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Bucks Blog: Short-Term Payday Loans Can Become Long-Term Traps

April 24, 2013 by Leave a Comment

Payday loans and deposit-advance loans are intended to be short-term options for emergency cash, but they can turn into long-term debt traps for borrowers, a new federal report says.

The Consumer Financial Protection Bureau, which prepared the report, found that the short-term, high-interest-rate loans are too often made without regard to a borrower’s ability to repay them. As a result, borrowers get in over their heads and have to extend the loans repeatedly, incurring more fees. Two-thirds of payday borrowers, the report found, had seven more loans in a year.

Payday loans are typically made at storefront locations and secured by a paycheck, while deposit advance loans are currently made by a handful of big banks, and are repaid out of an anticipated electronic deposit into a checking account. Borrowers use the loans the same way, the report found.

The New York Times reported Wednesday that federal bank regulators, including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, are expected to clamp down this week on big banks’ offerings of deposit advance loans, setting new rules to protect borrowers.

“For too many consumers, payday and deposit advance loans are debt traps that cause them to be living their lives off money borrowed at huge interest rates,” Richard Cordray, the Consumer Financial Protection Bureau’s director, said in a conference call with reporters.

Have you ever taken out either of these types of loans? What was your experience?

The report joins research from other groups, like the Center for Responsible Lending and the Pew Charitable Trusts, in raising concerns about the loans. The bureau said its report looked at more than 15 million payday loans from storefront lenders and “multiple” banks that make deposit advances, and is one of the most comprehensive done on the subject. Officials declined, however, to say how many lenders and banks participated in the report.

The loans typically carry high fees. Fees for payday loans range from $10 to $20 per $100 borrowed. So for a typical loan of $350, the median fee of $15 per $100 would mean the borrower must come up with more than $400 in two weeks. (Such a loan would carry an annual percentage rate of 391 percent).

Deposit advances are somewhat less costly, at about $10 per $100 borrowed. A $100 loan made for 12 days would carry an A.P.R. of 304 percent.

The report cited as a main concern the “sustained use” of the loans by borrowers who repeatedly take out the loans in rapid sequence — often on the same day as the previous loan is repaid, in the case of payday loans. Similarly, the average deposit advance user has breaks of less than two weeks between borrowing “spells,” the bureau found.

“As a result,” the bureau noted, “many borrowers incur significant costs over time.”

The report said the bureau would analyze the effectiveness of “cooling-off periods” between loans as a way to reduce the harm from sustained use of the loans.

The report did not include new online lenders that are making similar short-term loans, but the bureau said it is analyzing such loans separately.

If you have ever used a payday loan or an advance deposit loan, would being forced to wait between loans help you manage the debt?

Article source: http://bucks.blogs.nytimes.com/2013/04/24/short-term-payday-loans-can-become-long-term-traps/?partner=rss&emc=rss

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Bucks Blog: Foreclosure Crisis Isn’t Even Halfway Over, Analysis Finds

November 30, 2011 by Leave a Comment

Click to enlarge.Click to enlarge.

A new analysis suggests that the tide of home foreclosures isn’t going to recede soon.

The report from the Center for Responsible Lending, “Lost Ground, 2011,” finds that at least 2.7 million mortgages loaned from 2004 through 2008, or about 6 percent, have ended in foreclosure and that nearly 4 million more home loans (roughly 8 percent) from the same period remain at serious risk.

Put another way, “The nation is not even halfway through the foreclosure crisis,” says the report, which analyzed 27 million mortgages made over the five years.

While most of those who have lost their homes are white, the report found, African-American and Latino borrowers have been disproportionately affected. Roughly a fourth of all those borrowers have lost their home to foreclosure or are seriously delinquent, compared with just under 12 percent for white borrowers.

And across the country, low- and moderate-income neighborhoods and neighborhoods with high concentrations of minorities have been hit especially hard, the report found.

The Center for Responsible Lending is a nonprofit group that works to eliminate abusive financial practices.

Its report also noted that certain types of loans have much higher rates of completed foreclosures and serious delinquencies. They include loans originated by brokers; hybrid adjustable-rate mortgages, option ARMs, loans with prepayment penalties and loans with high interest rates (subprime). African Americans and Latinos were more likely to receive a high-cost mortgage with risky features, regardless of their credit. For example, among borrowers with good credit (a FICO score of over 660), African-Americans and Latinos received a high-interest-rate loan more than three times as often as white borrowers.

Accompanying the report is an online map showing foreclosures and delinquencies by state.

Are you at risk for foreclosure? How has your neighborhood been affected by the crisis?

Article source: http://feeds.nytimes.com/click.phdo?i=9c9eeced7b2b02c7a84403b6c3404f4a

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Bucks Blog: Web Sites for Choosing a New Bank

November 4, 2011 by Leave a Comment

Even though the country’s largest banks have dropped plans to charge fees for debit card use, a movement encouraging customers to consider switching to community banks or credit unions remains energized. Promoters of Bank Transfer Day are urging dissatisfied big bank customers to open accounts at smaller institutions on Saturday.

So if you want to consider alternatives to a big national bank, where should you look? Here are some Web-based tools aimed at helping you narrow your search.

The Credit Union National Association, working with state-based credit union leagues, maintains a site that lets you search by ZIP code for a credit union — a financial institution structured as a nonprofit cooperative.

You may still have to do more research, however. There are thousands of credit unions, but many are organized to serve specific groups of people — say, employees of a certain company. The search engine gives detailed membership criteria for many institutions, but not all. So in some cases you may have to call to see if you qualify. You can also access the search tool via another credit-union sponsored Web site.

You can also try the Web site Nerdwallet for its Credit Union Finder, which lists more than 400 credit unions, many of which are “community” credit unions, where anyone living, working or learning in a certain area or group of counties can join, said Nerdwallet’s founder, Tim Chen. He said in an e-mail that such credit unions tended to be larger in terms of assets and easier for many people to join. (Nerdwallet’s listings are free to the credit unions,  Mr. Chen said.)

BancVue offers a tool that lets you find community banks and credit unions offering high-interest-rate checking accounts.

The Move Your Money project, which encourages switching to credit unions as well as community banks, lets you search by ZIP code and also provides a check list for making the switch (including steps like rerouting direct deposits and contacting companies that directly take money out of your old account). Online banking is convenient, but adds steps when you want to disentangle yourself from your old checking account. So proceed carefully.

A site going online on Thursday aims to use crowdsourcing to provide more detailed information about both credit unions and community banks. Banxodus, an effort by the Progressive Change Campaign Committee, says it has more than 7,500 institutions in its database, which was created with the help of a few thousand volunteer researchers, and expects the list to grow after the site goes public.

“A lot of people are inspired to move, but don’t know where to move their money to,” said Neil Sroka, a spokesman for the committee, a liberal group. The site aims to help customers find “good guy banks” in their communities, he said. The initiative’s organizers encourage prospective customers to ask their new banks tough questions — not just, “How many A.T.M.’s do you have?” but also, “Do you keep the loans you make, or do you sell them to investors?”

If you know of other helpful sites for researching smaller financial institutions, please share the information in the comments section.

Article source: http://feeds.nytimes.com/click.phdo?i=935e6ab0d4ca9224b9c2b57cdeb7a512

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