Payday loan overkill

Lawmakers should give last year's bill a chance to work

The Rocky

Published March 4, 2008 at 12:05 a.m.

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March 4, 2008

7 a.m.

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VVVV writes:

I see this as a thinly veiled way to push the poor out of Colorado. More bankruptcy and foreclosures will force those people to leave for places that are cheaper to live, increasing the density of wealth in our state. It's just the other way to continue economic growth when people aren't flocking here in droves. No state senator or representative really cares about the poor. They only care about more money in the coffers, and will try to produce it will every bill they write. The impression of concern is a great way to spin forced bankruptcy into a palatable excuse for cutting off security to those who need it most.
March 4, 2008

7:51 a.m.

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angka writes:

Payday lenders practice what used to be called usury. It's an unconscionable business model that depends on desperate consumers to willing entrap themselves in a cycle of loan-shark interest rate debt.

There are more payday lenders in CO than McDonald's now. Doesn't that tell you something is very, very wrong?
March 4, 2008

9:20 a.m.

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st1kak writes:

The legislature needs to seriously consider whether now is the best time to pass HB 1310, which according to this editorial will in effect hand tie the families that need it the most during a time of an economic recession. I am worried that if I find myself in a point that I need help I will have no place to turn if this bill is passed. Maybe there is a better option then just taking the easy route and closing a legal business.
March 4, 2008

9:29 a.m.

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Vito writes:

"There are more payday lenders in CO than McDonald's now. Doesn't that tell you something is very, very wrong?"

Um, no.

I don't even understand how these two items correlate. You've compared an entire industry to one company. Are there more payday lenders than fast food restaurants in Colorado? Perhaps more germane to the subject, are there more payday lenders than banks? Does it even matter?

The free market is a self-correcting mechanism. The fact that the number of locations of one business arbitrarily outnumbers another is irrelevant. All it means is that the market supports that amount of a particular business.

And if this type of business model is so "unconscionable," wouldn't it stand to reason that consumers would become hip to the chicanery thus driving these charlatans out of business thereby reducing the number of locations?

Payday lenders fill a banking need for a segment of the population. It serves as a short-term credit option for those underserved by other financial institutions. When these options are no longer available, citing the evidence mentioned above, bad things follow (bankruptcies, bounced checks, FTC complaint calls, etc.).

If you don't like payday lenders, don't use them. That's the beauty of a free market. However, now is not the time to limit people's options and remove a legitimate (and apparently popular) option for consumers given the uncertainty in our economy. According to this editorial, a bill passed last year correcting the major problem with payday lending in the past - falling into a cycle of debt. As said above, the current bill is overkill. Let the current law do its job

To close with a metaphor I’ve always found useful: There's no need to wear both a belt and suspenders to keep your pants up.

I think that's what this bill aims for. I hope the legislature realizes this and keeps all banking options available for the people who need them.
March 4, 2008

1:17 p.m.

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Achilles writes:

Excellent post, Vito.
March 4, 2008

1:56 p.m.

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stuckiniowa writes:

Besides - McDonald's endangers your health with basically everything on the menu (although the fries are "to die for.") I have yet to see Check Into Cash, or any of the other licensed payday loan businesses threaten anybody with bodily harm.
March 4, 2008

2:16 p.m.

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LOUIE writes:

Payday lenders are extremely predatory; the complaints were skyrocketing and most of the complaints were thier own customers. I am sure the mob argues they serve thier customers well at 500% intrest on loans, especially using this lame authors excuse they couldn't get help elsewhere! They couldn't get help so this idiot thinks it's okay to run them to the dirt, since he's thier only option. They preyed upon those who could least afford it, the working poor; these people were desperate, and the loansharks honed in on it. Whoever wrote this article doesn't have a clue to what the truth really is. Sell that bowl of ice cream elsewhere. Nationwide, look at the number of thier customers who generated these complaints; government had no choice, but to crack down on them. Service to thier customers? The payday lender was able to collect up to 500% intrest, the only good to be said about them is they didn't break your knees when the customer defaulted. They just rolled the intrest into a greater debt when the customer couldn't come up with the vig, thus creating a bigger debt to collect upon. When the customer couldn't afford the original amount, the payday lender was tickled to create more revenue by this terrible practice. They buried many of thier customers who could least afford it. Isn't that what the mob used to do, prey upon the finacially desperate? Sell this lie to someone else! Thier own customers brought this pressure, the writting was long on the wall for all to see. The government had no choice because of the sheer volume of consumer complaints coming in nationwide, most from these clientele this idiot claims to serve. Soon, because of the collateral being a finacial instrument (a check drawn on a bank), I expect the federal banking commission will one day step in, if the states don't act on thier own to reign this industry in. They preyed upon the poorest among us, since a person of finacial solvency would never enter into such a desperate agreement that perpetuates even greater debt by rolling the vig into the principle. Gangsters in sheeps clothing; thank you to the government for cleaning this rapidly expanding preditory practice of the affluent upon the working poor. The Attorney General has had the payday lender on his radar almost since thier inception; he just had to gather enough complaints from the people, couple it with an investigation into thier practices, before acting to protect the people. As far as the arguement of giving the people another option, the payday lender gave them a bigger finacial encumberment than they started with. Financial suicide was his option, as it ruined many people that the author of this article carefully omits from mentioning occured.
March 4, 2008

2:49 p.m.

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Vito writes:

LOUIE said,
"...I expect the federal banking commission will one day step in, if the states don't act on thier own to reign this industry in."

http://www.rtoonline.com/Content/Arti...

