Tag Archives: loans

New fed payday lending rules draw praise, criticism in TN

The head of a Tennessee-based consumer advocacy group lauded as a ‘good start’ the federal Consumer Finance Protection Bureau’s proposed rules on small-dollar lending by the payday and car title loan industry, reports the Chattanooga Times-Free Press.

Charging the industry is filled with “loan sharks” and “predatory lenders,” Andy Spears, executive director of Tennessee Citizens Action, said at a news conference today that his group has unsuccessfully sought to curb the industry’s worst practices in the state Legislature but run into road blocks.

“Tennessee families pay more than $400 million a year in payday and car title lending fees,” Spears told reporters. “The average Tennessee borrower pays $490 in fees to borrow $300 for five months.”

Spears said “today’s proposed rule by the CFPB is a good start. It focuses on the ability to repay which is a critical element missing because the current standard is the ability to collect.”

In announcing the proposed federal rules, CFPB Director Richard Cordray said in a statement that “too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt.

“It’s much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey,” Cordray added.

But the Tennessee Flexible Finance Association is attacking the proposed federal rule, saying it threatens to ruin the industry and thereby restrict access to low-dollar loan credit for thousands of Tennesseans. Continue reading

Chattanooga payday loan operator pleads guilty to usury in New York

A used car salesman turned tech entrepreneur who operated an illegal payday lending syndicate from Chattanooga will pay $9 million in fines and restitution, as well as serve 250 hours of community service and three years of probation, after pleading guilty to felony usury in New York.

Further from the Times-Free Press:

Carey Vaughn Brown, 57, admitted to New York prosecutors that he broke the law from 2001 to 2013 by lending millions of dollars — $50 million to New Yorkers in 2012 alone — with interest rates well in excess of the state’s 25 percent annual percentage rate cap.

A Times Free Press investigation in 2011 found that Brown was making loans that, at times, carried an annual interest rate of more than 1,000 percent. Such loans would have also been illegal in Tennessee, though officials at the Tennessee Department of Financial Institutions never took any public action against Brown.

Brown’s admission of guilt came after years of denials, lawsuits against whistleblowers, and attempts to camouflage his profitable web-based payday loan business by disguising it as a network of unrelated shell companies in Chattanooga, which shut down in 2013 after banks refused to do business with him anymore.

Brown declined to comment, citing the terms of his plea agreement.

His companies sported generic names including Terenine, Area 203, ACH Federal and Support Seven, and performed legitimate marketing and technology work for well-known companies and nonprofit organizations such as the Chattanooga Area Chamber of Commerce, Focus on the Family and Precept Ministries.

But behind the scenes, the network of businesses operated as a single syndicate to generate high-interest, short-term loans through websites like MyCashNow.com, PayDayMax.com and DiscountAdvances.com.

“It’s a horrible mark on Chattanooga, and it never should have happened,” said Chris Christiansen, the former director of infrastructure architecture and design for Terenine, one of Brown’s now-shuttered shell companies.
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AG: $2.1M in student loans to 1,400 TN students to be forgiven

News release from Tennessee Attorney General’s office
Tennessee Attorney General Herbert H. Slatery III, along with the Tennessee Division of Consumer Affairs, today announced a settlement with Education Management Corporation (EDMC) that will lead to major reforms and student loan forgiveness. As part of the agreement, EDMC, a for-profit education company, is required to significantly reform its recruiting and enrollment practices, and forgive more than $2.1 million in loans for over 1,400 former Tennessee students.

EDMC, based in Pittsburgh, Pennsylvania, operates 110 schools in 32 states and Canada through four education systems, including Argosy University, The Art Institutes, Brown Mackie College and South University.

Tennessee, along with 38 states and the District of Columbia, conducted a multistate investigation after receiving complaints from current and former EDMC students. Nationwide, the agreement requires the for-profit college company to forgive $102.8 million in outstanding loan debt held by more than 80,000 former students.

