Payday lending is immoral, usurious and punitive. Charging outrageous fees for small amounts of credit to those who are least able to afford it is exploitation pure and simple.

Last week, the FDIC, the insurer of our nation's banks, encouraged its institutions to offer small, unsecured loans with an annualized percentage rate (APR) of 36 percent or less. If banks in Washington act on that invitation, consumers here will have an option far superior to payday loans at what is typically a 391 percent APR ($15 per $100 for a 14-day term).

The banking industry played a significant role in the birth of payday lending. By abandoning those who need small loans, i.e., low- and moderate-income consumers, a group that includes a disproportionately high percentage of people of color, banks created a context in which the payday lending industry could develop and flourish. Now, they have the opportunity to make amends.

The FDIC's guidance to banks follows Congress' passage of the Talent-Nelson amendment to the 2007 Defense Authorization bill, which capped rates for loans to military borrowers at 36 percent APR, the usury cap many states enforce on their smallest loans to prevent loan sharking. Oregon also enacted a law earlier this year capping the interest on payday loans at 36 percent and imposing a 31-day minimum loan term, but permitting lenders to charge a one-time origination fee of $10 for each $100, which translates into a 153 percent APR.

A major challenge for state legislators, in addition to looking beyond the money contributed by the industry to their coffers, is the industry's claim that they will be "put out of business" if anything close to the Talent-Nelson Amendment or the Oregon law is enacted in Washington.

It's hard to believe, however, that the FDIC does not concern itself with the ability of banks to generate revenue. The agency no doubt considered the profitability of such an endeavor before issuing its guidance to banks. Furthermore, credit unions such as the Washington State Employees Credit Union have been offering small-dollar loans at $10 per $100, similar to those permitted by the new Oregon law, for some time. In fact, credit unions are the only entities that have introduced pricing competition into the payday lending industry. Traditional payday lenders are quite content to loan at the maximum rate permitted by state law -- $15 per $100 up to $500, then $10 per $100 up to $700.

Despite fierce opposition by payday lenders initially, the Washington State Department of Financial Institutions created some transparency in this loosely regulated industry by publishing three annual reports. A $1.4 billion industry in our state, the business model is premised upon multiple repeat usage by individual consumers charged what should be criminal rates, and in 2005 Washington consumers paid over $173 million in fees on payday loans.

Targeting communities of color by the industry is common knowledge, and the intense focus by payday lenders across the nation on our military prompted action by Congress. It's time for state elected officials to act to protect Washington consumers. The media also have a role to play. Shining a light on efforts to block reform by legislators beholden to the industry is necessary, and the exploitative nature of the product is worthy of discussion.

The Nobel Peace Prize was recently awarded to Muhammad Yunus, the founder of micro lending to lift people out of poverty. Ironically, predatory payday loans continue unfettered in our state. Action is long overdue. The banking industry should provide small-dollar loans at reasonable rates as suggested by the FDIC, and the Legislature should significantly reduce the amount payday lenders are permitted to charge consumers.

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