Payday Lending

Tuesday, September 18, 2007

IF THE D.C. Council votes on the merits today, it will ban the most exploitative practices of payday lenders. Council members have heard powerful testimonials from those victimized by exorbitant interest rates. Twelve of 13 council members have agreed on the need for a crackdown. The mayor and his attorney general have made a persuasive case for change.

But the industry is conducting an aggressive lobbying campaign wrapped around phony promises of reform. It is sparing no expense and, as The Post's Nikita Stewart reports today, is resorting to questionable methods in its campaign. An award of $100,000 to a Southeast nonprofit group, portrayed as giving back to the community, may be an attempt to buy support. Meanwhile, plans to pull about 200 high school students out of school for a financial seminar featuring payday lenders were aborted by school officials when critics learned of the scheduled event.

Payday lenders take advantage of people in desperate straits by charging up to $16.11 for a two-week loan of $100 -- an annual percentage rate of 400 percent. Most of us know this as usury. The reform under consideration would cap the annual rate of interest at 24 percent and force payday lenders to play by the same rules as banks and credit unions.

In response, the lenders have proposed changes that in other states have had no positive impact. They promise, for example, to end loan rollovers, but nothing would prevent borrowers from paying off a first loan with a second, a second with a third, and so on. Council member Mary M. Cheh (D-Ward 3), sponsor of the bill, is right to call such proposals "costume jewelry." Payday lenders also portray their "service" as essential to poor people. But it's a practice that was born only in the late 1990s; in states that ban the loans, employers, licensed finance companies, credit card companies and credit unions have filled the gap.

So watch how your council member votes. As we said: On the merits, it's not a tough call.

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