Have I got a deal for you.
How does 300% interest sound? Good? Don’t care? Don’t understand?
Thought so.
Payday loans are the methamphetamine of the financial industry. High interest loans to poor people. What better way to keep poor people poor than a loan on money they obviously don’t have and mathematically can’t afford.
But they keep on coming. In droves.
Do you remember when all of your credit card bill payments were sent to Delaware or North Dakota? There was a reason. I’m simplifying a bit here but those were a few of the only states that didn’t have a cap on the amount of interest that could be charged. Back when the government cared about you, the government wouldn’t let businesses charge insane amounts of interest on a loan so credit card companies had to set up shop in those few states that had no usury laws (limits on interest rates).
When states abandoned the usury law concept which could be traced back to biblical times, all hell broke loose and poor people are now fair game. Yes, this is limited to poor people. When was the last time you heard of someone making $50,000 a year getting a payday loan?
My biggest complaint about payday loan loansharking is that I’ve recently started to see promotional ads on television from some type of national association for payday lenders (or some title to that effect). The ad attempts to paint payday loan sharks as ethical, the new “honor among thieves” I suppose. The ad actually encourages customers (read poor people) to act responsibly when deciding to get a payday loan.
Here’s an idea - why don’t you act responsibly and go out of business.
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It is time for the states or the feds to step in a put an end to this. The problem is that the poor people don’t have lobbies that represent them. Likewise, many poor people and recent immigrants don’t trust banks and don’t understand banks or the entire loan process.
When poor people give money to these loan sharks - and you may or may not agree with their choice to do this, which doesn’t matter - they have less money to feed and clothe their families.
macaddict on August 6th, 2007 at 7:54 am | Link
With the collapse of the real estate market, you may find lots of people making $50k who go to payday lenders! These loans are designed for folks who have a financial emergency and need a quick, small loan to cover an unexpected expense. (Hasn’t this ever happened to you?!) Payday loans are cheaper than overdraft fees, a late credit card payment or a utility bill late/disconnect fee. Any loan can be detrimental to the borrower if he doesn’t act responsibly and fulfill his commitment to pay it back on time. How about allowing people to take personal responsibility for a change?
jaymore on August 7th, 2007 at 6:24 am | Link
The average fee for a payday loan is $16 per $100 borrowed. Compare this to the cost of bouncing a check, overdraft protection or late bill fees on credit cards and it becomes very clear why payday loans are a popular and growing short term credit alternative.
For people who must pay a bill today, but don’t get paid until next Friday, they can write a check and have it bounce, not write the check and get a late fee, or take out a payday loan to cover the check. Seems rational to me. And must make sense for the milions of people who use payday loans every year.
Lynz on August 7th, 2007 at 7:44 am | Link
Lynz said:
[quote]The average fee for a payday loan is $16 per $100 borrowed.[/quote]
@Lynz, where did you get this figure? $16.00 for every $100.00 borrowed would be 16% interest. That’s slightly less than the going rate of somewhere between 900% and 300% interest commonly reported on payday loans. Are you reporting an annualized figure for the interest? Or do you really mean “interest” in the first place? You say “fee” is that on top of the interest charged or does “fee” mean “interest” as far as your figures are concerned?
Great question. And this is where much of the confusion about the product stems from. Although if you ask payday loan customers, they know exactly what they pay for the loan. By law, lenders post both the fee and the annualized rate, but the annual rate is misleading because payday loans are not an annual loans, they are two week loans.
If you walked into a payday loan store, you would pay between $15-$17 per $100 borrowed for the two week loan. No additional interest, etc. That fee is capped by law in the majority of states.
The only way a customer would ever pay triple digit interest is if they advanced $100, paid the $16 fee and then continued to rollover the loan paying the $16 fee every two weeks for an entire year (ex. $15 x 26 = 391 and $16 x 26 = 416). That scenario is impossible. Most states ban or limit rollovers. And members of the national trade association, CFSA, offer an extended payment play (at no additional charge) to any customer who cannot pay back their loan when due.
Happy to answer any other quesitons you have. In the interest of disclosure, I do work for the industry.
Lynz on August 7th, 2007 at 8:21 am | Link
Lynz said:
[quote](ex. $15 x 26 = 391 and $16 x 26 = 416)[/quote]
@Lynz, would you agree that the $16 “fee” you describe on a two week $100 loan equates to a 416% APR?
Yes, but remember it’s not an annual loan. If you were going to compare apples to apples, you’d have to look at the APRs of the alternatives. Customers ask “how much is this really going to cost me” and make a rational decision based on the facts.
$100 PAYDAY ADVANCE= $15 fee= 391% APR
$100 OVERDRAFT PROTECTION= $26.90 fee= 701% APR
CREDIT CARD LATE FEE ON $100 BILL= $37 fee= 965% APR
$100 OFF-SHORE INTERNET PAYDAY ADVANCE= $25 fee= 652% APR
$100 BOUNCED CHECK + NSF/MERCHANT FEE= $54.04= 1409% APR
Lynz on August 7th, 2007 at 11:47 am | Link
Lynz: I hope folks are paying attention to the facts and figures you’re giving them! And I’ll be that those who see this–and understand it–are astounded at how misled they’ve been, and how little they actually know about payday loans.
jaymore on August 8th, 2007 at 12:31 pm | Link
@jaymore, paying attention to the facts and figures Lynz (disclosed payday loan industry insider) has provided means a payday loan carries at minimum an equivalent 391% APR and on average an equivalent 416% APR.
