Ending Payday Loans

Payday lenders. If you don't know about them, and especially if you don't know about them from first-hand experience, you're lucky. They lend money at usurious rates to people who can't pay their bills, then lend even more to pay off the first loan, then the second, and so on, until borrowers owe an astronomical amount more than they borrowed in the first place.

It's a complex issue, which has been hard to solve legislatively (though some of that can be attributed to lobbying by the very lenders who benefit from current practices).

I just found out that one of our local institutions, Sunrise Banks, has developed a program to head off these types of loans. According to a recent Star Tribune business column about the bank, it recently started

an alternative to high-cost “payday lenders” with a lower-rate alternative product offered through a growing list of employers. That has gained national attention and could be one of the models that bank regulators make for big bankers after federal consumer regulators this summer unveil new payday loan guidelines. Those loans, considered predatory by critics, often lock desperate-to-ignorant working-poor consumers into high-rate, multiple loans where accrued interest often amounts to more than original principal.

That sounds promising, though like health insurance, I wonder why it has to be tied to employers. Seems like a half-baked idea in this age of free-lancers and part-time workers. Lots of the people who most need it won't be covered by it.

Another way to handle the effects of payday lending is a nonprofit organization like Exodus Lending, which "provides trapped payday borrowers a just pathway to financial stability." In business for just a year, Exodus buys out loans and then sets up affordable payment plans to replace the high-interest con jobs. Financial counseling is included, and the borrowers get a savings account, too.

Best of all, I hope, will be the upcoming rules from the Consumer Financial Protection Bureau. This is what government is for. Let's get it done.