In North Austin, there are signs here and there advertising “cash” and “loans,” signs that used to beckon to Wanda Hopkins.
“I am a recovering payday loan user,” she said Friday as she stood outside of PLS Check Cashers at North and Cicero avenues.
Hopkins lives in Austin, where the streets are sprinkled with payday lenders and quick-cash businesses. There’s a disproportionate concentration of these high-interest lenders in Austin and other communities of color, and that’s not good, says a report released this week by the National People’s Action.
“I just felt myself drowning in payday loans. I’d go to one payday loan, and then go to another payday loan to pay that payday loan off,” she said.
After the death of her daughter and losing her non-profit job because of funding cuts, Hopkins was left with a stack of bills and three children to take care of. That’s when she went to her bank for help but was turned away.
“People are denied access to adequate credit, and a lot of time they’re forced to use these payday loan places,” said Elce Redmond, a community organizer for the South Austin Coalition.
And there’s the rub, he and other advocates for the poor and middle class say.
What’s more insulting to Hopkins is that Wells Fargo, Bank of America and U.S. Bank fund 38 percent of the payday lending operations in the Midwest area the report studied. This means some big banks won’t lend to people like Hopkins directly, but they’ll fund high-interest lenders who turn around and loan to people with interest rates up to 300 percent.
“It is 20 times more than a credit card,” said Nick Bianchi, a research analyst for National People’s Action.
Last year, Gov. Quinn signed an amendment to the Payday Loan Reform Act of 2005 tightening restrictions on payday loan companies. Starting next month interest rates for longer-term loans, called consumer installment loans, will be capped at 99 percent (before there was no cap), and short-term loans will continue at $15.50 for every $100 borrowed. New restrictions will also make it harder those like Hopkins to bounce around from loan to loan, gaining massive debt.
“If you can’t make money charging 36 percent, there’s something wrong with your business model,” said Kathleen Day from the Center for Responsible Lending.
That’s the interest percentage that was deemed acceptable by Congress for loans made to military personnel, another group that attracts these kind of lenders, according to a report compiled by the Center for Responsible Lending.
“If it’s not good for the military, why is it good for anyone else?” Day said of high-interest lending to military personnel.
In March, the new law will make Illinois a leading state in high-interest lending transparency, said Lynda DeLaforgue, co-director of the Citizen Action of Illinois, which led a campaign for the 2005 reforms.
“Information about all these products are going to go into a statewide data service,” DeLaforgue said.
Ideally, the data collected from Illinois could be used by other states wanting to monitor the behavior of these lenders, she said. But for some, the damage has been done.
“You will never win it. You are never above board,” said Hopkins, who after six years stopped going to payday lenders and now struggles with debt collectors.
“That’s why I can’t answer my telephone,” she said.
But, she said, it’s better than the alternative.