Is that what you hope people understand?
The thing I’ve never understood is why Annual Percentage Rates are even part of the discussion on a loan that is 2 weeks? Can anyone shed some light on that, it seems absurd and makes the entire debate impossible to follow as a voter.
Jules on August 9th, 2007 at 11:12 am | Link
The person writing this article has obviously never been to payday loan store nor talked to a payday loan customer. Payday loan customers span the financial chart. They are most certainly not “poor” people but middle America who lives pay check to pay check. The average payday loan customers has an annual income of $25,000-$50,000. However, this is just an average with many customers making well above this range.
In the United States short-term credit is a way of life which is here to stay. If you cut people off from this form of credit where will they turn? Maybe the author of this article would like to open up his wallet and start lending money to persons in need without any security attached!
Unknown on August 10th, 2007 at 6:40 am | Link
@Unknown, thanks very much, I have talked to plenty of payday loan customers. I’m not exactly opening my wallet to them, but after payday loan customers have been raped for months on end with the “impossible” scenario of rollover triple digit plus interest (see Lynz above) that occurs everyday, I do keep my attorney’s fees for filing bankruptcies for the payday loan customers very low indeed.
@Jules, the APR is the great equalizer. The APR is the common denominator of lending - it is the only way to tell how much financing really costs a borrower in comparable terms. It’s kind of like pricing a gallon of gas in “gallons” as compared to pricing it in lower quantities like ounces or quarts. Rates, or “fees” as Lynz refers to them, vary from lender to lender and so does the terminology the lender chooses to use to describe the transaction.
An annualized comparison of the rate makes it easier for a consumer to calculate the relative cost of the loan.
Let me give you the truth about Payday lending and not some bull crap from an employee of a Payday establishment. My sister whom is employed as a RN and makes decent money went through a divorce and money was scarce. Her car broke down and the kids needed school clothes, so she decided to borrow $800 from the good oldPayday loan company. Well this $800 was to be paid back at $940 within two weeks, so when she didnt have the whole amount, she went to a second Payday lender in order to pay the first. This soon became a vicious cycle involving four payday lenders where she would borrow from A to pay B then borrow from C to pay B etc… This soon became a never ending money trap with no possible end in sight unless she came into a large sum of money to buy her way out. I recently took control of the situation and told her to stop paying all of these companies, we presented cease and desist letters to all of the companies in regards to her bank account, contacting her employer, etc…When I went into the payday lenders offices and presented them the letters and told them that she would not be making payments, all four of them ushered me into thier backroom so that other customers did not get the same ideas. Of course, they used threats and even went so far as to tell me that my sister would be arrested, which I promptly instructed them that debtors prisons had been abolished years ago…I have advised them that she knows that she will have to pay the funds back, but they will be paid back in increments that she can afford and not at .600% interests. I have also instructed them that I am spearheading a group that is modeling the action that the state of Georgia took to drive these devils out of the state. The tactic that they used was to limit the cap on interest of a payday lender to .36% which the payday lender feels they cannot make a profit at this rate. Personally, I would love to run a business where I couldget that type of interest, but the payday lenders are more interested in raping hard working people. I recently challenged Daryl Devers a spokesman in Ohio for the Payday Lending industry , but he hung up on me and refused to reply to questions that were asked about the industry in Georgia.
Todd on November 7th, 2007 at 7:27 am | Link
PDL’s are set up for failure. If you can’t get a credit card, bank loan, etc. These money sucking blood leaches will absolutely drain the rest of what you don’t have.
Anyway SOME not ALL have a product called EPP. With EPP the interest STOPS, and the payments are divided equally (MAY NOT BE WHAT YOU CAN AFFORD) but it STOPS the “cycle”
THEY DON’T ADVERTISE THIS PROGRAM NOR DO THEY REALLY WANT YOU TO SIGN UP FOR IT. IF YOU DO (DON’T) I REPEAT (DON’T) MISS A PAYMENT!!!!!!!!!!
the truth of the truth on November 12th, 2007 at 1:52 pm | Link
I just found out about EPP, I’ve confirmed the companies I’ve borrowed from are all members of the CFSA and per a CFSA employee they do offer this plan. I’m hoping this will end my PDL cycle once and for all.
Holly on December 19th, 2007 at 11:50 am | Link
abogado,
It sounds like your sister needed the money, she knew what type of loan she was getting into, it is called short term, not an instalment loan! Maybe next time when she needs to borrow and does not want to pay the interst, she should consult a friend. PDL like thousands of Americans agree, help when you have a quick need for cash. Not a repeated cycle like your sister engaged in. She knew what she was getting into. Advise her to borrow from a friend next time.
MK on January 4th, 2008 at 3:05 pm | Link