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Guest Columnist - Charlene Crowell

Charlene Crowell | 10/5/2011, 9:47 p.m.
Charlene Crowell

Communities take local actions to fight predatory lending

New data from the U.S. Census Bureau shows that 46 million Americans now live in poverty; it is the largest number in the 52 years for which poverty estimates have been published. Since 2007, poverty has increased in 46 states and today affects one of every four American children.

As it grips more and younger Americans, there is also evidence that poverty is speaking with a southern accent. The South is now home to 1.5 million of the 2.6 million people who became poor from 2009 to 2010.

In the meantime, the states of Alabama, Louisiana, Mississippi, South Carolina and Tennessee all have a higher per capita concentration of payday loan shops than elsewhere in the U.S. Moreover, in these same states where unemployment hovers at 10 percent or higher, triple-digit interest payday loan rates run as high as 574 percent. Missouri is the only state outside of the South with over five payday stores per 10,000 households.

Anyone living from pay check to pay check or in the worst of circumstances - just trying to get by from one day to another - is vulnerable to a product that seems to offer them a way to get groceries on the table or keep the electricity on. But after that first loan, the payday lending debt trap makes getting those needs met even harder.

With a profusion of local payday stores strategically located in low-income neighborhoods, the payday loan business model depends on borrowers who are unable to both repay the lender and have enough money to make it to the next payday. The trap of recycled debt is also how billions are taken each year from poor people.

Earlier this year, Payday Loans, Inc. a research report by the Center for Responsible Lending found that payday loan borrowers are indebted for more than half of the year on average, even though each individual payday loan typically must be repaid within two weeks. Among these borrowers, a significant share (44 percent), even after paying their loan back several times, ultimately default. The default results in already financially stretched families owing even more fees to the payday lender and their bank.

Fortunately, in 17 other states and the District of Columbia, laws have been enacted to cap these high-cost loans with double-digit interest. In three of these states (Arizona, Montana and Ohio), voters brought about the change through referendums that state officials either could not or would not do legislatively.

Now some cities are choosing to either rein in payday lending by enacting local ordinances or offer alternative small dollar loan programs.

For example, when the Texas Legislature failed to enact meaningful payday reform, the Dallas City Council unanimously passed an ordinance this June that changed both loan terms and the amount of loans.

City Council Member Jerry Allen, sponsor of the ordinance, told the Dallas Morning News, "They [Texas Legislature], chose to take a very limited action, and we chose to do the most we can at our city level. This is as strong a set of teeth that we can put into this, and it sends a message that we will not tolerate our citizens being taken advance of."