COUNTERPOINT: Reining in payday loans

Bill curbs Coloradans' freedom to choose

By Darrin Andersen

Published February 23, 2008 at 12:05 a.m.

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February 23, 2008

7:58 a.m.

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I_am_not_fooled writes:

Darren,
Your association and its members are nothing more than loan sharks. You prey upon the neediest of society and you exploit that need by asking them to repay a loan at an ever increasing rate of return if not paid on time. Let's face it, if those people had the money to repay the entire loan, they would have never borrowed in the first place.
Your organization found a loophole in the law and you have used it with the skills known only to carnival and street hucksters.
I cannot wait to see you and your members driven from existence in Colorado. You are nothing more than common THIEVES!
February 23, 2008

7:59 a.m.

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Mike_In_Hartsel writes:

When two parties enter into a voluntary contract why should the state get involved just because one party is taking advantage of the other? Nanny-ism pure and simple.

What the writer doesn't mention is most of these people seeking loans do so regularly because they can't control their own lives. They live for the moment, not tomorrow. Unfortunate but a reality. Most of these people can't afford the "vigorish" on the loan but ante up anyway. It's their choice.
February 23, 2008

7:59 a.m.

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greenleaf writes:

I have always felt that this payday loan concept with it's obscenely high interest rates was the poster child of predatory lending. In recent weeks we have read accounts in the Rocky of people using payday loans so that they can go gambling or to pay off credit card debt (probably minimum payments) or even make mortgage payments. Before long, they are taking out pay day loans to pay off other payday loans. Admittedly, these people should know better, but desperation and addiction often trumps common sense.

Darrin Anderson makes it sound as though the industry is providing a safety net for the poor and those in temporary need. If that were the case, he would find a way to make his business profitable with a far less usurious interest rate on his loans. Of course, he might have to rein in his own spending a little bit. In fact, maybe HE will need to take out a payday loan.
February 23, 2008

9:51 a.m.

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BW writes:

I think the mere fact that the Community Financial Services Association of America can pay the Rocky Mountain News to run full page ads about how wonderful they are tells you all you need to know about these so called loans. The obviously are making plenty of profit on these loans so that they can pay for full page ads and hire dozens of lobbyists.

This is not about freedom of choice. They are taking advantage of people with their back against the wall, with no other choice. And then, when they are in this situation, they take advantage of them time and time again as they get caught in the cycle of taking out a loan to pay off the previous one. If your business can't make money of an 45% interest rate, you should close your doors. Good riddance.
February 23, 2008

11:03 a.m.

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Bear80219 writes:

The people that call payday lending a loan shark business have never been in a position where they needed to take out a short term loan nor do they underrstand the concept of the loans. Payday loans are ment to be a short term option for people who can not wait until the next payday for the money that they need. The effective interest rate on these loans are 20% which is less that what some people pay in interest on a credit card yet no one says anything to a bank that offers cusumers credit cards at a 25% interest rate with a credit limit of thousands of dollars.
February 23, 2008

11:09 a.m.

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Bear80219 writes:

I current work for a local payday lender and I believe that payday loans are a cheaper alternative for our customers. Everyday I see peoples bank statements that show a negitive balance and the amount that the banks charge in over draft fees is far more than the cost of taking out a payday loan. What is going to happen to the single mom that cant pay her light bill until next payday if payda loans go away she will be forced to live in the dark until she gets paid because she has no other way to get the money. The people that are against this have never had to live pay check to pay check they dont know what they are really doing to the blue collar people of colorado.
February 23, 2008

11:17 a.m.

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Bear80219 writes:

The state has made efforts to regulate the payday lending industry by requiring lenders to offer a payment plan after the forth loan in a row this allows people the money that they need while insuring that they do not end up with a payday loan for more than two months. This I feel is a reasonable option that allows people the help that they need while helping them catch up their bills. Many of the employees of these lenders has themselves taking loans out with other businesses if these loans are so bad and the employees are consider loans sharks why whould they themselves get them unless payday loans were a reasonable alternative.
February 23, 2008

11:38 a.m.

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I_am_not_fooled writes:

Bear80219, I would be embarrassed to admit that I work for such an unscrupulous employer. Your argument lacks many facts, but not to worry as I am including a link to the National Consumer Law Center and you may see for yourself how predatory your employer really is: http://www.consumerlaw.org/issues/pay...

I am not fooled by you or your employer!
February 23, 2008

11:55 a.m.

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Brain writes:

I had to use one of these loans a few years ago because I of someone emptying my checking account just before my house payment was due; the late fee on my home loan would have been about $40.00 + a bad check fee of $35.00 + my bank charge for balanced check of $30.00; the potential of about $105.00; the loan cost me less than $40.00 and kept a domino effect from happening to my checking account. I was glad I had that option.

