Sunday, June 27, 2010

Financial reform to impact daily lives

by Rachel Beck Associated Press Jun. 27, 2010 12:00 AM

NEW YORK -- The financial overhaul is about more than exotic derivatives and complex risk assessments. It will change how you interact with the financial system every day, from swiping your debit card at the store to applying for a mortgage.

That includes new rules governing how we bank, borrow and invest, plus the creation of a new regulator to make sure financial transactions like signing up for a credit card are safer and easier to understand.

The legislation does not go as far as some would have liked. Auto dealers, who make most car loans, won't face oversight by the new consumer bureau. Nor will banks with less than $10 billion in assets, even though they serve most communities in this country.

Here's a piece-by-piece guide to the new rules.

Consumer protection

A new Consumer Financial Protection Bureau, to be housed in the Federal Reserve but run independently, will have the power to write consumer-protection rules for banks and other financial institutions, like mortgage lenders.

It will also examine and enforce regulations already in place at mortgage lenders and banks that hold more than $10 billion in assets.

The bureau will have the power to ban financial products that it considers unsafe. It could also outlaw anything that might be confusing to consumers, like the fine print on credit cards or mortgages.

In theory, it could also block credit-card companies from charging especially high interest rates. The idea is to bring consumer regulation under one roof, rather than spreading it out among seven different agencies.

"It's hard to be an expert on economics and consumer protection at the same time," says Jeffrey Sovern, a law professor at St. John's University and an expert on consumer law.

Still, the new bureau will cover only half the bank branches in the nation because of the $10 billion asset requirement, according to data from the National Community Reinvestment Coalition, a Washington-based consumer group.

It also may not be as independent as it seems. If federal banking regulators object to new consumer-protection rules, they can appeal to a newly created council made up in part of their fellow banking regulators.

Credit and debit cards

Say you walk into a gas station and pick up some soda, candy and gum. The total is $11, but there's a sign at the register saying you can only pay by credit card if the purchase is $20 or more.

Under the new legislation, the minimum can be no more than $10, and only the Federal Reserve can raise it.

The Federal Reserve will also have the power to limit the fees that card issuers can collect on debit-card transactions. But the rule applies only to big banks, not to credit-card issuers such as Visa and MasterCard.

Right now, banks usually charge stores 1 to 2 percent for each swipe - fees that added up to nearly $20 billion last year. Stores and restaurants say lower fees would allow them to cut prices and to hire more people.

But even if prices fall at stores, banks might raise fees and rates for their customers. They could also scale back "reward" cards or free checking to make up for the money they're not collecting from stores and restaurants.

Credit scores

Right now, it can be maddeningly difficult to figure out your credit score. While you're entitled to one free credit report a year from each of the three credit-reporting agencies under federal law, you almost always have to pay to see your actual score.

Under the overhaul rules, any lender that turns down a borrower - whether it's for a mortgage, a department-store credit card or an auto loan - because of his or her credit score has to tell the borrower what that score is, and for free.

Mortgages

Remember all those risky mortgages that borrowers got without ever showing proof of income? The ones that blew up and set off the housing crisis? Under the new rules, lenders will have to verify a borrower's income, credit history and employment status.

On top of that, banks will have to hold on to at least 5 percent of the loans they make instead of selling them to investors. The idea is that they'll take fewer risks when they have skin in the game and aren't slicing, dicing and selling all their loans.

"They don't care about whether they make bad loans if the risk isn't theirs," says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. "Now they might have to."

Of course, if the banks are scaling back their risks, that means it could be harder for you to get a mortgage.

Investor protection

Regulators will have the authority to require all financial advisers to act in their clients' best interest. Practically speaking, this means disclosing fees, any disciplinary actions and potential conflicts of interest, such as commissions.

Until now, not all brokers who sell stocks, bonds, annuities and other investments have to make such disclosures. They could steer you into mutual funds or college-savings plans that pad their firms' profits or their own commissions, and you might never know.

The Securities and Exchange Commission will study the issue for six months to determine whether average investors are sufficiently protected by the rules already in place or whether something stronger is called for.

So the SEC could still decide not to act at all, meaning investors would still be stuck with a system in which their advisers can put their own financial interests, not the clients', first.


Financial reform to impact daily lives

Financial reform to impact daily lives

by Rachel Beck Associated Press Jun. 27, 2010 12:00 AM

NEW YORK -- The financial overhaul is about more than exotic derivatives and complex risk assessments. It will change how you interact with the financial system every day, from swiping your debit card at the store to applying for a mortgage.

That includes new rules governing how we bank, borrow and invest, plus the creation of a new regulator to make sure financial transactions like signing up for a credit card are safer and easier to understand.

The legislation does not go as far as some would have liked. Auto dealers, who make most car loans, won't face oversight by the new consumer bureau. Nor will banks with less than $10 billion in assets, even though they serve most communities in this country.

Here's a piece-by-piece guide to the new rules.

Consumer protection

A new Consumer Financial Protection Bureau, to be housed in the Federal Reserve but run independently, will have the power to write consumer-protection rules for banks and other financial institutions, like mortgage lenders.

It will also examine and enforce regulations already in place at mortgage lenders and banks that hold more than $10 billion in assets.

The bureau will have the power to ban financial products that it considers unsafe. It could also outlaw anything that might be confusing to consumers, like the fine print on credit cards or mortgages.

In theory, it could also block credit-card companies from charging especially high interest rates. The idea is to bring consumer regulation under one roof, rather than spreading it out among seven different agencies.

"It's hard to be an expert on economics and consumer protection at the same time," says Jeffrey Sovern, a law professor at St. John's University and an expert on consumer law.

Still, the new bureau will cover only half the bank branches in the nation because of the $10 billion asset requirement, according to data from the National Community Reinvestment Coalition, a Washington-based consumer group.

It also may not be as independent as it seems. If federal banking regulators object to new consumer-protection rules, they can appeal to a newly created council made up in part of their fellow banking regulators.

Credit and debit cards

Say you walk into a gas station and pick up some soda, candy and gum. The total is $11, but there's a sign at the register saying you can only pay by credit card if the purchase is $20 or more.

Under the new legislation, the minimum can be no more than $10, and only the Federal Reserve can raise it.

The Federal Reserve will also have the power to limit the fees that card issuers can collect on debit-card transactions. But the rule applies only to big banks, not to credit-card issuers such as Visa and MasterCard.

Right now, banks usually charge stores 1 to 2 percent for each swipe - fees that added up to nearly $20 billion last year. Stores and restaurants say lower fees would allow them to cut prices and to hire more people.

But even if prices fall at stores, banks might raise fees and rates for their customers. They could also scale back "reward" cards or free checking to make up for the money they're not collecting from stores and restaurants.

Credit scores

Right now, it can be maddeningly difficult to figure out your credit score. While you're entitled to one free credit report a year from each of the three credit-reporting agencies under federal law, you almost always have to pay to see your actual score.

Under the overhaul rules, any lender that turns down a borrower - whether it's for a mortgage, a department-store credit card or an auto loan - because of his or her credit score has to tell the borrower what that score is, and for free.

Mortgages

Remember all those risky mortgages that borrowers got without ever showing proof of income? The ones that blew up and set off the housing crisis? Under the new rules, lenders will have to verify a borrower's income, credit history and employment status.

On top of that, banks will have to hold on to at least 5 percent of the loans they make instead of selling them to investors. The idea is that they'll take fewer risks when they have skin in the game and aren't slicing, dicing and selling all their loans.

"They don't care about whether they make bad loans if the risk isn't theirs," says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. "Now they might have to."

Of course, if the banks are scaling back their risks, that means it could be harder for you to get a mortgage.

Investor protection

Regulators will have the authority to require all financial advisers to act in their clients' best interest. Practically speaking, this means disclosing fees, any disciplinary actions and potential conflicts of interest, such as commissions.

Until now, not all brokers who sell stocks, bonds, annuities and other investments have to make such disclosures. They could steer you into mutual funds or college-savings plans that pad their firms' profits or their own commissions, and you might never know.

The Securities and Exchange Commission will study the issue for six months to determine whether average investors are sufficiently protected by the rules already in place or whether something stronger is called for.

So the SEC could still decide not to act at all, meaning investors would still be stuck with a system in which their advisers can put their own financial interests, not the clients', first.


Financial reform to impact daily lives

Financial reform to impact daily lives

by Rachel Beck Associated Press Jun. 27, 2010 12:00 AM

NEW YORK -- The financial overhaul is about more than exotic derivatives and complex risk assessments. It will change how you interact with the financial system every day, from swiping your debit card at the store to applying for a mortgage.

That includes new rules governing how we bank, borrow and invest, plus the creation of a new regulator to make sure financial transactions like signing up for a credit card are safer and easier to understand.

The legislation does not go as far as some would have liked. Auto dealers, who make most car loans, won't face oversight by the new consumer bureau. Nor will banks with less than $10 billion in assets, even though they serve most communities in this country.

Here's a piece-by-piece guide to the new rules.

Consumer protection

A new Consumer Financial Protection Bureau, to be housed in the Federal Reserve but run independently, will have the power to write consumer-protection rules for banks and other financial institutions, like mortgage lenders.

