March 10, 2010

Payday lending no benefit to poor, Church leaders say

By John Gleason

The Colorado Catholic Conference has come out in strong favor of a bill introduced last week that would put a cap on the annual percentage rate payday loan outlets can charge their customers.

The Colorado Catholic Conference is the state level, public policy arm of the Church.

House Bill 1351, sponsored by Rep. Mark Farrendio, D-Denver, and state Sen. Chris Romer, D-Denver, would cap the current rate payday loan outlets can charge at 36 percent, the same maximum rate charged by banks and credit unions. According to Coloradans for Payday Lending Reform, the bill would provide reasonable reform to improve payday loans and provide consumers with protection from predatory lending.

Payday loans are short-term advances people take out to cover bills and expenses.  How it works is once the loan is approved, money is wired into the customer’s account.  When payday arrives, the customer pays the loan (or part of it) back to the lender. The problem is the industry is unregulated where the interest rate is concerned and people can often end up owing much more than they would if they went through a bank or credit union and often find themselves unable to pay off the loan. Jennifer Kraska, executive director of the Colorado Catholic Conference, said she has heard of people paying interest rates of up to 500 percent.

“In our eyes, all this does is encourage a cycle of debt,” she said.  “For example, someone takes out a payday loan for a heating bill; when the loan comes due if they can’t pay it off they take out a second loan to pay off the first.  It’s unfair to the poor and is nothing more than a vicious cycle for people who are financially strapped.”

A report from the Colorado Attorney General’s Office stated the average payday borrower had a gross monthly income of less than $2,500.  Two-thirds of these borrowers are laborers, office workers or people who receive regular income through payments such as Social Security.  The payday loan business, Kraska said, is an industry preying on those who can least afford it.

“It’s an injustice,” she said.  “Many of the people who use these institutions are desperate or in dire circumstances and feel as if this is their only option.”

There are other options and lenders who offer small dollar credit.  Some of those lenders include credit unions.  The city of Denver is also working with partners to develop a program that would cultivate relationships between “under-banked” residents and financial institutions for the purpose of improving financial stability. 

Voters in Ohio put a cap on payday loans in their state and the question is being debated in several other states.  In Colorado, if the bill passes, voters will be asked to decide whether the payday industry should have to play by the same rules as banks and credit unions.

At press time on March 8, HB-1351 was scheduled for a public hearing at the state Capitol.  One of those scheduled to testify in favor of the bill was Jonathan Reyes, president and CEO of Catholic Charities of the Archdiocese of Denver.
“These people are struggling financially to begin with,” he told the Register, “and these loans bury them even further down.  It doesn’t help them get out of debt, it exploits them.”

Kraska said support of the bill can be found in basic Catholic social teaching.

“We need to be concerned for the poor and the most vulnerable among us,” she said.  “Those who feel they have to use payday loans are in a very vulnerable position.  It’s our job based on that Catholic social teaching to go out and advocate on their behalf."

More Information

Coloradans For Payday Lending Reform: call 303-907-1980 or visit http://copaydayreform.com/

Colorado Catholic Conference: call 303-894-8808 or visit www.cocatholicconference.org