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Payday loans will be capped
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D.C. Ward 3 Council Member Mary Cheh, who is leading a charge to legislate the workings of payday lenders, calls them "invasive species" that have been causing "destruction and havoc" in the lives of their borrowers, who are mostly the working poor.
WASHINGTON (Map, News) - The D.C. Council on Tuesday overwhelmingly approved legislation to cap soaring interest rates of payday lenders, a move that a representative of the high interest loan industry said “doomed” their businesses. The bill passed by a 12-1 vote, with only Ward 8 Council Member Marion Barry — once a backer of the measure — standing opposed. Ward 3 Council Member Mary Cheh, who led the charge, characterized payday lenders as an “invasive species” causing “destruction and havoc” in the lives of their borrowers, mostly the working poor.
“They steal money,” Cheh said. “They steal futures by their practices.”
Payday lenders usually furnish small cash advances, about $500 on average, that are to be repaid in a matter of weeks. Borrowers who can’t repay their loans on time are penalized with skyrocketing interest rates, often more than 300 percent, and fees that can quickly double or triple their principle, proponents of the legislation claim.
The bill, which Mayor Adrian Fenty will sign, caps interest rates at 24 percent.
Barry said payday lenders provide a valuable service for some 30,000 people a year in the District, particularly those who are struck by an emergency and need quick cash. The industry, he said, employs 500 people whose jobs will be threatened by passage of the bill.
“All these people who are using this are not being exploited,” Barry said of borrowers.
Speaking for the industry, Willie Green with the Community Financial Services Association said the rate cap will put the District’s payday lenders out of business, driving their customers to Virginia, which has less regulation. The association, Green said, would have preferred regulation, such as limiting rollovers, requiring payment plans and capping loan amounts based on income.
“The industry is doomed here,” Green said. “It really is.”
To which Cheh replied: “If they can’t follow the model and live within the cap, they should go out of business.”
dcexamiNation and poll: What do you think about the payday lenders who operate in D.C.?
Comments from Examiner Readers
12:46 AM MST on Fri., Aug. 29, 2008 re: "Legislators unveil payday lending reform package"
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No Fax Payday Loans said:
There is too much government regulation as it is. No one should be able to decide if I’m able to get a payday loan besides me. The government should not be able to make that decision for me. Banks and credit unions shouldn’t be able to regulate payday loans either–of course banks want to get rid of the payday loan industry (their competitors). If I want a payday loan I should be able to get one! There are times when I need a little extra money to make it through to my next paycheck. When those times come, I need to be able to decide for myself to use a no fax payday loan. They’re so easy and so convenient! I refuse to let the government make decisions for me.
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paydaylendingrep said:
Adults should be given all of the information they need and then allowed to make the decision about what financial products work best for their families and their individual situations. Taking away choices does not help consumers. When faced with an unexpected expense, payday loan customers choose between bouncing a check or overdraft protection, incurring late fees on routine bill payments, borrowing from friends, family or church, taking out a cash advance on a credit card or taking out a payday loan. All of these products have a cost associated with them. Payday loans can be a less costly and/or most desirable option.
3 agree | 0 disagree
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Less Tax More Teach said:
I applaud Mr. Wilson’s intent, particularly related to educational initiatives—which is the only real solution. However, imposing what appears to be a “penal” tax on these businesses is unjustified and will only hurt the consumer. Why not impose a “penal” tax on other lenders who refuse to serve the credit impaired—the ones turning their backs on these people in need?
1 agree | 1 disagree
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Examiner Reader said:
That expense is just going to be passed on to the consumer as in any business. The amounts of their loans are small and smaller loans require a higher interest rate to make even a small profit. Also, these businesses are not banks that have a pool of money to lend that comes from their deposits. They must borrow all the money they are loaning at their own risk. They have overhead and employees and all the expenses any other institution has. They provide a much needed service to communities and should not be discriminated against like this.
1 agree | 0 disagree
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Examiner Reader said:
Whenever I here the debate over the propriety of payday loans come up, it is without fail that two words are mentioned: "predatory" and "uneducated". This is always mentioned in the context of a quote from some lawmaker or "consumer advocate" stating that the payday lending industry is preying on those who are less educated then they are ( I assume this is their opinion since they are insulting people while trying to protect them from a product that they consider to always be a bad decision). The irony of the situation can be summed up by asking a single question. What is cheaper: An overdraft charge of $25.00 or a payday advance fee of $15.00 dollars? Looks like payday loan customers are not that stupid afterall. Can the same be said for these "more-eduacated" lawmakers and so called consumer advocates?
3 agree | 0 disagree
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Payday Lending Rep said:
Payday advance customers have strong sentiments against the government limiting their access to payday advance. They want to be able to make their own financial choices. The real underlying issue is who should decide how much is too much? Should the government be allowed to put arbitrary limits on consumers' use of a service that may be a better option for them? Based on the reasons customers choose payday advance, limiting their use would in most cases, drive them to more expensive and less desirable alternatives that they had previously tried to avoid.
3 agree | 0 disagree
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Examiner Reader said:
Everone is always whining about payday loans,why don't some one do something about the overdraft protection fees,Boats,scalping tickets and credit cards.You just need to use common sense when using payday loans.Just like when you have 5 credit cards.
4 agree | 1 disagree
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Examiner Reader said:
A 24 hour "cooling off" period I can deal with, but if I want to waste my money on 40 loans per year, that is my America given right! Why is the government trying to tell us how to get out of debt when they are trillions of dollars in debt themselves. Why are we bailing people out when they are making bad decisions? We need to hold these people responsible for the decisions that they make. The payday lenders should not be blamed for these idiots. Payday loans are not that hard to figure out. You borrow money, then you pay it back on your payday. If you are not going to be able to pay it back, then don't borrow it. Don't cap payday loans, leave them alone for those of us who can use them responsibly.
22 agree | 12 disagree
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Examiner Reader said:
Supporters of the payday loan industry aren't fighting reform, they're fighting reform that can potentially abolish the industry. Any proposed reformation by legislators insist on stripping all any and all profits from lenders by imposing a 36% APR. Payday loans are a high risk product and a 36% APR will not leave room for error including customer default. It is unfortunate that there is such a huge focus on the APR of payday loans rather than the short-term fee for short-term use. Of course, if you put an APR on a financial product that is only meant to be used for a week or two, it will appear outrageous. There have been several reports completed by non-biased sources stating how the correct use of payday loans by consumers can be beneficial because it allows individuals to better manage their finances.
33 agree | 28 disagree
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cynical said:
You can't protect people from themselves. Borrowers of these loans get themselves in trouble long before they walk into the payday loan office. More laws and rate caps won't change that.
57 agree | 40 disagree
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Examiner Reader said:
The difference between rich and poor - options and alternatives. This Federal reasearcher's report makes sense. How does an imposed $30+ Overdraft Protection "Fee" (bank payday loan) for ANY amount ($3.00+) make more sense than a sought-out choice for a $30 payday loan for $200-300? Once the banks are done telling you their payday loans are better they will tell you that Universal Default is o.k., too.
37 agree | 41 disagree
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Mambo said:
Mike, That would be PRINCIPAL not PRINCIPLE. As in pricncipal and interest. Back to grade school :-)
115 agree | 108 disagree
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