It will also examine and enforce regulations already in place at mortgage lenders and banks that hold more than $10 billion in assets.

The bureau will have the power to ban financial products that it considers unsafe. It could also outlaw anything that might be confusing to consumers, like the fine print on credit cards or mortgages.

In theory, it could also block credit-card companies from charging especially high interest rates. The idea is to bring consumer regulation under one roof, rather than spreading it out among seven different agencies.

"It's hard to be an expert on economics and consumer protection at the same time," says Jeffrey Sovern, a law professor at St. John's University and an expert on consumer law.

Still, the new bureau will cover only half the bank branches in the nation because of the $10 billion asset requirement, according to data from the National Community Reinvestment Coalition, a Washington-based consumer group.

It also may not be as independent as it seems. If federal banking regulators object to new consumer-protection rules, they can appeal to a newly created council made up in part of their fellow banking regulators.

Credit and debit cards

Say you walk into a gas station and pick up some soda, candy and gum. The total is $11, but there's a sign at the register saying you can only pay by credit card if the purchase is $20 or more.

Under the new legislation, the minimum can be no more than $10, and only the Federal Reserve can raise it.

The Federal Reserve will also have the power to limit the fees that card issuers can collect on debit-card transactions. But the rule applies only to big banks, not to credit-card issuers such as Visa and MasterCard.

Right now, banks usually charge stores 1 to 2 percent for each swipe - fees that added up to nearly $20 billion last year. Stores and restaurants say lower fees would allow them to cut prices and to hire more people.

But even if prices fall at stores, banks might raise fees and rates for their customers. They could also scale back "reward" cards or free checking to make up for the money they're not collecting from stores and restaurants.

Credit scores

Right now, it can be maddeningly difficult to figure out your credit score. While you're entitled to one free credit report a year from each of the three credit-reporting agencies under federal law, you almost always have to pay to see your actual score.

Under the overhaul rules, any lender that turns down a borrower - whether it's for a mortgage, a department-store credit card or an auto loan - because of his or her credit score has to tell the borrower what that score is, and for free.

Mortgages

Remember all those risky mortgages that borrowers got without ever showing proof of income? The ones that blew up and set off the housing crisis? Under the new rules, lenders will have to verify a borrower's income, credit history and employment status.

On top of that, banks will have to hold on to at least 5 percent of the loans they make instead of selling them to investors. The idea is that they'll take fewer risks when they have skin in the game and aren't slicing, dicing and selling all their loans.

"They don't care about whether they make bad loans if the risk isn't theirs," says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. "Now they might have to."

Of course, if the banks are scaling back their risks, that means it could be harder for you to get a mortgage.

Investor protection

Regulators will have the authority to require all financial advisers to act in their clients' best interest. Practically speaking, this means disclosing fees, any disciplinary actions and potential conflicts of interest, such as commissions.

Until now, not all brokers who sell stocks, bonds, annuities and other investments have to make such disclosures. They could steer you into mutual funds or college-savings plans that pad their firms' profits or their own commissions, and you might never know.

The Securities and Exchange Commission will study the issue for six months to determine whether average investors are sufficiently protected by the rules already in place or whether something stronger is called for.

So the SEC could still decide not to act at all, meaning investors would still be stuck with a system in which their advisers can put their own financial interests, not the clients', first.


Financial reform to impact daily lives

Financial reform to impact daily lives

by Rachel Beck Associated Press Jun. 27, 2010 12:00 AM

NEW YORK -- The financial overhaul is about more than exotic derivatives and complex risk assessments. It will change how you interact with the financial system every day, from swiping your debit card at the store to applying for a mortgage.

That includes new rules governing how we bank, borrow and invest, plus the creation of a new regulator to make sure financial transactions like signing up for a credit card are safer and easier to understand.

The legislation does not go as far as some would have liked. Auto dealers, who make most car loans, won't face oversight by the new consumer bureau. Nor will banks with less than $10 billion in assets, even though they serve most communities in this country.

Here's a piece-by-piece guide to the new rules.

Consumer protection

A new Consumer Financial Protection Bureau, to be housed in the Federal Reserve but run independently, will have the power to write consumer-protection rules for banks and other financial institutions, like mortgage lenders.

It will also examine and enforce regulations already in place at mortgage lenders and banks that hold more than $10 billion in assets.

The bureau will have the power to ban financial products that it considers unsafe. It could also outlaw anything that might be confusing to consumers, like the fine print on credit cards or mortgages.

In theory, it could also block credit-card companies from charging especially high interest rates. The idea is to bring consumer regulation under one roof, rather than spreading it out among seven different agencies.

"It's hard to be an expert on economics and consumer protection at the same time," says Jeffrey Sovern, a law professor at St. John's University and an expert on consumer law.

Still, the new bureau will cover only half the bank branches in the nation because of the $10 billion asset requirement, according to data from the National Community Reinvestment Coalition, a Washington-based consumer group.

It also may not be as independent as it seems. If federal banking regulators object to new consumer-protection rules, they can appeal to a newly created council made up in part of their fellow banking regulators.

Credit and debit cards

Say you walk into a gas station and pick up some soda, candy and gum. The total is $11, but there's a sign at the register saying you can only pay by credit card if the purchase is $20 or more.

Under the new legislation, the minimum can be no more than $10, and only the Federal Reserve can raise it.

The Federal Reserve will also have the power to limit the fees that card issuers can collect on debit-card transactions. But the rule applies only to big banks, not to credit-card issuers such as Visa and MasterCard.

Right now, banks usually charge stores 1 to 2 percent for each swipe - fees that added up to nearly $20 billion last year. Stores and restaurants say lower fees would allow them to cut prices and to hire more people.

But even if prices fall at stores, banks might raise fees and rates for their customers. They could also scale back "reward" cards or free checking to make up for the money they're not collecting from stores and restaurants.

Credit scores

Right now, it can be maddeningly difficult to figure out your credit score. While you're entitled to one free credit report a year from each of the three credit-reporting agencies under federal law, you almost always have to pay to see your actual score.

Under the overhaul rules, any lender that turns down a borrower - whether it's for a mortgage, a department-store credit card or an auto loan - because of his or her credit score has to tell the borrower what that score is, and for free.

Mortgages

Remember all those risky mortgages that borrowers got without ever showing proof of income? The ones that blew up and set off the housing crisis? Under the new rules, lenders will have to verify a borrower's income, credit history and employment status.

On top of that, banks will have to hold on to at least 5 percent of the loans they make instead of selling them to investors. The idea is that they'll take fewer risks when they have skin in the game and aren't slicing, dicing and selling all their loans.

"They don't care about whether they make bad loans if the risk isn't theirs," says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. "Now they might have to."

Of course, if the banks are scaling back their risks, that means it could be harder for you to get a mortgage.

Investor protection

Regulators will have the authority to require all financial advisers to act in their clients' best interest. Practically speaking, this means disclosing fees, any disciplinary actions and potential conflicts of interest, such as commissions.

Until now, not all brokers who sell stocks, bonds, annuities and other investments have to make such disclosures. They could steer you into mutual funds or college-savings plans that pad their firms' profits or their own commissions, and you might never know.

The Securities and Exchange Commission will study the issue for six months to determine whether average investors are sufficiently protected by the rules already in place or whether something stronger is called for.

So the SEC could still decide not to act at all, meaning investors would still be stuck with a system in which their advisers can put their own financial interests, not the clients', first.


Financial reform to impact daily lives

Financial reform to impact daily lives

by Rachel Beck Associated Press Jun. 27, 2010 12:00 AM

NEW YORK -- The financial overhaul is about more than exotic derivatives and complex risk assessments. It will change how you interact with the financial system every day, from swiping your debit card at the store to applying for a mortgage.

That includes new rules governing how we bank, borrow and invest, plus the creation of a new regulator to make sure financial transactions like signing up for a credit card are safer and easier to understand.

The legislation does not go as far as some would have liked. Auto dealers, who make most car loans, won't face oversight by the new consumer bureau. Nor will banks with less than $10 billion in assets, even though they serve most communities in this country.

Here's a piece-by-piece guide to the new rules.

Consumer protection

A new Consumer Financial Protection Bureau, to be housed in the Federal Reserve but run independently, will have the power to write consumer-protection rules for banks and other financial institutions, like mortgage lenders.

It will also examine and enforce regulations already in place at mortgage lenders and banks that hold more than $10 billion in assets.

The bureau will have the power to ban financial products that it considers unsafe. It could also outlaw anything that might be confusing to consumers, like the fine print on credit cards or mortgages.

In theory, it could also block credit-card companies from charging especially high interest rates. The idea is to bring consumer regulation under one roof, rather than spreading it out among seven different agencies.

"It's hard to be an expert on economics and consumer protection at the same time," says Jeffrey Sovern, a law professor at St. John's University and an expert on consumer law.

Still, the new bureau will cover only half the bank branches in the nation because of the $10 billion asset requirement, according to data from the National Community Reinvestment Coalition, a Washington-based consumer group.

It also may not be as independent as it seems. If federal banking regulators object to new consumer-protection rules, they can appeal to a newly created council made up in part of their fellow banking regulators.

