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'Lending' incomplete

Re: ''Payday lending or predatory loans?'' [Vol. 28, Iss. 2]. The fact that this article did not accurately reflect the issues discussed in this hearing is concerning enough. More concerning is that the reporter only spoke to representatives of the payday lending industry and made no effort to provide fair and balanced coverage of the issues.

There are volumes of research that indicate payday lending is indeed a form of predatory lending. That is precisely why so many states are acting to put tougher restrictions on the payday lending industry. A predatory loan is commonly understood to be an unsuitable loan designed to exploit vulnerable borrowers. Predatory loans may have inappropriately high interest rates or fees or terms and conditions that trap borrowers. Most payday loans cost $15 - $30 per $100 for a two-week term, resulting in effective annual rates of 390 percent to 780 percent interest.

Payday loans are advertised as a quick, convenient way to cope with a financial shortfall, with borrowers taking on debt only until their next payday. In reality, only 2 percent of loans go to borrowers who can take out a loan, pay it back, and walk away from payday lending for the rest of the year. Instead, once the typical borrowers pay their initial loans back, they find that they don't have enough money for food, transportation or other necessities to last them until they get paid again. So, they have to take out another payday loan, and the debt trap cycle begins.

Payday lenders depend on these trapped borrowers for the bulk of their revenues. Ninety percent of payday loan business is generated by borrowers taking out five or more loans a year, and more than 60 percent of payday loan business is generated by borrowers with 12 or more loans a year - that's at least one loan every month! A remark from the CEO of Cash America is telling: ''And the theory in the business is you've got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that's really where the profitability is.'' According to the payday lending industry and its regulators, the average payday borrower takes out eight to nine loans per year.

As to whether payday lenders target Native people, there is a great deal of evidence they do. A recent flyer advertising the payday lending industry's ballot initiative in Arizona featured a Native American person on the cover. And the industry's own data suggest that their customers are more likely to be of a minority race.

In any case, it is quite unlikely that Native Americans taking payday loans would have better experiences with these products than the average payday borrower. And that is why our report, ''Borrowing Trouble: Predatory Lending in Native American Communities,'' recommends that tribes act to prevent the abuses of payday lending by offering financial education, alternative loan products, and legislation.

The payday lending industry has a great amount of money to spend on marketing, hiring consultants to attack independent research, and bending the ears of naive reporters.

- Sarah Dewees, Ph.D.

Director of researchFirst Nations Development InstituteFredericksburg, Va. - Leslie ParrishSenior researcherCenter for Responsible LendingWashington, D.C.