For Immediate Release

The trouble with typical payday loans is clear. Let's say you borrow the maximum $300 -- giving you $255 after the $45 fee. You guarantee repayment in full from your next paycheck, but by then other bills are due. You can't pay back the first loan and must take out another. The typical borrower in California ends up taking out 10 loans per year before he or she can break the cycle, according to the California Budget Project.

Traditional payday lenders charge up to 459% annualized interest rate, making it very likely that borrowers will continue to borrow money, in order to pay back the first loan. As Anne Stuhldreher points out in an op-ed in the Los Angeles Times, "the average borrower ends up borrowing again -- and again -- trying to pay back that first $300 payday loan, shelling out a shocking $800 for the privilege."

Advocates and community leaders are well aware of the negative impact payday loans have on hardworking individuals and families, and have put forward numerous pieces of legislation to curb the predatory practices of payday lenders. But as Ms. Stuhldreher explains, "industry lobbyists squelch the effort, convincing state lawmakers that they're the lenders of last resort, the only ones who haven't abandoned low-income neighborhoods."

Now the City of San Francisco has partnered with thirteen nonprofit credit union locations to launch Payday Plus SF, a low cost alternative to traditional payday loans. Described as "the better small dollar loan," Payday Plus SF offers loans with a maximum APR of 18% as compared to the 459% charged by payday lenders. Through this program, borrowers have longer to pay back the loans, access to financial counseling services, and are able to build up good credit history.

While San Francisco has taken an important step in protecting consumers, the work's not yet done. As Ms. Stuhldreher explains,

Because of the vast market for these loans, more financial institutions should step up with better-priced alternatives. And state legislators need to create more meaningful consumer protections, capping interest rates at reasonable levels. When borrowers are forced into loans that drive them closer to collapse, we all lose.

The full op-ed is available here: http://www.latimes.com/news/opinion/la-oe-stuhldreher21-2009dec21,0,437048.story
 
Last week, the New America Foundation participated in the City's Payday Plus SF press conference and hosted a community discussion afterwards.

For media requests, please contact Elizabeth Wu at (510) 295-9859 or wu@newamerica.net.