Dec 18 2008
State legislators warned people on Tuesday to avoid high-interest rates of some short-term loans this holiday season.

Sen. Joe Bolkcom, D-Iowa City, and Rep. Dave Jacoby, D-Coralville, discussed proposed legislation that would greatly lower interest rates for payday loans in Iowa.

"Even when finances are tight, you want something under the tree," Jacoby said. "We just want to make sure [consumers] understand how much these loans cost."

Payday loans, a cash advance with possible interest rates upwards of 400 percent, are given to borrowers after showing proof of a past paycheck. Legislators called the loaning process predatory and abusive.

The average Iowan takes out about 12 loans per year, higher than the national average of 8.7 percent, according to data from the Iowa Division of Banking.

Iowa law limits payday loan interest rates to 36 percent for military families. Legislators plan to propose legislation modeled after that initiative next year, extending the 36 percent cap to all borrowers.

In Iowa, borrowers are limited to two payday loans at a time for a maximum of $500 apiece. But Bolkcom said it is common for borrowers to visit several different locations to receive more loans. As of 2007, 277 locations in Iowa - places such as Check 'n' Go - were licensed to administer these cash advances, according to the Iowa Division of Banking.

But credit unions and banks may be stepping up on their own, too, providing alternative short-term loan options to Iowans. The UI Community Credit Union offers specific payday-loan alternatives, with emphasis on education about savings accounts.

The Iowa Credit Union League will also work with credit unions throughout the state in January to increase these alternatives, said Patrick Jury, vice president of government affairs for the group. Many locations have expressed interest in establishing alternative lending options to help consumers avoid the high-interest rate loans which often lead to debt, he said.

Although no data were available to show an increase in payday loans during the holidays, Bolkcom said, he anticipates more people would seek out the short-term loans this time of year.

Fellow legislators also held press conferences in Des Moines, Ames, Waterloo, and Davenport on Tuesday stressing the importance of raising awareness of these interest rates.

While Jacoby said he hopes more banks and credit unions remedy this problem on their own, Bolkcom said he is positive that legislation is on its way.

"By and large, working poor people pay their bills," Bolkcom said. "They, too, deserve consumer protection."

Source: http://media.www.dailyiowan.com/media