Tuesday, April 01, 2008

The Myths about Payday Lending

People are being victimized: Victim how? Every Payday Lending clearly displays the fee for the cash advance on signs all over the wall. The Customer signs an agreement and they acknowledge that they understand the fee upfront. There is no way a borrower can say they didn’t know the fee.

300% plus interest rate: Using annualized interest rate for what is the vast majority of time a two-week loan is disingenuous. The reality is the average is that a customer pays $15 per 100 for a two-week advance. Period. No one pays 361% interest. They pay 15 dollars no more no less. Compare this to the unexplained fees of the credit card companies that can turn a $500 debt to thousands in months.

A cycle of debt: These are two-week loans period. Can people find a way around the rules and use multiple payday lenders to extend the debt. Yes. Are they being stupid in doing so? Yes. But they are no victims. The vast majority of payday lending customers are not frequent customers.

36% interest rate is reasonable: These companies give these short-term loans without credit check. Their default rate is high. Such a limit on interest rates would result in losing money on every transaction. Thus would put an entire industry out of business.

There are too many Pay Day Lending Companies: Myth. Quite clearly there is a need for them or they would not survive. Most people that use these agencies have no other choice then writing bad checks. Lets see, $15 fee per $100 or $50 overdraft fee and possible criminal charges. Seems to me the payday loan is a much better choice.

This Payday lending bill in Ohio is another attempt to protect people who first of all are not complaining, and second of all do not need protecting. There are plenty of victims from fraudulent and shady financial practices. However those are not in the payroll lending industry, they are with banks, finance companies, credit card companies and mortgage companies. It is time the Ohio General Assembly look at real problems rather then creating victims where there are none.

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2 Comments:

Anonymous Keep Choices said...

Joe, I couldn't agree more. Give those people who use the service responsibly a choice of how to manage their finances. Love the post, keep up the good work.

1:12 PM  
Blogger seanycohio said...

JOE,

I agree, too. I work for a payday loan company, and when i can't pay my bill on time, I use another payday loan service to borrow.
What I don't understand is how the banks can keep charging $38.00 for each overdraft item that occur (sometimes they pay, other times they don't pay) plus $8.00 each day (so-called continuous overdraft fees) the balance is negative. Let's say I had only $50.00 in my checking account and a check for $75.00 I wrote came through, resulting in -$25.00 on my balance. bank will charge $38.00one time plus $8.00 per day. So If I wait 5 days before putting the money in to make the balance positive, i would have been charged $78.00 in 5 days (On a $25.00 that I owe the bank.)

Hmm this is close to 300 percent in five days. I use payday loan because it saves me money, not because they trap me. I am wondering why any coalition does not address this issue. Of course banks offer overdraft protection, but is it really a protection if they charge me $38.00 for every item ? Where is the coalition for responsible banking? I say if banks don't charge so much fees, and instead charge some reasonable interest, we don't need so many payday loan stores.

I say borrowing cash from credit card is a cheaper way of borrowing than borrowing from payday loan, but for most of people who use payday loan, it's not an option.

My idea about solving the problem is to tell all this religious leaders and consumer avocate pool the money and start an outlet that only charges 5% interest (not maximum 15%) for two weeks period.

People will stop using expensive payday loan service. Why don't this so-called reform minded people do it themselves?
Because they are bunch of liars. They are making themselves look good by attacking payday loan industry.

Please feel free to comnent.
Ok. Keep up the good work !

11:42 AM  

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