|Gotham Gazette: Searchlight: Payday Loans||JUMP TO YOUR DISTRICT|
By Leroy Comrie
New York City buses and subways are full of advertisements offering "fast cash" or "pay day loans" that on the surface seem like a solution to immediate financial emergencies. But in reality, these short-term loans lead to long-term debt.
Payday loans have astronomically high interest rates attached to them. The companies that offer them often prey on those individuals who are seeking a quick fix to their financial situations. College students, single parents, communities of color and even members of our military are often targeted as potential consumers. Many of these individuals have had a difficult time establishing the proper credit or have a poor credit history and are ineligible for a traditional bank loan.
A customer who requests a loan for $200 dollars writes a check to the loan company for that amount. In turn, the loan company deposits the $200 dollars into their checking account. The consumer is responsible for paying that loan back by a specified time, usually one week, or on their next payday, hence the term payday loan.
When that consumer fails to re-pay that loan in timely fashion, the loans are automatically rolled-over and continued. Every time that loan is rolled-over, the interest continues to mount.
The average interest on a payday loan is between 400 and 900 percent, even though New York State law has a cap of 25 percent on all loans made within the state.
But these companies do not operate within New York. They circumvent the law by purchasing or leasing another banks usury license from another state that has a high or no usury cap at all. One of the prime culprits in this "payday" loan phenomenon is County Bank of Rehoboth Beach, Delaware. These loan companies establish themselves in these states and solely market their wares in states that have consumer friendly usury laws.
After researching this blatant violation of consumer rights and meeting with several leading consumer advocacy groups in New York City, I, along with Council Member Helen Sears of Queens and Michael Nelson of Brooklyn, introduced bills to the New York City Council aimed at putting an end to this practice.
This legislation - Intro 176 and 177 and Resolution 138 - are scheduled for a hearing in late April. City Council Speaker Gifford Miller has made passage of these bills one of his top priorities for 2004.
The first bill would require that these so-called lenders provide a disclosure notice to each would-be borrower indicating the true cost of these loans. The second bill would require loan service companies that do business with the City of New York or any agency, such as the Transit Authority, provide clear and conspicuous disclosure in advertisements so that consumers will understand the true cost of the loans.
With the passage of these pieces of legislation, we intend to put an end to the proliferation of these "legal loan sharks" that prey on the unsuspecting and the most vulnerable members of our society.
As tax day approaches, many New Yorkers may owe Uncle Sam a few extra dollars. I urge all consumers to do their research and avoid "payday" lenders at all costs. It is not a quick fix to your financial problem, no matter how grave they may appear.Leroy Comrie is the Majority Whip in the New York City Council and represents the district 27 neighborhoods of St. Albans, Cambria Heights, and Hollis, Queens.