This law is a perfect example of nannyism!
February 23, 2008

12:09 p.m.

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coloradog writes:

I'm always amazed at liberals' argument against things they don't like. Rather than debate facts, they call the other side names like "greedy", "thieves", etc. The fact is the lenders obey the established laws and try to earn a living. Competition keeps anyone from making "too much" money. Regulation increases expenses so that price cuts are more difficult.

PDL charges are high mostly because of the rate of default. If lenders could charge less and make money, they would, as they would get more customers and make more money.

I operate PDL stores. I would love to lend money to my customers at a 10-15% APR. I would get to charge about $1 to make a $100 loan. Hmm, I just realized that I pay $2.00 to get my own money from an ATM. That's an APR of about 2,000,000%. Oh yeah, I have about $5.00 in bad debt on average for every $100 loan.

The APR of bad debts to the Industry is over 50%. The proposed law limits APR to 45%. This would mean more bad debt on every loan than the industy would get in revenue. So, no licensed lender will make this type of loan. Internet lenders based overseas will be glad to step in to make loans at whatever rate the consumer will accept.
February 23, 2008

12:32 p.m.

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I_am_not_fooled writes:

Sorry guys, but loan sharking is not an honest trade. Isn't it amazing that if you frame this topic just the right way, you can almost make it sound like you're trying to help your customers?
Oh, that's right you are helping them.....out of every last cent they own.
coloradog, if there were no limits on the APR for loans, you and your brethren would charge whatever the market would bare. When you have a customer whose back is up against the wall you can gouge him/her for almost any rate...and you know you would. All the while you would claim that it was necessary due to the high default rate. Of course, the high default rate is due, in large part, to your excessive APR rates and lending practices.
My, my, what a deceptive little web you have woven.
February 23, 2008

1:15 p.m.

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Bear80219 writes:

I_am_not_fooled, you say that if you frame the topic just the right way you can make it sound like we are helping customers isnt that the same thing that you are going framing your argumement to support your side and that link is a rather biased one if you ask me. I am going to take a guess and say that you have never had to decide which bills to pay this month because you couldnt pay them all or that you have ever had to live paycheck to paycheck or that you have a credit history which prevents you from borrowing money from a bank or getting a credit card that must be nice but what about those who dont have that luxury, how are you going to decide what is best for someone when you have no idea about what their situation is and does not have access to any other alternative? Payday lending isnt the reason for the finicial problems of colorado citizens its adjusted rate mortages that go into default and massive credit card debt. A payday loan is only 25% of your monthly income credit card debt is usually two or more times a persons yearly income. It is naieve people like you that make low income household situations worse and who are you or government to decide how and where people spend thier money you have never seen a P&L so do not try to say you understand the ammount of profit that we bring in, it is a much smaller precentage than you claim.
February 23, 2008

2:15 p.m.

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aclark writes:

I have been in the retail financial services industry for almost 20 years, working for a family owned business that provides competitive wages, great benefits including fully-paid health insurance, and a rewarding work environment. We offer payday loans as an option for customers who are looking for a short term loan. It's a competitive option when compared to other short term loans such as bounced check fees, overdraft protection or late fees. Our customers are educated, hard working people who choose payday loans when it's right for them.

What happens if they can't repay the loan? They can opt into a repayment plan, at no additional charge or interest, and pay the loan off over time. What happens in the case of a defaulted loan? There is a $25 fee... that's it... period. No additional interest accrues, we do not take customers to court.

Look at the facts. Stop the name calling and look past the sensationalized headlines. Compare the cost of a payday loan to other forms of short term credit, and you'll see that it's competitive. Don't let the APR fool you... would you rather pay $50+ in bounced check fees to your bank and merchant, or would you rather borrow $100 for $20 and maintain a good credit history with that same bank and merchant?

Rather than eliminating payday loans, which the current bill under consideration (HB1310) will do, urge your legislators to approve regulation under which Colorado citizens continue to have regulated payday loans as a choice for short term credit.
February 23, 2008

2:21 p.m.

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coloradog writes:

I_Am_not_fooled - Glad to see you don't let inconvenient things like facts and competitive markets influence your view of the world. Keep up the good work. What kind of business do you run, by the way, to have such a knowledge of how to make money? I'd love to get into that business, as there is obviously unlimited demand and no competition to keep prices down.
February 23, 2008

5:46 p.m.

