The payday lending industry is mounting quite a campaign to appear legitimate. It reminds me of the old adage, ''Watch out for wolves in sheep's clothing.'' It is certainly a fitting analogy. Both wolves and payday lenders are predators and need to disguise their true purpose.
The payday lending industry is vigorously courting our lawmakers to facilitate these disguises, giving large campaign contributions and influencing the process in Washington, D.C. This was evident at a recent hearing of the Senate Committee on Indian Affairs, convened to discuss predatory lending in Indian country, where there were more witnesses from the payday lending sector than consumer advocates. As the chair of the Native Financial Education Coalition and a spokesman advocating for increased financial education and increased limits on predatory lenders, I was called on to give background information for the hearing.
I was looking forward to presenting testimony; however, days before the hearing, pressure from the payday lending industry prevented that from happening.
I am willing to bet that if you asked a hundred random people if they thought an annual interest rate of 350 percent is predatory, they would say, ''Of course!'' Unfortunately, rates of 350 percent per annum are on the low side of the average rates charged by payday lenders. Credit cards that are charging 29.95 percent are thought of as predatory, but seem favorable when compared to payday lending rates of 350 percent.
The most common argument that I have heard is that people who borrow from payday lenders have no other alternative. While that may be true, that is hardly an argument for charging astronomical interest rates. I do not deny that some people do find themselves in the occasional desperate situation, sometimes beyond their control. But I also know that many people lack financial management skills that help them handle their money. Since predators prey on the weak, these are the people that payday lenders target and from whom they make their greatest profit.
This leads me to the next discussion: How do we increase financial education and provide alternative lending opportunities to those offered by the payday lenders? One answer is community development financial institutions. These organizations are leading the way by providing financial education to their community members, especially in Native communities. Many Native CDFIs, recognizing the strength of a common voice, have joined the NFEC, a group of local, regional and national organizations and government agencies whose purpose is simply to promote financial education in Native communities.
The NFEC has worked with the National American Indian Housing Council to build the capacity of housing entities to offer financial education, and with the National Congress of American Indians and the National Indian Gaming Association to help tribal departments' structure programs to promote financial education opportunities. Most importantly, we are working with the National Indian Education Association to institute financial education in schools so that Native youth will be better equipped to face the financial challenges they will encounter in today's competitive marketplace.
As for alternatives to payday lending, several Native CDFIs have demonstrated that it is possible to offer fairly priced products combined with financial education to help break the cycle of borrowing that many payday lenders try to maintain to milk their profits. Citizen Potawatomi Community Development Corp. (www.potawatomi.org), Four Bands Community Fund (www.fourbands.org) and Lac Courte Oreilles Federal Credit Union (www.lcofcu.com) all offer products specifically designed for Native consumers who encounter financial difficulties and have few options other than payday lenders.
At Oweesta, we are working with Native CDFIs across the country to help them replicate these types of consumer loan products. In the meantime, the best ''fix'' to combat these predatory practices is to pass legislation that would limit the interest rates of payday lenders. Congress did pass legislation that limits the interest rate that payday lenders can charge to military personnel to 35 percent. This shows that Congress understands and acknowledges that some consumers are more likely to fall victim to predators than others.
In my travels, it struck me how similar the landscape is on the borders of both military bases and Native communities, especially reservations: payday lenders and pawnshops as far as the eye can see. Shouldn't all Americans benefit from the same protections? Especially Native consumers, who have been so historically underserved by the financial services industry, have been victims of discrimination and haven't had the opportunity to sharpen their financial management skills? The answer is an unequivocal YES!
Payday lenders don't lend to provide a service to help consumers. They do it because it is profitable. Instead of supporting an industry that capitalizes on financial crisis and lack of experience, why not support efforts to prevent the problems that create long-term patterns of dependency in the first place?
Interest rate caps and support for financial education and Native CDFIs would make it easier for Native consumers to avoid these sly wolves. But will our lawmakers keep giving them their sheep's clothes?
Elsie Meeks is president and CEO of Oweesta Corporation and chair of the Native Financial Education Coalition.