Payday lending = financial quicksand

Of the many ways that people are fleeced by financial institutions, one of the most egregious is "payday lending," which gives cash-strapped consumers an advance -- with exorbitant interest rates -- on their paychecks.

The companies that make billions from these schemes -- from fly-by-night stores to the biggest names in finance -- claim they are providing a needed, short-term service to the working poor. But the Center for Responsible Lending, the leading advocate for fair lending practices, has released an excellent new report which shows that the lucrative payday loan industry is based on driving people deeper into debt:

Every year, payday lenders strip $4.2 billion in excessive fees from Americans who think they're getting a two-week loan and end up trapped in debt ... [A]cross the nation payday borrowers are paying more in interest, at annual rates of 400 percent, than the amount of the loan they originally borrowed.

Despite attempts to reform payday lending, now an industry exceeding $28 billion a year, lenders still collect 90 percent of their revenue from borrowers who cannot pay off their loans when due, rather than from one-time users dealing with short-term financial emergencies. [...]

Another important finding of the report is that reform works:

States that ban payday lending save their citizens an estimated $1.4 billion in predatory payday lending fees every year.

You can read the full study here.

The long-term solution, advocates like the Center argue, is strong legislation that reins in predatory financial institutions. That requires taking on powerful finance interests; until policy change is forthcoming, many are responding to the Center's research by heightening financial literacy:

U.S. Rep. Artur Davis, citing national reports indicating Alabamians have a higher likelihood of being victimized by predatory lenders, is hosting a lending workshop in Birmingham to help protect consumers.

The Fair Home Lending Education Workshop will take place from 11 a.m. to 1 p.m. Saturday in Birmingham City Hall's council chambers. Representatives of various agencies will participate in a panel discussion and share tips on how individuals can avoid being victimized by unscrupulous lenders.