FARAI CHIDEYA, host:
From NPR News, this is News & Notes. I'm Farai Chideya. When money's tight, some people walk down the street to a payday lender, write a personal check dated for several days in the future, and walk away with cash-in-hand. The problems come when it's time to make good on that check. A high annual percentage rate fee for a credit card might be, say, 25 percent. But those fees for a payday loan can reach triple digits. Do payday loans trap poor people of color in debt?
Some civil rights groups are actually defending the loans. They say low-income people deserve to make their own choices about how to survive. Here to explore the pros and cons of payday lending we've got Keith Corbett. He's executive vice president of the nonpartisan organization, Center for Responsible Lending. We've also got Niger Innis, national spokesperson for the Congress of Racial Equality, or CORE. Hi, gentlemen.
Mr. NIGER INNIS (National Spokesperson, CORE): Hello there, Farai.
Mr. KEITH CORBETT (Executive Vice President, Center for Responsible Lending): Hello.
CHIDEYA: So, Niger, let me start with you. You have supported the payday-lending industry in several states, including Washington, Georgia, and most recently, Ohio. But the NAACP Chairman Julian Bond says that payday lending, quote, "threatens the livelihood of hardworking families and strips equity from entire communities." So, how do you respond to that, and why do you support and your group support payday lending?
Mr. INNIS: Well, you actually said it in your introduction, Farai. And first of all, it's good to be on with you again. The fact is, this is about choice and having options for the community. The Congress of Racial Equality, which has status with the United Nations Economic and Social Council, saw the dawn of the microcredit phenomenon and have been early proponents of the microcredit phenomenon internationally in the developing world. And what we were looking for is some type of domestic microcredit vehicle that could provide short-term, easy access to capital for our constituents and for poor people, for lower-income, working-class families across this country.
And what - and in that process, we launched our Financial Literacy Choice and Awareness Campaign, and we met with and got to know the payday-lending industry. And what we realized is, even though it is not exactly microfinance and microcredit, there are similar phenomenons, and it is a need - they are servicing a need within the community. And when you compare it to bouncing a check and the fees associated with bouncing a check, you compare it with the fees for - a late fee for a credit card, you compare it with the inconvenience and the fees associated with getting a utility bill, your lights, your heat shut down, a payday loan is a viable alternative and viable option.
And let me just say, you know, I respect Julian Bond, Brother Bond. But there're many state associations of the NAACP, of the Urban League, of the SPLC, and a variety of other civil-rights groups, and not just civil-rights groups, that are in favor of giving choice and options to minority communities. And what we need to promote is financial literacy so that they can make an educated choice.
CHIDEYA: Keith, let me jump in here. It strikes me that part of this conversation, you know, ties into the whole issue of credit of America, which is so fraught right now as the economy is faltering, and the whole question of whether if people get into a cycle of non-repayment, of late repayment, what kind of fees they incur. Another part of this really seems to have to do with the idea of what is choice in a society like ours. Some people say there's too many laws governing guns, governing driving, et cetera, et cetera, et cetera. What is your perspective and what is the grounds for it?
Mr. CORBETT: I think that the effort to place payday lenders into our communities in particular is similar to the argument that the - all the people made against the Jim Crow laws. For example, it was OK to - it was a free market, and it's OK to have certain people, particularly people of color, to ride in the back of the bus. And it's OK for us to go to the restaurant and be served in the back. I can remember those days. The argument to place these fringe financial services in our community is pretty much the same.
And think about it. If you are in a low-income community and the only place you see for financial transactions is a payday lender or a rent-to-own shop, it becomes a normal situation. For example, I've seen families in their second generation, second and third generation, using rent-to-own facilities. When you charge - when you have that at face - when you're faced with that, and people grow up thinking that this is OK. And so what happens is if one community is paying no more than 15 percent to borrow money and another community is paying three and 400 percent minimum, the community never will get out of poverty.
CHIDEYA: Niger, one of the opponents, or one of the kind of constituencies that's been looking at payday lending, are religious groups who look at it sometimes as usury, which is the unfair leveraging of credit, not just regular payments, but ones that are way too big. What about that argument? Do you think there's a moral and ethical argument that these payments are just too high?
Mr. INNIS: I think the moral and ethical imperative is to promote choice and options for the community. I mean, I'm sure, Farai, that you and Brother Corbett have heard of the 50-dollar Whopper. This lady goes into a Burger King. She takes out her debit card, thinking that she's got more money on her bank account than she has. And for a Whopper meal that should cost about five dollars, she puts in a debit card. It indeed clears. It ends up costing her 45, 50 dollars, when you have the overdraft-protection fee on top of the five dollars for the Whopper. Fifty-dollar Whopper! That's absurd. I mean, there's something wrong with that system.
