Payday Loans Blog

CLOUT, or Citizens of Louisville Organized and United Together, is seeking to limit the APR on payday loans to 36%. Co-president Bishop Walter Jones claims that payday loan interest rates must be controlled.

The group is petitioning the Governor and Attorny General to join in their cause. Jones hopes to introduce legislation in the 2010 session of the General Assembly.

Groups like this make me throw up in my mouth a little bit. It never ceases to amaze me the ignorance that is so blatanly on display when you look at payday loan critics. And what is their flagship argument? APR is out of control!

Do these people have any idea whatsover what the acronym APR even stands for? ANNUAL percentage rate is what that means. Funny word annual...it means yearly. Keep in mind that APR is using a YEARLY metric to measure a loan that is design to be out no longer than TWO WEEKS!

I would pay 999,999,999,999% APR if you wanted, just allow me to decide how long the loan is out. I've decided that loan will be for ten minutes. Suddenly that astronomical number doesn't mean much, now does it?

Of course 400% APR would be a rip off if you were borrowing money for a year or more. You would pay far more in interest in that year than the loan was originally for. But payday loans are not annual loans, they are loans to help you get by until your next pay check arrives, that's it.

Yet these vocal boneheads can't figure that out. They think they are protecting people from evil payday loans. If they are so bad, why do so many people use them? Why do so few borrowers ever have any problem?

This is another example of the vocal minority asserting their will over the silent majority. We shouldn't stand for this. A few people (lobbyists) on the bank's payroll shouldn't be determining our credit optinos for us.

If I want acces to short term credit then I should have it. I don't care if a couple people might abuse this privilege, it's an option I want to have, regardless of how other people use it. We should all be entitled to this and lawmakers should not be worried about capping interest rates on payday loans.

Missouri is the most recent state to bring a bill to the House looking to tighten payday loan restrictions.  The state currently caps payday loans at $500 and an individual must take out a loan for a 14-30 day period, and can renew the loan up to six times.  The new bill, filed by Rep. Mary Still, would cap the APR at 36 percent.  It would also allow a one time fee of $15 per $100 loan, but ban any renewals. 

Those in favor of the bill use the typical excuse, saying the bill will protect people from "predatory lending".  Larry Weber, Missouri Catholic Conference Executive Director, said, "People are taking out loans who, there's just not any reasonable likelihood that they're going to be able to pay this in a reasonable amount of time."  It doesn't sound like those people are being preyed upon, it sounds like they are taking out loans they can't pay back.  

Responsible lending is up to the lender.  Responsible borrowing is up to the borrower.  A payday loan is a short-term loan for those who can't get a loan from a more traditional financial lender.  Payday loan companies have higher rates because they take on a greater risk.  

Capping these short-term rates would initially cripple payday loan companies, and ultimately push them out of business.  Luckily, the Missouri House has faced similar bills in the past that have gotten nowhere.  Hopefully, the House will recognize the need for payday loan companies and how they provide a needed service to a lot of people.  

Many states are making moves in their legislatures to restrict or ban payday loans. While there are certainly two sides to this debate, and each presents points they feel are valid, I think we should look at the principle behind the debate.

Argue all they want, payday loan critics want one thing- payday loans to be banned. Every reason they give revolves around the same idea, that banning loans will protect people. They will show you their numbers and stats and all sorts of other things, but the reason is they thing they are protecting people.

So with this logic and this principle, we will now examine the newly defined role of our government, to protect us from danger. Obviously we as Americans must be too stupid to make our own decisions and protect ourselves from harm, so thank goodness the government will now protect us from the following:

