Press Release October 13, 1999	Contact:, Earl Lui or Shelley Curran, Consumers Union, 415/431-6747 Jean Ann Fox, Consumer Federation of America, 757/867-7523

 

SAN FRANCISCO - Consumer and community groups asked pundit and author William Bennett to cancel his keynote speech before the nation's check cashing industry group because of their "payday loans," made at interest rates of 400% APR or more. Pointing out the contradiction of the author of The Book of Virtues speaking to an industry labeled as "legal loansharks" by newspaper editorials around the country, the groups today released a September 28 letter containing their request. The former Secretary of Education and former "Drug Czar" is slated to give the keynote address at the annual convention of the National Check Cashers Association in Las Vegas on October 17, 1999.

The agent in charge of Bennett's speaking engagements responded to the letter, saying Dr. Bennett will keep his engagement.

Consumers Union, the Consumer Federation of America, U.S. Public Interest Research Group, National Community Reinvestment Coalition, Woodstock Institute and California Reinvestment Committee have all urged stronger consumer protections against payday lending. In their September 28 letter to Bennett, the groups state that "the business practices of payday lending stand in direct contrast to the values you espouse in The Book of Virtues."

"We were shocked to find out that Dr. Bennett accepted this engagement," said Earl Lui, Senior Attorney with Consumers Union's West Coast Regional Office. "Payday loans represent the worst kind of usury and exploitation of desperate consumers. The industry convention theme of 'Giving Back to the Community' is terribly ironic given the nature and consequences of payday loans."

"The payday loan industry is trying to gain legitimacy by having Dr. Bennett give the keynote," declared Jean Ann Fox, Director of Consumer Protection for the Consumer Federation of America. "Dr. Bennett should choose his engagements more carefully to avoid being associated with dubious business practices that harm low-income Americans."

Payday loans are small, short-term loans made by check cashers at extremely high interest rates. In a typical payday loan transaction, if a consumer wishes to borrow $100, he or she writes a personal check for $117.50 (or more) and leaves it with the lender. The lender holds the check until the consumer's next payday, usually in two weeks. In return, the consumer gets $100 cash immediately (the amount of the check minus a $17.50 fee). This loan works out to 918% APR for a one week loan, 456% APR rate for a two-week loan. The amount of the fee varies from state to state, with some charging $25 or more per $100 borrowed and APRs of over 1000%. In fact, loans at these rates violate criminal laws in New York and New Jersey.

"The extraordinarily high fees force many borrowers into taking out repeated loans," said Lui. "Because they're borrowing from their next paycheck, many consumers can't make ends meet the next time around. People fall onto a perpetual debt treadmill that can ruin their lives."

Payday loan industry practices appear to violate the standards set by Bennett's The Book of Virtues in several other ways, in addition to the high interest rates charged. The industry repeatedly claims they engage in "deferred check cashing" and do not make "loans" nor charge "interest." Courts considering these issues, however, have unanimously ruled that the transactions are loans and the "fees" are interest.

"The industry wants to hide the true nature of its business to avoid charges of usury," said Fox. "This shading of the truth should not be tolerated by someone like Dr. Bennett."

In addition, the letter asserts that the collection tactics of payday lenders also run afoul of principles espoused in The Book of Virtues. Some lenders threaten customers with criminal prosecution for writing bad checks. They do so even though most states allowing payday loans do not permit criminal prosecution since everyone knows at the outset that the check is not good. Recently, the State's Attorney for Cook County, Illinois and the Illinois Department of Financial Institutions sued a payday lender for illegally threatening consumers with warrants for their arrest and sending out fake warning letters appearing as if they were written by the Illinois Attorney General.

[Editor's Note: For a copy of the September 28 letter, call 415/431-6747.]