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Iowa becomes latest short term loan battleground

Jan 26, 2011 Todd Milner

Consumer advocates are mobilizing all over the country to fight against what they say are unfair loan rates. The latest battleground for the short term loan industry is Iowa. According to Bloomberg, a coalition made up of the Iowa Catholic Conference, the National Association of Social Workers and other organizations will push the state's legislature to cap interest rates by short term lenders. The proposed bill, which is co-sponsored by 16 Iowa senators, would limit short term loans to 36 percent interest rates. Currently, rates and fees hover around 400 percent, but the companies offering this form of nontraditional credit argue that the costs for their services are not as bad as they seem. When a short term loan is returned, there is normally a fee associated with it. This cost is often around $15 per $100 loaned. However, these credit lines rarely exceed $1,000, so the interest rate numbers are skewed. If this rate spanned the length of a traditional bank loan, the cost would be staggering, but short term loans specialize in short-term time tables. Bloomberg reports that the short term loan industry is not regulated by Iowa's usury laws at this time because the regulations apply to loans of more than $500. Similar bills have failed in recent years in the state.