• No more alcohol. Sure prohibition hasn't worked in the past, but it will definitely go over better this time around! Plus, think of all the people who will be protected with alcohol off the streets!
• Cigarettes. All they do is harm you and those around you. But no more!
• Goodbye automobiles. How many pedestrians are hit by them, how many accidents are there and collisions? Not anymore, Only safe, responsible bus drivers and train operators from now on!
• Matches. Come on people, fires kill people and destroy property. No one should be allowed to use fire when it has so much potential for harm.
• Marbles. Infants can choke on those things, best to keep them away from consumers from now on.
• Credit cards. Tons of debt can't be a good thing. Lots of people are hurt by credit card debt, so credit card companies should just be put out of business.
• Computers. All that typing causes carpal tunnel syndrome, so in taking away our computers, the government is actually helping us.
• Fast food. Face it, it's just not healthy, better can all those fast food joints before they really hurt someone.
• Gambling. If odds of winning are one in a million, then that means 999,999 people are getting hurt for every winner. Axe it all.
• Electricity. So many pollutants being put in the air makes the air we breathe worse and causes global warming, so better to go without.
• Snow. Think of how many people get in accidents, catch a cold, or are otherwise uncomfortable in freezing weather. Anyone who lives in snow, time to move!
• Gardening tools. As movies have taught us, a stray rake on the ground can be very dangerous. Picks and shovels look dangerous too, so lets pull all of them off the shelves.
• Medicine. After all, is there any medication without side effects? Too harmful, ban them all.
• Scissors. We can just tear paper, we shouldn't run the risk of hurting ourselves needlessly with such sharp objects.

Believe me, I could do this all day. The fundamental reason our governments are trying to ban payday loans is because they claim they are protecting us. But when is enough going to be enough? Where is the line drawn of where we can protect ourselves and make our own decisions?

Payday loans do nothing to harm anyone. Those who get harmed by taking out a payday loan feel that way because they couldn't pay back the loan. If you can't pay a loan back, why did you take it out in the first place? Who is at fault, the lender or the borrower?

It's foolish to go and get a loan you can't afford. By banning those loans, you aren't going to stop people from doing foolish things. You're only going to limit the freedom and opportunities of those who borrow payday loans responsibly.

The latest victim of emotionally charged hyperbole and attacks has to be payday loans. It's funny how we still believe such allegations in a country who teaches kids about propaganda in public schools. We tell ourselves we would never have fallen for such propaganda, yet how many people still believe ridiculous accusations.

The Bowling Green Daily News is the latest media outlet to slam down on payday loans in an unfair way. Now if you don't believe me, I'm going to prove my point with direct quotes from their article which calls for even more restrictions on payday lenders:

"Payday lenders hurt a lot of people who are trying to get out of a financial emergency..." Incorrect. Payday lenders aren't hurting a single soul to be exact. Law requires them to fully disclose all terms and conditions of the loan. Anyone and everyone who has ever gone to a payday lender was made fully aware of what they were getting.

People can hurt themselves in a variety of ways besides just payday loans. How many foolish investments have cost people millions? Should we be banned from making investments then? I'd also point out that infinitely more people are helped by getting payday loans than are hurt by getting them.

"...these places offer short-term solutions to people with deep financial problems who often end up in a worse financial positions than before..." Incorrect. People with "deep financial problems" are typically in that position because they no longer have a job or are in mountains of debt and on the verge of bankruptcy.

Payday lenders offer short-term solutions to people with any kind of financial standing. In Utah, the median income of a borrower is $35,000. That's right around the national average. Then there's the word "often" which is simply not true. Default rates of first time borrowers are around 35% and repeat borrowes is typically 15% or less. So often people pay the loan back right on time.

"Lewis and countless others can become deeper in debt after borrowing..." After citing an anecdote that is not the norm, they include "countless" others who get thrown into debt because of a payday loan. In reality, we could count the few people who spiral into more and more debt with a payday loan. The fact is it is rare.

"Fees can eventually total considerably more than the original loan." True. If you borrow a loan that you are supposed to pay back in ten days and never pay it back, the fees can mount to anything! Does the author not realize that on a home mortgage, if you have 6% APR for a 30 year mortgage, you will end up paying more in interest than you received from the loan?

"Payday lenders exploit those making low incomes and trap them in a cycle of debt." Exploit and trap are great words. It's too bad they have nothing to do with payday lending.

To exploit is to take advantage of, and to trap is to capture by surprise or deception. Payday loans are available to all, not those with low incomes. No one takes advantage of anyone, they offer loans to whoever qualifies, regardless of income.