Credit and debit cards

Say you walk into a gas station and pick up some soda, candy and gum. The total is $11, but there's a sign at the register saying you can only pay by credit card if the purchase is $20 or more.

Under the new legislation, the minimum can be no more than $10, and only the Federal Reserve can raise it.

The Federal Reserve will also have the power to limit the fees that card issuers can collect on debit-card transactions. But the rule applies only to big banks, not to credit-card issuers such as Visa and MasterCard.

Right now, banks usually charge stores 1 to 2 percent for each swipe - fees that added up to nearly $20 billion last year. Stores and restaurants say lower fees would allow them to cut prices and to hire more people.

But even if prices fall at stores, banks might raise fees and rates for their customers. They could also scale back "reward" cards or free checking to make up for the money they're not collecting from stores and restaurants.

Credit scores

Right now, it can be maddeningly difficult to figure out your credit score. While you're entitled to one free credit report a year from each of the three credit-reporting agencies under federal law, you almost always have to pay to see your actual score.

Under the overhaul rules, any lender that turns down a borrower - whether it's for a mortgage, a department-store credit card or an auto loan - because of his or her credit score has to tell the borrower what that score is, and for free.

Mortgages

Remember all those risky mortgages that borrowers got without ever showing proof of income? The ones that blew up and set off the housing crisis? Under the new rules, lenders will have to verify a borrower's income, credit history and employment status.

On top of that, banks will have to hold on to at least 5 percent of the loans they make instead of selling them to investors. The idea is that they'll take fewer risks when they have skin in the game and aren't slicing, dicing and selling all their loans.

"They don't care about whether they make bad loans if the risk isn't theirs," says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. "Now they might have to."

Of course, if the banks are scaling back their risks, that means it could be harder for you to get a mortgage.

Investor protection

Regulators will have the authority to require all financial advisers to act in their clients' best interest. Practically speaking, this means disclosing fees, any disciplinary actions and potential conflicts of interest, such as commissions.

Until now, not all brokers who sell stocks, bonds, annuities and other investments have to make such disclosures. They could steer you into mutual funds or college-savings plans that pad their firms' profits or their own commissions, and you might never know.

The Securities and Exchange Commission will study the issue for six months to determine whether average investors are sufficiently protected by the rules already in place or whether something stronger is called for.

So the SEC could still decide not to act at all, meaning investors would still be stuck with a system in which their advisers can put their own financial interests, not the clients', first.


Financial reform to impact daily lives

Financial reform to impact daily lives

by Rachel Beck Associated Press Jun. 27, 2010 12:00 AM

NEW YORK -- The financial overhaul is about more than exotic derivatives and complex risk assessments. It will change how you interact with the financial system every day, from swiping your debit card at the store to applying for a mortgage.

That includes new rules governing how we bank, borrow and invest, plus the creation of a new regulator to make sure financial transactions like signing up for a credit card are safer and easier to understand.

The legislation does not go as far as some would have liked. Auto dealers, who make most car loans, won't face oversight by the new consumer bureau. Nor will banks with less than $10 billion in assets, even though they serve most communities in this country.

Here's a piece-by-piece guide to the new rules.

Consumer protection

A new Consumer Financial Protection Bureau, to be housed in the Federal Reserve but run independently, will have the power to write consumer-protection rules for banks and other financial institutions, like mortgage lenders.

It will also examine and enforce regulations already in place at mortgage lenders and banks that hold more than $10 billion in assets.

The bureau will have the power to ban financial products that it considers unsafe. It could also outlaw anything that might be confusing to consumers, like the fine print on credit cards or mortgages.

In theory, it could also block credit-card companies from charging especially high interest rates. The idea is to bring consumer regulation under one roof, rather than spreading it out among seven different agencies.

"It's hard to be an expert on economics and consumer protection at the same time," says Jeffrey Sovern, a law professor at St. John's University and an expert on consumer law.

Still, the new bureau will cover only half the bank branches in the nation because of the $10 billion asset requirement, according to data from the National Community Reinvestment Coalition, a Washington-based consumer group.

It also may not be as independent as it seems. If federal banking regulators object to new consumer-protection rules, they can appeal to a newly created council made up in part of their fellow banking regulators.

Credit and debit cards

Say you walk into a gas station and pick up some soda, candy and gum. The total is $11, but there's a sign at the register saying you can only pay by credit card if the purchase is $20 or more.

Under the new legislation, the minimum can be no more than $10, and only the Federal Reserve can raise it.

The Federal Reserve will also have the power to limit the fees that card issuers can collect on debit-card transactions. But the rule applies only to big banks, not to credit-card issuers such as Visa and MasterCard.

Right now, banks usually charge stores 1 to 2 percent for each swipe - fees that added up to nearly $20 billion last year. Stores and restaurants say lower fees would allow them to cut prices and to hire more people.

But even if prices fall at stores, banks might raise fees and rates for their customers. They could also scale back "reward" cards or free checking to make up for the money they're not collecting from stores and restaurants.

Credit scores

Right now, it can be maddeningly difficult to figure out your credit score. While you're entitled to one free credit report a year from each of the three credit-reporting agencies under federal law, you almost always have to pay to see your actual score.

Under the overhaul rules, any lender that turns down a borrower - whether it's for a mortgage, a department-store credit card or an auto loan - because of his or her credit score has to tell the borrower what that score is, and for free.

Mortgages

Remember all those risky mortgages that borrowers got without ever showing proof of income? The ones that blew up and set off the housing crisis? Under the new rules, lenders will have to verify a borrower's income, credit history and employment status.

On top of that, banks will have to hold on to at least 5 percent of the loans they make instead of selling them to investors. The idea is that they'll take fewer risks when they have skin in the game and aren't slicing, dicing and selling all their loans.

"They don't care about whether they make bad loans if the risk isn't theirs," says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. "Now they might have to."

Of course, if the banks are scaling back their risks, that means it could be harder for you to get a mortgage.

Investor protection

Regulators will have the authority to require all financial advisers to act in their clients' best interest. Practically speaking, this means disclosing fees, any disciplinary actions and potential conflicts of interest, such as commissions.

Until now, not all brokers who sell stocks, bonds, annuities and other investments have to make such disclosures. They could steer you into mutual funds or college-savings plans that pad their firms' profits or their own commissions, and you might never know.

The Securities and Exchange Commission will study the issue for six months to determine whether average investors are sufficiently protected by the rules already in place or whether something stronger is called for.

So the SEC could still decide not to act at all, meaning investors would still be stuck with a system in which their advisers can put their own financial interests, not the clients', first.


Financial reform to impact daily lives

Financial reform to impact daily lives

by Rachel Beck Associated Press Jun. 27, 2010 12:00 AM

NEW YORK -- The financial overhaul is about more than exotic derivatives and complex risk assessments. It will change how you interact with the financial system every day, from swiping your debit card at the store to applying for a mortgage.

That includes new rules governing how we bank, borrow and invest, plus the creation of a new regulator to make sure financial transactions like signing up for a credit card are safer and easier to understand.

The legislation does not go as far as some would have liked. Auto dealers, who make most car loans, won't face oversight by the new consumer bureau. Nor will banks with less than $10 billion in assets, even though they serve most communities in this country.

Here's a piece-by-piece guide to the new rules.

Consumer protection

A new Consumer Financial Protection Bureau, to be housed in the Federal Reserve but run independently, will have the power to write consumer-protection rules for banks and other financial institutions, like mortgage lenders.

It will also examine and enforce regulations already in place at mortgage lenders and banks that hold more than $10 billion in assets.

The bureau will have the power to ban financial products that it considers unsafe. It could also outlaw anything that might be confusing to consumers, like the fine print on credit cards or mortgages.

In theory, it could also block credit-card companies from charging especially high interest rates. The idea is to bring consumer regulation under one roof, rather than spreading it out among seven different agencies.

"It's hard to be an expert on economics and consumer protection at the same time," says Jeffrey Sovern, a law professor at St. John's University and an expert on consumer law.

Still, the new bureau will cover only half the bank branches in the nation because of the $10 billion asset requirement, according to data from the National Community Reinvestment Coalition, a Washington-based consumer group.

It also may not be as independent as it seems. If federal banking regulators object to new consumer-protection rules, they can appeal to a newly created council made up in part of their fellow banking regulators.

Credit and debit cards

Say you walk into a gas station and pick up some soda, candy and gum. The total is $11, but there's a sign at the register saying you can only pay by credit card if the purchase is $20 or more.

Under the new legislation, the minimum can be no more than $10, and only the Federal Reserve can raise it.

The Federal Reserve will also have the power to limit the fees that card issuers can collect on debit-card transactions. But the rule applies only to big banks, not to credit-card issuers such as Visa and MasterCard.

Right now, banks usually charge stores 1 to 2 percent for each swipe - fees that added up to nearly $20 billion last year. Stores and restaurants say lower fees would allow them to cut prices and to hire more people.

But even if prices fall at stores, banks might raise fees and rates for their customers. They could also scale back "reward" cards or free checking to make up for the money they're not collecting from stores and restaurants.

Credit scores

Right now, it can be maddeningly difficult to figure out your credit score. While you're entitled to one free credit report a year from each of the three credit-reporting agencies under federal law, you almost always have to pay to see your actual score.

