Getting tough on risky loans
June 28, 2008
NO DATA — Way to go, Peoria City Council. Seriously.
"I am thrilled that the city of Peoria is looking into this," said Matt Sommer, associate executive director of retail operations for South Side Mission. "I applaud the City Council."
Well, that's not something you hear every day.
Last Tuesday, the council voted to invest $28 million in the future of Peoria's libraries over the next few decades. That deserves applause. But that's not why Sommer called 2nd District Councilwoman Barbara Van Auken.
He wanted to applaud the other major City Council initiative for the future. It's a six-month moratorium on new outlets for payday and title loans while city staff members investigate rules for what is optimistically referred to as the "alternative financial business." According to the Center for Responsible Lending, those kinds of loans drained $219 million out of Illinois pocketbooks in 2005 alone.
"Almost on a daily basis, these stores appear to be mushrooming. They are following what appears to be a national strategy (and now) in Peoria," said Van Auken, adding the city already has more of these stores than any other town downstate. "I don't know any other word for them but 'predatory.' And they'll do as much as the community will let them."
These "alternative financial services" offer instant cash for a car title or paycheck. It can look like a Godsend to someone in a financial jam, but that money costs plenty. For example, say you borrow the typical amount, $300 for two weeks. At the also-typical $15.50 per $100 borrowed, you'll pay $46.50 in fees, along with the original $300.
That's because in Illinois the annual percentage rate for these types of short-term loans is 403 percent. That's how a business niche that pretty much didn't exist 10 to 15 years ago now costs American families $4.2 billion a year. And that's despite 12 states and the District of Columbia capping those fees at 36 percent annually.
(If you want to look at other examples, you can run your own figures through the Consumer Federation of America calculator at www.paydayloaninfo.org.)
Sommer sees the fallout when he talks to people at South Side Mission. People who do not understand how to budget their money can be thrown by an unexpected expense, so they get one of these loans and never get out. The national average is eight repeat borrowings. In Illinois, the average is 13.
"It bankrupts them financially," Sommer said. "But it also bankrupts them psychologically. Because they're never going to get out of that hole."
Van Auken said the city's research shows short-term lenders prefer high-traffic streets near minority, low-income or military populations. (Studies done elsewhere do not prove a hike in crime near these businesses but do indicate a drop in property values.) She said their customers should not be dismissed as deadbeats; after all, they have to have a paycheck, checking account and/or car.
Source : http://www.pjstar.com
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