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Writers call for alternatives to payday loans

Posted by Stephen on June 25, 2007

OpEd By: WARD R. SCULL AND MIKE H. LANE

For decades now the gap between the rich and poor in America has been growing. And this widening chasm between classes has resulted in another glaring gap – the deficit between those individuals with access to reputable financial services and those who have had the door slammed shut on mainstream financial options. Predatory payday lending has sprung up as one of the grimmest alternatives to address the needs of Virginia’s working poor.

The high risk typically attributed to lower-income borrowers has resulted in a much more costly product, if one is available at all, for the bottom sector of consumers. However, the notion that “the poor pay more” has breached the boundary of fairness and crossed into the realm of exploitation. Payday lending is one of the newest variations of price gouging of our economically vulnerable neighbors.

Payday lenders, who can legally charge up to a 782 annual percentage rate in Virginia, entrap borrowers with few viable financial alternatives and limited financial education into cycles of inescapable debt. This product, or “service” as industry proponents would have the public and policy makers believe, is dramatically different from loans offered to more affluent consumers. Many Virginians have found these business practices, especially the triple-digit interest rates and the debt trap, to be nothing less than extortionate. And some have begun to respond.

Virginians Against Payday Loans is already making significant headway by adding the expertise and authority of many concerned powerbrokers across our commonwealth.

VAPL is comprised of a growing number of people and organizations with a multitude of talents: from concerned individuals, financial institutions, faith-based organizations, consumer advocacy groups, to the business community, and other partner organizations already working on the issue, like the Virginia Partnership to Encourage Responsible Lending (VaPERL), with whom VAPL works closely and strategically.

Our goals are simple:

Repeal the law allowing payday lending by exempting them from basic consumer protections or, at a minimum, amend the Payday Loan Act to include a 36 percent annual interest rate cap that would result in the full removal of the debt trap.

Develop and provide viable financial alternatives to payday lending for lower-income Virginians who find themselves in need of short-term small denomination loans.

Achieve financial literacy through education for those most likely to be payday borrowers.

VAPL hopes to achieve these goals by developing and implementing a plan of action for each.

Policy Reform: We have already begun working with allies in the General Assembly to draft and submit repeal and rate-cap bills. VAPL will also work to educate other legislators. A lobbyist or team of lobbyists will join with supportive local organizations and Virginia citizens to demand action by their representatives in the state legislature.

Financial Alternatives: There is an immediate need to address the substantive problem of those without access to financial services, often referred to as the “unbanked” or “underbanked.” Financial institutions are increasingly aware of the need to service this community of potential customers and are beginning to address it.

As C.K. Prahalad points out in his book “The Fortune at the Bottom of the Pyramid,” multinational companies are discovering that the less advantaged are increasingly viewed as a vast community of customers who can be serviced to the benefit of the business as well as the public. Financial institutions can join this fight against payday lending as partners and beneficiaries as these borrowers are transformed from victims to customers.

Internationally, the World Bank and the International Monetary Fund have recognized that lending to the less affluent has the potential to reduce poverty and encourage growth and development. The task of this committee is to leverage and accelerate this nascent movement.

Ultimately, VAPL hopes to ensure that every local community has financial institutions ready to serve this client base.

Financial Literacy: The U.S. government, state governments, and banks and credit unions are beginning to address this issue, acknowledging the danger of an uneducated populace subject to financial exploitation. They have begun developing programs to reach out to those in need of information about financial services in their communities. Unfortunately, the organizations providing these services are few and far between and underfunded.

VAPL will partner with financial institutions and nongovernment organizations nationally and across the state to coordinate financial literacy programs to provide necessary training and product development to educate those in need.

We are confident that our full force strike on the payday loan industry – a “business” that thrives on greed and mistreatment – will be successful in the years to come.

We invite you to add your voice to the growing number of Virginians that expose and stand up against the blatant usury being inflicted on members of our workforce, our communities and our families.

Scull, a Newport News resident, and Lane, a Gloucester resident and former deputy commissioner of U.S. Customs, are co-founders of Virginians Against Payday Loans (VAPL).

Opinions expressed by OpEd writers do not necessarily reflect those of management of Conservative Viewpoints.

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