Column: Reining in payday lenders

It took a half-dozen gutsy City Council members to stop the growth of payday lenders.

In one small part of our state at least. For now.

State legislators have tried and failed for years to tighten regulations on this predatory industry - which rakes in beaucoup profits by dragging already cash-strapped people into a tightening spiral of debt.

But last week, Des Moines City Council members voted 6-0 to have staff draw up a temporary ban on new pawn shops and payday loan stores in our capitol city. They expect to vote on the ordinance Monday.

That ordinance would mean that for the next six months, at least, no more payday lenders could hang out their shingles inside those city limits. During that time, councilors would talk about more permanent restrictions.

It's a start. Now it's up to state legislators to help the rest of the state get a grip on this cancerous industry.

Payday lenders talk big about helping poor folks who otherwise would have nowhere to turn. But studies show these short-term, high-interest loans do more to ruin users' finances than help.

According to the Consumer Federation of America, payday loan users are more likely to suffer financial hardship, to lose a conventional bank account, to become delinquent on credit cards or file for bankruptcy than people in similar financial straits who don't take out payday loans.

Here's how it works: If you're short on money, payday lenders will spot you a small loan for a fee. Just write a check and they'll cash it when you get paid. Or roll it over for another two weeks - for another fee, of course.

Those fees add up to ridiculously high interest rates - in excess of 400 percent here in Iowa.

In recent years, Iowans have taken out millions of payday loans - many of those borrowers taking out those “emergency” loans one after another as they struggle to get by.

Still, legislators haven't been able to pass bills that would cap interest rates or limit the number of loans borrowers could take on - two proposed limits that could spell big relief for payday loan users.

Meanwhile, the industry keeps growing.

Last week, there were 435 licensed delayed deposit operators registered in the state, including 34 in Cedar Rapids, 14 in Iowa City/Coralville and six in Marion.

When I last wrote about this issue, not even a year ago, those local numbers were 18, eight and three, respectively.

Clearly, the problem's not going away on its own. It's time to step up.

We can't afford to let reform roll over for another legislative session.

Comments: (319) 339-3157; jennifer.hemmingsen@gazcomm.com