PAYDAY AND TITLE LOANS

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1 PAYDAY AND TITLE LOANS

2 Payday loan? A payday loan also known as cash advance is a form of an unsecured, short term loan that is meant to cover applicant s short term expenses. The loan is repaid on an applicant s payday. The repayment date may vary from lender to lender.

3 Characteristics Easy to obtain Everyone is approved Payday & Title loans Excellent customer service No credit score is required

4 Get Started! How it works Why we are better Better than late fees Register in seconds. Get an answer quickly. Have money in your account. We are the fastest. You can get up to $1,000 2 step registration process. You can avoid those late fees. Bank fees can be very large. Reconnecting your utilities is expensive. Source: paydayloans.com

5 The following states have made payday loans illegal: Arkansas Connecticut Georgia Maryland Massachusetts New Jersey New York North Carolina Pennsylvania Vermont West Virginia Source: Wikipedia

6 Reason for the Loan According to Pew Safe Small-Dollar Loans Research Project, % Recurring Expenses 16% Unexpected emergencies expenses 8% Something special 5% Other 2% Do not know why

7 APR? In the United States the calculation and disclosure of APR is governed by the Truth in Lending Act. It is expressed as the periodic interest rate times the number of compounding periods in a year, also known as the nominal rate. Since the APR must include certain non-interest charges and fees, it requires more detailed calculation. There are at least three ways of computing annual percentage rate. Source: Wikipedia

8 Truth in Lending Act Enacted in 1968 with the idea of protecting consumers when they are dealing with creditors and lenders. One of the most important points of this Act concerns the specific information which must be disclosed to a borrower before finalizing any credit or loan agreement. This information includes: the annual percentage rate (APR), the exact terms of the loan, and the total cost of the loan to the borrower. Source: paydayadvance.org

9 What is the APR for Cash Store Loans Cash Advance =585.56% Installment Loans=581.76% Title Loan= % Source: cashstore.com

10 How to calculate the APR? In order to calculate the APR you will need the following information: What is the amount of loan? =$350 What is the finance charge?$50 What is the term of the loan? 14 days Answer: %

11 City Ordinances There are approximately 1,200 cities in the state of Texas. Only 6 cities have adopted ordinances. All cities that have adopted an ordinance have been sued by the credit access business industry. Cities adopted an ordinance trying to end the cycle of debt and help borrowers to be successful in paying back their loans. Austin, Balcones Height, Dallas, Denton, El Paso, and San Antonio. Source: Texas Municipal League

12 Provisions of all six Ordinances A credit access business must apply for and receive a certificate of registration from the city. A credit access must maintain complete records of all loans made by the business for at least three years and make the records available to the city for inspection upon request. The amount of a payday loan may not exceed 20% of the consumer s gross monthly income. The amount of an auto title loan may not exceed the lesser of three percent of the consumer s gross annual income or 70% of the retail value of the motor vehicle.

13 Cont. Ordinance Provisions Any loan from a credit access business that provides for repayment in installments may not be payable in more than four installments, and the proceeds from each installment must be used to repay at least 25% of the principal amount of the loan. No renewals or refinancing of installment-payment loans are permitted. Any loan from a credit access business that provides for a single lump sum repayment may not be refinanced or renewed more than three times, and the proceeds from each refinancing or renewal must be used to repay at least 25% of the principal amount of the loan. Any loan made to a consumer within seven days of a previous loan has been paid by the consumer constitute s a refinancing or renewal. Source: Texas Municipal League

14 What is an alternative to payday loans? Discuss a payment plan with creditors. Obtain a loan from a local credit union. Cash advance from credit cards Community based emergency assistance programs. Long term solution is not living paycheck to paycheck. Source: MoneyTalksNews by Linda Doell

15 Does this kind of lending happen in other countries? Yes, the payday lending model also exits in a number of foreign countries including Great Britain, Australia, and Canada. Legislation in those countries have attempted to curb the maximum interest rate charged to borrowers. For example in Australia the government has capped interest at 48% yearly. Source: Wikipedia

16 Car Title Loans A car title loan is a short-term cash loan where the car title is used as collateral. A typical car title loan costs 300% APR, must be paid in one month, and is made for much less than the value of the car. Title loans are typically made without regard to borrower s ability to repay. Borrowers risk repossession if unable to repay at the end of the month.

17 Council Direction

18 References