Payday lenders relax repayment policies

Critics say the moves are only cosmetic.
MCCLATCHY NEWSPAPERS
MINNEAPOLIS -- A group that represents about half of payday lender stores in the United States will now require its members to give customers more time to repay their loans without additional fees or penalties.
The Community Financial Services Association of America, which represents 164 payday lending firms and 12,000 stores, hopes the repayment option along with a 10 million education campaign will help mollify its critics. Ranging from consumer groups to federal and state lawmakers, they accuse payday lenders of trapping financially strapped consumers in an endless cycle of debt.
"We think what we have done is significant and unprecedented," said Darrin Andersen, president of the CFSA and a top executive with QC Holdings Inc., one of the nation's largest payday lenders. "We have gone a long way to create a safety valve [repayment option] for consumers. We are responding to the concerns of policymakers and consumers."
Big business
Payday loans have become big business in America, lending about 40 billion in 2003, according to the Federal Deposit Insurance Corp. Consumers borrow money against their next pay check through the services, paying high annual interest rates that can exceed 300 percent. Critics say the industry preys on repeat customers who often take out additional new loans just to repay previous loans, landing them deeper in debt.
Under the new rules presented by the CFSA, borrowers can elect to repay a loan over a period equivalent to four paychecks at no additional cost from their initial agreement. Customers can use the extended-payment service at least once a year and must request that option the day before the loan is due.
Critics
But critics aren't impressed.
For one thing, the CFSA rules don't limit the number of loans a customer can obtain. According to a recent FDIC study, which analyzed data from two prominent payday lenders, about a quarter of customers at stores open for at least four years took out more than 12 payday loans in a year.
"If consumers don't have money now, they won't have it two weeks later" when the payday loan is due, said Leslie Parrish, a senior researcher for the Center for Responsible Lending, a nonprofit group based in North Carolina that has long been critical of the payday industry.
Jordan Ash, the St. Paul, Minn.-based director of the financial justice center for the Association of Community Organizations for Reform Now, says the changes are cosmetic at best. If payday lenders were serious about helping consumers, they would charge lower fees on their loans, he said.
"The industry is so clearly trying to fend off legislation," Ash said. "Why didn't they do these things years ago? They have been dragged kicking and screaming into it."