ATM Fees Charged to CalWORKs and other Public Assistance Recipients

What ATM fees could have paid for instead

THE $19 MILLION ATM FEE: How Better Banking Services Would Protect  Our Public Investment in Families

A new report by the California Reinvestment Coalition reveals that in 2012, over $19 million of state funds meant for family household needs through public assistance programs went instead to ATM fees charged to access the aid provided. The report calls on banks, the State of California, local counties, and nonprofit partners to work together to reduce the amount of money being lost to ATM fees through the CalWORKs program, which serves families with children and accounts for about 85% of the ATM fees.  A PDF version of the report is available here.

Introduction

The cost of basic financial services has never been higher. Checking account fees nationwide now cost account owners about $52 billion a year.[i] Those who either don’t have accounts or have accounts that are insufficient to their needs are paying $4.4 billion a year to cash checks, buy money orders, use prepaid cards and pay bills in person. [ii]  Money that could otherwise be used to pay for food, medicine, school supplies, utility bills, transportation to work and school or to save for emergencies is instead used to pay fees for the most common and necessary financial transactions.

Families are even spending public benefits to pay these fees. In California, approximately $19 million a year is going to pay ATM fees with money generated by taxpayers and provided to struggling families through public assistance programs such as the CalWORKs program. CalWORKs is the state’s program intended to “provide for protection, care, and assistance to the people of the state in need.”  This report focuses on CalWORKs recipients because they paying the majority (over 85%) of these fees.  The state delivers CalWORKs and other cash aid programs primarily through Electronic Benefit Transfer (EBT) cards. The current EBT program provides recipients limited access to ATMs before charging fees to withdraw cash while most banks and other ATM owners charge a fee of up to $4 every time someone uses an EBT cards in their machines. As a result, families that receive an average CalWORKs benefit of only $510 a month use a significant portion of that money just to pay ATM fees.

Unfortunately, the $19 million captures only the cost of using EBT cards. CalWORKs recipients who don’t have access to affordable, full service bank or credit union accounts are paying additional fees to pay bills and make purchases using prepaid cards, money orders, check cashers and in-person pay locations. We estimate that an additional $6.7 million of the state’s CalWORKs funds is going to pay for these services.[iii] In total, $25.7 million of the state’s aid meant to support the wellbeing of families is instead going to fees charged to conduct the most basic financial transactions.

CRC is working with state officials, county officials in Los Angeles County and Alameda County (in the San Francisco Bay Area) – two of California’s most expensive areas where CalWORKs assistance is stretched the furthest, and with some of the largest financial institutions to reduce the amount of cash aid used to pay fees rather than to support families. We are building on existing efforts by state and county agencies to alert recipients to the prevalence of fees and ways to avoid them. With co-sponsor Western Center on Law and Poverty, we have introduced AB 1614, a bill that would make sure every CalWORKs recipients gets a monthly statement of transactions and clear information about their right to receive aid by direct deposit to a personal account and the comparative costs and benefits of doing so. We are working with large banks and other financial institutions to market to CalWORKs recipients accounts that avoid the most common and expensive fees, such as monthly service fees and overdraft fees.

Our goals are to:

  1. Increase the use of free cash withdrawals options for EBT cards,
  2. Increase access to fee-avoidant financial services, such as bank and credit union services that are free with direct deposit of CalWORKs cash aid, and,
  3. Provide practical and ongoing support to CalWORKs recipients to help them save on fees.

This report presents proposals to achieve those goals developed through conversations from July 2013 to February 2014 with county and state administrators, financial institutions, and advocates and financial education providers that work with CalWORKs recipients. We invite stakeholders and allies to give us feedback and help us implement our plans by filling out the $19 Million Fee Survey or by contacting Andrea Luquetta directly by phone at 415-864-3980 or by email at aluquetta@calreinvest.org.

ATM Fees Cost California $19 million of Public Assistance Funds

CalWORKs grants are a public investment in the wellbeing of California’s poorest families. Only families with children qualify to receive CalWORKs aid. Having to pay fees for basic and necessary financial services erodes both our government’s investment and the families’ ability to thrive. Yet, that is exactly what is happening.

“I pay $3 to use my EBT at the ATM, so I take it out in just two withdrawals every month. I’ve been doing that since I started getting CalWORKs when my son was born and he’s two now.” Dominique, Alameda County

Roughly 450,000 California families receive cash aid through the CalWORKs program. The average family receiving aid consists of one adult and two children and receives a grant of $510 per month, totaling about $6,120 a year. To put this in perspective, the same family would need over 10 times that, $65,519 a year, to meet basic needs for housing, health care, childcare, transportation, food, taxes and miscellaneous expenses in Los Angeles County, and $66,326 in Alameda County.[iv]

In 2012, over $19 million a year of the state’s public assistance funds went to pay for access to ATM services. The amount spent in just one month is enough to buy a year of school supplies, estimated at $688, for 2,349 children. In Alameda County alone, families lost $60,000 in CalWORKs funds a month to ATM fees in 2012- enough for over 25,500 round trip bus rides on AC Transit. In Los Angeles County, recipients lost over $450,000 a month to fees- enough to pay $5 co-pays for 90,000 prescriptions. These totals only include ATM fees. It does not include fees for cashing checks, paying bills through money orders, fees to load and use prepaid cards, or other fees charged by financial services providers that target unbanked households.

EBT Cards Provide Limited Services at a High Price

EBT cards look like bank-issued debit cards. A recipient gets access to her CalWORKs aid electronically through an EBT card just as those who access income directly deposited to a bank account through a debit card. A person can pay for goods at a register and get cash back with her EBT card by punching in a PIN, just like a person paying with a debit card would. However, that is where the similarities end.

California’s EBT program is administered by Xerox State and Local Solutions, Inc., under a contract set to expire in 2015 unless the state exercises any of the three available one-year extensions. Xerox has subcontracted with MoneyPass, an ATM system owned by US Bank to provide EBT users with four withdrawals per month, after which EBT users must pay 80¢ per ATM withdrawal. Xerox also charges 25¢ to check the card’s balance at MoneyPass locations. However, MoneyPass processes less than 9% of all EBT transactions.  Most EBT transactions are processed by banks and other ATM owners that charge EBT users a significant fee, typically $2 to $3 per use or as high as $4.00 per use. Check cashing stores also charge a fee to withdraw money using EBT cards- usually 1 to 2% of the amount withdrawn. In total, over $19.4 million a year of CalWORKs and other public assistance funds are spent on fees and charges.

“It is critical for consumers to have a choice of how to receive government payments… [W]e think that states should mandate that consumers have the option of direct deposit into a bank account and, if they do choose a [benefits] card, it should include the option to easily switch to direct deposit at any time.…Additional considerations could include the type and amount of fees, broad access to a robust set of in-network ATMs, and terms that make it easier for card users to access information about their accounts without cost.”    Richard Cordray, Director of the Consumer Financial protection Bureau (March 18, 2014)

Other EBT services are also limited. EBT users are excluded from protections provided by the federal Electronic Funds Transfer Act, which among other protections limits liability for money spent by debit and credit card thieves. Although recent changes in state law protect benefits taken by electronic fraud, the state does not have to reimburse benefits taken when a thief steals and uses the EBT card itself. In addition, EBT cards can only receive and spend CalWORKs cash aid.  CalWORKs recipients must manage all other income received from work, gifts or other sources using a different financial instrument, such as a prepaid card or check casher, which can cost additional fees.

The EBT system also does not provide regular monthly statements to recipients so they can verify purchases and track fees. Most recipients who wish to check their balance or review past transactions call a toll-free customer service number that can provide up to two months of activity. The state provides an “EBT Client” website that can provide a much longer history but few recipients know about it, have registered to use it, or use it regularly. The state has tried to increase awareness of the website through EBT training material, card sleeves, card mailers and correspondence to the counties, however, despite the system’s five-year existence, less than 30% of CalWORKs recipients currently have registered accounts and less than 1% used it during the month of January 2014. The state Department of Social Services is now considering a webinar to train county workers and advocates on the benefits of the system.

By contrast, many bank and credit union accounts offer free phone service, online account management through website and mobile phone apps, as well as monthly statements that include both the detail of each transaction as well as a summary of fees paid that month. Account owners use these services extensively. As of August 2013, 51% of U.S. adults now bank online and 32% use mobile banking services.

Finally, the EBT system does not help CalWORKs recipients build a personal financial history. Without this, recipients cannot access safe and affordable financing for household purchases that support family functioning and development, such as a computer, a refrigerator, or a car. Recipients who do not have recognized financial history, such as that provided by a bank or credit union account, have a much harder time establishing good credit. Without this, families must resort to dramatically more expensive methods of financing, such as payday lenders and rent-to-own.

In truth, EBT cards are more similar to commercial prepaid cards than to bank- or credit union-issued debit cards. Prepaid card companies aggressively market to lower income households. They are much easier to obtain than bank or credit union accounts because there is no background check using credit reporting bureaus like ChexSystems, which reports on past account activity and effectively blocks millions of people from being able to open an account at most major financial institutions.

EBT Card Prepaid Card Bank or Credit Union Account
o Receive CalWORKs and other state assistance income electronically o Receive any and as many sources of income, electronically o Receive any and as many sources of income, electronically
o Get cash back for free with purchases o Get cash back for free with purchases o Get cash back for free with purchases
o Pay for purchases using a PIN o Pay for purchases using a PIN or with Visa/MasterCard o Pay for purchases using a PIN, Visa/MasterCard, checks, electronic funds transfer or bill pay
o Get 4 free in-network ATM withdrawals a month o May not offer free in-network ATM access o Get unlimited free in-network ATM withdrawals
o Review transactions for two month by phone or longer online o Review all recent transactions  free online or for a charge by phone o Review most transactions free online, by phone, or in person
o Monthly statements available to be mailed upon request o Monthly statements free online or mailed for a fee o Monthly statements free online and sometimes free by mail
o Multiple accounts available but money may not be transferred o Transfer money between sub-accounts where available o Transfer money free between accounts
o Money stolen using physical EBT and PIN will not always be replaced o Money stolen from a prepaid card does not have to be replaced o Most money stolen will be replaced if reported right away
o Does not build a personal financial record o Does not build a personal financial record o Builds a personal financial record

 

Like users of prepaid cards, EBT card users can isolate a source of income from any other household money received and spent. An EBT card can only hold CalWORKs aid, thereby protecting it from possible garnishments or liens on bank accounts. Like with many prepaid cards, it is also impossible to use an EBT card to spend more money than is available. This avoids hefty overdraft fees that are possible with many bank accounts that can add up and spiral out of control, leaving the person in a lot of debt and possibly with an involuntarily closed account.

However, prepaid cards can be both expensive and unsafe to use. There are no state, federal or even industry standards for prices, which allows card fee schedules to be dizzying and incomparable. Some cards appear less expensive because they do not charge a monthly fee, but ultimately can cost more depending on how they are used, how often they are used and which types of uses trigger fees.Money loaded on a pre-paid card is not always insured by the FDIC or protected by Regulation E, which limits a person’s liability to $50 for theft or fraudulent use by another person of her card if reported within two days. A person can pay many fees to buy, load and use a prepaid card and be out of luck if the card is lost or stolen or if the card provider goes under.

Who benefits from the status quo?

After federal law required the delivery of food stamp benefits by EBT, many states including California, also shifted to using EBT delivery of CalWORKs cash aid to save money on writing, mailing and processing paper checks. The contract to administer the state’s EBT systems is lucrative: Xerox State and Local Solutions, Inc., has a $69 million seven-year contract through 2015, with three year-long extensions available. All 58 California counties have adapted to new infrastructure to deliver aid via Xerox’s systems. This infrastructure of computer systems and forms helps make EBT cards the default method of aid delivery.

Although CalWORKs recipients have the legal right to have aid directly deposited to a personal bank or credit union account, there is no comparable single statewide infrastructure to facilitate it. Counties do not have standardized forms to process requests for direct deposit. A request for direct deposit can take six weeks for a county to process. As a result, very few CalWORKs recipients use direct deposit. For the month of August 2013, only 14,669 recipients got direct deposit statewide, 2,258 received their benefits via paper checks and 430,320 – 96.2% of all recipients used EBT card delivery.

Many CalWORKs recipients are also suspicious of banks. Many have had accounts and had bad experiences with overdraft fees, which can run as high as $35 apiece, and which can accumulate quickly, racking up hundreds of dollars in debt to the bank. Frequent or unpaid overdraft fees are also a major reason for involuntary account closure and for being reported to ChexSystems as a potentially undesirable customer. Most banks will not open an account for those reported to ChexSystems.

Bank
Share of EBT Transactions FY 2012/13 CalWORKs Funds Received via ATM Fees
Bank of America 12.43% $3.6 million
JPMorgan Chase 9.02% $2.8 million
Wells Fargo 7.18% $2.3 million
Rabobank 1.38% $35,451
Union Bank 0.88% $274,977
Total 30.89% $9,067,283

 

Attempts by banks to provide so-called “second chance accounts” have had limited success. Programs like BankOn encourage people to open accounts but they do not prohibit participating banks from selling overdraft service and charging high fees to those who can least afford it. Though BankOn programs ask banks to voluntarily waive ChexSystems reports older than a year, or more recent ones if the person receives financial education, many branch level bank staff fail to do so consistently or perhaps ever without significant and repeated training by the BankOn municipal or non-profit partners.

Finally, because CalWORKs can be the only source of income for a family, many recipients avoid doing anything that might jeopardize eligibility.  For example, program rules make anyone with more than $2,000 in assets ineligible to receive aid. There are exceptions to the asset limit rule, but few people know what they are, much less want to do anything that might provoke an investigation into their eligibility. This makes owning a bank account a perceived potential liability rather than a benefit.

Yet CalWORKs recipients continue to use EBT cards at bank owned ATMs to access their grants. Almost a third of ATM transactions made in fiscal year 2012/13 were at five banks that charge for EBT use: Bank of America, Chase, Wells Fargo, Union Bank and Rabobank.  Together they received over $9 million in CalWORKs and other public assistance funds by charging EBT users fees for using their ATMs. The three largest banks in the state received the vast majority of fees: Bank of America made over $3.6 million, Chase made over $2.8 million, and Wells Fargo made over $2.2 million. Union Bank received almost $275,000. Rabobank, which in May of 2013 switched from not charging EBT users to charging them $3 for each use, received over $35,000 in CalWORKs aid in just the last two months of the fiscal year.  Unfortunately, the fact that so many EBT users pay high fees to use bank ATMs reinforces the perception that banks are too expensive for CalWORKs recipients to use.

CalWORKs Should Help Families, not ATM Owners

CRC is working with state and county CalWORKs administrators, financial education providers and financial institutions to safeguard CalWORKs aid for family needs- not for high fees for basic financial services. Our goal is to provide CalWORKs recipients a better selection of fee-avoidant financial services and help each family make choices that will best save them money.

We believe that a partnership between these three stakeholders is key to achieving this goal.  CalWORKs state and county administrators have the best information available about CalWORKs recipients and are in the strongest position possible to reach them directly while respecting privacy. Financial institutions, particularly large banks and credit unions, have the power to offer better products and the incentives to do so, including improving their public image, increasing their customer base and adding to the community support activities that gain them credit among regulators. Financial educators have proven to be effective in helping low income families create and manage household budgets, build and repair credit histories and otherwise save money to meet household needs and goals.

