Interfaith group takes aim at payday lenders

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By Tom Saul | Thursday, November 20, 2008 10:01 PM CST | () comments

Before his retirement as a personal financial adviser, Woody Perkins said he saw firsthand what he considered the worst aspect of payday lending.

“You’re using next week’s income to live this week,” Perkins said. “It puts you a week behind. All you can do is keep rolling the loan over and go further into debt. How do you ever get ahead?”

Quad-Cities Interfaith, in partnership with five area credit unions, have developed a brochure aimed at educating potential borrowers of alternative options to payday loans, which can carry annual percentage interest rates of more than 350 percent. Ten thousand each of the brochures printed in English and Spanish will be distributed throughout the community.

“The five credit unions stepped up to the plate and offered a much-needed hand up,” Rita Cunningham, an Interfaith volunteer, said of products offered by the five institutions

Ascentra Credit Union, DHCU Community Credit Union, IH Mississippi Valley Credit Union, RIA Federal Credit Union and The Family Credit Union all offer products such as personal loans as small as $100, personal lines of credit and credit cards secured by deposits. Other services included counseling for those facing financial difficulties.

“At a credit union, the people we do business with own us,” said Dale Owen, vice president of lending at Ascentra. “We offer products and services that our customers want. Certainly, we need to make a profit, but we’re not motivated by that alone.”

Ascentra offers small personal loans as low as $100 and personal lines of credit for no more than a 21 percent annual percentage rate, Owen said.

Release two years ago of a brochure by Interfaith spurred interest in the products. Owen said he expects the new brochure to draw further interest in the products.

Laura Ernzen, vice president of marketing for IH Mississippi Valley, said the credit union also offers those products, as well as a credit card secured by deposits that allows the borrower to draw no more than what is deposited in an account. While credit unions do business only with members, it is easy to become one.

“All you have to do is open an account for as little as $5,” Ernzen said.

In recent years, payday lending and car-title loans have come under attack as predatory, taking advantage of those who are least able to afford triple-digit interest rates.

Last year, Iowa capped interest rates that can be charged by car-title lenders but, so far, has done nothing to rein in payday loan rates. In 2005, Illinois began enforcing a cap of $1,000 per payday borrower per year or 25 percent of their monthly pay, whichever is lower, and an annual interest rate of no more than $15.50 per $100 borrowed.

A count last year by the Quad-City Times found 41 payday loan offices in operation in the Quad-Cities.

All financial institutions in the Quad-Cities were invited to participate in the creation of the brochure and the offering of programs and products as options to payday lending, Cunningham said. Only credit unions agreed to participate. All of the banks declined, she said.

“Some of the banks own predatory lending operations, but I won’t name any names,” Cunningham said.

John Stavnes, president of Wells Fargo Bank in eastern Iowa, said he did not recall seeing an invitation for his institution to help. If he had, “we probably would have looked into getting more information and helping out.”

Wells Fargo offers a well-received financial literacy program called “Banking On Your Future” aimed at educating people about how banks operate, how loans are made and how credit works, Stavnes said. It also offers the same types of consumer loan products offered by the credit unions.

“I commend them for what they are doing,” Stavnes said. “This is something that someone needs to address. Some of the rates they (payday lenders) charge are obscene.”

Some of those present for the unveiling of the brochure said they expect the Iowa Legislature to make an effort to put tighter regulations on payday lending during the session that starts in January.

The Coalition Against Abusive Lending, an Iowa umbrella group of social service and consumer advocates, had a conference call Thursday to plot strategy for the upcoming session, said the Rev. Marvin Mottet, a longtime area advocate of the poor.

During a prayer before the unveiling, Interfaith President the Rev. Ron Stewart prayed for those who are in need and those who take advantage of them with high-interest loans.

“Taking advantage of the need of others, that’s just not just,” Stewart said.

Tom Saul can be contacted at (563) 383-2453 or tsaul@qctimes.com.