The loan peddlers
June 20, 2006 - Baton Rouge, Louisiana
They carry innocuous names like Doctor Check, Money Mart and Cash Cow. But critics of payday-loan stores say the high-interest products they peddle are anything but harmless and should be outlawed.
"Payday-loan companies say their growth indicates there is a big demand for their services," says Jordan Ash, director of financial issues for the national consumer group ACORN, which has a Baton Rouge office. "The same could be said for people buying crack cocaine. Lots of folks buy crack, but that doesn't mean there's a legitimate need for it."
ACORN claims a vast majority of stores are placed in minority communities, preying on the poor and elderly and dragging low-income wage earners and people who rely on monthly government assistance into deeper debt cycles.
A typical example, ACORN says, follows this scenario: Someone on a fixed income takes out a payday loan to cover an extra expense--an unexpected medical bill, perhaps. Two weeks later, the borrower is forced to pay back the loan, usually less than $500, in its entirety and with substantial interest. But because of fixed expenses, another fast loan may be needed as soon as the first one is paid off, and the borrower has become entrapped in the payday-loan game.
Steven Schlein, spokesman for the Virginia-based industry group Consumer Financial Services Association, describes ACORN's position and statements as unfounded and inflammatory.
"We go where the business is. We try to reach the middle class. We're simply looking for customers who need short-term loans and can pay them back," he says.
Baton Rouge, as well as every urban market in Louisiana, provides a safe haven for the quick-cash companies, which have mushroomed statewide from a handful of authorized payday lenders six years ago to 988 today. The state Office of Financial Institutions, which licenses and regulates the stores, says those figures represent any company allowed to make a payday loan, even if its vast majority of business lies elsewhere.
The office could not immediately offer figures on the number of stores by region. Telephone records and advertisements show there are least 100 in the immediate area, with several having opened since Hurricane Katrina sent thousands of New Orleanians to Baton Rouge.
Though Katrina knocked many Crescent City locations out of business, OFI says the growth trend continues, with 50 new stores having been licensed statewide since Jan. 1. At the end of 2004, there were 715 licensed locations for payday lending, which means the industry realized a 38% increase over the last 17 months in Louisiana alone.
Nationwide from 2001 to 2005, the payday-loan industry has grown from 10,000 to 22,000 stores, Schlein estimates. The group says the industry lends more than $40 billion in payday loans and similar types of products in the United States each year, earning about $6 billion in revenue.
Payday lenders are largely banned in 12 states, according to the Center for Responsible Lending in North Carolina, a consistent opponent of the high-interest loan business. But Louisiana is considered friendly to the industry. "Louisiana is not a hotly contested state," says Schlein, who describes the industry's critics as elitists. "They don't have any need for the loans, but they want to tell other people what to do."
Schlein says people who seek payday loans are looking for a handy fix to a temporary financial problem. "A lot of our borrowers have pride--they don't want to bring family and friends into their personal lives. The elitist consumer groups have nothing to offer these people except demagoguery."
John Braud, deputy chief examiner at OFI, says there has been no serious legislative push in recent years to ban, limit or further regulate payday lenders. Nor has his office suggested any new laws that could possibly affect the business.
"There wouldn't be so many of them, if people didn't want the product," Braud says.
Beth Butler, an ACORN community organizer in Louisiana, says she recently attended a meeting of the group's national officials, and payday lending was a hot topic. She says ACORN has supported legislation at the local, state and national levels with the goal of limiting the growth of what she calls "predatory lenders."
"They fight us tooth and nail," Butler says. "Some of these payday lenders are owned by major banks. So the big financial institutions are lined up against us."
She believes the payday-loan industry's rise is directly connected to discriminatory practices by mainstream financial institutions. Because major banks tend to turn down a loan applicant with less-than-stellar credit or meager means, people in need are forced to go to payday-loan stores where they are charged a high interest rate in return for fast service.
"The mainstream banker is not making these products available to people on fixed or low incomes," Butler says. "These are people under duress, and they need the cash fast."
Ash says ACORN plans to go after payday lender Money Mart, which counts four locations in Baton Rouge. Money Mart is owned and operated by Dollar Financial Services, Inc., which has more than 1,000 payday-loan stores in the United States, Canada and Great Britain.
He says payday lenders such as Money Mart tend to pop up near low-income communities within large urban markets. ACORN's members see the issue as a neighborhood problem, a nuisance.
"It's predatory in the way that it's set up," Ash says. "Very few people are able to pay the loan back right away. The payday lenders know that. That's how they make their money, by keeping the loan going."
Though there are no current efforts to limit the rapid growth of payday lending in Louisiana, the Center for Responsible Lending is keeping track of state Senate Bill 743, which would allow companies in the payday-loan business to also offer short-term loans against a borrower's vehicle. However, the high-interest title loans could not be offered at the same stores as payday loans.
Thus, given payday lenders have quickly dotted the landscape of Louisiana's newest strip-shopping centers, many of the same companies are looking to extend the growth spurt through the automobile title-loan market, which also targets low-income wage earners, critics contend.
"We are concerned about this, especially in a state like Louisiana that has seen more than its share of financial hits," says Sharon Reuss, spokeswoman for the center.
Car-title loans are similar to payday loans, says Amy Quester, a center representative in Washington, D.C. "The major difference is that the borrower's car is at stake. The car secures the loan. But it may be the borrower's only way of getting to work--or evacuating from a hurricane."
Greater Business Rouge Business Report, Andre Salvall, Staff Writer
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