State banks could lend a hand

The secret to predatory lenders' success can be summed up in three words: fast money now.

Payday and title lenders promise quick and easy ways to borrow money, and they deliver. What their neon signs don't mention is that it's neither quick nor easy to get out of debt when the annual interest rate on the loan exceeds 300 percent.

If state legislators had the courage, they could solve half of this problem with a simple 36 percent cap on annual interest rates. But lobbyists and other apologists for the industry maintain that without other alternatives, desperate consumers would turn to even more sinister options, including loan sharks and unregulated Internet lenders.

It's a self-serving argument; many states have passed the 36 percent cap. But it's also true that reasonable people would not risk financial ruin by agreeing to triple-digit interest rates if better choices were available for car repairs, medical bills and other emergencies. Solving that half of the predatory lending problem will require expanded access to small loans and more education.

Progress is being made on both fronts.

A growing number of credit unions are offering small loans with annual interest rates of 11 percent to 18 percent. Langley Federal, Navy Federal and Newport News Shipbuilding Employees' credit unions provide reasonable alternatives to payday and title lenders in Hampton Roads. State employee credit unions in Virginia and North Carolina have similar programs.

In California, where the legislature has also refused to take action, the city of San Francisco partnered with 13 credit unions last month to market small loans with reasonable interest rates. Elsewhere around the country, United Way agencies and other charitable and religious organizations are stepping in to create new choices.

Alternatives to predatory loans are more accessible than ever, but credit loans and charities cannot fill all the demand for small loans. For two years, the Federal Deposit Insurance Corp. has encouraged banks to join in these efforts. So far, not a single Virginia bank has volunteered to help.

Bankers argue that the small loans aren't profitable, but these are the same people who dug themselves into a multibillion-dollar hole with derivatives and risky international investments. Surely they can figure out a way to loan $500 to a loyal customer who lives close by.

Meanwhile, the state Board of Education has approved a new requirement that high school students pass a course on economics and personal finance. The course will teach teenagers about credit, debt, savings and investments before they make mistakes that could haunt them for years.

Consumer advocates will be back in Richmond this month to continue the battle for predatory lending reform. Winning that battle will require the combined effort of charities, ministers, credit unions, bankers, mayors, teachers and parents across the state.