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Mello_D writes:

For those of you who want to debate the facts like I_Am_not_fooled, maybe you should do a little more research about what those facts really are. Compare Payday lenders fees to fees banks charge for overdraft and NSF fees as well as credit cards. The interest rate when figured based on teh same time frame as a payday loan is FAR higher! Should possible discontinue allowing banks to charge these fees? Shoudl we regulate the interest a credit card company charges?
Whether or not you think a payday loan is a good option or not it should be a persons right to choose to use that option rather than have the option taken away altogether.
As Americans and Colorodans we have the right to chose to terminate a pregnancy which is a far more weighty decision, but the government thinks we are not able to make our own financial decisions!
Rather than eliminating payday loans, which the current bill under consideration (HB1310) will do, urge your legislators to approve regulation under which Colorado citizens continue to have regulated payday loans as a choice for short term credit.
February 23, 2008

8:41 p.m.

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freethinker07 writes:

In the 1920s the standard payday loan by independent operators carried an interest rate of 20% a week. The consumer loan industry was regulated to set a maximum rate of 36% a year, but this really did not drive the independent operators out of business. They started operating under the auspices of organized crime.

When someone is desperate for money, e.g. no cash and two weeks to go until a pay check, they will either borrow money or they will commit a crime to get the money. These loans are very risky for the lender and very expensive to administer. High fees/rates are necessary for the lender to make a profit.

Thirty years ago, when I was working for a consumer finance company, we tracked a customer to Estes Park where he was working under an assumed name. He came in and explained that he was not going to pay off his loan. He owed several banks and small loan companies. He also owed the mob. He had defaulted with everyone. The banks and small loan companies wanted to sue him. The mob wanted to kill him. He asked me not to share his address with anyone. I wrote off the loan and wished him luck.

The payday loan companies are very expensive. But they are much less a social blight than loans from organized crime or making poor people reliant on petty theft to make it to the next paycheck.
February 24, 2008

11:58 a.m.

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anderson writes:

The usual collection of outrageous claims which makes me wonder if the writers are just blinded by arrogance or they think we're all very stoopid. Freethinker's takes the cake. Without payday lenders, people will resort to crime? Any other options out there, like maybe borrowing money from friends or relatives? Or, (god forbid) not buying something you don't need? Naw.

Payday lenders in their present form did not appear until about a decade ago. How people managed to survive before then is beyond me. We musta had a crime wave.

Note how the industry, and several posters here make the absurd claim that a payday loan is an alternative to late payment fees--as if a late payment fee is a choice.

(Customer steps up to bank teller):
Desparate: "Um, I'm kinda in a bind this month. Would you please charge me a late payment fee?"

Teller: "Psst, if you go over to All-American payday loans, they can set you up so you can make your payment to us on time--this month anyway.

Desparate: "But that would put me even more into debt"

Teller: "Look, buddy, I was just trying to be helpful. Besides, debt is the American way".

I am not fooled makes all the relevant points.

Those who are in the industry, let me be frank: your business is first, last, and always about taking advantage of people in a vulnerable position. You are a blight in our communities. Just my opinion.
February 24, 2008

4:08 p.m.

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Mello_D writes:

Let's break it down for those of you who have never experienced the need for extra cash to take care of your basic financial obligations!

People living paycheck to paycheck (there are many in the US unfortunately) do sometimes have things come up such as a car that breaks down or a child that gets sick and needs medical attention. If in these situations they take care of the child or the car so they can continue to get to and from work, they are then short of cash to pay their regular bills.

If they go into overdraft or have checks return unpaid at their bank they end up paying up to $38 per item and some banks even charge them an additional per day fee for each day they are in that overdraft situation.

If they pay their regular bill late they end up paying late fees.
There are many people out there that DO have to make a choice of what they do and don't have money to pay and one of these choices results in late fees. They make a choice of what they can and can't pay and by doing so they choose to pay a late fee.

I have been in this situation myself in the past and it was NOT because I was buying so many things I did not need.

If the situation could be remedied by taking out a short term loan for an average of $17.50 per $100 in Colorado, they ultimately pay less than many of their other alternatives!

Not everyone has friends or family in a position to help financailly and many people prefer to be able to take care of their obligations independantly. Some are embarassed to ask others for money as well.

It's easy to "preach" about how the payday loan industry is the problem when you have never had the need for one. Is it possible that there could be other underlying causes to why people need a loan? Low wages, no health insurance, predatory credit card companies who practically beg consumers to open another credit card account, sub prime mortgages that now consumers are unable to pay as the APR adjusts....I could go on and on!

Internet payday lenders are unregulated and will still offer loans regardless of this bill. They are able to charge whatever they want!

I am not fooled makes many "points" but none are "relevant" or based on fact. If some of you would take the time to educate yourselves about what you are writing about the facts will speak for themselves!
February 24, 2008

5:05 p.m.

