New payday loan plan to help borrowers succeed

SAN FRANCISCO — It's a cycle that seems to repeat itself every legislative session in California. Advocates put forward a bill to curb the predatory practices of payday lenders. Then industry lobbyists squelch the effort, convincing state lawmakers that they're the lenders of last resort,the only ones who haven't abandoned low-income neighborhoods.

Never mind that the lenders' generosity comes with quick and costly paybacks — a blizzard of fees that can add up to an annualized interest rate of more than 400 percent.

Indeed, the average borrower ends up borrowing again — and again — trying to pay back that first $300 payday loan, shelling out a shocking $800 for the privilege, according to the Center for Responsible Lending.

But there's finally been a break in the pattern.

Last week, San Francisco unveiled a program that communities throughout California would be wise to follow. It will be the first city in the nation to partner with local financial institutions to market an alternative to the payday loans that are sending too many borrowers into economic spirals.

Thirteen nonprofit credit union locations throughout San Francisco will jointly market a low-cost, small-dollar loan called "Payday Plus SF."

They're calling it "the better small-dollar loan."They plan to go head-to-head with the storefront lenders that put up neon signs like "Fast money now," "Why wait till payday?" and "$ while you wait." And while the Payday Plus SF outlets may not feature the same glitz in their windows, they promise something more important — a fair product.

The trouble with typical payday loans is clear.

Let's say you borrow the maximum $300 — giving you $255 after the $45 fee. You guarantee repayment in full from your next paycheck, but by then other bills are due. You can't pay back the first loan and must take out another. The typical borrower in California ends up taking out 10 loans a year before he or she can catch up, according to the California Budget Project.

The fees are economic body blows for low-income families. According to the Center for Responsible Lending, charging $45 on $300 adds up to a whopping 459 percent annual interest rate, the maximum allowed in California. No wonder 15 states and the District of Columbia have capped interest rates to ban these loans.