working week.
The figures reflect the rapid rise in the availability of the loans, as well as the squeeze on household budgets and the high cost of borrowing in this way – some loans have APRs of many thousand percent.

Although lenders say quoting an interest rate in annual terms is not a fair reflection of the cost, customers who roll over debts or take new ones to cover existing loans can quickly see their debts grow.

There are signs the problem will continue: in January National Debtline took a call for help on payday loans for every seven minutes its phone lines were open.
"Payday loans were initially designed to suit a small number of people in very specific situations, and this is something they can still do effectively. However we hear from thousands of people each year who have been lent money when it was clearly not the right option for them," said Joanna Elson, chief executive of the Money Advice Trust, which runs National Debtline.
"Borrowing on this scale can have serious ramifications if not dealt with properly, and advice services like National Debtline risk becoming over burdened by the proliferation of payday loans."

Elson said she was not confident it was a "sensible practice" for lenders to offer to deposit money in a borrower's account within 20 minutes of them making an application, and the decision to lend "shouldn't be taken lightly".
The charity said it had heard of "countless examples" where guidelines on responsible lending appeared to have been breached, and where, when payments were missed, lenders had appeared reluctant to negotiate sustainable repayment plans.

Elson called on the Office of Fair Trading (OFT) to make use of new powers to suspend consumer credit licences with immediate effect where it identifies persistent bad practice.
"The rapid emergence of payday lending has caught regulators a little off guard. We have waited some time for real action to be taken to help prevent people falling into a serious debt spiral with these loans," she said.

"We encourage the OFT to protect consumers by suspending the licences of those lenders shown to persistently break the OFT's own guidance on debt collection."
The OFT is about to publish the results of a year-long review of the sector.

Source: Guardian / http://www.guardian.co.uk/money/2013/feb/27/payday-loans-calls-debtline

Moynihan Says Financing Available for California Projects

Residential construction is being held back in California by a lengthy permitting process, not a shortage of financing, Bank of America Corp. Chief Executive Officer Brian Moynihan said today.

“The money is sitting there,” Moynihan said during a panel discussion with Governor Jerry Brown at a housing forum in Oakland, California. “Financing won’t be the toughest thing.”

Moynihan said BofA has modified about 250,000 mortgages in California amid a home-price rebound in coastal cities. Four of the six priciest U.S. markets are located in the state, the National Association of Realtors said in a Feb. 11 report. The San Jose metropolitan area, home to Silicon Valley, led the nation with a median house value of $685,000 in the fourth quarter, up almost 25 percent from a year earlier. San Francisco ranked third, Anaheim-Santa Ana was fourth and San Diego was sixth. Los Angeles ranked 13th.

The state’s environmental-review process for real estate projects, based on the California Environmental Quality Act, can be a “land mine” that inhibits development, Brown said during the panel discussion.

“Regulatory reform is in order,” he said. “We’re going to do what we can to push a balanced policy” that includes transit-oriented projects.

Moynihan echoed previous remarks in which he urged the U.S. government, lenders and borrowers to lower expectations about homeownership. Government-run mortgage companies Fannie Mae and Freddie Mac should undergo an “orderly transition” to diminish their financing role, and the Federal Housing Administration should return to an original focus on helping low- and moderate- income borrowers, Moynihan said on Dec. 14 at the Brookings Institution in Washington.

Higher Yields

“We need to look hard at some of the old assumptions,” Moynihan said at Brookings.

At today’s event, Moynihan said changing the role of Fannie and Freddie is “decades’ work.” The private sector will take over the government’s housing-finance role when “yields rise,” he said.

Demand from private investors for mortgage-backed securities is lifting the market for residential loans not backed by the government, and contributing to the housing recovery in coastal California cities. So-called jumbo or non- conforming mortgages may climb 15 percent to $253 billion this year, according to Inside Mortgage Finance. Mill Valley, California-based Redwood Trust Inc. and New York-based Chimera Investment Corp. are packaging the loans into bonds.

Ownership Rate

California’s 55 percent ownership rate, which compares with 65 percent nationally, means that state policy makers should encourage more rental projects, Kenneth Rosen, chairman of the Fisher Center for Real Estate & Urban Economics at the University of California, Berkeley, said in an interview before the forum. The Fisher Center sponsored today’s event.

