Oklahomans should be worried at how our legislators, through campaign donation, are being led around by their noses by mammoth predatory lending companies’ intent on bending our State to their wills, and to their own advantages by charging onerous interest rates.
Bible readers call charging onerous interest rate “usury.” Legislators more commonly called it “predatory lending.”
Truth is, those engaged in the practice are nothing more than “loan sharks.” made legitimate by our law.
Under Oklahoma’s deferred deposit lending act, payday lenders can charge $45 in fees for a $300 loan, which amounts to an annual percentage rate (APR) of 391 percent.
North Carolina tried payday lending for a few years, then let the authorizing law expire after loans were found to trap borrowers in debt. The states of Connecticut, Maryland, Massachusetts, Pennsylvania, Vermont, and West Virginia never authorized payday loans. The District of Columbia repealed its payday law.
“Predatory lending imposes unfair or abusive loan terms generally on the poor, it convinces the poor to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that isn’t needed, isn’t wanted or can’t afford.”
Supporters of the predatory lending argue it affords increase borrowing options for people who have poor credit records and can’t obtain lower-interest loans.
Other supporters agree the loans are a raw deal for borrowers, but don’t believe government’s job is to stop people from making bad decisions.
Opponents said the loans argue the interest rates are high and bury vulnerable borrowers in debt.
Generally, when a conventional loan is paid back in a timely fashion, a bank or credit union will report that, and helps develop a good credit rating for the borrow. A payday lender or check cashing service generally do not report, even if you do repay promptly.
A 2015 Howard University study found that census tracts with economically vulnerable populations (elderly, young adults, immigrants and lower income) are more likely to be targeted by payday lending stores.
If Oklahoma were to restrict payday loans, low-income families will not be left without any legal way to pay their bills. We adopt the Oklahoma Policy Institute position:
“When payday loans are no longer an option, borrowers surveyed by the Pew Charitable Trusts reported that they would seek out a variety of other options, including cutting back on expenses, delaying payment of some bills, borrowing from family and friends, or pawning/selling possessions. In addition to these common-sense alternatives, families can seek out a variety of programs that will help them manage their finances without sinking into a debt trap.”
The alternatives consumers choose is related to the needs they have. For example, many payday loan users report the reason for borrowing is to pay off credit cards or other debt. If predatory loans weren’t such a superficially easy option, borrowers would be more likely to seek out credit counselors who can work out a debt repayment plan with creditors or help to develop a budget. Many nonprofit credit counseling services are available at little or no cost, and they are located all over the state. When paying creditors and utility companies, another alternative to predatory lending is for consumers to deal directly with their debt. Consumers can set up payment plans to give themselves more time to settle debt. By working with consumer counseling organizations, borrowers can get tips on the best ways to work with creditors.
Although the payday loan industry claims that their consumers use payday loans for emergencies, most consumers use them for recurring expenses. In Oklahoma, a majority of payday loan consumers take out 12 to 40 loans a year and only 5.4 percent took out 3 or fewer loans in a year, according to the State’s Deferred Deposit loan database. This data shows consumers are dependent on the loans to provide assistance nearly all year.
Still, emergencies do arise, and when they do, there are emergency assistance programs. Many churches, faith-based groups, and community organizations provide emergency assistance, either directly or through social services programs. These operations range from general to specific in what areas of need they cover. They may cover a specific type of bill, only cover residents in a neighborhood, or have a limit to how many times a year they will offer assistance. These services are particularly important because payday loan consumers report that 69 percent of first time payday loans are for recurring expenses such as food, rent, or utilities. While most consumers would choose to seek out options where they do not borrow, there are still borrowing options available. Some said they would still seek a loan, but they would obtain it from a bank or credit union, use a credit card, or borrow from an employer. Credit unions have responded to the predatory lending crises with personal loans to consumers. Some credit unions require you to already have an account with them to take out a loan, but many do not. These credit unions’ small dollar, short-term loans are offered at a reasonable rate with longer repayment periods and installment payments. Some credit unions in Oklahoma offer rates between 6 and 16 percent.
Many borrowers continue to end up with high-cost loans despite these better lending options because payday lenders target less informed consumers in their advertising. There is also evidence to show some lenders are targeting minority consumers.
Alternative options may not be as convenient or heavily advertised as a high-cost payday loan, but at the end of the day borrowers would be much more financially secure.
The best alternative to high cost, predatory personal loans is in the hands of the legislators who bemoan the lack of alternatives to payday lending. Though it does not exist yet in Oklahoma, many states have moved to cap the allowed interest on small dollar loans.
A 36 percent rate cap on all payday loans would allow for payday loans to exist without creating a debt trap for hard working Oklahomans.