“This agreement holds EDMC accountable to Tennessee students in two very important ways,” General Slatery said. “It not only provides some relief to a large number of former students through loan forgiveness, but it also helps ensure that the company will make substantial changes to its business practices for future students.”
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Licenses of thousands suspended for student loan default (most reinstated)

More than 4,200 Tennessee professionals have have had their licenses suspended for defaulting on student loans since 2009 according to figures from the Tennessee Student Assistance Corp. reported by the Times-Free Press. Of the 4,200 who have lost their licenses, 3,185 have been reinstated after getting on a payment plan.

“It’s a last-ditch effort on our part to catch their attention,” said Peter Abernathy, TSAC staff attorney. “Many have gone years without making a payment. This, it has been a helpful thing to help get them back into compliance and good standing with their credit.”

…Still, others question whether the policy is counterproductive, especially in a time when student loan default rates are at historic highs.

“If you can’t pay your student loans and all of the sudden you can’t work, you’re in a Catch-22,” said Sharon Adkins, executive director of the Tennessee Nurses Association. Behind cosmetologists, RNs and nurse aides had the highest rates of suspensions.

Such questioning has driven lawmakers in some other states to revisit such laws. This year, Montana legislators repealed a bill that allowed revocation of professional and driver’s licenses. The bill’s sponsor called it “unnecessarily punitive.”

…Tennessee’s 1999 statute applied to all professions under the Tennessee Department of Health and most boards under the Department of Commerce and Insurance — but the state only began enforcing it a decade later.

In 2012, lawmakers passed another bill that added all other licensed professions to the list, including teachers and lobbyists.

…Contrary to the national rates, Tennessee’s student loan default rate has been going down over the last several years following an increase during the recession. It is now around 9 percent, compared to the national rate of 13 percent.

Chattanooga eyes restricting payday loan operations

A proposed Chattanooga City ordinance, up for a vote next month, would “alternative financing businesses” — such as check-cashers, payday lenders and pawn brokers — from opening within 500 feet of residential areas or within a quarter-mile of other similar lenders, reports the Times-Free Press.

Citing studies by George Washington University and California State University, Assistant City Attorney Keith Reisman told planning commissioners that high concentrations of payday loan, title pawn or other alternative financing businesses are directly related to increased crime, lower property values and a reduction in safety.

However, Reisman said the businesses did provide a needed service.

“The services need to be provided. But we just don’t want to have the concentrations that increase crime and reduce the property values,” Reisman said.

… Mayor Andy Berke said he would also like to curb what he called “predatory” lending practices.

Alternative lending institutions exist for those in the population who can’t get loans from traditional banks. And interest rates for such unsecured loans can be sky high, he said.

“We know that predatory lending leads to a decrease in capital investment, hurts neighborhoods and has even been linked to increases in crime. It just seems like a good step that we can legally take at the local level to prevent the concentrations from increasing,” Berke said.

But Jabo Covert, senior vice president of government affairs for Check Into Cash, the largest alternative finance company in the state — and one of the largest in the nation — says he’s left wondering what businesses the city is going after.

“I think most people are pretty confused,” Covert said.

… The ordinance has no impact on Check Into Cash’s four Chattanooga stores. But Covert said he still took issue with the perception the ordinance created.

He says check cashing, payday loans and title pawns aren’t predatory, and they are necessary for many working-class people. And his business is “highly regulated at the state and federal level,” he said.

TN officials unable — or unwilling — to prosecute payday loan sharks?

Now that New York prosecutors have pieced together and indicted a payday lending syndicate that operated under the noses of Tennessee’s top law enforcement officials for years, the Chattanooga Times-Free Press says Volunteer state officials admit they were held back by a subjective process with unclear lines of responsibility and insufficient resources to pursue such an investigation.

Legal experts have acknowledged that if the usury charges against payday lender Carey Vaughn Brown are true, he could have been subject to prosecution for criminal usury in Tennessee. Yet the onetime used-car dealer was able to continue making allegedly illegal loans from Tennessee until he was shut down by New York regulators in 2013 and then indicted in August.

“I do think there’s a problem in Tennessee with prosecuting white-collar crimes,” said Mark Pickrell, an attorney and adjunct professor at Vanderbilt Law School. “When it comes to white-collar crime, it takes a lot of resources. It is detail-oriented, takes a lot of documents, takes a lot of witness work. It’s a lot harder than ‘Joe punched Bob in the nose.'”

