Friday, June 22, 2007

Payday lending was criticized at a D.C. Council hearing yesterday as an abusive service targeting minority and poor customers, and defended as a useful financial tool for people needing some emergency cash loans.

Owners, employees and other supporters of stores specializing in short-term loans wore stickers with the slogan "I choose payday advance" at the hearing before the Public Services and Consumer Affairs Committee.

They listened in the audience while critics told the committee that payday lending traps borrowers in a cycle of debt and urged adoption of a law limiting fees that now run 400 percent a year or higher.

"They target the working-class people, who are already struggling," said the Rev. Noemi Mena, pastor of Hispanic ministries with National City Christian Church. "We are not saying they shouldn't exist. We are saying that they should be capped."

The city's attorney general has proposed limiting the annual rate charged at payday loan services to 24 percent. A committee vote is expected next week.

In effect, the proposal would limit to less than $1 the maximum fee firms could charge for a $100 loan repaid within two weeks. Now, they charge customers $15 or $16 to borrow $100 for two weeks.

A payday loan is a short-term cash advance loan, usually repaid with the next paycheck. If the borrower doesn't repay the loan within the agreed-upon time, the loan can be rolled over -- with another fee.

Unlike traditional banks, companies making payday loans do not require a credit check, only proof of a job, a checking account and a Social Security number.

"In life, emergencies do come up," said Jimmie Vaughan, 66, who took out a $600 loan two weeks ago to repair his car and attended the hearing in support of the industry. "Because you don't qualify for a bank loan, it's a choice."

News Reference: http://www.washingtonpost.com/