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They’re easy to get, but critics say they are a debt trap for the vulnerable.

Published online on Saturday, Aug. 01, 2009

There are times when Glenda Powell is desperate for money.

When cash runs short, she first looks to her daughter or mother for help. Then, if she must, she turns to a payday lender.

Dozens of these no-frills storefronts all over the Valley will let people borrow against their next paycheck — for a price. A big price.

“It’s my last resort,” said Powell, a 48-year-old hospital worker from Fresno. “If they don’t have the money, I go to the payday loan.”

State law limits payday loans to $300, but nothing says you can’t borrow against the same paycheck from more than one company or renew the debt repeatedly. With the loans typically carrying annual interest rates of 460%, that can mean trouble.

“I’ve had up to four loans at one time,” she said. “The situation was bad, and I got deep into it. … You get into a cycle where you pay this one back, then reborrow. That’s how I was doing it for a while, and not making enough money to pay my rent or my bills.”

Many states effectively ban payday loans, and a federal law could end the practice nationally. But they’re perfectly legal in California.

Payday lenders flourish in low-income areas such as the central San Joaquin Valley. Fresno County, for example, has more of them per capita than any other large county in the state.

Payday lenders say they provide a necessary service at a reasonable cost. Consumer advocates say the companies prey on working-class families, creating a debt trap for the vulnerable.

Experts say payday loans are another example of how the poor pay more for everyday things. People with more money can dip into savings or use credit cards to get cash far more cheaply.

Payday loans have one advantage: they’re easy to get. By showing little more than a payroll stub and a photo ID, a person can apply to cash a personal check that the company will hold until payday comes around, usually up to two weeks or a month.

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In these days when “reform” supposedly is the mantra in Springfield, business as usual continues, well, as usual. The only thing that’s surprising is the sheer audacity of the players.

A prime example is what didn’t happen late last month on a bill to put more limits on the payday loan guys. You know, the good folks who say they’ll lose their shirts helping worthy citizens if they can’t charge interest rates of 300% or 400%.

The bill, a top priority for Illinois Attorney General Lisa Madigan, got a grand total of one vote in the Illinois House committee in which it had been dumped. Yes, one vote. Neither House Speaker Michael Madigan (Lisa’s dad) nor anyone else offset the squads of connected lobbyists who pulled strings to kill the bill — and likely will pull out their checkbooks again when lawmakers are raising cash for their next campaign.

Ah . . . the sweet smell of reform!

Limits on payday lending and related loans that some call “predatory” were a hot issue a few years ago. In fact, the issue got so much ink in 2005 that lawmakers imposed limits on loans that had to be paid off within 120 days.

The response by much of the payday lending industry was to continue the same high fees and rates, but to apply them only to loans with a term of 181 days and the like.

Since then, a few legislators have been trying to rework the law, and this session they came up with a proposal that got support not only from expected sources like unions and religious leaders but a fair number of payday lenders.

Specifically, the measure sponsored by state Rep. Julie Hamos, D-Evanston, would cap interest rates on loans of up to $4,000 at “only” 99%, limit payments to 20% of a borrower’s monthly income, require lenders to verify borrowers’ ability to pay and effectively ban huge “balloon” payments at the end of the loan term.

Now, I’m not without sympathy for payday lenders. I understand why some, as a matter of libertarian principle, oppose any usury limits. The lenders are entitled to make a buck, and bills like Ms. Hamos’ surely would cut off some poor folks from access to credit.

But not everyone deserves access to credit all the time. Subprime lending to those with subprime finances arguably is the main reason why the nation is caught in the worst downturn since the Depression. If the industry has to clobber many low-income families with killer rates to make up for other borrowers who default, maybe the industry ought to tighten its lending standards.

Perhaps arguments like that convinced six Democrats and three Republicans on the House Executive Committee to vote “present,” which had the same impact as a “no” vote. Or perhaps it was someone else.

