Payday Lenders Ought To Worry

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The Arkansas credit unions and banks in Ed Roberts' fine article "CU-Led Coalition Against Payday Lenders Awaits Ruling" (CU Journal, Jan. 10) have every reason to be worried about the outcome of the court case they have supported. For in encouraging action against the payday lending industry, they have invited scrutiny of their own lending practices.

The first area of examination might be the situation where the financial institutions are seeking legislation to require payday lenders to quote their fees as interest and annual percentage rates, while claiming an exemption from the same requirement for their fees on bounced checks and non-sufficient funds.

The second area of examination stems from taking on the payday loan issue in the first place. For in so doing, the financial institutions have highlighted their failure to serve the short-term credit needs of their depositors.

All payday loan customers have accounts at credit unions or banks-on which they draw the post-dated checks that secure their loans. Yet these consumers must turn to payday advance companies because they cannot obtain loans of a couple of hundred dollars from the very institutions that hold their deposits.

Such a business practice might be considered merely unfortunate were it not for the presence of the Community Reinvestment Act of 1977 which mandates that banks serve the credit needs of the communities where they source deposits.

Interestingly, the CRA was not applied to credit unions because it was assumed to be unnecessary for such member-owned institutions.

If this CU-led coalition succeeds in obtaining a ruling that effectively bans payday lending in Arkansas, it will cut off the only legal source of small dollar value, short-term, unsecured loans that help the state's low- to moderate-income residents cope with personal emergencies.

That is, unless these financial institutions plan to reverse decades of ignoring the needs of their depositors and start making short-term, small dollar value, unsecured loans themselves. If this is the case, at least one of the institutions mentioned in the article might have mentioned that intention.

If that is not the case, the credit unions, banks and consumer groups may win their court case. The payday advance companies may leave the state. But low- to moderate-income consumers - the depositors of these financial institutions - will be the big losers.

James R. Wells, Jr., Managing Principal

Wellspring Consulting, Ft. Lauderdale

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