Under the overhaul rules, any lender that turns down a borrower - whether it's for a mortgage, a department-store credit card or an auto loan - because of his or her credit score has to tell the borrower what that score is, and for free.

Mortgages

Remember all those risky mortgages that borrowers got without ever showing proof of income? The ones that blew up and set off the housing crisis? Under the new rules, lenders will have to verify a borrower's income, credit history and employment status.

On top of that, banks will have to hold on to at least 5 percent of the loans they make instead of selling them to investors. The idea is that they'll take fewer risks when they have skin in the game and aren't slicing, dicing and selling all their loans.

"They don't care about whether they make bad loans if the risk isn't theirs," says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. "Now they might have to."

Of course, if the banks are scaling back their risks, that means it could be harder for you to get a mortgage.

Investor protection

Regulators will have the authority to require all financial advisers to act in their clients' best interest. Practically speaking, this means disclosing fees, any disciplinary actions and potential conflicts of interest, such as commissions.

Until now, not all brokers who sell stocks, bonds, annuities and other investments have to make such disclosures. They could steer you into mutual funds or college-savings plans that pad their firms' profits or their own commissions, and you might never know.

The Securities and Exchange Commission will study the issue for six months to determine whether average investors are sufficiently protected by the rules already in place or whether something stronger is called for.

So the SEC could still decide not to act at all, meaning investors would still be stuck with a system in which their advisers can put their own financial interests, not the clients', first.


Financial reform to impact daily lives

Financial reform to impact daily lives

by Rachel Beck Associated Press Jun. 27, 2010 12:00 AM

NEW YORK -- The financial overhaul is about more than exotic derivatives and complex risk assessments. It will change how you interact with the financial system every day, from swiping your debit card at the store to applying for a mortgage.

That includes new rules governing how we bank, borrow and invest, plus the creation of a new regulator to make sure financial transactions like signing up for a credit card are safer and easier to understand.

The legislation does not go as far as some would have liked. Auto dealers, who make most car loans, won't face oversight by the new consumer bureau. Nor will banks with less than $10 billion in assets, even though they serve most communities in this country.

Here's a piece-by-piece guide to the new rules.

Consumer protection

A new Consumer Financial Protection Bureau, to be housed in the Federal Reserve but run independently, will have the power to write consumer-protection rules for banks and other financial institutions, like mortgage lenders.

It will also examine and enforce regulations already in place at mortgage lenders and banks that hold more than $10 billion in assets.

The bureau will have the power to ban financial products that it considers unsafe. It could also outlaw anything that might be confusing to consumers, like the fine print on credit cards or mortgages.

In theory, it could also block credit-card companies from charging especially high interest rates. The idea is to bring consumer regulation under one roof, rather than spreading it out among seven different agencies.

"It's hard to be an expert on economics and consumer protection at the same time," says Jeffrey Sovern, a law professor at St. John's University and an expert on consumer law.

Still, the new bureau will cover only half the bank branches in the nation because of the $10 billion asset requirement, according to data from the National Community Reinvestment Coalition, a Washington-based consumer group.

It also may not be as independent as it seems. If federal banking regulators object to new consumer-protection rules, they can appeal to a newly created council made up in part of their fellow banking regulators.

Credit and debit cards

Say you walk into a gas station and pick up some soda, candy and gum. The total is $11, but there's a sign at the register saying you can only pay by credit card if the purchase is $20 or more.

Under the new legislation, the minimum can be no more than $10, and only the Federal Reserve can raise it.

The Federal Reserve will also have the power to limit the fees that card issuers can collect on debit-card transactions. But the rule applies only to big banks, not to credit-card issuers such as Visa and MasterCard.

Right now, banks usually charge stores 1 to 2 percent for each swipe - fees that added up to nearly $20 billion last year. Stores and restaurants say lower fees would allow them to cut prices and to hire more people.

But even if prices fall at stores, banks might raise fees and rates for their customers. They could also scale back "reward" cards or free checking to make up for the money they're not collecting from stores and restaurants.

Credit scores

Right now, it can be maddeningly difficult to figure out your credit score. While you're entitled to one free credit report a year from each of the three credit-reporting agencies under federal law, you almost always have to pay to see your actual score.

Under the overhaul rules, any lender that turns down a borrower - whether it's for a mortgage, a department-store credit card or an auto loan - because of his or her credit score has to tell the borrower what that score is, and for free.

Mortgages

Remember all those risky mortgages that borrowers got without ever showing proof of income? The ones that blew up and set off the housing crisis? Under the new rules, lenders will have to verify a borrower's income, credit history and employment status.

On top of that, banks will have to hold on to at least 5 percent of the loans they make instead of selling them to investors. The idea is that they'll take fewer risks when they have skin in the game and aren't slicing, dicing and selling all their loans.

"They don't care about whether they make bad loans if the risk isn't theirs," says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. "Now they might have to."

Of course, if the banks are scaling back their risks, that means it could be harder for you to get a mortgage.

Investor protection

Regulators will have the authority to require all financial advisers to act in their clients' best interest. Practically speaking, this means disclosing fees, any disciplinary actions and potential conflicts of interest, such as commissions.

Until now, not all brokers who sell stocks, bonds, annuities and other investments have to make such disclosures. They could steer you into mutual funds or college-savings plans that pad their firms' profits or their own commissions, and you might never know.

The Securities and Exchange Commission will study the issue for six months to determine whether average investors are sufficiently protected by the rules already in place or whether something stronger is called for.

So the SEC could still decide not to act at all, meaning investors would still be stuck with a system in which their advisers can put their own financial interests, not the clients', first.


Financial reform to impact daily lives

Payday lenders calling it quits; some may offer auto-title loans

by Craig Harris and Angelique Soenarie The Arizona Republic Jun. 27, 2010 12:00 AM

The boom era for Arizona payday lenders, which offered quick, easy cash but charged extremely high interest rates, is coming to a close.

Starting Thursday, the state no longer will allow payday-loan operators to set interest rates as high as 460 percent annually. A 10-year-old law that allowed them to charge above the 36 percent annual rate cap imposed on other lenders, such as banks, will expire.

Voters and lawmakers have refused to extend the law, and those in the payday-loan industry have said they can't stay in business with the lower rate.

Some stores already have shut their doors, and an industry spokesman said more will follow. Payday lenders left in droves from other states that have imposed similar caps.

"What you are going to see is the smaller operators with one, two or three stores will close," said Lee Miller, a spokesman for Arizona Consumer Financial Services, a trade group that represents payday lenders. "The large companies are looking around and trying to find new products to meet the credit needs of Arizona consumers."

Miller said that to stay in business, many payday lenders likely will offer auto-title loans, which can generate annual returns of up to 204 percent, according to state law. The Center for Responsible Lending said more than 200 payday stores in Arizona have received auto-title loan licenses in the past two years, as it became more apparent payday licensing would end. Some payday lenders also will continue to offer check-cashing services.

But some large businesses are just throwing in the towel.

Check 'n Go, licensed under Southwestern & Pacific Specialty Finance Inc. in Cincinnati, stopped offering payday-loan services a month ago in Arizona and began closing 11 of its 34 stores on June 12. The company, which has 102 Arizona employees, plans to close all stores by the end of summer.

"For those (payday stores) who abide by the law, you can't make it on the 36 percent annual percentage rate," said John Rabenold, a Check 'n Go spokesman. "It's sad. It really is. There were a lot of good employees, and a lot of good consumers who need to use them but will not have the option from regulated brick-and-mortar stores."

Rabenold said a few remaining stores will remain open to collect outstanding loans after the law that created payday-loan licenses expires Wednesday. The licenses are what allowed lenders to exceed the 36 percent rate cap.

Arizona will become the 16th state to impose an interest-rate cap on payday loans, according to the Center for Responsible Lending in Durham, N.C., which tracks payday-loan operations across the country. At least six other states are looking at imposing restrictions.

Arizona Attorney General Terry Goddard has pledged to go after payday lenders who do not abide by the new interest-rate cap.

"They are terrible loans," said Susan Lupton, a senior policy associate for the Center for Responsible Lending, a non-profit research and policy organization. "They are absolutely awful. There has not been a new state that has authorized payday lending in years, and states are continually looking at ways to cut down shops or get rid of payday lenders altogether."

Lending history

Payday lending began in Arizona in 2000, following intense lobbying by the industry. The Legislature created a "deferred presentment licensing program" that allowed payday lenders to charge huge interest rates. The licensing was to last 10 years, unless lawmakers made it permanent.

But as hundreds of stores began cropping up across the state, criticism of payday loans mounted. Opponents said payday loans trapped poor consumers in debt, leaving borrowers with less disposable income after making high interest payments.

With the licensing expiration date approaching, the industry in 2008 asked voters to approve a ballot measure that would have allowed payday lenders to stay in business with some new restrictions. Despite the industry spending more than $14 million on the measure, voters resoundingly decided to end payday licensing. Over the past two years, lawmakers also refused to extend the law.

Kelly Griffith, who fought the industry as co-director of the Center for Economic Integrity in Tucson, said it was a "huge accomplishment" to get payday loans out of Arizona.

