Rep. Brooks on the Wrong Side of Payday Loans

I'm not sure why Georgia State Rep. Tyrone Brooks (D) plans to vote for Republican Rep. Earl Ehrharts's HB 163 which would legalize payday lending in our state. According to this AJC article by Carrie Teegardin, he says its because of a past experience that his grandmother had with a local finance company. He says they ripped her off, charging her a "60 percent rate on each dollar."

I believe Rep. Brooks' story. That kind of thing is commonplace within this industry, which is why it is suspect to begin with. However, I don't believe him when he says this is his reason for supporting payday lending. It can't possibly be. Either there's another reason, or he hasn't taken the time to compare payday lending to finance company loans or car title loans. The type of lending he is backing doesn't look like a better option than the finance company loan that he says is bad for consumers like his grandmother. In fact, it might be worse.

Under the provisions of Rep. Ehrhart's bill, borrowers would be able to borrow money that typically would have to be paid back within two weeks. Teegardin's article says the cost would be "$15 per $100 borrowed at rates of anywhere from 195 percent to over 1,000 percent." Then, there are insurance add ons that push the costs even higher.

Brooks says lower income people who can't get a regular bank loan or a credit card need payday loans as an option for unexpected expenses. Clark Howard says find another option:

"This is the wrong cure," said Clark Howard, the Atlanta consumer guru who hosts a nationally syndicated radio talk show. "In my book, [payday lending] just makes people more ill."

Payday loans came under fire when military men and women were being targetted and taken advantage of. In 2004, the state of Georgia passed a law prohibiting payday lending. The problem amongst military families was not limited to Georgia. The Center for Responsible Lending cited a New York Times analysis that same year:

An analysis by the New York Times reveals that at least one fourth of military households (26%) have been caught up in payday lending. Officials at the Army Emergency Relief office in Fort Bliss, Texas, estimate that 10% of the 10,000 active-duty military stationed there have needed financial counseling because of payday loans and other debt problems.

While he concedes that people were being taken advantage of by payday lenders, Rep. Ehrhart says that Georgia's 2004 law was all about finance companies' desire to "push out the competition."

However, Teegardin's article closes with this:

When asked to rate the options, most consumer advocates recommend a finance company loan over a payday loan or car title loan.

"Small loans across the country are expensive credit, but they aren't as hazardous as the design of a payday loan," said Jean Ann Fox, director of consumer protection for the Consumer Federation of America.

Finance company loans are usually paid back over months or even several years. Payday loans must be paid off at the next payday, something that's just not realistic for most struggling borrowers, the advocates say.