No one is trapped as the terms of the loan are fully disclosed, as the law requires, before any loan is given. Few get into a cycle of debt anyway, it simply is a made up problem. For every person who abuses payday loans and borrows irresponsibly, there are at least 100 more who borrow responsibly and pay back their loans on time.

Don't fall for the hyperbole and propaganda being thrown around by these supposed "consumer advocates" who advocate nothing but big government running our lives. America is the land of the free last time I checked. If the law allows us the freedom to drink, smoke and drive vehicles, all of which can cause harm, then allow us the freedom to use the financial products we choose. Leave payday loans alone.

A bill that capped the annual percentage rate on short-term payday loans at 28 percent was signed by Ohio Governor Ted Strickland earlier this past year.  However, Rep. Bob Hagan stated recently that he is "embarrassed that the storefronts continue to operate throughout Ohio."

Hagan sponsored a bill last year that would have put a 36 percent cap on payday loan rates.  As stated above, a different bill was passed that makes the cap even lower.  Apparently, Ohio payday loan companies have now obtained licenses under two other code setions-the Small Loan Act and the Mortgage Loan Act.  Hagan said, "They (the payday loan companies) seem to have won on legal terms."  It seems interesting that he is trying to condemn the industry for legally keeping higher rates.

He later went on to say, "It's embarrassing, it's wrong and the people of the state of Ohio have said as loud as they could that they didn't want this type of payday lending industry to operate in the state of Ohio."  That statement seems a bit contradictory on several levels. 

First of all, if the citizens have "said as loud as they could" that they don't want payday loan companies, then how are the companies staying in business?  Could it be that the Ohio citizens are still using that resource?  A lot of individuals responsibly use the payday loan service with no negative experiences or problems. 

The second thing Hagan indicated in this statement is that he doesn't seem to want to just cap the rates, he wants the whole industry to leave the state.  Apparently he realizes that a 28 percent rate cap would ultimately put the industry out of business. 

Putting payday loan companies out of business would not solve borrower's problems of needing a loan.  They would have to get a loan from a different source, and some may not be able to reach the higher qualifications of a bank loan.  Payday loans help consumers who need a quick and convenient loan.  Taking that service away would only cause more hardships for Ohio citizens that need a short-term loan option.

One of the major issues that opponents to the payday loan industry has is the rate percentage.  Short-term loans do require a higher rate of interest.  However, the effect on consumers due to the rates is often taken out of context and exaggerated.  Payday loan advocates have often pointed out that the fees attached to "traditional" borrowing, such as credit cards, are often higher than payday loans.

USA Today recently reported an increase in bank credit card fees.  It reported that, "A growing number of banks are raising credit card fees or rolling out new fees..."  Some of the specific banks cited were Wells Fargo, which increased late fees and cash-advances fees; Chase, putting a yearly $120 fee on cards with low interest rates; and American Express, which raised its late fee for some business cards.

Robert Hammer, chairman of R.K. Hammer, stated that banks "are not going to watch their costs go up and take no action."  So, in essence, banks are deciding to increase rates and fees to protect itself against the failing economy.  I wonder if the "consumer advocates" will be fighting against this action as hard as they fight against short-term payday loans.

Managing director of Fitch Ratings, Kevin Duignan, recently stated that, "The unemployment outlook is dreary, there's been a tremendous loss of personal wealth, and the housing situation has forced many consumers to take a hit."  So, in response to the "huge hit" that consumers have been taking, banks will raise rates and fees.

It's interesting to note that many payday loan consumers recognize that the fees they are charged by banks are already much greater than those needed to take out a payday loan.  That is exactly why payday loans are such a great benefit to those who need short-term loans in a hurry.  They know exactly what the fee will be and don't have to worry about any hidden fees or charges.   

Yes, there are alternatives to payday loans out there. In their majestic benevolence, some banks and credit unions are now offering short term loan products to save borrowers from those predatory payday lenders.

So I decided to research these loan products a little bit and see what made them so much better. First off, most of their websites require you to call in to receive their rates, they are not posted on their site. But I did find some that explained their rates quite clearly, and the results were shocking.

One credit union offers loans from $300-$1,500. Loans of $500 or less must be paid back within 30 days. Loans of $500-$1000 must be paid back within 60 days. Loans of $1,000 and more must be paid back within 90 days.

