[Congressional Record Volume 145, Number 87 (Friday, June 18, 1999)]
[Senate]
[Pages S7253-S7254]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          THE BANKRUPTCY BILL

  Mr. WELLSTONE. I thank the Senator from North Carolina. It may take 
less than 3 minutes.
  I refer colleagues, and I will include in the Record, to a piece 
today in the New York Times, front-page article, the title of which is 
``New Lenders With Huge Fees Thrive on Workers With Debts.''
  Some of my colleagues remember that Senator Metzenbaum did a lot of 
work on this. When we do bring up the bankruptcy bill, I will have an 
amendment which will prohibit claims in bankruptcy which rise from 
these high-cost transactions such as ``payday'' loans, car title loans, 
or any other credit extension that extends beyond 100 percent per 
annum. I will go into this in detail. I cannot right now in 3 minutes. 
I will put this piece in the Record. I hope colleagues will read it. It 
is really quite outrageous what these companies have been able to get 
away with. I look forward to having a debate on this amendment on the 
bankruptcy bill.
  Mr. President, I ask unanimous consent to have printed in the Record 
the article to which I referred.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                [From the New York Times, June 18, 1999]

        New Lenders With Huge Fees Thrive on Workers With Debts

                         (By Peter T. Kilborn)

       Kokomo, Ind, June 16.--A year and a half ago, Doris Rude, a 
     taxi driver who is partly disabled by a herniated disc, was 
     living at the edge of her income of $300 a week and had just 
     $5 in the bank. Then she received a $1,900 hospital bill. 
     With poor credit and no money, she turned in desperation to a 
     new, fast-growing American institution: The payday loan 
     company.
       For a fee of $30, the company agreed to advance her a two-
     week loan of $100. To obtain the loan, she wrote the company 
     a check for $130 that the lender greed to hold until her next 
     payday. With the $30 fee, the lender was charging her an 
     annual interest rate that consumer advocates say is 780 
     percent.
       But two weeks later, with no change in her living expenses, 
     her check was sure to bounce. So the lender let Ms. Rude 
     renew the loan for another two weeks, for another $30 fee. 
     Soon she was bounding from one payday lender to another, six 
     in all, borrowing from the next to pay the accumulating fees 
     of the others.
       Ms. Rude had fallen into a trap that regulators worry is an 
     increasingly common one, not just for lower-paid workers like 
     Ms. Rude but for higher-salaried ones as well.
       Payday lending companies are sprouting up all over the 
     country, having increased to nearly 8,000 today from 300 
     seven years ago. Although this is the most prosperous 
     peacetime decade of the century, many workers have become 
     trapped by debts run up in free spending or have been driven 
     deeper into debt by misfortune. But these workers have the 
     two basic things needed to obtain a payday loan: paychecks 
     and checking accounts.
       Although plentiful in big cities like New York and Los 
     Angeles, the payday lenders have become most visible in 
     places like Kokomo; Springfield, Ohio, and Cleveland, Tenn. 
     Ten have opened in Kokomo, a city of 45,000 people.
       Bearing names like Check Into Cash, Check 'n Go and Fast 
     Cash, payday lenders grant loans to workers against their 
     next paychecks. In return, the companies charge a ``fee,'' 
     typically $15 to $35. At annual rates, the fees normally 
     exceed 300 percent and 400 percent and in some cases they 
     reach four digits.
       At least a dozen national chains have sprung up. The 
     biggest, Ace Cash Express in Irving, Tex., has around 900 
     stores and revenue last year--what it collected in loan 
     fees--of $100 million, twice that of 1996. Check Into Cash, 
     in Cleveland, Tenn., reported that its revenue had jumped to 