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anderson writes:

Unbelievable. You want to us to think you're a borrower and you somehow benefit from payday loans? If you really think so, and are not some kind of industry plant (they wouldn't do that kind of thing, would they?) then you have a fundamental problem in understanding how to use money.

Spare us your cock and bull about the "facts". I wasn't born yesterday, and, yes, I've been through hard times. No, there weren't any payday lenders around and yes, we managed without them.

Here's reality: you're in a financial bind--for whatever reason. Payday lenders invite you to come to them instead of making the hard choices you would have to make otherwise. And at the end of the day, you're in even more debt, without dealing with the things you should have dealt with before. I'll get my act together tomorrow. Months later, tomorrow still hasn't come. But Mr. payday lender, like all loan sharks, is still there waiting to take his cut. And you keep bleeding.
February 24, 2008

5:21 p.m.

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anderson writes:

Let's break this down:

1. Your credit card payment is $100. $39 fee if not paid on time.

No payday loan, you now owe $139 (plus if you have a balance whatever extra interest accrues).

You get a payday loan, you have to cover the $100 + 17.50 or you now owe $117.50--a big whopping savings of $22. Of course, that assumes you get the loan only for the amount you need to cover your other debts, and not for an extra $20 in your pocket (no one would do that would they?). It also assumes you apply the entire amount of your loan to your other debts and don't use it to pay for anything else (no one would do that either, I'm sure). These savings also assume you never roll over your loan. Since we are taking the position of the crook, we can tell in you all honesty that people don't roll over their loans.

2. Your credit card payment is $300. $39 fee if not paid on time.

Without payday loan, you now owe $339 to the bank.
With payday loan, you now owe $381 to the pay day lender ($300 + $81.50).

A loss by going to the payday lender, even without the prospect that you might later roll it over.
February 24, 2008

8:37 p.m.

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Mello_D writes:

Wow, if your payment is $300 you must be into that credit card about $15k! Of that payment over $200 is going to interest charges every month. I guess you can't pay the balance in full, right? You must have bought a lot of stuff you didn't relly need to have a balance that high! You are essentially "rolling over" with your credit card payment when you do not pay in full every month, just like a payday loan! You are paying about $7.39 every day on that balance! Maybe we should cap what credit card companies can charge too!
Just like it is your choice to use your credit card, it shoudl be my right to choose other alternatives. You have a right to your opinion, I just want to preserve my right to choose!
Payday lender also offer 2 types of payment plans that split the balance owed into 4 to 6 payments for NO ADDITIONAL charge. No additional fees unlike credit cards!
February 24, 2008

10:30 p.m.

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kathyM writes:

Subprime lenders are loan sharks, too.
February 25, 2008

5:06 a.m.

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dnvreader writes:

Ban them already !
February 25, 2008

2:07 p.m.

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raysmom writes:

Why are we paying politicians to punish market-based small businesses? Should we ban car dealerships that give high interest loans to high risk buyers? Should we close all the pawn shops? The market will bear what it will, and business owners can only stay within those constraints if they want to stay in business. Small businesses pay the lion's share of the taxes in this country, and the payday loan places must have very high risk return and overhead. They pay taxes on their earnings, like everybody else. They provide jobs. They serve the communities that CHOOSE to support them. This is just an obvious ploy to appeal to the politically correct left that does not understand supply & demand and market economics. It's obvious, do-able, and widely seen as making gov't the good guy- the protector of the weak. Baloney! If these institutions charge more than the market can bear, or outlive their usefullness, they will go out of business on their own merits, not because of suppression of their right to exist and make a living.
February 25, 2008

2:41 p.m.

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Defend_Freedom writes:

Translating payday loan fees into an annual percentage rate tells you nothing about how profitable the loan is for the lender - because it ignores the lender's cost of making the loan - and it tells you nothing about how wise the transaction is for the consumer - because it ignores what other alternatives are available to him in his particular situation.

Of course some people get themselves into trouble with payday loans. Every good thing can be misused and the misuse of cars, wine, pharmaceutical drugs, high-fat food and desserts cause a lot more harm to society than the misuse of payday loans by people who can't resist the temptation to borrow money which they should know they won't be able to pay back. That is not the lender's fault, and the people who use payday loans wisely should not be punished because of it. In some cases payday loans save lives, save families with children from being evicted in the dead of winter, and that option needs to be there.

A number of academic studies have shown that payday loans are a valuable financial option, the latest being a study by researchers from George Mason University and Colby College which found that "access to payday loans in their environment, all else fixed, increases a borrower's probability of financial survival by 31%." See http://www.foxbusiness.com/article/re...