Banks and Credit Unions Should Offer No and Low Fee Direct Deposit Options

Rather than charging CalWORKs recipients to use their ATMs, California’s largest banks could offer accounts that help them save money. CRC is working with some of the largest financial institutions to offer accounts that meet the needs of CalWORKs recipients, using our SafeMoney™ standards as a starting line.[1]

A good account should be affordable, provide convenient ways to pay for goods and services safely, help people keep track of and manage spending, and help build a person’s financial record.   Recipients of CalWORKs should be able to open an account easily, with a low or no initial deposit, and use them to exercise their legal right to receive benefits via direct deposit. There should be no monthly service fee; if there is a fee, it should be easily waived with direct deposit or other easily achievable action, or be the only fee a customer will pay while using the account. There should be no minimum balance requirement. Critically, debit card purchases should never lead to a negative balance or overdraft fees.

CalWORKs recipients who open accounts to avoid paying excessive ATM and check cashing fees should not then face a high risk of overdraft fees and negative balances that must be paid quickly to avoid involuntary account closure. Prohibiting overdraft on debit card purchases dramatically lowers customer fees. The Federal Deposit Insurance Corporation found that debit card purchases that overdraw accounts cause over 40% of all overdraft fees.The Consumer Financial protection Bureau found that accounts that allow debit card use to overdraw accounts cost customers an average of $196 in 2011, while those that did not allow debit card overdrafts cost only $28 on average for the whole year. Reducing overdraft fees will also keep customers in successful banking relationships longer: accounts with overdraft have an involuntary closure rate 2.5 times higher than those without.

CRC SafeMoney™ Standards for CalWorks Accounts
Services and Benefits Full Service Personal AccountAccount owners should be able to pay for goods and services, get federal consumer protections, manage their money easily and build a stable financial history.No Monthly Service Fee with Direct DepositFree In-Network ATM, Branch and Teller AccessMailed Monthly Statements Free

No Monthly Balance Requirement

Opening Requirements No or Low Opening DepositCalWORKs recipients should be able to open an account with no or only a very low initial deposit.U.S. or Foreign Government Photo IDRecent ChexSystems history except fraud ok 
Account Terms and Services Free Visa/MasterCard Debit CardNo Overdrafts Possible with Debit Card PaymentsMoney Orders and Checks AvailableFree Online Bill Pay

 

Banks and CalWORKs county and state administrators should work together to help CalWORKs recipients easily set up direct deposit. One way to do this is to develop and adopt standardized forms that are easy to fill out and that both banks and counties can use. For example, Bank of America already provides customers with direct deposit forms already filled out with the account owners’ name, the bank’s name, routing number, the customer’s account number and other necessary information. The account owner provides only

CRC proposes that banks and credit unions help protect CalWORKs investments in families by:

  • Offering checking accounts that satisfy SafeMoney™ standards,
  • Working with state and county agencies to create easy setup for direct deposit of CalWORKs benefits, and,
  • Advertising with attractive, easy to use materials that are distributed via state and county agencies and nonprofits that serve families receiving CalWORKs.

Banks should notify the state Department of Social Services and county CalWORKs administrators of their commitment to offering fee-avoidant accounts to CalWORKs recipients and work with those agencies to help recipients gain access to the products. They should develop online and print materials that are attractive, easy to read, and advertise the low account costs, the variety of financial services and benefits, the ease of direct deposit set up, and convenient locations.  Ideally, participating banks would pay to create co-branded materials that are prominently available in county offices and non-profit organizations that serve families that receive CalWORKs assistance.

The State and Counties Can Help Recipients Avoid Fees

California’s Department of Social Services, the Alameda County Social Service Agency and the Los Angeles County Department of Public Social Services have already made efforts to reduce the amount of CalWORKs aid spent on fees. All of them can build on these efforts by working together, with financial institutions and non-profit service providers.

Provide Personal Monthly Statements of EBT Fees and Transactions

The California Department of Social Services and the state’s EBT contractor, Xerox State and Local Solutions, Inc., can work together to notify recipients exactly how much they are spending on fees. Both the state and Xerox have information about each fee a CalWORKs recipient pays using her EBT card. The state is using this information as part of a pilot program targeting recipients who pay more than five fees in a month. Every month, those recipients will receive a phone call playing a recorded message informing them that they have spent a lot of money on ATM fees (but not how much), that they can use MoneyPass ATMs for free or sign up for direct deposit, and that they can visit the state website or their county worker for more information.

The state’s next step should be to provide every CalWORKs EBT user a monthly statement of transactions, including a summary of fees paid every month. The state currently offers transaction history passively: recipients must call the customer service number or register a separate account on the EBT Client website. A monthly statement mailed to each recipient would more actively notify her about her transactions, giving her a better opportunity to verify charges.

The statement should include a highlighted summary of the amount and type of fees a recipient has paid in the month. They should also include generic information about how to avoid future fees, such as the locations of the MoneyPass ATMs and other bank and credit union owned ATMs that are free for EBT card users and of stores that offer cash back free with purchase.

For a full chart of how checking accounts and prepaid cards offered by Bank of America, Citibank, Union Bank, Chase, and Community Financial Resources

Tell Recipients About Fee-Avoidant Account Options

CalWORKs recipients need to know what alternatives exist to lower the amount of money they spend on financial service fees. Currently, most recipients do not know that they can get CalWORKs aid by direct deposit to a bank or credit union account or that doing so can help avoid fees. The state Department of Social Services can change this by informing recipients about fee-avoidant bank and credit union account options to receive CalWORKs aid by direct deposit.

The state could take on an annual task of collecting information about accounts that help customers avoid fees, such as those that are free or low cost, offer waived monthly service fees to recipients with direct deposit, and do not allow debit card purchases to overdraft the account. This can be collected through a public, voluntary request for information to banks and credit unions inviting them to provide their account features. The state could ask direct questions for the banks to answer, such as “Which of the bank’s or credit union’s accounts are free? Which cost under $5 a month? Which offer waived monthly service fees for recipients of direct deposit?” and “Which accounts ensure that debit card purchases do not exceed available funds?” Once collected, the state should distribute the information to the counties through All County Information Notices.

Emphasize Choice and Facilitate Opportunities to Lower Fees

Counties can also build on existing efforts to reduce the amount of money spent on financial service fees. Both Alameda and Los Angeles Counties can support their staff and clients by building the capacity of staff who regularly interact with recipients, such as eligibility workers and employment counselors, to help recipients avoid financial service fees. In fact, county staff are likely to have many of their own questions about bank fees, prepaid cards, and ways to save money on basic financial transactions. Counties should offer staff financial training they can use personally, using materials that explain common financial service fees, how to avoid overdraft and prepaid card fees, and which consumer protections to look for. The goal is not to make county employees expert financial advisors, but to help them confidently conversant about mundane financial issues like how to avoid fees.

Counties should then take three additional steps: establish protocols to ensure that conversations about financial service fees are taking place during opportunities where recipients have in-depth interactions with county staff, such as employment counseling; develop better supporting materials; and provide recipients with a more deliberate approach to selecting EBT or direct deposit.

For example, both counties currently provide written materials explaining where and how to use EBT cards and an overview of direct deposit. However, recipients receive these as part of a much larger packet of information and there is no guarantee that a county worker has discussed fee-avoidant ways to use the EBT card or get direct deposit.  The recipient’s opportunity to select EBT or direct deposit passes quickly and without consideration of the pros and cons of each choice. This is how EBT has become the default choice for the vast majority of recipients.

Both counties could alter application and recertification processes to include a step for discussing the fees a recipient would face if she chooses EBT or direct deposit before asking her to make a selection. Forms should frame the choice of direct deposit or EBT affirmatively, i.e., stating in bold letters, “You Have a Choice between EBT and Direct Deposit”.

Counties should work with employees who interact frequently, and/or in-depth with recipients (such as employment counselors) and with non-profit financial educators, to develop a protocol for discussing the factors affecting a recipients choice between EBT and direct deposit.  The conversation must be fast and effective: county staff must be able to integrate it into already lengthy meetings with recipients, and recipients must be able to hear and process the information and opportunities presented.

County staff could ask key questions to help recipients make the best choice, such as:

  • Which ATMs are you most likely to use to withdraw cash? If those are not free for EBT users, can you easily get to ATMs that are free for EBT?
  • Do you need more than four ATM withdrawals a month?
  • Do you already have a bank account? Could you get that account – or a new account – free if you get CalWORKs directly deposited? Does your bank make sure you do not overdraft when you use a debit card?
  • Do you want to keep CalWORKs aid separate from other income? Do you want to manage all income in one place?
How much will it cost to pay bills? A mom who makes $230 a month from a part-time job and receives $510 cash aid from CalWORKs has options for how to get cash and pay bills.In the best-case scenario, this is how much it would cost her to pay bills and get cash using… An EBT Card and the Check Casher-2% of her paycheck to cash it, $4.60

-$1.50 for a money order for rent

-$1.50 to pay a utility bill with cash at the check casher

-$1.50 to pay a mobile phone bill with cash at the check casher

-$1.50 for a money order that will be mailed to pay car insurance

-$0 to use the EBT card to get cash 5 times, including 4 times at a MoneyPass ATM and once by getting cash-back when paying at the grocery store.

= $10.60

An EBT Card and a Prepaid Card

-$0 to directly deposit her paycheck to the prepaid card

-$0 to pay the utility, mobile phone and car insurance bills online using the prepaid card’s Visa or MasterCard number

-$4.95 monthly service fee for the prepaid card

-$1.50 to buy a money order to pay rent

-$0 to use the EBT card to get cash 5 times during the month, including 4 times at a MoneyPass ATM and once by getting cash-back when paying at the grocery store.

= $6.45

A Bank or Credit Union Account

-$0 to direct deposit both her paycheck and CalWORKs income to her account

-$0 to pay the utility bill, mobile phone bill and car insurance online using the debit card Visa or MasterCard number

-$0 to pay rent with a check

-$0 to use the bank or credit union’s ATM as many times as she wants

=$0

Counties should develop attractive, easily understood supporting materials, such as flyers, brochures, website pages, and videos that effectively explain the costs and benefits of different financial services. County social service agencies could collaborate with consumer protection agencies and programs, such as Los Angeles County’s Department of Consumer Affairs, to develop these materials.  A colorful, glossy handout could illustrate how much it would cost to pay a set of bills using a combination of EBT and check casher services, EBT and prepaid card, EBT and bank account or only a bank account. Banners in county offices could promote no- and low-fee banking services and direct deposit.

Other information to provide includes:

  • Neither the state or the county will ever be able to see into a person’s bank or credit union account or know how they use the money in it,
  • The state does know when EBT cards are used, the amount spent or withdrawn or the location,
  • Many banks and credit unions offer free accounts to people who use direct deposit, and common bank fees can be avoided (for example, many overdraft fees can be avoided by telling the bank not to pay for debit card purchases for more than the amount in the account),
  • Bank or credit union account owners will be reimbursed for thefts from the account and will not lose more than $50 if the account owner reports the loss within 24 hours and is not committing fraud,
  • EBT users may not be reimbursed if someone steals their card and uses the correct PIN to get cash or pay for a purchase,
  • Though CalWORKs cash aid cannot be garnished, it may be more difficult to protect this money once it is mixed with other money in a bank account, and
  • Recipients can decide to use either EBT or direct deposit and can change their mind at any time.

Finally, counties should repeat the message that recipients can avoid using CalWORKs money to pay financial service fees wherever recipients are likely to see it: on their web sites, in written materials in county waiting areas, and through videos displayed in county offices.

Make Signing up for Direct Deposit Easy

Both state and county administrators should work with banks to make setting up direct deposit simple and fast. Currently it can take some counties six weeks in some areas to set it up and it may not be clear to the recipient what will happen to her grant during this process. At minimum, recipients should be able to use an EBT card immediately and without interruption and know when the first deposit will arrive in the account she has chosen. Ideally, recipients should be able to sign up for direct deposit through their county worker, online or using standardized forms developed by the state or county in partnership with banks.

Make the Next EBT Contractor Provide Lower Cost Services

The state’s current contract with Xerox State and Local Solutions, Inc. is set to expire in 2015 unless the state uses one of the three available one-year extensions. CRC is in the process of researching best practices by other states that provide benefits electronically and do so without passing on costs to recipients or siphoning benefits away from families. We hope that the state Department of Social Services will consider these and apply the state’s negotiating power to create a benefits delivery system that helps recipients avoid fees and save money.

CRC Proposes State and County CalWORKs administrators Protect CalWORKs Investments in families by:

  • Informing CalWORKs recipients of the fees they pay by sending a regular, monthly statement of transactions,
  • Emphasizing to recipients that they can choose to receive aid via EBT or direct deposit, describing the pros and cons so each recipient can decide for herself what she needs and wants,
  • Educating county staff about fees so they and their clients can avoid them,
  • Providing recipients information about fee-avoidant accounts,
  • Working with banks to simplify and speed up setting up direct deposit, and
  • Negotiating the next EBT contract so that it is more affordable to recipients.

Financial Education and Asset-Building Programs Are Key Resources

State and county agencies, banks and credit unions should work with non-profit community organizations to provide all recipients ongoing support to avoid fees, whether they choose EBT or direct deposit. Counties already contract with service providers on a variety of issues, including financial education and planning. Banks also support financial education efforts. These programs need and deserve stronger financial support from all partners to reach more people.

Many proven and highly respected organizations offer sophisticated financial education programs such as the Money Smart curriculum developed by the FDIC, the “Your Money, Your Goals” developed by the Consumer Financial Protection Bureau, and the “Savvy Consumer Toolkit” developed the Alameda County Community Assets Network. Many of these organizations also offer credit building, credit repair, debt settlement and expungement assistance, access to micro-loans for self-employment, and help saving towards self-sufficiency in ways that will not jeopardize eligibility for CalWORKs and other programs that use asset rules.

With the support of banks and government agencies, these organizations could reach many of the 450,000 CalWORKs recipients across the state. To do so, providers would need to adapt their existing financial education curriculum to include information on avoiding EBT fees. Unfortunately, a search for existing models engaging EBT fees directly yielded no results. On a positive note, organizations can be creative about how to integrate the material in ways that are most relevant to their client’s experiences.

For example, community colleges could also be great partners given their high contact with the over 35,000 CalWORKs recipients who are students. The California Community College CalWORKs Association includes students, college counselors and administrators who work together to ensure the success of CalWORKs recipients attending college. Colleges often deliver student financial aid through free student bank accounts offered by banks contracted by the college to do so. Few students are also aware that they can use these accounts to receive their CalWORKs grant. As a result, students may be paying fees to use their EBT card at an ATM where they already have an account.

Counselors can help students sign up for direct deposit of CalWORKs in the same accounts they receive financial aid. Alternatively, the colleges could engage students more proactively about their choice of financial services, helping them to choose a provider that is most convenient and affordable whether it is the institution contracted by the school or otherwise.

CRC Proposes that financial Education Providers help protect CalWorks Investments in famlies by:

  • Reaching out to CalWORKs recipients with support from government agencies and financial institutions,
  • Adapting financial education materials to include EBT fees and how to avoid them, and
  • Integrating these services where they are most relevant to clients.

Additional partners could include organizations already contracted to provide other services, such as employment training, child care referral and placement centers, domestic violence prevention, and financial literacy to name a few. Many of these organizations have classes or one-on-one services that can be adapted to integrate engagement on the choice of financial services and its effects on financial stability.

