Guest column – Bad faith and bad business

By Ellen Schloemer

To listen to the payday lending industry, North Carolina is overrun by unfeeling, paternalistic churches and community groups trying to prevent people in financial crisis from getting help from caring, altruistic payday lenders.

Thank goodness we have payday lobbyists to set the record straight: We know they have no ulterior motives.  It’s only a happy coincidence that “selfless” payday lenders in North Carolina raked in more than $100 million in fees in a recent year, when they really were just trying to help people.

Calling churches, social service groups and community advocates “paternalistic” to oppose payday loans as they exist today implies that we don’t understand the needs of the poor or vulnerable, the people whom we serve everyday.

We do know them, and we know that in most cases getting a payday loan makes their lives worse, not better.

Here’s what else we know:

*Payday loans are unfair. Consumers may need short-term credit to cover emergencies, but they should not be charged fees equaling 500 percent interest to get it.

Payday lenders say they must charge high fees because of the risk they take making loans. But companies that offer credit cards to people with bad credit charge around 25 percent interest. Are payday loans really 20 times riskier?

*Payday loans trap people in a cycle of debt. Payday loans typically must be repaid in full in two weeks, which is far too soon for most borrowers. So payday lenders encourage them to take out new loans: The borrower gets no “new money,” but does pay another fee to pay off the previous loan. Fees pile up, and the debt cycle gets worse.

In North Carolina, the average payday borrower took out 14 loans in 2000. As a result, many consumers end up in worse financial shape than when they started. One of our church members, for example, will end up paying $1,780 to pay off $700 in payday loans. 

*Social services groups are harmed by payday lending. Trapped in debt, many payday customers are turning to community groups and churches for food, money, and other aid to deal with their desperate financial straits.

A Kansas City church, for example, recently found that 80 percent of visitors to its food pantry were in debt to payday lenders.

It is unconscionable that underfunded, understaffed nonprofits should be expected to handle a growing flood of needy people so that payday lenders can pocket millions of dollars in fees. 

*We need economic fairness, not the rule of the jungle.  Payday lenders are taking advantage of a situation that is not just of their own making. As a society, we need to ensure that people earn a living wage so they aren’t thrown into financial crisis whenever an unexpected emergency hits.

And banks need to step up here, too, by extending overdraft protection to customers with less-than-perfect credit. Consumers who pay off payday loans on time don’t improve their credit rating because lenders don’t report this to the credit bureaus. Talk about rigging the game in your favor.

*Payday lenders are operating in bad faith.  Since the North Carolina law permitting payday lending expired in 2001, many payday lenders dubbed themselves “facilitators” for out-of-state banks, and continued to do business here.

Now, under the guise of regulating the industry, the House Finance Committee has just approved last-minute “reform” legislation allowing payday lenders to charge as much as 400 percent for loans.

This bill, which is stacked with industry-friendly loopholes, was not introduced until the last minute, in order to avoid public discussion and consideration of alternatives.

Consumer advocates, faith communities and concerned citizens must contact their legislators now to ensure this legislation is not fast-tracked through the General Assembly.

Ellen Schloemer is director of social ministries at St. Raphael Catholic Church in Raleigh and a member of the “Just Money” network, a coalition of faith communities working to combat fringe lending and promote economic justice.

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