Payday Loans Blog

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.   

Initial approval was given yesterday in South Carolina's Senate for a bill that would ultimately kill the payday loans industry.  The Senate subcommitee passed a bill, with a 4-3 vote, that would limit payday loans to 25 percent of the customer's gross income.  The bill would also require a seven-day waiting period between loans.  

The limit based on the borrower's income would basically disqualify the lower income costumers from getting a payday loan, which is a short term, high interest loan.  A similar bill was passed in the Senate last year that was very similar to the recent bill.  The House later killed that bill. 

Jamie Fulmer, a spokesman for the payday lending company, Advance America, stated his feelings regarding the passing of such a bill.  He said, "I think it will make it very difficult for any operator to continue operating in South Carolina."

There have already been several legislative measures to limit or restrict how payday loan companies operate.  Now, some in the Senate want to pass legislation that would require even more regulations and make it very difficult for any payday loan company to survive. 

Concerning more stict legislation, John Ruoff, research director for South Carolina Fairshare, stated, "We think this is a real strong approach.  If you're not going to ban them, then you have to regulate them heavily."  The very obvious problem with that comment is that, by "heavily" regulating the industry, to the extent that they are trying to, the industry won't need regulation for long, because it will die. 

The only thing a bill like this will do is eliminate hundreds of jobs and taking consumer freedom away from citizens.  Payday loans are available to those who want or need them.  Taking that option away is just limiting choice.  Regulations are already in place to protect some consumer rights.  Consumer advocates should be satisfied and payday loans should continue to be an option to those who need them.  

The Deseret News and KSL reported last week that a recent bill to cap payday loan rates was defeated by an 8-4 vote.  The bill proposed a rate cap of 100 percent annual interest to all payday loans.  

Rep. Laura Black, D-Salt Lake, was the one to sponsor the bill stating that too many people are unable to pay for high interest loans.  Her main argument is that people take out loans, but are unable to pay them back (due to the high interest), so they take out more loans to pay for the original one, leading to more debt.  Let's remember that, on average, the interest for a $100 loan is $20.  It's hard to believe that a person who took out a loan for $100 is unable to pay the interest of $20.  Payday loan companies work with the borrower and allow for monthly payments.  Saying that payday loans make borrowers go into more and more debt is ridiculous. 

Payday loan consumers are told in advance what the interest will be.  The guidelines of the loan is presented to them and explanations are given.  The consumer is able to make an educated decision, based on their circumstance to either take out a payday loan or not.

In many cases, payday loans charge less compared to fee for bounced checks.  If payday loans were to be eliminated all together, it would be challenging for those without credit to get any kind of a loan.  This bill to limit rates to 100% would put payday loan companies out of business.  Luckily, the commitee voted down the bill without much argument or debate.  Most payday loan companies, including Check City, encourage customers to be responsible borrowers.

Using data gathered between the years of 1990 and 2006, a study was conducted by Petru S. Stoianovici of The Brattle Group and Michael T. Maloney, PhD of Clemson University, to determine if there was a direct correlation between individuals who take out payday loans and those who file for bankruptcy.  The study, called, "Restriction on Credit: A Public Policy Analysis of Payday Lending," found "no empirical evidence that payday lending leads to more bankruptcy filings," and also create doubt on the apparent "cycle of debt" argument that many of the industry's critics site.

Three of the several basic findings were: 1. Payday lending does not lead to more bankruptcy filings, 2. The "cyctle of debt" argument against payday lending is not supported by evidence, and 3. Restricting payday loans harms consumer welfare, reduces access, increases cost. 

A lot of the current and past legislation that has been passed in favor of higher restrictions or elimination of the payday loan industry rests on the fact that payday loans do contribute to bankruptcy and a "cycle of debt".  But, according to this study's findings, those arguments are unwarranted and flat out incorrect.

An excerpt from the study states, "There is no statistical evidence to support the 'cycle of debt' argument often used in passing legislation agains payday lending...It is hard to make a principled argument that the consumer is deceived in a payday lending contract because it is very simple in terms of the cost and structure: there are no hidden costs."