The Washington State Department of Commerce and The Prosperity Agenda are working together to connect households on public assistance with affordable banking services. The focus of this work includes the promotion of future EBT service contracts that provide no-fee bank accounts to recipients.
Successes to Build On and Models to Learn From The work we need to do to protect CalWORKs funds from costly fees is not without precedent. The California Department of Social Services, Alameda County and Los Angeles County have all taken strong steps to help CalWORKs recipients avoid fees and gain financial stability. In other states, effective advocacy and partnerships between government agencies, non-profit organizations, and financial institutions yield critical lessons.
The Center for Hunger-Free Communities at Drexel University and the Pennsylvania Department of Public Welfare are working to develop the “Building Wealth and Health Network.” The project involves a peer-oriented, asset-building model that helps women break the cycle of poverty through matched savings accounts, financial literacy classes and peer support groups using the Sanctuary® trauma-informed approach to social services.
California Department of Social Services “EBT Working Group” has brought together state and county administrators and advocates across the state to reduce the fees EBT users pay. The Group is now developing materials that explain the choice between EBT and direct deposit.

 

The Los Angeles Department of Public Social Services has developed a mobile app counterpart to its “Your Benefits Now” website. The app, now available on iPhone and being developed for Android, provides ongoing EBT balance information and the ability to upload reports for continued eligibility.

 

The Alameda County Social Services Agency has launched an “Asset Building Pilot” that is showing early success. Twenty recipients of CalWORKs and General Assistance are now participating in financial education workshops and one-on-one credit coaching sessions. Preliminary findings show participation is most consistent when Employment Counselors conduct direct outreach to potential participants and sessions occur during paid work hours.

Next Steps

The catalyst for this campaign emerged from CRC’s participation in the EBT Working Group formed by the California Department of Social Services. Our first reaction to learning that ATM providers including the largest banks in the state were extracting fee revenue of over $19.4 million a year in CalWORKs and other aid was to ask the banks to waive the fees. Though thankfully several banks do waive the fees, this answer would not meet the broader need that CalWORKs recipients have for financial services. We believe that by working together, state and county CalWORKs administrators, financial institutions and financial education providers can do both: protect CalWORKs aid for the purpose it is intended, and provide the necessary financial services every California family needs to maintain a household.

This report reflects the ideas generated during dozens of conversations with stakeholders in Sacramento, Alameda County, and Los Angeles County. We invite feedback from stakeholders and thought leaders, CalWORKs recipients and advocates, and allies across the state and country. We will use this feedback to fashion our work in the coming months.

Our next step is to convene the stakeholders in two meetings, one in Alameda County and the other in Los Angeles County to,

  • Develop a shared understanding among stakeholders of the cost and other impact to families and the state of CalWORKs and other programs money being used to pay avoidable financial service fees, including the $19.4 million spent by EBT users on ATM fees alone in 2012,
  • Learn from existing efforts in California, Pennsylvania and Washington State to reduce financial service fees and increase access to better financial services,
  • Prioritize specific administrative and programmatic interventions to increase awareness and avoidance of financial service fees among CalWORKs recipients through breakout group discussions that will report back, and,
  • Develop a timeline for program development and implementation.

We invite all stakeholders and allies to respond to this report with your feedback, insights and recommendations. To do so, please fill out the $19 Million Fee Survey or contact Andrea Luquetta directly by phone at 415-864-3980 or by email at aluquetta@calreinvest.org.

Please join us, support our efforts and help make sure all of CalWORKs aid is not spent on fees but for what it was intended, to “provide for protection, care, and assistance to the people of the state in need.”

 

[1] We developed the SafeMoney™ standards in 2012 to respond to increasing fees for basic accounts. For more information, please visit www.calreinvest.org.

[i] A white paper by the CFPB noted that overdraft fees account for 61% of checking account fee revenue. Moebs Services, Inc. estimated 2013 overdraft revenue at $31.8 billion.

[ii] The CFSI 2012 Financially Underserve Market Study breaks out industry revenue by product segment.

[iii] This figure results from California’s share of national GDP (13%), the amount spent on these services nationally, and the number of Californians receiving CalWORKs cash aid.

[iv] According to the Self-Sufficiency Standard developed by the Insight Center for Community Economic Development.

Solving the $19 Million ATM Fee Problem in California

Earlier this week, CRC released a report focused on the $19.4 million in public assistance money that went to paying ATM fees so recipients could withdrawal their benefits.

While one possible solution to this problem is for banks to simply stop charging these fees, we also believe that connecting Californians who receive CalWORKs to safe, low-cost banking accounts can help create future financial stability.

CRC is working with state officials, county officials in Los Angeles County and Alameda County and with some of the largest financial institutions to reduce the amount of cash aid used to pay fees rather than to support families. We are building on existing efforts by state and county agencies to alert recipients to the prevalence of fees and ways to avoid them.

With co-sponsor Western Center on Law and Poverty, we have introduced AB 1614, a bill that would make sure every CalWORKs recipients gets a monthly statement of transactions and clear information about their right to receive aid by direct deposit to a personal account and the comparative costs and benefits of doing so. We are working with large banks and other financial institutions to market to CalWORKs recipients accounts that avoid the most common and expensive fees, such as monthly service fees and overdraft fees.

Our goals are to:

  1. Increase the use of free cash withdrawal options for EBT cards,
  2. Increase access to fee-avoidant financial services, such as bank and credit union services that are free with direct deposit of CalWORKs cash aid, and,
  3. Provide practical and ongoing support to CalWORKs recipients to help them save on fees.

We are convening many of the major stakeholders on May 1st in Los Angeles to roll up our sleeves and create a plan to solve this problem. We are inviting thought-leaders, experts and anyone with insight to help us by responding to the $19 Million Fee Survey or by contacting Andrea Luquetta directly by phone at 415-864-3980 or by email at aluquetta@calreinvest.org.

Banks That Are Helping to Create Solutions

Major financial institutions have created accounts that we think will go a long way to helping CalWORKs recipients save on fees. Bank of America, Chase, Union, Citibank and Community Financial Resources all offer accounts and prepaid cards that meet several of CRC’s SafeMoney™ standards and we are working with them to get them to 100%. We are asking these banks to work with the government agencies to get information about the accounts out to CalWORKs recipients and streamline the direct deposit process so that more CalWORKs recipients can take advantage of the potential savings.

To see a chart of how these accounts meet CRC’s SafeMoney™ standards, turn to page 8 of the report.

The State Department of Social Services, Alameda County and Los Angeles County Are Laying the Ground Work

In February, the California Department of Social Services began calling thousands of CalWORKs recipients to alert them of alternative ways to access cash without paying fees. The Department is also developing a guide for distribution to CalWORKs recipients that will compare the benefits of signing up for direct deposit or continuing to use EBT cards so that recipients can choose for themselves what is best for their personal situation. The Alameda County Social Services Agency and the Los Angeles County Department of Public Social Services already support financial education to help CalWORKs recipients save money. All three agencies have committed staff leaders to work with CRC and other partners to develop solutions that meet local needs.

Financial Education Providers are Ready to Serve More People with Better Tools
Non-profit community organizations in both Alameda County and Los Angeles County are eager to reach more CalWORKs recipients, help them identify banking strategies to save money, and help them reach financial self-sufficiency. They need the support of the government and the banks to fund increased outreach and to develop the materials needed to address the specific challenges of choosing the best financial service tool for one’s needs.

CRC has been meeting with all stakeholders for many months to develop the proposals in the report. We are confident that each sector- public, private and non-profit- has critical resources to contribute and that by working together, we can eliminate the $19 million ATM fee.

 

Editorials Against Payday Lenders

Editor’s note: The CFPB, a federal agency, has proposed new rules for payday, car title, and high-cost installment lenders.

 

BUT, they need to hear from consumers- that means you! We have an easy-to-use page where you can weigh in- it only takes a minute and will help bring about important consumer protections with these loans. Please share a line or two in the comments box about why you care about this issue and want to see strong federal reforms.

PS: You do NOT have to be a payday, car title, or installment borrower to sign the petition.

 

Editor’s note 2: If you’ve used payday, car title, or high-cost installment loans and would like to share your story with CRC so we can advocate against the damage these loans cause, please share it here.  It’s quick and easy and you could save others from financial heartaches. 

The Consumer Financial Protection Bureau is going to write rules about payday lending this year.   What have newspaper editorial boards around the country said about payday lenders?

Editorials about payday lending

 

1. The Consumer Financial Protection Bureau is barred by law from setting interest rates. But it can do more. It could help vulnerable, low-income borrowers by putting an end to deceptive advertising and balloon payments that make it impossible for borrowers to close out a loan. It could also force lenders to verify the borrower’s ability to repay before a loan is made. New York Times: Progress on Predatory Lending (Sept. 15, 2013)

2. It looks a lot like a game of Whac-A-Mole when it comes to regulating predatory lenders.  San Antonio Express News: Payday lenders remain creative (Sept. 18, 2013)

3. Some find the idea of “protecting people from themselves” odious. We don’t go there often, but consider this our nod to the notorious NASCAR rulebook acronym EIRI: “Except In Rare Instances.”  The Gadsen Times: OUR VIEW: Right move on payday loan database (Sept. 19, 2013)

4. Many unsavory ventures make their home in the seamy underbelly of the Internet, including some particularly unscrupulous payday lenders that use high fees and shady methods to drain borrowers’ offline bank accounts. The Los Angeles Times: Payday loans, online style (Oct. 13, 2013)

5. If lawmakers really want to distance themselves from the Calderon legacy, they should take a hard look at reversing some of its most egregious giveaways. One place to start would be the payday-loan industry.  Sacramento Bee: To separate themselves from Calderons, lawmakers should end payday loans (Nov. 5, 2013)

Where do payday lenders locate

6. “People get trapped,” charged Brian Rusche of JRLC. He painted a grim picture of borrowers so financially desperate and/or poorly informed that they take on debt burdens that exceed their ability to promptly repay. They frequently refinance their original loans, each time racking up additional fees that, industrywide, average $17 for every $100 extended. Repeat borrowers can wind up spending substantially more on interest than on the original principal, Rusche said.  The Star-Tribune: Better policing needed for payday lending (Nov. 15, 2013)

7. A March 2013 study by Tim Lohrentz, program manager for the Insight Center for Community Economic Development, an Oakland-based nonprofit, estimates that Fresno suffered a net economic loss of at least $3.6 million from payday lending in 2011. Fresno Bee: “Fresno should regulate new payday loan shops” (Nov. 19, 2013)

8. The U.S. Conference of Catholic Bishops and the Jesuit Social Research Institute at Loyola University in New Orleans have taken stances against these loan practices. Other faith-based groups in the state have also come out in opposition to the high payback rates. The Advertiser: Payday loans promote vicious cycle of indebtedness (Nov. 30, 2013)

9. Congress would do the country a world of good by revisiting the Military Lending Act and tightening the loopholes that have allowed payday lenders to continue to flourish. The payday loan industry invests a lot of its profits in lobbying efforts, but members of Congress have a chance to be heroes here. Shut down these high-interest loan sharks and give our servicemen and servicewomen a little protection from their predatory ways.  Rocky Mount Telegram: Congress should revisit payday loan law (Dec. 5, 2013)

10. The CFPB could establish some commonsense requirements such as requiring underwriting to ensure that a person receiving a payday loan can afford to pay it back, and limiting indebtedness to no more than 90 days per year to prevent loan churning. Florida lawmakers could also follow the lead of 17 states and the District of Columbia and put a double-digit rate cap on payday loans. If America’s fighting forces need protection from unscrupulous industry practices, why not the rest of us?  Tampa Bay Times: Protect consumers from predatory lending (Dec. 26, 2013)

payday borrower

11. The state’s sleazy payday loan industry, in general, and, in particular, those participants who gave tons of money to Swallow’s various campaigns and worked with the Swallow organization to destroy the career of a member of the Utah House, are a fit quarry for legislators’ justified rage.  Salt Lake Tribune: Legislature should take out its Swallow anger on payday lenders  (Dec. 29, 2013)

12. Those loans netted the lenders more than $34 million in fees — interest payments and charges for renewing a loan.That means a typical El Paso customer got a loan for $564, and paid the lender $387 for the privilege of having the money for less than two months. The El Paso city regulations will do little to dent the profit margins of these lenders, but will offer some additional protection for consumers. El Paso Times: El Paso City Council should affirm payday loan rules (Jan. 5, 2014)

13. To take someone with a gambling problem — or, more dangerously, the person who has a gambling problem but has yet to realize it — away from the human contact of the casino and into a situation where they can all too easily “get cash fast” without serious consideration of the terms and conditions of that loan is a step too far for us. Before any steps to legalize online gambling in Wisconsin, the Legislature should require that online gambling companies cannot also be in the business of online lending. The Journal-Times:  Casinos shouldn’t lend money (Jan 6, 2014)

14. Just as cities are increasing their efforts, the federal government also is wisely taking an interest in payday lending practices. The Consumer Financial Protection Bureau, a newly formed regulatory agency, recently reached a $19 million settlement agreement with Cash America, after the federal bureau alleged that the company improperly reviewed and signed documents in debt collection lawsuits, overcharged military customers and impeded a regulatory examination. More enforcement actions against other lenders are likely. Dallas Morning News: Cities need to stand up to payday lenders (Jan 10, 2014)

Liana 1

15. Face it — well-heeled people generally don’t seek payday loans. Dire economic circumstances often drive people to these lenders. Being a lender of last resort for many Texans doesn’t mean that this industry should profit so obscenely from these circumstances. There should be more limits. Needed: A Legislature with the political fortitude to take on the payday lending industry, not to mention a governor — whoever he or she may be — to ensure that the interests of Texas consumers are protected. San Antonio Express News: Consumers merely collateral damage (Jan. 16, 2014)

16. Part of the problem for consumers is that payday loans can carry almost 400 percent annual interest rates, and often the borrower is trapped in a cycle of debt with unlimited rollover of the loans, extending the terms and increasing the payback costs.  Star-Telegram: Texas payday lending needs more regulation (Jan. 23, 2014)

17. Now that major banks are bowing out of the payday lending business, the next change should be a cap on what now are usurious interest rates.  Sacramento Bee: Large banks get out of payday lending, at last (Jan 24, 2014)

18. Having enlisted soldiers subject to predatory interest rates in excess of 400 percent motivated the Pentagon to lobby the U.S. Congress to pass national legislation in 2006 to protect GI’s from the most egregious payday loan practices. Seguin Gazette: Regulate payday loans (Jan. 26, 2014)

19. Regardless of how these payday loan schemes are structured, they’re wrong. They hurt people who don’t need any more hurting. Our honorable Indian nations shouldn’t get caught up in this dishonorable business.  The Cap Times: Plain Talk: Tribes should stay away from payday loans (Jan. 29, 2014)

20. Too many Idahoans with few options are victimized every day by predatory lenders. It’s a shame that Heider and his colleagues don’t have the guts to do anything about it. MagicValley.com: Heider’s ‘Limp’ Bill Isn’t Payday Reform (Feb. 19, 2014)

21. Pennsylvania senators should resist the argument that offering constituents a somewhat better deal than Internet payday rates is a public service. That would be laughable, if not for the fact that so many legislators think it’s a swell idea.  The Express Times: Pennsylvania should resist the lure of payday loans (Feb. 28, 2014)

shark loopholes

22. Expect those friendly loan sharks to once again spend whatever it takes to stop them. It will likely be more than it took to get a friendly bill passed in the Senate that would actually make real reform more difficult. The House, however, can stop this. Our representatives should refuse to be part of this subterfuge. Instead, the legislature should consider outlawing or strictly regulating payday loans as 11 other states have done. News-Leader.com: Time for real loan reform (March 2, 2014)

