Predatory lending continues to flourish
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By Tom Saul | Thursday, August 23, 2007 |
In March, with the stroke of a pen, Gov. Chet Culver marked the beginning of the end of the auto title loan industry in Iowa that many complained preyed on the less financially sophisticated.
Culver signed a bill passed by the Legislature that stops title lenders from charging exorbitant rates and caps them at 21 percent, the same as for other consumer loans in Iowa. The cap went into effect July 1.
But that has been one of the few bright spots in the battle against several types of predatory lending that continue to flourish, an audience was told during a discussion on the topic at the National Community Reinvestment Coalition convention in Davenport Wednesday.
Panelists said that while it is important to seek more strict regulation of predatory lending in all its forms, it is just as important to educate consumers and offer other sources of credit to those of meager means who need to borrow money.
In Iowa, the number of pay day loan shops, where annual percentage interest rates can climb as high as 382 percent, continues to grow, said Jessica Whitney, of the Iowa Attorney General’s office who handles consumer complaints. The agency has also seen an increase in complaints about subprime mortgage lenders.
“We’ve proposed a number of legislative fixes, but none of them have gotten anywhere,” Whitney said of efforts to regulate pay day lenders.
Pay day and auto title lenders say, however, that they provide a valuable service to people who often can’t get credit elsewhere.
Other forms of predatory lending include income tax refund anticipation loans that can cost up to a quarter of the amount of the refund, Internet banks that charge high rates and often require borrowers to sign away any rights to contest disputes in court and so-called “rescue loans” offered to subprime borrowers who get behind on mortgage payments that often result in them losing their homes.
“All these schemes start with what I call the evil business meeting,” Gail Burks, a Nevada fair housing advocate, said of how predatory lending business models get started. “They sit around a table and brainstorm, and they have that a-ha moment.”
Most predatory lenders have several things in common, Burks said. They offer easy access to credit, charge high rates or fees and they lock borrowers into terms that prevent any disputes from getting to court. They also target those who are most desperate for money and who are financially naive.
Education about how predatory lenders abuse borrowers and alternatives to their products is a key in fighting those who scheme to part people from their money, said Stella Adams, an NCRC board member who has fought predatory lenders in North Carolina.
In the case of income tax refund anticipation loans, which she called one of the most vicious forms of predatory lending, Adams said there are plenty of public interest entities that will do tax returns for low-income people for free. They will also file returns electronically, which results in speedy refunds.
“Know what the circumstances are of the people in your community who use predatory lenders and educate them on what is being done to them and the alternatives that are available to them,” Adams said.
Tom Saul can be contacted at
(563) 383-2453 or tsaul@qctimes.com. Comment on this story at qctimes.com.
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