Wherever you live and report, there’s a good chance a payday lending battle is brewing in your backyard.
An estimated 12 million Americans spend $7.4 billion a year on payday lending services, according to the latest report from the Pew Center on the States. That breaks down to 5.5 percent of adults across the country. These borrowers are mostly white females between ages 25 and 44. They borrow an average of $375 to cover regularly occurring bills and pay an estimated $520 in interest charges.
“This is a system set up to bilk the borrower,” said David Heath, an investigative reporter for the Center for Public Integrity in Washington, D.C. Heath has spent the past few years investigating online payday lending. He’s written about Indian-owned payday lenders in Colorado, Oklahoma and Kansas and unearthed one wealthy race car driver funding his adventures with the proceeds of his highly lucrative and secretive payday lending business.
“It’s such an easy business to get into, particularly as the economy has created cash flow problems for so many people,” Heath said.
As the economy worsened, the ranks of payday lenders grew. Allegations of abusive practices increased and companies have increasingly altered their business models to keep up with changing regulations. Some big banks are also getting into the business. It’s a situation that makes for an endless stream of story ideas for business reporters looking to find local angles to a major story playing out across the U.S.
The Pew Center has amassed a vast collection of data reporters can use to help identify trends, better understand this growing industry and spark ideas. It surveyed more than 33,000 people to derive its data and created an interactive map of state payday lending regulation and usage rates.
National consumer protection organizations, such as the Consumer Federation of America and the Center for Responsible Lending, also track the topic closely and talk about it extensively as do groups such as the Community Financial Services Association of America, a lobbying association for payday lenders.
National data on payday loans is ample, but the most interesting stories still are playing out not in the nation’s capital but in the cities and and states across the country.
Covering the payday loan boom locally
The Center for Responsible Lending suggests payday lending can be a big money business for even the smallest local storefront lenders who charge interest rates as high as 400 percent a year on what are meant to be short-term, temporary loans.
Online the stakes can be even bigger. “Online lenders don’t face the same regulations as storefront lenders, so it’s really been growing,” Heath said.
One element driving the growth: aggressive efforts to regulate local storefront lenders.
Payday lending regulations vary from state to state. While recent financial reform legislation does allow for some increased regulation on a national level, Heath said the most robust robust regulation still is found at the state level.
Cities are increasingly becoming the battleground where this debate is playing out. In San Antonio, storefronts are moving to avoid potentially onerous new regulations. Lobbyists are opening their checkbooks in an effort to keep stricter laws from being enacted.
“City attorneys are tackling this issue on their own a lot more often,” said Josh Baugh, a City Hall reporter for the San Antonio Express-News.
Baugh suggests reporters study how local payday lenders are regulated and which lawmakers operate in districts where the industry is prevalent. “You want to look for the people who have a vested interest in telling you what’s happening in the area you cover,” he said.
Baugh also recommends getting in contact with lenders to find out what attempts are happening locally to curb business practices. Also ask how it might impact not only their bottom lines but also the readers they serve. “Lenders are usually happy to expose attempts to curtail their activities,” he said.
Heath suggests looking for business stories in local and federal legal filings and government documents. He also said reporters should scour national, state and local government databases to learn more about what local payday businesses are doing.
“If you’re looking at a company that seems to be hiding something, it potentially could be worth it to keep digging,” Heath said.
Finding the human side of the story
“So many of these people, they take out $50 to make rent and spend 5 years paying it back,” Baugh said. “These are so many of these gut-wrenching stories out there — you could tell 100 different stories like that.”
Sometimes, writing one story can lead to more literally flowing into your inbox. “As you start to run stories, particularly on this topic, you start to get a lot of emails saying ‘here’s what happened to me,'” Baugh said.
Local consumer groups can also help reporters unearth borrowers’ stories. Entities pushing for stronger regulation of payday lenders, as well as lawmakers in areas where payday lending is prevalent, are also helpful.
Heath suggests getting a handle on the personal finance side of the story by scouring consumer complaint websites, many of which contain real names, contact information and insight into the growing complications of the payday loan business.
“There is strong sense that people need to take personal responsibility, but what reporters may not always understand is that much like the exotic mortgages that caused the country so much trouble, payday loans today have gotten so complicated that most people don’t really know what they’re signing up for,” he said.