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Payday loan outlets have their defenders

LOS ANGELES — Residents of L.A’s less-affluent neighborhoods may encounter fewer payday lenders in local strip malls pending the outcome of a federal rule proposed in July by the Consumer Financial Protection Bureau (CFPB).

CFPB’s small business advisory review panel and loan industry officials expect the tighter operating requirements on the industry would lead to a “substantial reduction in loan volume,” essentially eliminating many of the stores.

“By their own statistical evidence, they are saying around 75 percent of loan volume would be eliminated,” Dennis Shaul, chief executive officer of the Community Financial Services Association of America told The Wave, quoting Clarity of Services, an industry credit bureau and research organization.

“In effect, no one who earns less than $40,000 could access a payday loan under the rule,” he added.

The impact of the rule on payday loan volume and number of storefronts in L.A. is not available, but according to a 2009 City Council Housing, Community, and Economic Development Committee report on creating a banking development district program, “the city has nearly twice as many “alternative” financial service provider storefronts (check cashing outlets and payday lenders) than banks and credit unions.”

If approved, the CFPB’s rule would require lenders to determine whether borrowers can afford to repay their payday, vehicle title and similar installment loans. It would place restrictions on a lender’s attempts to recover loans through debiting customer bank accounts.

Under the Dodd-Frank Act, “making a loan without reasonably determining that a borrower will be able to repay it would be identified as an abusive and unfair practice.”

Credit unions, community banks, industry and consumer rights advocates, the clergy and customers like Evelyn, a Jefferson Park resident, have flooded the CFPB with “more than half a million comments,” Bureau Chief Richard Cordray said.

Many more are expected before the comment period closes Oct. 7.

Shaul “projected more than 1 million customers will voice opposition to the proposal.”

A reporter approached Evelyn and 10 other individuals to talk about the presence of payday loan stores found clustered in many low-income neighborhoods. She sat in her car parked outside a Crenshaw District lender.

“Where’d you get your teeth?” she blurted out, seeking the name of a dentist. She opened her mouth wide to reveal inflamed gums, and missing and rotting teeth, and then pointed to her slightly swollen jaw.

Evelyn declined to give her last name, but confided she lacked health insurance and needed Medicare to have oral surgery. In the meantime, “I think [payday loans] are a godsend,” she said. “I use them only when needed and have rolled them over on occasion.”

The CFPB doesn’t see payday loans as manna from heaven for earthbound consumers like Evelyn. Its proposal addresses her ability to meet other major financial obligations and living expenses without rolling loans over or defaulting, borrowing repeatedly and overdrawing her bank account.

The use of the payday loans can be prohibitive. The City Council Housing Committee report showed “an estimated loss of more than $54 million in check cashing fees and $88 million in payday loan fees in L.A. every year,” in 2009. “An estimated 300,000 L.A. households did not have a checking or savings account.”

The Brookings Institution “estimated the average unbanked L.A . household paid over $700 each year … at these storefront providers.”

Dymphna Gruijters of  Redondo Beach and Zena Garcia of Exposition Park, agreed that “payday loans harm the community.”

Red Curtis of Baldwin Hills said, “they should be against the law.”

South L.A. print shop-owner Olivia Barnett said she believes “they destroy lives.”

“I borrowed on a truck and had to sell it and pay almost triple. I know a woman who paid for a funeral with maybe 10 different payday loans.”

L.A. resident Sharon Hamilton complained: “they give you a little money, but the amount they charge is ridiculous. They need to lower the fees and limit the number of times you should be able to borrow per year.”

Another South L.A. resident who would only give his initials, R.B., expressed concern about “his mom who borrows $500 to $700 at 30 percent interest every month for bills and entertainment, but more for entertainment than bills — not emergencies.”

Tax-consultant and Inglewood resident Tiffany Zachery complained of “the harm [caused] when they don’t make you aware of your legal rights regarding repaying the loan.”

South L.A. native and Loyola Marymount University professor Darin Earley criticized “the outrageous rates. They are making a lot of money off the community.”

In contrast, Evelyn found favor in the loans.

“There isn’t anything that I would do to change them.  They help the community. The interest rates are astronomical [but] … when you don’t have anything and want something, you better get [the loan].”

More than 100 members of the House of Representatives, led by Rep. Maxine Waters, D-Los Angeles, the ranking member of the House Financial Services Committee, urged the CFPB to adopt “a strong final payday lending rule closing loopholes that harm consumers.”

Twenty-eight U.S. senators including Sens. Dianne Feinstein and Barbara Boxer of California, expressed their support.

But Shaul sees the rule as flawed.

“It is troublesome to me the assumption that millions of individuals who annually use payday loans are all making a mistake,” he said. “What they have done is take a great step at eliminating the product without making the judgment as to how many people or what percentage of users are benefiting by their utilization.”

“There is very little in this rule, if anything, that impacts illegal operators that prey upon customers [not] able to associate with a more reputable and regulated entity.”

The public may send comments by Oct. 7 on the proposal to consumerfinance.gov.