States imposing interest-rate caps on payday lenders
States Imposing Interest-Rate Caps to Rein In Payday Lenders
The spreading subprime-loan debacle has emboldened some state governments to move aggressively against "payday lenders," outfits that offer high-interest-rate loans to cash-strapped borrowers who pledge to repay them when their next check arrives.
As subprime mortgages continue to demonstrate the damage to borrowers and the economy when risky loans are made to sometimes unsophisticated consumers, politicians who once steered clear of limiting the availability of credit now find "fair lending" laws that cap interest rates more palatable.
"There is no way [the legislature] would have taken sides" before the subprime crisis, said Jeff Jacobson, a Republican and president pro tempore of the Ohio Senate. "But given all the other problems we're having on the lending front, it sensitized us and made us have to deal with it."
Early this year, Mr. Jacobson voted for legislation that caps interest rates for short-term loans at an annual rate of 28%. The payday lending industry is trying to get the rate cap law repealed before it takes effect Sept. 1. Last month, New Hampshire's governor signed a law that caps payday loans and car-title loans -- which are short-term, high-interest loans that use a car as collateral -- at a 36% rate. Last year, the District of Columbia Council voted to cap interest rates on payday lending, and last month Sen. Richard Durbin (D., Ill.) introduced legislation that would cap all interest rates for consumer credit at 36% annually.
Across the country, various bills to legalize other forms of high-cost lending have stalled, said Uriah King, a policy associate at the Center for Responsible Lending, a nonprofit research organization. "We used to see all kinds of legislative vehicles to legalize high-cost lending across the country," he said. "Now they're not even being introduced, and if they are, they're not getting hearings."
Among high-interest loans, few have been more roundly criticized than payday loans. These are small loans, usually between $300 and $400, that carry interest rates up to several hundred percent a year and are tied to the borrower's coming paycheck. To get the loan, borrowers write a check postdated to their next pay period.
Payday lenders say they provide a valuable service by assisting borrowers in a pinch, sometimes helping them avoid penalties such as late payments. They also argue that the annual percentage rates are misleading because many of their customers pay off their loans within two weeks.
"State legislators are really frustrated that they can't do anything about the subprime-mortgage stuff," said Steven Schlein, a spokesman for the Community Financial Services Association of America, a trade group representing payday lenders. Mr. Schlein said legislators are going after payday lenders because "it gives them something to say that they're doing something about lenders, even though it has nothing to do with the housing crisis."
Opponents of the loans say lenders profit from a brutal cycle in which borrowers get new loans to pay off old ones, racking up fees and interest payments that can exceed the value of the original loan by several times.
Mitchell Kent, a building maintenance technician in Columbus, Ohio, used payday loans on and off for about seven years, often taking out several at a time, extending the loans and racking up loan totals as high as $1,500. On a few occasions Mr. Kent said, he took out so many loans that his checks to the payday lenders started bouncing, leading to more fees. Mr. Kent took out his last payday loan about two years ago, he said, after calling up his utility company and auto lender to see if he could work out a payment plan. "I just hit rock bottom. I realized I'm not even getting a paycheck anymore," he said.
Many states once had usury laws that prohibited the kind of ultra-high interest rates charged by payday lenders. But during the past decade, many have granted exemptions to payday lenders, allowing them to charge higher interest rates. The industry expanded its reach, and by the mid-2000s payday lending companies started going public for the first time. In 2007, the payday lending industry generated about $8.6 billion in revenue on $50.7 billion in loans, according to Stephens Inc., a Little Rock, Ark., brokerage.
In the past few years, the pendulum has started swinging back. Four years ago, Georgia, where payday lending was already illegal, made it a felony; the industry sued but ultimately lost on appeal. In North Carolina, the practice became illegal in 2005. During the past five years, a handful of states, including New Hampshire, Oregon and Ohio, have taken steps to curb interest rates.
The states' crackdown has given some investors in the industry jitters. "In many people's opinion, regulation is the single biggest risk for payday lenders," said John Hecht, an analyst at JMP Securities in San Francisco.
Consumer advocates say that after years of fighting, their arguments against payday lending are starting to get some traction, partly because of the havoc wreaked by the subprime-mortgage crisis.
"The attitude [in the past] was access to credit is a good thing, and more of a good thing is a better thing," said Mr. King of the Center for Responsible Lending. "There is no way around it: The subprime foreclosure crisis has been a contributing factor to states capping payday loans."
The payday lending industry says new interest-rate limits amount to a de facto ban on payday loans. For a two-week loan, the industry typically charges $15 in interest for every $100 lent. The 36% rate cap advocated by the Center for Responsible Lending reduces the interest payment to around $1.38 every two weeks.
Indeed, payday lenders have withered away in several states that have passed rate caps. Since the Oregon legislature passed a 36% payday loan cap last year, about three-quarters of the state's 330 or so payday lenders have closed.