     $21 million in the first six months of 1998 from $10 million 
     three years ago and $1 million five years ago.
       In much of the country, these companies escape the routine 
     scrutiny and regulations faced by banks, finance companies 
     and pawn shops, because in some states they are too new to 
     have stirred much controversy and in others they have used 
     political clout to stave off legislation.
       As of late last year, the Consumer Federation of America 
     reported that 19 states, including all of those in New 
     England, as well as Pennsylvania, Texas and Virginia, 
     prohibited payday lending, most by limiting annual, small-
     loan interest to less than 40 percent. But the federation 
     said the 31 other states, including New York and New Jersey, 
     condoned it by law or by the absence of law.
       A spokesman for the New York State Banking Department, Rick 
     Hansen, disputed this assertion, saying the state's usury law 
     forbids charging more than 25 percent annual interest on any 
     loan.
       The payday lenders say they are providing a vital service. 
     As commercial banks have shunned the poorest borrowers, in 
     part by raising the minimum amounts they will lend, people 
     who need small sums to get over a hump, like paying for a 
     medical prescription or buying tires for a car, have few 
     choices. These include people who are unable to get credit 
     cards or who have charged or exceeded their cards' credit 
     limits.
       Industry leaders say comparing payday lenders' fees with 
     annual interest rates is unfair because most of the loans are 
     paid off within a month.
       Consumer advocates consider the payday lenders' interest 
     rates exorbitant.
       ``I know of loan sharks in New York who wouldn't charge 
     this kind of interest,'' said Gary L. Calhoun, a lawyer here 
     who provides legal services for members of the United 
     Automobile Workers.
       State Representative Richard W. Bodiker of Indiana, a 
     Democrat whose bill this year to regulate the lenders fell to 
     intense industry lobbying, calls the fees, ``in excess of 
     what usury laws consider loan-sharking.''
       Robert C. Rochford, deputy counsel of the National Check 
     Cashers Association, an industry trade group, called such 
     accusations spurious.
       ``Loan-sharking involves coercive tactics to collect the 
     debt,'' Mr. Rochford said. ``No major direct deposit provider 
     has been convicted of that.''
       One reason for the lenders' growth is people's comfort with 
     debt. The nation's savings rate, the percentage of people's 
     disposable income that is saved, dropped to 0.5 percent last 
     year and to nothing at all by earlier this year from 6 
     percent a decade ago. Rather than save, people are spending 
     more than ever and borrowing more than ever.
       ``We know there's a pretty sizable group of folks whose 
     credit cards are maxed out,'' said Mark B. Tarpey, a 
     supervisor in the consumer finance division of the Indiana 
     Department of Financial Institutions.
       With payday lenders around, Mr. Tarpey said: ``They don't 
     have to tell the boss they need a cash advance. They don't 
     have to give up their TV's and furniture. They don't have to 
     run a credit check.''
       Another reason is a level of unemployment, 4.2 percent, 
     that economists used to call unattainable. To succeed, payday 
     lenders need customers with bank accounts and regular checks, 
     in particular paychecks, and these days, just about every 
     able-bodied adult receives one.
       Under such conditions, said Mr. Rochford, the deputy 
     counsel for the check cashers' association, payday lenders' 
     revenues will grow to $1.44 billion this year from $810 
     million last year.
       Payday lending exists, Mr. Rochford said, ``because there's 
     a need for it.'' A short-term deferred deposit loan, the 
     industry's preferred term, helps a worker through an 
     emergency and is cheaper than bouncing a check.

