I don't care what rate they charge because I will never use one.

Believe it or not, the State of Arkansas passed a law about 2 years ago which banned payday loan operations in the state. I think by the end of 2008 all payday loan operators where to shut theirs businesses. Many converted to cash-for-gold operations...

Just because you won't doen't mean that others won't either.

There are plenty of people that don't have the luxury of turning elsewhere to find immediate sources for cash.

For them, they'll the stuck in a vicious cycle until someone does something about it.

I'm not adverse to tarring and feathering owners of such criminal establishments.

Absurd. Not enough bankruptcies in '09, want 'em to grow even faster in '10?

Surely these two Democrats must be EVIL REPUBLICANS in disguise.

I am curious what the default rate on payday loans is, and how that relates to the interest rate.

Particularly for loans where fraud is likely to be rampant, due to the adverse selection involved in people who actively seek out a lender who will not check their credit.

I guess the question is why should Congress be regulating this? Yes, it's a stupid thing to take out a payday loan, but it's also stupid to watch a Carrot Top movie, or to get tremendously drunk, or to cheat on your spouse, and those are all legal.

Honestly, the terms are crappy, but that's what happens when you walk in essentially wearing a sign that says "I have defaulted on large amounts of debt in the past."

@Trai_Dep: Oh, hold on.
Banning roll-overs and preventing loan sharks/lenders from leveraging the State to enforce their malarky actually would block many of the long-term, destructive elements of the payday lenders.
If the sharks are too lax, they lose their money with little recourse: a built-in check stopping their practices from overrunning their (alleged) utility.

@rdm: Err, the world is - shockingly - bigger than you.

I guess the anti-payday loan crowd must expect those who will no longer be able to get short-terms loans to go without feeding their kids (or themselves), paying their bills, fixing their cars or taking care of any other unexpected needs. But hey, we're keeping them from voluntarily entering contracts that will cost them a bunch of money, so it's all OK.

I don't like payday lenders and oppose any laws that protect them. However, to Gutierrez's credit, he also sponsored the Consumer Fairness Act of 2007, a bill that would cut back the power of Mandatory Arbitration Clauses:

[thomas.loc.gov]

Unfortunately, it looks like that bill has been stuck in committee since 2007.

@rdm: NEVER.....EVER....say never.

I find it interesting that while the Democrats love to smear those big mean rich execs who worked hard to get there, they like to take every opportunity to keep poor people very poor.

@humphrmi: Don't give him too much credit. Alot of bills get written knowing full well that they will forever be stuck in committee and eventually die. "

"It is a tale, told by an idiot, full of sound and fury,
Signifying nothing."

@rdm: Brought to you by the guys who think 36% on your credit cards is reasonable too.

@Trai_Dep: Untrue. Everybody else is just figments of my imagination.

@Esquire99: Who's keeping people from getting short-term loans? You just have to loan them money at a reasonable rate of interest.

Bad headline, Consumerist.

One member of a House subcommittee pushing a bill does not mean the House of Representatives is actually voting on it, much less that it is likely to pass.

Ohh PLEASE big government, PROTECT ME, I'm too stupid to make good decisions on my own!

Very true mythago, the majority of bills and resolutions never make it out of committee.

@Esquire99: The problem comes with the deliberate misconceptions, hidden fees, etc. that these companies sell to the people who go there. You'd probably be better off getting a loan from the Mafia. At least there you know the score.

How can a Democrat hate the poor? Isn't that CRAZY!?!

/sarcasm

@mythago: If you think it's profitable to loan them money at what you believe is a "reasonable rate" here's your chance to fill that niche and get rich while helping others. Win/win.

@badgeman46: By rounding them up and forcing them to get loans?

I don't like Payday loan places either, but not everyone can just wave their hand and have cash when they need it.
My husband and I have to use them now and then to get by, even though he makes over 20 bucks an hour, and our apartment has all utilities paid for. We are sick of snobs looking down their noses at us for doing what we need to to eat, fix our car, and (heaven forbid!) pay for my asthma medicines! For your information, we DO have a budget; a very strict one, which we stick to religiously.
We are not buying stupid crap we don't need, nor are we buying booze and lobster with every paycheck.
We have no credit cards, no cable,(we don't watch TV) no debts except medical (which we are slowly paying off), and no children to waste resources on.
We are not asking anyone to protect us from our own mistakes, but to smear everyone who uses these places as ignorant and foolish with money needs to get their head out of their pants and wake up.

@MichaelBrazell: Unfortunately, no one party holds a monopoly in veniality.

@Yossarian:
I have a feeling that mythago would quickly find out that lending money at "Reasonable" rates to borrowers who aren't exactly "Credit worthy" is unprofitable, and would promptly close up shop along with the other payday lenders who were regulated out of existence.

@Justin Harper:
+1

@rdm: Seriously, don't even tempt fate.

I was laid off on Friday - completely out of the blue - so never ever underestimate how much life can take a u-turn on you.

