Payday Loan Reform, Not Ban, Needed
Sonny Eyabi is president of the Washington D.C. Financial Services Association, which represents more than 40 payday advance lenders in the District.
He penned the following recently for The Washington Post:
When the D.C. Council reconvenes on Sept. 18, it will vote on a bill that would leave District residents without access to payday cash advances - a popular, well-regulated short-term credit product - and put nearly 400 Washingtonians on the unemployment rolls.
The bill, sponsored by Mary M. Cheh (D-Ward 3), would cap annual percentage rates on payday advances at 24 percent. While this may sound like a great idea, it is essentially a ban on the industry. At that rate, lenders would actually lose money on every no faxing payday loan, with a maximum fee of only 92 cents per $100 borrowed.
If the rate cap is approved, the only way for our stores to keep their doors open would be to operate as charities.
We know our customers use payday loans to avoid bouncing checks, as overdraft protection, and to cover late fees on credit card and utility bills. By taking away the option of payday cash advances, demand for this product will not disappear.
For example, the state of Georgia has restricted payday loans in a similar way to the D.C. Council’s plan. In 2006, more than 500,000 cash advances were made to Georgians who crossed state borders so they could deal with unplanned expenses.
Payday cash loans are already strictly regulated in the District and in 38 states. These regulations include a maximum advance amount of $1,000 (including the fee), a maximum fee charged for the loan ($16.11 per $100 advanced) and the required display of all fees in English and Spanish. Would additional reforms help consumers?
Absolutely. To better protect the District’s payday loan customers, we advocate:
- Making sure that customers understand the cost of the product by fully disclosing all fees in simple and easy-to-understand language.
- Helping customers avoid getting caught in a “cycle of debt” by allowing only one rollover and offering an extended payment plan, at no cost, to any customer who cannot pay back the quick payday advance when it is due.
- Verifying that customers have the ability to repay before approving the loan.
- Funding financial literacy programs in the District.
Our members would be required to follow these rules, and we urge the D.C. Council to codify these reforms into law to ensure that all payday loan stores in the District abide by the same regulations.
We also support stringent enforcement of the current regulations and believe that any cash advance payday loan lenders not following the law should have their licenses revoked.
The D.C. Council should enact common-sense reforms, preserve a credit option and provide substantial consumer protections. Doing otherwise would hurt, not help, tens of thousands of D.C. residents who use the product and the nearly 400 people employed by the industry.