Rep. Mark Ferrandino wants to kill Payday loan industry

Capping the annual interest rate at 36 percent is unfair because payday loans are typically for two weeks, not a year, said Lyndsey Medsker, spokeswoman for Community Financial Services Association, whose members operate about 180 stores in Colorado.

"That's effectively a ban on the industry," she said. "If you apply an annual rate to a two-week loan, it just doesn't work."

Under current law, payday lenders can charge about $17 to lend $100 for two weeks, she said. The proposed legislation would drop that to $1.38.

http://www.denverpost.com/news/ci_8201820

The people who use these payday loans are often faced with hard and costly choices and using a payday loan is better than the alternatives. It would be worse for the poor if the government regulated this option out of existence.

This comparison of choices often faced by people who use payday loan services from Wikipedia:

$100 payday advance with $15 fee = 391% APR;
$100 bounced check with $48 NSF/merchant fees = 1,251% APR;
$100 credit card balance with $26 late fee = 678% APR;
$100 utility bill with $50 late/reconnect fees = 1,304% APR.

Comments

[John]

Want the actual payday advance APRs?
See this: http://www.mypaydayloan.com/apr.htm

The lowest apr is 506.94% and it goes up to 1303.57%.

Credit cards charge a max of 36%.

Consider the fact that the payday lenders make their money in "rollovers" and they create an addictive cycle of debt.

The legislation wants to make payday lenders responsible - and right now they are predatory.

[severin]

Credit cards charge well over 36% interest if you include late charges, and the reason a lot of people use payday loans is to keep from getting late charges or bounced check charges if that they would incur if they waited until they got paid to pay off a bill.

In any case the loans are made between adults and the government has business involving itself in private matters between adults, as long as no force or fraud was used in the negotiations. If you think the lenders are “predatory” you have the option of not dealing them. I think the government is predatory, but I don’t have the option of not dealing with them, and neither will these lending companies who will essentially be shut down by the government meddling.

[Michelle]

I think it's completely insane and irrational that they want to put this much control to payday loans. I should have a right to make my own financial decisions.

I learned my lesson a few years ago when I forgot to write down a check I had written. No I'm not perfect and sometimes I do forget. I went about spending the extra $100 I *thought* I had in little charges amounting from $3 to $20. When that check cleared through before my charges, I was left with about $300 in overdraft charges. I was charged $38 for borrowing $3 from my bank. And yet they can get away with this? I could have borrowed $100 to cover that check and it would have only costed me $15. Talk about a $275 savings.

I am one of the consumers that sometimes borrows from these payday loans. It has been a life saver a few times, saving me hundreds of dollars in bank fees and other late charges. It is a FAR FAR better choice for me to borrow and pay $20-$75 than to pay $300 in bank charges. It doesn't take a genious to work out the math.

How do the banks get away with charging $38 for a $3 overdraft? And the payday loans are being targeted? I have heard many more stories about people getting hit hard in the wallet by bank fees, NOT by payday loans.

[Stacey]

I am a paycheck loan employee and I understand that you voted to end payday lending in CO. I would like to say that first of all the term loan sharking and classifying us as such or saying that we are the new mob up hauls me. How dare you? I am a hard working single mother, who knows the hardships of what people face and if you took the time to come to my office and meet with my clients you would see that this is no where near what you are judging me as. (i.e. a predator, a loan shark,). However as usual you do not take the time to go to a paycheck loan office and fully educate yourself on the process, the product, or the people that work at paycheck loan offices or the people who use the service.

Yes there are payday lenders out there that are bad, but it is up to the consumer to educate himself or herself before making the commitment. There is bad in every industry, just as there are bad representatives and politicians, but again it goes to be point of educating yourself. Just like those of you who are not fully knowledgeable about the payday loan industry, or care to educate yourself, you just assume that we are all bad people preying upon the poor. Again up hauling..!!!!!!

