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Predatory Lending


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Posted by Don (64.203.129.94) on March 05, 2004 at 00:34:25:

In Reply to: Elected Officials posted by Don on March 04, 2004 at 23:50:20:

Also from the March 4, 2004 Atlanta Journal-Constitution, an op-ed by Julian Bond, president of the NAACP.

Legislature should free borrowers from snare
By JULIAN BOND
THE GEORGIA LEGISLATURE -- where I served in the House and Senate for 20 years -- is poised to pass a strong bill that would force payday lenders to either comply with Georgia small loan law or close up shop.

It is my sincere hope that Georgia legislators will do what is right to end the needless suffering caused by the payday lenders operating illegally right now.

In December, I participated in the release of a study by the Center for Responsible Lending quantifying the cost of predatory payday lending to American families. CRL conservatively estimated that more than 5 million Americans are caught in a debt trap of predatory payday lending that costs them $3.4 billion per year. In neighborhoods where payday lenders are on every street corner -- like so many Starbucks in affluent areas -- the true societal cost may well be incalculable.

The NAACP opposes payday lending because it compromises our efforts to build wealth and savings in communities of color. Once redlined, these communities are now the marketplace of choice for this legalized extortion.

Here's how it works: A borrower writes a $300 check dated two weeks in the future and takes home $255 in cash. In two weeks, the loan is due in full and the check is ready for cashing.
At that time, however, most borrowers cannot afford to pay back the loan and still make it to the next payday. To avoid default, they pay another $45 to keep the same loan outstanding until another payday or pay the full $300 back, but immediately take out another payday loan to cover living expenses.

In either case, they are now stuck in a deadly cycle, paying repeated fees to keep an existing loan outstanding that they cannot afford. Annual percentage rates, on average, exceed 400 percent. Payday borrowers are bewildered at what has happened -- they only know that the emergency a payday loan was supposed to solve created a new crisis.

The dirty secret of payday lending is that its business model is utterly dependent on extracting huge fees from those borrowers unable to pay the loan back. In fact, the CRL study found that 91 percent of payday loans are to families caught in a trap of five or more loans in a year, while only 1 percent of payday loans are made to the oft-cited borrowers who take out one loan in a year to ride out a financial crunch. While the industry claims its loans are for occasional use, the data show otherwise.
Real people feel the pain. Sidney Hughes of Atlanta initially borrowed $350 in cash, then tried to get himself out of debt by "borrowing from Peter to pay Paul" until he had paid almost $10,000 in fees to extend $2,500 in loans. He still owes the original amounts.

Officers from Kings Bay submarine base and Fort Stewart accuse payday lenders of preying on troops, and harming the combat readiness of soldiers who led the assault on Baghdad.

Payday lending, legal in 35 states and the District of Columbia, is now a $25 billion-a-year industry. Its growth has been phenomenal, and the industry is effective and deep-pock-
eted. It hires a posse of lobbyists who have become adept at throwing weight and money around state capitals.



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