[[Page S7254]]

     Most banks do not make loans for less than $1,000, he said, 
     and pawning is embarrassing.
       Borrowers like a payday loan, Mr. Rochford said, because 
     ``it is private,'' adding: ``It is quick. And they do not 
     need a lot of documentation.'' The fees cover loans that turn 
     sour, he said, and the cost of employees to process loans.
       Kokomo, about 50 miles north of Indianapolis, may be a case 
     in point. A steel and asphalt city of immense new Daimler-
     Chrysler and Delphi-Delco automobile component factories, 
     Kokomo is fertile terrain for payday lending.
       Strapped by bad credit and unmanageable or unexpected 
     expenses, people here used to go to pawn shops for loans. But 
     of three pawn shops here two years ago, one has closed, and 
     another, Bob's, passed up renewing its license this month. 
     Now people go to the city's new payday lenders.
       Unemployment, which has exceeded 20 percent in Kokomo in 
     recessions, was just 1.4 percent in March, according to the 
     latest survey by the Kelley School of Business at Indiana 
     University. About 20,000 people, roughly 40 percent of the 
     area work force, is employed by automotive companies. They 
     earn $50,000 to $60,000 a year and are the new lenders' 
     biggest customers.
       The payday lenders here approve most loans within 10 
     minutes. ``No Credit Check, Instant Approval,'' Easy Money's 
     flier promises. ``The fastest way to payday,'' read the 
     banners on the walls of Check 'n Go.
       For this service, some states specify a maximum fee of $15 
     on a one- or two-week loan of $100 or $200. In Indiana the 
     limit is $33. At $33, the annual rate on a two-week $100 loan 
     is 858 percent.
       And as borrowers amass loans, taking new ones to pay the 
     fees on the others, the fastest way to payday becomes a fast 
     way, too, to garnished wages and bankruptcy.
       Kathy Jo King, 41, earns almost $60,000 a year as an 
     assembly-line worker at the Daimler-Chrysler transmission 
     plant. But she has no savings, in part because she is paying 
     creditors $113 a week to work her way out of a bankruptcy 
     that followed a serious automobile accident and left her 
     husband partly disabled and both with high medical bills.
       Then early last year, Ms. King and her husband and their 
     boys, 18 and 11, had to move, incurring $1,500 in unexpected 
     expenses.
       ``I've got kids to feed,'' she said. ``I had to go do 
     something.'' With her credit in ruins, she could not go to a 
     bank for a loan, so she went to payday lenders.
       ``We did several payday loans all at once,'' Ms. King said. 
     ``They make you feel real at ease about it.'' She started 
     paying off the loans bit by bit but became saddled with $200 
     in fees alone every two weeks and could not keep up.
       So one lender tried to redeem her last $330 check covering 
     a loan of $300 and a fee of $30. She did not have money in 
     the bank to cover the check and it bounced. The bank and the 
     lender then charged her $80 in fees for a bad check.
       Next, the lender sued, and Ms. King lost. The court awarded 
     the lender triple damages--$990, or three times the amount of 
     the check, plus $150 in lawyer fees and $60 for court costs. 
     With the $80 for bouncing the check, Ms. King owes $1,280 on 
     her original loan of $330.
       Currently, about 100 payday lenders suits against borrowers 
     are on file in the Howard County Superior Court in Kokomo. 
     Lenders here also send out letters threatening their 
     customers with imprisonment for bouncing a loan check, 
     although none is known to have tested the state penal code 
     provision that they invoke in making the threat. Some lenders 
     start taking legal action within a month to obtain unpaid 
     loans; others try to work longer with customers to avoid a 
     lawsuit.
       David Hannum, coordinator of the Consumer Credit Counseling 
     Service, said borrowers kept paying the fees, digging 
     themselves deeper into debt, out of fear that lenders would 
     otherwise try to redeem their checks when they did not have 
     money in the bank to cover them, further tainting their 
     credit ratings.
       To tap into this market, Carol Brenner, 36, opened Quick 
     Cash here in September. Ms. Brenner now has 350 clients, most 
     of whom return every week or two to have their loans renewed 
     or to pay them off, but then they often take another a few 
     days later. She charges less than most lenders: $20 for a 
     two-week $100 loan, for an annual percentage rate of 521 
     percent, and $30 for $200, or 391 percent.
       Unlike some lenders, Ms. Brenner lets her clients pay off 
     portions of their loans as they extend them and in that way 
     work them down. And to avert probable trips to small-claims 
     court, she says she will not lend to people who already have 
     more than two loans from other payday lenders.
       The biggest borrowers, many lenders say, are not Kokomo's 
     low-wage service workers, but auto industry employees who 
     earn more than $20 an hour.
       ``Most of my customers are from Chrysler and Delco,'' said 
     Marc Sutherland, manager of the Kokomo office of Nationwide 
     Budget Finance.
       Shari Harris, 39, who earns around $25,000 a year as an 
     information security analyst, was managing money well enough 
     until the father of her two children, 10 and 4, stopped 
     paying $1,200 a month in child support.
       ``And then,'' Ms. Harris said, ``I learned about the payday 
     loan places.''
       She qualified immediately for a two-week $150 loan at Check 
     Into Cash, handing it a check for $183 to include the $33 
     fee. ``I started maneuvering my way around until I was with 
     seven of them,'' she said.
       In six months, she owed $1,900 and was paying fees at a 
     rate of $6,006 a year. ``That's the sickness of it,'' Ms. 
     Harris said. ``I was in the hole worse than when I started. I 
     had to figure a way to get out of it.''
       So she asked her employer to stop paying her wages into her 
     checking account, emptying it, and putting her checks into a 
     savings account. She stopped paying the biweekly fees to 
     extend the loans, so the lenders tried to redeem her checks. 
     ``I let them all bounce,'' she said.
       She took a second job, working in a department store, and 
     turned to the Consumer Credit Counseling Service, which 
     worked out a plan under which she is paying $440 a month to 
     work down the loans.
       Jean Ann Fox, director of consumer protection at the 
     Consumer Federation of America and a prominent critic of 
     payday lending, said, ``There's nothing wrong with small 
     loans at reasonable interest rates, reasonable terms and 
     reasonable collection practices.
       ``But these practices are designed to keep you in perpetual 
     debt.''


                             What it costs

       An Expensive $100--A payday loan is a short-term cash 
     advance, for a fee, to be paid off with a check that will be 
     cashed on the borrower's next payday. But with fees like $30 
     for a two-week loan of $100, they are far more expensive than 
     even credit cards:
       Payday loan: $60 a month--A $30 fee for a two-week $100 
     loan, renewed for two more weeks; $100 cash loan--$60 $100 
     cash advance--$5.
       Credit card: About $5 a month--A card available to people 
     with poor credit might have a 3 percent fee for a cash 
     advance, plus an annual interest rate of 19.8 percent, or 
     about $2 a month on $100.

  Mr. WELLSTONE. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. HELMS. Mr. President, I ask unanimous consent that the order for 
the quorum call be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________