Posts Tagged ‘Federal APR Rate Cap’
Wednesday, December 2nd, 2009
From NBC 4 Columbus Ohio:
COLUMBUS, Ohio—Federal legislation meant to cut the amount of interest someone can charge at pawn shops is upsetting pawn shop owners.
The Ohio Pawnbroker’s Association is campaigning to try to stop the bills.
The senate and house bills being proposed would cap the interest rate that pawn shop owners could charge on loans to about half of what they charge now. They would also eliminate storage charges of anything in hock.
Pawn shop interest rates have increased 60 percent over a year, but putting something in hock is meant to be a short-time loan with 85 percent of customers paying off their loan within a month.
Under the new plan, on a $100 loan, a pawn shop would only make about 30 cents if someone repaid it within a few days.
“When you come in to borrow money here you don’t have to fill out application fees. There’s no recourse to it. We can’t sue you to get our money back. It’s simple. It doesn’t take a lot of time. It’s a big, big industry. There’s over 200 pawn shops in Ohio alone,“ said Gary Chasin, of Uncle Sam’s Pawn Shop.
The Ohio Pawnbroker’s Association said only about 20 percent of Ohioans ever use a pawn shop and those that do are often the most vulnerable who need money fast.
Tags: consumer credit, Federal APR Rate Cap, Pawn Loans, pawnbroker, pawnshop, S.500
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Monday, September 28th, 2009
Here’s a realistic and well written article about short-term credit sources in the US in the latest edition of Reason Magazine:
Payday of Reckoning
Tags: consumer credit, Consumer Federal Protection Agency, Credit Crunch, Federal APR Rate Cap, Pawn Loans, pawnshop, Payday Loans, Reason Magazine
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Saturday, August 8th, 2009
From a Blog Entry on Pawn Shops Today
FULL TEXT HERE
The World Bank recognized in it’s report, “Key Principles of Microfinance”, that it costs much more to make small loans unless Microfinance Lenders can charge interest rate and fees that are
well above banks. “When governments regulate interest rates they usually set them at levels too low to permit sustainable Microfinance loans” (7) Senate Bill 500/HR 1608, as written, will in effect close the doors on 13,500 pawn/ retail businesses – that means another loss of 100,000
good paying jobs gone forever. The worst effect, it will close the only door 56,000,000 Americans will ever have to make small loans.
Under Senate Bill 500, Section 141.(2) tolerances should define pawn shop owners as micro finance lenders and allow for storage expense of pawned items. Every American has in some way benefited from pawn brokers, whether it was when Queen Isabella of Spain was turned down by her treasury to finance Christopher Columbus’ voyage to the new world and had to pawn her royal jewelry (8) or when we made a $300.00 loan to keep a small lawn service business in operation and off the rolls of the unemployed. Many Americans have never known the need for a $20.00 loan to buy a tank of gas or put food on the table so you can make it to the next payday. We have always had an important role in our country’s micro finance. Pawn brokers as a whole recognize the need for financial reforms, however as the Bill is written it will close down the good along with the greedy.
Robert G. Whitten, II
Chairman of the Board
Tags: Consumer Federal Protection Agency, Federal APR Rate Cap, Pawn Loans, Pawn Shops Today, pawnbroker, pawnshop, S.500, Senator Durbin
Posted in Pawnbroker Rants | 1 Comment »
Tuesday, June 9th, 2009
Couldn’t have said it better myself. From The American Spectator:
Given the abject failure of the War on Poverty — as Ronald Reagan said, “Poverty won” — now Democrats apparently have decided to go right for the heart of the problem, by making war on the poor.
That’s the only plausible explanation for S.500, the “Protecting Consumers from Unreasonable Credit Rates Act of 2009,” introduced earlier this year by Sen. Dick Durbin (D-Illinois). The bill would limit interest rates in such a way that pawn shop owners say it would drive them out of business. Currently under consideration by the Senate Banking, Housing and Urban Affairs committee, this legislation could only make sense to someone who (a) knows nothing about pawn shops, and (b) knows nothing about economics.
Having once been a penurious college student and struggling rock musician, I had a lot of dealings with pawn shops back in the day, and respect the straightforward nature of their business. You have an amp or a guitar and need money, you hock it until you can afford to get it back. And if you don’t redeem it, the pawn shop keeps it and sells it (thereby providing a source of cheap second-hand guitars and amps for other struggling musicians).