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According to research predatory lending is one of the main reasons why our economy experience economic downfall. The inappropriate use of predatory lending has resulted to financial meltdown. The current economy has a lot of people looking for an online payday loan before it is too late. The tendency for companies to enact massive amounts of layouts seems to becoming quite the in style thing to do, as more companies have announced job cuts amounting to 45,000 jobs on Monday having been cut, creating more and more people that need a payday loan. The unemployment rate is continuing to rise, and it has hit levels higher than they have been since the Great Depression. Workers then couldn't get a payday loan if they needed. Read more about the economy and online payday loans at the Personal Money Store money blog.
It can't be denied that some people have certainly fallen into vicious cycles of debt with payday loans. It can't be - because they have. People have also fallen into vicious cycles of debt with credit cards, mortgages and student loans. Try paying off an education with a teacher's starting salary, when you tack on the new car that a lot of new teachers get, and the apartment that they get decked out by Best Buy - on top of the credit cards they already used during their schooling AND their financial aid they have to pay back. There are also downsides to capping or getting rid of payday loans, believe it or not - for instance, and this is all backed by research from Clemson, Dartmouth, and U of Chicago, the number of bounced check and overdraft fees goes drastically up, along with late fees on credit cards and, believe it or not, foreclosures on homes. Most payday loan consumers are actually middle class workers - over 50% have some college experience if not a degree of some sort. Oh, and also, like your article points out, $60 billion of industry and thousands of jobs across the country. Do you really want to drive that out of the US at this point in time?
President Obama recently announced a new task force on the middle class, to be led by none other than onetime "working class kid from Scranton" Joe Biden, Obama is all about the people who find themselves in need of a payday loan. He has created a Middle Class Task Force of which is to create more jobs, and better paying jobs to bolster the shrinking American middle class, and return it to a state where the average Joe doesn't have to worry about whether he needs a payday loan or not. Obama is all about the people who find themselves in need of a payday loan. A mighty task, but the message of Obama has always been, "Yes, We Can." Hopefully, we can with the aid of a payday loan if we need one.
It is still possible for individuals to use payday loans responsibly. While the interest rates can be high, they are providing a helpful service to those who need money fast.
Two things about your comment inspired my post. There's this line - "First, I have the biggest payday lending store in my area..." Stop right there. That's the first problem = too many of your legal loan-sharking storefronts exist already throughout our suburbs. You know what I do when driving around the suburbs looking at real estate? I keep on driving when I see one of your establishments. Then you continue with - "..only 12% of the persons I have lended to in 3 years have defaulted. That means that about 88% of the people who make a choice to use this credit product have used it wisely." I wouldn't call a 12% default rate stellar (you never get your money back 12 out of 100 times??), and I wouldn't call it a wise decision to use a credit product that charges interest rates over 100% APR. I think you may need to sharpen up that resume and begin thinking about your next career move. ====================================================================== sean Payday loans up to $1500 in as little as one hour. Payday Cash Advance Loan
Two things about your comment inspired my post. There's this line - "First, I have the biggest payday lending store in my area..." Stop right there. That's the first problem = too many of your legal loan-sharking storefronts exist already throughout our suburbs. You know what I do when driving around the suburbs looking at real estate? I keep on driving when I see one of your establishments. Then you continue with - "..only 12% of the persons I have lended to in 3 years have defaulted. That means that about 88% of the people who make a choice to use this credit product have used it wisely." I wouldn't call a 12% default rate stellar (you never get your money back 12 out of 100 times??), and I wouldn't call it a wise decision to use a credit product that charges interest rates over 100% APR. I think you may need to sharpen up that resume and begin thinking about your next career move. ====================================================================== sean Payday loans up to $1500 in as little as one hour. Payday Cash Advance Loan
There should be a balance between consumer protection and healthy business environment for payday loan companies. payday loans
Law of New Hampshire The New Hampshire legislation will cap the APR (annual percentage rate) that can be charged on any payday loan at 36 percent, a figure that features in many regulatory frameworks across the nation. According to Forbes, that works out at a total interest charge of $1.48 for a two-week loan-- or roughly 10 cents a day. payday loan online | payday cash loan
Law of Virginia The Virginia Organizing Project, a grassroots group, has published on its web site a Payday Lending Fact Sheet, which lays out the state's new regulations. These include: Payday lenders must allow borrowers two pay periods within which to make repayment; One payday lender must not lend to a borrower who already has a payday loan with another lender; A payday lender cannot make a loan to a borrower on the same day that that borrower repays another loan; All Internet payday loans are illegal and unenforceable in the state. Cash Advance | online payday loan
Law of Economics Anti payday loan lobbyists claim that the new laws will help those who find themselves in a 'debt trap', which can occur when borrowers repeatedly roll over multiple loans. They argue that payday lenders charge high (triple digit) interest rates, and that these are unfair. faxless loan Industry groups, however, counter by pointing out that those high rates are only annual equivalents, and payday loans typically last for two weeks not a year. They believe that lenders' costs (taxes, salaries, rent, power, bad debt provisions…) make administering a $100 for $1.48 completely uneconomic. And they point to the wholesale closure of payday loan outlets in states that have in their eyes overregulated.
