Last year, Woodstock worked closely with the Responsible Business Lending Coalition to develop a Small Business Borrower Bill of Rights (BBOR). The BBOR was intended to establish best practices for the industry, including, for example, the responsibility to disclose an APR. The BBOR is, however, completely voluntary. There is no mechanism to enforce the BBOR against lenders who sign on to it, and some major lenders have simply refused to sign on to the BBOR.
Testimony of Spencer Cowan before the Senate Financial Institutions Committee. In this testimony Cowan discussed the lack of access to capital for many small businesses in Illinois and the prevalence of online-predatory lenders.
Presented by Spencer Cowan at the Illinois Senate Hearing on small business and and impact of predatory lending.
“Because title loans are largely unregulated in Illinois, lenders have increased loan terms to an average of over 18 months while still charging interest rates over 200 percent APR,” said Spencer Cowan, Senior Vice President of Research at Woodstock Institute. “Multi-year, triple-digit loans are incredibly expensive and, with the borrower’s car title securing the loan, there is very little incentive for the lender to consider the borrower’s ability to repay the loan with his or her existing income.
According to a media release from the Center for American Progress, the groups sent the letter to NCUA Chairman Debbie Matz Thursday and warned that loans made by federally chartered credit unions, federally insured, state chartered credit unions and CUSOs “may constitute unfair and deceptive trade practices, and threaten the credit unions’ safety and soundness by posing serious credit, reputation and compliance risks.”
The letter accused ITT Educational Services for allegedly developing a scheme to issue high-cost private student loans to its students through a CUSO.
When he finally got the money, he hired a local design firm to turn the interior into a hip and rustic open space. He added liquor to the bar, hired two experienced bartenders and sent them to Peru to devise a new cocktail menu. But as the planned reopening date neared in early 2014, Assereto was running out of cash. He needed about $30,000 to stock his new bar and to pay for other supplies to fill out his larger space. Rejected yet again by his primary bank, he began to get desperate.
Payday lenders are the modern day equivalent of loan sharks, aggressively marketing unaffordable loans as a way to meet a one-time need. In truth, payday lenders know that borrowers cannot both repay the loan and cover their living expenses. To do so, they will need another loan, which requires payment of another fee. This is the payday loan debt trap, where interest rates average 400 percent. The vicious cycle of debt is not a side effect of payday lending—it is the business model of payday lending. Three-quarters of payday loan fees come from borrowers with 10 or more loans per year.