Originally created 01/25/00

Payday advances targeted



A national trade association for companies offering short-term cash advances announced new guidelines Monday to promote more responsible lending practices.

The guidelines came the same day the Georgia Senate passed a proposal -- 48-4 -- to outlaw most forms of the loans.

The bill next goes to the state House of Representatives. Gov. Roy Barnes' signature is required for the measure to become law.

State Sen. Don Cheeks, D-Augusta, offered Bill 294 to curb what he considers abusive practices by companies that offer unsecured, short-term cash advances to desperate consumers.

The companies take advantage of poor and cash-strapped customers by charging high interest rates and exorbitant fees, Mr. Cheek said. The lenders can end up charging thousands of dollars in interest and fees for loans as little as $200. The senator has documented hundreds of such cases, he said.

He called the practice "cesspool lending."

The Community Financial Services Association of America, a trade group of 37 companies supporting industry self-regulation, offered new rules for its members to "promote the appropriate use" of cash advances.

The guidelines were offered in response to criticism.

"Payday advances are supposed to help consumers out of financial trouble, not get them into it," said Billy Webster, the association president. "These reforms were created so that it's harder to misuse this popular financial tool."

Not all payday loan companies are association members, however. The actual number of such companies, the number of payday advance transactions and the number of customers are not known, according to the industry trade association.

Mr. Cheeks said he does not believe self-regulation will work.

A Macon, Ga., lawmaker has offered a competing state proposal, Bill 515, in the House. His plan would legalize and regulate payday loans by limiting the amount of money consumers can borrow and the fees creditors can charge.

State Rep. Robert Reichert's bill would require state licenses for the companies; cap fees at 15 percent or $45, whichever is less; require fees to be posted; limit loans to $500 to a single customer; prohibit loans for extended periods and require contracts to include rates and redemption dates.

Mr. Cheeks said he has not seen that bill.

Guidelines

Here are the main guidelines for Community Financial Services Association of America members. Members who do not comply may be sanctioned and possibly expelled. Full disclosure. Members must disclose all details of the transaction, including the cost of the service fee both as a dollar amount and as an annual percentage rate. No criminal action. Members may not pursue or threaten criminal action if a customer's account is not paid. Right to rescind. Customers have the right to rescind their transaction at no cost on or before the close of the next business day. Encourage consumer responsibility. Members will provide information on responsible use of the product and advise customers against long-term use. Limit rollovers. In states where rollovers -- extending the pay date by tacking on additional charges -- are not regulated, members will be limited to four rollovers.

A national trade association for companies offering short-term cash advances announced new guidelines Monday to promote more responsible lending practices.

The guidelines came the same day the Georgia Senate passed a proposal -- 48-4 -- to outlaw most forms of the loans.

The bill next goes to the state House of Representatives. Gov. Roy Barnes' signature is required for the measure to become law.

State Sen. Don Cheeks, D-Augusta, offered Bill 294 to curb what he considers abusive practices by companies that offer unsecured, short-term cash advances to desperate consumers.

The companies take advantage of poor and cash-strapped customers by charging high interest rates and exorbitant fees, Mr. Cheek said. The lenders can end up charging thousands of dollars in interest and fees for loans as little as $200. The senator has documented hundreds of such cases, he said.

He called the practice "cesspool lending."

The Community Financial Services Association of America, a trade group of 37 companies supporting industry self-regulation, offered new rules for its members to "promote the appropriate use" of cash advances.

The guidelines were offered in response to criticism.

"Payday advances are supposed to help consumers out of financial trouble, not get them into it," said Billy Webster, the association president. "These reforms were created so that it's harder to misuse this popular financial tool."

Not all payday loan companies are association members, however. The actual number of such companies, the number of payday advance transactions and the number of customers are not known, according to the industry trade association.

Mr. Cheeks said he does not believe self-regulation will work.

A Macon, Ga., lawmaker has offered a competing state proposal, Bill 515, in the House. His plan would legalize and regulate payday loans by limiting the amount of money consumers can borrow and the fees creditors can charge.

State Rep. Robert Reichert's bill would require state licenses for the companies; cap fees at 15 percent or $45, whichever is less; require fees to be posted; limit loans to $500 to a single customer; prohibit loans for extended periods and require contracts to include rates and redemption dates.

Mr. Cheeks said he has not seen that bill.

ReachFrank Witsil at 823-3352.