The payday case echoes the implosion of an alleged family Ponzi scheme in Soddy-Daisy, in which bankruptcy trustee Jerry Farinash alleged the perpetrators used the family tax business to identify and fleece dozens of retirees and widows. But the admitted ringleader, Jack Edwin Brown, died with no charges to his name.

Tennessee’s passive stance in prosecuting homegrown financial scandals sets the Volunteer State apart from aggressive crackdowns on illegal lending, mortgage and debt collection practices at the federal level and in a handful of other states.

The U.S. Consumer Financial Protection Bureau, which now keeps watch over the 12 million consumers who use payday loans, in July charged one of the nation’s largest payday lenders, ACE Cash Express, with illegal debt collection practices. The lender agreed to a $10 million settlement in July.

…Under Tennessee law, much of the responsibility for white-collar prosecutions rests with the local district attorney, who has wide latitude over whether to bring charges.

Tennessee is the only state whose attorney general is appointed by the state Supreme Court rather than elected. Tennessee Attorney General Bob Cooper has not pursued headline-grabbing white-collar criminal indictments like AGs in other states, where such investigations help win elections.

A survey of news releases issued by Cooper’s office from 2011 to 2014 shows that many of Tennessee’s biggest legal victories were spearheaded by other states in concert with federal officials against big companies like GE Capital, Toyota and Google.

In each year, only a handful of Tennessee white-collar cases that merited news releases — such as a number of deceptive advertising claims, several attorneys practicing without a license and an $800,000 Medicare fraud settlement with the Chattanooga-based AIM Center — were led by the state itself.

In fact, Medicare fraud investigations receive special federal task-force funding to clamp down on the practice. Payday lending and other white-collar criminal investigations in Tennessee receive no such stipend, state prosecutors said, which leaves local district attorneys to choose whether to pursue those high-cost investigations on their own dime.

On the other hand, payday lenders have no problem spending money in political and law enforcement circles. Nationally, payday lenders spent $4.7 million lobbying lawmakers in 2012, according to OpenSecrets.org.

Locally, Carey Brown contributed more than $1,000 to Hamilton County Sheriff Jim Hammond in 2012, earning a spot on the sheriff’s 71-member “posse,” for which Brown received a special identification card.

Brown, a former Georgia resident who now lives in a gated mansion in Ooltewah, also contributed over the years to U.S. Sen. Bob Corker, R-Tenn.; U.S. Rep. Tom Graves, R-Ga., and U.S. Rep. Phil Gingrey, R-Ga.; as well as to national presidential candidates Mitt Romney, Mike Huckabee and Fred Thompson and congressional candidate Weston Wamp, according to OpenSecrets.org.

He has been generous with local civic and charitable organizations, too.

AG, fed regulators eye new regulations on payday lenders

Federal regulators and Tennessee Attorney General Bob Cooper are pushing to further regulate the payday lending industry and cut back on so-called “debt traps” that mire consumers in a cycle of poverty, according to the Chattanooga TFP.

Richard Cordray, director of the newly-created Consumer Financial Protection Bureau, will today release a study… showing that four out of five payday loans are rolled over or renewed every 14 days. In many instances, borrowers end up paying more in fees than the amount of money they originally borrowed.

The study is drawn from a 12-month period covering more than 12 million loan transactions. Under Cordray, the CFPB began supervising the payday lending market in January 2012 and started accepting complaints from borrowers in November 2013.

In his prepared remarks for today’s hearing, Cordray said he chose Tennessee for this particular field hearing “because of the prevalence of payday lenders both here and in many of the neighboring states.”

Cordray said that roughly half of all loans are made to borrowers in loan sequences lasting ten or more loans in a row.

“From this finding, one could readily conclude that the business model of the payday industry depends on people becoming stuck in these loans for the long term, since almost half their business comes from people who are basically paying high-cost rent on the amount of their original loan,” Corday said in his remarks.

Regulatory agencies often release such studies ahead of new rules clamping down on groups of businesses.