Federal Law? All of these laws and regulations at state level may soon become redundant. On his web site, President-elect Obama says that it is his policy is to federalize the laws governing payday loans. He plans to introduce a nationwide cap on rates (probably 36 percent), and to introduce tough new restrictions.online payday loan
Many claims yet had usury laws who prohibited the sort of ultra-high financial ranges trusted by payday lenders. But through the out of decade, a good amount of undergo granted exemptions to payday lenders, letting them to credit even greater loan rates. The boom expanded its reach, and by the mid-2000s payday lending corporations began going out public for the first and foremost time. In 2007, the payday lending economy generated something like $8.6 billion in profit on $50.7 billion in loans, according to Stephens Inc., a Little Rock, Ark., brokerage. In the beyond few years, the pendulum has began swinging back. Four decades ago, Georgia, at which payday lending was now illegal, earned it a felony; the economical sued but in the end lost on appeal. In North Carolina, the practice became illegal in 2005. During the out of 5 years, a handful of states, not excluding New Hampshire, Oregon and Ohio, experience taken steps to curb loan rates. The states' crackdown has supplied a few investors in the economic jitters. "In the majority of people's opinion, regulatory is the single most major gamble for payday lenders," assumed John Hecht, an analyst at JMP Securities in San Francisco. Consumer advocates say who following decades of fighting, such a arguments against payday lending are appearing to get a good deal of traction, partly when of the havoc wreaked by the subprime-mortgage crisis.
Amazing post ! thanks for it !
Knowing the difference between good and bad debt can help consumers to substantially limit their dependency on borrowed funds such as payday loans or the various other loans available to consumers today. With the average American possessing over $9200 in consumer credit card debt, American families have significantly reduced their potential retirement earnings and many aren't able to save at all. This causes some serious concern for many Americans, and a likely future financial crisis for our country.plante medicinale
Law of Virginia The Virginia Organizing Project, a grassroots group, has published on its web site a Payday Lending Fact Sheet, which lays out the state's new regulations.
what will happen if it isn't a balance between consumer protection and healthy business environment for payday loan companies. anz internet banking,netspend,sears mastercard,tdcanadatrust,ibsnetaccess,mbnanetaccess
Although a cash advance does have rediculously high interest rates, I still think it is good that we have them around for the times when consumers find that they are in a financial bind and really have nowhere to turn to.
Very interesting article
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President Obama recently announced a new task force on the middle class, to be led by none other than onetime "working class kid from Scranton" Joe Biden, Obama is all about the people who find themselves in need of a payday loan. He has created a Middle Class Task Force of which is to create more jobs, and better paying jobs to bolster the shrinking American middle class, and return it to a state where the average Joe doesn't have to worry about whether he needs a payday loan or not. accounting degree | accredited degree | computer science degree
They believe that lenders' costs (taxes, salaries, rent, power, bad debt provisions…) make administering a $100 for $1.48 completely uneconomic. And they point to the wholesale closure of payday loan outlets in states that have in their eyes overregulated. criminal justice degree | Corllins University
The national economy consists on fair crediting, on it the law which has signed Hampshire is quite pertinent.
Well said. I totally agree and see the point.
Ya Janney, you are absolutely correct and the article is very informative. Most of the people do not take care of borrowing loans. so they must read it. really very nice article.
thanks very much!!
Well its good idea too.. :D
I like it and I think you make a good point. Thanks for taking the time to share this with us.
Good info thanks for sharing with us.
Peace, Love, Unity and Respect.
can somebody tell me what are the interest rates of payday loans in India? Jyoti
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If you’ve ever been in a situation (as most of us have) of being caught short in a financial crisis, then you’ll know just what a bonus a short-term Payday Loan can be. I know that many of us have found ourselves in mid-month with no cash and a family to feed; others have been faced with a personal crisis such as a death in the family and sudden funeral costs to face. Whatever the cash crisis or problem, a Payday loan has been the answer to a prayer for many.
If you’ve ever been in a situation (as most of us have) of being caught short in a financial crisis, then you’ll know just what a bonus a short-term Payday Loan can be. I know that many of us have found ourselves in mid-month with no cash and a family to feed; others have been faced with a personal crisis such as a death in the family and sudden funeral costs to face. Whatever the cash crisis or problem, a Payday loan has been the answer to a prayer for many.