Deborah Ward of Mesa agreed.

"I'm glad they will be gone," said Ward, who used a payday loan last year. "They overcharge in fees. I am so glad I'm not dealing with them again."

Griffith does not believe the industry will completely leave Arizona because the state has been a profit center for payday lenders.

In the past decade, the payday-loan business grew from a handful of stores to a high of 715 in 2006, before dropping to 522 branches this month, according to state licensing records.

Capping the interest rate deterred payday stores in other states.

When a 36 percent cap went into effect in Oregon in 2007, there were 329 payday licensees. Today, there are 67, according to Oregon's Department of Consumer and Business Services. In Ohio, the interest rate was capped at 28 percent in 2008, and the number of payday lenders dropped from 1,600 to 970, according to the Ohio Department of Commerce.

New loan strategies

The payday-loan business boomed in Arizona because many consumers had a need for immediate cash and loans up to $500 were easy to get. People with steady jobs and checking accounts could obtain payday loans by promising to repay them, plus pay a fee, after the next payday.

Miller said that with the economy struggling, there still will be a need for short-term loans, making it likely that auto-title loans will become popular.

"The Legislature has been very content with the auto-title program," Miller said. "It has existed as long as we have had payday loans."

Miller said consumers can use vehicles they own as collateral for loans, and the notes could run 30 days, a few months or years. The interest rate varies based on the length of the loan, with the highest rate being 204 percent annually or 17 percent a month for loans of $500 or less, according to state law.

Dave Shumway owns PDL Financial Services, a payday-loans business that served up to 200 customers a month. He stopped offering payday loans at the beginning of June and switched to offering auto-title loans.

But he said that may not help him stay in business because many borrowers who come to his store do not own their vehicles.

Jamie Fulmer, vice president of public affairs for South Carolina-based Advance America, which has about 50 payday-loan locations in Arizona, said his company is "evaluating all our options" and has not made a decision about auto-title loans.

Rabenold, the Check 'n Go spokesman, said consumers also could turn to online payday lenders, especially those based outside the U.S. that do not have to follow Arizona law.

"Consumers will still continue to get access to small-dollar loans from unlicensed, unregulated Internet lenders," Rabenold said.


Payday lenders calling it quits; some may offer auto-title loans

Payday lenders calling it quits; some may offer auto-title loans

by Craig Harris and Angelique Soenarie The Arizona Republic Jun. 27, 2010 12:00 AM

The boom era for Arizona payday lenders, which offered quick, easy cash but charged extremely high interest rates, is coming to a close.

Starting Thursday, the state no longer will allow payday-loan operators to set interest rates as high as 460 percent annually. A 10-year-old law that allowed them to charge above the 36 percent annual rate cap imposed on other lenders, such as banks, will expire.

Voters and lawmakers have refused to extend the law, and those in the payday-loan industry have said they can't stay in business with the lower rate.

Some stores already have shut their doors, and an industry spokesman said more will follow. Payday lenders left in droves from other states that have imposed similar caps.

"What you are going to see is the smaller operators with one, two or three stores will close," said Lee Miller, a spokesman for Arizona Consumer Financial Services, a trade group that represents payday lenders. "The large companies are looking around and trying to find new products to meet the credit needs of Arizona consumers."

Miller said that to stay in business, many payday lenders likely will offer auto-title loans, which can generate annual returns of up to 204 percent, according to state law. The Center for Responsible Lending said more than 200 payday stores in Arizona have received auto-title loan licenses in the past two years, as it became more apparent payday licensing would end. Some payday lenders also will continue to offer check-cashing services.

But some large businesses are just throwing in the towel.

Check 'n Go, licensed under Southwestern & Pacific Specialty Finance Inc. in Cincinnati, stopped offering payday-loan services a month ago in Arizona and began closing 11 of its 34 stores on June 12. The company, which has 102 Arizona employees, plans to close all stores by the end of summer.

"For those (payday stores) who abide by the law, you can't make it on the 36 percent annual percentage rate," said John Rabenold, a Check 'n Go spokesman. "It's sad. It really is. There were a lot of good employees, and a lot of good consumers who need to use them but will not have the option from regulated brick-and-mortar stores."

Rabenold said a few remaining stores will remain open to collect outstanding loans after the law that created payday-loan licenses expires Wednesday. The licenses are what allowed lenders to exceed the 36 percent rate cap.

Arizona will become the 16th state to impose an interest-rate cap on payday loans, according to the Center for Responsible Lending in Durham, N.C., which tracks payday-loan operations across the country. At least six other states are looking at imposing restrictions.

Arizona Attorney General Terry Goddard has pledged to go after payday lenders who do not abide by the new interest-rate cap.

"They are terrible loans," said Susan Lupton, a senior policy associate for the Center for Responsible Lending, a non-profit research and policy organization. "They are absolutely awful. There has not been a new state that has authorized payday lending in years, and states are continually looking at ways to cut down shops or get rid of payday lenders altogether."

Lending history

Payday lending began in Arizona in 2000, following intense lobbying by the industry. The Legislature created a "deferred presentment licensing program" that allowed payday lenders to charge huge interest rates. The licensing was to last 10 years, unless lawmakers made it permanent.

But as hundreds of stores began cropping up across the state, criticism of payday loans mounted. Opponents said payday loans trapped poor consumers in debt, leaving borrowers with less disposable income after making high interest payments.

With the licensing expiration date approaching, the industry in 2008 asked voters to approve a ballot measure that would have allowed payday lenders to stay in business with some new restrictions. Despite the industry spending more than $14 million on the measure, voters resoundingly decided to end payday licensing. Over the past two years, lawmakers also refused to extend the law.

Kelly Griffith, who fought the industry as co-director of the Center for Economic Integrity in Tucson, said it was a "huge accomplishment" to get payday loans out of Arizona.

Deborah Ward of Mesa agreed.

"I'm glad they will be gone," said Ward, who used a payday loan last year. "They overcharge in fees. I am so glad I'm not dealing with them again."

Griffith does not believe the industry will completely leave Arizona because the state has been a profit center for payday lenders.

In the past decade, the payday-loan business grew from a handful of stores to a high of 715 in 2006, before dropping to 522 branches this month, according to state licensing records.

Capping the interest rate deterred payday stores in other states.

When a 36 percent cap went into effect in Oregon in 2007, there were 329 payday licensees. Today, there are 67, according to Oregon's Department of Consumer and Business Services. In Ohio, the interest rate was capped at 28 percent in 2008, and the number of payday lenders dropped from 1,600 to 970, according to the Ohio Department of Commerce.

New loan strategies

The payday-loan business boomed in Arizona because many consumers had a need for immediate cash and loans up to $500 were easy to get. People with steady jobs and checking accounts could obtain payday loans by promising to repay them, plus pay a fee, after the next payday.

Miller said that with the economy struggling, there still will be a need for short-term loans, making it likely that auto-title loans will become popular.

"The Legislature has been very content with the auto-title program," Miller said. "It has existed as long as we have had payday loans."

Miller said consumers can use vehicles they own as collateral for loans, and the notes could run 30 days, a few months or years. The interest rate varies based on the length of the loan, with the highest rate being 204 percent annually or 17 percent a month for loans of $500 or less, according to state law.

Dave Shumway owns PDL Financial Services, a payday-loans business that served up to 200 customers a month. He stopped offering payday loans at the beginning of June and switched to offering auto-title loans.

But he said that may not help him stay in business because many borrowers who come to his store do not own their vehicles.

Jamie Fulmer, vice president of public affairs for South Carolina-based Advance America, which has about 50 payday-loan locations in Arizona, said his company is "evaluating all our options" and has not made a decision about auto-title loans.

Rabenold, the Check 'n Go spokesman, said consumers also could turn to online payday lenders, especially those based outside the U.S. that do not have to follow Arizona law.

"Consumers will still continue to get access to small-dollar loans from unlicensed, unregulated Internet lenders," Rabenold said.


Payday lenders calling it quits; some may offer auto-title loans

Payday lenders calling it quits; some may offer auto-title loans

by Craig Harris and Angelique Soenarie The Arizona Republic Jun. 27, 2010 12:00 AM

The boom era for Arizona payday lenders, which offered quick, easy cash but charged extremely high interest rates, is coming to a close.

Starting Thursday, the state no longer will allow payday-loan operators to set interest rates as high as 460 percent annually. A 10-year-old law that allowed them to charge above the 36 percent annual rate cap imposed on other lenders, such as banks, will expire.

Voters and lawmakers have refused to extend the law, and those in the payday-loan industry have said they can't stay in business with the lower rate.

Some stores already have shut their doors, and an industry spokesman said more will follow. Payday lenders left in droves from other states that have imposed similar caps.

"What you are going to see is the smaller operators with one, two or three stores will close," said Lee Miller, a spokesman for Arizona Consumer Financial Services, a trade group that represents payday lenders. "The large companies are looking around and trying to find new products to meet the credit needs of Arizona consumers."

Miller said that to stay in business, many payday lenders likely will offer auto-title loans, which can generate annual returns of up to 204 percent, according to state law. The Center for Responsible Lending said more than 200 payday stores in Arizona have received auto-title loan licenses in the past two years, as it became more apparent payday licensing would end. Some payday lenders also will continue to offer check-cashing services.

