WASHINGTON, DC – It’s been well documented over the past year that a fairly large percentage of Americans can’t afford an emergency expense of $ 400. This makes them the ideal target for payday lenders.
In the words of payday lenders – some call them “predatory lenders” – in many parts of the country, a cash-strapped person takes out a small loan. The lender charges, say, 10% interest. Not so bad, you think. But this 10 percent rate is not per year, but per week. When the loan matures in a few weeks, the borrower cannot repay everything and must therefore take out another loan.
The typical borrower gets 10 loans each year and pays back much more than the cost of the original loan in interest.
Some Catholic State Conferences have taken steps to mitigate the impact of payday loans in their states.
The Illinois Catholic Conference received unexpected help from the coronavirus pandemic, which shortened the legislative session, according to Marilou Gervacio, its director of social services and social justice. According to the National Conference of State Legislatures, 23 states, plus Puerto Rico, introduced payday loan bills in 2020; Illinois leads with seven separate measures submitted for review. How about checking www.paydaynow.net logo?
The question was on his radar even before Gervacio started working for the Catholic State Conference in 2003; General Manager Bob Gilligan was Gervacio when she started working there and it was in his portfolio.
“I see a lot of payday loan stores in Chicago where I live,” Gervacio said Catholic Information Service in a telephone interview on December 16. “A lot of them are in areas where there are low income residents. On payday loans, we’ve done a good job reforming and limiting them, but it’s still a pretty big industry.
Lately, a close relative of the payday loan – the car title loan – has been “more of our focus,” she added. “When we tackle predatory lending, there has been no cap on interest rates” for auto title lending, Gervacio said, “and reforms are needed to” make it fair to the consumer. ” .
In Michigan, the State House passed a bill easing previous restrictions on payday lenders, according to Tom Hickson, vice president of public policy and advocacy for the Michigan Catholic Conference.
“They brought it to the Senate, and we killed it in committee,” Hickson said, “Well, we made a really big push on the Senate side. Lots of Catholic members there, I guess. they haven’t listened to the song and the dance ”of the payday loan lobby.
Those who seek help from payday lenders find themselves in “a terrible cycle of debt,” Hickson said. “The Consumer Financial Protection Bureau – federal data – has shown that 70% of people take out a new loan within one day of repayment” of the original loan, while 90 of borrowers apply for a new loan within 30 days.
Since the annual percentage rates of these loans can easily exceed 400%, “it turns out that they make 75% of their money with people who borrow 10 times a year or more,” he said. declared.
Hickson shot down some of the arguments touted by payday loan advocates. “We are responding to a need. We help the unbanked, we help the people. The truth is, you have to have a checking account to get a loan, ”he said.
More than fighting the allure of payday lenders, the Michigan Catholic Conference released a one-page fact sheet with several alternative sources for small loans. Some familiar names on the fact sheet included Bank of America, Habitat for Humanity, and the Society of Saint Vincent de Paul. Each lender offered annual percentage rates less than 25 percent, some less than 10 percent.
“The Bank of America was a surprise to me,” Hickson said, adding that the state’s Catholic Conference had worked with Vincentians in the Diocese of Lansing to establish its microcredit program – an interest rate of 3% for loans up to $ 750. “It’s meant to teach financial literacy,” he said.
Half a dozen state credit unions were named on the fact sheet for their ability to offer small loans. “During the pandemic, Michigan credit unions made nearly 9,500 emergency cash loans, covering more than $ 22.5 million,” the backgrounder said.
In Nebraska, the state Catholic conference worked independently of a coalition that won a stunning 83-17 percent victory at the polls in November to cap the annual percentage rate for loans of any kind at 36 percent . It became the 19th state, plus the District of Columbia, to outright ban payday loans or cap interest rates so low it’s not a profitable business.
Nebraska was no stranger to triple-digit interest rates, according to Tom Venzor, executive director of the Nebraska Catholic Conference. Before the cap was passed by voters, “lenders were basically able to charge up to 461% APR (annual percentage rate) on a $ 425 loan,” he said. “By our numbers, the average borrower was billed just north of 400% on basically $ 250 loans, and ended up trapped in 10 loans a year.”
The Catholic State Conference focused its efforts on Catholic newspapers and radio as well as social media. A priest from the Archdiocese of Omaha, said Venzor, was on the board of directors of Nebraskans for Responsible Lending, which led the statewide campaign.
“People get it,” said Venzor SNC. “They know what it’s like to take out a mortgage. They would never pay 400%, 200%, 100% interest.
These and other state-level efforts this year to curb payday lenders have faced a surprising foe within the federal government.
A 2017 CFPB regulation intended to restrict payday loans and similar borrowing programs as “unfair and abusive” to grant payday loans without “reasonably determining that consumers have the capacity to repay” has was repealed in July after never having been implemented.
A week before the election, a division of the Treasury Department called the Office of the Comptroller of the Currency, or OCC, issued a rule that makes it easier for payday lenders to operate even in states that have effectively banned them, allowing lenders tacitly join forces with foreign banks and thus escape local interest rate caps.
The OCC rule could be the subject of a legal challenge or efforts by Congress to revoke it. President-elect Joe Biden could also act to overturn the rule after he takes office.