Predatory Lending

Voice of the PoorSt Vincent de Paul Society

April 16,2015

Predatory PracticesO Inadequate or false DisclosureO Inflated fees and costs: appraisals,

closing costs, document preparationO Loan Packing: unnecessary productsO 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 loansO The poor have no discretionary

income and few assetsO Isolation: family disconnect, no

community supportO 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 assetsPersons with assets but no regular incomePersons with no established credit but needing transportation or conveniencesPersons 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

loanO 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 leaseO Terminated with return of the propertyO Purchase amount specified in contract

but borrowers not obligatedO No credit check, a way to have

property while trying to pay offO Price exceeds credit sale priceO Arbitrary repossession practices

Tax refund Anticipation Loans

O Cash advances against refundsO 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 legislationO A number of NGO’s and charities are

lobbying, including VOP

CFPBO Rich Cordray and Richmond Hearing

3/26O Federal rules short-term and long-

term loansO Debt trap prevention: determination

that borrower can repayO Debt trap protection: decreased

rollover loans, no-cost extended payment plan

O Prevent lender from control of account or title

Jesuit Social Research InstituteNew 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 solutionO Credit unions as an alternative

source of small loans. O Partnerships SVdP/Credit UnionsO Loans secured by funds in Council

account

Fighting Predatory Practices:Low Income Credit UnionsO 50.01% of members less than 60% of

median incomeO Geographic boundaryO Tax-exemptO Tie lending to consumer education

VOP actionO Truth in lendingO Strict usury limitsO Lending capsO Consideration of ability to payO Internet bansO Out-of-state charter arrangementsO Consumer legal recourse