But some large businesses are just throwing in the towel.

Check 'n Go, licensed under Southwestern & Pacific Specialty Finance Inc. in Cincinnati, stopped offering payday-loan services a month ago in Arizona and began closing 11 of its 34 stores on June 12. The company, which has 102 Arizona employees, plans to close all stores by the end of summer.

"For those (payday stores) who abide by the law, you can't make it on the 36 percent annual percentage rate," said John Rabenold, a Check 'n Go spokesman. "It's sad. It really is. There were a lot of good employees, and a lot of good consumers who need to use them but will not have the option from regulated brick-and-mortar stores."

Rabenold said a few remaining stores will remain open to collect outstanding loans after the law that created payday-loan licenses expires Wednesday. The licenses are what allowed lenders to exceed the 36 percent rate cap.

Arizona will become the 16th state to impose an interest-rate cap on payday loans, according to the Center for Responsible Lending in Durham, N.C., which tracks payday-loan operations across the country. At least six other states are looking at imposing restrictions.

Arizona Attorney General Terry Goddard has pledged to go after payday lenders who do not abide by the new interest-rate cap.

"They are terrible loans," said Susan Lupton, a senior policy associate for the Center for Responsible Lending, a non-profit research and policy organization. "They are absolutely awful. There has not been a new state that has authorized payday lending in years, and states are continually looking at ways to cut down shops or get rid of payday lenders altogether."

Lending history

Payday lending began in Arizona in 2000, following intense lobbying by the industry. The Legislature created a "deferred presentment licensing program" that allowed payday lenders to charge huge interest rates. The licensing was to last 10 years, unless lawmakers made it permanent.

But as hundreds of stores began cropping up across the state, criticism of payday loans mounted. Opponents said payday loans trapped poor consumers in debt, leaving borrowers with less disposable income after making high interest payments.

With the licensing expiration date approaching, the industry in 2008 asked voters to approve a ballot measure that would have allowed payday lenders to stay in business with some new restrictions. Despite the industry spending more than $14 million on the measure, voters resoundingly decided to end payday licensing. Over the past two years, lawmakers also refused to extend the law.

Kelly Griffith, who fought the industry as co-director of the Center for Economic Integrity in Tucson, said it was a "huge accomplishment" to get payday loans out of Arizona.

Deborah Ward of Mesa agreed.

"I'm glad they will be gone," said Ward, who used a payday loan last year. "They overcharge in fees. I am so glad I'm not dealing with them again."

Griffith does not believe the industry will completely leave Arizona because the state has been a profit center for payday lenders.

In the past decade, the payday-loan business grew from a handful of stores to a high of 715 in 2006, before dropping to 522 branches this month, according to state licensing records.

Capping the interest rate deterred payday stores in other states.

When a 36 percent cap went into effect in Oregon in 2007, there were 329 payday licensees. Today, there are 67, according to Oregon's Department of Consumer and Business Services. In Ohio, the interest rate was capped at 28 percent in 2008, and the number of payday lenders dropped from 1,600 to 970, according to the Ohio Department of Commerce.

New loan strategies

The payday-loan business boomed in Arizona because many consumers had a need for immediate cash and loans up to $500 were easy to get. People with steady jobs and checking accounts could obtain payday loans by promising to repay them, plus pay a fee, after the next payday.

Miller said that with the economy struggling, there still will be a need for short-term loans, making it likely that auto-title loans will become popular.

"The Legislature has been very content with the auto-title program," Miller said. "It has existed as long as we have had payday loans."

Miller said consumers can use vehicles they own as collateral for loans, and the notes could run 30 days, a few months or years. The interest rate varies based on the length of the loan, with the highest rate being 204 percent annually or 17 percent a month for loans of $500 or less, according to state law.

Dave Shumway owns PDL Financial Services, a payday-loans business that served up to 200 customers a month. He stopped offering payday loans at the beginning of June and switched to offering auto-title loans.

But he said that may not help him stay in business because many borrowers who come to his store do not own their vehicles.

Jamie Fulmer, vice president of public affairs for South Carolina-based Advance America, which has about 50 payday-loan locations in Arizona, said his company is "evaluating all our options" and has not made a decision about auto-title loans.

Rabenold, the Check 'n Go spokesman, said consumers also could turn to online payday lenders, especially those based outside the U.S. that do not have to follow Arizona law.

"Consumers will still continue to get access to small-dollar loans from unlicensed, unregulated Internet lenders," Rabenold said.


Payday lenders calling it quits; some may offer auto-title loans

Payday lenders calling it quits; some may offer auto-title loans

by Craig Harris and Angelique Soenarie The Arizona Republic Jun. 27, 2010 12:00 AM

The boom era for Arizona payday lenders, which offered quick, easy cash but charged extremely high interest rates, is coming to a close.

Starting Thursday, the state no longer will allow payday-loan operators to set interest rates as high as 460 percent annually. A 10-year-old law that allowed them to charge above the 36 percent annual rate cap imposed on other lenders, such as banks, will expire.

Voters and lawmakers have refused to extend the law, and those in the payday-loan industry have said they can't stay in business with the lower rate.

Some stores already have shut their doors, and an industry spokesman said more will follow. Payday lenders left in droves from other states that have imposed similar caps.

"What you are going to see is the smaller operators with one, two or three stores will close," said Lee Miller, a spokesman for Arizona Consumer Financial Services, a trade group that represents payday lenders. "The large companies are looking around and trying to find new products to meet the credit needs of Arizona consumers."

Miller said that to stay in business, many payday lenders likely will offer auto-title loans, which can generate annual returns of up to 204 percent, according to state law. The Center for Responsible Lending said more than 200 payday stores in Arizona have received auto-title loan licenses in the past two years, as it became more apparent payday licensing would end. Some payday lenders also will continue to offer check-cashing services.

But some large businesses are just throwing in the towel.

Check 'n Go, licensed under Southwestern & Pacific Specialty Finance Inc. in Cincinnati, stopped offering payday-loan services a month ago in Arizona and began closing 11 of its 34 stores on June 12. The company, which has 102 Arizona employees, plans to close all stores by the end of summer.

"For those (payday stores) who abide by the law, you can't make it on the 36 percent annual percentage rate," said John Rabenold, a Check 'n Go spokesman. "It's sad. It really is. There were a lot of good employees, and a lot of good consumers who need to use them but will not have the option from regulated brick-and-mortar stores."

Rabenold said a few remaining stores will remain open to collect outstanding loans after the law that created payday-loan licenses expires Wednesday. The licenses are what allowed lenders to exceed the 36 percent rate cap.

Arizona will become the 16th state to impose an interest-rate cap on payday loans, according to the Center for Responsible Lending in Durham, N.C., which tracks payday-loan operations across the country. At least six other states are looking at imposing restrictions.

Arizona Attorney General Terry Goddard has pledged to go after payday lenders who do not abide by the new interest-rate cap.

"They are terrible loans," said Susan Lupton, a senior policy associate for the Center for Responsible Lending, a non-profit research and policy organization. "They are absolutely awful. There has not been a new state that has authorized payday lending in years, and states are continually looking at ways to cut down shops or get rid of payday lenders altogether."

Lending history

Payday lending began in Arizona in 2000, following intense lobbying by the industry. The Legislature created a "deferred presentment licensing program" that allowed payday lenders to charge huge interest rates. The licensing was to last 10 years, unless lawmakers made it permanent.

But as hundreds of stores began cropping up across the state, criticism of payday loans mounted. Opponents said payday loans trapped poor consumers in debt, leaving borrowers with less disposable income after making high interest payments.

With the licensing expiration date approaching, the industry in 2008 asked voters to approve a ballot measure that would have allowed payday lenders to stay in business with some new restrictions. Despite the industry spending more than $14 million on the measure, voters resoundingly decided to end payday licensing. Over the past two years, lawmakers also refused to extend the law.

Kelly Griffith, who fought the industry as co-director of the Center for Economic Integrity in Tucson, said it was a "huge accomplishment" to get payday loans out of Arizona.

Deborah Ward of Mesa agreed.

"I'm glad they will be gone," said Ward, who used a payday loan last year. "They overcharge in fees. I am so glad I'm not dealing with them again."

Griffith does not believe the industry will completely leave Arizona because the state has been a profit center for payday lenders.

In the past decade, the payday-loan business grew from a handful of stores to a high of 715 in 2006, before dropping to 522 branches this month, according to state licensing records.

Capping the interest rate deterred payday stores in other states.

When a 36 percent cap went into effect in Oregon in 2007, there were 329 payday licensees. Today, there are 67, according to Oregon's Department of Consumer and Business Services. In Ohio, the interest rate was capped at 28 percent in 2008, and the number of payday lenders dropped from 1,600 to 970, according to the Ohio Department of Commerce.

New loan strategies

The payday-loan business boomed in Arizona because many consumers had a need for immediate cash and loans up to $500 were easy to get. People with steady jobs and checking accounts could obtain payday loans by promising to repay them, plus pay a fee, after the next payday.

Miller said that with the economy struggling, there still will be a need for short-term loans, making it likely that auto-title loans will become popular.

