Want to talk to somebody at a payday loan operation? Good luck.
Most payday lending company phone numbers are disconnected, others now belong to different businesses.
A customer service representative did answer at EZ Money Check Cashing in Missoula last week, explaining the company does check cashing and tax filings, but no longer offers payday loans.
The reason is simple, and Bernie Harrington, owner of EZ Money Check Cashing, explained it this way: He closed three stores and cut services at others after Montana voters passed ballot Initiative 164 in November 2010. The initiative capped at 36 percent the interest fees and charges that payday, title and retail installment lenders can assess customers.
Supporters of I-164 called payday loan companies "predatory," as lenders could charge up to 400 percent on the short-term loans.
Opponents of I-164, mostly payday lenders like Harrington, said the 400 percent was a misrepresentation of the charges. They said the initiative would put them out of business, and they were correct.
Before I-164, as many as 150 lenders were doing business in the state. Today, there are 18 licensed payday lenders in Montana. That's down 84 since 2010, according to Montana Division of Banking and Financial Institution figures.
The remaining companies renewed licenses to ensure they could collect on bad debts, but aren't actually lending, said Melanie Griggs, commissioner of the Division of Banking.
But just because the storefronts closed doesn't mean payday lending is dead. It has simply moved to the Internet and the telephone.
Lenders online promote toll-free numbers that direct consumers to out-of-state, sometimes out-of-country, payday lending services offering fast money - with interest rates up to 1,000 percent - to anyone who enters their financial information on the site.
It's illegal for companies not licensed in Montana to provide the loans, but the ease of the online options tempt many, and regulating the transactions has proved difficult.
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"Cash Connection doesn't lend in Montana anymore," said company compliance officer Leland Johnson.
The company's two Missoula locations closed after I-164 passed, and four employees lost their jobs, Johnson said. Cash Connection still does business in five other states.
"We did our best to help people out," Johnson said. Now that the option for a short-term loan "being provided in good faith ... is gone, I think people are dealing with people on the Internet. They don't know where the loans are being funded or being originated."
The Internet lenders debit accounts in a way that is "not OK," Johnson said.
Harrington agrees.
"I think the bigger effect has been on our customers; we still have customers calling and coming in every day asking for some help and we don't have the ability to give it to them," Harrington said. "Customers have turned to Internet lending where it's $45 for a $100 loan. I understand that's illegal, but Internet lending is very hard to regulate in the state of Montana."
Griggs called the use of Internet payday lenders dangerous, and said complaints are up substantially this year.
"Internet payday lending is huge, and we get numerous complaints every week," she said.
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Internet companies often start with online brokers. Once a consumer enters their personal financial information online, the brokers pass the information to a host of lenders. Then, it's a "race to the checking account," Griggs said.
Interest rates on Internet loans sometimes reach 1,000 percent.
"Since they are not licensing in state, they don't follow I-164," Griggs said.
Internet companies that lend in Montana can technically be charged with violating the law and operating without a license. But the state has to find someone to charge. Complaints about illegal Internet lenders are filed with the state, but it's often difficult to find the actual companies to take action against.
"The problem is finding someone to serve. Often, we can't figure out where the company is," Griggs said.
Billings attorney John Heenan has gone so far as to file a class action lawsuit this fall in Yellowstone County against Internet lender LoanPoint USA, on behalf of client Tiffany Kelker. Heenan said Kelker was charged about 780 percent on a loan she took out with LoanPoint.
"Ms. Kelker's individual damages are pretty small, but we believe there are a lot of people just like Ms. Kelker. We're trying to get them their money back," Heenan said.
Griggs' office and the state Attorney General's office continue to issue consumer warnings about the dangers of using Internet lenders.
"We tell people not to use them," Griggs said. "No. 1 we tell everyone, regardless of what (the service is) do not put out personal financial information on the Internet. You put yourself at a significant risk that these people will harass you and overdraw your checking account and will not be wiling to work with you if you're unable to make your payment."
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The Montana Community Foundation, through its Women's Foundation of Montana, was one of the lead organizations promoting I-164. Community foundation president Linda Reed said the point of I-164 was to stop the massive amounts of money being spent on payday loans. I-164 effectively capped the payday lending interest rate, which was its mission.
"I don't think we had any anticipation that it would solve the problem, but that's based upon our definition of the problem, that people aren't well enough informed about their finances," Reed said. "This was a way to calm that down, and then to work with people to become more knowledgeable about money and how it works."
One alternative Reed pointed to for those in needs of a short-term loan is local credit unions.
In Missoula, Missoula Federal Credit Union offers a payday alternative loan, or PAL, program.
Through PAL, credit union members can get a $100 to $500 loan through a process that doesn't involved a credit score check or debt-ratio check. Members must have had an account for 90 days, that account must be in good standing and employment of 90 days must be verified. The credit union doesn't require an education element as many others do, the credit union's Julie Meister said. The current interest rate on a PAL is 18 percent and must be paid off in five months. Customers are limited to three PALs from Missoula Federal per year.
The program was popular before I-164 passed, and it's only grown in 2011.
The idea of a PAL is to build relationships and offer customers other services along with the loans, such as access to a financial service officer.
"This is not a money maker, but at the credit union our motto is ‘people helping people,' " Meister said. To help make PAL more viable in 2012, the interest rate on the loans will bump to 28 percent.
"You can come in and have that conversation, and let them know they're not the only ones out there who are struggling. Moving forward if they can make the payments and build the relationship, and we can see they're making the effort to get back on track, we'll do all we can to help them again," Meister said.
EZ Money's Harrington said the "strings" attached to credit union options don't satisfy his customers' needs. It is still a deterrent that forces them to continue to seek online lending services.
"I said on election night, it's a great victory for the proponents of I-164, but they didn't help anyone," Harrington said.
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