The APR on these loans is 18% which means .05% daily. At first glance you might say that this sounds like a pretty sweet deal. I could get a $1,500 loan and pay it back in a week and it would only cost me seventy five cents a day, or about $5 for the loan after a week.

Oh but wait, there's that minor part that says all loans for any amount have a $35 fee. In other words, borrow their minimum of $300 for just 10 days. That's only $1.50 in interest, and $35 in fees. So you pay back $336.50 for the loan after 10 days.

Now lets do some math. $36.50 for $300 is 12.16% of the principal. And 12.16% divided by 10 days is the same as 1.216% in interest per day. Multiply that by 365 days in a year and we have...444% APR! Astonishing!

Now what if you only borrowed that $300 for 5 days? You pay $0.75 in interest and $35 in the fee. That's $35.75 for $300, or 11.92% of the principal. Divided by 5 days is 2.38% per day, and multiplied by 365 days is...869.9% APR!

Now credit unions get around payday loan laws very cleverly. Their $35 fee does not technically count as interest because 1) it is not dependent on loan amount and 2) it is not dependent on time. So they won't make a lot of money on people borrowing large amounts and keeping them out for a long time. But they will make a lot of money on people taking out smaller loans.

Oh, by the way, the average payday loan amount is between $300-$400, so credit unions are charging those people exactly the same amount as payday lenders for loans that size. Only creidt unions call their costs "fees" instead of "interest." And amazingly lawmakers don't seem to care...

So there are alternatives to payday loans out there. Why don't you go try them out. Go get a $300 loan from a credit union for 10 days and get a $300 loan from a payday lender for 10 days. One will cost you about $36.50, the other about $32.13. In case you're wondering, $36.50 > $32.13.

Cash advances are a quick, easy, and convenient way to get money when you need it.  Unexpected expenses can catch anyone off guard.  Sometimes those financial surprises come when you are waiting for a paycheck and don't have enough money in your bank account.

Instead of having to choose between skipping a payment (on whatever the unexpected expense may be) or potentially overdrafting your checking account, you have another option-a cash advance!  Overdraft penalties can be pretty intense.  Knowing that there are more options available can be a great advantage.

Check City provides this service and is always there to help when you need it.  To get a cash advance from Check City, just stop by the nearest location and talk to one of our friendly employees.  They will be happy to help and walk you though the process.  So, how does it work?  There are just a couple of main points to know before you come in:

• Write a personal check for the amount you need.  You will also need to add our standard fee to that amount.  Then, you walk away with cash!
• Check City will hold the check until your next payday or some other specified date
• There are three things you need to qualify for a cash advance.  You must have a steady source of income, a checking account in your name, and a state or federal ID.

Cash advances should be used for short-term financial needs and not as a long-term solution for financial difficulties.  We are here to help whenever we can and would love to provide this service.  However, Check City does promote responsible borrowing, and not all applicants will be approved.  Cash advances can be a major benefit and are an excellent option when you need cash fast.  

A recent article in the Columbia Chronicle just goes to show how misunderstood payday loans really are. Another example of biased journalism, the author expresses the worn out opinions that are so common among supposed 'consumer advocates.'

So let's take a look at some of these myths surrounding payday loans and debunk them, shall we? First, there are huge fees and rates for payday loans.

Paying $15 for every $100 borrowed is not unreasonable. That's 15% of the amount borrowed paid in fees. Try overdrafting from your checking account by only $20. You will be slapped with a $35 overdraft fee. By the way, $35 is about 175% of $20. Who's charging the unreasonable rates?

Looking at 400% APR is unfair for payday loans. Loans are meant to be out for only one pay period. That's a maximum of one month. At 400% APR, a one month loan would cost about 33% in interest when paid back. Most pay periods are two weeks, so that's only 16.5% in interest. Unreasonable?

Myth number two: payday loans trap people in a cycle of debt. The idea is that people take out another payday loan to pay off the first one. When that one is due, they get another payday loan to pay it off. The cycle of debt continues.

