Expand Economic Opportunity and Reduce Child Poverty

Reduce Predatory Financial Practices

States seeking to promote a more stable workforce and financial opportunity for families can do so through policies that protect working families from abusive financial practices. These practices fall into several categories:

• Small loans that charge exorbitant interest rates, such as payday loans, refund anticipation loans, or car title loans.

• Predatory mortgage lending, which has contributed to the current financial crisis and is now resulting in a massive number of home foreclosures.

• High fees charged for basic financial services such as check-cashing or tax preparation services.

What Can Policymakers Do?

• Cap interest on small loans at 36 percent . This measure provides a broad and effective barrier to abusive interest rates, and eliminates loopholes allowing lenders to circumvent the large number of ineffective state laws currently in place.

• Prevent mortgage foreclosures . States help curb the current crisis through a combination of foreclosure intervention laws, counseling, financial assistance, and regulation of new lending.

• Limit check cashing fees and promote banking options . States can set maximum rates on allowable fees, and also can encourage banks to locate in neighborhoods with few financial service institutions available.

• Expand support for free tax preparation and counseling . States can partner with the federal Internal Revenue Service and private community organizations to expand free income tax preparation and financial counseling services.