California will always trail the U.S. ownership rate because demand in cities such as San Francisco, Los Angeles and San Diego will keep home values beyond the means of many would- be buyers, said Rosen, who moderated the panel discussion. The state needs a streamlined land-use policy so residential builders “know in six months, not seven years” whether their projects can proceed, he said. 



Source: Bloomberg / http://www.bloomberg.com/news/2013-02-12/moynihan-says-financing-available-for-california-projects.html

Student Loan Debt And The Wedding Bell Blues

According to recent research, women with student loan debt might be said to have a case of the wedding bell blues.

Fenaba Addo, a fellow at the University of Wisconsin, recently took a look at the mating habits of college graduates to determine if their tuition bill financing methods impacted their future romantic lives. The result? Ladies with student loans, it appears, are less likely to marry than their gal pals lacking debt. Men still paying their college tuition bills suffer no such fate.

Where both sexes are the same, however, is in their cohabitation patterns. Student debt seems to increase one’s odds of bucking traditional norms and living together without the benefit of marriage for both sexes.

What could be going on?

Well, here’s one thought: marriage might no longer be forever, but student loans most certainly are. They cannot, as we all know, be discharged in bankruptcy court. Monies to pay the bills can be deducted from everything from your income tax refunds to your Social Security checks in your final years. Parents who take on privately issued bank loans to pay their children’s education bills can find themselves making payments even if their son or daughter dies.

Only true love could make someone willing to tolerate this arrangement.

Nonetheless, the fact remains that men are more likely to eschew partners with student loan debt than women. In the view of Addo, that’s because they can. While she was at pains in an interview with Kimberly Blanton at the Squared Away blog to point out that women might well be waiting to permanently settle down till they are in a better economic position, she also noted that even today, men are more likely to be the ones getting down on bended knee.

Perhaps that New York Times story from last year about singletons judging their dates by their credit scores was more accurate than any of us realized. When I re-read it this morning, I realized almost every example involved men and not women asking about and dinging prospective dates based on their debt loads.

We know that researchers have speculated that our nation’s more than $1 trillion in student loan debt is behind everything from the fall in household formation to the increasing age of brides and grooms. Now we know those bills act as a reverse dowry too.

Source: Forbes / http://www.forbes.com/sites/helaineolen/2013/02/19/student-loan-debt-and-the-wedding-bell-blues/

Miliband's promise to clamp down on payday loans is a good first step

While bloggers and columnists have focused on Ed Miliband's call for a reintroduction of the 10p tax rate, scrapped by Gordon Brown, paid for through a mansion tax on £2m properties, it should be noted that the opposition leader signalled signs of hope on personal finance as well.

In his speech, he noted that as a start to building a One Nation economy Labour would:

    Break the stranglehold of the big six energy suppliers. Stop the train company price rip-offs on the most popular routes. Introduce new rules to stop unfair bank charges. And cap interest on payday loans.

The financial pinch that people are feeling will not be easy to undo, but I want to suggest two things to complement Ed Miliband's call for building the One Nation economy.

Firstly he must take seriously wages. While millions of state sector workers will see their wages freeze, the average private sector worker’s pay has risen by just 1.4 per cent. All the while, according to latest ONS figures food prices have risen by 4.5 per cent in the last year. Indeed the real wages of many workers fell to 2003 levels.

For many years wages were effectively supplemented by the relative free flow of credit. Today, access to mainstream credit is denied to people who have for a long time seen their wages stagnant, losing the battle against inflation and the rising cost of living.

As academics from the university of Bristol pointed out, while the UK may be out of a technical recession, the public’s recession has never gone away and is getting worse. People having to drive their own personal austerity measures just to get to the end of the month.

Others have not been so lucky - which brings me to my second suggestion. Last year the charity Shelter published findings showing that a million people took out a payday loan to help with their mortgage payments.

Research by Which?, also published last year, showed that 40 per cent of payday loans are being taken out to buy basics such as food and bills.

Many payday lenders can charge up to 4,214 per cent interest on amounts ranging from £50 to £800. On average a payday lender will charge £25 for every £100 borrowed on a loan of 28 days but costs can soon go up if there are missed payments, with fees anywhere from £12 to £25. Compared to authorised bank overdrafts or loans from credit unions these are extortionate figures.

What Labour should be calling for is a total cost of credit cap. Instead of just targeting interest rates a total cost of credit cap would legislate for how much a lender can charge in total, such as administration fees (in Australia, for example, lenders got around interest rate caps by obliging borrowers to buy their financial DVDs).