"The Legislature has been very content with the auto-title program," Miller said. "It has existed as long as we have had payday loans."

Miller said consumers can use vehicles they own as collateral for loans, and the notes could run 30 days, a few months or years. The interest rate varies based on the length of the loan, with the highest rate being 204 percent annually or 17 percent a month for loans of $500 or less, according to state law.

Dave Shumway owns PDL Financial Services, a payday-loans business that served up to 200 customers a month. He stopped offering payday loans at the beginning of June and switched to offering auto-title loans.

But he said that may not help him stay in business because many borrowers who come to his store do not own their vehicles.

Jamie Fulmer, vice president of public affairs for South Carolina-based Advance America, which has about 50 payday-loan locations in Arizona, said his company is "evaluating all our options" and has not made a decision about auto-title loans.

Rabenold, the Check 'n Go spokesman, said consumers also could turn to online payday lenders, especially those based outside the U.S. that do not have to follow Arizona law.

"Consumers will still continue to get access to small-dollar loans from unlicensed, unregulated Internet lenders," Rabenold said.


Payday lenders calling it quits; some may offer auto-title loans

Payday lenders calling it quits; some may offer auto-title loans

by Craig Harris and Angelique Soenarie The Arizona Republic Jun. 27, 2010 12:00 AM

The boom era for Arizona payday lenders, which offered quick, easy cash but charged extremely high interest rates, is coming to a close.

Starting Thursday, the state no longer will allow payday-loan operators to set interest rates as high as 460 percent annually. A 10-year-old law that allowed them to charge above the 36 percent annual rate cap imposed on other lenders, such as banks, will expire.

Voters and lawmakers have refused to extend the law, and those in the payday-loan industry have said they can't stay in business with the lower rate.

Some stores already have shut their doors, and an industry spokesman said more will follow. Payday lenders left in droves from other states that have imposed similar caps.

"What you are going to see is the smaller operators with one, two or three stores will close," said Lee Miller, a spokesman for Arizona Consumer Financial Services, a trade group that represents payday lenders. "The large companies are looking around and trying to find new products to meet the credit needs of Arizona consumers."

Miller said that to stay in business, many payday lenders likely will offer auto-title loans, which can generate annual returns of up to 204 percent, according to state law. The Center for Responsible Lending said more than 200 payday stores in Arizona have received auto-title loan licenses in the past two years, as it became more apparent payday licensing would end. Some payday lenders also will continue to offer check-cashing services.

But some large businesses are just throwing in the towel.

Check 'n Go, licensed under Southwestern & Pacific Specialty Finance Inc. in Cincinnati, stopped offering payday-loan services a month ago in Arizona and began closing 11 of its 34 stores on June 12. The company, which has 102 Arizona employees, plans to close all stores by the end of summer.

"For those (payday stores) who abide by the law, you can't make it on the 36 percent annual percentage rate," said John Rabenold, a Check 'n Go spokesman. "It's sad. It really is. There were a lot of good employees, and a lot of good consumers who need to use them but will not have the option from regulated brick-and-mortar stores."

Rabenold said a few remaining stores will remain open to collect outstanding loans after the law that created payday-loan licenses expires Wednesday. The licenses are what allowed lenders to exceed the 36 percent rate cap.

Arizona will become the 16th state to impose an interest-rate cap on payday loans, according to the Center for Responsible Lending in Durham, N.C., which tracks payday-loan operations across the country. At least six other states are looking at imposing restrictions.

Arizona Attorney General Terry Goddard has pledged to go after payday lenders who do not abide by the new interest-rate cap.

"They are terrible loans," said Susan Lupton, a senior policy associate for the Center for Responsible Lending, a non-profit research and policy organization. "They are absolutely awful. There has not been a new state that has authorized payday lending in years, and states are continually looking at ways to cut down shops or get rid of payday lenders altogether."

Lending history

Payday lending began in Arizona in 2000, following intense lobbying by the industry. The Legislature created a "deferred presentment licensing program" that allowed payday lenders to charge huge interest rates. The licensing was to last 10 years, unless lawmakers made it permanent.

But as hundreds of stores began cropping up across the state, criticism of payday loans mounted. Opponents said payday loans trapped poor consumers in debt, leaving borrowers with less disposable income after making high interest payments.

With the licensing expiration date approaching, the industry in 2008 asked voters to approve a ballot measure that would have allowed payday lenders to stay in business with some new restrictions. Despite the industry spending more than $14 million on the measure, voters resoundingly decided to end payday licensing. Over the past two years, lawmakers also refused to extend the law.

Kelly Griffith, who fought the industry as co-director of the Center for Economic Integrity in Tucson, said it was a "huge accomplishment" to get payday loans out of Arizona.

Deborah Ward of Mesa agreed.

"I'm glad they will be gone," said Ward, who used a payday loan last year. "They overcharge in fees. I am so glad I'm not dealing with them again."

Griffith does not believe the industry will completely leave Arizona because the state has been a profit center for payday lenders.

In the past decade, the payday-loan business grew from a handful of stores to a high of 715 in 2006, before dropping to 522 branches this month, according to state licensing records.

Capping the interest rate deterred payday stores in other states.

When a 36 percent cap went into effect in Oregon in 2007, there were 329 payday licensees. Today, there are 67, according to Oregon's Department of Consumer and Business Services. In Ohio, the interest rate was capped at 28 percent in 2008, and the number of payday lenders dropped from 1,600 to 970, according to the Ohio Department of Commerce.

New loan strategies

The payday-loan business boomed in Arizona because many consumers had a need for immediate cash and loans up to $500 were easy to get. People with steady jobs and checking accounts could obtain payday loans by promising to repay them, plus pay a fee, after the next payday.

Miller said that with the economy struggling, there still will be a need for short-term loans, making it likely that auto-title loans will become popular.

"The Legislature has been very content with the auto-title program," Miller said. "It has existed as long as we have had payday loans."

Miller said consumers can use vehicles they own as collateral for loans, and the notes could run 30 days, a few months or years. The interest rate varies based on the length of the loan, with the highest rate being 204 percent annually or 17 percent a month for loans of $500 or less, according to state law.

Dave Shumway owns PDL Financial Services, a payday-loans business that served up to 200 customers a month. He stopped offering payday loans at the beginning of June and switched to offering auto-title loans.

But he said that may not help him stay in business because many borrowers who come to his store do not own their vehicles.

Jamie Fulmer, vice president of public affairs for South Carolina-based Advance America, which has about 50 payday-loan locations in Arizona, said his company is "evaluating all our options" and has not made a decision about auto-title loans.

Rabenold, the Check 'n Go spokesman, said consumers also could turn to online payday lenders, especially those based outside the U.S. that do not have to follow Arizona law.

"Consumers will still continue to get access to small-dollar loans from unlicensed, unregulated Internet lenders," Rabenold said.


Payday lenders calling it quits; some may offer auto-title loans

Payday lenders calling it quits; some may offer auto-title loans

by Craig Harris and Angelique Soenarie The Arizona Republic Jun. 27, 2010 12:00 AM

The boom era for Arizona payday lenders, which offered quick, easy cash but charged extremely high interest rates, is coming to a close.

Starting Thursday, the state no longer will allow payday-loan operators to set interest rates as high as 460 percent annually. A 10-year-old law that allowed them to charge above the 36 percent annual rate cap imposed on other lenders, such as banks, will expire.

Voters and lawmakers have refused to extend the law, and those in the payday-loan industry have said they can't stay in business with the lower rate.

Some stores already have shut their doors, and an industry spokesman said more will follow. Payday lenders left in droves from other states that have imposed similar caps.

"What you are going to see is the smaller operators with one, two or three stores will close," said Lee Miller, a spokesman for Arizona Consumer Financial Services, a trade group that represents payday lenders. "The large companies are looking around and trying to find new products to meet the credit needs of Arizona consumers."

Miller said that to stay in business, many payday lenders likely will offer auto-title loans, which can generate annual returns of up to 204 percent, according to state law. The Center for Responsible Lending said more than 200 payday stores in Arizona have received auto-title loan licenses in the past two years, as it became more apparent payday licensing would end. Some payday lenders also will continue to offer check-cashing services.

But some large businesses are just throwing in the towel.

Check 'n Go, licensed under Southwestern & Pacific Specialty Finance Inc. in Cincinnati, stopped offering payday-loan services a month ago in Arizona and began closing 11 of its 34 stores on June 12. The company, which has 102 Arizona employees, plans to close all stores by the end of summer.

"For those (payday stores) who abide by the law, you can't make it on the 36 percent annual percentage rate," said John Rabenold, a Check 'n Go spokesman. "It's sad. It really is. There were a lot of good employees, and a lot of good consumers who need to use them but will not have the option from regulated brick-and-mortar stores."

Rabenold said a few remaining stores will remain open to collect outstanding loans after the law that created payday-loan licenses expires Wednesday. The licenses are what allowed lenders to exceed the 36 percent rate cap.

Arizona will become the 16th state to impose an interest-rate cap on payday loans, according to the Center for Responsible Lending in Durham, N.C., which tracks payday-loan operations across the country. At least six other states are looking at imposing restrictions.