Consumer protection should be about curbing deceptive advertising, not telling merchants and service providers how much they can charge.
February 25, 2008

2:58 p.m.

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anderson writes:

Access to payday lenders increases chances of financial survival? Complete horsepuckey. I see the industry does, indeed, have their operatives here, as well as in higher places like Geo Mason.

Ray's mom asks, why should we punish these businesses? Because they're crooks. It's legitimate to punish crooks, right? Is the concept of loan shark too difficult to grasp? It's not like they and their ways haven't been around for hundreds of years. And now we give them the honorific, small business? They do nothing to serve the community notwithstanding the few who work in the business. All they do is draw blood from those who are already bleeding.
February 25, 2008

4 p.m.

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raysmom writes:

How are they crooks, anderson? Do they lie to the people who utilize their services? Is the concept of a market based system too difficult for YOU to grasp? Do you advocate closing or regulating ALL businesses that YOU deem not honorable? Where does that lead? Gov't control of all business? You ignore the fact that these places CREATE JOBS and PAY TAXES and PROVIDE INSURANCE FOR EMPLOYEES, and really do provide a service. If they didn't, who else would provide funds for your bleeding victims? Do you advocate more redistribution of wealth by gov't? Business by it's very nature succeeds when necessary and functional. And can you support your contention that there is corruption in the research studies that support these businesses? No, of course not- you just pooh-pooh and insult those who are more knowledgeable or who seek to become so- you're just a knee-jerk ideologue who interjects emotions instead of intelligence- much like the gov't that leads you around by the nose.
February 25, 2008

4:33 p.m.

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Defend_Freedom writes:

Anderson, is the concept of libel difficult to grasp? Loan sharks are people who use violence to collect on loans, which payday lenders certainly do not. Anyone who refers to payday lenders as loan sharks can legitimately be sued for libel.

The researchers at George Mason University and Colby College have no affiliation with the payday loan industry.
February 25, 2008

4:51 p.m.

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anderson writes:

I don't know what they say within the four walls of their business to their customers, but you can see industry reps on this thread, and in their full page ad, and in their letter to the editor all make lies. Yes, they do. Unfortunately, some won't comprehend.

Still can't figure out what's wrong with loan sharking, eh? Don't know why usury was a sin in the Western world for hundreds of years or why it's still a sin in the Muslim world? Or why we have consumer protection laws today?

If you don't know why payday lenders, are crooked, or at least can't figure out why someone would call them crooked (see rest of this thread), then it's basically invisible to you. Out of sight, out of mind.

Another raving, preaching "free" market ideologue who looks at reality through a narrow lense. You're all over the place, ready to justify looting or any other form of chicanery at the drop of a hat.

Say a few words, and they're ready with a ton of rhetorical arguments in rebuttal to nothing you said anything about.

Corruption in the research? of course I can't prove it without seeing the research. Actually, I don't even know if the claims made about the research are true. But I have studied a little about consumer finance, and if it says what is claimed, well, I know bs when I see it. I guess you have to first believe that money could ever influence research.
February 25, 2008

4:52 p.m.

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rdamurphy writes:

Wow, it's amazing to me that no one pointed out that a payday "loan" usually has an APR exceeding 500%. It's true, go to Advance America's website, it has them on display at 521% APR.

And why do you have to scroll 6 feet to the right to read this article???
February 25, 2008

4:55 p.m.

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anderson writes:

From my dictionary:

Loan Shark: (informal) "A person who lends money at excessive rates of interest; usurer".
February 25, 2008

4:56 p.m.

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anderson writes:

rdamurphy: I find that a refresh usually solves the problem, and sets the text right.
February 25, 2008

5:37 p.m.

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rdamurphy writes:

You are correct, sir, thank you.
February 25, 2008

5:43 p.m.

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Mello_D writes:

I would also suggest there may be "plants" as you call them from other industries on here who would benefit financially from payday lenders giong out of businesses! Banks maybe?
This is about having the right to choose and by essentially elimionating these businesses the government takes away that right. I agree with raysmom and defend_freedom, the market will only support businesses when a need is there and htese businesses do not use violent tactics to collect. In fact they offer many options for people to make payments on their loan so they are able to not get in a cycle of debt.
I don't want the government telling me what I can and can't do in regards to this kind of thing!

From Wikipedia, the free encyclopedia
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A loan shark is a person or body that offers illegal unsecured loans at high interest rates to individuals, often backed by blackmail or threats of violence. They provide credit to those who are not willing or are unable to obtain it from more respectable sources, usually because interest rates commensurate with the perceived risk are illegal.