House Debates Teachers, Lobbyists and Student Loans

Teachers and lobbyists who default on student loans could lose the right to practice their professions under legislation winning final approval in the state House Thursday.
Several legislators, most of the Democrats, voiced objections to the bill (SB551) in an hour-long debate before it passed 70-24. The measure cleared the Senate last year and now goes to Gov. Bill Haslam for his signature.
Rep. Charles Sargent, R-Franklin, sponsor of the bill, said most other professionals who have state-issued licenses are already subject to losing those licenses for failure to pay student loans and it is appropriate to add teachers, lobbyists and sports agents to the list.
Loan defaults effectively reduce the amount of money available for loans to new students through the Tennessee Student Assistance Corporation (TSAC), Sargent said, the legislation adds a needed tool to prod debtors into making payments. He said “about 7 or 8 percent” of TSAC loans are in default now and if the number rose too much, the entire program could be jeopardized.
“‘I’m just trying to preserve TSAC for the children of the future,” Sargent said.
Criticism came on several fronts.
House Minority Leader Craig Fitzhugh, D-Ripley, said the bill sends the wrong message to teachers already facing ample problems. It means, he said, “You would be able to take a teacher out of a classroom because he or she, because of tough times, has become delinquent on a student loan.”
Rep. Mike Kernell, D-Memphis, said the measure was unfair to lobbyists and perhaps unconstitutional.
Lobbyists are paid to assert the constitutional right of clients to petition government for “redress of grievances,” Kernell said, and taking away that right for an unrelated debt would be wrong.
“Of course, people think lobbyists are too powerful,” he said. “But they are still a constitutionally-protected group.”
Lobbyists are not licensed by the state, but must register with the Bureau of Ethics and Campaign Finance and pay a fee for each client. They would lose their registration rights under the bill.
Rep. Gary Odom, D-Nashville, said some “unscrupulous businesses that call themselves schools” charge exorbitant fees that lead to employment in professions with low pay that makes it difficult or impossible to repay loans.
“Some of our most vulnerable citizens are being sold a bill of goods,” said Odom.
Other legislators said those who make student loans already have adequate means of collecting their debts through the courts with garnishment of wages. Those who have lost their jobs and have no wages would be further harmed by losing their state licenses, some said.
Sargent said TSAC and other lenders, under terms of the bill, can adjust payments to reflect ability to pay even minimal amounts and would otherwise “work with them” to avoid revoking a license in hardship cases.

White House: Obama Plan Would Lower Student Loan Payments for 29,000 in TN

(Note: This is the Tennessee-specific version of a White House press release on President Obama’s proposed student loan program.)
WASHINGTON, DC – Today, the Obama Administration announced it is taking steps to increase college affordability by making it easier to manage student loan debt. The announcement is part of a series of executive actions to put Americans back to work and strengthen the economy because we can’t wait for Congressional Republicans to act.
The Administration is moving forward with a new “Pay As You Earn” proposal that will reduce monthly payments for more than one and a half million current college students and borrowers. Starting in 2014, borrowers will be able to reduce their monthly student loan payments to 10 percent of their discretionary income. But President Obama realizes that many students need relief sooner than that. The new “Pay As You Earn” proposal will allow about 1.6 million students the ability to cap their loan payments at 10 percent starting next year, and the plan will forgive the balance of their debt after 20 years of payments. Additionally, starting this January an estimated 6 million students and recent college graduates will be able to consolidate their loans and reduce their interest rates.
In Tennessee, we estimate that more than 29,000 current students would be able to lower their monthly payments through “Pay As You Earn” and more than 85,000 borrowers would be able to reduce their interest rates and simplify their payments by consolidating their loans.

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New Payday Loan Law Questioned

NASHVILLE, Tenn. (AP) — Tennesseans who use payday loans to get cash quickly can now borrow up to $500 from a single lender, but could pay higher fees under a new law passed this year by the General Assembly.
The law increased the limit a person can borrow, but now payday loan businesses can now charge up to $75 in fees, under a bill sponsored by Sen. Bill Ketron, a Republican from Murfreesboro, The Nashville Ledger reported. (Previous post from when the bill passed the Senate HERE.)
Kelly Newell, of Joelton, has used payday loans in the past before the limit went up. She borrowed $200 and ended up repaying the loan six months later along with $360 in fees that had mounted up during that period.
While some think increasing the limit can be better, Newell said she believes it will perpetuate the debt cycle.

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