Wednesday, January 26, 2000

Legislator: Payday loans need rules

Self-regulation not enough, Mallory says

The Cincinnati Enquirer

        Continuing to take a microscope to the practices of the payday lending industry, state Sen. Mark Mallory said Tuesday he was pleased by a set of industry standards introduced to ensure consumers get the best service from these businesses.

        However, he said, theguidelines don't do enough.

        The Cincinnati Democrat said he still thinks outside regulation might give users of this fast-growing, high-interest money-lending service greater protection.

        Mr. Mallory said he is considering creating of an oversight group composed of credit counselors, industry experts and others that would regulate industry practices and hold agencies accountable via more tangible punishments.

        In November, the senator, along with state Reps. Samuel Britton and Catherine Barrett, convened public hearings to determine whether this industry does more harm than good.

        On Monday, the industry's only trade association, the Washington, D.C.-based Community Financial Services Association of America (CFSA), released 10 self-regulating standards called “best practices.”

        Payday lenders who belong to this association are required to either limit or prohibit loan rollovers, fully disclose the terms of a contract — including any attached service fees in dollar and percentage amounts — and to cease legal prosecution threats to customers who default on loans.

        In addition, CFSA members will offer clients 24 hours to rescind a payday loan and “encourage consumer responsibility” by educating customers about the proper use of such short-term loans.

        James Zaniello, CFSA executive director, said Tuesday that these standards culminate a year of research and are a sign “that the industry is starting to formally mature.”

        But to Nicholas DiNardo, an attorney with the Legal Aid Society of Cincinnati, these standards are nothing more than the industry's Band-Aid attempts to stave off outside regulation.

        “These standards are pure (public relations),” he said.

        The key to protecting consumers, he said, is to regulate the amount of interest these agencies charge for their quick-cash loans.

        A $15 fee per $100 payday loan over 14 days amounts to a 391 percent annual rate.

        The highest credit card charges are 24 percent interest, Mr. DiNardo said. “The industry needs to limit the interest rate,” he said.

        Mr. DiNardo said he is involved in at least three cases where consumers were sucked into further debt by using these agencies.

        “Self-policing in this industry is fairly worthless,” he said. “There needs to be either a state or federal agency that receives yearly reports and does audits of these services.”

        Both Mr. DiNardo and Mr. Mallory also agree that the payday lenders need a national database that will let them know when someone has an existing loan. Such a database would let them know if a customer has a serious financial problem.


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