In much of history, usury laws made loan sharks commonplace. Many moneylenders skirted between legal and extra-legal activity. In the western world in recent years, loan sharks have been a feature of the criminal underworld, but otherwise rare. Loan sharks are common in the Italian American Cosa Nostra and Triads in Hong Kong.

There are many registered and legal lenders that lend to people who cannot get loans from the most mainstream lenders, such as large banks. They often operate in cash, whereas mainstream lenders increasingly operate only electronically, which means that they will not deal with people who do not have a bank account. Terms such as subprime lending and "non-standard consumer credit" are used for this type of lender. Payday loans are one example of this type of consumer finance. The availability of these products has made true loan sharks rarer, though some authorised lenders have been accused of behaving in an exploitative manner.
February 25, 2008

6:09 p.m.

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Defend_Freedom writes:

Usury is a religious concept which originally meant the charging of any interest whatsoever on a loan, as any money earned without physical labor was deemed to be sinful. Today, not wanting to give up their bank interest and capital gains, moralists such as Anderson define usury as charging "excessive" interest on loans and feel that they are the ones who are qualified to judge what is excessive and what isn't.

Suppose someone comes to you and says, "I have an emergency and need to borrow $100 until tomorrow when I get paid. I can't borrow from a credit card because I have bad credit, but I do get paid tomorrow and will pay you back $101." Now how enthusiastic, Anderson, would you be to risk losing $100 lending to someone with bad credit for just $1 profit? Not very enthusiastic, I suspect. But if you felt sorry for the guy and agreed, by your own standards you would be a usurious loan shark cause that's a 365% APR.

And that scenario doesn't even factor in the cost of making a loan professionally, which includes rent, utilities, database checking, employee time, and compensating for defaulted loans.

This just goes to show what I wrote before, that the APR of a loan tells you nothing about how profitable the loan is for the lender or how wise the transaction is for the borrower. The APR only has value as a comparison tool, that if the borrower can borrow at a lower APR with all other factors being equal (i.e. he doesn't have to drive halfway across town to a credit union, in which case the inconvenience and cost of gas will offset the advantage), he might as well do so. But most payday loan borrowers cannot borrow at a lower APR so payday loans are, as the study showed, a valuable financial option.

But unfortunately people who are just looking for a target to criticize and don't want to admit they were wrong, ignore facts.
February 25, 2008

7 p.m.

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anderson writes:

You guys must have a got an e-mail telling you to jump on this issue. You all know way too much. But that doesn't prevent you from shucking and jiving on the issues.

If someone came to me and said he needed $100 right now, and couldn't wait until tomorrow, I'd probably tell him, yes you can. If he went to a payday lender in Colo. they are charging an avg of $17.50 per $100 per Mello. So why come up with your false twisted scenario about a dollar?

The APR tells me all kinds of things about the wisdom of the loan. That's why the Truth in Lending act was passed. If you think 27% APR on your credit card is high (yes, that is way too high), go to a payday lender where you can pay 300% or 500% APR. The payday lender, the shark in a suit says don't pay attention to any of those figures, you'll have your loan paid off by next payday. Of course, many times the loan isn't paid off, or if it is, the borrower takes out another loan, in effect extending the period of the loan. You see the payday lender is relying on the fact that people will roll over their loans or will come again. Why? Because they market exclusively to the desparate and financially vulnerable.

Where do you find payday lenders? Nice suburbs and shopping malls where financially astute people are pining to use their wonderful "services" as described above. Noo, They're in every poor part of every blue collar community in America--preying on the vulnerable.

Anyone ever get a live check? I have. That's where a lender will send you a check in the mail for, say, $3,000. You don't have to cash it. But if you do, you have a loan for $3,000 at, say 32% APR.

The lenders know that if they send out 500 of these checks that x% (let's assume for argument's sake 10%) will cash that check. Those 50 people will be the most financially vulnerable around--people who cannot resist cashing it--even though they know it is a really bad deal.

The payday lender operates on the same principle. He knows if he plants himself in a poor community, there will always be a certain percentage of desparate people there who will walk in his door and take the worst kind of financial deal. Get a bunch of these loans going, and you have a lot of poor people, and a rich payday lender who works to keep them poor.
February 25, 2008

7:04 p.m.

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anderson writes:

So you don't break legs. How do you guys collect when someone doesn't pay. Turn them over to a collection agency who specializes in that sort of thing? Take them to court and garnish their wages?
February 25, 2008

10:34 p.m.

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Defend_Freedom writes:

If you're looking to criticize you could also say that doctors get rich by preying on the sick...

Maybe the government should tell every doctor how much he can charge. Then they can tell every lawyer and baker, and also stipulate the amount of fat that can be in each donut because people who can't resist the temptation make themselves obese and then ill by eating one donut after another. Our elected officials will love it cause they get to control everything and have all kinds of people trying to influence them.

