Our view: Bill would extend safeguards that cover the military to rest of society

Today’s Republic Editorial:

The payday-loan industry is the subject of efforts in Congress aimed at fixing things that Arizonans recognized as problematic last November.

The challenge for members of the national Democratic majority – who have long claimed the mantle of consumer advocate – is to choose as wisely as Arizona voters did.

Democratic Rep. Luis Gutierrez’s House Bill 1214 is presented as a reform effort, but consumer advocates say it would be worse than the status quo.

In testifying before the House subcommittee on financial institutions and consumer credit in April, Jean Ann Fox, director of financial services for the Consumer Federation of America, said, “For the typical two-week payday-loan term, the fee authorized by HR 1214 translates to 391 percent APR (annual percentage rate).”

For a one-week loan, the rate would be 782 percent APR, she said.

What’s more, the Gutierrez bill could undermine state reform efforts by enshrining high interest rates at the federal level.

The bill is similar to the plan Arizona voters rejected in November as being “no reform at all,” said Fox, an Arizona resident. Arizonans turned down an effort by the payday-loan industry to extend an exemption in the state’s usury laws.

The exemption allows them to do business here, but it is scheduled to expire in 2010.

The industry-funded ballot proposition was backed by a nearly $15 million campaign that asked voters to extend the exemption indefinitely.

Voters sided with a low-budget opposition campaign that argued the payday-loan industry uses predatory practices to lock unsophisticated borrowers into crippling debt.

Some argue that payday lenders offer a service that consumers want and often need.

Yet the inherent problems with such high-interest loans are what led to laws against usury.

The payday-loan industry’s business model would be banned here if it weren’t for the exemption to Arizona’s usury law.

Gutierrez may call his bill the Payday Loan Reform Act, but it falls short of true reform.

Two other bills in Congress, Democratic Rep. Jackie Speier’s House Bill 1608 and Democratic Sen. Dick Durbin’s Senate Bill 500, cap interest and fees at 36 percent APR.

Such limits are not unprecedented.

In support of his bill, Durbin pointed out that Congress enacted a federal 36 percent cap for payday, car-title and tax-refund lending marketed to service members and their families in 2006.

Congress should consider whether all Americans deserve similar protections.

To add your comments to the story, click here.

by Adam Doster, Progress Illinois:

Efforts to rein in the payday lending industry may have stalled in Springfield last month, but the battle in Washington is just heating up. After holding a hearing in April, Rep. Luis Gutierrez will likely bring his Payday Loan Reform Act of 2009 up for a committee vote this session. And there are rumors that Sen. Dick Durbin’s more comprehensive anti-usury bill might be moved as part of a larger finance reform package being assembled by Senate Banking Committee Chairman Chris Dodd (D-Conn.).

To be sure, both lenders and consumer advocates are gearing up for a lobbying push. As we noted last week, representatives from the online payday lending industry are already leaning on legislators to reject any interest rate caps on the short-term loans. As a counterweight, the Center for Responsible Lending has unveiled a new campaign titled “400 Faces,” which aims to show “the media, lawmakers, and the general public how this so-called service is nothing but a scam.” The organization is collecting stories from those who have been caught in a payday lending debt trap and posting short documentaries on YouTube. Here is their first:

Activists opposed to Gutierrez’ bill, which Stephen Colbert lampooned on his Comedy Central show in April, have also created a Facebook group “Stop H.R. 1214.” That can be reached here.

United Methodist News Service reports:

When she became ill, a widow living on $500 a month couldn’t pay her medical bills and still meet her basic cost of living. She didn’t want to be a burden to her children so she got a “payday loan,” thinking when she was well enough she could earn some extra money by sewing clothes or making tamales to sell.

She never got well. The stress of the illness and the worry of a loan that kept spiraling out of control cost the widow her home, her independence and eventually her mental well being.

United Methodist Bishop Minerva Carcaño wanted congressional lawmakers to hear that story and others of people she knows who have been victims of “unscrupulous, predatory payday lenders.”

The bishop spoke at a June 4 hearing to brief lawmakers on why all families should be covered by a 36 percent rate cap on consumer loans.

Payday lenders charge as much as 400 percent interest on loans that usually average $500. For a $500 loan at 36 percent, fees are $180 over one year; at 391 percent, fees are $1,955 over one year.

“Payday lenders are on this very day contributing to the destruction of persons, families and communities all across this country,” Carcaño said. She is the bishop for The United Methodist Church in the Desert Southwest Conference.

