PREDATORY PAYDAY LOANS: A GBCHRB How-To Guide

Signs of a Predatory Payday Loan
Is This Your Real-Life Story?
What is Maryland Law?
Where To Complain & Get Information
Resources
Credits

SIGNS OF A PREDATORY PAYDAY LOAN

If your loan has any of the following characteristics, you probably have been the victim of a financial scam. If you are shopping for a loan, make certain you avoid loans with the following parts and terms.

1. Triple Digit Interest Rate - Payday loans carry very low risk of loss, but lenders typically charge fees equal to 400% APR and higher. If your loan has an interest rate of over 2.75% per month or 33% per year - it's against Maryland Law!

2. Short Minimum Loan Term - Some 75% of payday customers are unable to repay their loan within two weeks and are forced to get a loan "rollover" at additional cost. In contrast, small consumer loans have longer terms (in North Carolina, for example, the minimum term is six months.) If your loan term is less than two months, watch out!

3. Single "Balloon" Payment - Unlike most consumer debt, payday loans do not allow for partial installment payments to be made during the loan term. A borrower must pay the entire loan back at the end of two weeks. If your loan does not come with installment payments, watch out!

4. Loan Flipping (Extension, Rollovers, or Back-to-Back Transactions) - Payday lenders earn most of their profits by making multiple loans to cash-strapped borrowers. 90% of the payday industry's revenue growth comes from making more and larger loans to the same customers. I f your loan had any of the listed characteristics, do not get a loan from the same source!

5. Simultaneous Borrowing From Multiple Lenders - Trapped on the so-called "debt treadmill", many consumers get a loan from one payday lender to repay another. The end result is no additional cash, but just more renewal fees. Do not get one payday loan to repay another!

6. No Consideration Of Your Ability To Repay the Loan - Payday lenders encourage consumers to borrow the maximum allowed, regardless of their credit history. If the borrower cannot repay the loan, the lender collects multiple renewal fees. Consider carefully whether you can repay a loan before you apply for it!

7. Deferred Check for Your Loan - Consumers who cannot make good on a deferred (post-dated) check covering a payday loan may be assessed multiple late fees and NSF check charges or fear criminal prosecution for writing a "bad check." Watch out!

8. Mandatory Arbitration Clause - By eliminating a borrower's right to sue for abusive lending practices, these clauses work to the benefit of payday lenders over consumers. If you loan forbids your right to sue, watch out!

9. No Restrictions On Out-Of-State Banks Violating Local State Laws - Federal banking laws were not enacted to enable payday lenders to circumvent state laws. Check out the Maryland law here.

10. Military Payday Loans - Shameful as it is, the nation's military has often been the victim of Predatory Payday Loans. If you are in the military, please check out the following in Consumer Affairs.

IS THIS YOUR REAL-LIFE STORY?

The following real-life stories are from the website of the Center for Responsible Lending (http://www.responsiblelending.org/issues/payday/). Do you see yourself in any of these situations? Don't get taken! Get help!

Rhonda Keller* and her two daughters experienced a financial crisis last summer that sent Rhonda looking for help from payday lenders. She found not the help she needed, but disaster. Rhonda fell into the payday lending debt trap - the terms of the loans she took out required her to either pay them off in less than two weeks or have $90 fees automatically debited from her bank account repeatedly. Those loans, at triple-digit APR, have cost her much more than the exorbitant fees. Her family’s finances are in ruins and she is planning to file bankruptcy.

Like many borrowers, Janis Brown* went to one payday lender to get help paying the fees of another. She ended up borrowing from three different lenders. Since she could not pay the loans in installments, she paid the repeat fees until she got her tax returns. When she couldn’t keep up with the fees one lender demanded, they called and left her a message saying that they would take her to court if her account was short. It was several months before Janis found her way out of the trap, and she needed help from social services during this time, once to pay her rent and twice to pay her light bill.

With retirement and disability income, Mary Hamilton*, a 62-year-old African-American mother and grandmother brings in about $1000 per month. She took out her first payday loan because she needed "a little extra" money to go out of town. Like many borrowers, she had to take out a second loan to pay off the first. She now has loans with four payday lenders. "When I get a little extra money, I'm going to pay them off and I'm through with them," said Mary. "It's a rip off. There's nothing cute about it. I'm supposed to get some money, but I lose money." The fees Mary has to pay to keep from defaulting on her payday loans add up to over 40 percent of her monthly income.