The pawn shop business is very easy to understand, and if the interest rate seems exorbitant to middle-class folks and liberal do-gooders, maybe it’s because they don’t understand how grateful pawn shop customers are for the service. Who else offers on-the-spot credit to those who might otherwise have no source of quick cash?
It is idiotic that, on the one hand, Democrats demanded that taxpayers bail out the mortgage industry, while on the other hand they are trying to put pawn shops out of business. Given President Obama’s promise to “save or create” hundreds of thousands of new jobs over the next 100 days, do Democrats really want to destroy an entire industry, one that provides emergency financial services to so many of the poor people whom the Democratic Party claims to represent?
Here’s hoping S.500 dies quietly in committee. Otherwise, once the Chinese get tired of buying U.S. debt, the federal government could have no place else to turn.
Tags: consumer credit, Federal APR Rate Cap, Pawn Loans, pawnbroker, pawnshop, S.500
Posted in Pawn Ecomomics | 1 Comment »
Monday, June 8th, 2009
Are pawn loan customers consumers? You bet they are and it’s great when reporters get their real story such as this recent one from Texas:
Without a pawnshop and a gold onyx ring, Patrick Heinaman’s grandmother might have missed her daughter’s funeral.
The short-term loan put the 412-mile trip to Port Lavaca within reach. It was costly, but her only option. But Heinaman’s grandmother and other lowincome borrowers would have a harder time getting an emergency loan of that type if the legislation Congress is considering to cap interest rates on all consumer credit transactions passes.
Both critics and supporters of the bills agree the popularity of payday lenders and other shortterm creditors highlight the need for credit among the country’s poor and their inability to obtain loans traditionally.
Two bills, one from Sen. Dick Durbin, D-Ill., the other from Rep. Jackie Speier, D-Calif., would cap interest rates on the loans at 36 percent. The legislation is aimed at payday lenders, but pawnshops and other short-term lenders say the cap would also keep them from making a profit.
“The way I see it, they help families that need the money,” the 19-year-old Heinaman said shortly after paying $50 off the balance of his grandmother’s loan at Danny’s Pawn and Sporting Goods in McAllen. “(Shutting them down), that’s like taking meals away from the family.”
The Capitol Hill elitists should listen carefully to the needs of the people exempt from what little mainstrem credit is left available in the US. Pawnbroking is not the problem, it’s a solution.
Tags: consumer credit, economic crisis, Federal APR Rate Cap, Pawn Loans, pawnbroker, pawnshop
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Friday, May 22nd, 2009
Time will tell what long-term changes will take place for US consumers with the passage of the new credit card reform act. There is one thing we can be reasonably sure of, that being, an increase in demand for alternative sources of short-term consumer credit. Taken from the Cleveland Ohio Business News:
Haven’t lenders already been raising interest rates?
Yes. We have been seeing rate increases since a separate set of regulations approved last winter. That’s when the Federal Reserve adopted rules that cracked down on creditors’ ability to hike interest rates, levy fees or allocate payments in ways to keep people in debt longer. Those rules go into effect in July 2010. Some of them are nearly identical to what’s in the new legislation. But what’s expected to become law today goes further in its consumer protections and will be more difficult to alter.
What can I expect to happen in the next nine months?
The American Bankers Association says consumers should brace for even higher rates, new fees and additional restrictions on cards. As usual, you should be on the lookout for any letters from your credit card company. These could be notifications about rate or fee increases as card issuers prepare to comply with the new law. “The next nine months are going to be filled with issuers implementing changes while they still can,” said Greg McBride, a senior financial analyst at Bankrate.com, a personal finance Web site.
Will it be harder to get a new credit card?
It’s likely that people without stellar credit will have a harder time getting approved for cards. Because banks know that they won’t be able to change their interest rates on existing balances, it means they’ll be taking a longer-term risk on a customer. They will, therefore, be more conservative on the bets they make.
McBride said card issuers probably will start charging higher rates at the outset, when a customer gets a new card. The card probably will come with a lower credit limit than in the past.
“Doing away with credit card companies’ gotcha-type practices is unequivocally a great deal for consumers,” McBride said. “But that progress comes at a price, and that price is that credit is going to be tougher to come by.”
More people probably will begin turning to outlets such as payday lenders and pawn shops, he said.
“In the absence of credit cards, people in need of a short-term loan will resort to other means,” McBride said.
