Predatory Lending Voice of the Poor St Vincent de Paul Society April 16,2015

Predatory Practices O Inadequate or false Disclosure O Inflated fees and costs: appraisals, closing costs, document preparation O Loan Packing: unnecessary products O Asset-based lending (vs ability to repay) O Loan Flipping: pay off one loan with another higher cost. O Forced Arbitration

Why the problem? O Usury laws v expense of small loans O The poor have no discretionary income and few assets O Isolation: family disconnect, no community support O Complexity of urban family life: car care, child care, health care, sudden loss of income

Who are the victimized? Persons with jobs and checking accounts but poor credit history and few assets Persons with assets but no regular income Persons with no established credit but needing transportation or conveniences Persons with unexpected medical bills, funeral expenses, damage to property, need for car repairs.

What is Payday Lending/Paycheck Advance? -a small loan (under $500) with a short term (10-45 days) -no collateral, but a check to be held until payday -check is returned when loan plus interest (or service fee) is paid. -borrower can pay by taking out another loan at the same cost. --APR is 200% to 5000%

What are Title Loans? O Borrowers vehicle as security for loan O Borrower loses transportation in default; therefore makes large interest payments to avoid default O Car dealer financed loans: lack transparency O Dealer kickbacks, loan packing, binding arbitration

What is Rent to Own? O Furniture, appliances, on month to month lease O Terminated with return of the property O Purchase amount specified in contract but borrowers not obligated O No credit check, a way to have property while trying to pay off O Price exceeds credit sale price O Arbitrary repossession practices

Tax refund Anticipation Loans O Cash advances against refunds O High interest rates (40%-700% APR) O Only short-time speed up as against filing online/direct deposit

What are the responses to predatory lending practices? O The Federal Government: Consumer Financial Protection Bureau O Political Advocacy O State legislation O A number of NGO’s and charities are lobbying, including VOP

CFPB O Rich Cordray and Richmond Hearing 3/26 O Federal rules short-term and long-term loans O Debt trap prevention: determination that borrower can repay O Debt trap protection: decreased rollover loans, no-cost extended payment plan O Prevent lender from control of account or title

Jesuit Social Research Institute New Orleans O “Break a business model designed to catch families in a cycle of debt” O Francis: “When a family has nothing to eat because they have to repay Loan Sharks, that is not Christian, it is inhuman”

Political effort O “Income inequality” now an issue both parties O President’s speech in Birmingham O Lenders and their public effort at justification

Influence the Legislatures O Arizona example: O Fighting a bill which would encourage payday lenders by authorizing loans with a variety of interest rates and provisions for repaying O Stopped by Tuscon and Phoenix VOP

Finding a solution O Credit unions as an alternative source of small loans. O Partnerships SVdP/Credit Unions O Loans secured by funds in Council account

Fighting Predatory Practices: Low Income Credit Unions O 50.01% of members less than 60% of median income O Geographic boundary O Tax-exempt O Tie lending to consumer education

VOP action O Truth in lending O Strict usury limits O Lending caps O Consideration of ability to pay O Internet bans O Out-of-state charter arrangements O Consumer legal recourse