CBC holds ‘predatory lending’ hearings (FCN, 07-21-2005)
WASHINGTON, D.C. (FinalCall.com) – “Pay day loans” have been called everything from “legal loan sharks” for the poor to “my last resort.” If the D.C. Council has its way, the high interest rates charged on these short term loans–which can range as high as 500 percent or more–would be reduced to only 24 percent, which is similar to what banks and credit unions charge.
D.C. joins other states around the country like Washington, Florida, Arkansas, Virginia and Oklahoma, who are saying, “No!” to payday loans.
The National Consumer Law Center explains a payday loan as the following: The customer writes a check to the lender. The amount on the check equals the amount borrowed, plus a fee that is either a percentage of the full amount of the check, or a flat dollar amount.
Some payday lenders will offer an alternative “automatic debit” agreement. Customers who sign this agreement give the lender permission to automatically debit the customer’s account at a future date.
These automatic debit arrangements, in particular, are often marketed to public assistance recipients and Social Security recipients. The check (or debit agreement) is then held for up to a month, usually until the customer’s next payday or until receipt of a government check.
The payday loan is for an amount of cash that is less than the amount written on the check. At the end of the agreed time period, the customer must either pay back the full amount of the check (more than the amount of the loan), allow the check to be cashed, or pay another fee to extend the loan.
For those persons needing a “quick fix” out of financial binds, payday loan centers are considered a welcomed resort. However, this “I need it now and I need it bad,” is what fuels the payday loan industry.
The D.C. Financial Services Association, which represents 41 of 48 payday loan stores in the city, was started to fight the bill and encourage residents to speak out against it. According to The Washington Post, the group is led by Check ‘n Go and ACE Cash Express. They say that if the legislation is adopted, residents would lose a lending choice, one that does not require a credit check and that helps people who need money for emergencies.
Currently, lenders can charge a $16.11 fee per $100 borrowed.
The proposed 24 percent rate would result in a little over 90 cents per $100 borrowed, which payday lenders say would make it impossible for them to operate.
While some people use the money wisely, others are not so fortunate.
According to The Washington Post, in 2001, Stacey Brown needed help paying bills. He borrowed $500 in a payday advance. When he recently finished paying the loan, all the fees and interest that came with rolling it over he had paid the company $14,997.
“These places thrive in socially and economically deprived neighborhoods. They are the bloodsuckers of the poor,” Anthony Muhammad, an Advisory Neighborhood Commissioner in one of the poorer sections of the city, told The Final Call. “There is nothing to educate people on how to get out of the debt that they are in so they get deeper in the hole.”
“Payday loans are just one of the problems. We also have check cashing places which offer services that many people need but at high rates. These companies prey on the poor and if you look closely, you’ll find them heavily staged in Black communities.”
In June, Oregon’s Legislature gave working families and consumers some relief from predatory payday lenders by capping interest rates at 36 percent. The legislation now moves to the Governor’s desk for his signature.
While the annual interest rate creeps to over 150 percent when fees are included, Oregon’s new law is still a tremendous first step in holding payday lenders accountable to usury laws.
In Washington State, payday lenders are allowed to gouge consumers to the tune of 391 percent annual interest on a typical two week loan. If the loan period is shorter, the rates can be well over 1,000 percent.
“It is encouraging that legislators in Oregon see the damage that predatory payday lending can do to a family and community,” said Maya Baxter, campaign manager for Communities Against Payday Predators (CAPP). “I hope Washington looks to our neighbors and decides to hold payday lenders to the same standard as other financial institutions.”