Greg McBride’s statement is both knowledgeable and visionary. What Mr. McBride was not asked in this interview is what will happen to US consumers should a federal APR rate cap drastically alter or eliminate their other outlets available for short-term credit. I believe his answer would amaze you.
Tags: Bankrate.com, consumer credit, Credit Card Reform, Federal APR Rate Cap, Greg McBride, Pawn Loans, pawnshop, Payday Loans
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Wednesday, May 13th, 2009
It seems obvious that Senator Richard Durbin (D-IL) does not care about the millions of American consumers who rely on short-term credit sources daily to meet their emergency financial needs. Here is text of Senator Durbin’s comments taken from the Congressional record as to why he is trying to amend a bill currently being considered to include a 36% federal APR rate cap.
Senator Durbin said:
The second amendment I will file will be a Federal usury cap at a very high level. What is a usury law? It is a limit on interest rates. There was a time in America when that was considered normal; States would have usury caps. The Federal government had a usury cap. But then they went away in the interest of competition and free markets. We decided we were not going to put a cap on interest rates, and so it has reached the point where there are very few usury caps left. What I have established, as the maximum, is 36 percent.
Nobody in their right mind would pay 36 percent on a mortgage, or 36 percent on a credit card. I mean, you would have to be out of your head to get into that kind of a predicament–a 36-percent annual interest rate. But the fact is Americans right and left are paying much higher interest rates today and don’t know it–payday loans, title loans, installment loans. Sit down and do the math and figure out to borrow a hundred dollars and what you end up paying, whether you are going to one of those places and putting up the title of your car or letting them have access to your checking account, which is a deadly thing to do from a credit point of view. You end up paying interest rates that go through the roof. I have actually had people sit in my office and say, Senator, this 36-percent cap on interest rates will put us out of business. I said: Well, how much do you charge? Well, somewhere between 58 percent and 400 percent a year. I said: I hope you do go out of business, because, quite frankly, they used to call that a juice loan when the syndicate and gangs were involved in it, but now it is legitimate. It is legal.
So this 36-percent cap on interest is something which I know will be resisted by banks and title loans and payday loans and all the rest of these folks, but it is about time we got real here. If we are not going to protect the American consumers when it comes to some of these interest rates, they are going to be very vulnerable to some bad practices.
I’m confident his intentions are honorable, however, if he should be successful in his efforts, his effect on short-term credit available in the United States will be devastating.
Tags: consumer credit, Credit Crunch, economic crisis, Federal APR Rate Cap, Pawn Loans, pawnbroker, pawnshop, Payday Loans
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Thursday, May 7th, 2009
From Michael Flores, CEO, Bretton Woods Inc. Mgmt Consulting Firm
Used with author’s permission
The “credit crunch” isn’t just about mortgages and large corporations. It’s also about people needing $200 or $300 to get through to their next payday. It means going to pawnbrokers, credit unions, banks, payday lenders and other financial services that make small loans.
As Congress considers legislation to regulate short-term credit — Rep. Luis Gutierrez (D-Ill.) recently held a hearing on payday loan reform legislation, and Sen. Dick Durbin (D-Ill.) and Rep. Jackie Speier (D-Calif.) have introduced a 36 percent annual interest rate cap bill — they should tread very carefully.
It’s just not that simple to regulate a $100 billion short-term credit market made up of a diverse group of products that charge different rates and are of various term lengths. A payday loan, for example, is typically two weeks, installment loans are three months, and pawn loan lengths vary.
Recently, I wrote a report revealing that banks are the largest players in the short-term credit market through “bounced check fees” and overdraft protection. In fact, banks garner $34.7 billion in revenue from these products.
When a consumer does not have enough money in his or her checking account to pay a bill, they have the option of bouncing a check, using overdraft protection, getting a payday loan, paying the bill late or borrowing from another institution, primarily credit card advances, all of which come at a price.
The FDIC reports that the average amount of a check written to overdraw a bank account is $66. For that $66 check transaction, a customer would pay an average of $27 in overdraft protection fees. Customers without overdraft protection would pay a non-sufficient funds/bounced check fee averaging $28.95, plus incur additional fees upwards of $30 from the merchant to whom they wrote the bad check. In comparison, a customer who took out a $66 payday advance to cover the cost would pay a fee ranging from $9.90 to $11.22.
The 36 percent APR cap proposed by Sen. Durbin and Rep. Speier would leave some of these products banned (payday loans), some advantaged (bounced check fees) and some untouched (some installment loans). That’s because the shorter the length of the loan term, the higher the theoretical annual percentage rate, even if the actual costs are the same.
