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Don't subject payday lenders to reform
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TEXT OF COMMENTARY
Kai Ryssdal: Once Congress gets back from its Easter break, financial reform is going to be right at the top of the list of things to do. The original idea behind writing new rules for Wall Street was to stop, or at least diminish, the next financial crisis.
Congress was going to do that by putting new limits on big banks and mortgage lenders. As things stands now, though, consumer loan companies that aren't banks, companies like payday lenders, are going to be covered by the regulations too.
Commentator and payday lender Darrin Andersen says that's a mistake.
Darrin Andersen: Main Street's search for short-term credit, like payday loans, played no part in the economic meltdown. But some are trying to use financial reform to throw the payday lending industry under the bus.
Federal regulation of our industry could choke off billions of dollars a year in credit to hard-working Americans. And it would do little to rein in the outrageous behavior of the too-big-to-fail financial institutions.
Critics like to attack what they call outrageous interest rates. Our product is compared to longer term loans for houses or cars. So the interest rates we print in the documents consumers sign are compounded over the course of a year. But our loans are paid back in two weeks, not 30 years.
Just as you wouldn't take a taxicab across the country, or permanently rent a hotel room, you would not take a payday loan out for an entire year.
Instead, customers see payday loans as a cheaper alternative to solving real-world problems like bounced checks, overdraft fees, or late bill payments. These loans are a way to avoid damage to a consumer's credit record. For the small number of customers who have a hard time paying back their loans when due, the industry offers a free extended payment plan.
Research shows that the vast majority of payday loan customers understand the product they're buying. The federal government should also understand that the industry is already highly regulated at the state level.
In fact, our product is better than any other form of consumer credit at meeting the stated objectives of financial reform: transparency, fairness, simplicity and access to credit in underserved markets.
Legislators should focus on the big banks that sold complex, opaque, and risky products that led to the financial meltdown. They should not restrict 19 million Americans who need it most from access to convenient and affordable credit.
RYSSDAL: Darrin Andersen is the president of QC Holdings. That's one of the biggest payday lenders in this country.
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I borrowed $200.00 from a payday loan company/pawn shop. I am paying $66.00/mth interest. This loan was made on 1/09 and it will soon be 1/11. Paying $66.00/mth interest should have decreased the $200.00 loan somewhat I would think. I thought there was a limit on the amount of interest you are required to pay on a $200.00 loan. I cannot pay on the principal because paying the interest is all I can afford. The payday loan was a help at that time, but has proven to be a debt trap that I cannot break out of. The interest is 267.67% annually. Now what?
I agree pay day loans are helpful when your back is against the wall and, there's no place to go for the extra cash to pull you through tough times. Pay days loans to an extent take advantage of the need of needy people. If they are going to help those in need lower the interest rates, and offer once a month payment options.
I have worked for a Payday loan company for over 12 years. My customers tell us they would not know what to do with out us! we don't force people to come in and use our service, it's their choice. We do make sure customer's meet our company requirement's before giving them any money. By passing this bill alot of companies will close and alot of people will have no job. But I guess that is what the president wants. It is all about controling the american people once again. That is so sad.
Charging 500% interest on any loan is just plain wrong. www.stoppaydayabuse.org is a growing movement in Texas to restore fairness to lending. Texas is on the raw end of the the payday lending deal. Because payday lenders in Texas use a loophole in the law to operate, they are unregulated and can charge whatever fees they want--and they take advantage of it. While the average Texas loan is $20 or more per $100 for a two week loan, in Florida, the law limits loans to $10 per $100 and payday lenders are thriving in that state. Are lenders saying that Texans are not as good as people from Florida? It is time we raise our expectations of the market. Yes we need short-term loans and no, we will not let these lenders roll over us with abusive fees just because they can.
I have researched this industry for over a year now. Emily pretty much hit the nail on the head. In addition, don't forget the auto-title loan "service" this industry provides. In their "looking out" for people in a bind, here's an example of what they will do for any person who is willing to put up their title to a paid-off vehicle needing quick cash. This is from an actual case.
1. Write a $5000 one-month loan using the title of a 2003 Chevrolet Avalanche from the borrower as colleteral.
2. They'll only give you $4000 in cash, but you'll owe them $5280.50 at the end of the month due to a "fee" of $1200, a lien fee of $28.00, and finance charges of $40.50. Their "fees" are not technically factored in as finance charges, yet the cost of this loan amounts to a 375.12 APR.
3. If you want to pay back $1300 before the end of the one-month period...tough. The terms are for one total repayment of $5280.50 within a month. You can pay what you can afford, but by making that partial payment, you would have to take out another one-month loan, which comes with the same fees and finance charges of $1250 again. In other words, you could pay $1300.00/month for months and still owe them close to the original $4000 cash they gave you in the beginning.
4. Per urgent requests from the Pentagon and Department of Defense, Congress passed legislation capping the total APR/fee rate at 36% to our military due to readiness and moral issues.
5. A direct quote from Daniel R. Feehan, CEO of Cash America, at a 2007 conference; "you've got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that's really where the profitability is".
The above postings, which include a not surprising number of payday/auto-title loan employees, point to banks and Wall Street wrong-doings, and on that issue I'll agree with them.
However, the attempted justification of bad behavior by pointing out other bad behavior is a true indicator of the moral and business integrity of both.
If you have had no direct experience with payday loans then you don't really understand why we need them. I personally have taken out payday loans and cried at the money I am throwing away with the 300% interest. But the fact is, at the time I took these out, it was THE ONLY SOLUTION. Over the years I've unfortunately developed a horrible credit rating -- problem is that you need a good credit rating to get a reasonable loan to help you get out of debt, but if you are in debt and unable to make payments, you trash your credit rating, so it is impossible to get a reasonable loan. I have over $50,000 equity in my home, but because of my credit rating, no bank will even talk to me about a second mortgage. So, I've turned to the payday loans, and the high interest/bad credit car loans, and the high interest personal loans, and the pawn shop loans to get enough money to make the house payment, the property tax payment, the electric bill payment, etc. I am horrified at the money I am throwing away in high interest rates BUT I HAVE NO CHOICE. Without payday loans, I could lose my house and the equity I have in it, or lose my job because of not having transportation. If congress wants to help us poor guys out, how about forcing the banks to FORGIVE bad credit and give us a chance to get reasonable loans. Or how about giving us some kind of tax break on all of this ridiculous interest. Payday loans are considered personal loans and therefore the interest is not deductable on income tax. We constantly hear complaints of a luxury tax or a sinners tax yet there exists a faction of our society who are daily paying a ridiculous fee because we made a mistake, or had bad luck, or illness, or something that pushed us into this realm and all we are trying to do is survive and try to get out. If you want to "help" us, don't take away the small life preserver that's keeping us afloat, go get the captain of the ship and tell him to let us in the life boat.
Payday loans do NOT prey on anyone. They assist those in financial situations who otherwise may not be able to meet their financial needs. Payday loans help millions feed their families, and provide a service when there is no other way to get the quick cash they may need.
Darrin, perfectly said!!! Pay day lenders give out small loans - $100 to $1000 in the majority of states. Payday lenders did not cause the financial collapse. With our credit crunched economy, don't take away and limit people's choices. I work for a pay day lender and the customers that walk through my doors are thankful that we are there for them because they have no where else to turn.
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