Payday Lenders Come Under Fire

From the Seattle Post Intelligencer:
“States should do more to restrict payday lenders, who pocketed $4.2 billion in fees from borrowers last year, according to a report released Thursday by the Center for Responsible Lending.”

Payday loans, which offer quick cash secured with the borrower’s paycheck, can saddle borrowers with huge fees and interest, ” sometimes as much as 800 percent.” The numbers in the report are staggering—the average payday borrower pays back $793 for a $325 loan.

“Consumer advocates want states to limit the annual interest rates charged on payday loans to no more than 36 percent — similar to a cap on payday loans to military personnel that Congress passed this fall.” The industry, naturally, is against such a rate cap. 11 states ban payday lending altogether. —MEGHANN MARCO

More controls urged on payday lenders [Seattle P-I]

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  1. Allofyou says:

    Nothing disgusts me more than these businesses, except the folks who pay discounted rates for lawsuit payouts and tax refunds. Oh, and rent to own places. Hate, hate, hate. Legislate them to death.

  2. spanky says:

    That’s nice, but states can’t do shit about predatory lenders as things stand now. They can pass all the laws they like, but they aren’t allowed to enforce them.

    The (federal) OCC passed a couple of chilling little ‘rule changes’ in 2004 that gave them exclusive rights to bring state or federal charges against national banks or their state licensed operating subsidiaries, including payday lenders, shady mortgage lenders, etc. Your state can pass all the laws it likes, but when it comes to enforcing them, you’re going to have to depend on the feds. The feds who passed these rule changes to–AND I QUOTE–“protect national banks from potential state hostility.”

    Poor dears.

    Anyway, maybe this would provide valuable consumer protections against your local Ma and Pa Loansharking operations, but as far as national ones go: HAR.

    PS: I am sorry that was so boring. That’s how they get you, though. By making rules that are too boring to read.

  3. adamondi says:

    Only 11 states have banned payday loan sharks? I really wish that all 50 would eliminate these places. They have been popping up left and right around the Seattle area. They seem to flourish in old, run-down neighborhoods. SHOCKER. The payday loan industry is predatory by nature and should be slapped down.

    Also, they have the worst commercials ever. And they run 100 times a day on the various radio stations around here. I hate them all.

  4. MattyMatt says:

    They really are dreadful — there’s a bunch of them here in SF, mostly in blighted areas where they can do the most damage.

    BUT! The city may have found a way to put them out of business: competition. We’ve got a program called “Bank on San Francisco” that makes it easy for people to open checking accounts at major banks. It’s tailored for high-risk and low-income folks, the ones usually kept in poverty by payday-loan-sharks, and financial training is available. It’s new, so we don’t know if it’s working yet. But it’s a good idea. They have rather catchy ads for it on busses with neon signs reading “CHECK CASHING rips you off.”

  5. Anonymously says:

    These places exist because people use them. If they’re being dishonest about their practices and rates, that’s one thing, but if people go to one of these places willingly and with the knowledge that the loan isn’t free…well, why should we stop them?

    Just because it’s obviously a bad deal doesn’t mean it should be illegal. (Just look at Starbucks)

  6. thrillhouse says:

    This goes beyond just a bad deal – like starbucks, McD’s and credit cards. Its not like there is a sign on the counter saying, “By the way, we may charge you 400% effective interest on this money”.

    Speaking of credit cards, they have no limit on the interest they can charge either. So expect that to grow disproportionately to inflation as well.

  7. Mr. Gunn says:

    Just because some people are too stupid or preoccupied to know that they’re being ripped off, doesn’t mean it’s the right thing to do. Of course, you can’t make it against the law to fail to do the right thing. You can only legislate specific situations. There was an ad on TV today for loans which said they’d loan up to $2000 and your payments would be as low as $200 a month. No mention of interest, terms, or anything. Scum of the earth.

  8. DutchFlat says:

    What’s all the fuss about PayDay Lenders? Look a little further, folks. The concept of getting low-income people to utilize regular banks, like in San Francisco? What a load that is! The fact is, the “regular” banks, such as, and I mean specifically, Wells Fargo Bank, is just as dirty as the PayDay guys. In fact, they may be even dirtier, because they give the facade of respectability. ‘fact is, they screw you almost as badly as the PayDay lenders.
    Case-in-point: Wells Fargo will give you an advance on your paycheck, IF YOU HAVE A DIRECT DEPOSIT ACCOUNT WITH THEM. How very nice. The vig? (mafia term for interest). For, say, a two-week advance, you only have to pay FIVE DOLLARS for every hundred that they advance you. So, you are paying five percent for a two-week loan. Do the math. It might not be the eight-hundred percent the PayDay lenders get, but it’s one hell of a vig! Well over one hundred percent per year. And, that’s on a DIRECT DEPOSIT advance!
    Well, one last thing. I told the bank manager at my local Wells Fargo that they were charging higher interests rates than the mafia, and he INSTANTLY replied: “Oh no, the PayDay lenders charge a lot more!” He never hesitated when he linked the PayDay lenders to the mafia? Whatever, the situation sucks, and you can bet that any state that doesn’t regulate this has politicians in the mafia’s pocket.

  9. Steven Francis says:

    Ok at last some positive steps from the government. They should actually be more specific in law making as the lenders will again find a way to increase the rate. But if the rate is fixed at 36% then i think its a good idea from the customers point of view.
    Moreover borrowers should also keep in mind that the repayment amount will be high if they do not pay in time. Even if they are ready to pay take these instant cash loans then i think its their responsibility to pay.