Lenders Vow to Clean Up 'Payday Loan' Operations
RENEE MONTAGNE, host:
And people strapped for cash often resort to payday loans. These are short-term loans made just until the borrower's next paycheck. The industry's been threatened with tougher regulations, so now it's adopting voluntary reforms, and consumer groups still aren't happy. NPR's Chris Arnold reports.
CHRIS ARNOLD: For a two-week loan, many payday lenders charge $15 for every $100 you borrow, which is nearly 400 percent annual interest. People who can't pay back the loan quickly end up paying more in interest than they borrowed in the first place.
Mr. DARREN ANDERSON: What this tries to do is increase the consumer protections so that those types of things don't happen.
ARNOLD: That's Darren Anderson, who heads up the main payday lending industry group. He says payday lenders will now offer borrowers a one-time chance to pay back their loans with no additional interest during a two to four month grace period. They'll also warn borrowers that the loans are meant to be short term.
But consumer groups are skeptical. Ed Mierzwinski is a consumer advocate with the U.S. Public Interest Research Group.
Mr. ED MIERZWINSKI (U.S. Public Interest Research Group): What they are trying to do is to get Congress and state legislatures to look the other way.
ARNOLD: Mierzwinski says more than a dozen states have effectively banned payday lending. Congress imposed a cap on interest that can be charged to military personnel. So he says the industry is trying to avoid more regulation. But he says payday lenders make the bulk of their profits off people who get stuck in a cycle of debt. So he says if they really reformed that practice, it would put them out of business.
Chris Arnold, NPR News, Boston.
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