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(Morguefile.com)

In February, anticipating the decision of the Consumer Financial Protection Bureau new rules restricting the practice of high-interest loans known as payday loans, a new bill has arrived in the Oklahoma Senate that would allow these lenders to issue up to $3,000 in loans, that is $2,500 more than the current authorized amount.

Sponsored by Senator David Holt (R-Oklahoma City), SB 1314 was similar to other bills drafted in Michigan, South Dakota and Arizona that would allow companies such as Cash America, Advance America, Cashland, National Quik Cash and others operating in Oklahoma to increase by 600% the amounts they could lend to individuals. But after a social media outcry and a series of reports criticizing the bill, Holt walked away from the legislation.

In a series of Twitter posts in February, Holt said:

Holt said he was approached by industry advocates to draft the bill. Because of the bill’s looser regulations for industry and consumers that matched his political philosophy, Holt agreed to pass the legislation.

“I’m generally always in favor of bills that expand the free market,” Holt told NonDoc, “but it became clear pretty quickly that this industry has a lot of vocal opponents and that passing the bill was unlikely in the Senate, so I withdrew it rather than wasting people’s time.

According to the Pew Charitable Trusts, relaxation Federal banking regulation in the 1980s led many states to allow loans to be issued against post-dated checks, prompting a sudden boom in the payday loan industry in the 1990s.

Because these companies were not required to perform background checks on customers, payday loans became a financial option for people with bad credit or who otherwise couldn’t get loans from financial institutions. traditional. Pew reports that 12 million US citizens take out payday loans and pay $7 billion in fees each year.

“Morally reprehensible”

Some objections to these high interest loans come from members of the religious community, who objected to payday loans as usury. On May 14, 2015, several religious organizations came together to form faith to lend justlyincluding the Southern Baptist Convention, the National Association of Evangelicals, and the National Baptist Convention.

“This is something our faith has opposed for generations,” said the Reverend Bob Lawrence, president of the Tulsa Interfaith Alliance. “It is morally wrong to impose an additional burden on those not in positions of economic power, and it is contrary to the egalitarian message that is at the heart of Christian tradition.”

“Obviously this is a predatory practice that preys on low-income people,” said Jayme Cox, president and CEO of the Oklahoma Center for Community and Justice. “Some of these people work very, very hard – often in service positions – and it’s unfair that lawmakers allow them to be exploited.”

Unfortunately for these borrowers, the payday loan structure only works for the customer if their financial situation improves significantly during a pay period. According to Consumers Federation of America, the borrower signs a personal and post-dated check for the amount borrowed as well as the financial charges or gives electronic access to his account. The amount is due on the next payday, so the borrower either lets the check be cashed or pays another set of finance charges to defer it to the next payday.

It sounds simple enough, if the borrower is a single customer and does not roll over the loan for a new set of finance charges. But if the loan is rolled over, the costs start to mount.

Do the math

The average finance charge for a $100 payday loan is between $15 and $30, or between $75 and $150 for $500, which is the maximum loan amount in Oklahoma. To put this in terms that credit card users can easily understand, let’s say a borrower takes out a $300 cash advance at an ATM based on an average annual percentage rate of 20.23%. If he repays the advance in one month, the finance charge is $13.99, giving a total repayment of $313.99.

To borrow the same amount from a payday loan company, the average customer will incur a finance charge of $17.50 for every $100, or $52.50 for $300. If they renew it once after the first 15 days, the total repayment of a one month loan of $300 is $405. This equates to an APR of 426%. And if the loan is made for four months, the borrower repays a total of $667.50, more than double the original loan amount.

“A Cycle of Debts”

Pew reports that only 14% of payday loan borrowers are able to repay the loan within the standard 15-day period, while most roll over and incur more finance charges. President Barack Obama discussed the difficulty of evading payday loans in a online weekly address on March 28, 2015.

“Although payday loans may seem like easy money, people often get trapped in a cycle of debt,” Obama said.

The president created the Consumer Financial Protection Bureau in 2010 in response to predatory lending practices that led to the 2008-09 recession. New CFPB regulations restricting payday loans, due to be released in May, would require these companies to conduct background checks to determine if the potential customer can afford to repay the loan.

The payday industry has money for lawmakers, too

But the industry is fighting back with the help of Republicans and Democrats.

HR 4018, the Consumer Protection and Choice Actbased on a Florida law supported by the payday loan industry, was introduced by U.S. Representative Dennis Ross (R-Fla.), and would push back new CFPB regulations by two years and allow states to pass less stringent payday loan rules. Co-sponsors of the bill include U.S. Representative Debbie Wasserman Schultz (D-Fla.), chair of the Democratic National Committee. According to the Center for Responsive Politics, Schultz received $63,000 of the payday loan industry in campaign contributions.

In a Dec. 15 letter to Congress, the Consumer Federation of America urged lawmakers to reject HR 4018, citing that the law “would allow predatory small-dollar lenders to continue doing business as usual if states pass laws similar to a Florida law, putting in place what is called “industry best practices”. In addition, MoveOn.org has launched a petition on March 1, calling on Schultz to “oppose the Consumer Protection and Choice Act or resign.”

Pennies from heaven?

Whether CFPB or HR 4018 wins, there are organizations that want to provide a different avenue for people in need of short-term loans – one that doesn’t involve high interest and continually rolling debt.

“We understand that the economy is still not strong,” said Ray Hickman, executive director of Tulsa Metropolitan Ministry, an organization working to promote inter-religious cooperation. “We understand that people don’t have many options if their credit is bad, and that’s why we’re working on a project that would allow the Tulsa Metropolitan Ministry to be a lending source in the community through social loans.

Hickman said he hopes to present details of the Tulsa Metropolitan Ministry’s proposal later this year.