DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- In an ironic twist, both consumer groups and the payday lending industry are opposing legislation aimed at protecting borrowers seeking small, short-term loans.
The opposition comes as Democratic lawmakers are seizing upon the financial crisis to strengthen consumer protections on a range of products from credit cards to mortgages. A House Financial Services subcommittee on Thursday is scheduled to debate legislation that would change payday lending laws, capping interest and fees at $15 for every $100 loaned, prohibiting lenders from extending more than one payday loan at a time to any single borrower and requiring the provision of interest-free extended payment plans.
"The status quo in the payday lending industry is unacceptable," said Rep. Luis Gutierrez, D-Ill., chairman of the Subcommittee on Financial Institutions.
Gutierrez calls the Payday Loan Reform Act "a federal safety net for the working poor who are suffering the most in this economic downturn."
Consumer groups, however, have a different view.
"We oppose enacting legislation to sanction a predatory credit product that traps cash-strapped American families in a debt cycle of repeat borrowing," Jean Ann Fox, the Consumer Federation of America's director of financial services plans to tell lawmakers.
The $15 fee cap the legislation would impose translates into an annual percentage rate of about 390%, a figure Fox maintains "will undercut reform efforts in the states."
Consumer groups are pushing for separate legislation that aims to impose a maximum 36% APR on all consumer loans. Such a cap, however, could drive out of business payday lenders who say the $15 limit already is too low.
"Ours is a fee-based business, and APR should not apply," Troy McCullen, owner of a chain of payday lending storefronts and president of the Louisiana Cash Advance Association, will tell lawmakers. "Money is just like any other commodity, and applying APR to our business skews reality and is illogical."
In Louisiana, payday lenders are allowed to charge maximum fees of 16.75% on payday loans, which typically require repayment within a couple of weeks. McCullen maintains lowering those rates could push some lenders out of business and drive consumers toward costlier overdraft charges in connection with bounced checks.
The Center for Responsible Lending estimates 19 million borrowers a year take out payday loans.
In her testimony to lawmakers, customer Gerri Guzman will call the loans "a necessary evil."
"In a perfect world, we would all have money set aside in savings to deal with expenses as they come up," her prepared testimony reads. "But having much money in savings is not the reality for many families, especially with the economy the way it is today."
Thursday April 2nd, 2009 / 18h52 Source : Dowjones Business News
Visit
PaydayLoans
Linear Mode