As I have been told time again, market rules do not seem to be working with high cost credit. Given the large amount of market entrants, prices for credit are still sky high. However when I spoke to Matthew Fulton, a key figure in the End the Legal Loansharking campaign, he told me that an internet company’s break-even point is at around 70 per cent APR, while payday lenders with a shop front can average at 130-40 per cent depending on the types of scheme and duration.

Payday lenders are in the business of ripping off the poor and hard up. So it is very encouraging that Ed Miliband has already pledged himself to place a cap on the prices that payday lenders can charge at.

But it can not be an isolated move. As Veronika Thiel put it in her report on doorstep lending: “Interest rate caps have to be levelled among a series of other regulations and interventions.”




Source: News States Man / http://www.newstatesman.com/economics/2013/02/milibands-promise-clamp-down-payday-loans-good-first-step

Three Strategies for Saving Money on College That May Not Work as Promised

Yes, you can save money and avoid student loan debt by employing some of the classic strategies suggested by personal finance gurus. But you may not save as much as you think—and you could even wind up spending more.

Here’s a look at three oft-circulated strategies for limiting college costs—and why each of them is a bit simplistic, flawed, and perhaps even misleading:

Attend Community College, Then Switch to a Four-Year School
Community college costs maybe a few grand per year, a fraction of what the typical four-year public university runs. Private schools are even more expensive, as we all know. So it’s no wonder that many personal finance experts suggest that students stock up on cheap community college credits for a couple of years. The idea is to then transfer to a four-year college and finish up. Both your degree and your resume will state where you completed your college education, not where you began it.


This appears to be a win-win. You can save money and still graduate from an institution with a reputation that’s superior to a community college, right? Well, the strategy is not without its downsides. A Money magazine story recommending the community college money-saving strategy noted one such issue:

    Transferring can be a social challenge, since your child will be a newcomer among classmates who have already made friends. Also, the most elite schools take very few transfers: Princeton accepted none and Dartmouth only 4% of applicants last year, although the University of Pennsylvania did take 20%.

That’s not the strategy’s only flaw. CBS News recently cited a study, from the Texas Guaranteed Student Loan Corporation, that indicates students who start at community college and finish up their degrees at four-year public universities tend to borrow about the same amount as students who attend state colleges for all four years:

    “Many students have traditionally been guided to follow the transfer route, with the assumption it will help them save on certain college costs,” observed report author Carla Fletcher, s senior research analyst with the group. “Unfortunately, we found this to be untrue, and in fact, the transfer route may end up creating significant barriers for some students.”

At private colleges, transfer students tended to take out more in loans ($27,000) than those who started at the schools as freshmen ($25,000). Part of the reason is that the families of transfer students tend to have less money, and are therefore more likely to need loans than families that send their kids to private schools for all four years.

But the study found that the financial aid packages tended to be more generous toward students arriving as freshmen. The median grant for transfer students was $5,300 at private schools, compared to $9,000 for other students. Another problem for transfer students is that often, some credits don’t transfer, and they’re required to take—and pay for—more classes than they’d hoped. It all adds up.

Attend a State School, Not a Private College
Tuition at state universities is a fraction of private college costs. This is nearly always the case if we’re talking the full “sticker price” at these institutions. Due to financial aid, grants, and such, however, almost no one pays full price for college.

As a recent “Best Value College” list pointed out, students at private colleges tend to get larger discounts, often amounting to 60% or more off the list price. Even so, most students will find that it still costs less to go to a state school. But the difference in price may not be quite as big as students assume, once aid is factored in. What’s more, depending on the kind of packages a student is offered, a private school can wind up being less expensive than the state university with the cheaper list price.

Work Your Way through College
Old-timers who worked through their college years and paid off their education as they went along, without taking out student loans, love to tell today’s debt-paranoid students that they should do the same. Yet, as a lengthy New York Times story makes clear, this strategy isn’t nearly as easy as it sounds in today’s world of soaring tuition bills and a lackluster job market. It’s especially difficult to find decent-paying jobs if you don’t have a college degree—something that college students obviously don’t have.

