The Center for Responsible Lending has launched a website to bring to light stories of people who say they've been victimized by payday lenders. The site, www.400faces.org, is part of an effort to drum up support for legislation to ban lending at interest rates above 36 percent.
Payday loans are paycheck advances, usually for a few hundred dollars, that carry a sizable fee. With a two-week repayment deadline, the fees amount to an annualized rate of interest in the triple digits, which consumer advocates say traps borrowers in never-ending cycles of debt. Payday loans are illegal in 15 states.
"These loans, which often carry an APR of 400 percent, trap the average payday borrower in a cycle of debt that forces the borrower to pay much more in interest and fees than he or she originally borrowed," said a release. "Black and Latino families have been especially hard hit by these predatory products, just as they have been in the subprime mortgage debacle."
Sen. Dick Durbin (D-Ill.) has introduced a bill that would cap interest rates nationwide at 36 percent annually, a measure that would effectively kill the payday lending industry. It would be similar to a measure that Congress passed in 2006, which forbade interest rates above 36 percent for military families.
Industry advocates say the short-term loans are useful to poor folks who find themselves in the occasional financial bind, and that APR is inaccurate measure of the value of payday loans.
Several lawmakers, including Senate Banking Committee Chairman Chris Dodd (D-Conn.), are sympathetic to short-term lenders. The Online Lenders Alliance, a lobby group for internet payday lenders, hosted a fundraiser in May for Dodd and Sen. Tim Johnson (D-S.D.). Other lawmakers, including Rep. Joe Baca (D-Calif.) and Sen. David Vitter (R-La.) also appeared at OLA events. (The lawmakers and the OLA tried to be as discreet as possible about their hookup.)
Consumer advocates also briefed members of Congress on Thursday about the downsides of payday loans, according to a release from the Center for Responsible Lending. The Consumer Federation of America, the NAACP, and the Inter-religious Working Group on Domestic Human Needs, among others, hosted the briefing.
The Center for Responsible Lending produced a video argument against payday lending. WATCH:
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