Critics of payday lenders are encouraging students and professors at UAA to look elsewhere if money comes up short for paying bills at the end of the month.
“The interest rates in relation to the amount that you’re borrowing is astronomical,” said Larry Snider, CEO of Consumer Credit Counseling Services in Anchorage. “Payday lending is a nontraditional form of borrowing.”
He said payday lending, sometimes referred to as deferred deposit loans, came under regulation by the State of Alaska Department of Commerce, Community and Economic Development’s Division of Banking, Securities and Corporation in 2005. It enforces limits put on payday, Internet and 1-800 number lenders in Alaska with Alaska Statute 06.50 by capping interest rates and requiring licensing. The licensing requirement is now starting to take effect.
Several states have banned payday lenders in recent years because loans those offer have interests rates that average at more than 300 percent annually, resembling loan-shark operations, Snider said.
Often Anchorage payday lenders are situated in low-income areas, he added. The loans do not help build credit and only show up on credit reports when the borrower is in default.
Lamond Verning, a computer-networking technician major at UAA, said he is aware of local and national opposition he faces as a branch manager for a local payday lending company: Advance Til Payday. He said he thinks there are an equal number of consumers who support the operations of his company.
“It depends on who you are,” he said.
The maximum loan amount that he can offer according to state law is $500. The way it works, he said, is by having the borrower sign over a post-dated check for $500 that he waits to deposit until the borrower gets paid, typically a two-week period. The borrower can get charged up to $160 in interest and fees in about 30 days.
If a borrower can’t pay back the loan, he said his company will deposit the check written out by the borrower, and the bank on the check, as well as the payday lender, can charge insufficient fund fees.
In this scenario, the fees for a $500 month-long loan are more than $190. That means paying back about 195 percent on top of what was initially borrowed in a year.
“We try to work with you on your next pay date,” he said. “Out of all of them we’re the easiest, because all we require is a pay stub within the last month, an open and active checking account with the grey-binded checks books – no starter or temporary checks – and an Alaska identification.”
While he couldn’t comment on the interest rates or fees banks charge for similar loans, he said he knows other payday lenders ask for utility bills before issuing loans.
Verning, who’s never taken out a payday loan, said consumers aren’t required to spend the money loaned in any specific way.
“We advise people to only use it for emergencies,” he said. “It’s not even for just emergencies. It’s making your next payday today. We have a $50 loan if you want to go out to eat with your wife.”
He is required to give a full disclosure of the company’s services at the time the loan is issued, he said. Some people tend to abuse the system.
If a borrower really doesn’t need it and can’t manage it, Verning said, this and other services businesses offer can hurt a consumer.
“Just be smart,” he said. “Use common sense.”
Verning noted that since he started working as a branch manager for a payday lender in June, an investigator for the Department of Commerce Division of Banking and Securities has audited him.
Julia Winchell, an investigator for the division, said the 2005 laws starting to take effect give her jurisdiction to investigate any payday lender practicing in the state.
Investigators go over lender records, verify licensing and ensure that lenders are transparent with consumers on how the loans work, she said. About 90-94 percent of loans are made to borrowers at physical locations across the state.
The majority of lenders violating Alaska laws do not base their operations in state, Winchell said, before adding she now regularly and randomly contacts Internet lenders. Internet and 1-800 numbers operating outside of the state are required to be licensed before issuing loans to Alaskans.
There are four Internet payday lenders operating with licenses. Those are listed on the Division of Banking and Securities Web site, she said. There are 34 physical operations listed on its site.
“The unlicensed are through the Internet, for the most part,” Winchell added.
Restitution of $370,000 was collected in 2006 for in-state borrowers issued loans by payday lenders practicing without licenses, Winchell said. This year, $97,000 was collected for borrowers.
Mark Davis, director of the Department of Commerce Community and Economic Development Division of Banking, Securities and Corporations, said students and professors who think they will get their money back by working with unlicensed lenders could be sadly mistaken.
Taking a loan out with a licensed lender has its advantages, he noted. Licensed lenders are required to go into settlement with borrowers who can’t pay back loans on schedule.
“What we try to do is make sure people understand what they are getting into,” he said, before adding the department doesn’t think payday lenders are bad – it just wants lenders to be regulated. “So far, everyone is following.”
Now that Alaska has a law in place, Davis said, the department is reviewing a Predatory Lending Bill.
Justin Doggett, a senior majoring in psychology, said he experienced “predatory lending” on a weekly basis when he lived in on-campus housing.
“I got a lot of junk mail. Twice a week there were ‘get your student-rate Visa,'” he said.
The letters weren’t addressed to him, he said. Instead, envelopes were marked “current resident of East Hall.”
It can be worth paying the interest rate payday lenders offer to make rent, he said, “but that, ‘oh, I just want to have money now.’ I don’t get that.”