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Technology Startup 'LoanNow' Set to Disrupt Payday Lending
LoanNow launches as an innovative online lender that rewards borrowers for good behavior
LOS ANGELES, June 17, 2014 /PRNewswire/ -- Silicon Valley-style innovation comes to Southern California with the launch of LoanNow. A team of technologists and consumer finance veterans has united to tackle the $15 Billion payday loan problem.
According to the Consumer Financial Protection Bureau, 12 million Americans live in the payday loan cycle for an average of five months per year. These loans come with predatory APRs of 339% on average, but can exceed 1,000%. Disguised as short term loans, payday loans are in reality long term, high interest debt traps.
The technology driven startup is challenging an industry that inherently keeps borrowers indebted. LoanNow's model is to instead provide longer repayment terms at much lower APRs. Additionally, LoanNow is turning repayment into a rewarding game-like process. Borrowers unlock achievements to help raise their credit score or even reduce their interest rates. "We don't want to just balance high default rates with predatory APRs and aggressive collection practices like most payday lenders," says co-founder and Chief Product Officer Miron Lulic. "Instead, we leverage the power of game mechanics to reduce default rates. We designed our lending experience not to trap borrowers, but to help them succeed."
LoanNow's vision finds its roots in the microfinance model pioneered by Muhammad Yunus. The Nobel Peace Prize-winning recipient founded the Grameen Bank to lend to the world's ultra poor. Grameen lends to borrowers with no credit history yet maintains a default rate of less than 1%. "There's incredible financial and social value in holding risky borrowers more accountable to each other," says co-founder and CEO Harry Langenberg.
Through achievements and education, LoanNow incentivizes borrowers to improve their financial well-being. Lower default rates translate to a lower cost of credit for the borrower and a higher repayment rate for the lender â€“ a win-win dynamic.
About LoanNow LoanNow is a socially-responsible lender that offers a better alternative to payday loans. It turns loan repayment into a success-based process that's both fun and rewarding at the same time. Borrowers succeed by saving money and unlocking opportunities to refinance at lower rates. Investors enjoy lower defaults and a more socially-responsible business model.
To learn more about LoanNow, you can visit https://www.loannow.com/
Payday loans worry consumers, regulators and lawmakers alike
The US head of consumer protection struggled as lawmakers and citizens barraged him with questions about dangerous loans
It seems that Richard Cordray, the director of Consumer Financial Protection Bureau, CFPB, just couldn't catch a break this week.
As he's been trying to get people talking about mobile banking technology, his speeches have been overrun by feisty debates and challenges on the issue of payday loans.
Payday loans are short-term loans, often available in lower-income areas, that feature punishingly high interest rates and put users on a cycle of heavy indebtedness. In 2010, more than 12 million Americans relied on payday lenders for access to credit. According to the Pew Charitable Trust, they took out almost $30bn in loans that year alone.
Despite the loans' high interest rates and fees, the payday loan industry appeals to poorer Americans who have limited access to the US financial services and banks. Often, one payday loan often leads to another and another and soon the borrower is stuck in a cycle of debt, which was most recently depicted in the documentary 'Spent.'
On Thursday, while appearing in New Orleans to speak about mobile financial services, Cordray ended up fielding requests for regulation of the payday loan industry across the nation. The debate surrounding the issue of payday loans has been heated in Louisiana, where efforts to reform the industry failed in the recent state legislature session.
Senator Mike Crapo was Cordray's tormentor-in-chief when Cordray appeared before the Senate Banking committee on Wednesday. Cordray suggested that payday lending is infecting the legitimate alleyways of the financial system.
"There is now the further issue that's been raised: what about illegal lending that operates by piggybacking on the existing banking payments systems? That's not something that banks like, it's not a risk they want to be exposed to."
When asked by Crapo if the agencies were making a conscious effort to prevent payday lenders from being able to operate, Cordray answered that he did not know.
Unfortunately, there will be some time yet before CFPB is ready to enact any new regulations related with payday loans. During the hearing, Cordray argued for more time.
It's well worth the additional time in order to make sure that what we do won't be made a mockery of by the people circumventing [the rules] just by transforming their product slightly."
More time could also strengthen the opposition. Cordray has several lawmakers lined up to thwart him. Senator Darrell Issa has previously requested that Department of Justice release all of the documents related to its effort to cut off illegal payday lenders and other fraudulent business from access to the US banking system. This effort, known as Operation Chokepoint, has come up under scrutiny as claims that it pressures banks to end relationships with legal businesses such as payday lenders emerged.
A group of payday lenders represented by the Community Financial Services Association recently filed a lawsuit against some of these regulatory agencies, alleging that they were unfairly targeted by Operation Chokepoint which painted them as risky associates for banks. The agencies named in the lawsuit were the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The CFPB was not named.
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Lenders Thwart Ohio Law Intended to Limit High Interest on Payday LoansAn Ohio law intended to cap interest rates on payday loans at 28 percent has been thwarted by lenders who have found ways to charge up to 680 percent interest, according to lawmakers who are preparing a second round of legislation.
