Payday lending, an industry that brings in some $7 billion a year in fees nationwide The Consumer Financial Protection Bureau said testimony from the session in Birmingham would help guide the development of future regulations. Recently appointed Director Richard Cordray said the bureau recognizes the need for short-term loans, but the lending needs to help consumers, not harm them. “Before this month, the federal government did not examine payday lenders,” Cordray said. “Some state regulators have been examining payday lenders for compliance with their state laws. We hope to use our combined resources as effectively as possible.” Huge number of lenders Officials said that about 19 million American households now have payday loans. With interest rates often in the teens and easy application procedures, lenders said they generate business through radio and television advertising, plus word-of-mouth and by locating offices in areas where other small-loan lenders are located. Many in the standing-room crowd of more than 400 were lending company customers or employees who wore “I Choose Payday Advance” stickers provided by the industry. Tanzy Bonner told a panel she got a payday loan to cover the cost of her 6-year-olds birthday party; LaDonna Banks said she got one because she couldnt work after donating a kidney to her brother. The Consumer Financial Protection Bureau The Bureau has been in the spotlight because of Republican opposition to its formation and President Barack Obamas use of a recess appointment earlier this month to tap Cordray, a former Ohio attorney general, as its director. With GOP legislators blocking the nomination because they said the agency lacks sufficient congressional oversight, Obama installed Cordray. Payday loans Often criticized by advocates for the poor, payday loans are short-term, high-interest loans that work like cash advances. Storefront payday loan operations are prevalent in middle- to lower-income areas around Alabama, sometimes taking over closed convenience stores or fast-food restaurants. Loan amounts in Alabama are capped at $500 by state law, which limits the maximum interest rate to 17.5 percent. An industry website said the annualized interest rate for a 14-day loan of $100 tops 456 percent. Typical loan In a typical transaction, a borrower writes a check for $117.50 and gets $100 from the payday lender, who holds the check for a short period before depositing it. If the customer needs the check held another two weeks, he pays another $17.50 fee. Officials said more than 20 percent of Alabama households have taken out loans from payday storefronts or similar businesses at more than 1,000 locations statewide. Opponents said the businesses prey on people who lack access to traditional loans when they get in a pinch for cash. Gouging for loans “People get churned through the system six, eight, 10 times a year,” said Stephen Stetson, a policy analyst at Alabama Arise, a Montgomery-based anti-poverty organization. “If we have laws against gouging for gas and water, we ought to have laws against gouging for loans. Listening to what you heard here today, youd think my thousands of employees go to work every day to hurt their neighbors,” he said. Rather than enacting sweeping federal rules, he said, states should concentrate on getting rid of “bad actors” in the business.
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