Payday lending woes

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After a few minutes, Bilma reached the front of the line at the bustling laundromat along Mt. Vernon Ave. in Arlandria. She approached the Payday Loans Here window, passed through her paycheck stub and pocketed her cash.

It cost her $150.

Its okay, said Bilmas daughter, translating for her mother who speaks minimal English. Sometimes they charge a lot.

They being payday lenders, and a lot being the often 390 percent interest rate charged to some borrowers.

Bilma is one of about 434,000 people statewide  who use the system, according to a 2006 study by Virginias Bureau of Financial Institutions.

The practice of payday lending quick cash advances on paychecks at high interest rates is  a matter of hot debate down in Richmond these days.

It is seen by some lawmakers as a predatory practice against the lower class. Lawmakers during the General Assembly have introduced about 20 bills that would either cap the interest rate at 36 percent or ban payday lending altogether. 

Kathleen Day, spokesperson for the Center for Responsible Lending, says Arlandrias situation is not uncommon. We definitely think [payday lending] preys on low-income individuals, Day said. It tends to target for whatever the reason neighborhoods that have large concentrations of either African-American citizens or Hispanic citizens.

The Arlandria neighborhood, with its highly-concentrated Latino population, houses five businesses offering payday loans within four blocks from one another.

The payday lending industry really is like crack-cocaine; people become addicted to it, Day said. Its financial suicide.

Payday lenders argue that their charge of $15 per $100 borrowed is fair for the risk taken, but for a two week loan, the interest jumps to 390 percent annually. Borrowers often visit multiple loan locales to pay their original balance, creating a debt cycle.

The average borrower pays back $793 for a $325 loan, according to a CRL study. 

Daysie, who withheld her last name, works at an Arlandria loan shop and says she sees the same faces over and over. Some people come each week, she said. Friday and Saturday is very busy here. Customers come both to cash their paychecks and pay debts from previous ones, Daysie said. 

But these repeat customers arent satisfied consumers, according to Jay Speer of the Virginia Poverty Law Center. He said a debt trap is inherent in the industrys practices. People call me almost every other day, Speer said. And they say to me, How do I get out? Its so easy to get a payday loan they make it easy but boy is it hard to get out.

There is no credit check required to receive a payday loan, and the borrower must provide a personal check as collateral. If the borrower fails to pay on time, the lender cashes the check, and the consumers debt mounts.

But payday credit was not contrived specifically to trap borrowers, according to a report by Donald Morgan for the Federal Reserve Bank of New York. The 2007 preliminary study, cited often by industry stakeholders, concludes that families in states where the practice was banned do not seem better off since their states outlawed payday credit.

Day said the study is skewed because research was done regionally, not on a state-by-state. Our criticism is that you cant draw a conclusion because you havent separated the states that have banned [payday lending] from the states that havent, she said.

Though Morgan is a federal economist, his study has not been endorsed by the Federal Reserve Board, according to Day, whose organization rebuts the report on their Web site.

The payday lending debate is no stark matter and some citizens believe they have nowhere else to turn. Arturo, a day worker posted at a Route 7 shopping center, seems nonchalant about the high interest rate despite whistle blowers good intentions. I need the money, they can give it to me, he said.

Another worker chimed in: But its really not fair. When I get money, I lose money.

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