A legislative effort to tighten regulation of payday loans has received a significant boost with the endorsement of the Iowa Catholic Conference, which on Tuesday called for new restrictions on loans where interest rates can soar to 400 percent.
"We believe these types of interest rates are unjust and should be outlawed," said Tom Chapman, executive director of the Catholic Conference. "Instead of promoting the financial stability of consumers, the system actually creates a financial incentive in the failure of Iowa families rather than their success."
Chapman joined legislative leaders at a news conference to push for tougher regulation of the short-term loans. He urged lawmakers to put a 36 percent ceiling on interest rates charged for such loans.
Lawmakers said they will push for tighter regulation but were unsure if a ceiling on interest rates could be approved.
State Rep. Janet Petersen, D-Des Moines, head of the House Commerce Committee, said she favored efforts to limit the number of loans that can be made to an individual. Sen. Joe Bolkcom, D-Iowa City, head of the Senate Ways and Means Committee, said he would join the effort in the legislative session that begins Monday.
"By limiting the number of loans the payday industry can make to one person, lenders will be forced to take some responsibility for ensuring that Iowans don't end up in a vicious debt cycle," Petersen said.
Bolkcom said the endorsement from the Iowa Catholic Conference adds significant political momentum to an effort to tighten lending regulation, an effort that began last session with new restrictions on car title loans.
"The payday loan industry is our local counterpart to the crooks on Wall Street," said Bolkcom. "I'm glad the Iowa Catholic Conference is calling for reform of this ethical and moral disgrace."
Bolkcom said the state's sluggish economy has added to a growth in the number of such loans. The Iowa Division of Banking indicates that borrowers who user such loans average as many as 12 loans, making the state the nation's leader in the number of loans per consumer.
"I have a constituent who took out a $200 payday loan to cover her child's medical bills and ended up paying $600 back over the next six months," Bolkcom said.
Payday loans involve consumers giving postdated checks to the lender, with the borrower receiving the amount of the loan minus a fee. The lender then holds the check for about two weeks, at which point the money is repaid or the loan is allowed to roll over, with the consumer paying another fee.
"Over the last decade this industry has grown significantly," said Bolkcom. "State law should protect the public from these outrageous practices."