The law, the Short-Term Loan Act, was enacted last spring and upheld in a statewide referendum in November. It decreased the maximum annual interest rate to 28 percent, from the previous 391 percent. Loans typically had terms of two weeks and were secured by a postdated check and proof of employment.
But more than 1,000 stores have obtained licenses to issue short-term loans under different laws that permit higher rates, according to a report by the Housing Research and Advocacy Center in Cleveland, which has worked to lower interest rates.
Using one of those laws, the Mortgage Loan Act, some lenders charge interest and fees of $26.10 on a 14-day $100 loan, which amounts to a 680 percent annual interest rate, the center said. Others used another law, the Small Loan Act, to charge up to 423 percent on a $100 loan. Some of the more creative approaches included issuing the loan in the form of a check and charging to cash it in the same store and charging for credit checks.
This is just more deceptive gouging behavior from an industry that is known all too well for getting people into a cycle of debt, said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio, which is working with state officials to lower interest rates and eliminate fees on short-term loans. Mr. Faith’s group, which is based in Columbus, found that the average customer got 13 loans a year and was continually saddled with high interest payments.
It is not unusual for lenders to find ways to avoid new state regulations, said Uriah King, a spokesman for the Center for Responsible Lending in Durham, N.C., which supports rate caps. Georgia, New Hampshire, North Carolina, Oregon and Pennsylvania had to pass a second round of legislation or aggressively enforce regulations after their initial reform efforts, Mr. King said.
Payday lenders are very aggressive about circumventing the law, Mr. King said. It takes real will of the regulators to ensure that the will of the legislatures are met.
Representative Matt Lundy, a Democrat and chairman of the consumer affairs and economic protection committee in the Ohio House, has studied other states experiences, and he said he was preparing a bill aimed at plugging the loopholes. The bill would create a minimum six-month term for loans of $1,000 or less and eliminate all fees that would effectively push interest rates above 28 percent.
We have a clear mandate from the voters to make sure that their will is enforced, Mr. Lundy said. They wanted the payday lenders reined in.
Community Financial Services Association of America, a Washington group that represents lenders, said most businesses were charging less than 628 percent interest. More typically, it said, they are charging 159 percent for a $300 or $600 loan. More...
Some States Set Caps to Control Payday LoansTracey Minda needed cash to buy clothes and school supplies for her 6-year-old son before the 2006 school year. A preschool teacher and single mother, she was broke after making her mortgage and car payments.
The quick and easy answer was a $400 loan from a payday lender. When payment was due two weeks later, she needed another loan to keep afloat. Nine months and 18 loans later, she was hundreds of dollars in debt and paying the lender about $120 in monthly fees from her $1,300 in wages.
Once I was in the cycle for a few months, I couldn’t get out of it, said Ms. Minda, who was on the brink of losing her car and her home in Washington Courthouse, Ohio, before turning to family members to pay off her debt.
Ohio lawmakers sought last spring to aid borrowers like Ms. Minda by capping annual interest rates for payday lenders at 28 percent, a sharp reduction from 391 percent. But lenders are fighting back in a novel way, collecting enough signatures, once certified, to force a vote in November on a ballot measure that could overturn legislation that established the rate cap.
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You can’t make a payday loan cheaper than the industry does, said Steven Schlein, a spokesman for the Washington-based Community Financial Services Association of America, which represents lenders.
Mr. Schlein said lenders had left other states that had recently capped rates at 36 percent or lower. Consumer choice has always worked best, he said. That’s what drives prices down, not eliminating competition.
In Arizona, an exemption allowing payday lenders to charge 400 percent interest will expire in 2010, with the cap reverting to 36 percent. Lenders there are supporting a ballot measure in November to extend the exemption permanently. The payday loan industry has grown fivefold this decade, from lending $10 billion in 2000 to $50 billion in 2007, according to Stephens Inc., a brokerage in Little Rock, Ark., which said lenders collected $8.6 billion in fees last year.
In 2006, Congress capped rates for payday loans at 36 percent for military personnel. Following that example, Arkansas, the District of Columbia, New Hampshire and Oregon, as well as Ohio, have capped rates at 36 percent or lower.
The business model is a debt trap, said Uriah King, a spokesman for the Center for Responsible Lending in Durham, N.C., which supports rate caps. More than 90 percent of customers are repeat borrowers, he said, and two-thirds of lenders revenue comes from borrowers who take out a dozen loans annually.
Mr. King said state lawmakers had been emboldened by Congress’s move to protect military personnel.
People are finding ways to cope without payday lending, and it’s at a fraction of the cost, he said, including using consumer finance companies and credit unions. But the best way to avoid cash crunches that drive consumers to payday lenders, he said, is to build up savings of as little as $500 for rainy days.
In Ohio, payday borrowers paid more than $318 million in fees annually and an average yearly interest rate of 391 percent before the new restrictions, according to a study released by the Ohio Coalition for Responsible Lending. More...
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