23. Although they are often touted as short-term instruments to get borrowers through a temporary financial rough patch, the reality is that these loans often create an all but inescapable cycle of debt as borrowers roll them over or take out more of these high-interest loans in a doomed attempt to pay off existing ones. They end up paying staggering amounts of interest on initially small loans. It’s usury, plain and simple.  Montgomery Advertiser: Payday loan bill a chance to reform (March 5, 2014)

24. That so many Missouri lawmakers continue to sell themselves like cheap hookers — OK, expensive hookers — to the payday lending industry is a pox on the entire state. Having read the campaign finance reports, we have little hope that the Missouri House will have the integrity to say no to the Senate’s phony reform bill.  St. Louis Post-Dispatch: A phony payday loan reform bill. Because 1,950 percent is not enough (March 5, 2014)

25. Louisiana has many residents who live under financial stress. Our state has more residents working low-wage jobs and with limited access to banks than the nation as a whole, according to a report by United Way of SELA. Louisianians are more likely to be uninsured and less likely to have savings than other Americans, according to the United Way report. And on and on, Louisiana residents face numerous financial difficulties. To layer exorbitant and unaffordable loan fees on top of that is cruel — and works against financial stability. The Times Picayune: Legislature needs to rein in payday loan costs (March 7, 2014)

26. Payday loan stores abound in disadvantaged neighborhoods and, although they have been banned by federal law from operating on military bases, they continue to surround installations, such as Barksdale Air Force Base in Shreveport. They also have begun to crop up around college campuses, such as Centennary College, also in Shreveport.  The Daily Advertiser: Bill limiting payday loans a step in the right direction (March 18, 2014)

27. Montana placed an interest rate cap of 36 percent APR on its payday loans in 2011 and half the payday lenders in that state disappeared.  We’re just not sure that’s a bad thing. Maybe it’s time for Congress to cap interest rates on Internet payday loans.  Idaho State Journal: Payday loan or debt trap? (March 19, 2014)

28. Payday loans are a major issue here. Louisiana has more residents working low-wage jobs and with limited access to banks than the nation as a whole, according to a report by United Way of SELA. Louisianians are more likely to be uninsured and less likely to have savings than other Americans, according to the report. Exorbitant and unaffordable loan fees make families even more financially unstable. The Times Picayune: Exorbitant payday loan interest must be limited by Legislature (March 26, 2014)

29. The revelations about payday loans are consistently negative. People pay too much for too little financial help, they frequently become caught up in a cycle of taking out repeated loans with high interest rates, and meaningful reform seems but a fantasy.  St. Joseph News Press: Payday loan trap awaits real reform (March 28, 2014)

30. The payday loan industry is wealthy and has a powerful lobby. Toughening the law won’t be easy, but it’s the right thing to do. The Post and Courier: Pain persists with payday loans (March 30, 2014)

31. At a hearing on payday lending on Tuesday in Nashville, Richard Cordray, the director of the Consumer Financial Protection Bureau, described the case of a Pennsylvania woman who lost her job at a hospital and turned to what she thought was a short-term loan of $800 to pay the rent. After repaying more than $1,400, she is working two jobs, still in debt and being hounded by bill collectors.  The New York Times: What Lending Rules Should Look Like (March 30, 2014)

32. The industry argues that payday loans provide a useful service to help people manage unexpected and temporary financial difficulties. Maybe that’s how it works 15 percent of the time. But for the remaining 85 percent, it looks like this industry is grabbing someone’s billfold and not letting go. Savannah Morning News: Payday loans are sinkholes for wallets (March 30, 2014)

33. It’s true that no one forces people to take out these loans, but this industry is based on a business model that fundamentally puts people in a financial hole. Most loans are for less than $1,000 to cover emergencies like a car repair or a medical bill. And most are not repaid in full and on time. About 85 percent of payday borrowers default on the loan or take out another loan, resulting in crippling debt far beyond the original loan. Dallas Morning News: Cities are picking up the fight against payday lenders (April 10, 2014)

34. Perhaps the most surprising thing about Utah’s average 474 percent interest rate on payday loans is that there are six states with higher rates. Idaho, South Dakota, Nevada, Delaware and Wisconsin all have at least 500 percent average interest on payday loans.  The Salt Lake Tribune: Time to cap payday-lending rates (April 18, 2014)

payday vultures

35. For instance, why are they allowed to charge such high interest rates (in the worst cases as high as 700 percent)? Our state has laws against loansharking activity, making it a felony to lend at interest rates “exceeding 45 percent per annum or the equivalent rate for a longer or shorter period,” punishable by fines of $10,000 or one to five years in jail (RS 15:511). However, payday lenders have been exempted by the Legislature. The state also has usury laws that limit interest rates to 12 percent a year; again, payday lenders were exempted by legislative action.  The News Star: Don’t allow payday lending reform to languish (April 20, 2014)

36. The payday loan industry says such restrictions merely push customers onto the Internet for loans that cost even more. Pew studied that contention and found that in restrictive states, there wasn’t a big shift to online lenders. Instead, people cut their expenses or sought help from employers, family and friends. Those are all better choices than getting caught in a destructive cycle of short-term loans. People in these predicaments need credit counseling, not another loan.  The Spokesman-Review: Payday loan study shows Idaho needs new laws (April 22, 2014)

37. Businesses, some owned by large financial institutions of Wall Street-stature, literally suck the poor dry through “payday loan” shops, or “car title loans,” “rent-to-own” stores, or even “refund-anticipation” loans after taxes are done. Standard Examiner: Our View: Payday predators (April 25, 2014)

38. If you’re looking for fast cash in Dothan, you’re in better shape than if you’re looking for fast food – there are more title pawn and payday loan outlets in town than McDonald’s restaurants. dothaneagle.com: Loans at 456 percent interest (May 9, 2014)

39. Amid a deluge of lobbying from national payday lending operations, the Legislature in both chambers has shown a reluctance to tighten the sky-high interest rates and fees paid by customers of the short-term loan outlets.  The New Orleans Advocate: Fair play for loans (May 10, 2014)

40. Loansharking used to be a pretty good racket for organized crime. People borrowed money from hip-pocket bankers, and those who didn’t repay their loans with exorbitant interest tacked on had to face the shark’s leg-breaker. But in Alabama, who needs loan sharks? Predatory lending is legal in many forms here — minus the muscle, or so we hope. Tuscaloosa News.com: Usury bill would lend a hand to many in Alabama (May 24, 2014)

41. This is a major victory because it proves that cities aren’t powerless against the proliferation of payday lenders or their most exploitative practices. Major cities that haven’t taken a stand against payday lending excesses — including Fort Worth, Irving and Arlington — have no excuse for further inaction. Dallas Morning News: Dallas’ payday ordinance wins in court (May 30, 2014)

42. Lawmakers should take note. Communities feel so strongly about keeping payday lenders at bay that they have rewritten zoning laws so new ones can’t pop up. The change doesn’t get at the crux of the problem.  The Des Moines Register: Payday loans need a legislative solution (May 31, 2014)

43. The best solution to the problem is for the state to regulate these types of businesses. Lawmakers, whose political campaigns are heavily financed by the payday loan industry, have lacked the will to take them on. Until they develop the political fortitude to tackle the job, it will be up to individual city councils to take on the jobs the members of the Texas Legislature have been shirking.  San Antonio Express News: Payday rules merit tough stance (June 3, 2014)

44. Considering Statehouse inaction, it’s appropriate that Democratic U.S. Sen. Sherrod Brown of Ohio is asking the federal Consumer Financial Protection Bureau “to write rules for small-dollar loans that will fill the gaps left by inadequate state laws.” The Plain Dealer: Past time for Ohio lawmakers to close payday-lending loophole

Utah Payday Lender cartoon

45. Let’s start with SB 694, the odious lending “reform” bill, which sailed through the Missouri Senate with tacit support from the payday lenders. That was a telltale clue; a real reform bill would have the industry’s lobbyists screaming like stuck pigs. The industry didn’t spend $1.6 million on lawmakers’ campaigns between 2003 and 2012 to have them institute real reform.  St. Louis Post-Dispatch: Unscrupulous lenders take it on the chin for a change (July 14, 2014)

46.  In the case of ACE, the company actually trained its in-house debt collectors using a manual that explicitly instructed them to “create a sense of urgency” in borrowers who had exhausted the money they had been lent and who lacked the ability to repay. At that point, the manual said, the collectors were to offer the delinquent borrower the option of refinancing or extending the loan. Even after borrowers said they could not afford to repay, the company pressured them into taking on more debt. Every new loan meant the borrowers paid new fees. New York Times: Payday Lenders Set the Debt Trap (July 19, 2014)

47.  The cycle-of-debt problem is acute throughout North Texas, and particularly so in low-income neighborhoods. While many major cities —Dallas, Austin, El Paso, Garland, Houston and San Antonio — have enacted tougher rules, our region badly needs Fort Worth, Arlington and Irving to join the reform fight. If this trio of cities would enact tougher lending rules, it would help deliver a powerful message to state lawmakers that payday lending abuses must end. Dallas Morning News: Feds turn up the pressure on payday lenders (July 20, 2014).

48. There are multiple databases in use, with no assurance that a would-be borrower is listed in the one a lender might choose to use. That creates the possibility of multiple loans that exceed the cap and that can create an all but inescapable cycle of debt. It’s a lucrative arrangement for the lenders, to be sure, but all other effects are detrimental. The Banking Department was right to step in with the regulation after repeated efforts to pass reform measures in the Legislature were thwarted by the clout of industry lobbyists. Montgomery Advertiser: Payday lenders ruling correct (August 13, 2014).

49. Normally, a free market void of government intrusion is preferable to mandated rules and regulations that can stifle business. However, in the case of payday loans and auto title loans — with exorbitant interest rates that can drag down a consumer far more than a credit card — some form of regulation is necessary. Amarillo Globe News Speak up on payday loans  (August 25, 2014).

50. From “refund anticipation loans” during tax season to “rent to own” appliances, numerous businesses turn a profit on the backs of the poor. Unfortunately, too many members of the Iowa Legislature don’t seem to care.  The Des Moines Register: It’s time lawmakers deal with payday loans:” (August 28, 2014).

51. The payday loan industry has flourished virtually unchecked in Kentucky for far too long, luring customers — often impoverished or desperate — with quick cash at a very high cost. The Courier Journal: More restrictions on payday lending (Sept 1, 2014).

ACE Cash Express

52. Many of these borrowers don’t live below the poverty line; they are folks who have hit a bump in the financial road and need short-term help. But a trip to the payday lender can turn that bump into a mountain of money problems.  The Dallas News: Finding innovative alternatives to payday lenders (Sept. 14, 2014).

53. Payday lending expanded significantly during the 1990s, when many states unwisely exempted the lenders from usury caps. Since then, many states have seen the light, but not nearly enough. Resourceful payday lenders have also managed to evade even tough state laws by setting up shop elsewhere or using the Internet. It’s clearly time for a national standard. The New York Times: A Rate Cap for All Consumer Loans (Oct. 18, 2014).

54. There is a dire need for small loans and grass-roots alternatives to payday lending. In time, the BCL program could grow and take a real bite out of the industry. That’s why nonprofits, employers and philanthropic organizations would be wise to support an operation like this one. The Dallas Morning News: Ending the payday lending cycle (Oct. 22, 2014).

55. What’s insidious about this business is that while claiming to a short-term lender to help people through a temporary cash crunch, their business success is really predicated on rolling the loan over and charging additional service fees. In a typical situation, borrowers provide a lender with a personal check dated for the next payday or permission to debit their bank account two weeks later, with a finance charge added. But the loans rarely end at that point. Instead, the borrowers often roll the loans over several times, racking up fees in the process. The typical payday borrower will pay more than $450 in fees for a $350 loan, according to experts in the field. Herald Review.com: `Payday’ loans need more regulation (Jan. 28, 2015)

56. Oddly, or perhaps tellingly, the opposition to Orr’s bill was led by a Democrat, Sen. Roger Bedford, of Russellville, who failed to retain his seat in November’s election. Bedford’s concern: He feared the move would “put people out of business.” One could argue that this is an added benefit, as horror stories of young mothers losing cars and being haunted by a single loan for years have become commonplace. With that in mind, the Consumer Protection Agency is drafting regulations that could cover a wide range of short-term loans. The federal government is stepping up because states have not. Decatur Daily: Payday loan centers prey on desperation (Feb. 11, 2015)

57. What this ignores is that people make mistakes — and that the industry likes to help them do so. Most borrow too much, forcing them to extend repeatedly, racking up fees and interest that far exceed the principal. Some lose the cars they need to get to work, or they struggle to pay rent after lenders make their electronic withdrawals. Bloomberg: No More Payday Predators  (Feb. 19, 2015).

58. The payday loan industry preys on the poorest working Americans, who take cash advances and often find they can never catch up with debts that keep spiraling higher. In much of the United States, payday lenders reap huge profits by charging triple-digit interest rates and high fees, all the while sending borrowers into an inescapable cycle of debt.  The Boston Globe: Hit payday lenders with new rules — and new competition (Feb. 23, 2015)

59. Having members of the community sink deeper into debt helps no one other than the few who take advantage of real need or bad judgment. If our state legislators won’t step up to the plate on this one, maybe the CFPB will.  The Free Lance Star: Rein in payday loans (March 1, 2015)

60. The Jacksonville City Council is considering rules that would make it more difficult for payday lenders to operate within its city limits. Like many other Alabama cities, Jacksonville is left to cope with results of state laws that — despite recent small steps of reform — loosely regulate payday lenders and that, in the words of Councilwoman Sandra Sudduth, “prey on low-income people.” The Aniston Star: Preying on people (March 10, 2015).

61. Payday lenders survive by playing a game of cat and mouse. As individual municipalities crack down, lenders battle in court, use campaign contributions to defeat legislation or simply set up outlets outside of city limits. The Dallas Morning News: Ending payday lenders’ game of cat and mouse (March 15, 2015).

62. Ferguson said a $700 loan under the new law would cost $1,195 to repay — or $400 more than the $795 repayment under current rules. He noted that consumers already may convert payday loans to installment plans of up to 180 days with no additional fees, and that DFI reports that almost 15 percent of borrowers already do that. The Olympian: Payday lending bills bad for the poor (March 17, 2015).

63.  News of the draft rules prompted a predictable outcry from the short-term loan industry but also worries from consumer groups that the regulations permit too many loopholes. We have seen in Missouri that overly permissive payday lending leads to debt traps. As regulators refine their rules, they should lean more toward toughness. The Kansas City Star: Tougher Lending Rules Are Welcome (March 26, 2015).

Cartoon - Shark Infested Waters

64. Alabama has suffered from a predatory lender problem for years, and the state Legislature hasn’t solved it. A few well-intentioned lawmakers have tried to push bills through the Statehouse that would cap that interest rate at 36 percent. We’ve championed those bills for years. But they haven’t passed. The Aniston Star: Usury in Alabama – end it (March 27, 2015).

65. Given that they are seemingly everywhere — Obama said Alabama has more four times more payday loan businesses than it does McDonald’s franchises — it would seem obvious that even the high default rate doesn’t keep them from being profitable. Obama says there’s nothing wrong with a business making a profit, and we agree. We also agree that if that business is “making that profit by trapping hardworking Americans in a vicious cycle of debt,” as he said Thursday, then something needs to be done — probably at both the state and federal level. The Gadsen Times: Payday loans still an issue (March 28, 2015).

66. A truly strong rule would require short-term lenders to examine the prospective borrower’s ability to repay, without exception, and make sure that all loans carry reasonable costs. Lenders would earn less profit. But far fewer working-class borrowers would be bled dry and driven into bankruptcy. New York Times: Progress on Payday Lending (March 28, 2015).

