The local payday cash loan industry has launched an aggressive advertising campaign to try to persuade the D.C. Council to reverse a vote that would limit the fees charged on short-term loans.
Last month, the council voted 12 to 0 to give initial approval to a bill that would limit the rate charged for a $100 loan repaid within two weeks to 90 cents, a rate more in line with those of banks and credit unions. Currently, customers pay an average of $15 to $16 per $100. The industry maintains that such a cap could force payday advance firms out of business.
As the final vote approaches Sept. 18, the D.C. Financial Services Association plans to use newspaper, television and radio ads to urge the public to reject the council’s efforts to “limit” bad credit payday loan options. The campaign paints the industry as providing a necessary service for some residents, a stark contrast to what critics characterize as an industry preying on the poor and locking them into debt.
Two television commercials feature customers Thomas Johnson, who needed quick cash to fix his car, and Erika Williams, who needed money when her child was sick. Both say they used the no faxing payday loans “responsibly.”
“Reforming payday loans is fine. Banning them is not,” a narrator says in both ads.
The TV ads began a week ago, and the print promotion, using the same words as the narration and also featuring Williams and Johnson, begins today.
The association, which represents 41 of 48 quick payday advance stores in the District, is also conducting a poll to gauge how the public feels about payday loans, said Tyrone D. Bland, vice president of the association and government affairs director of ACE Cash Express, which has 15 stores in the District.
“We’re just trying to define the message,” Bland said. “What we say is we are a viable credit option for a segment of the community.”
That segment is usually poor, and 99 percent of payday loans turn into long-term debt because the average borrower renews a loan eight times per year, according to the Center for Responsible Lending, a nonprofit research and policy group that lobbied for the D.C. law.
The council, led by member Mary M. Cheh (D-Ward 3), was swayed by the group’s arguments and approved the bill, which would cap the rate at 24 percent.
Interest rates under current District law range from 349 to 550 percent. Cash advance loans create a revolving door of debt because a customer, who generally borrows $100 to $500, has difficulty repaying it and must renew the loan for a fee, said Jillian Aldebron, policy counsel for the center.
A customer could end up paying more than $700 for a $325 loan, based on the average eight renewals, Aldebron said.
“That is a worst-case scenario,” Bland said. “Our goal is not to get you caught up in a circle of debt.” The idea, he said, is to save a customer from other debts, such as fees for late credit card payments and bounced checks.
Putting an emphasis on percentages, as the Center for Responsible Lending has done, muddies the debate, Bland said. “How much am I going to pay to [obtain a payday loan]? About $16,” he said. “If I write a bad check, the fee from the merchant is $35. The fee from the bank is $35. That’s $70 for $100.”
Bland said the D.C. Financial Services Association has created management practices that could be incorporated into the law to encourage responsible borrowing and lending. For example, customers would be allowed to extend a check cash advance without a fee for 60 days at least once per year if they could not pay but also would not be allowed to take out another loan.
Cheh said other states have been unsuccessful with such legislation.
“Basically, it’s a fig leaf so they can carry on their operations as they were,” she said. “People shouldn’t be fooled. I have confidence in my colleagues that they are not going to fall for this.”
SOURCE: The Washington Post