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Aug 15, 2008 -- A federal cap for payday-lending rates?
There is now a federal move to cap the interest rates that payday lenders can charge at 36%. That would extend the protection against outrageous rates now enjoyed by military personnel to all civilians.
As surprising as it sounds, a wide-reaching 36% cap would nearly demolish the payday lending industry. They simply can't staff their outlets and give out money haphazardly at that rate of return.
Clark believes the industry really brought this on itself. If they had kept to interest rates of only around 50% or 60% -- and Clark uses the word "only" very loosely! -- they may not have attracted such ire. But instead, the payday lenders have been greedy, sometimes charging hundreds or even thousands of percent interest!
On a related note, Clark is disappointed that credit unions have only had limited pilot programs for short-term borrowing. He feels they missed out on an opportunity to provide a real community service to those who would otherwise be targets for payday lenders.
As always, resist the temptation to go to a payday lender. It's never the right move.
Unfortunately, Clark won't be able to answer any questions submitted via commenting. If you have a question, please try posting it to our message boards.
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What others are saying
Payday lenders
Think payday lenders care about whether they can help you through a financial hardship? These lenders target the elderly, single parents and disabled individuals -- basically, those who live from pay-check to pay-check. Most of these individuals are not able to pay back the money, beginning a file (debt) that extends to months or even years (2-3 inches thick. These lenders target a customer's weakness -- playing on his/her fear of survival, pretending to care and making fun of your unfortunate situation while you walk out the door. In reality, these people are afraid for their jobs!
Payday lenders don't tell you that if you don't pay back, they visit you at home, at your work and call your relatives. They threaten taking you to court. At this time, the payday lenders are not taking those to court who are in default because of the "image" so that they survive after November. But if they continue to do business after November, you bet they will be filing an impressive stack of court papers.
I suggest trying other means to get through a financial hardship because these companies are not out for your best interest.
P.S. John B sounds like a current employee of the payday lender industry. Recognize the brain-wash.
Pay day loans
So what other option can we do if no-one will lend you money instead of pay day loans- any other help out there? divorced - late payments-
Payday lenders
I am extremely disappointed in Clark's stand on the "possible demolishing of the payday lending industry". It is a typical banking industry founded misconception about the extreme interest rates for payday loans. The banking industry would have us believe that is wrong for a payday lender to charge $25 - $30 per hundred borrowed for two (2) weeks as bad, but it is fine for a bank to charge a $35 NSF fee for a one or two day period. Then when you take into consideration that the bank of the entity receiving the NSF check also charges a $30 - $35 NSF fee for a similar timeframe. This dosen't even consider the bank "overdraft protection" charges leveled by banks. Any really objective observer would have to ask, "who really is the preditory lender here"?
This is not to say that everyone should run out and start using Payday Loans, but it is saying that the payday lenders really do perform a badly needed service for anyone who finds that they need an extra $100 - $300 dollars to cover an unexpected expense (say a car repair, or emergency room visit without insurance)and get them thru until the next payday.
The key is to pay the loan off when it is due, thereby avoiding the extra service fees for late or rollover loans.
I really do believe that Clark need to do some further investigation beyond the banking industry retoric.
Lesser of two evils
It used to be said that pawnshops were poor people's banks, where they could get a collateralized loan. Apparently pay day lenders learned the same lesson that credit card companies learned. They can cater to people with bad credit by jacking up the rates for everyone. There has always been a need for small loans to poor people. In the past, loan sharks filled the need. Unless credit unions make loans based on a person's credit risk, they will suffer enormous losses and either jack up their rates, lower their yields, or stop making these loans. Why are these same people in credit card debt? Because they don't know how not to spend. Paying less interest for a loan will not cure that.
Payday Loans
If the payday loan companies are put out of business, then organized crime will take over. Then when you defaut on your loan, they send the leg breakers to collect.
Loan Sharks
What happened to the usury laws?
Credit Unions
NC State Employees' Credit Union (I'm an employee)has a salary advance loan program that is very popular. It has a very low interest rate and requires a certain percentage of the loan to go to a savings account. The savings account funds cannot be withdrawn until the member is no longer dependenton the loans.
Payday loans
Clark:
I have to take a little issue with your comments on payday loans. I am in no way involved in these, either as a consumer or as a representative.
Thing is, there is an apparent need for these loans. The higher rate apparently reflects the higher risk component to the lender. You said yourself that these companies cannot make money charging 30-40%. Why is that? Is it due to the high default rate? Perhaps the extremely high rates do indeed reflect the actual cost of servicing loans like this.
I agree that nobody ought to use these places, but again...if people are using them, there is a REASON for it. I am assuming they are used as they will offer loans that are higher risk, that traditional lenders will not offer.
Clark, I'm a big fan, and agree with you most of the time, but I'm disappointed with you on some things...this being one of those things. The free market will regulate the need (or lack of) for places like this.