67. Payday Lending is capitalism at its unloveliest. It’s a business that wouldn’t even exist if the market were providing everyone with enough income to meet their needs — yet 12 million adults, the vast majority of them low-income, resorted to short-term, high-interest loans to cover cash shortages in 2010. The Washington Post: Payday lending is ripe for rules (March 29, 2015).

68. We believe in a free market. But we also believe that society has an obligation to make sure people aren’t taken advantage of. The interest rates being charged by payday loan businesses are excessive and predatory. Short-term lenders say they are necessary if their businesses are to make a profit. If that’s the case, we agree with Obama: They need a better business model. Tuscaloosa News: Something to agree with Obama about (March 29, 2015).

69. In one case, as Herring noted, a Mechanicsburg couple took out a $2,100 payday loan four years ago. They’ve paid more than $15,000 in interest and principal, yet still have an outstanding balance, according to the lender. “Some of these loans are little more than financial quicksand, designed to fail from the second they’re made,” Herring said. “Virginians deserve better, and I’m going to use the resources and authority of my office to make sure they get it.” The Virginia-Pilot: Putting brakes on predatory lenders (March 30, 2015).

70. When someone needs to take out a loan in order to make payments on a loan he’d received to keep up on an earlier loan, he’s on a terribly rocky road. And yet, that describes the situation – the best-case scenario – for fully 45 percent of those who take out a so-called payday loan, those frequently touted short-term offers meant to get people out of an unexpected scrape, to pay an unanticipated bill, and then move on with their lives. Except that what most folks move on to is another loan. And still another after that. The Republican: Proposed payday lending curbs would end the worst abuses (March 30, 2015).

71. Payday lenders require borrowers to agree to give them post-dated checks or debit authorizations as a condition of the loan. But once payday lenders get into a customer’s checking, savings, or prepaid account, getting them out can be a nightmare. Consumers end up with unanticipated withdrawals or debits, transaction and insufficient fund fees, all of which add to the overall cost the loan. The Dallas Morning News: Feds target abusive payday collection practices (March 30, 2015).

72. Payday lenders have established themselves as a powerful political force. They make a lot of money and they invest a lot of it in politicians, both at the federal and state levels. It either fights off regulation, as it has done continually in Missouri, or it becomes a shape-shifter. St. Louis Post Dispatch: Going halfway in reining in the payday predators (March 30, 2015).

73. The bureau says more than 80 percent of these loans are rolled over or renewed within two weeks, generating more fees for lenders. More than 70 percent of the loans are for basic expenses, not emergencies. Forth Worth Star-Telegram: Payday loans could face repayment test. (March 30, 2015).

74. The Consumer Financial Protection Bureau has finally turned its regulatory gaze to short-term lenders — think payday loan and automobile title loan companies — that build businesses around loans that can’t be repaid. Los Angeles Times: A chance to rein in payday loan abuse (March 31, 2015).

75. In 2008, Ohio made efforts to stymie the industry’s rise, but payday lenders found a loophole in the law that allows them to continue operating. Lawmakers have yet to fix their mistakes. The Independent: Federal agency introduces rules for lenders (March 31, 2015).

75.  Senate Bill 5899 takes the “payday” out of payday lending by converting the product to … installment loans. But these would be more expensive loans for the many borrowers who take out a six-month loan, the only kind that would be allowed. The total cost of a $700 loan could balloon to $1,195. The cost for some of those who do not take the full six months to repay would be lower, but the bulk of the industry’s customers would still end up paying more. The Spokesman Review: Loan bill unfair to vulnerable Washington state borrowers. (April 1, 2015).

payday lobbyist

76. Like locusts in a biblical plague, Alabama is overrun with predatory lenders because lawmakers lack the intestinal fortitude to do anything about it. The Anniston Star: Alabama’s lending scourge. (April 1, 2015).

77. Meanwhile the CFPB plan to curb payday lending at the federal level is promising in that it would require that payday lenders verify borrowers’ incomes before approving a loan. If someone clearly cannot repay a loan, he shouldn’t be given one. The Post and Courier: Protect consumers from loan predators (April 7, 2015)

78. The majority of borrowers are working-class people strapped by debt or facing immediate cash needs. It is unfortunate that people find themselves in such situations, with nowhere else to turn, but acting in a financially responsible manner is a two-way street. Payday lenders should be required to engage in responsible lending practices, which do not include luring borrowers into a bottomless pit of obligation. Desert News: Payday lenders should be required to practice responsible lending (April 9, 2015)

79. Alabama would be foolish to shut down legal industries that provide worthwhile services. But if payday lenders can’t survive by charging fair interest rates to their customers, that doesn’t mean the state should continue to allow predatory banking practices within its borders. The Anniston Star: A bad model for payday lenders. (April 9, 2015)

80. Largely, the purpose of payday loans is for someone to borrow more money than they can afford to pay back at the end of the term and then to re-borrow all over again. It’s this practice that’s led to both our neighboring states Georgia and North Carolina essentially bannning predatory payday loan businesses. Aiken Standard: Add greater protections from unaffordable loans. (April 10, 2015)

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81. Lenders should be ashamed of preying on people in such dire straits that they are willing to agree to triple-digit interest rates — and so should the conservative groups supporting the lenders in a public relations campaign. No matter how you dress it up, usury is wrong. Hartford Courant: CT Right To Crack Down On Online Loan Sharks (April 13, 2015).

82. There is a dirty little secret about payday loans: The typical borrower owes past loans an average of 212 days, taking out one loan after another — up to eight annually in Oklahoma. The payday loan industry comes out the winner, raking in $435 billion in fees nationally each year. Tulsa World: Payday loans and the president (April 14, 2015)

83. Opting for a different legislative solution is one thing. Passing a bill out of committee that includes interest rate reform, but sending a different version of that bill forward for a full House vote is quite another. Rep. Luke owes her colleagues and constituents some answers. House and Senate conferees, meanwhile should fix the mess and reinsert a reasonable interest rate cap in this long-overdue reform measure, one that protects the interests of some of Hawaii’s most vulnerable consumers. Honolulu Civil Beat: Luke’s Bait-and-Switch on Payday Lending Must be Fixed. (April 16, 2015)

84. Requiring someone with limited financial savvy to mentally amortize a loan over time and factor in all possible fees and costs is as unfair as charging 1,000 percent interest rates. Wouldn’t it be better to let consumers know up front the worst-case scenario so they can make an informed decision on whether to get the loan from a storefront? Or not?   Albuquerque Journal: Loan reforms should have consumer clarity at core. (April 17, 2015).

85. This month, 57 leaders of foundations, including The Pittsburgh Foundation, signed a letter urging the consumer bureau to get tough on payday lenders. If the lenders sincerely desire to help, not exploit, struggling consumers, they should not fight reasonable regulation. Pittsburgh Post-Gazette: Humane lending: Payday loans need stiff regulation from Congress. (April 22, 2015).

86. And as the Kennebec Journal noted, Advance America has paid millions to settle allegations of illegal lending practices, such as providing payday loans at rates as high as 368 percent in Pennsylvania – which caps small loan rates at about 24 percent. When Bruce Poliquin was named to the House Financial Services Committee, he declared that one of the duties of government is “to protect our consumers during their everyday lives.” Now that the government is poised to put more consumer protections in place, Poliquin should be held accountable for putting these words into action. Portland Press Herald: Payday loan limits pose quandary for Poliquin (April 22, 2015).

87. We understand their desire to preserve the status quo and limit oversight. Payday lenders in the U.S. take in about $46 billion annually. The industry is practically a money-printing machine. We’ve said repeatedly that we don’t want to put those folks out of business. We just want a fair playing field where desperation doesn’t mean a disadvantage. The Gadsen Times: Payday loan database ruling a victory for consumers (April 29, 2015)

88. Payday and title-loan lenders who charge customers exorbitant interest rates are nothing if not morally criminal. The well-to-do don’t usually frequent those places. Instead, it’s everyday Alabamians who often feel they have no choice but to risk a loan from a payday lender. Aniston Star: Do what’s right, Alabama, about predatory lending (May 4, 2015)

89. There are issues that come up again and again in the Texas Legislature, enjoy broad support, maybe even make their way through the House or the Senate — but never make it into law. Take attempts to reform payday lending, for example. Austin American Stateman: Pass stiffer rules on payday lenders (May 4, 2015)

90. Three bills are in the Statehouse now that would cap interest rates and give borrowers, who pay annual interest rates between 400 and 500 percent, more time to repay their loans. But the bills have sat largely dormant while our legislators discuss other priorities large and small. TimesDaily.com: Predatory lending law not likely this session.  (May 8, 2015).

91. In Washington last week, Russell Moore of the Southern Baptist Convention’s Ethics and Religious Liberty Commission called payday loans “a form of economic predation [that] grinds the faces of the poor into the ground.” Fort Worth Star Telegram: “Another chance in Austin on payday lending.” (May 15, 2015).

92. That’s because these loans almost inevitably end up as a gateway to more debt; in Virginia, state data has shown, about 80 percent of customers take out a second loan to repay the first. Virginia Pilot: Taking aim at predatory lenders (June 4, 2015)

93. Texas cities must be part of the solution, too. In the absence of state action to regulate abusive payday lenders, cities owe it to their residents to continue to lead payday lending reform in Texas. Dallas is among a coalition of more than 20 cities statewide that have passed zoning and other ordinances to limit abusive payday lenders. Dallas Morning News: Dallas charity takes steps to help end the payday-loan debt cycle (June 21, 2015)

94. The unfolding legal actions against the online lenders must also be noticed in Topeka, Jefferson City and Washington. Too many politicians from Missouri and Kansas are beholden to traditional and online payday lenders who have contributed to their campaigns. The Kansas City Star: Crackdown on payday loan scams is welcome (July 12, 2015)

95. Charles Cline of Dayton said he’s been stuck in the payday lending trap. He said he took out a $1,000 loan and ended up paying $1,600, because of extensions, fees, and interest. “Trying to help yourself get out of a bad situation, you end up hurting yourself more,” Mr. Cline said. “They are preying on people that are poor, that are less fortunate, that need to get by throughout the week.” The Blade: High interest loans cripple Ohioans (July 21, 2015)

96. The government-to-government relationships between Indian tribes and states are sometimes delicate and nuanced, a balance of sovereign powers. But when a tribe comes into another state to break its laws, it has gone too far and should be penalized. Hartford Courant: Out of State Tribal Loan Sharking Shouldn’t Fly in CT (Sept. 14, 2015)

Payday Loan Report

97.The new rules are a welcome move but, regrettably, they do not apply to loans made to the general public. Some cities, such as San Antonio, have passed local ordinances to curb the predatory lenders’ unscrupulous practices, but the issue would be best addressed by state lawmakers. Sadly, the Texas Legislature lacks the political fortitude to take on the powerful payday loan industry and protect the consumer. San Antonio Express News: Military Payday Loan Rules Welcome (Sept. 16, 2015)

98.Unfortunately, Virginia’s laws and regulatory structure create an environment primed for loan sharks to tempt unsuspecting, cash-strapped customers and then squeeze them for thousands of dollars. As Herring and others have noted, some customers end up paying far more in interest than they ever owed in principal yet still end up losing their car for missing a payment. Virginian-Pilot: Another eye on predatory lenders (Sept 18, 2015).

99. And if that’s the case, they’re ripe for the plucking. They’ll hand over their car title in return for a two-year loan that averages $1,112 and carries interest rates of between 96 percent and 180 percent. Roughly 1 in 5 of them will wind up forfeiting his vehicle because he can’t make the payment, even after taking a second or third loan that compounds the problem. St. Louis Post Dispatch: Whatever they call themselves, payday lenders are a scourge (Sept. 22, 2015).

100. More than 45,000 people in Utah who took out payday loans last year were unable to pay them off within the agreed-upon time frame, a stunning number, but one that shouldn’t be surprising given two factors. First, payday lenders thrive by luring customers into a cycle of perpetual debt and, second, they can get away with it under Utah’s relatively lax regulations. Desert News: Utah payday loans lead many to debt trap (Oct. 15, 2015).

101. It’s time to put the best interest of Missourians ahead of lucrative loan companies that, for the most part, are not even based in Missouri. They swoop in from other states to take advantage of Missouri’s lax oversight, springing up like so many fast food restaurants in areas where people are cash-strapped. SpringField News Leader: State should enact real reform (Oct. 31, 2015).

102. The General Assembly, in failing to close payday loan loopholes, is all but declaring that 20-odd lobbyists carry more weight in Columbus than 3.4 million Ohio voters. Is that really a message that House Speaker Clifford Rosenberger and Senate President Keith Faber want to send?   The Plain Dealer: Curb Ohio payday lenders who continue to defy voters’ will (Nov 11, 2015).

103. Getting once-reluctant Arlington council members to oppose the political clout of the payday industry is no small achievement. Fort Worth, Irving and Arlington represent the home turf of two of the nation’s big payday lenders, Ace Cash Express and Cash America, both of which cast a large shadow.  The Dallas Morning News: Arlington shows courage on payday lending (Nov. 12, 2015).

Payday Lenders Going out of Business

104. Closer to home, worthy local efforts have sought to develop alternatives to payday and car title lenders. The lenders are right to that extent: There is a need for such financial help. What should not be permitted is rank exploitation of the vulnerable, something Ohio once declared emphatically, only to have the call neglected and ignored.  Akron Beacon Journal: Payday lending still surges in Ohio (Nov. 15, 2015).

105. Lawmakers have a choice: they can continue to kowtow to an industry that preys on the poor or they can do what’s responsible and protect those who too often are susceptible to the industry’s quick-cash scams. Canton Repository: Payday lenders continue to gouge borrowers  (Nov. 22, 2015).

106. “The total lent to her was less than $800,” Field said. “It cost me over $12,000 to extricate her from that. A good portion of that went to payday lenders, but there was a good bit of collateral damage as well. These folks had access to her bank account, they made withdrawals, checks bounced, overdraft fees accrued, utilities were cut off and had to be re-established, a rent check bounced. If you don’t have a dad to come bail you out and you get into this, you’re sunk.” Waco Tribune-Herald: Regulating predatory practices of payday lenders should be discussed, debated (Nov. 29, 2015).

107. “Payday lenders say they provide a service to people who need quick money. What they don’t say is that paying 400 percent interest on loans that roll over and pile up debt at the speed of light is anything but a service.” The Dallas Morning News: Taking a bigger bite out of payday lending (Dec. 3, 2015)

108.  “Members of the Utah Legislature have attempted to put limits on interest rates, collection tactics and other excesses of payday and signature loan operations. Which is difficult, given how much money the legal loan sharks pour into lobbying and campaign donations and how easy it is to get around laws that are aimed at specific kinds of financial transactions by inventing a new kind.” The Salt Lake Tribune: Payday loans are no gift (Dec 23, 2015).

109. “According to an October report from the Utah Department of Financial Institutions, over 45,000 loans were not repaid in full at the end of 10 weeks. The Salt Lake Tribune recently found that this resulted in at least7,927 lawsuits from payday lenders against delinquent clients from July 1, 2014, to June 30, 2015. And since the average payday loan carries an interest rate of 482 percent, these lawsuits were often seeking sums that were exponentially larger than the amount of money that people originally borrowed.” The Salt Lake Tribune: Nearly 8,000 lawsuits by payday lenders against their clients (Jan 1, 2016).