I work in Boulder, CO and all of my clients are grateful for the fact that I am here. Let me ask you this when their car breaks down or a family member needs to be rushed to the hospital, will you loan them the money? I have clients that are professors, nurses, and executives in companies far from the poor that you say we prey upon. I have laughed, cried, and become friends with most of my clients. I know their families and their struggles and they know mine. Tell me, when they can’t get a loan from their bank and they have an emergency where are they supposed to go?

We do not feed upon the poor or the weak; we do not stand on corners and pull people in to get loans. I don’t have Guido in the back room waiting to break peoples legs if they don’t pay. In fact when people come in we make sure that they have no outstanding loans, before we will give them a new loan. If they have a loan with us and are unable or to make the payment we work them in helping arrange a reasonable payment plan in order for them to pay off their loan.

Why do you target us and not the banks that charge outrageous fees? Everyday I see people who are hit with hefty bank fees and no one seems to address that issue. Most of the time people that come in here are taking a loan because the bank has hit them with such fees. The other issue is that closing us down does not stop people in getting paycheck loans; they will simple turn to the Internet. Those are the true loan sharks, Internet lending is unregulated, and you have no control over your loan, most of the time you cannot get a hold of a real person, they don’t care if you can’t make the payment.

Here is a thought how about making sure that everyone has universal healthcare, so that they do not have to worry if they get sick how will they pay their bill? How about focusing on getting jobs back here in the US instead of outsourcing to India, or China. I know it is easier for you to target payday lenders and close them down and put more people including myself out of work and in turn we will lose our health insurance and benefits, oh yes that is better than addressing the real issues.

So let me thank you in advance for putting more hardworking people out of work and leaving them without benefits, and by the way could I borrow some money please so that I can pay my bills?

Perhaps by reading this letter you will take the time to fully educate yourself. You are welcome to come to my office here in Boulder anytime and get a real grasp on what is going on instead of jumping on the bandwagon of ignorance. Oh I am sorry does that sound like I am judging all of you…………….

[severin]

Stacey, I just want to make it clear that libertarians are against this plan. We do not want to regulate the Payday loan companies.

[John]

Well, actually I am a liberarian and I do support responsible regulation of an irresponsible industry. Payday loan companies are always next to liquor stores. Why do you think that is? Maybe because payday loan companies depend on "impulse" buyers? Did you know that average payday loan company makes 1 to 2 loans an hour?? Hmm... imagine if Walmart only made 2 sales an hour... what do you think would happen to them? Peraps that is why Walmart has a "centralized" store - to save money? Why do we have over 650 individual payday lenders in Colorado? Why not 10 stores that do 60 loans an hour? I know why - because people wouldn't drive 10 minutes further to get a loan that they really don't need. Payday lenders pray on people who can't manage their money and impulse shop- I can't think of a worse combination. I am libertarian - but I am also a moral person. Payday lenders could be helpful with regulation that reigns them in - but right now they are immoral. Even the Bible and other primary texts spoke of the need to control interest rates - because it is immoral to let them get way out of hand.

[Mike]

I never thought of that. You are right - it is immoral and intrest rates have always been capped. Imagine if your local bank and credit card companies weren't regulated? Could you imagine that? It would be chaos and the banks would own us.

Thanks for putting this issue in perspective. I was against the bill, but now I am for it.

[severin]

John, you need to pick up a book on libertarianism if you believe that because some people make poor choices in life, this is a good justification for government to interfere in the lives of all adults. This is the nanny state mentality that has led to the most oppressive laws on the books.

To your original points.
1. The market would prevent banks from charging too much, in fact I am changing banks this week because my long time bank decided that they are going to start charging me for overdraft protection. If a bank charged higher then acceptable interest rates then they would not continue to get business.
2. I don’t think calling everyone who has ever used a payday loan service impulsive, or unable to manage money is an irresponsible accusation on your part. Like I pointed out in the original post the choice to use payday loan services is often the best of many bad choices. Last months reason magazine had a short story stating that the rates of people who bounce checks and declare bankruptcy were higher in states where payday loan services were banned.
3. Payday loan companies are located where it is convenient to people. They might often be near liquor stores, but they are also often near grocery stores and other stores.

