Op-Ed: Iowa City must act now to curb predatory lending

Guest opinion

Written by Dick Greenwood
Appeared in the March 28, 2012 Iowa City Press Citizen:

The Iowa City Council has an incredible opportunity to strengthen economic development and neighborhood revitalization and safeguard the welfare of the local community by using its zoning powers to restrict the number of predatory payday lenders that can operate in Iowa City.

Iowa Citizens for Community Improvement members support strong and effective public oversight that:

» Caps the density of payday loan shops to one for every 20,000 city residents.

» Requires separation distances of two miles between stores and one mile from residential areas, churches, parks, child care facilities and schools.

» Prohibits new stores from opening in neighborhood retail and pedestrian commercial districts.

These proposals are not controversial. In the absence of strong state action to cap interest rates on payday loans, the cities of Des Moines, West Des Moines and Clive have already passed similar local zoning ordinances, and Ames is considering a comparable proposal.

In Iowa, payday loans are effectively capped at $445 and are due in full in just 14 days. To get a payday loan for $445, a borrower must write a postdated check or authorize an automatic withdrawal from her/his bank account for $500. This means the average APR (annual percentage rate) for a payday loan in Iowa often exceeds 400 percent (as a point of comparison, Mafia loan sharks averaged just 250 percent in their hay day).

For a family living paycheck to paycheck, it can be impossible to pay back a $500 loan in just two weeks. That’s why 98 percent of all payday loans go to repeat customers. And 76 percent of all payday loans in Iowa go to customers getting a new loan every two weeks. Payday lending creates an instant debt trap and treadmill that can be impossible to escape.

But payday lenders rely on this debt trap to profiteer — which is why they are opposed to any attempts to curb the practice.

This might be a good business model to maximize corporate profits, but it’s not a good model to provide access to affordable credit to those who direly need it.

Payday loans are a bad financial product that hurt, rather than help, everyday hardworking families. And because so many payday loan companies are incorporated as out-of-state corporations, they do not pay income taxes on the profits they make in Iowa. $36 million in payday loan profits flee the state of Iowa every year, draining our local communities of hard-earned wealth that should be circulating here in our cities and towns rather than padding the bank accounts of out-of-state CEOs and unknown speculators.

Payday lenders also contribute to neighborhood blight and drive away legitimate businesses. In Iowa City, the majority of payday loan shops are located on the south and southeast areas of town. If the city is serious about developing those parts of town and ameliorating some of the social problems in those neighborhoods, then a tough new zoning policy to restrict predatory payday lending isn’t just the morally right thing to do, it’s also in the city’s long-term economic self-interest.

Iowa CCI members urge the Iowa City Council to put communities before corporate interests and to put people before profits and pass a strong zoning ordinance that includes a mix of the best density and distance restrictions on predatory payday lenders.

It’s time to put people first .Vulture capitalism must be stopped

.Iowa City resident Dick Greenwood is a member of Iowa Citizens for Community Improvement.