110. “One would institute a 36 percent rate cap on all installment loans, even when they are more than $2,500. Yancey also proposes a bill that would limit open-ended credit agreements by requiring the firms offering them also sell actual consumer goods. In another bill — an attempt to crack down on the increasing “bait-and-switch” tactics — lenders who offer payday or car title loans would be barred from offering installment loans or open-ended agreements.” Daily Press: “Quick loans take hostages” (Feb. 2, 2016)

111. “And they outline the utter incongruity of local business leaders, churches and nonprofits coming together in an unprecedented way to battle chronic poverty while payday lending continues to plague borrowers ignorant of the high costs involved in patronizing such establishments. One can see why the Citizens for Responsible Lending movement has gained such momentum, even as state officials have twiddled their thumbs.”  The Waco Tribune-Herald: In the wake of state, federal failures, cities must step up with lending reforms (Feb 5, 2016).

112. The collapse of Kansas City’s payday loan bubble under the squeeze of federal enforcement has broken up families and caused rifts in churches, country clubs and executive suites. Too many people and institutions here were too quick to embrace the new “entrepreneurs” when they showed up with fancy cars and quick cash. Too many people didn’t want to think about the misery at the other end, as consumers were harassed to pay interest and fees they couldn’t possibly afford. Now it’s payday, all right. And it should serve as a cautionary tale.  The Kansas City Star: The rise and fall of Scott Tucker and other payday lenders is a sobering Kansas City story (February 12, 2016)

113. This newspaper has long called for continued crackdowns on these payday and auto title lenders. The lenders say they provide a service to people who need quick money. But some also charge 400 percent interest on loans that roll over and pile up perpetual debt. It’s a cycle that keeps poor people poor. The Dallas Morning News: Cane’s opening signals progress in southern Dallas (February 20, 2016).

114. Glenda Wood of Bellevue told state senators that when she and her husband took out a $500 payday loan for tires they “kind of got trapped in this cycle of basically just renewing that same loan over and over again, just paying the fees and not paying back the loan itself.” Lincoln Journal Star: Improve payday loans (February 20, 2016)

115. The 2000 law capped annual interest rates on title loans at 30 percent. It barred lenders from imposing finance charges, fees and prepayment penalties. It prohibited them from selling new or used vehicles, auto parts and insurance. It required them to accept partial payments.  But unscrupulous lenders eventually figured out they could steer around those strong protections by becoming licensed under Florida’s consumer-finance law and pushing “voluntary” insurance and other expensive add-ons of dubious value to raise the cost and effective interest rate of their loans.   Orlando Sentinel: Launch new crackdown on title-loan abuses (February 27, 2016)

116. While payday loans often involve small amounts, they usually end up creating a pile of debt for unsuspecting borrowers through sky-high interest rates on loans that roll over quickly. Consumers who aren’t able to make full payments take on debt and fees they can’t repay. Eventually, such financial troubles hurt neighborhoods and can keep working-class borrowers from a better financial future, a point Ishihara and other supporters made well as they campaigned for passage. Longview News Journal: Longview made right choice on managing payday lending industry (March 2, 2016)

117. Those dots don’t connect. Democrats can’t purport to be the party that champions consumer rights when their chairwoman is aggressively working to leave consumers at the mercy of an industry whose business model is to lure low-income people into debt traps. The Kansas City Star: It’s ridiculous that the leader of the national Democratic Party is protecting payday lenders (March 4, 2016)

118. Instead of helping the industry prey on Kentuckians, lawmakers should be requiring payday lenders to abide by the same 36 percent interest rate cap as other lenders, as 11 states already do and Senate Bill 101 proposes. And regulators should be encouraging banks to get back into the small-loan business. Lexington Herald Leader: Kentucky Needs a Raise, not a New Debt Trap (March 8, 2016)

119. The latest product that would be created by HB 520 is a risky lending product named “Flexible Credit Loans,” or “Flex Loans” for short. Consider the harm this can do. After making payments on a $500 loan for 12 months, a borrower will pay over $1,000 — and still owe $270. The bill also allows payday lenders to keep people in debt for thousands of dollars for months, perhaps years. The Times Leader: Payday loan bill needs quick death  (March 9, 2016)

120. Orr’s bill could come up for a vote this week, but it won’t be a surprise if it’s either delayed again or if it’s defeated. Alabama legislators pay a lot more lip service to helping citizens than they do to actually acting on legislation that might break the cycle of poverty, even with a bill that doesn’t involve new taxes. Orr’s bill might not be a perfect solution, but allowing 400 percent interest on loans to the people who can least afford to pay the rate borders on criminal. It’s time for a change. The Gadsen Times: Time for change on payday loans (March 14, 2016)

121. But those who avail themselves of this service likely are unable to get a traditional bank loan and already are in a financial bind. Perhaps even desperate – needing to fix an aging car to have transportation to a low-paying job, is just one example — they often wind up in a debt trap, taking out a new loan to pay off the preceding one. Since most payday loans must be repaid in their entirety within two to four weeks, this rollover cycle can continue indefinitely, during which the lender can add fees.  Tuscaloosa News: GOP has no excuse on payday loan bill (March 22, 2016)

122. It’s a small but important step, and lawmakers should make its passage a priority, not only for Alabama’s poor, but for all residents who ultimately bear the cost of these business practices. Dothan Eagle: Another swipe at short-term lending  (April 7, 2016)

123. The goal, says JIFFI CEO Jack Markwalter, is “to create a financially inclusive environment in the South Bend community.” That’s in sharp contrast to some of the horror stories you’ve probably heard about payday loans, which are typically taken out by people who have poor credit that prevents them from obtaining traditional loans with lower interest rates. Critics call the loans debt traps that create a cycle of borrowing, repaying and re-borrowing — with fee after fee — that result in a whopping annual percentage rate of 391 percent. South Bend Tribune: Loans that won’t break the bank (April 13, 2016)

124. Here’s the reality about payday lenders in Alabama: They charge exorbitant interest rates and the state Legislature thus far is too weak-kneed to rein them in. Lawmakers allow it to happen. They should be ashamed. The Anniston Star: Rein in the payday lenders in Alabama (April 20, 2016).

125. Payday loans should be a one-time occurrence to get you back on your feet. Under today’s rules they are a trap that many cannot get out of, and the original debt can get more than quadrupled by interest. WTVM: Payday Loans  (April 21, 2016).

126. What really needs to happen, of course, is for state legislators to pass laws to control how payday lending works in Texas. Had this ever been done, Longview would not have had to take action on its own. Given that the Legislature is not likely to act — it has declined to do so before — we need to be responsible enough to take control. That’s exactly what the Longview City Council did with its ordinance, and we are grateful for that. Longview News-Journal: Program is worth a look as way to loosen grip of payday loan predators (April 27, 2016).

127. “The payday loan business model makes extraordinary profits by locking people into a cycle of debt,” said Sen. Joe Bolkcom, D-Iowa City. He has repeatedly introduced legislation intended to protect consumers, but his efforts got nowhere due to a lack of support from other lawmakers. “Every single loan is a rip-off. Borrowers are generally low-wage earners living paycheck to paycheck. In Iowa they would be better off getting loans from loan sharks. They would find better terms from loan sharks,” he said. The Des Moines Register: State must do more to stop payday lending (May 28, 2016).

128. You would think that lenders would do this sort of “underwriting” anyway, but payday lenders don’t because they can extract payment from the borrower’s account ahead of other creditors. And if the borrower’s checking account doesn’t have enough to cover the debt, lenders typically roll over the principle into a new loan and tack on more fees. Such rollovers are common; more than half of payday loans are issued in sequences of 10 or more consecutive loans.  Los Angeles Times: Payday loans are often a last resort for the poor. That doesn’t mean they should be exploitative (June 2, 2016)

129. Most people ended up paying more in fees than the amount they borrowed. In other words, the system is expressly designed to bleed borrowers, who are typically struggling workers or people on fixed incomes who are just getting by. New York Times: A Lame Response to Predatory Loans (June 2, 2016)

130. If these lenders hadn’t left so many victims in their wake, their assertions of innocence might almost be believable. But it’s because they’ve behaved so abominably that federal regulators are now justified in intervening. St. Louis Post-Dispatch: Crackdown is comeuppance for payday predators (June 2, 2016)

131. Mosquitoes, leeches and vampires get a bad rap, but there’s another variety of blood sucker with a voracious appetite for unsuspecting victims: payday lenders who loan consumers relatively small amounts of money for short periods of time only to suck up those dollars and much more by trapping them in expanding levels of debt through ruinous fees and interest rates. The Baltimore Sun: Fleecing the Poor (June 2, 2016)

132. In their absence, people turn to other sources. These include borrowing from friends or co-workers, asking for help from charitable institutions, negotiating with landlords and creditors for an extension on payments, and availing themselves of pawn shops. None is a perfect solution. But they are preferable to being pulled into an exploitative debt trap. USA Today: Will Payday Lending Rules Pay Off?  (June 3, 2016)

133. The bureau says about 80 percent of payday borrowers cannot afford to pay off their loans when they are due, so they take out a new loan and incur new fees. “It’s much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey,” said Richard Cordray, the agency’s director. Forth Worth Star Telegram: “Payday loans are debt traps that need constraints” (June 3, 2016)

134. “Even the term “payday loan” is often a misnomer. It implies that the consumer will be given only enough money that they can quickly repay, with minimum interest, when their next payday arrives. Kansas City Star: “Get tougher in reforming the disgraceful payday loan industry” (June 3, 2016)

135. “Payday lenders — businesses offering small, short-term, high-interest loans — serve a purpose. They, at least in theory, provide cash-strapped folks who don’t have strong credit access to cash to tide them over until their next payday.  Unfortunately, that single loan too often spurs more loans to pay off the original debt — plus interest. This can turn a short-term problem into a deep financial mess.” The Union Bulletin:  Putting federal regulations on payday lenders has merit (June 3, 2016)

136. “Low-income workers often need small, short-term loans to help them meet their expenses pending their next paycheck. But the economic model for the “payday loan” industry is rigged against them, depending on their inability to pay the loan on time and repeatedly borrow.” The Times Tribune: Rules protect consumers (June 3, 2016)

137. “Naturally, payday loan businesses, which typically require only a checking account and a pay stub, are easy to turn to in those situations. But for many, the high-interest payday loans turn into a debt trap, forcing people to take out one loan after the other to pay off the earlier loan, its interest and meet other expenses.” The Herald: Tougher rules needed on payday loans (June 3, 2016)

138. The industry cynically pitches itself as salvation to the population it abuses. These are meant to be short-term loans, but with exorbitant fees. A customer who borrows $500 would generally be expected to repay it within two weeks and at an additional cost of $75, equal to an annual interest rate of 391 percent. But the clients of these shady operations are poor to begin with and often cannot make the repayment. They borrow more and before long can owe more in interest than the original loan amount. Some of them are even encouraged to borrow more as the solution to their problem. The Buffalo News: Payday loan firms swindle the poor and are a deserving target of new rules  (June 4, 2016)

139. In another telling win for consumer rights, the Obama administration is cracking down on high-interest payday loans, a financial practice that preys on low-income people barely scraping by. The move should bring relief from abusive tactics that hit the poor hardest. The San Francisco Chronicle: Sweeping changes should reform abusive payday loans (June 4, 2016)

140. The set of regulations, which will be open for public comment for several months, wasn’t as tough as some consumer advocates had hoped, but they will offer considerably more protections than exist now in a majority of the nation. Understandably, the payday lending industry is opposed to the proposals, contending that they will drive many payday lenders out of business and eliminate a safety valve for people who need short-term cash that they can’t borrow elsewhere. But an objective look at how this industry works suggests that in far too many cases it is not doing the consumer any favors. It’s a business model that finds its most success when its customers fail. The proposed regulations are a big step in the right direction. The Herald-Dispatch: Restrictions on payday lenders long overdue (June 5, 2016)

141. An unfortunate soul in a tight spot might have to get a $500 loan for two weeks to pay an unexpected bill. But then two weeks later he might have to pay off that loan and take out another to pay the rent. Then two weeks later pay off the second loan and take out a third to pay the car note. It’s a downward spiral. And when you add up all those weeks he’s had to re-do the loan, the yearly interest rate could add up to hundreds of percents. Arkansas Democrat Gazette: The Arkansas Way (June 5, 2016)

142. The payday industry is complaining. No surprise there. But tightening the reins on those lenders is necessary. This is predatory lending aimed at the working poor. The Toledo Blade: Tighten Payday Reins (June 7, 2016)

143. “In tandem, good local payday lending regulations and the proposed federal rules will greatly assist those in desperate financial straits from becoming hostages of unscrupulous payday lenders,” Olson said. Indeed. Forth Worth Star-Telegram: Bishop’s plea pushes city on predatory lending (June 10, 2016)

144. “The big money comes from rolling over an initial two-week or one-month loan into yet another loan – and another and another. One typical $500 loan after another is written, with interest and financing charges of as much as $75 each. Entrapped borrowers find themselves another two weeks older and deeper in debt, to paraphrase the old folk song about the hardships faced by a Kentucky coal miner.” Youngstown Vindicator: “Federal regs are needed to rein in payday lenders” (June 11, 2016)

145. “The payday industry is complaining. No surprise there. But tightening the reins on those lenders is necessary. This is predatory lending aimed at the working poor.” Pittsburgh Post-Gazette: Payday loan perfidy: Crack down on the lending schemes that fleece  (June 13, 2016)

146. “Drive around ZIP code 77022 on the city’s north side and one gets a clear picture of the strategy used by payday and auto title lending stores. Conspicuous in appearance and offering promises of a friendly experience, the stores are an irresistible snare for those desperately looking for a way to pay bills. ZIP code 77022, according to the American Community Survey, is among the more impoverished ZIP codes in Houston, with an average household income of $39,658.” Houston Chronicle: Congress should support federal consumer agency rules that rein in predatory loans. (June 15, 2016)

147. “Yet states that already outlaw these types of high-interest, short-term loans, including Pennsylvania and New Jersey, have reason to suspect that the rewriting of regulations could open a backdoor to a similar kind of borrowing — the kind that targets cash-strapped people who often are unable to repay the loans. Note to the feds: Don’t do us any favors.” The Express Times: Don’t open the door to payday loans in Pa.  (June 16, 2016)

148. But you know what else? According to the government, seven out of 10 payday loan borrowers are back within a month, taking out another payday loan, again paying 400 percent annualized interest. And two out of 10 new borrowers wind up taking 10 or more loans, one after another, piling fees and interest on top of the original debt, not to mention bank charges when online lenders repeatedly try to debit payments from customers’ accounts.  This can quickly become a financial hole from which there is no escape. Telegraph Herald: Our opinion: How to answer the $400 question?  (June 29, 2016)

149. All of this rates as a substantial improvement. At the same time, consumer advocates argue persuasively for more aggressive steps. For instance, the ability-to-pay criteria would take effect after a borrower had six payday loans. Put another way, too much damage already would be done. The standard must take effect from the start. The Beacon Journal: Be precise with payday lenders (July 1, 2016)

150. The rules portend a major shake-up to the payday loan industry, which frankly needs rattling. The earth already has started to move. Google recently banned ads for payday loans, saying it wanted to protect users from “deceptive or harmful financial products.” The heat is being felt in the political arena, too. U.S. Rep. Debbie Wasserman Schultz, D-Weston, was under heavy fire for taking money from payday lenders. She backed a bill in the House that would have blocked the Consumer Financial Protection Bureau’s new rules, but she reversed course and now supports them. The Consumer Financial Protection Bureau is on the right track with a framework of regulations that have the potential to make a real difference for consumers. With the political wind at their backs, regulators should make the rules as robust as possible in the interest of borrowers who can least afford to waste money.  The Tampa Bay Times: Stronger payday loan rules protect borrowers (July 1, 2016).

