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Digital News Report – SAN FRANCISCO – Mayor Gavin Newsom announced a plan to work with credit unions and other lenders to find alternative payday loan with a maximum of 18% APR. Last month the mayor worked out a deal with 13 credit union locations to help people with their emergency needs.
Newsom says that for some people, payday loans are the “only means of dealing with a financial emergency.” The lenders charge as much as 400% APR and take advantage of those most in need.
Payday loans are meant for people with bad credit or no credit history. Newsom used the case of Mark, one of his constituents to explain how the program works.
“We created Payday Plus SF to help people like Mark Laws, a low-income San Franciscan who found himself in need of emergency cash,” Newsom stated in his blog.
Mark was hit with an emergency and needed to borrow money. Most borrowers of payday loans are “unable to pay off their loan within the two-week term” Newsom said. They may take out 10 loans in a year before they are able to repay the original loan.
“Mark is now one of our success stories”, Newsom said. Mark took out a “Payday Plus SF loan” with a reasonable rate from a local credit union. He was finally able to pay off his debts.
Newsome said that San Francisco is the first city to do this, but others are likely to follow.
By: Tina Brown reporting from San Francisco
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Newsom needs to take a look at the facts behind the numbers he’s quoting. For example, because payday loans are two week loans, they cannot be offered at the same annual rates as products such as credit cards, auto loans and home mortgages. That explains the much-hyped 400% APR, but that number is actually impossible to reach. The only way to reach a triple digit APR is to take out one advance and continue to renew it every two weeks for an entire year. State laws and industry best practices do not allow this to happen.