Last fall Arizona voters rejected an effort by payday lenders to gain exemption from the 36 percent cap.

“Arizonans did the right thing in fighting and opposing payday lenders and their deceptive self-serving campaigns,” she said. “I pray that Congress will do no less. It is the responsibility of good government to develop and implement sound and just monetary policies that provide for the economic life of corporate entities but also of individuals.”

A bill to protect consumers from “unreasonable credit rates” was introduced by Reps. Jackie Speiers, D-Calif., and William Delahunt, D-Mass., in March.

The bill states “cash-strapped consumers” pay on average 400 percent annual interest for payday loans, 300 percent annual interest for car title loans, up to 3,500 percent for bank overdraft loans and up to 500 percent annual interest for loans secured by expected tax refunds.

A national cap that includes all interest rates and fees is needed to eliminate “predatory” lending, they said. At the federal level in 2006, Congress passed a 36 percent cap for service members and their families.

Religious, civil rights and consumer groups provided personal accounts about payday loan centers.

“In California, payday centers are two and half times closer to Latino and African American neighborhoods,” said Alan Fisher of the California Reinvestment Coalition. The coalition focuses on working with banks to open up lending to minorities and low-income communities. Fisher called payday lending a “debt trap” where people get caught in a cycle of perpetually increasing debt.

Many of the panelists noted that lowering the rate to 36 percent is not the solution to this problem, but is a first step in decreasing the excessive fees on payday loans.

“We need [financial] products that allow sustainability, allow people to continue to live in grace and dignity without being lured into a long term trap,” said Hilary Shelton of the National Association for the Advancement of Colored People.

Carcaño said “in civil society, persons, men, women, the elderly, young people and children, always come before profits. Always.”

*Gilbert is a news writer for United Methodist News Service in Nashville, Tenn. Michelle C.M. Brooks, digital communications director, the United Methodist Board of Church and Society, provided information for this story.

News media contact: Kathy L. Gilbert, Nashville, Tenn., (615) 742-5470 or newsdesk@umcom.org.

For more information on Bishop Carcaño, click here.

To tell your Member of Congress to support a comprehensive 36 percent cap on ALL fees and interest rates, click here.

Thank you for taking action today!

For Immediate Release
June 5, 2009

Contact:
David Higuera (520) 907-2080

TUCSON, AZ – Yesterday, religious, civil rights and consumer groups briefed  congressional lawmakers and staff on why all families should be covered by the 36 percent rate cap on consumer loans that already protects military families.

Bishop Minerva Carcaño of the Desert Southwest Conference of the United Methodist Church was one of the panelists for the briefing.

At the briefing, Bishop Carcaño shared Arizona’s victory against the payday lenders, examples of how Arizonans are trapped by payday loans’ triple-digit interest rates, and why usurious lending is an issue of concern for people of all faiths.

Stated Bishop Carcaño, “The issue of payday loans is an economic justice issue, a moral issue.  Arizona certainly laid the groundwork last year.  Now the federal government must build upon that to protect all consumers.”

As a result of the defeat of the payday lenders  fake “reform” in November’s election, all Arizonans will benefit from a 36 percent cap in July 2010, when the sun sets on payday lenders’ 400 percent interest rates.

The briefing comes as Congress considers proposals to cap annual interest rates at 36 percent for consumer loans.  In 2006 Congress passed such a loan cap for military families. A two-digit cap is the only measure that has stopped predatory payday lending in the 15 states and the District of Columbia, where it is enforced.

Payday loans, which often carry an APR of 458 percent in Arizona, trap the average payday borrower in a cycle of debt that forces the borrower to pay much more in interest and fees than he or she originally borrowed.

The Congressional briefing focused on new research released by the Center for Responsible Lending showing that payday lenders overwhelmingly locate in African-American and Latino neighborhoods, even after controlling for income and other factors.

In 2008, examination of payday lending storefront locations in Maricopa and Pima Counties—in which over three-quarters of Arizona payday lenders are located—reveals a pattern of these stores clustering in communities of color.

“I am excited to hear that we are sharing the powerful impact of Arizona’s victory with Congressional leaders,” said Peggy Hutchison, executive director of Tucson’s Primavera Foundation.

“Arizona voters clearly said that a 36% rate cap is needed to keep families from being stripped of their hard-earned income and wealth.  Congress has a tremendous opportunity to make the right decision, one that will stabilize neighborhoods and increase wealth among the working poor across the country.”