151. What Cheves found is that, despite repeated violations and written agreements to follow the law, many of Kentucky’s 517 payday lenders continued violating it. DFI typically has assessed the minimum $1,000 fine, even for repeat violators. Very few stores are shut but DFI did finally revoke the license of a Louisville shop that entered wrong numbers an astounding 353 times for only 12 customers in three years. Lexington Herald Leader: Trap lenders, not stressed Kentuckians (July 15, 2016).

152. A regulation that limits payday-loan amounts to what borrowers can afford to repay, given their existing obligations, will be doing everyone a favor, and we look forward to that becoming law. Las Vegas Sun: Short-term loans shouldn’t make finances even worse (July 18, 2016).

153. Low-income Floridians facing emergencies or unexpected shortfalls need to be able to borrow money quickly. But they also need rescuing from the payday loan industry that preys on their desperation. The Consumer Financial Protection Bureau has a solid framework on the table to begin reining in the industry’s worst practices. When finalized, the new rules should also bring needed competition so that vulnerable borrowers have options. Tampa Bay Times: More restrictions needed on payday loans (July 26, 2016)

154.  The payday lending industry preys on the economically fragile. Stiffer regulation of the industry is needed to protect the financially desperate who seek these services and often end up in a cycle of debt they cannot escape.  For years, Texas lawmakers have ignored the pleas for help from consumer advocates — forcing local communities to adopt their own rules and creating a patchwork of ordinances across the state. San Antonio Express-News: Rule change offers needed payday relief. (August 5, 2016).

 

 

 

 

 

 

California Advocates Attend National Community Reinvestment Conference in Washington, DC

Representatives from member organizations of the California Reinvestment Coalition traveled to Washington DC last week to attend the National Community Reinvestment Coalition conference.  The theme of the conference was “A Just Economy: Ideas, Action, Impact.”

The conference is a gathering of NCRC’s diverse membership base from around the US, including CDFI’s, fair housing organizations, housing counseling organizations, consumer advocates, credit counselors, small business lenders, community organizing and civil rights groups, and more.

Speakers at the conference included Shaun Donovan, the Secretary of Housing and Urban Development (HUD),Thomas Curry, Comptroller of the Currency, Steven Antonakes from the Consumer Financial Protection Bureau, Martin Gruenberg, Chairman of the Federal Deposit Insurance Corporation, and more.

Shaun Donovan

Secretary Donovan spoke about potential reforms to Fannie Mae and Freddie Mac and recognized the conference participants for their work to help people during the foreclosure crisis and to also help with rebuilding afterwards.  He also spoke about the ongoing crisis of a lack of affordable housing in communities across America and cited NCRC’s work to ensure that reforms to Fannie and Freddie don’t leave low-income communities behind.

Fleeced

Wednesday night included a screening of “Fleeced”, a documentary about elder financial abuse which was a big draw with a packed room. A panel discussion included Kim Jacobs, the producer of the film, Anita Gardner, a consumer in the film who faced an uphill battle with her bank when she sought assistance with her mortgage after health problems, as well as Robert Zdenek, the Director of National Neighbors Silver at NCRC, and Dory Rand, president of the Woodstock Institute. The film was commissioned by NCRC, with support from the Atlantic Philanthropies.  A screening will also be held in Sacramento on April 15th at 5:30pm, as part of the Housing California conference and Annette Smith, a consumer featured in the film will also be one of the panelists who speaks after the screening.

California delegates flew into Washington DC early to meet with our elected officials as well as banking and housing regulators.

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On Thursday, as part of NCRC’s Hill Day, CRC Members headed to Capitol Hill to meet with their senators and representatives.  There were a number of topics to discuss, a few of the topics the California delegation discussed included:

  • Payday lending and the upcoming rule-making by the Consumer Financial Protection Bureau
  • The need for more investment in affordable housing in California, especially since the dissolution of redevelopment agencies that funded affordable housing
  • GSE reforms (and ensuring that low-income communities aren’t left behind)
  • A recent proposal for the USPS to offer financial services through a prepaid card
  • Effects of private equity firms and other investors buying up homes
  • The Permanently Protect Tenants at Foreclosure Act of 2013
  • Extension of the Mortgage Debt Forgiveness Act
  • Transparency around foreclosure reporting (to see if mortgage modifications and other assistance is getting to communities equally- a topic recently addressed in a February 2014 GAO report (read more here)
  • Small business lending (especially to minority business owners- read our December report about this issue here)
  • Future mortgage settlements, and concerns about transparency of who is receiving modifications, and whether modifications are getting to communities hit hardest
  • Bank mergers and the impact on rural California- For more on why this is such a pressing matter, see CRC’s “Down in the Valley” 2013 report, or our recent protest against the proposed acquisition of Sterling Bank by Umpqua Bank.
  • Issues faced by widowed homeowners who are facing foreclosure instead of receiving assistance from their bank or mortgage servicer. See this December 2013 article that explains why improvements, monitoring, and enforcement are still needed: “Bank might foreclose on home because late husband isn’t residing there

After meeting with their senators and representatives, attendees were especially excited by the lunchtime speaker: Senator Elizabeth Warren, (D-MA), an outspoken advocate who was paved the way for improvements in policies and programs affecting the same communities and people that NCRC’s members serve.

On Friday afternoon, CRC’s new Executive Director, Paulina Gonzalez spoke at a session: Winning Public Benefits for Your Community, with other advocates including Ernest Hogan, Executive Director of Pittsburgh Reinvestment Group, and Mitria Wilson, from NCRC.

Friday night closed with a bang!  The Rev. Dr. William Barber II was awarded the Senator William Proxmire award, which recognizes the individual whose life’s work exemplifies the spirit and work of Senator Proxmire’s contributions to economic mobility.  Dr. Barber gave a rousing speech about the need for organizations to work together to stop disinvestment in communities.  Senator Proxmire was the author and lead sponsor of the Community Reinvestment Act.

Kevin Stein, Associate Director at CRC, was also confirmed to the National Community Reinvestment Coalition board of directors.

A big thank you to our CRC members who joined the meetings, including:

It was another excellent conference put on by NCRC- See you next year!

80 Organizations Call on Federal Government to Address Private Equity and Investor Landlords

Earlier this week, eighty organizations called on federal regulators to address a flood of cash from private equity groups and other investors.  The advocates are concerned about first-time homebuyers being pushed out of the housing market, long-term tenants being displaced, and communities being changed. The letter below was sent to the Consumer Financial Protection Bureau, the Securities and Exchange Commission, the Federal Housing Finance Agency, the Department of Housing and Urban Development, and the Office of the Comptroller of the Currency.

RE: Need for immediate federal intervention to mitigate the harmful impacts on local communities of investor purchases of REOs and distressed loans, and to stave off the next financial crisis

Dear Comptroller Curry, Chair Yellen, Director Cordray, Director Watt, Chair White, and Secretary Donovan:

This letter is sent on behalf of the undersigned organizations concerning a serious and still growing problem – the creation of another housing bubble, the displacement of tenant and homeowner households, and the destabilization of neighborhoods as a result of failed and negligent federal policies. Such policies and inaction have enabled Wall Street and other cash investors to outbid first time homebuyers, displace tenants, and alter the fabric of local communities.

We are concerned that families and communities will continue to suffer. In Riverside County, one-third of renters are forced to pay more than half of their income in rent, and there is an increase in poor upkeep and a lack of responsiveness by investor landlords to their tenants.[1] In Los Angeles, housing prices are rising but homeownership is declining as first-time homebuyers are priced out of the market.[2] In East Palo Alto, one company controls approximately half of the rental housing stock. And in Oakland, neighborhoods are losing long term residents who are displaced by foreclosures and tenant evictions amidst the frenzy as investors seek to gobble up properties.

At the same time, we are poised to experience another crisis if federal regulators fail to recognize and take corrective action to address red flags that are all too familiar: inflated housing prices, the explosion of securitized housing payments, undue challenges facing homeowners unable to secure the lowest priced loan product for which they qualify, and actions of GSEs that are more focused on profit motive than serving their affordable housing mission.

What follows is a short description of the problems we are seeing, followed by a set of recommendations for policy changes and other assistance to begin to address this crisis.

Making Neighborhoods Worse- Preference for Cash Investors and Bulk Sales of REO and Distressed Mortgages

Banks and other home sellers have demonstrated a preference for cash investors that is locking families out of homeownership. Nationally, cash deals made up 32% to 42.1% of home sales in December 2013.[3]  The failure of banks and investor owners of REOs to properly maintain and repair housing units means that many properties for sale in low income communities and communities of color are too distressed to pass FHA or other property inspections. Bank and investor neglect make these properties unavailable to FHA and other loan borrowers, unfairly closing the market to everybody except cash investors. This has a clear disproportionate impact on protected classes that rely on FHA and other loan products to attain homeownership.

Meanwhile, Fannie Mae and Freddie Mac have engaged in bulk sales of their distressed assets, which can harm neighborhoods without adequate protections in place. The Federal Housing Finance Agency implemented a pilot project in 2012 to address REO disposition, and, in its first transaction, approximately 2500 single-family Fannie Mae REO properties were offered to investors for sale. Many of the properties had tenants. We were, and continue to be, concerned about bidder qualifications and subsequent maintenance by these investor landlords. Furthermore, there has been no transparency regarding the outcome of these deals. And while we applaud the newly introduced Fannie Incentives program for REO purchase by potential owner occupants, we are concerned it will be no more effective than existing “first look” policies which have failed to significantly expand homeownership opportunities for first time homebuyers and others who wish to live in the homes they purchase.

Though the GSEs as conservatees have an obligation to exercise fiscal due diligence, they also have a mission to serve low and moderate income communities, with a particular eye to the needs of vulnerable communities of color.  Mass sell-off of properties to investors does not meet that mission or fair housing obligation.

FHA is also engaging in sell-offs under its Distressed Asset Stabilization Program (DASP). We are concerned that homeowners have been dropped out of the protections of FHA loss mitigation.  Attorneys at HERA have served clients who were not given proper access to required FHA loss mitigation options before being moved into DASP.  By not making sure servicers have engaged in proper loss mitigation, FHA has left its borrowers open to abuses that result in displacement.  As currently designed, FHA bulk sales may, in fact, be more likely to lead to foreclosure, not household or neighborhood stabilization. Though foreclosure sale of these properties is delayed by agreement with HUD for six months following transfer through DASP, specific loss mitigation protocols are not specified by HUD for the subsequent servicer.  Perhaps in response to congressional pressure, FHA has prioritized removal of distressed assets from its portfolio rather than taking the time to make sure servicers are respecting loss mitigation protocols.

Continuing REO bulk sales under current economic conditions ultimately amounts to market interventions that make investor predation a federally‐sponsored event. This repeat offense of looting the most vulnerable communities of our nation dangerously functions to widen race and class inequalities in future years, calling into question the federal commitment to furthering fair housing.  A rationale for bulk sales was to stabilize the market. But now, with prices rising and institutional and smaller investors pouncing on distressed properties and loans, the market no longer needs stabilization. It is our neighborhoods that need stabilization.

The New Housing Bubble- Artificial Inflation of Home Prices

Mortgage servicers and investors have withheld REO inventory from the market to ensure demand exceeds supply and to artificially drive up prices for prospective homebuyers.[4]  The problems with this form of market manipulation are several. Homebuyers who want to live in the property as their primary residence are under water as soon as they sign on the dotted line to buy the home, as the valuation of the home is based on an artificially inflated valuation of the property. This is akin to the pre-crash inflated appraisal problem, with the same effect of putting homeowners into homes that were immediately worth less than what they owed, trapping them until their home value actually rises. Additionally, the withholding of REO inventory has rapidly driven up rental prices to a level that is unaffordable to low and moderate income households and has increased over-crowding. Foreclosed-on homeowners have become renters, increasing demand on the rental side, while renters have been artificially prevented from freeing up rental stock by becoming homeowners due to the withholding of REO stock. In other words, the crush of former homeowners entering the rental market, without renters having the chance to successfully enter the homeownership market, exacerbates the demand for a limited supply of housing for renters. The Bay Area has experienced a supposed rise in equity that is remarkable, to say the least.[5] The artificial increase in rental prices has also come as a result of the preference of servicers/investors for cash and bulk buyers, and new forms of Wall Street financing that facilitate this model, discussed further below.

Wall-Street Backed Investment in Rentals and Rent Securitization: Impacts on Tenants and Communities

A new kind of landlord is buying properties in bulk—hedge funds, private equity firms and other companies that have not been in the rental business for very long, do not have an interest in abiding by their legal duties as landlords, and do not calculate any incentive to being good  landlords. These investor groups have a focus on turning a dollar, but have no connection to the community in which they are investing.[6]  The continued transfer of capital to investors via REO bulk sales now facilitates the creation of a new rental securitization market that benefits the very industry that caused the subprime loan crisis. And the market is growing to an estimated trillion dollars.[7] Though Fitch has indicated that it will review the quality of management of assets in real estate secured pools as part of its ratings assessment, it is not clear what type of assessment it will undertake, what effect it will have on management of properties, or whether it will be more accurate than the AAA ratings given to subprime securities just before the financial collapse.[8]  We expect that it will not include an assessment of the type of market control over rental prices that a very large scale player can exercise when it or a handful of investors own a sufficient portion of the rental market in a given area.

Examples of problems that have arisen already that are of concern to us include reports of hedge funds refusing to accept Section 8 vouchers for renters,[9] the ability of hedge funds to manage the collection of rental payments correctly,[10] and raising rents then moving to quickly evict.[11]

The significant size of the market makes careful government oversight absolutely essential to the safety and stability of communities. “Today more than 13 million households are renting single-family homes and single family rentals outnumber apartments.”[12] Indeed, the REO-to-rental product could grow to a $15 to $20 billion market, according to Moody’s Investors Service.[13] This bold new securitization of housing payments sounds eerily like the securitization of subprime loans which led to the financial crisis. The Federal Reserve Board has raised questions about this new process.[14] Republican Senator Johanns during the Janet Yellen confirmation hearing also raised questions.[15] Congressman Mark Takano recently wrote the House Financial Services Committee, calling for hearings and raising concerns about the securitization of rents and the harmful impacts it is having on communities in the Inland Empire.[16]We join Representative Takano in calling for hearings to examine the dangers and impacts of securitization of rental income.

And yet the problems are not confined only to the largest investor groups. Tenants Together reports receiving hundreds of complaints from California renters regarding problematic investors of various sizes. Investor landlords act without regard to tenant protections found in the federal Protecting Tenants in Foreclosure Act, our state Homeowner Bill of Rights, and local rent control and just cause for eviction ordinances. There is little to no oversight of investor landlords, and little to no enforcement of federal, state and local laws designed to protect renters from the widespread violations which exist today.

Tightened Lending: Not Making Loans Available to Qualified Homebuyers

Homeowners with excellent credit scores are not getting access to properties to buy.  Not only are they frozen out of purchase because of the withholding of REOs, but they are finding lenders unwilling to close on loans they have been approved for.[17] This phenomenon is not new, or a response to new qualified mortgage rules, but appears to represent an on-going reluctance of industry as a whole to make reasonably priced mortgage loans to qualified households. But the new mortgage rules do appear to be providing the industry another excuse for its failure to make credit available to qualified borrowers in low income communities and communities of color.