This isn't going to make a lick of difference. Instead of charging 15% interest on a two-week loan, they'll just start charging a 15% fee with a 15% late charge if the loan isn't repaid within two weeks.

Also, our government needs to stop treating its citizens like children.

@Vastarien202:
Very well put, particularly since you have experience using these services. The government doesn't need to step in and protect people from themselves, particularly when they are just protecting them from making necessary, though arguably irresponsible, financial decisions.

@rdm: I haven't used one either and can't see myself using one. However I care about friends and family who might. I care about the world I leave for my kid too.

@Trai_Dep: Thank you. They all suck to some degree.

@Vastarien202:

Why not get a credit card? You'd be paying much lower rates.

@rdm: Well, I'm kind of with you on this one. I don't use credit cards either, on principle. I've got student loans and plenty of other things I pay on time to keep my credit ok. I know what you'll all say, but Friday, don't you need a 40k line of credit in case of emergency?? No, I have a savings account.

@gatewaytoheaven:

Hear, hear. It's just legal loan sharking. Evil.

@wcnghj: They might have been able to get one a few years ago, but certainly not now (med debt).

@Justin Harper:

I don't necessarily agree or disagree with the sentiment, but those of us in states limiting these loans have decided that we want them.

What I really don't like is some guy a different state trying to enforce his will on us. We made a decision, right or wrong and we'll sink or swim without his input, thanks.

@huadpe: Maybe it's just me but the world would be a better place if watching Carrot Top was illegal.

@Esquire99:

And lending money at usurous rates hurts the long-term existence of our economy, and our country.

Sorry, but "people want the service" isn't a valid reason to slowly flush our economy down the crapper.

@Justin Harper: That's how I feel whenever I see a parent on the news whine about their child playing violent video games or watching violent and/or sex-filled movies.

Sad thing is I often see these people (And people like them) buying their kids these games and taking them to these films without a second thought.

"Oh, little Johnny wants 'Hooker Beatdown', 'Bloody Mess VII: Guts Galore' and 'Debbie Does D.C'? Sounds perfectly reasonable to me. I mean, if these things were bad for him, they'd warn me!"

@rugman11:

Nothing wrong with charging 15% interest on a two-week loan, but that's not the only thing they do. They also charge fees for everything under the sun: Fees for paying back the loan before the two weeks is up, fees for simply paying the loan, fees for the loan itself, etc.

Some of the operations are perfectly reasonable, and charge a reasonable rate. Some of them, however, are scum, and they need regulation.

Just like banks. Not all banks are evil, but the banks which ARE evil cause so many problems for those that are not that the entire industry has to be regulated: One bad apple...

The title is misleading, unless someone takes out a loan that they won't pay back for a year.

@RvLeshrac: How do you figure that the economy is hurt more by these loans than by the lack of money they provide?

What's your alternative for some of these borrowers? Lose a job because the car can't get repaired? Go hungry until payday? Get the kid kicked out of daycare because they're late with the payment?

Of course, not every borrower is necessarily making the most financially prudent move but people make poor choices daily in all facets of their lives. How much can you nanny everyone?

@Esquire99: Untrue! Self-Help Credit Union in North Carolina makes massive quantities of loans to "subprime" customers -- and that includes mortgages, small business loans, etc. They're quite profitable and have the lowest mortgage default rate in the state (or did, last I checked). What do they do that's different? Require borrowers to do some education so they understand what they're agreeing to.

Reasonable rates to "subprime" customers can be extremely profitable ... if you're interested in actually having the loan repaid, not in making bank on fees and defaults.

@Esquire99: Bull Hockey. There were plenty of places that did short term loans before payday lenders crawled out from under their rock.

Small finance companies, regular banks and credit unions used to do small short term loans for certain circumstances.

@rugman11: 30% on a short term loan is extremely reasonable if the lendee is not particularly credit-worthy. On $500 with a two week term, that 30% is $5.77. I'd be more than willing to pay that.

@Eyebrows McGee (on Twitter: LPetelle): "What do they do that's different? Require borrowers to do some education so they understand what they're agreeing to." So they essentially take the cream of the subprime crop.

What that CU is doing is a very good thing for those who get the education and perhaps get their credit situation back on track. I'm not sure we can draw the conclusion that such borrowers are necessarily representative of payday loan borrowers as a whole.

My problem with payday loans is that they turn stupid or desperate people into indentured slaves. The escalating nature and huge interest rates on these loans when someone can't resolve it within the initial time frame is putting people in a horrible situation.

While it might not impact me personally since I have no intent of ever using a legal loan shark it impacts those that do. That means another person in the community is having their wages leeched off of so they can't feed their kids, pay their bills etc. There are already too many people in the city I live in who can't make basic ends meet. We don't need to be making that worse so some jerk can run a get rich quick scheme.

@bohemian: Why don't those institutions still do those loans? Certainly not because the payday loans are undercutting them.