Predatory loans require statewide fix

The Gazette Opinion Staff
Published: October 5 2012 | 12:01 am - Updated: 1 April 2014 | 1:30 am in
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By The Gazette Editorial Board

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Cedar Rapids may join a handful of other Iowa cities in setting limits on where new payday loan businesses can operate. Itís an attempt to rein in the growth of this often problematic industry, which offers small-dollar, short-term loans to people who might not have access to more traditional lines of credit ó though at a heavy cost.

But zoning ordinances arenít the best solution to predatory abuses ó theyíre simply a tool that cities have authority to use.

Cities canít ban the businesses outright, even if they wanted to. Nor can they limit the terms the businesses offer. Changing those limits is up to state legislators, who, despite years of discussing the issue, have so far been unable to pass legislation that would better protect consumers from predatory lenders. Legislators should get it done next session.

The payday industry offers the short-term loans to users for a fee which, in Iowa, can amount to more than 400 percent interest.

Theyíre advertised as a bridge to help make it through a tight week or deal with a financial emergency, but according to the state Attorney Generalís Office, nearly half of Iowans who use the service borrow from payday lenders more than a dozen times a year. Itís not unusual for a user to take out a new payday loan just to cover their previous loan.

Research has shown that frequent users of these emergency loans are more likely to suffer financial hardship, lose a conventional bank account, become delinquent on credit cards or file for bankruptcy than are similarly situated people who donít turn to payday loans

Thatís why cities such as Iowa City, Des Moines, West Des Moines, Clive and Ames already regulate payday lenders through zoning law ó itís what they can do.

Iowa Cityís ordinance took effect late last month. It bans payday lenders from operating within 1,000 feet of day cares, schools, parks and churches. The cityís five existing lenders ó all located in the south and southeast parts of the city ó are not affected.

Some Cedar Rapids council members have asked Community Development staff to draft for consideration a similar ordinance. But such ordinances are minimal local remedies to a statewide problem.

Itís up to legislators to step up and address it.

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