April 12, 2013

In Pursuit of Quick, High-Interest Loans

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Q: Are Oklahomans falling for another version of predatory loans?

A: With the recession over and Oklahoma’s economy relatively strong, the need for quick, high-interest loans would seem to have diminished.

Not so for “B loans,” which are unsecured short-term loans whose annual interest rates can run up to 141 percent on the average loan amount. They are offered at storefronts.

A bill proposed by state Sen. Dan Newberry, R-Tulsa, but vetoed by Gov. Mary Fallin, would have effectively allowed borrowers to take out higher amounts on a single loan. Newberry and other supporters said the change would have saved borrowers money because they would have less need to take out multiple B loans and incur more handling fees.

According to data from the Oklahoma Department of Consumer Credit, which regulates such lenders, the number of B loans taken out by Oklahomans increased by 28 percent, to about 1.3 million, from 2008 to 2011. The total amount in loans also rose, by 5 percent, to $824 million in 2011, with the average loan amount being $472.

B loans have lower interest rates than payday loans, but the rates still are high; their term is more than than the typical 30 days maximum for payday loans., B loans also do not require the borrower to provide a signed personal check as collateral to be cashed when the loan payment comes due. Instead, the borrower signs a loan agreement.

Fallin said the bill would increase predatory lending, which takes advantage of financially vulnerable Oklahomans. She cited data from a Pew Charitable Trusts study last year that found Oklahoma is a “permissive” state when it comes to payday loans. Each borrower in Oklahoma takes out an average of 8.7 paydays loans per year. “Thirteen percent of adults have borrowed (using paydays loans) in Oklahoma and 11 percent in Missouri, two of the leading payday loan states,” the report said.

The study found that nationwide “most payday loan borrowers are white, female, and are 25 to 44 years old. However, after controlling for other characteristics, there are five groups that have higher odds of having used a payday loan: those without a four-year college degree; home renters; African Americans; those earning below $40,000 annually; and those who are separated or divorced.”

“Most borrowers use payday loans to cover ordinary living expenses over the course of months, not unexpected emergencies over the course of weeks,” the report added. “The average borrower is indebted about five months of the year.”