A M A N D A G L O V E R E V A N S A T T O R N E Y A T L A W M I S S I S S I P P I T A X P A Y E R A S S I S T A N C E P R O J E C T D I R E C T O R 5 C O U N T Y R O A D 1 0 1 4 / P . O . B O X 9 2 8 O X F O R D , M I S S I S S I P P I 3 8 6 5 5 1 - 8 0 0 - 5 5 9 - 5 0 7 4 , X2 1 2 0
Predatory Lending:
Issues Affecting the Elderly
Elder Law Conference Friday, August 5, 2011
Mississippi Taxpayer Assistance Project
Represent low income taxpayers before the
Internal Revenue Service (IRS) in audits, appeals, collection issues, and federal tax litigation at no cost to the taxpayer
Serve the entire state of Mississippi Taxpayer Assistance Hotline:
The High Cost of Being Poor
Loosely regulated network of lenders (fringe banking)
payday lenders title loans
rent-to-own stores pawn shops
refund anticipation loans
subprime home mortgage loans
High costs of the ―poverty industry‖ operate to drain wealth
from the working poor
Often accompanied by unscrupulous and/or fraudulent
Who are the victims?
The Target Market
Low to moderate income Individuals of color
Elderly
Persons in a financial or housing crisis Those who are equity-rich but cash-poor
Individuals who lack information to choose the best
product
Those who do not perceive having financial options
Borrowers who are scared of the lending process and do
Financial Abuse of the Elderly
Persons age 80 and older are abused and neglected
at a rate of two to three times higher than their percentage in the general population
Female elders are abused at a higher rate than males Half of elders found to be abused or neglected were
not physically able to care for themselves
Adult children are responsible for almost half of
elder abuse and neglect cases
Four to five times as many elder abuse incidents
occur as are reported
Evolution of Predatory Lending
Consumer Credit Culture Immediacy, ―Get it now, pay for it later.‖
Increased Home Values
Steady increase in equity allowed individuals to borrow against their
home (equity loans)
Lack of Access to Mainstream Financial Services
Overwhelmed Consumers
Prime Lending
Review of risk in lending to borrower Lending characteristics analyzed
Credit rating Collateral
Work record
The consumer is ―buying‖ a loan product
Sub-Prime Lending
Often no evaluation of risk
―No credit check.‖
―Only need a pay stub.‖
No review of lending characteristics
The consumer is ―sold‖ a loan
Annual Percentage Rate (APR)
Assists consumers in comparing how much it costs to
borrow
By law APR must be listed on loan documents Always check APR on the loan
Costs of Predatory Lending
in the Mortgage Industry
It destroys credit and opportunities It causes foreclosures
It creates homelessness
It robs wealth from families, neighborhoods, and
communities
It strips families of hopes and replaces dreams
Problem Mortgage Lending Practices
● Offering debt consolidation loans
● Working closely with home improvement contractors
● Marketing foreclosure rescue
● Home equity lines of credit
● Referrals from mortgage brokers for high fees
Borderline Predatory Tactics
High interest rates and fees
Balloon payments
Negative amortization
Predatory Lending Practices
of Subprime Lenders
―Packing‖ loans with high unnecessary costs
o Padded closing costs o Inflated appraisal costs o Padded recording fees o Broker fees
o Listing fees as unbundled
―Flipping‖ with repeated refinancing Forging loan documents
Protections from Predatory Mortgages
Federal
The Truth in Lending Act (TILA)
Home Ownership and Equity Protection Act (HOEPA) Real Estate Settlement and Procedures Act (RESPA)
State
Unfair and Deceptive Acts and Practices Laws (UDAP)
No broad prohibition of deceptive acts enforceable by consumers Mississippi is next to the weakest overall consumer remedies
Check Cashing Fees
Federal/State Government Checks
Greater of 3% or $5.00
Personal Checks
Greater of 10% or $5.00
Money Order
Greater of 5% or $5.00
Pros
Cons
Accessible
Open 24 hours a day No account needed Cash in hand No establishment of credit No banking history High fees
Check Cashing Alternatives
Cash check at the payer’s bank Direct deposit
Open a bank account
No fees or fees less than check cashing services Money is safe in an account
May be able to earn interest Develop a history with the bank
• ETA (electronic transfer accounts) for Federal
What are Payday Loans?
