Payday lenders ease borrowing rules

February 22, 2007|By McClatchy-Tribune

MINNEAPOLIS -- A group that represents about half of payday lender stores in the United States says it will now require its members to give customers more time to repay their loans without additional fees or penalties.

The Community Financial Services Association of America, which represents 164 payday lending firms and 12,000 stores, hopes the repayment option along with a $10 million education campaign will help mollify its critics.

Payday lenders have drawn fire for trapping financially strapped consumers in an endless cycle of debt.

"We think what we have done is significant and unprecedented," said Darrin J. Andersen, president of the association and a top executive with QC Holdings Inc., one of the nation's largest payday lenders.

"We have gone a long way to create a safety valve [repayment option] for consumers. We are responding to the concerns of policymakers and consumers."

Payday loans have become big business in America, lending about $40 billion in 2003, according to the Federal Deposit Insurance Corp. Consumers borrow money against their next paychecks through the services, paying annual interest rates that can exceed 300 percent.

Critics say the industry preys on repeat customers who often take out new loans to repay previous loans, landing them deeper in debt.

Under the lenders' new rules, borrowers can elect to repay a loan over a period equivalent to four paychecks at no additional cost. Customers also can use the extended-payment service at least once a year and must request that option the day before the loan is due.

But critics aren't impressed.

For one thing, the rules don't limit the number of loans a customer can obtain. According to a recent FDIC study, which analyzed data from two prominent payday lenders, about a quarter of customers at stores open for at least four years took out more than 12 payday loans in a year.

"If consumers don't have money now, they won't have it two weeks later" when the payday loan is due, said Leslie Parrish, a senior researcher for the Center for Responsible Lending, a nonprofit group in North Carolina.

The changes are cosmetic at best, says Jordan Ash, director of the financial justice center for the Association of Community Organizations for Reform Now. If payday lenders were serious about helping consumers, they would charge lower fees on their loans, he said.

In an attempt to prevent payday lenders from operating near military bases, Congress passed a bill last year that limited to 36 percent the amount of interest a lender can charge on loans to military personnel and their dependents.

The payday lenders' $10 million marketing campaign includes TV commercials and full-page ads in USA Today and other publications.

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