NAACP Chairman Julian Bond Joins Group Urging Pennsylvania Governor to Ban Payday Lending

NAACP Chairman Julian Bond joined religious groups, consumer groups and other civil rights leaders calling on Gov. Edward Rendell to stop supporting a bill in the Pennsylvania House of Representatives that would allow 400 percent annual interest rates on payday loans.

“Payday lenders prey on poor and working class families, a disproportionate number of whom are African-American, literally stealing money from their victims,” Bond in a letter to Gov. Rendell. Mr. Bond said HB 1478 would also let payday lenders trap borrowers in a cycle of debt until they’ve paid several times in interest what they originally borrowed.

Mr. Bond and the other leaders urge Gov. Rendell to instead help pass Senate Bill 101, which would force payday lenders to either comply with Pennsylvania consumer protection law or leave the state. Payday lending is not authorized in Pennsylvania, but payday lenders have been getting around the interest rate cap of 26 percent by claiming their partnerships with federally-chartered, out-of-state banks exempt them from Pennsylvania law.

Supporting SB 101, Bond says, will prove the governor really supports banning payday lending in Pennsylvania, as he has said in the past. (See “I support ban on payday lending,” the governor’s letter to the editor of the Philadelphia Inquirer, December 22, 2005.)

The City of Philadelphia recently passed a resolution supporting SB 101. “I’m pleased to see this action being taken,” City Councilwoman Marian Tasco said. “This is an effort to protect the citizens of Philadelphia and Pennsylvania.”

Brenda Fulk of Harrisburg would have benefited from strong enforcement against predatory payday lenders who have been operating in Pennsylvania in defiance of state law. When she couldn’t pay her heating bill, Ms. Fulk borrowed from a payday lender. Her problems snowballed until she owed three lenders and her bank account had negative balance of $500.

Because the payday lending business model is based on repeat borrowing, industry-backed bills that claim to contain consumer protections are generally ineffective. North Carolina and Georgia recently kicked out some payday lenders by strongly enforcing state laws on how much interest lenders may charge. The North Carolina Commissioner of Banks ruled in December that Advance America, the nation’s largest payday lender, had been violating state law by partnering with out-of-state banks that claimed they were not bound by state law because they are federally chartered. Advance America and other major payday lenders are shutting down their North Carolina operations.

Twenty-one Pennsylvania groups recently joined PennPIRG, a public interest organization, in a letter urging Gov. Rendell to support SB 101, including the Pennsylvania Council of Churches, one of the largest religious groups in the state, as well as the NAACP, the AFL-CIO, the City of Philadelphia, the Greater Philadelphia Coalition Against Hunger and consumer rights lawyers.

In another letter, national consumer advocates, including the Consumer Federation of America, the Center for Responsible Lending, Consumer Action, Consumers Union and the National Community Reinvestment Coalition said: “We are disturbed by the devastating impact of payday lending on working families across the country.” They called on the governor to protect his state’s most vulnerable working-class families by actively supporting SB 101.

Payday lenders make borrowers sign a postdated check to borrow an average several hundred dollars until their next payday, usually a period of two weeks. But most borrowers don’t get themselves out of trouble in two weeks, and have to roll over the loans. The average borrower is flipped eight times by a single lender.

HB 1478 would let payday lenders gouge borrowers with annual interest rates that could legally go higher than 400 percent. Payday lenders trap poor and working-class customers in this cycle of debt so that they often wind up paying back several times what they have borrowed. The average payday borrower pays back $800 for a $325 loan.

Payday lenders collect over $100 million in abusive lending fees from Pennsylvania’s working families every year.

See http://www.responsiblelending.org/pdfs/Letter-JBond_Rendell-012306.pdf for full text of Chairman Bond’s letter to Gov. Rendell.