Another unfortunate irony at play is that students who make money and prudently save to pay for college tend to get less financial aid than students who have little or no earnings and nothing in the bank. One 21-year-old student featured in the Times story utilized what seemed like a very responsible, money-savvy approach. She attended community college, then switched to the four-year college Appalachian State in North Carolina. While going to community college, she worked as a waitress, earning $16,000 in 2011. Here’s what happened as a result:

    Those earnings, however, kept her from being eligible for much federal financial aid, and she was only able to earn just over $12,000 in 2012 at a similar job at a hotel about 10 miles from campus. Her parents have not been able to help her pay for college, and she is now on pace to end up with at least $30,000 in student loan debt.

Earning money during college can and often does help students avoid piling on the debt. If nothing else, a part-time job provides students with some beer and “going out” money, and it also keeps them busy with an activity in which they’re not spending money. But in some ways, there appear to be penalties—financial disincentives—for working and saving up for college.

The student mentioned above might have very well wound up with just as much debt had she attended Appalachian State for all four years and never bothered working the waitressing gigs. In which case: Why bother?








Read more: Time / http://business.time.com/2013/02/14/three-strategies-for-saving-money-on-college-that-may-not-work-as-promised/#ixzz2L3qAkTvX

Student Loan Debt On The Rise, Says Report

Student loan debt is on the rise, according to a report released Nov. 27 by the Federal Reserve Bank of New York.

Here is the whole story:

In its Quarterly Report on Household Debt and Credit, the bank announced that outstanding student loan debt has increased to $956 billion in the third quarter of the 2012 fiscal year — an increase of $42 billion from the previous quarter.

“One reason (student loan debt) has risen is that states are still under enormous fiscal pressure to cut state funding, which means that tuition and fees continue to rise,” said UC Berkeley professor of public policy Robert Reich. “That in turn requires that students take out more debt.”

Of the $42 billion rise this quarter, $23 billion came from new debts while $19 billion came from previously defaulted upon student loans.

But the report may be somewhat misleading because it lumps private loans and federal loans together, according to Pauline Abernathy, vice president of the Institute for College Access & Success. Private loans, provided by private lenders like commercial banks, are a riskier way to pay for college than federal loans, which include benefits like flexible repayment options for students and debt forgiveness programs, Abernathy said in an email.

Despite rising student debt levels, Reich said going to college is still a sound investment for students.

“The lifetime earnings of college graduates are still 50 to 60 percent higher than the lifetime earnings of someone with just a high school degree,” he said. “There’s no question that, for good or ill, a four-year college degree continues to be the gateway to good-paying jobs in America.”

Source: Daily Californian / http://www.dailycal.org/2012/12/02/student-loan-debt-on-the-rise-according-to-report/

Payday lenders' lines of credit questioned in Manitoba

Short-term loan companies that face tough laws in Manitoba have started offering lines of credit, in what some critics say is a way to get around the rules.

The province's payday loan legislation, which took effect in 2010, imposed a limit on high-cost payday loans by setting a maximum 17 per cent in interest and fees that lenders can charge over the course of the loan.

The Cash Store and sister company Instaloans stopped offering payday loans in its Manitoba locations this past October.

But CBC News has learned that both companies, which are operated by CS Financial, have since started offering lines of credit, which experts say appear to fall outside the province's payday loan rules.
Gordon Repula says he had to pay back $133.18 on $100 he borrowed from a line of credit at The Cash Store in Winnipeg.Gordon Repula says he had to pay back $133.18 on $100 he borrowed from a line of credit at The Cash Store in Winnipeg. (CBC)

With the lines of credit, customers can borrow 60 per cent of their paycheque, with 90 per cent of that amount due back by their next payday. The customers are charged 24.5 per cent in brokerage and assessment fees.

In Winnipeg, retired farmer Gordon Repula said he took out a line of credit from The Cash Store in October to help make ends meet.

"It's the worst company to ever loan from," he said.

Repula said he borrowed $100 for 13 days. After interest and fees, he had to pay back $133.18.

Under the legislation, Repula would have paid a maximum of $117 if he had obtained a standard payday loan.

According to the provincial rules, customers can borrow up to $1,500 for a maximum borrowing period of 62 days.

For those who want to borrow another payday loan afterwards, lenders cannot charge full interest or fees for a new loan within seven days of a previous loan being paid.

The Cash Store's website says with its lines of credit, customers can borrow up to $2,000 and only have to pay back 90 per cent of the loaned amount by the maturity date.

But, unlike payday loans, those who have lines of credit can borrow money again without having to wait.

Repula said after his experience with his line of credit, he has filed a complaint with the province.

