BY YUH-LINE NIOU | With the relentlessness of an addict, elements of America’s financial services industry continue to try to find new ways to trap more and more families in a cycle of debt, dooming dreams of financial security for millions.
The latest effort coming out of Albany is the deceptively named Community Financial Services Access and Modernization Act, a back-door effort to bring the scourge of payday loans and all of their problems to New York. This legislation, Assembly Bill #A09634, is co-sponsored by the current assemblymember of the 65th District where I live, Alice Cancel, among others, and must be rejected by our state legislators — the quicker, the better.
This is not a view I hold based on theoretical concerns. It is based on my experience witnessing the ruthlessness of these predatory lenders and the devastation this cycle of debt can cause. Early in my career, while working for an anti-poverty group in Washington State, we saw the rapid, cancer-like growth of the payday lending industry as they moved into the state and quickly began extracting massive amounts of money from communities that could least afford it. Targeting low-income communities of color, military families and Native American tribes, payday lenders set up shop with the promise of offering easy short-terms loans to people needing funds for emergencies and unforeseen circumstances.
However, the short duration of these loans is a lie from the start; what the lenders want and expect is that when people are unable to repay within the normal two-week-or-less window of the loan, they will roll over the debt into a “new” loan again and again, with interest payments growing exponentially and with virtually no chance of effectively eliminating the debt.
In the brief time period of 10 years during which these lenders were operating in Washington State without effective regulations, the industry grew as fast as the debt they were issuing. Operating outside of the usury laws that govern banks and most other financial institutions, payday lenders metastasized into a massive, unending drain on low-income communities across the state.
Seeing the devastation of this predatory lending, my organization worked to bring payday lenders under a commonsense regulatory structure that would allow them to fulfill their stated need of short-term loans for emergencies, without trapping more and more people in the downward spiral of a debt trap from which they could never emerge. Working with advocates from working families, military families and low-income families, faith leaders, labor, Native Americans, credit unions, civil rights and social justice groups, we began countering the campaign cash and high-powered lobbyists of the payday lenders with our own grassroots outreach that exposed the reality of this industry to lawmakers.
Above all, we had to refute the many lies of the payday lenders: that these are designed to be short-terms loans for emergencies (they’re not); that they are helping the “unbanked” access credit (completely false — borrowers had to have a bank account to get the loans in the first place); that they needed to charge the interest rates they did because these are high-risk loans (another lie — many credit unions and banks provide the same services for non-usurious rates).
In the end, amazingly, we won, putting in place a strongly pro-consumer regulatory structure that strictly limited the number of loans that could be issued to any one individual and requiring the option of affordable payment plans if the debt could not be settled in one large repayment. This legislation became something of a national model, and not surprisingly, with the ability to trap people in debt curtailed, the industry shrank as quickly as it had grown.
We do not have payday lending in New York because our state had the wisdom to ban this product years ago, and now President Obama is looking at national regulations to rein in this abusive industry. With all that we now know about debt, poverty and the ruthlessness of payday lenders, New York would be unwise to go against our own progressive history and the national tide by allowing check cashers to re-create the payday loan market here.
Niou is a candidate for Assembly in the 65th District and former chief of staff for Queens Assemblymember Ron Kim