The Gutierrez bill has some good disclosure language, but it sets payday lending fees at $15 per $100 loaned. It sounds reasonable but why shouldn’t an industry be able to raise prices as costs — rent, salaries, taxes — go up?
The goal of any federal legislation should be to ensure that consumers have choice, the market has competition and that there’s enough transparency of all products so that cost comparisons are easy to make. Arbitrary rate caps simply pick winners and losers.
Saint Simons Island, Ga.
Published in “The Hill” Copyright 2009 Capitol Hill Publishing Corp
Tags: Bretton Woods, consumer credit, Credit Crunch, Federal APR Rate Cap, Michael Flores, Pawn Loans, pawnbroker, pawnshop, Payday Loans
Posted in Pawn Ecomomics | 1 Comment »
Thursday, April 30th, 2009
I find it interesting, all of the consumer protection groups that are rallying behind certain members of Congress, pressing them to pass some form of federal APR rate cap for all consumer credit transactions in the US. While the efforts of these consumer groups may be considered laudable, as well as the efforts of Congress, their actions could prove to be downright dangerous to the very consumers they are attempting to protect.
The reason I say this is because I know these consumers closely and personally, having been a pawnbroker for over 30 years. I also admit I have experienced first-hand what their short-term credit crisis feels like having had to turn to the pawn industry earlier in my life on several occasions to provide some much-needed short-term credit for my own financial dilemmas. While I cannot speak on the effects such a federal APR rate cap would have on other forms of short-term credit currently available in the US, I can offer my point of view on the effect this would have on the pawnbroking industry in the US and the millions of customers it provides credit to.
From my own experience, roughly half of these current pawnshop consumers would end up paying additional charges to their banks through none sufficient funds fees and overdraft protection fees amounting to an APR that would make any pawnbroker blush. The other half of these current pawnshop consumers would end up turning to unlicensed unregulated (and presumably unsavory) short-term lending alternatives because they do not have any formal banking relationship. This is because the pawnbroking industry as we know it in the US cannot and will not survive with any of the federal APR rate caps proposed. Here’s a simple example of why.
In my pawnbroking career the average dollar amount on the pawn loans I have written are roughly $100 each. The average length of time my typical customer takes to pay this $100 loan back is roughly 45 days. Because I charged 15% finance charge per month, this translates to a $122.50 loan payoff for the average size loan paid off in the average amount of time. Far less expensive for the consumer than what they would be charged for an NSF check, an automatic overdraft protection fee, a reconnect fee for a utility, or missed payment on their credit card.
But here’s the big thing. This $100 loan obtained by the consumer at my pawnshop is secured by collateral. Some form of personal property the customer decides to pledge. This personal property is the only form of recourse I have if the customer chooses not to repay the loan. That’s right, I said chooses. By giving them a choice am I actually creating debt for them?
Pawnbroking is the only form of consumer credit where the borrower actually has a choice on whether they wish to repay their loan or not. Of course, if they choose not to repay the loan within the amount of time disclosed on their pawn ticket, their loan goes into default and the pawnbroker now owns the pledged personal property and will dispose of it. But there is no additional recourse or consequences imposed on the nonpaying borrower. No lawsuits, no bad credit reporting, and no additional debt in their lives. They simply forfeit the property.
You may be wondering why the pawnbroking industry could not survive this proposed federal APR rate cap. The most generous proposal currently in Congress calls for a 36% APR cap. While this may appear as overly generous for any type of conventional lending, this methodology cannot be equally applied to the pawnbroking industry. Now if you take my typical $100 loan with the average 45 day payoff the customer would pay back $104.50. Hardly as generous as you would like to believe, and hardly sustainable for anyone in the pawnbroking industry.
I understand it may sound appalling to you that I write loans with a 180% APR disclosed on the pawn ticket, and because of this you may consider me no better than a usurious loan shark. But you’re thinking would be flawed and actual pawnshop customers understand this. Pawnshop loans are short-term, much like your average hotel stay. You probably do not give second thought to staying in a hotel with a $100 room rate per night. You certainly wouldn’t think the hotel is exploiting its poor customers by charging them $36,500 in annual rent. Would you? I think not.
Tags: consumer credit, economic crisis, Federal APR Rate Cap, Pawn Loans, pawnbroker, pawnshop
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