New legislation in Colorado threatens to put a cap on payday lending.

“It took Linda Medlock four years and $8,000 to pay off the $500 she borrowed from a payday lender to make her mortgage payment,” says the Denver Post.

Boo, payday lending. Boooo.[Denver Post] (Photo:taberandrew)

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  1. Canerican says:

    Boy, that stinks for her. There is an easy government free solution though, don’t take out a 50% APR loan to pay of a 6% APR mortgage, that seems like common sense, right?

  2. who needs personal responsibility anyway?

  3. CuriousO says:

    Damn!! I Rather take the late fee then do that. Hopefully she did this as a last resort.

  4. smitty1123 says:

    @RamV10: Isn’t that what the governments for anyway?

  5. m4ximusprim3 says:

    Isn’t the point of a payday loan that you pay it back once you get paid? How is she taking four years to pay it off?

    Not that I’m defending the primoridal slime that is payday lenders, but it’s obvious that she didn’t exactly follow the plan. If I took 15 viagra and died of a massive boner, I wouldn’t have much sympathy for myself because you didn’t use it as intended.

  6. m4ximusprim3 says:

    To be accurate, I wouldn’t have any sympathy for myself. Cause I’d be dead. But you get the idea.

  7. goller321 says:

    @m4ximusprim3: You guys are morons. People run into difficult times that often cause them to act irrationally in the moment of crisis. Would you still be so insensitive if it were someone that was self-employed who had be seriously injured and had insurmountable hospital bills?

  8. Adam Hyland says:

    @goller321: I wouldn’t go so far as to say that they are morons, but I could argue that payday lending may represent a market failure and agood reason for the government to act. Some research suggest that small loans, even exceedingly high interest loans, help the very poor. However, that is thought to only be the case in the total absence of more traditional loans.

    By and large, we can be as angry as we like about people not figuring out that 5% a month is 60% a year, but that doesn’t mean that a classical economic transaction is occuring. As such, it doesn’t really behoove us to apply econ 101 to the problem.

  9. m4ximusprim3 says:

    @goller321: Hey, I’ve taken out payday loans. I lived on a boat that wasn’t mine for two years. I’ve slept in my car.

    But I thought you always had to give them a postdated check and they cashed it when you got paid. Maybe she’s taking out a different payday loan than me, but I don’t understand how you get in that situation.

    And yes, I would be that insensitive.

  10. strathmeyer says:

    @m4ximusprim3: Well, I’m glad that there’s a lot of discussion in this thread by people who don’t understand the basics of payday loans.

  11. cedars1974 says:

    First off I think it should absolutely be illegal to charge more interest than even the worst loan shark charges. I have no pity for this woman though. You are an adult, you know what you agreed to, grow up and take your medicine. So sick and tired of the poor me I was taken advantage of whine. You deserve it.

  12. ideagirl says:

    @m4ximusprim3: the way it works is, as long as you pay them the interest when it is due, then they don’t cash the check. For instance, I borrow $100 until payday, and my interest is $17.50, so I owe $117.50. Payday comes, and I can’t pay back the $100 + interest because we have a sudden medical bill. I go in, pay them the $17.50, and they extend the loan until my next payday. Etc. That is how low income people get caught in this trap.

  13. Tank says:

    ok, lets look at it like this – yeah, she made a mistake by going to the payday loan place to begin with, but she stuck it out and paid it off, like a responsible borrower should have. props to her for that anyway. too bad it was a $7500 lesson.

  14. howie_in_az says:

    @cedars1974: If the consumer is willing to sign on the dotted line, who are you to say that the interest rate is too high?

    I personally think 7% interest is way too high. Should everyone with a 7.25% rate on any loan be suddenly entitled to lower it even though they’re obviously willing to pay that amount because they have the loan in the first place?

  15. sleze69 says:

    I am curious. What percentage above the original loan makes it predatory? My mortgage is for $250k. If I were to pay it off according to schedule, I will have to pay the bank $500k+. So, I guess 200% isn’t predatory. 300%? 400%?

  16. Adam Hyland says:

    @sleze69: 200% isn’t your annualized interest rate.

    200% is kind of meaningless. It is a function of your interest rate, as it is th sum of all present and future values of payments made on the loan, but it doesn’t provide any constructive information, as a dollar paid on that loan 30 years from now is only worth a small fraction of a dollar today.

  17. cedars1974 says:

    @howie_in_az: That same logic could be stated for drugs, suicide, prostitution. Your theory is as long as the consumer agrees, all is well?

  18. Adam Hyland says:

    @Adam Hyland: Rather it is the ratio of all present and future payments of your loan to the present value of your mortgage.

  19. mac-phisto says:

    @howie_in_az: do the words “under duress” mean anything to you?

  20. hegemonyhog says:

    I once took out a payday loan – my employer was two months late paying me because of “clerical issues” and my choice was either a payday loan or selling my furniture.