Like Victor Reyes, a former top political aide to Mayor Richard M. Daley who now lobbies for payday lenders. Four of the six Dems who didn’t vote are Hispanic, and Mr. Reyes ran the legendary Hispanic Democratic Organization.

Like Rob Uhe, who lobbies for a Dallas-based payday lender and happens to be a former counsel to Mr. Madigan, who could have put the Hamos bill in another committee but let it go to a panel where its fate was clear from the beginning.

Like former Democratic state Rep. Bob Molaro, another payday loan lobbyist. Or, my personal favorite, Kim Morreale, who is married to state Rep. Michael McAuliffe, R-Chicago, and lobbies for payday lender AmeriCash. (One GOP source notes that Ms. Morreale was in the lobbying biz before she got hitched, but it must be nice to review the roll call with someone a pillow away.)

Oh, did I mention that groups opposed to the Hamos bill have donated more than $540,000 to Illinois pols since 2000? The biggest recipient (appropriately): Rod Blagojevich. The second-highest, former state Rep. Brent Hassert, R-Romeoville, now lobbies for — you guessed it — a payday loan group.

Ah . . . the sweet smell of reform!

Word has it that state Rep. Lou Lang, D-Skokie, may take over sponsorship of the bill from the sometimes abrasive Ms. Hamos. Since reform has arrived in Illinois, Lou, I’m sure passing something will be a snap.

©2009 by Crain Communications I

The June 16 letter critical of Del. Glenn Oder, saying he “has finally addressed the issue” of payday lender abuses, really misses the mark. HB940 passed in 2002 on a bipartisan vote of 73 to 27 and was signed by a Democratic governor. I know; I was the patron of that bill.

I sponsored it reluctantly and then only after a year of study and another year waiting for federal regulators to curb unsavory practices of out-of-state banks “renting” charters to storefront operations in Virginia. These lenders charged as much as $20 per $100 borrowed, allowed unlimited rollovers (renewing each payday and requiring another advance payment), so that borrowers unable to repay the loans found themselves in financial trouble. Virginia’s Bureau of Financial Institutions has no jurisdiction over federally chartered institutions, and the federal government continued to be unresponsive.

An alternative was to establish a state-regulated system with lower rates ($15 per $100), limit each loan to $500 and prohibit rollovers. It took only a year of unimagined proliferation to realize what a colossal mistake it had been. Legalization gave the industry the license, the “respectability” it wanted. The flood gates were opened.

During the next five years I attempted repeal, Del. Oder attempted repeal, and many legislators tried diligently to reverse this misguided policy with its unintended results.

Del. Oder deserves full credit for his unflagging determination to gain approval of a formula that, while payday lending continues, it no longer attracts the prurient and disreputable interests that caused so much injury to an unsuspecting public. Because of his legislation, 35 percent of the payday businesses in Virginia have turned in their licenses and more are expected to leave the state by year’s end.

Appropriately, Del. Oder was recognized by the Virginia Interfaith Center in 2008 for his work to pass significant regulatory reform to break the cycle of debt created by payday lenders.

Harvey B. Morgan

Virginia House of Delegates

Middlesex

Copyright © 2009, Newport News, Va., Daily Press

FARMINGTON, N.M. (AP) - New Mexico’s attorney general has sued a Farmington payday loan company for allegedly charging “exorbitant and grossly unfair” interest rates exceeding 1,000 percent a year.

The suit filed in Santa Fe on Thursday accuses Cash Now Loans of exploiting a loophole in state law that limits fees for short-term loans by extending the repayment length.

The company has been offering $100 loans with repayment plans of a year. That ultimately costs the borrower more than $1,000 to pay off.

The state filed a similar complaint against several branches of the payday loan company Fastbucks.

A spokesman for Attorney General Gary King says the office wants the companies to stop the practices. The suits also seek restitution for customers.

Representatives of Cash Now didn’t return calls seeking comment on Thursday.

(Copyright 2009 by The Associated Press. All Rights Reserved.)