That's why this country was founded on the idea of inalienable rights and a free market. If the free market should work anywhere it's in the field of small loans, because so many people can enter the business with so little expertise or equipment. If the price of small loans is currently higher than it should be that's simply because of 1) the usury laws which prevent banks and other lending companies from competing in the business, and 2) the libelous attacks on payday lenders which discourages new people from becoming lenders.

If you want to help people who can't resist the temptation to borrow more money than they can afford to then lobby the government to provide counseling and no-profit loans to them; go into the business yourself and charge less if you think that can be done; but don't trample on the free market and the rights of consumers to decide for themselves which products and services they wish to avail themselves of. The government is supposed to be the servant of the people, not the parent of the people.
February 26, 2008

10:09 a.m.

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Mello_D writes:

Payday lenders are located exactly where you think they aren't as well as the communities where you say they are! Look around and you will find these businesses in Greenwood Village, Westminster, near Cherry Creek etc!
When customers can't pay the loan or the check returns after it is deposited lenders typically set up reasonable payment arrangements with the customer. The company I deal with does not turn customers over to third party collectors unless they basically refuse to communicate or make any payment for more than 90 days.
Defend freedom is right...we should have the right to choose!
February 26, 2008

12:07 p.m.

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wow writes:

I don't use payday lenders, primarily because I know it would be hard for me to use them RESPONSIBLY. But that's my problem, not yours, not my government's.
What it breaks down to is that regardless of whether these lenders are ethical or not, it is ultimately up to the consumer to decide if the service is wanted. The government doesn't need to protect me from my responsibilities, and the idea that they would wrench just that much more liberty from me is galling.
February 26, 2008

12:52 p.m.

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anderson writes:

Yeah, it appalls me too when I have consensual sex with a 16 year old, and the state just wants to wrench that good thing from me. Or the car I sold on loan to the 20 year old down the the block--can I help it if he doesn't know how to deal? But there is that mean old state--trying to wrench my liberties away from me again. They had the gall to make me give the kid back his money. And all this lender disclosure crap--whoee--APRs and all that they made me read when I bought a house--that claimed I could have saved thousands but all I know is the state cost me an extra half hour in the realtor's office there.

I still haven't got over that seatbelt thing, or why they make me take my car to the emission inspector every three years. And when my wife got sick last spring after we ate at that restaurant--someone told the state--probably her damned sister, and the state started nosing around and asking questions. Don't they know I can take care of my own responsibilities?
February 26, 2008

10 p.m.

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Mello_D writes:

Get over it anderson! Having sex with a minor doesn't even compare to what this is about. You're so locked into the sensationalist crap you spew you can't even consider you might not have the whole picture. Go live in Russia or another contry where the government controls every aspect of peoples lives. Maybe you'll find hapiness!
February 27, 2008

12:01 a.m.

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peterpi writes:

Say I'm living paycheck to paycheck. My car stops working, and I need $300, so I go to the friendly local payday lender who, out of the goodness of his/her heart will give me that $300, provided I pay $350 in two weeks. Two weeks come by, and gee, I've got medical bills, house payments, etc. No problem! Pay $50 and the $300 will be due in two weeks. Same scenario, no problem! Pay $50, etc. At the end of 6 weeks I finally pay off the $300 plus $150 in interest (Let's call it what it is). Years ago, 50% interest on a 6-week loan would have landed people in prison. Now we call it respectable. They're loan sharks plain and simple preying on mainly poor people (Come on, people who live in Greenwood Village can go to their banker or financial advisor) who find themselves in a bind. I hope the bill becomes law.
February 27, 2008

2 p.m.

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Mello_D writes:

People in Greenwood Village, Cherry Creek, Westminster and many other areas like them use the services of these businesses for their own reasons, some of which are that they are fed up with the lack of service and the hidden fees at banks. It is their CHOICE to make and not yours or the governments!
February 29, 2008

2:32 p.m.

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Grant writes:

This country needs to wake up!
Industry critics have dismissed these steps as "window dressing." They argue that no matter what steps the industry takes to help customers make educated choices, payday lending should still be banned.
Why is it that because a small percentage of the borrowers are making bad decisions, we all have to live without payday lending? I use payday loans responsibly, as do all of the people I know who use them. And why is the government making this decision for us? I don't remember seeing any of this on the ballot! Democracy, remember? Here is an article showing the benefit of payday loans:
Payday lenders are the perfect target for politicians that want to seem compassionate. After all, a $15 fee on a two-week $100 loan amounts to an APR of 390% if the loan is rolled over for a year (accruing $15 every two weeks). What could be more evil than charging poor people 390% interest, right?