"They're a big ripoff. The company should be shut down," he said.
Review all payday lending, says expert

Government officials told CBC News they are aware of the new lines of credit and are monitoring the situation closely.

"We've been in communication with the federal government to express our concerns and we will continue to discuss this issue with them," said Beatrice Dyce of the Consumer Protection Office of Manitoba.

Jerry Buckland, an international development professor at Menno Simons College and an expert on fringe lending, said the province should do something about these lines of credit, which he worries may be a way to get around the payday loan legislation.

"Clearly these products will continue to proliferate, so let's look at them comprehensively and systematically, rather than one at a time," he said.

Buckland was shown Repula's contract with The Cash Store, and he said it appeared to contain all the negative aspects of a payday loan, but it's more complex and harder to understand.

Representatives with CS Financial have not returned calls from CBC News seeking comment.

Earlier this month, payday loan companies started offering lines of credit in Ontario.

Source: CBC / http://www.cbc.ca/news/canada/manitoba/story/2013/02/07/mb-payday-loan-line-credit-manitoba.html

Payday Loan Consolidation Tips

Looking for payday loan consolidation tips and great advise? Check out the Payday Loan Consolidation blog.

Austin American-Statesman editorial: Texas needs tougher payday lending laws

Two years ago, state lawmakers passed a couple of timid rules regulating businesses that make short-term, high-interest loans. Going where the Legislature failed to go, Austin, San Antonio, Dallas and El Paso since have passed rules more tightly restricting so-called payday lenders whose fees and charges have earned them a predatory reputation.

Payday lenders want the Legislature to pass additional regulations during the current session because, they say, they need the consistency that comes with statewide rules. And, they argue, cities don’t have the legal right to regulate their fees and charges.

Some of the rules cities have passed are zoning rules that restrict where payday lenders can do business. Zoning regulations are a matter for local governments, not the Legislature. But, yes, when it comes to regulating terms offered by lenders, statewide rules would be better, and not just for the industry but for consumers throughout Texas.

So the Legislature should give payday lenders the statewide rules they say they want, but not as the industry would prefer — as weakened versions of the measures that have passed locally. The regulations passed by the Legislature in 2011 required payday lenders to register with the state and to post their fees and terms of service. They were a start but were insufficient.

Tougher restrictions failed in 2011. They should pass this session, starting with lawmakers closing the loophole in the state’s usury law that allows payday lenders to charge exorbitant fees and interest rates. Legislators also should limit the number of times a payday loan can be rolled forward to break the cycle of debt that traps too many borrowers.

Payday lenders loan small cash amounts, often less than $1,000, that typically must be paid back in two weeks. A fee is charged on the loan, and if it can’t be paid back on time, lenders extend the loan, adding another fee when they do so. Fees on payday loans equate to usurious annual interest rates of several hundred percent, and a loan of a few hundred dollars can turn quickly into a debt two or three times the amount of the original loan.

Auto-title loan companies operate similarly to payday lenders. Borrowers put up their car title as collateral for a cash loan and either pay off the loan with fees and interest in a short period of time or roll the balance into a new loan with new fees. Again, loan charges amount to usurious annual interest rates.

The Austin City Council, following examples set in other Texas cities, passed an ordinance in August 2011 that requires payday lenders to register with the city, caps cash advances and restricts the number of times a borrower can refinance a loan. Last year, the council used the city’s zoning authority to limit where lenders can operate.

The payday lending industry counters criticism leveled against it by saying it fills a need among consumers — who are often low-income and minority — who need quick cash but might not qualify for traditional loans from banks or credit unions. The industry says the vast majority of borrowers repay their loans on time.

To try to protect themselves from state regulations, payday lending companies have contributed heavily to lawmakers. A 2011 report by Texans for Public Justice, a legislative watchdog group, found that payday and auto-title lenders had donated $1.4 million to state lawmakers in the 2010 election cycle and had spent up to $8.4 million on lobby contracts between January 2009 and March 2011.

In an editorial published as the Legislature’s first state payday regulations took effect, we wrote, “The modest reforms that survived the 2011 session despite the sums of money spent in opposition should be considered a warning shot.” It seemed more regulations were a matter of time. The time has come. This session should finally see the passage of rigorous payday rules.

Source: Dallas News / http://www.dallasnews.com/opinion/latest-columns/20130207-austin-american-statesman-editorial-texas-needs-tougher-payday-lending-laws.ece