This study very clearly indicates that the issues a lot of the payday lending industry's opponents have are not founded on facts or legitimate arguments.  Payday loans provide a helpful and trustworthy service for those needing it.  This study shows that critics have been presenting unfounded accusations agains payday loans.  Statistically proven, payday loans do not negatively affect consumers.  

A bill brought to North Dakota's House that would lower the maximum fees and lending amounts on payday loans was defeated on Tuesday by an overwhelming 88-5 vote.  The bill was looking to cut the fees from 20 to 15 percent, reduce the maximum loan amount to $250, and put a $300 limit on what an individual could borrow from a payday loan company.  The current limit is $600.   

Luckily, the House voted to defeat the bill.  The state currently has pretty strict regulations on the payday lending industry, and recognize the industries technology and policies on spotting borrowers that may be over borrowing. 

Ed Gruchalla, representative for Fargo, North Dakota, stated that the cost of payday loans are often cheaper than the overdraft fees that a bank charges.  This is particularly poingant due to the fact that there has been recent talks of plans to urge banks and credit unions to put these companies "out of business".  The ability of an individual to get a payday loan and then paying that loan back on their next pay check is a great benefit.  Instead of having a forced fee, they are able to decide what is financially best for them, and then make an informed choice to be a responsible borrower.

It appears that North Dakota representatives understand the needs of their citizens and are looking to encourage responsible borrowing instead of taking away viable financial options.  Enabling payday loan companies to continue a successful and helpful business is one way of showing this.  Excellent decision!

On of the big questions with the new administration is whether there will be new legislation restricting or completely getting rid of payday loan companies. This new administration portrays itself as a protector of consumer rights, and there is more concern about legislation changing the current industry.

According to Obama's website, the President is planning on demanding more disclosure from payday loan companies and institute a 36% cap on all American loans. This site also states that he will “encourage banks, credit unions and Community Development Financial Institutions to provide affordable short-term and small-dollar loans and to drive unscrupulous lenders out of business.”

First of all, I can't understand why the President would want to force a valid industry out of business. I would assume that the main goal would be to maintain current employment and encourage greater opportunities for employment, not to get rid of thousands of American citizen jobs.

Rates are high to make a profit. If they dip lower and lower, companies-not just payday loan companies-will lose money. Let's name a couple other industries and situations that have higher APR's: credit card companies, bounced checks, negative credit reports-thus high interest car and home loans, negative checking balance fees, etc.

The difference in these is that, while these APR fees are in the hundreds, like payday loans, they are levied upon people for having financial struggles. Payday loans are accepted by people freely, with a full understanding of what the fee is beforehand.

Payday loan services are available to those people who need small, short-term loans. There are available because of need. Outlawing that financial choice is just irresponsible. Perhaps the rates will be capped, I guess we'll see. But, encouraging legislation that will drive payday loan companies out of business is ridiculous, and is ultimately taking away a useful service and legitimate jobs.

In a story written by Roddie Burris for The State, in South Carolina, Rep. Harold Mitchell, a representative for Spartanburg, is fighting to prevent heavier restrictions being placed on the payday loan industry.

Last week the House passed a bill that would do just that. Mitchell is now giving information and reports to the Senate in hopes that the House is as far as the bill will go.  If it does pass, the bill would restrict borrowers from getting more than one loan at a time while allowing the amount of the payday loan up to $600, double the current amount.

While listening to arguments in favor of the bill, Mitchell states, “And there I was. I knew the majority of people using the industry were not those who are characterized as being victims.”

This is a huge argument for a lot of lawmakers who are trying to set greater regulations or eliminate the service all together. They say that the payday loans industry is “targeting vulnerable citizens”, but as Mitchell points out, that is just not the case.

Payday loans are a quick and convenient service. While they may not be the best option for some, they are the only option for others.  Companies like Check City encourage their customers to be responsible borrowers.  Taking away this service would only limit the number of responsible borrowing services.

Hopefully Mitchell will be able to show Senate members just how important payday loan services are and how they are a great benefit to the citizens in that area.