USA TODAY editorial cites SECU's payday alternative
NEW YORK (10/4/06)--An editorial in Monday's USA TODAY takes legislators to task for standing by while the payday loan industry thrives in 37 states. But it singles a bright spot--the short-term loan program from a North Carolina credit union--as helping consumers avoid the payday lending trap.
The editorial talks about North Carolina resident Lisa Engelkins, a single mother raising a 5-year-old on less than $8 an hour. She took out a $300 payday loan and ended up paying an annual interest rate of 390%.
Congress acted "tepidly" Friday with its 36% annual interest-rate cap on payday loans to servicemembers and their spouses, said the editorial, after a Pentagon report showed the average military borrower paid back $834 for a $339 loan.
A chart in the editorial showed "sky high" annual percentage rates on payday loans in several states, ranging from 520% in North Dakota to 780% in Wyoming. Louisiana, Montana, Mississippi and Alaska fall in between those two figures.
When Georgia banned payday loans with rates exceeding 60%, the industry fled the state, which was "good for Georgians but also a measure of how friendly the climate for unscrupulous lenders is elsewhere," the editorial said.
North Carolina simply let its payday lending law expire. State Employees' CU in Raleigh, N.C., "now offers short-term loans at a 12% annual interest rate. More than 40,000 people a month use the service, undercutting industry claims that it can't turn a profit under caps such as Congress' 36%," the editorial said.
Payday lending is like throwing an anvil to a consumer who needs a life preserver, the editorial said, concluding, "Lisa Engelkins almost drowned that way. Lawmakers should throw people in her situation a lifeline."
The editorial was accompanied by an opposing view from the Community Financial Services Association of America President Darrin Andersen.
In it, Andersen stated that instead of limiting options, "a better solution is to keep freedom of choice for consumers Of credit unions' and banks' alternative payday products, he said, "We welcome their entry and believe competition is good for consumers."
To view the editorials, use the resource links.
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