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Think tanks call for law to limit interest

By David Milstead, Rocky Mountain News (Contact)

Published February 14, 2008 at 12:05 a.m.

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Two think tanks are calling on the legislature to adopt a law limiting the annual interest rate on payday loans to 36 percent.

The Center for Policy Entrepreneurship collaborated with the Bell Policy Center to issue a report Wednesday on payday lending, the industry that offers short-term loans at high interest rates to customers who need money before payday.

Working with data from the Colorado attorney general's office, the two groups said that in 2006 Colorado borrowers took out an average of nine loans with an annual interest rate of 353 percent. Almost two out of three payday loans were either refinanced loans or loans given to a borrower the same day as the previous loan was paid off, the groups said.

But Darrin Andersen, president of the industry trade group Community Financial Services Association of America, said, "Millions of payday advance customers nationwide appreciate having the option and fully understand the fee associated with the service."

Comments

  • February 15, 2008

    1:20 p.m.

    Suggest removal

    GaryColorado writes:

    As a representative of the payday lending industry, I believe it is critical for people to understand that prohibiting payday lending would only force consumers to use the other, more costly short-term credit products available, such as overdraft protection, late fees on credit cards and other bill payments and off-shore Internet lending.

    In Georgia and North Carolina, where payday lending was also effectively banned, a Federal Reserve Bank of New York Staff Report found that bounced checks, personal bankruptcies and complaints about debt collectors jumped significantly when consumers no longer had the payday loan option.

    In addition, no one is offering any alternatives to payday loans. To date, almost all of the attempts to create payday loan alternatives have either been charity-based, required government subsidies, unavailable to the general public, unprofitable or unsustainable.

    I hope legislators and community members will look carefully at the serious reforms instituted by payday lenders to protect our customers and ask themselves if banning our industry without providing people with any alternatives to short term credit is really the responsible thing to do.