The groups sponsoring today’s briefing were the Black Leadership Forum, Center for Responsible Lending, Consumer Federation of America, Inter-religious Working Group on Domestic Human Needs, Leadership Conference on Civil Rights, NAACP and the National Black Caucus of Local Elected Officials.

Each supports the need to rid the nation of payday loans with triple-digit interest rates.

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For Immediate Release
June 3, 2009

Contact:  David Higuera
Arizonans for Responsible Lending (520) 907-2080

Bishop to speak about Arizona’s sound rejection of 400 percent interest rates, need for Congress to protect consumers from triple-digit predatory lending

TUCSON – Bishop Minerva Carcaño of the Desert Southwest Conference of the United Methodist Church has been invited to present tomorrow morning to a Congressional Staff Briefing on the issue of payday lending.

Bishop Carcaño, who also serves as president of the Arizona Ecumenical Council’s executive board, was a critical community leader in our successful effort to defeat the payday lenders’ ballot initiative last November.

The Briefing, titled “Springing the Debt Trap“ is open to the public:
Thursday, June 4, 2009
8:30 am – 10:00 am  EST
2203 Rayburn House Office Building

With Prop 200, the payday industry attempted to write 400 percent interest rates into state law and remove the provision that would force them to drop their interest rates to 36 percent beginning next year.   But Arizonans rejected the industry’s measure at the polls, with 60% voting to reinforce the 36 percent interest cap.  Voters in every congressional district in the state rejected 400 percent interest rates on consumer loans.

Reached for comment today, Bishop Carcaño said, “The issue of payday loans is an economic justice issue, a moral issue.  Arizona certainly laid the groundwork last year.  Now the federal government must build upon that to protect all consumers.”   Added Carcaño, “I am very proud of Arizonans, who made the right choice, and I am eager to share our experience with Members of Congress so they can make the right choice, too.”

Sen. Debbie McCune Davis, Co-Chair of Arizonans for Responsible Lending, stated, “Arizonans made our verdict clear.  We do not believe any lender should be allowed to charge triple digit interest rates. Now that Congress is looking at this issue, I encourage Arizonans to make sure our Congressional Delegation hears from all of us:  ‘Support a 36 percent cap!’”

The Congressional Staff Briefing is being co-hosted by Rep. Maxine Waters and Rep. Jackie Speier, who both serve on the House Financial Services Committee.  Rep. Waters is the Chair of the Subcommittee on Housing and Community Opportunity.

Other scheduled presenters include:
Michael D. Calhoun, President, Center for Responsible Lending;
Alan Fisher, Executive Director, California Reinvestment Coalition;
Dennis Campa, Director, Department of Community Initiatives, City of San Antonio;
Rita Hayes, CEO, Mount Sinai Credit Union (now Faith Community United), Cleveland, Ohio; and
Hilary Shelton, Vice President and Director, NAACP Washington Bureau

The briefing is sponsored by: the Black Leadership Forum, the Center for Responsible Lending, Consumer Federation of America, the Inter-religious Working Group on Domestic Human Needs, the Leadership Conference on Civil Rights, the NAACP, and the National Black Caucus of Local Elected Officials.

For a flier with all briefing details, click here.  Accompanying reserch report here.

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NOTE TO ALL SUPPORTERS: To encourage Arizona’s Members of Congress to get on board with a 36% cap for all lenders, contact them directly:

Call Sen. McCain – (602) 952-2410
Call Sen. Kyl — (602) 840-1891

Call Rep. Ann Kirkpatrick, AZ-1 — (928) 445-3434
Call Rep. Trent Franks, AZ-2 — (623) 776-7911
Call Rep. John Shadegg, AZ-3 –  (602) 263-5300
Call Rep. Ed Pastor, AZ-4 — (602) 256-0551
Call Rep. Harry Mitchell, AZ-5 — (480) 946-2411
Call Rep. Jeff Flake, AZ-6 — (480) 833-0092
Call Rep. Raul Grijalva, AZ-7 — (520) 622-6788
Call Rep. Gabrielle Giffords, AZ-8 — (520) 881-3588

NOTE: Rep. Speier (CA-12) is pushing for a strict cap on interest rates.  Her bill, H.R. 1608 — Protecting Consumers from Unreasonable Credit Rates Act of 2009 — would cap ALL fees and interest rates on ALL consumer loan products at 36 percent, thus ending predatory payday lending as it currently exists.  Rep. Grijalva (AZ-7) is a co-sponsor.

The companion bill in the Senate is sponsored by Sen. Dick Durbin. It is S. 500.