Arizona Attorney General Terry Goddard has pledged to go after payday lenders who do not abide by the new interest-rate cap.

"They are terrible loans," said Susan Lupton, a senior policy associate for the Center for Responsible Lending, a non-profit research and policy organization. "They are absolutely awful. There has not been a new state that has authorized payday lending in years, and states are continually looking at ways to cut down shops or get rid of payday lenders altogether."

Lending history

Payday lending began in Arizona in 2000, following intense lobbying by the industry. The Legislature created a "deferred presentment licensing program" that allowed payday lenders to charge huge interest rates. The licensing was to last 10 years, unless lawmakers made it permanent.

But as hundreds of stores began cropping up across the state, criticism of payday loans mounted. Opponents said payday loans trapped poor consumers in debt, leaving borrowers with less disposable income after making high interest payments.

With the licensing expiration date approaching, the industry in 2008 asked voters to approve a ballot measure that would have allowed payday lenders to stay in business with some new restrictions. Despite the industry spending more than $14 million on the measure, voters resoundingly decided to end payday licensing. Over the past two years, lawmakers also refused to extend the law.

Kelly Griffith, who fought the industry as co-director of the Center for Economic Integrity in Tucson, said it was a "huge accomplishment" to get payday loans out of Arizona.

Deborah Ward of Mesa agreed.

"I'm glad they will be gone," said Ward, who used a payday loan last year. "They overcharge in fees. I am so glad I'm not dealing with them again."

Griffith does not believe the industry will completely leave Arizona because the state has been a profit center for payday lenders.

In the past decade, the payday-loan business grew from a handful of stores to a high of 715 in 2006, before dropping to 522 branches this month, according to state licensing records.

Capping the interest rate deterred payday stores in other states.

When a 36 percent cap went into effect in Oregon in 2007, there were 329 payday licensees. Today, there are 67, according to Oregon's Department of Consumer and Business Services. In Ohio, the interest rate was capped at 28 percent in 2008, and the number of payday lenders dropped from 1,600 to 970, according to the Ohio Department of Commerce.

New loan strategies

The payday-loan business boomed in Arizona because many consumers had a need for immediate cash and loans up to $500 were easy to get. People with steady jobs and checking accounts could obtain payday loans by promising to repay them, plus pay a fee, after the next payday.

Miller said that with the economy struggling, there still will be a need for short-term loans, making it likely that auto-title loans will become popular.

"The Legislature has been very content with the auto-title program," Miller said. "It has existed as long as we have had payday loans."

Miller said consumers can use vehicles they own as collateral for loans, and the notes could run 30 days, a few months or years. The interest rate varies based on the length of the loan, with the highest rate being 204 percent annually or 17 percent a month for loans of $500 or less, according to state law.

Dave Shumway owns PDL Financial Services, a payday-loans business that served up to 200 customers a month. He stopped offering payday loans at the beginning of June and switched to offering auto-title loans.

But he said that may not help him stay in business because many borrowers who come to his store do not own their vehicles.

Jamie Fulmer, vice president of public affairs for South Carolina-based Advance America, which has about 50 payday-loan locations in Arizona, said his company is "evaluating all our options" and has not made a decision about auto-title loans.

Rabenold, the Check 'n Go spokesman, said consumers also could turn to online payday lenders, especially those based outside the U.S. that do not have to follow Arizona law.

"Consumers will still continue to get access to small-dollar loans from unlicensed, unregulated Internet lenders," Rabenold said.


Payday lenders calling it quits; some may offer auto-title loans

Payday lenders calling it quits; some may offer auto-title loans

by Craig Harris and Angelique Soenarie The Arizona Republic Jun. 27, 2010 12:00 AM

The boom era for Arizona payday lenders, which offered quick, easy cash but charged extremely high interest rates, is coming to a close.

Starting Thursday, the state no longer will allow payday-loan operators to set interest rates as high as 460 percent annually. A 10-year-old law that allowed them to charge above the 36 percent annual rate cap imposed on other lenders, such as banks, will expire.

Voters and lawmakers have refused to extend the law, and those in the payday-loan industry have said they can't stay in business with the lower rate.

Some stores already have shut their doors, and an industry spokesman said more will follow. Payday lenders left in droves from other states that have imposed similar caps.

"What you are going to see is the smaller operators with one, two or three stores will close," said Lee Miller, a spokesman for Arizona Consumer Financial Services, a trade group that represents payday lenders. "The large companies are looking around and trying to find new products to meet the credit needs of Arizona consumers."

Miller said that to stay in business, many payday lenders likely will offer auto-title loans, which can generate annual returns of up to 204 percent, according to state law. The Center for Responsible Lending said more than 200 payday stores in Arizona have received auto-title loan licenses in the past two years, as it became more apparent payday licensing would end. Some payday lenders also will continue to offer check-cashing services.

But some large businesses are just throwing in the towel.

Check 'n Go, licensed under Southwestern & Pacific Specialty Finance Inc. in Cincinnati, stopped offering payday-loan services a month ago in Arizona and began closing 11 of its 34 stores on June 12. The company, which has 102 Arizona employees, plans to close all stores by the end of summer.

"For those (payday stores) who abide by the law, you can't make it on the 36 percent annual percentage rate," said John Rabenold, a Check 'n Go spokesman. "It's sad. It really is. There were a lot of good employees, and a lot of good consumers who need to use them but will not have the option from regulated brick-and-mortar stores."

Rabenold said a few remaining stores will remain open to collect outstanding loans after the law that created payday-loan licenses expires Wednesday. The licenses are what allowed lenders to exceed the 36 percent rate cap.

Arizona will become the 16th state to impose an interest-rate cap on payday loans, according to the Center for Responsible Lending in Durham, N.C., which tracks payday-loan operations across the country. At least six other states are looking at imposing restrictions.

Arizona Attorney General Terry Goddard has pledged to go after payday lenders who do not abide by the new interest-rate cap.

"They are terrible loans," said Susan Lupton, a senior policy associate for the Center for Responsible Lending, a non-profit research and policy organization. "They are absolutely awful. There has not been a new state that has authorized payday lending in years, and states are continually looking at ways to cut down shops or get rid of payday lenders altogether."

Lending history

Payday lending began in Arizona in 2000, following intense lobbying by the industry. The Legislature created a "deferred presentment licensing program" that allowed payday lenders to charge huge interest rates. The licensing was to last 10 years, unless lawmakers made it permanent.

But as hundreds of stores began cropping up across the state, criticism of payday loans mounted. Opponents said payday loans trapped poor consumers in debt, leaving borrowers with less disposable income after making high interest payments.

With the licensing expiration date approaching, the industry in 2008 asked voters to approve a ballot measure that would have allowed payday lenders to stay in business with some new restrictions. Despite the industry spending more than $14 million on the measure, voters resoundingly decided to end payday licensing. Over the past two years, lawmakers also refused to extend the law.

Kelly Griffith, who fought the industry as co-director of the Center for Economic Integrity in Tucson, said it was a "huge accomplishment" to get payday loans out of Arizona.

Deborah Ward of Mesa agreed.

"I'm glad they will be gone," said Ward, who used a payday loan last year. "They overcharge in fees. I am so glad I'm not dealing with them again."

Griffith does not believe the industry will completely leave Arizona because the state has been a profit center for payday lenders.

In the past decade, the payday-loan business grew from a handful of stores to a high of 715 in 2006, before dropping to 522 branches this month, according to state licensing records.

Capping the interest rate deterred payday stores in other states.

When a 36 percent cap went into effect in Oregon in 2007, there were 329 payday licensees. Today, there are 67, according to Oregon's Department of Consumer and Business Services. In Ohio, the interest rate was capped at 28 percent in 2008, and the number of payday lenders dropped from 1,600 to 970, according to the Ohio Department of Commerce.

New loan strategies

The payday-loan business boomed in Arizona because many consumers had a need for immediate cash and loans up to $500 were easy to get. People with steady jobs and checking accounts could obtain payday loans by promising to repay them, plus pay a fee, after the next payday.

Miller said that with the economy struggling, there still will be a need for short-term loans, making it likely that auto-title loans will become popular.

"The Legislature has been very content with the auto-title program," Miller said. "It has existed as long as we have had payday loans."

Miller said consumers can use vehicles they own as collateral for loans, and the notes could run 30 days, a few months or years. The interest rate varies based on the length of the loan, with the highest rate being 204 percent annually or 17 percent a month for loans of $500 or less, according to state law.

Dave Shumway owns PDL Financial Services, a payday-loans business that served up to 200 customers a month. He stopped offering payday loans at the beginning of June and switched to offering auto-title loans.

But he said that may not help him stay in business because many borrowers who come to his store do not own their vehicles.

Jamie Fulmer, vice president of public affairs for South Carolina-based Advance America, which has about 50 payday-loan locations in Arizona, said his company is "evaluating all our options" and has not made a decision about auto-title loans.

Rabenold, the Check 'n Go spokesman, said consumers also could turn to online payday lenders, especially those based outside the U.S. that do not have to follow Arizona law.

"Consumers will still continue to get access to small-dollar loans from unlicensed, unregulated Internet lenders," Rabenold said.


Payday lenders calling it quits; some may offer auto-title loans

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