predatory, non-mortgage loans

I continued my focus on consumer issues by attending this session. The two presenters were Stuart Rossman, litigation director of NCLC and Michael Eakin, litigation director of Montana Legal Services Association.

Non-mortgage predatory loans include payday lenders, rent-to-own, internet payday lenders, bank "check bounce loans", etc. According to Stu Rossman, there are over 22,000 payday lenders in the United States, twice the number of McDonalds restaurants! It is a $28 billion industry.

The new thing is internet payday lending. Even if your state, such as Ohio, has outlawed payday lending by restricting APRs to a modest 35% (from 1400% which is effectively what payday lenders charge), individuals can still end up getting payday loans over the internet, where the lender is in another state, and the bank may be incorporated in another country! Stu gave the example of a client in Boston (Massachusetts does not allow payday lending) who went on the internet and got a payday loan from a company in Chattanooga, TN, but the bank underwriting the loan was in Grenada! (remember we invaded them in the 80s? It's payback time!)

Another major problem is check bounce loans. This is when an account gets overdrawn due to an ATM or debit transaction, and the bank "covers" the amount, but then charges you fees and interest. These fees can be upwards of $35 PER TRANSACTION. Stu gave an example of a California case: It was December 31, New Years Eve. A woman left work at Noon, and, since she got paid via direct deposit on the 15th and the last day of each month, assumed she had money in her account. She went and got her dress from the dry cleaners for NYE celebrations, then went to the grocery to buy cheese and crackers, and then went to the liquor store to get a bottle of champagne. Unbeknownst to her, the bank did not count her paycheck as deposited until 5pm that day. She therefore "overdrew" her account at the drycleaners, and the bank assessed her a $35 fee. They assessed her another $35 at the grocer, and then ANOTHER $35 at the liquor store, for a total of about $115. Then, at 5pm, when her check was considered deposited, they recouped the fees! If you consider the amount she spent at the three merchants as being about $30, the cost of her loan was almost 400% for a five-hour period! Stu quipped that there isn't a calculator that can figure the APR on that! (My rough calculation was that it was 700,000% APR).

Anyway, NCLC is litigating that case.

Dave