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Iowa Citizens for Community Improvement is banking on changes in cities’ regulations to send a message to the Iowa Legislature: Iowans want relief from predatory loan practices.
Flickr Creative Commons photo by taberandrew.
The group has taken aim at payday lending and is working city-by-city asking local governments to clamp down on businesses that offer small short-term loans at astronomical interest rates.
That strategy is gaining traction in the Des Moines metro area. In May the Des Moines City Council placed a 6-month moratorium on new payday lender businesses, and West Des Moines enacted a similar moratorium recently. Ankeny’s city council has discussed the matter in open forum and looks to be following suit.
Iowa CCI community organizer Matthew Covington said the group has also been in contact with other cities in the Des Moines metro area — Clive, Urbandale and Ames, and has heard interest from Dubuque, Iowa City and other cities around the state. The goal is getting some short-term local controls in place with the long-term goal of prompting state lawmakers to protect Iowa consumers from predatory lending practices.
“We want to send the message to our lawmakers,” Covington said. “Stop forcing cities to apply band-aids to something you are able to fix.”
Iowa CCI had to regroup at the end of the last legislative session, when House File 2127, which would have tightened controls on payday lending and capped interest rates at 36 percent, failed in subcommittee. While the group intends to push a similar bill in January, in the meantime, Covington said city-to-city activism keeps the spotlight on the issue.
Payday lenders are storefront operations that advance small short term loans to cash-strapped consumers for interest rates that amount to on average 400 percent annually. According to the Center for Responsible Lending, borrowers often end up paying more in interest than they receive in the original loan, and end up in a cycle of repeat loans and ongoing debt they are unable to repay.
Nationwide, only 16 states plus the District of Columbia have outlawed triple-digit interest rates. Iowa is one of many states lacking governmental oversight over these businesses, which consumer advocates say take advantage of the working poor.
Lekeisha Veasley is a housing and financial counselor for Operation Threshold, a community action agency based in Waterloo that serves Blackhawk, Buchanan, and Grundy counties. Veasley said these types of loan businesses prey on working families that are living from paycheck to paycheck, people whose financial security is already precarious.
“It’s typically a basic need crisis that gets people in the front door. Something happens where they find themselves unable to pay their utilities, mortgage or rent,” she said. “A major car repair is another very typical scenario, and they need that repair to continue working. That starts the process.”
Veasley explained they go in believing it’s a “one-time emergency loan,” but it’s very typical for these borrowers to end up with multiple loans at multiple payday lenders over the course of a year.
“(Payday lenders) are very friendly,” she said. “They act like they are trying to help you out, help you solve your problems. But it can be very difficult to get out of that debt. The next paycheck comes along, and (families) don’t have any more funds to repay the loan than they did the last pay period. That starts the cycle.”
While the city of Des Moines is actively working on some kind of ordinance to control the 31 existing and any new payday lender storefronts, there are limits to what cities can do without exceeding the authority of the state.
Mike Ludwig, planning administrator for the city of Des Moines, said city staff expect to present the “strongest legally defensible regulation as possible” to the city council in November for public hearing and vote. The current moratorium expires on Nov. 9.
Any new ordinance won’t include caps on interest rates, because city governments can’t regulate banking or businesses. That’s the under the authority of Iowa Code, Ludwig said.
“Our legal counsel believes that is clearly not a zoning regulation, it’s clear and simple a business regulation,” he said.” The city of Des Moines doesn’t regulate the prices at McDonald’s, and we can’t regulate interest rates.”
Another tactic, density restrictions, may also fail the legal test, superceding the authority of the state superintendent of banking.
What the city can do, Ludwig said, is impose stricter zoning regulations on location and building appearance of payday lenders. It can also place them under conditional use and administrative approval procedures already in place for businesses like bars, taverns, and adult entertainment venues.
But businesses practices remain the jurisdiction of the state.
“Ideally, it will be legislative action by the state that will regulate interest rates for the benefit of loan consumers,” Ludwig said.
State Rep. Janet Petersen, D-Des Moines, chair of the house commerce committee and sponsor of last year’s failed bill, says activist groups like Iowa CCI can create the support needed to get reform passed in the next legislative session. Petersen intends to reintroduce a bill similar to the one that failed earlier this year.
“It is smart strategy to build grassroots recognition of a state-wide problem, and helpful to getting support at the legislative level,” she said. “The more people understand how payday lenders operate, the more likely they are to support better regulation. I don’t think Iowans realize how frequently payday loans are being used by families, so frequently that it’s a frightening financial problem.”
Petersen said though fall elections and the ultimate makeup of the commerce committee will be critical to the success of a reintroduced bill, the issue has some broad base support, including both consumer advocacy groups like the Iowa CCI and religious groups like the Iowa Christian Alliance and the Iowa Catholic Conference.
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