[stacey]

John and Mike,

My paycheck loan store and the ones the others here in Boulder are not located anywhere near a liquour store. Also I don't go out an pray upon the weak. Again you should actually take the time to educate yourself on the process. Closing us down will not solve the problem of people taking out loans, the will go on the internet. John and Mike you are welcome to come to my store anytime and meet my clients and the employees who work here...........again juding everyone that works at a payday loan store as predators, or vultures is extremely uphauling. My clinets are professors, or state employees that only get paid once a month, and guess what they have a brain and they are not stupid or impulse buyes as you state.

[John]

I am sure that the people who work in the payday lender stores are great people who are just trying to make a living. I have no problem with them. I only have a problem with the businesses who make getting into a cycle of debt as easy as buying a coke.

I am all for freedom of choice, but there is a reason that we do have certain laws in place. No man is an island and the bad choices that someone else makes in life (like drinking and driving) can kill someone else.

It does society no good to make debt so easily attainable. And yes, I am a libertarian - but one that understands reality must mesh with independence.

[John]

I am sure that the people who work in the payday lender stores are great people who are just trying to make a living. I have no problem with them. I only have a problem with the businesses who make getting into a cycle of debt as easy as buying a coke.

I am all for freedom of choice, but there is a reason that we do have certain laws in place. No man is an island and the bad choices that someone else makes in life (like drinking and driving) can kill someone else.

It does society no good to make debt so easily attainable. And yes, I am a libertarian - but one that understands reality must mesh with independence.

[chad]

My wife works for these lenders and now that her job is threatened, we have to consider alot of things to do without. The goverement is interfering with payday lenders for one reason, weed out the weak in Colorado and bring in the wealthy to buy up the lower class neighborhoods and help pay for their budget short falls. This state is the one of the hightest in the nation for registration fees for vehicles, rv's, and bond after bond after bond taxes. When does the bleeding stop for us americans. The illegals get away with not having insurance, not having a ID, not being audited for taxes. Hey Colorado, WAKE UP and smell what the hell stinks, buracrats like this fool worried about payday lenders instead of the real issues in front of him.

[deb]

What happens to the loans we have out??? will the payday company be able to cash the checks they are holding if they have to shut down? that would be a financial disaster for me!

[John]

Lets remove all APR caps for ALL loans!

Lets allow our mortgage companies to up our interest rates to 500%.

Lets allow our car loan companies to charge 1000%.

After all, the more money a lender makes the more people they will need to hire to rake in all of the money.

It's a free country, lets let the banks own us. Because without regulation - and government protection of consumers - that is exactly what would happen.

The legislature is not shutting down payday lenders, they are simply making them responsbile and less predatory. You will still be able to get a payday loan - you will just pay less money for the same loan. Everyone should be on board for this good piece of legislation.

Don't let the payday lobby scare you. They want to own you - not help you.

[severin]

Lets remove all APR caps for ALL loans!

Lets allow our mortgage companies to up our interest rates to 500%.

Lets allow our car loan companies to charge 1000%.

Hurray! you are finally talking like a libertarian. The fact is that the market would keep interest rates down. I wouldn't get a mortgage of 500% or a car loan at 1000% and nobody else would either. This would mean either the loan company would either need to do one of two things 1. Lower their interest rates to an attractive enough level to entice customers, or 2. Accept extremely risky loans (ones that currently don't get made because government caps on the loan limits make the profit not worth the risk).

[John]

Severin,

You wouldn't get 1000% APR loans because if you have good credit, banks will offer you better rates. If you don't have good credit, and all banks offered only 1000% APR options and your back is up against a wall (like it is with payday lender customers) you just might get that outragous loan... one that all of us will be paying for - just like we are now with payday loan scammers.

It’ s just a fact that more people today then ever before are being left licking their wounds with bad credit. It’ s the recession/ depression or what ever you want to call it. The real bad deal of it all, is that as soon as the economy turns around, you will be back in the game, so your bad credit rating will be a burden.

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