For Immediate Release:
September 24, 2013
Contact: Harvey Rice
Butkovitz Says Payday Lending Bill Targets 1 in 4
Calls on Legislature to Oppose Efforts to Expand Payday Lending in Pennsylvania
PHILADELPHIA – City Controller Alan Butkovitz today released a report entitled, “Impact of Legalizing Payday Loans in Philadelphia,” that indicates 133,173 underbanked households in the City are being targeted under state legislation, which would allow for the expansion of short-term, high interest loans.
Underbanked Philadelphians account for almost 25 percent of all households. They have an account with a bank or credit union, but they continue to rely on alternative financial services, such as check cashing, payday loans and pawn shops. Since payday loan companies require access to a borrower’s bank account, the underbanked population would be at risk for these loans, which can result in high fees and interest rates.
“Payday loans are a form of predatory lending that does not build credit in any way,” said Butkovitz. “They often quickly lead consumers into a downward spiral of rapidly mounting fees and interest.”
The proposed state legislation, Senate Bill 975, would remove the current protections for consumers, such as high-interest rates, and create a tier-loan system where borrowers could be subject to a 28 percent flat interest rate, a five percent application fee per loan, a five percent fee for processing and a five-dollar verification fee.
“These loans are virtually designed to ensnare borrowers in a debt trap,” said Butkovitz.
As the Pennsylvania General Assembly reconvenes for its fall session, Controller’ Butkovitz issued a letter along with his report to all Philadelphia state lawmakers.
“I strongly urge you [lawmakers] to vote against any legislation that allows for payday lending expansion to occur in Pennsylvania,” said Butkovitz.
According to the Controller’s Office’s report, if payday lending were to be legalized under the proposed legislation, it is highly likely that check-cashing institutions would obtain payday lending licenses to offer loans to low-income residents in Philadelphia. Of the 144 licensed check-cashing businesses in the City, more than half are located in neighborhoods with poverty rates above 26 percent.
“Philadelphia already struggles with the highest poverty rate of any large U.S. city,” said Butkovitz. “Mixing high-interest, short-term loans will negatively impact our most vulnerable citizens.”
Controller Butkovitz recommends that individuals should seek alternatives to payday loans. This includes inquiring the assistance from credit union’s signature or personal loans and receiving free financial literacy from the City’s Financial Empowerment Centers.
“Credit unions have signature loans with much lower interest rates than payday loans,” said Butkovitz. “It’s never too late to receive financial literacy, as it can provide advice on how to manage loans, credit and other forms of debt.”
For free financial literacy resources, visit the City Controller’s Bank on Philadelphia link on the Office’s website.