State
needs help to curb predatory lenders
The fight to stomp
out predatory lending has always been difficult -- the minute lawmakers target
one form of usury, another springs up to take its place. Florida is learning that lesson well: The
state has already taken on abusive practices tied to the title-lending
industry, which writes loans at triple-digit interest rates secured by
borrowers' vehicles. Payday loan companies that also charge huge interest rates
are also proliferating, despite state attempts to regulate them. An increasing
number of elderly and disabled people isfalling into sticky traps of debt.
Payday
lenders work this way: A customer signs an agreement that sets out the amount
borrowed, plus fees and interest, and then writes the lender a check for that
amount. The lender holds the check for a pre-arranged period of time then
submits it to the borrower's bank. By state law, interest rates for these loans
are supposed to be capped (but the capped rate can still translate into an
annual percentage rate of 300 percent or more) plus a "verification"
fee. Increasingly, says the Florida Public
Interest Research Group, lenders are ducking these regulations by taking
out national charters as banks (or striking deals to piggyback on charters
owned by banks.)
A
bill pending in the Legislature would give the state slightly more leverage
against predatory lenders. But it's becoming increasingly clear that state
legislatures can't tackle this problem alone. National reform is needed.
Across
the nation, regulators are seeing disturbing trends. Employees of some national
chains are targeting elderly people who have their Social Security checks direct-deposited
into checking accounts, making loans in mid-month then sweeping the
(significantly higher) repayment amount from the bank account as soon as the
benefits check clears. Advocates for the disabled say their clients often fall
victim to lenders who convince them to take out multiple loans -- a practice Florida law prohibits,
but other states permit.
To
craft national protections, Congress should look first to Florida and other states that have attempted
to regulate usury. Capping interest rates to rational levels would still allow
short-term lenders to make a profit -- in fact, Florida is still one of the top
states in the nation for payday lenders despite its relatively
consumer-friendly regulation. Stopping rollover loans (where a customer delays
repayment but incurs additional, high fees) would be another important step.
Finally, caps on the number of short-term loans one person can take out would
keep borrowers from digging holes they can't climb out of.
Congress
should also consider the factors that drive so many people to predatory lenders
-- though it's a considerably tougher problem to solve. For many Americans with
poor credit ratings, payday or title lenders offer their only access to credit
in an emergency. Working with banks to establish small-loan programs could help
ease their plight, while still maintaining rational consumer protections and
caps on fees.
It
should be clear, however, that predatory lending offers little help to the
growing number of people in financial straits. For too many, these loans are
little more than a means to dig themselves deeper in debt -- and there's little
public benefit to that.