Nevertheless, I would not advocate for government regulating and saying that we are going to end and cease overdraft protection. What it calls for, and what CORE's campaign, the Financial Literacy Choice and Awareness Campaign, has been doing, as you stated, all across this country in various states, and what we urge the Obama and the McCain campaigns to do, is to come up with a real, comprehensive economic approach to giving options, to preserving options and choices for the minority community, but also promoting financial literacy.
We are so pleased. I had the opportunity, very quickly, Farai, to meet with various state legislators and the governor of Ohio, Strickland, a Democrat governor out of Ohio, to talk about the issue of financial literacy. And was so very, very pleased to come find out - and I guess I'm doing a little patting ourselves on the back here - that they are going to include financial literacy as a part of their core curriculum, I believe, in the public schools in 2010. And that is the solution and the salvation. Not saying to a mother that is about to get her lights cut off that, no, you cannot get a payday loan. You might as well just get your lights turned off and pay the restoration fee, or you might as well write a bad check and incur bounced check fees which are sometimes up to 1,200 percent in terms of what would be called an APR. It's about giving people options and giving them financial literacy so they can exercise their choice wisely.
CHIDEYA: Well, Niger, you bring up Ohio. Keith, I'm going to bring you into this, because in Ohio, there's a law that caps annual interest rates at 28 percent that's going to take effect in September. Payday lenders are hoping to repeal that law, and there's something called the Ohio Coalition for Responsible Lending that says the average borrower will take almost 13 payday loans a year, people who use payday loans. So, when Niger talks about financial literacy, that is something that you build up over time. For people who are already deep in the whole, do you think that it's important to put a cap on the fees? Or do you think it's OK if the businesses are allowed to charge what they want?
Mr. CORBETT: I think, you know, it's OK, and Niger has spoke against the capping of interest rates that the governor just signed in to law in Ohio, and I think it's OK to put a cap on interest rates. The federal government, last year, passed a 36-percent rate cap on all loans to the military, and I think that is OK. And if you look at the history of the financial service industry, payday lending started in 1880, and most of the states by 1940 ruled against payday lending and started what they called the small-consumer loan law, which actually had user caps for most of the states, and well, all of the states, actually. For example, in New York, for example, has a 25-percent cap, Ohio now has a 28-percent, North Carolina has about a 36-percent, Washington, D.C., has a 24-percent. And even though 28 percent and 36 percent is high, it's much lower than 300 percent.
And the argument that the industry likes to make is the overdraft fee. For example, we have written against overdraft fee, in fact we called it- our paper addressed how much it would cost for an overdraft. We think that regulations should be, and if you go back in history, up until 1980 this industry did not exist, and you couldn't charge more than the usual rate. And what happened, I think that deregulation forced financial institutions in our community - I mean, CRA forced financial institutions in our community - deregulation said, when we go to those communities, take away all the rules, for example. So, they just eliminated the usual caps in a lot of states. And that was particularly targeted especially in low-income and minority communities.
CHIDEYA: Well, Niger, we only have a little bit of time. As you give us your concluding thoughts, what would you like to see in general for poor communities, for communities of color, in terms of financial access?
Mr. INNIS: I think that's a very good point. Let me just very quickly, the problem that we have with caps, artificial caps, is that it becomes effectively a ban. For example, a 36-percent cap translates into a $1.38 of profit, if you will, that a payday lender would make on giving 100-dollar loan. No one can stay in business and pay the lights and pay staff for a $1.38 for every transaction for unsecured loans. So, it's - these caps are not caps at all, they're bans.
And I would urge your listeners to read the Federal Reserve Bank Study of New York. Donald Morgan, a staffer, an economist with the Federal Reserve Bank of New York, wrote that since payday bans have taken place in Georgia, and Brother Corbett's North Carolina, that the number of bounced check fees have gone up dramatically. Complaints about debt collectors and people being harassed has gone up dramatically. Bankruptcy has gone up dramatically. When you reduce choice for people, they have less options and they pursue bad choices. Our point is, very quickly, is to promote choice, promote financial literacy, don't promote bans.
CHIDEYA: All right, well, Niger, Keith, thank you. We were speaking with Niger Innis, national spokesperson for the Congress of Racial Equality, or CORE, who joined us from our studios in New York. And Keith Corbett, Executive Vice President of the nonpartisan organization, Center for Responsible Lending. He joined us from the studios of WUNC in Chapel Hill, North Carolina.
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