A further concern is that borrowers who qualify for conventional loans are being steered into costlier FHA loans. While FHA lending is an important source of credit for many borrowers, it should not be a vehicle to charge borrowers more than is appropriate based on their credit profiles.  This is not a theoretical concern; one of the nation’s largest banks, quietly mailed refund checks to customers for improperly steering up to 10,000 of its customers into FHA loans when they may have qualified for lower cost conventional loans.  Customers had to release the Bank from liability in order to cash these checks.[18] Such steering of conventional borrowers into FHA no doubt has a disproportionate impact on borrowers of color who are more likely to be represented among FHA borrowers.

Conversely, there is still a bias against FHA loan products. Home sellers and their real estate professionals should not be permitted to advertise “no FHA” or otherwise fail to consider purchase offers where the borrower is using an FHA loan product.

Conclusion

We respectfully request that your agencies respond immediately and issue any necessary guidance or rules and enforce existing fair housing and other laws so that consumers are better protected in this new landscape as communities struggle to revive themselves from the pain of the foreclosure crisis.

Specifically, we urge that you:

Keep families in their homes.

  • FHA and FHFA must ensure that FHA and GSE loss mitigation and loan modification rules are followed.
  • FHFA must develop more flexible policies to ensure that the GSEs participate fully in all state Hardest Hit Fund program, including by overturning policies that attempt to require “arm’s length transactions,” and instead to allow states to favor nonprofit CDFIs and other programs that seek to keep distressed homeowners in their homes through use of principal reduction modifications or resale to underwater homeowners at current market value.
  • CFPB, FHFA and bank regulators should scrutinize the servicing practices of companies that may have an incentive to improperly foreclosure on borrowers in order to funnel properties to affiliated REO to Rental businesses.

End bulk sales lacking adequate safeguards.

  • Bulk sales of FHA loans should cease unless loan sales clearly carry FHA loss mitigation requirements and give preference to non-profits that have written commitments to keep existing homeowners and tenants in place.
  • FHFA should investigate and provide public data on the impact of the bulk sale program on neighborhoods where bulk sale properties are located. This analysis should consider potential negative fair housing effects of bulk sales programs (e.g. resegregation of communities, locking protected classes out of the homeownership market, etc.).
  • HUD and FHFA should release data to the public on the outcomes of bulk sales programs, the purchasers, the deal terms, and neighborhood effects after these sales.
  • Bank regulators should likewise prevent banks from engaging in bulk sales of loan products and REO properties without regard to neighborhood impacts. Banks should be incentivized to sell any distressed loan pools and REO properties to nonprofit groups that are mission driven to preserve homeownership and promote community stability.

Promote homeownership.

  • FHFA must develop policies for Fannie and Freddie REO properties to prioritize sales to owner occupants or nonprofit organizations.
  • HUD should update the FHA 203K program so that the product can be a viable option that allows borrowers to bid on the large number of properties that require substantial repair.
  • Bank regulators should ensure that bank REO policies that may favor sales to cash investors do not have a disparate impact on protected classes, and instead should favor REO sales to owner occupants.

Protect tenant rights and promote family stability.

  • FHFA, Fannie and Freddie must ensure that the anti-eviction and habitability rights of tenants living in GSE REO properties are respected by all GSE servicers and agents.
  • FHFA, Fannie and Freddie should offer 2-year leases to all tenants living in GSE properties that become REOs.
  • CFPB must fill the regulatory gap that exists and enforce the PTFA as to all bank and investor landlords, and all regulators must ensure the entities they regulate follow federal, state and local tenant protections to slow the tide of foreclosure-related unlawful tenant evictions.  Regulators should require regulated entities to document what happened to the occupants of the properties after foreclosure.
  • All regulators must consider how to protect tenants from the same profit making squeeze that lead to unethical and illegal treatment by so many different actors in the mortgage market, from brokers up through executive staff of banks and investment houses.  To that end, securitization of income stream should be permitted only if there is full transparency and there are reasonable restrictions on rent increases, so that renters are not displaced by investors who are focused on profit. We suggest that a 1% increase in rent per year (if permitted by local rent control law), with a cap at 5% in any 10 year time period be the maximum permitted.  Many of the properties acquired by investors for rental are in low and moderate income communities and communities of color, so unreasonable rent hikes will have a disparate impact on these communities.

Honor fair housing principles.

  • DOJ and HUD must investigate the disparate impact on neighborhoods of various practices, including:
  • Whether protected classes of borrowers and neighborhoods are receiving equal access to loss mitigation and loan modification relief (borrowers of color, widows and orphans, disabled borrowers). A recent GAO report has raised the question of whether Limited English Proficient homeowners have received the same level of service by servicers under the HAMP program.
  • The failure to maintain and market properties so that properties for sale will pass property inspections and allow borrowers to compete with cash investors.
  • Industry players and private sellers discriminating against FHA borrowers by failing to accept FHA offers, which has a clear disparate impact on protected classes.
  • The manipulation of shadow inventory by banks and others that artificially inflates housing prices.
  • When investors in properties have achieved the scale of being major players in the rental market or have achieved such a scale in a given community that there is reason to impose more oversight on their activity.

Promote transparency.

  • SEC and other regulators must ensure there is transparency and appropriate ratings of rental income securitizations to ensure that unsuspecting investors do not unwittingly finance the next financial and housing crisis.

Time is of the essence before we witness further, unnecessary displacement of families and destabilization of communities. After the last crisis, regulators were asked what they had done to prevent the abuses that led to widespread foreclosures, evictions, and community upheaval. The answers provided, and the action taken, were not adequate. We are hopeful that we will not repeat the mistakes of the past.

Should you have any questions about this letter, or wish to discuss these issues further, please contact Maeve Elise Brown of HERA at (510) 271-8443 ext. 307, or Kevin Stein of CRC at (415) 864-3980.

Thank you very much for your attention to these issues and concerns. We have no time to waste in ensuring that neighborhoods are not further destabilized.

Very Truly Yours,

A Community of Friends

Able Works

Action for the Common Good

Advocates for Neighbors, Inc.

Affordable Housing Services, Inc.

Alliance of Californians for Community Empowerment (ACCE)

Asian Inc.

Asian Pacific Policy & Planning Council (A3PCON)

Associated Realtist Property Brokers, Inc., a NAREB local chapter in Oakland, CA

Bet Tzedek Legal Services

California Capital Financial Development Corporation

California Coalition for Rural Housing

California Reinvestment Coalition

California Resources and Training (CARAT)

Causa Justa:Just Cause

Center for Popular Democracy

CHISPA

City Heights Community Development Corporation

Civic Center Barrio Housing Corporation

Community Action Human Resources Agency (Eloy, Arizona)

Community Housing Council of Fresno

Community Housing Development Corporation

Community HousingWorks

Consumer Action

Consumer Credit Counseling Services of Orange County

Consumer Credit Counseling Services of San Francisco

Courage Campaign

East Bay Housing Organizations

East Los Angeles Community Corporation

Fair Housing Law Project, Law Foundation of Silicon Valley

Fair Housing Napa Valley

Fair Housing of Marin

Fair Housing Council of San Diego

Fair Housing Council of the San Fernando Valley

Greenlining Institute

Hacienda CDC (Portland, Oregon)

Hello Housing

Home Defenders League

HomeownershipSF

Housing California

Housing and Economic Rights Advocates

Housing Opportunities of Northern DE, Inc.

Inland Fair Housing and Mediation Board

ISAIAH

Massachusetts Communities Action Network

Multicultural Real Estate Alliance for Urban Change

National Asian American Coalition

National Community Reinvestment Coalition

National Consumer Law Center (on behalf of its low-income clients)

National Housing Law Project

National People’s Action

Neighborhood Housing Services of Greater Cleveland (Ohio)

Neighborhood Housing Services of the Inland Empire

Neighborhood Housing Services of Silicon Valley

NeighborWorks Sacramento Region

New Economy Project

NID-HCA

Northbay Family Homes

Northern Circle Indian Housing Authority

Novadebt

NPHS, Inc.

Orange County Community Housing Corporation

People’s Self Help Housing

PICO National Network

Project LIFT (Houston, Texas)

Public Counsel

Renaissance Entrepreneurship Center

Residential Resources, Inc. (Nashville, Tennessee)

Right to the City Alliance

Rural Communities Assistance Corporation

Sacramento Foreclosure Action Team

Self-Help Enterprises

Shalom Center for T.R.E.E. of Life

Suburban Alternatives Land Trust

Tenants Together

Thai CDC

Unity Council

Vermont Slauson Economic Development Corporation

Ward Economic Development Corporation

Western Center on Law and Poverty


[1] See “Rep. Takano Calls for Congressional Hearings into Rental Backed Securities,” press release and report, January 23, 2014.

[2] See Laura Gottesdiener, “The Empire Strikes Back: How Wall Street Has Turned Housing Into a Dangerous Get-Rich Quick Scheme – Again,” citing a Los Angeles real estate broker noting that from October 2012 to October 2013, home prices rose 20% but the homeownership rate dropped, and that “all of his buyers – every last one of them – were besuited businessmen. And weirder yet, they were all paying in cash.”

[3] See Krista Franks-Brock, “Despite Fewer Foreclosure Starts, Distressed Sales Rose in 2013,” DSNews, January 23, 2014, which indicates 42.1% of sales were cash deals, and December Existing-Home Sales Rise, 2013 Strongest in Seven Years (2014) National Association of Realtors, at http://www.realtor.org/news-releases/2014/01/december-existing-home-sales-rise-2013-strongest-in-seven-years, which indicates 32% were cash deals.

[4] Though inventory is decreasing, the problem remains, and it is not spread evenly across the U.S.  See CoreLogic Reports US Foreclosure Inventory Down 34 Percent Nationally from a year ago, (Jan. 9, 2014), CoreLogic at corelogic.com.  We also note that there is a need for further analysis of the issues, as CoreLogic’s report acknowledges that its calculations are an estimate.

[5] Bay Area leads in underwater mortgage rebounds, (Aug. 30,. 2013), SFGate, at sfgate.com.

[6] See Wall Street Unlocks Profits From Distress With Rental Revolution, (Dec. 2013), Bloomberg at bloomberg.com.

See also, When Wall Street Builds A Rental Empire, (Oct. 25, 2013), Huffington Post, at huffingtonpost.com.   See Also, Private Real Estate Market Continues to Feed Investor Appetite, (Oct. 1, 2013), HousingWire at housingwire.com.   See Also, Who Owns Your Neighborhood- The Role of Investors in Post-Foreclosure Oakland, Urban Strategies Council at urbanstrategies.org.

[8] We note that while Fitch did not give the recent Blackstone deal an AAA rating, Moody’s, Kroll and Morningstar did so, even though the industry does not have a track record.  RPT-Fitch: Too Soon for ‘AAA” Rating on Single-Family Rental Securitizations, (Oct., 2013), Reuters at http://www.reuters.com/article/2013/10/29/fitch-too-soon-for-aaa-on-single-family-idUSFit67461420131029

[11] Charlotte’s Wall Street landlords move quickly to evict, (Nov., 2013), Charlotte Observer at http://www.charlotteobserver.com/2013/11/10/4452995/charlottes-wall-street-landlords.html#.Uul4lj1dXSh).

[12] REO to Rentals, Wall Street Meets Main Street, (Jan. 5, 2013) Mortgage Professional of America, at mpamag.com, citing to National Multifamily Housing Council tabulations of 2012 Current Population Survey, Annual Social and Economic Supplement, U.S. Census Bureau (http://www.census.gov/cps). Updated October 2012. http://www.nmhc.org/Content.cfm?ItemNumber=55508, and to National Apartment Association. http://www.naahq.org/publications/insider/Pages/nr-SingleFamilyRentalsNowExceedMultifamily,CoreLogicReports.aspx

[13] Felipe Ossa, “REO-to-Rental Edges toward Conduit Deals,” National Mortgage News, January 24, 2014.

[15] Janet Yellen Confirmation Hearing (Q&A, Part 2), Bloomberg TV, at minute 26, http://www.bloomberg.com/video/janet-yellen-confirmation-hearing-q-a-part-2-8X~NGlH8QYWMzlJzFv8kMg.html.

[16] Kerri Ann Panchuk, “Are rental bonds driving up the rent?” HousingWire, January 23, 2014.

[17] Lending Standards Tightened in November, (Dec. 1, 2013), HousingWire at housingwire.com.

[18] Wells Fargo sends refunds to some FHA mortgage customers, (Oct. 2012), Los Angeles Times at http://articles.latimes.com/2012/oct/26/business/la-fi-wells-fha-refunds-20121027.

Class Action Settlement for Online Payday Loan Applicants in California

Editor’s note: The CFPB, a federal agency, has proposed new rules for payday, car title, and high-cost installment lenders.

 

BUT, they need to hear from consumers- that means you! We have an easy-to-use page where you can weigh in- it only takes a minute and will help bring about important consumer protections with these loans. Please share a line or two in the comments box about why you care about this issue and want to see strong federal reforms.

PS: You do NOT have to be a payday, car title, or installment borrower to sign the petition.

Did you apply for a payday loan online in California and were you subsequently enrolled (without your permission) in online discount coupon programs and was your bank account debited to pay for these memberships?

If so, you might be eligible to participate in a new class action settlement. People who are eligible and submit a claim will receive a check for up to $60.

When people applied online for a payday loan, ZaaZoom Solutions, LLC, was alleged to have enrolled them (without their consent) into online membership program for discount coupon subscriptions, and then used remotely created checks (RCC) to pay for these memberships.

The online coupon sites include: Discount Web Member Sites LLC, Unlimited Local Savings LLC, Web Discount Club, Web Credit Rpt. Co., MegaOnlineClub LLC, RaiseMoneyForAnything, MultiEcom, LLC, Online Discount Membership, Web Discount Company, Liberty Discount Club, Online Resource Center, LLC, Web Coupon Site, USave Coupon, UClip.

The plaintiff in the case alleged that ZaaZoom, as well as two banks (First Bank of Delaware and First National Bank of Texas), broke the law by attempting to withdraw money from consumers’ bank accounts (without their consent) for these memberships.

The First Bank of Delaware settled the lawsuit but denied any wrongdoing.  The First National Bank of Texas has not settled, and that lawsuit is ongoing (stay tuned for an update).

For customers whose checks were “processed” by First Bank of Delaware between May 6, 2007 and January 15, 2014, they can submit a claim form to receive compensation of up to $60 if they remain part of the class.

Dates and Deadlines

Exclusion deadline:

Postmarked by April 28, 2014

Objection deadline:

Postmarked by May 26, 2014

Claim filing deadline:

Postmarked by April 28, 2014

Final approval hearing:

Scheduled for June 25, 2014 at 2:00 p.m.

If you’d like to learn more about this case, here are a couple of resources:

1)    Marsh v. ZaaZoom Solutions et al. settlement website.  (This is where you can complete a claim form and read Frequently Asked Questions about the case)

2)    Court house news service: “Judge Certifies Class in Electronic Check Scheme

3)    Marsh v. Zaazoom Solutions, LLC, Slip Copy (2012)

Please note: The California Reinvestment Coalition is NOT able to answer questions about this case for consumers.  We suggest reviewing the settlement website if you have questions.

This case is a good reminder about the dangers of online payday loans.  It’s difficult to know who has your information and how it will be used.  To see a real life example of an applicant’s information being shared with lots of other companies, read or listen to this NPR story:

I asked for $500 and, to be safe, I made up an address, a name (Mary) and a Social Security number. The site asked for more sensitive stuff — a bank account number and a routing number — and I made that up, too. In spite of the made-up information, in less than a minute, I got a response. I Applied For An Online Payday Loan. Here’s What Happened Next