Payday loans are not designed to put anyone into a cycle of debt. They are deisgned to be paid back with your next paycheck. If you borrow too much, is it the fault of the payday lender or the borrower? If you can't pay back your loan with your paycheck, you should have borrowed less. Stupid is as stupid does.

That's not to mention that for every person caught in this supposed trap, there are dozens of borrowers who use payday loans responsibly who are not caught in the trap. Never hear about them in the news...

Myth number three: payday lenders target the poor, elderly and minorities. Payday lenders set up shop in poorer areas, thus enticing those who can't afford payday loans to use them and get caught into the debt cycle.

Let me ask a question- in what type of neighborhood are you more likely to see a Ferrari dealership? What type of people are likely to get credit card offers in the mail? What type of citizens are targeted by advertising from The Bellagio?

Anyone in marketing knows that each business and industry has a target market. Do we get mad when only people with good credit are offered credit cards? Are we mad at Ferrari dealerships targeting the rich? Of course not, that would be silly. Yet we are mad at payday lenders for trying to sell their products to those who need them?

Why would anyone with $10,000 in a savings account go borrow $400 from a payday lender? If they needed money, they would just take what they needed from their savings. Most wealthy people have a lot of money in reserves and savings that they can use in an emergency.

But who wouldn't have money in an emergency? The people living paycheck to paycheck, or in other words, poorer people. Basically, anyone without an emergency fund. Those people tend to be lower or lower-middle class. Minorities and migrant workers tend to fall into that category.

The target market for payday loans is what it is. That's just who needs the product. It would be stupid to market payday loans to Bill Gates or Warren Buffet, don't you think?

Final myth, and I quote: “The way the product is set up, people can’t pay off this loan in a very short amount of time." Spoken like someone with absolutely no idea how the product is set up.

There is a reason they are called PAYDAY loans....you pay them back on your next payday. You are essentailly paying a lender to give you a portion of your paycheck early. Fortunately, you don't have to pay for that service until after you have been paid.

I don't know of any lender who allows someone to borrow more than 50% of their monthly income. That way, even with fees included, the borrower is guaranteed to have enough in their next paycheck to pay back the loan. That's how they are set up, to be paid back in a short period of time.

Spreading lies and deceit is bad politics. It should say something to the public that payday loan critics are using "facts" that are based on myths to argue against payday loans. Lenders are combatting the lies with the truth, but legislatures just keep on trying to put lenders out of business.

We implore all lawmakers to examine how many people are helped by payday loans. Anything can be dangerous when not used properly, so don't use irresponsible borrowers as an example of a typical user of payday loans.

Washington states House of Representatives passed a payday loan law that has been called "a balance for borrowers and lenders."

State Representative Steve Kriby said the Bill "has been carefully assembled from parts of several bills we've discussed" in a House Financial Institutions and Insurance Committee.  The "several bills" is actually nine different payday loan measures.  The Committee heard testimony on the nine measures and Kirby stated, "The legislations we passed in the House early this morning uses the best parts of those bills to craft what I believe is on eof the best payday laws in the nation."

There are several aspects of the new legislation that is set up to help both the consumers and the industry.  Some of these aspects include: payday loans being limited to no more than 30 percent of a borrower's income or $700; customer right to an installment plan if they cannot pay off the loan outright-with three months to repay loans of up to $400, and six months to repay loans of more than $400; customers who are on an installment plan or in default on a loan could not receive a new loan; and implementation of an electronic system to ensure that these restrictions are being obeyed by lenders and borrowers.

The legislation is meant to be a compromise to provide security for consumers, but allow the payday loan industry to continue to provide services.  Kirby said, "Our goal in the legislation is to preserve payday loans as an option for people who have no other choice.  This bill helps consumers tay out of trouble if they need to use the product, and it makes it easier for them to escape trouble if they inadvertently fall into a cycle of revolving debt."

Later he points out that payday loans are sometimes the only choice for certain individuals.  A lot of people don't have the option to just reach into their wallet and use a credit card to take care of short-term issues.  Payday loans provide a service that banks and credit unions do not.  By creating legislation that satisfies lawmakers but enables the payday loan industry to provide a responsible borrowing option is essential.