The Iowa Catholic Conference today challenged the Iowa Legislature to finally reform payday lending to protect low-income and middle-income Iowans. Tom Chapman, the executive director of the Iowa Catholic Conference, spoke at a news conference at the Iowa Statehouse. “Interest rates on payday loans can approach or even exceed 400 percent,” said Chapman. “We believe these types of interest rates are unjust and should be outlawed. Instead of promoting the financial stability of consumers, the system actually creates a financial incentive in the failure of Iowa families rather than their success.”
State Representative Janet Petersen, chair of the House Commerce Committee said, “I know many middle class families are struggling today, but we can prevent payday lending institutions from taking advantage of Iowans’ financial hardship. By limiting the number of loans the payday industry can make to one person, lenders will be forced to take some responsibility for ensuring that Iowans don’t end up in a vicious debt cycle.”
The Iowa Catholic Conference’s statement said that the organization representing Iowa’s Catholics strongly urges the legislature to limit the interest rate on payday loans to 36 percent. Military families already enjoy this protection thanks to Congressional action in 2007.
Payday loans are cash advances based on postdated personal checks or the authorization of automatic withdrawals from the borrower’s checking account. The borrower receives the amount of the loan minus the fee. The payday loan operation then holds the check for about two week (until the borrower’s payday), at which point the borrower can repay the money or allow the lender to deposit the check, or renew (rollover or “flip”) the loan by paying the lender’s fee again. The Iowa Division of Banking data indicates that the average number of loans per year for Iowa borrowers is 12, making Iowa the leading state in the nation for the highest number of loans per customer.
State Senator Joe Bolkcom, chair of the Senate Ways and Means, said “I have a constituent who took out a $200 payday to cover her child’s medical bills and ended up paying $600 back over the next six months. The payday loan industry is our local counterpart to the crooks on Wall Street. I’m glad the Iowa Catholic Conference is calling for reform of this ethical and moral disgrace.”
Legislators Bolkcom and Petersen said they would work closely together to find a legislative solution that would be approved by both the Iowa House and the Iowa Senate.