So named based on the short-terms of these loans
often corresponding to the length of time between paychecks
High interest rate
Short term loans
Mississippi Check Cashers Act
Mississippi Check Cashers Act
o Maximum deferred deposit amount, including interest, and
total of checks held is $400.00
o 18% on face value on the check is the maximum rate a check
casher can charge
o Maximum of 30 days deferred deposit
o Current law until December 31, 2011
Mississippi Payday Loans
Are Extremely Expensive
High interest:
Average APR of 572% to borrow money for two weeks Average APR charged for a payday loans is 470%
Repeat borrowers: 99% of borrowers are repeat
borrowers
Multiple Loans Yearly: 91% of loans to borrowers
who have had five loans per year or more
Typical payday loan borrower repays $793 for a $325 loan
Concurrent Loans: many borrowers have loans from
three to four payday lenders at a time
Booming Payday Lending Industry
2000 to 2006- payday lending revenues tripled from
$10 billion to $28 billion
Mississippians paid an estimated $135 million to
payday lenders in 2005
Mississippi has the highest concentration of payday
lenders in the nation
National/Federal Legislative Reforms
North Carolina: Outlawed payday lending in 2001
Georgia: Enacted an interest rate cap on small
consumer loans of 60% APR per year in 2004
Federal: Law effective in October 2007 limiting APR
Mississippi Check Cashers Act (House Bill 455)
Effective January 1, 2012
Maximum total of checks held is $500.00, including fees 30 day maximum deferral
$200 or less
Deposit delayed up to 21 days
Fee not more than $20 per $100 advance
$200.01 - $500.00
Deposit delayed 28 – 30 days
Fee not more than $21.95 per $100 advance
Car Title Loans
Marketed as small emergency loans
Short term loan secured by the borrower’s vehicle
Car can be repossessed for non-payment of loan
Small Loan/Over-secured
Loan made without credit checks or tests for ability to
pay
Mississippi Title Pledge Act
Maximum Loan $2,500
25% finance charge per month = 300% APR 30 day loan that can be renewed
Reduction of principle amount being reduced by 10% in
service charge calculation
30 days to cure default
Repossession of vehicle if no cure
Redeem by paying unpaid balance and repossession costs
within three (3) days
If vehicle sold, the borrower receives 85% of sale above
unpaid balance, repossession fees, auction fees, and $100 sellers fee, no deficiency
Rent-to-Own
The predatory rent-to-own industry promises
consumers the American dream of ownership
Marketed as a risk-free way to acquire furniture and
appliances
"For only 78 weekly payments of $10, you, too, can
own this television."
Rent-to-own stores charge an average effective annual
Common Rent-to-Own Fees
Besides the normal weekly or monthly payments,
other fees may be charged on rent-to-own agreements:
processing fees delivery fee
setup/installation fees in-home collection fee sales tax
Cash Price of Rent to Own
Sales price of the item is 2 -5 times that of a regular
retail store
Many items not clearly marked ―new‖ or ―used‖
Rent to Own Alternatives
Plan ahead and save for large purchases
Use store layaway plans at reputable stores
Shop at thrift or consignments stores for lower cost
Pawn Shops
Pawnbroker takes an item they believe they can
resell for an amount while loaning the borrower less than the fair market value of the item
The item is maintained by the pawn shop as
collateral
The pawn shop charges interest per month on the
loan
If the money is not repaid within a certain time
period the item will be forfeited and sold by the pawn shop
Item can be redeemed within 30 days of fixed
maturity date of the loan
RALs
Similar to payday loan—income tax refund pays
balance of loan
Marketed as ―Quick Cash‖ or ―Rapid Refunds‖
In 2009, 7.2 million Americans obtained RALs at a
cost of $600 million in fees
Paid by the poorest Americans—87% of borrowers in
poverty
In 2011, the price for a typical RAL (Republic Bank
and Trust) for a loan of $1,500 is $61.22 in fees and $29.95 for the check
RALs Are Risky
RAL must be repaid even if IRS denies or delays tax
refund
RAL is a loan and treated as a loan by the lender
Lender may seize future year tax refunds for
RAL Alternatives
Just wait!
E-file with direct deposit
7 – 10 days for direct deposit
Open a bank account
Tax preparation by VITA or TCE sites
Beyond Tax Preparation Offices
Refund Down-Payment Offers
Car dealerships Furniture outlets Jewelry stores
The dealer/store offers to prepare the tax return and use the anticipated refund as a down-payment on the
purchase. Excess Costs
High preparation fees High loan fees
A M A N D A G L O V E R E V A N S A T T O R N E Y A T L A W M I S S I S S I P P I T A X P A Y E R A S S I S T A N C E P R O J E C T D I R E C T O R 5 C O U N T Y R O A D 1 0 1 4 / P . O . B O X 9 2 8 O X F O R D , M I S S I S S I P P I 3 8 6 5 5 1 - 8 0 0 - 5 5 9 - 5 0 7 4 , X2 1 2 0
Predatory Lending:
Issues Affecting the Elderly
Elder Law Conference Friday, August 5, 2011
