If you haven’t seen this yet, The Roosevelt Institution has put together some of the better policy recommendations from college students around the country. There’s plenty of good stuff there, lots of constructive, pragmatic ideas from people still young enough to think that policy matters matter. (When they’re older, they’ll learn that they can make more money by ignoring stuff like this and embracing pundit-info-tainment — carping about candidate’s hair cuts, appearing on Hardball and writing for The Politico. Public service and good government are for suckers.)
I particularly like this idea: “Predatory Payday Lending Reform.” Which includes the following recommendations:
States should act to implement legislation preventing predatory payday lending practices. Laws must be broad, placing APR caps on all small loans, and applying to all citizens. …
Alternatives to payday loans do exist, and borrowers should be informed of these alternatives. Credit unions, social service programs, charities and faith-based organizations throughout the country offer assistance to individuals in financial need, both in the form of loans and free credit counseling. All states also have winter heating cost assistance programs aimed at eliminating a major cause of payday loan demand. Public education campaigns should be established to inform individuals that payday loans are not the only option for fast cash.
Public education campaigns are good, requiring disclosure as well would be even better. I’d like to see check-cashing outlets and other payday lending outfits required to display:
1) The clear-language cost of cashing a check, expressed as a percentage and with a range of examples for various amounts. This would have to be displayed prominently, and I would include Broadway/Samuel French-style requirements for font and poster sizes. I’m picturing rules that would result in day-glo orange posters behind every check-cashing counter with six-inch high bold block letters stating: “WE TAKE X% OUT OF EVERY CHECK WE CASH.”
2) A prominently placed informational kiosk, similar to those found in hotel lobbies or highway rest stops, with information on local banks and credit unions offering low-minimum balance and free checking accounts. I’d require a sign above this kiosk reading, “OPEN AN ACCOUNT AND CASH CHECKS FOR FREE.”
Requiring this kind of full disclosure is sometimes criticized as “paternalistic” to the working poor who are being ripped off by the shadow banks and payday lenders. I don’t think it is — protecting the weak is not, by definition, condescending. But whatever. People with very tight budget margins are getting ripped off, and if the price of stopping that is accusations of paternalism, that strikes me as a good bargain.
As for the caps, 29 states have now imposed APR limits on payday lenders. Derryl M. sent along a link to an article on Oregon’s efforts to stop predatory payday lending, and the industry response: “Payday loan industry launches major ad campaign.”
Since June 1, a total of 60 Oregon payday loan shops have shut down as a result of new state regulations and now, to try and turn the market back in their favor, the payday loan industry is advertising.
For years, the payday loan industry has kept a low public profile — quietly taking blows from consumer advocates and politicians critical of its high-interest loans.
Now, a national association of payday lenders is playing offense with a major nationwide ad campaign telling borrowers to use their loans responsibly.
“These changes are part of the ongoing effort we have as an association to respond to concerns by policy makers and to protect the financial well being of our customers at the end of the day,” said Lyndsey Medsker with Community Financial Services Association of Washington, D.C.
You can see the latest ad from the “Community Financial Services Association,” or “NAMBLA,” at the loan-shark lobby’s Web site. You have to admire the chutzpah it takes for them to try to reframe what they do as “community financial services.” That’s like a protection racket changing its name to “Neighborhood Well Being Insurance.”
The group’s site is brimming with desperate attempts to stave off exactly the kinds of caps and disclosure requirements discussed above. The industry, they insist, is “Committed to Financial Education” — and they describe several steps they’re allegedly taking in this area, steps that elsewhere, on their “Myth vs. Reality” page, they criticize as “others making decisions for” their customers. That “Myths” page also says this:
While they claim to represent the best interest of the consumer, anti-payday lending activists seek to limit the already small number of short-term credit options available.
Nice try. The “small number of … options” available includes things like credit unions, community loan funds and CRA-leveraged services from traditional banks. These are payday lenders’ competition. What the industry is really upset about here is not that anti-payday lending activists are “limiting” the options for working-class borrowers, but that they are trying to even the playing field between the payday lenders and their non-predatory competitors. Doing so does not limit the options for consumers. It increases the ability of the payday lenders’ competition to provide even more, and better, options.
Here’s an AP folo on the Oregon story, “Payday lenders closing doors across state:
The high interest rates once common among payday lenders are now gone since new regulations took effect last week. But gone, too, are many of the lenders.
Scores of Oregon payday and car title lenders have closed their doors as a 36 percent interest rate cap and other new regulations took effect.
Still, more than 200 payday lenders are doing business, at least for now, under the Legislature’s new regulations.
“It looks like some businesses are able to provide more affordable loans, and that sounds like a real win for the community and consumers,” said Patty Wentz, spokeswoman for Our Oregon, a nonprofit progressive coalition that led the fight for laws regulating payday and car title lenders.
The editors of The Register-Guard offer their own summary of the situation:
Now, these short-term lenders have a simple choice: They can find a way to stay in business by offering consumers loans under the reasonable limits provided by the state’s new regulations. Or they can shutter their businesses and leave this state, muttering with every step about how unfairly they’ve been treated and how much they’ll be missed by cash-strapped Oregonians.
If they choose the latter, it’s doubtful anyone will shed any tears.
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