    It was one of the worst financial decisions I ever made, but it was also the only decision I had left.

  21. Adam Hyland says:

    @howie_in_az: you make the pretty bold assumption that all contracts are entered into with full and equal knowledge of the values and risks by all participants. It should be clear now at least that this is rarely the case.

  22. arcticJKL says:

    Im glad that when I needed $1000 I had the friends to support me with an interest free loan.

  23. Empire says:

    @howie_in_az: That depends. Is there a de facto gun to their head on the 7.25% loan because it’s the only way they can pay for Junior’s heart surgery and/or buy bread to feed the family and/or buy the bus pass that gets them to work for another week? Most people don’t take out payday loans to finance a McMansion, SUV, or shopping spree at Tiffany’s.

  24. StevieD says:

    @m4ximusprim3:

    What a damn fine way to go.

  25. MrEvil says:

    Y’know, it’d seem as though with all the credit card debt people are carrying these days you’d think they’d have a bunch of crap to pawn rather than going to a payday lender. Not saying Pawn shops are much better, but hey if you don’t pay back the loan the pawn shop gets your crap and that’s the end of things. You can default on boatloads of pawns and as long as you got crap that’s worth something the pawn shop will continue to give you money for it.

    I’ve been hard up for money too, but I’ve done the smarter thing and pawned tools and other stuff that I didn’t immediately need. Heck, I don’t think that Pawn shops charge as much as payday lenders in interest.

  26. Buran says:

    @Canerican: Post number one: “Blame the victim”. Yup, this is definitely consumerist.

  27. sven.kirk says:

    @hegemonyhog: LOL!!! Two months late! If would have worked there two months and Ididn’t have a paycheck, the business would have been burnt to the ground. No excuses at all. Regardless of what size of the company. I could possibly see 2-3 weeks for being a new hire. But 2 months?

  28. timmus says:

    @MrEvil: Welll… I’m not really sure there’s that many middle class folks with high credit card balances using payday lending services… but I may be wrong. Generally anyone with a lot of credit can roll up problems into mortgages and consolidation loans.

  29. Sihanouk-s-Poodle says:

    So what are poor people supposed to do if they need money on short notice? If they can’t get a payday loan, do they just lose their job and …

  30. Sure I could agree with you, but then we'd BOTH be wrong. says:

    @M4XIMUSPRIM3

    You wouldn’t know if you were COMING or GOING!

    (Sorry, I couldn’t resist)

  31. KJones says:

    The only reason politicians aren’t protecting PayDay Theft loansharks is because they’re not banks. They don’t have an effective lobby.

  32. goller321 says:

    @Sihanouk-s-Poodle: They used to use pawn shops. They take something of value and use it as collateral. If they default, they loose the item. But just like the Rent-A-Center scam, this stuff should be illegal. While I agree, we need more lessons on person responsibility, this is not the method that should be used…

  33. lyndyn says:

    This came six months too late, the bastards. I live in a poor town in Colorado and we just got our first payday loan shop.

    @SIHANOUK-S-POODLE: The local credit union has served that function just fine here since the local economy tanked thirty years ago, without the oppressive interest rates – but I guess the city fathers finally decided that this is what’s meant by “joining the twenty-first century.”

  34. sleze69 says:

    @Adam Hyland:

    200% is kind of meaningless. It is a function of your interest rate, as it is th sum of all present and future values of payments made on the loan, but it doesn’t provide any constructive information, as a dollar paid on that loan 30 years from now is only worth a small fraction of a dollar today.

    Then I guess it was meaningless to include this in the description of the article.

    $8,000 to pay off the $500 she borrowed

  35. SadSam says:

    How much would she have paid in interest if she had paid back the loan the next month? What other options did she have for a loan? Was the annual interest rate clearly disclosed? Was the repayment info clearly disclosed, if you pay back the loan in a month it costs X, in 6 months it costs Y, in a year it costs Z.

    I hate the idea of taking away this option but the interest and repayment terms must be easy to understand and clearly disclosed in big/bold print.

  36. BugMeNot2 says:

    if you are dumb enough to end up in a situation where u need a pay day loan then it is your own damn problem for being so stupid.

  37. m4ximusprim3 says:

    @ideagirl: Thank you! I’ve never needed to extend a loan, so I never really understood the whole “check ransom” part of it.

    I agree that it’s sleazy, but as long as it works like sadsam says and you’re advised of the risks, I don’t think they should be illegal. I used them (as) responsibly (as possible) and they saved me a small amount of grief.

  38. skeleem_skalarm says:

    It’s amazing how unaware people are. Years ago while I was with my best friend, she stopped at a payday joint. When she came back from inside, she told me she kept having to borrow from them because she took out one loan a few weeks ago. I explained to her in the strongest language possible that she would have to bite the bullet and go without for one week or she’d never get them paid back. That she did, and everything was fine until some years later when she started taking money out of her retirement to fund her excesses, at a 10% penalty plus taxes!