Sandy Hudson’s* first payday loan was for $100, with an $18 fee. She worked down the street from the payday shop, and since she was short on cash, she called to see what she needed to get a loan. All she needed was a source of income and a banking account, so she walked into the shop, and walked out 15 minutes later with the loan. Sandy got caught up in the payday lending debt trap, taking out multiple loans to pay the fees on each one as they became due. At one point, she was paying $300 every two weeks for four different loans. Over a six month period, this added up to $3600, but she was in the trap much longer, paying off one loan, then another, until she lost her job and could no longer keep up with the fees. She filed bankruptcy.

*Name changed to protect the borrower's privacy.

WHAT IS MARYLAND LAW?

In Maryland, predatory payday loans are legally prohibited. The State's consumer loan act applies. (If you're interested, the legal citation is Md. Code Ann. Com. Law II § 12-301 et. seq.) By law, the Small Loan Rate Cap - all small consumer loans - is 2.75% per month and 33% per year. If you are paying more than this, your loan is against the Law! Get help!

he Maryland Department of Labor, Licensing & Regulation has prosecuted lenders who break this law. For example, in 2007, two out-of-state lending companies were ordered to stop offering payday loans in Maryland, an illegal practice in the State. The companies, Arrowhead Investments Inc., of Missouri, and FFD Resources LLC, of New Mexico, were ordered on December 6, 2007 to stop offering payday lending services over the Internet to Marylanders after both companies failed to respond to earlier letters alerting them that the practice is illegal. Neither company is licensed to operate in Maryland, and both offered a type of consumer loan that violated state law. Read more about this here.

Maryland has been singled out as a leader in consumer protection against the abusive lending practices of excessive interest charges on certain small dollar loans. A report by the Consumer Federation of America, Consumers Union, and the National Consumer Law Center that looked at state statutory maximum annual percentage rate (APR) of interest for four typical small dollar loan products - payday loans; auto title loans; six-month, $500 unsecured installment loans; and one-year, $1,000 unsecured installment loans. States received a “passing” grade if the loan product’s APR was less than 36% or if they prohibited payday or auto title loans. Maryland, Arkansas, Connecticut, New Jersey, New York, Pennsylvania, Vermont, West Virginia, and the District of Columbia all received a “passing” grade in this study.

WHERE TO COMPLAIN & GET INFORMATION

Filing a Complaint

A Maryland resident may file a complaint simply by writing a letter to the MCFR. Send your letter to:

Commissioner of Financial Regulation
Attention: Complaint Unit
500 North Calvert Street, Suite 402
Baltimore, Maryland 21202.

Make sure you attach copies of any supporting documents to assist in the complaint investigation. Typically, complaints are resolved within 45 days of filing. To ensure your concerns are fully addressed:

·         Limit your complaint to one page.
·         State only the facts.
·         Include your account number, the respondent or your own name and address, and your daytime phone number.

You must indicate an acceptable resolution - that is, what action would satisfy you about this - for your complaint. If you have any questions, please contact the MCFR at 410-230-6100 or fax to 410-333-3866. Check out the Commissioner on the web:

Website
Complaint Instructions
Consumer Credit - Publications

If You Have Been the Victim of Discrimination...

Remember that in Maryland if you feel you are the victim of discrimination, please telephone the Maryland Commission on Human Relations - 410-767-8600 or 800-637-6247.

RESOURCES

Guides

Avoiding High Cost Home Loans

http://www.consumerlaw.org/issues/seniors_initiative/content/highcost_homeloans.pdf

High-Cost Small Loans, Pawnbrokers, & Rent-to-Own Stores

http://www.consumerlaw.org/initiatives/osi/brochures/content/borrower.pdf

Tax Refund Loan Scams

http://www.consumerlaw.org/issues/refund_anticipation/content/RALBrochure.pdf

Ways to Save At Tax Time

VITA is a free IRS sponsored program set up to help low-income workers ($40,000 & below). Sites are open from late January or early February through April 15. The sites are usually located in churches, libraries, shopping malls, community colleges, and other public places. Most operate on a first come, first served basis. The volunteers at the sites are trained by the IRS on how to fill out tax forms, and to answer questions. To find a site near you, call the IRS information line at 1-800-TAX-1040.Some VITA sites offer electronic tax filing, so that your return can be received and processed quicker by the IRS.

Volunteer Income Tax Assistance (VITA)

Websites

Center for Responsible Lending

http://www.responsiblelending.org/issues/payday/

Maryland Office of the Commissioner of Financial Regulation

http://www.dllr.state.md.us/finance/

National Consumer Law Center

http://www.consumerlaw.org/

CREDITS

Parts of the Signs of a Predatory Payday Loan part of this section were prepared by the Center for Responsible Lending.