Time to rein in payday loans

Monday’s Post and Courier carries an editorial calling for the state to crack down on predatory lenders, to which I couldn’t agree more.

Predatory lending rides on state laws which allow virtually unlimited finance charges upon short-term loans without collateral. They offer a variety of services to get their money, including:

  • Pawn shops
  • Check advance/ “Pay Day” loans
  • Title loans
  • “Rapid” tax refund services
With tax filing time approaching, the tax refund anticipation loans will be flying, charging people exorbitant rates of interest to receive loans which are presented as “rapid refunds”. In reality, they would receive in a week or two if they filed it electronically.

Predatory lending practices upon employees in the construction industry are no small deal. The money lost to payday loans, where finance charges can match, and even exceed, the amount borrowed, has a real impact upon the standard of living of employees. Some of those suffering the worst seek raises to offset their borrowing costs, or seek new jobs which pay more money, but are beyond their abilities, and they soon find themselves unemployed.

While some of the information is probably a bit over the top, such as Julian Bond’s claim that payday loans drag middle class people into poverty, the proliferation of predatory lending practices are of real concern. Many states have worked to rein in this practice. The Department of Defense is pushing for action to protect military families. South Carolina should not miss this call to action.

8 Response to "Time to rein in payday loans"

  1. west_rhino 4/1/07 10:24
    Earl, usury has been a problem over thousands of years. Julian Bond only paraphrased scripture that, "the borrower is slave to the lender." I have to give Fritz Hollings credit here for stating one of the reasons, oft aped by Rush, "There's too much consumin' goin' on heah!" Demanding instant gratification, gotta have that new car or proving Louis XVI's "novelty is the greatest aphrodesiac," like modern Esaus, we seem too willing to forgo our birthright for desires, not needs.

    The other side of the equation is driven by the root of evil, the love of money. Legislating protections is only a short term fix, economic education from teh bottom up may be the long term solution, though we've had the example from Japan of 100 year morgages...
  2. chucker 4/1/07 14:03
    Yeah, that's right up there with furniture and computers you can "rent." $10-$12 A WEEK doesn't sound like much.

    They always go after the weakest of the herd.

    Don't get me started on the State approved Lottery. Your government in action.
  3. Earl Capps 4/1/07 14:46
    West - as part of my work as my company's corporate communication person, I've been doing some education on payday loans (right before Christmas), refund loans (this time of year), and occasional financial management tips.

    I design, edit and publish the company's quarterly newsletters and monthly bulletins. I try to put "educational" material in every issue, targeted at health, safety and finance topics.

    The cost of payday loans for some families can far exceed annual raises, so by helping educate them to better manage their money, as well as decisions regarding debt and credit, it's like giving them a second and even third raise a year, without costing the company a penny.

    Makes me sound like a bleeding-heart commie lib, doesn't it?
  4. Anonymous 4/1/07 21:01
    Two things to consider.

    First, is there a market for this kind of lender?

    Second, can the people who are borrowing get loans from other sources?

    As long as there is no fraud, let the markets work. These loans are high risk for the lenders. The repayment rates are dismal. That is why you have higher interest rates on the loans.

    I spent a lot on credit over the Christmas season. But, that is not Bank of America's fault. Indeed, they gave the line of credit. Sure, the pay day folks are not Bank of America. But, if I don't pay Bank of America back, they will raise my interest rates, take collection activity, as they should. I made a deal with them to borrow x amount of money and pay them back in a certain fashion. You don't see people screaming about getting rid of credit card companies just because, gasp, we have to pay back what we borrowed plus interest.

    I just don't the problem. Let the market work.
  5. Earl Capps 4/1/07 21:18
    it is one thing to conduct commerce between two parties who are fully knowledgable and can therefore consent knowing full and well what they are doing. but that is not what they do - their advertising is full of loaded language, dangling cash in front of people, and leaving out critical information that would dampen the appeal.

    today, i posed a basic finance question to a co-worker - a loan where $10 was charged for every $100 for a thirty day period of time. what annual interest rate for that loan?

    she said "10 perecent" and was stunned when i said 120 percent. you can bet that's not shared when they take out the loan.

    in a perfect marketplace, i would have no problem with charging whatever they want. but that is not what is happening here.

    since its not, i don't have a problem with putting some controls in place. granted those who have such financial short-sightedness will not likely become instant millionaries, but it would stop one of the most unscrupulous forms of exploitation of the poor of thise state.
  6. Anonymous 5/1/07 00:19
    Wait a minute, Earl. Are financial institutions, including those pay day lenders, supposed to have some of sort of litmus test for their customers that includes basic intelligence.

    If you want to that, why not go after used car salesmen, attorneys, doctors, and so many others that "take advantage" of people in their most vunerable times.

    Either one believes in the free market or he does not. I personally worry about the free market in health care more than any other place. When my father was figthing for his life, and I was given some papers to sign to accept financial responsibility, I was in no position to make a reasonable economic choice. I signed the papers, believing that if I did not, my father would not get top care. And, I am a lawyer! (Speaking of lawyers, how many of of my brothers at the bar take a third of the settlements people would normally get because people come to their office as a result of clever commercials?)

    Someone signing some papers to finance a tv or finance a drinking binge just does not get my sympathy.

    If you want to have economic justice, you have to start with things that really have no tangible market value, such as the health or life of one or one's loved ones. The pay day lenders are nothing compared to what health care folks do.
  7. west_rhino 5/1/07 10:42
    Earl, you're hardly one of the braying hearts. To paraphrase your cousin, it would seem that these lenders are the crack suppliers of the lending circles. Payday loans and Dems seem to go hand in hand, pandering to the entitled mindset.

    It brings to mind a recent offering in the comic strip 9 Chickweed Lane, where one of the characters is returning to part time teaching in a university, they're going through first day of class Q&A and one student asks the Prof's philosophy on grading, this evolves into, "I suspect that you're asking if I think that you're entitled to a grade, and yes, you're entitled to an F."

    Implicit in the bill of rights is that entitlement. We're entitled to fail. Thomas Edison, Abraham Lincoln, Henry Ford, Babe Ruth, Orville Redenbacher; all better known for their successes, bear far more failures on which their sucesses are built.

    Anon, yes, there is a market, just as there is a market for cocaine, kiddy porn and popcorn. Because there is a market doesn't mean the market deserves to be nurtured.
  8. Moye 6/1/07 14:23
    North Carolina has some laws on the book I believe especially around the military bases. The governor will not fight this battle as it has been brought up. Not only do I agree we should rein in pay day loans but also credit card rates. Some of them are higher than 30 % man. My credit cards are mostly AMEX and you pay all each month. The people or most of them that are using these pay day loan, title loan etc. places are the ones that probably cannot get a loan or a decent one somewhere else. They probably play the lottery every week also. They are the very people we hope to protect by our welfare, social security, unemployment and other social programs. It ain't just the democrats pushing and accepting the pay day loan scams but some republicans as well. Look at Florence County some of the loan institutions you talk of up there are ran by some of the GOP leadership in that county or their kin folk or was. I am sure it is not isolated to that county by the way.

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