A recent study by the Federal Reserve Bank of New York suggests otherwise. As reported in the March issue of Reason Magazine, the study found that the citizens of two states where payday lending is banned "bounced more checks, complained more about lenders and debt collectors, and filed for Chapter 7 bankruptcy more often"1. Comparing payday lending to other options, the Community Financial Services Association of America noted that a $100 bounced check garners a $54 fee (equivalent to 1409% APR) and a $100 credit card balance can garner a $37 late fee (equivalent to 965% APR). As the study's authors write, "Forcing households to replace costly credit with even costlier credit is bound to make them worse off".

And this is what Reason magazine had to say about payday loan bans:

Reason, March 2008, Page 10-11, Katherine Mangu-Ward

“A new report finds that banning payday lending, makes customers worse off.”
“Authors Donald P. Morgan of the federal reserve and Michael R. Strain of Cornell University found that the citizens of those states (the states where payday lending is banned) bounced more checks, complained more about lenders and debt collectors, and filed for chapter 7 bankruptcy more often. The correlation between reduced payday lending and increased credit problems, they write “contradicts the debt trap critique of payday lending, but is consistent with the hypothesis that payday credit is preferable to the substitutes such as the bounced –check ‘protection’ sold by credit unions and banks or loans from pawn-shops.”

There is undeniable proof that payday loans are a helpful tool, so we should keep them. If there are idiots who do not want to be educated and want to keep giving their money to payday lenders, well, I guess that is their right as an American citizen!
March 3, 2008

4:57 p.m.

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NDeeZ writes:

Can we please just get away from the 'take a loan and pay it off this Friday' argument?

I don't have the figures at my fingertips (I'm not an industry shill) but I'm guessing the greater percentage DON'T pay it off in a coupla days, but keep rolling it over.

If those of you who are defending the PDLs will stop using the best-case scenario, I'll do my part to stop using the worst case scenario.

And my guess, while I'm at it, is that your customers from Cherry Hills, Greenwood Village etc have maxed out their cards and are overdrawn at the bank--they're not there on a principled stand against the traditional banking industry. Bad financial decisions cut across ALL economic strata.
March 5, 2008

1:38 a.m.

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Defend_Freedom writes:

"Years ago, 50% interest on a 6-week loan would have landed people in prison."

Years ago, slavery was legal in this country...

And it isn't 50% interest, because when someone "rolls over" a payday loan they are taking out a new loan to pay off the old, so they have borrowed twice as much.

Look at it from the lender's point of view. The person took out a loan which he promised to pay back in two weeks upon his payday, and when his payday arrives not only doesn't he pay back the entire loan but in rolling over the loan he doesn't pay back a single penny, only the fee which he agreed to pay in addition to the principal. Naturally at this point the lender wants to charge whatever in fees he can to hopefully recover the money he lent out. It will take five or six rollovers for the lender to recover just the principal, which doesn't include his cost in making the loan or processing the rollovers.

If a person has a genuine emergency then there should be a government agency which he can go to for quick help. The problem is that there isn't and that's why it's very important that the payday loan option be there. And if someone is just spending irresponsibly then the high fees he pays by rolling a payday loan over again and again is just the inevitable trouble which irresponsible people encounter, from which they learn to be responsible.
March 5, 2008

12:43 p.m.

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Lala writes:

It is asinine to attach an APR to payday lending. There is NO APR. Payday lenders attach what is called a FEE to their loans. If you own a payday lender $125 today, in 12 months you will still owe them $125. It does NOT increase as it would if there was an annual percentage rate attached to that. If you can create an APR out of payday lending then there should be APRs attached to ALL fees associated with anything. For example, your bank. Ever notice how they attach fees to everything? If you have an account with Wells Fargo. You overdraw your account by 3$. You notice the mistake and move money in to cover the 3$ within 14 hours of overdrawing your account. Wells Fargo will charge you $34 for that mistake. Since that is a FEE, not unlike the FEE attached to payday loans, let's calculate the interest rate on that. For a 3$ loan, for 14 hours, Wells Fargo has changed an interest rate of $1,133%. Now, let's figure the APR for this 3$ loan: A loan from Wells Fargo, for 3$, for 14 hours has an annual percentage rate of OVER 708,000%. Yes... let's restrict payday lending. That's the brightest idea I have heard in years. Oh yes... want to know actual loan sharking and 'hidden' fees: mortgage brokers and back-end fees.

Let's not get stuck on stupid people.

Home › Opinion › Speakout

COUNTERPOINT: Reining in payday loans

Bill curbs Coloradans' freedom to choose

By Darrin Andersen

Published February 23, 2008 at 12:05 a.m.

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