Payday lenders offer changes

Firms' practices draw state, federal scrutiny

February 22, 2007|Associated Press

WASHINGTON -- Under pressure from lawmakers and consumer groups, the payday lending industry yesterday disclosed changes to educate borrowers and help customers who have trouble making payments on short-term loans.

Consumer advocates called the move a public relations gimmick aimed at discouraging state legislatures and Congress from limiting the annual interest rates on payday loans, which can exceed 400 percent.

Payday lenders offer quick cash advances -- for a fee -- that customers must repay when they get their next paycheck.

Borrowers who cannot repay the loan by the next payday often "roll over" the loan repeatedly, leading to more charges that can quickly add up and lead to a cycle of debt.

The biggest change would give customers more time to pay back a loan with no financial penalty. This "extended payment plan" would be available at least once a year and provide borrowers between two and four extra months to pay off loans.

"This does not solve the problem of triple-digit interest rate payday-lending that traps borrowers and leads to repeat borrowing," said Jean Ann Fox, consumer protection director for the Consumer Federation of America.

Fox said the extended payment plan does not lower the cost of loans or make loan repayment any more affordable.