By Charlene Crowell | SACOBSERVER.COM WIRE SERVICES

(NNPA) - In an effort to avert a global crisis, this nation spent more than $250 billion in taxpayer dollars to rescue banks. Today, many of these financial entities are moving towards economic recovery.

Yet for American families, their financial house remains in shambles. Unemployment is now at its highest level in more than 20 years. In 2009, more than a million families have suffered foreclosures. New college graduates armed with degrees in one hand and huge student loans in the other are finding in this economy that educational credentials alone may not be enough to assure gainful employment, or sustain loan repayment plans.

In addition to these daunting challenges, particularly in low to moderate income minority neighborhoods, payday lenders lurk. They strategically market their product to exploit the meager monies that struggling consumers still have, preying upon working class consumers caught in a cash crunch. In a very short time, however, what appeared to be a quick, convenient and easy small dollar loan is revealed to be a devious debt trap with an accompanying annual interest rate of 400 percent or more. The combination of these high annual percentage rates and additional fees together deplete families of income that otherwise would provide many of life’s everyday needs – groceries, fuel, child or medical care.

Recent research by the Center for Responsible Lending Recent research by the Center for Responsible Lending finds that the overwhelming majority of payday loans, 76 percent, are the result of ‘churning’, the practice of making repeat loans to the same borrower within two weeks of a previous one. Conversely, only two percent of payday loans go to non-repeat borrowers.

As a result, churned loans represent nearly $20 billion of annual $27 billion payday loan volume, costing American families $3.5 billion in fees. An estimated 12 million Americans per year are trapped in this cycle of 400 percent APR payday loans. For some borrowers, the payments on payday loans often absorb as much as 25-50 percent of their take-home pay.

The personal story of one such payday victim recently led President Barack Obama to extend an invitation to the White House.

Patricia Nelson, a 63-year old great grandmother from Wisconsin, shared her payday saga at an October 9 White House news conference. Retired and living on disability benefits, Nelson spoke of how a $550 payday loan led to payments of $2,700 in fees over a 22 month period of time. None of the dollars paid were ever applied to the principal owed. A former nursing home assistant, she retired due to a chronic lung disease and sought the small loan to help defray moving costs from Green Bay to Waukesha, where she could be closer to family members. The payday loan was secured against her small disability check. Were it not for a friend who loaned her the money to fully retire the debt, she would still be caught in the payday lending debt trap.

In 2006, Congress enacted with bipartisan support an interest rate cap of 36 percent for members of the armed forces and their families. If a protective rate cap was needed for military families, it would be just as beneficial to all American consumers.
In these times when all things financial are facing reform and families are stretching every hard-earned dollar further than ever to meet basic needs, this nation must find both the will and the way to stop predatory interest rates. A standard that would effectively halt predatory practices in payday loans would be just as strong a step toward resolving the financial crisis as last year’s billion dollar aid to banks.

Charlene Crowell is an NNPA financial writer.