This references a report done by the Federal Reserve Bank in New York about how payday lending is, in fact, not predatory.
March 4, 2008

3:44 p.m.

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Achilles writes:

"Payday lenders are extremely predatory; the complaints were skyrocketing and most of the complaints were thier own customers." - LOUIE

Interesting comment. I like the use of the word "predatory" to describe an industry that loans money to willing consumers.

It seems to me that the true predator is the consumer who walks into one of these establishments, requests a loan, signs a contract promising to repay the loan with interest,receives the loan, then complains to the government when he decides that the interest rate was too high.

Did the lender bash in the door of the consumer's house and force him to take out a loan?

The only way a lender can be called predatory is if it did not honor its contract. I have not read anywhere that that is the case. So, any laws or regulations that crack down on these lenders will simply result in less loans to the people who want it the most.

In my honest opinion, the true predators are not just the consumers but the politicians who demagogue on this issue.
March 4, 2008

3:55 p.m.

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COissues writes:

Vito you wrote:

"The free market is a self-correcting mechanism. The fact that the number of locations of one business arbitrarily outnumbers another is irrelevant. All it means is that the market supports that amount of a particular business."

I would THINK about taking that argument seriously if the payday lending industry existed in a truly free market. Our CO law gave this industry their own rules in 2000, so it functions in a special niche of the market. There is no product that can even begin to compete with payday loans, because they are the only product that is allowed to exist with a 350% APR. So your response could be, "well, let's just take all restrictions off and then it will stabilize itself." No...it wont. That's what happened in Arizona and the APR on payday loans was 500-600%.

Our state passed special laws for this industry that permitted it to charge usurious rates of interest. Now it's time for our policy-makers to pass more laws that protect Coloradans from the abusive lending practices they ushered into our state.
March 4, 2008

4:04 p.m.

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LOUIE writes:

Vito, respectfully,10 states have outlawed payday lending as predatory; several are capping the percentage of intrest. Here in Colorado they are allowed 540% annual intrest rate. This ungodly intrest is being charged to the poorest in our community. Vito, do you think 540% intrest is fair to charge military families in need, single mothers, poor families, okay; I don't. Read the extensive report written by the Dept. of Defense on payday lending practices and thier affect on military families. Real patriotism to financially prey upon those who put thier lives up for our country. Any wonder that you see them located predominatly around military bases, or poorer neighborhoods, they know where to hunt. However the states have thus far won every legal battle by proving thier case of predatory lending. The government placed a cap on the amount of intrest they can charge to protect the consumer. Several states are now enacting laws to reign them in as consumer complaints are fueling the legislation. No bank can charge 540%, thus the banks have gotten quite cozy with the payday lender hoping to reap a financial gain from thier practices. See one entity is heavily regulated, the other had free reign; thus a relationship evolved between the two. The payday lender is crying because he can't gouge the poor anymore, thier crys have been heard. Vito, just because a man's a junkie doesn't make it justified for me to be a dealer; or better stated: just because someone is poor, or on a fixed income, doesn't make it right for me to charge them 540% intrest because they have a financial problem. Are they helping thier client, or helping themselves? It's not just Colorado, it's almost every state that is taking action. Yeah, 540% is a great deal, especially when the lender knows borrower has little option but to accept this great intrest rate. I'm a businessman, would you pay 540% Vito? I think your smarter than that Vito. But just in case your not, we have consumer protection laws that will hopefully prevent a predator from taking unfair advantage of you. Since the use a check as collateral on a cash loan why shouldn't they be governed under the same laws as a banks are? Oh, I guess they couldn't survive, and thier current cozy relationship with the banks would end since the 540% intrest would be illegal. Got to love the rollover at that intrest rate, eh? If I was the lender at this intrest rate, I'd pray you couldn't pay me off! Don't worry I'll roll it over for you.
March 4, 2008

4:27 p.m.

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Vito writes:

Louie and COissues:

I respectfully disagree with both of you.

A business is allowed to charge whatever it wants for its product. This is basic economics. If a business charges too much for its goods and services, customers will seek alternatives. If it charges too little, it doesn't make enough to survive. The supply and demand will ideally set the price point automatically. If that happens to be at the rate you claim, then it's impossible to be angry. Another victory for your collge microeconomics professor!

Payday lenders compete with traditional banks, credit card companies and a multitude of other institutions in offering their products. The industry does not exist in a vacuum. Customers who seek payday loans know the risks going in as the choices with the fees next to them are displayed on large menu boards not unlike any fast food establishment.

Another issue I take umbrage with is measuring payday loans in terms of APR. The APR on a payday loan is irrelevant. A payday loan is a flat fee based on a two week borrowing term. Chaining out this fee and assuming missed payments requires a rather large leap in logic and ignores the vast majority of customers who use these loans responsibly and pay them on time. APR does not pertain to them.

COIssues: I agree that special regulations were passed in 2000 for the payday loan industry given that the business was still in its nascent state. However, in 2007, HB 1261 passed (as mentioned in the editorial above) and rectified many of the problems with the so-called cycle of debt. We haven't given it a fair shake to see if it works. It would be foolish to jump the gun to pass a law eliminating an industry that services so many. Only a fraction of payday loan customers ever have a problem.
March 4, 2008

4:45 p.m.

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COissues writes:

And I respectfully disagree with you.

1. Using APR to assess payday loan costs is valid because these loans are rarely one-time loans. Data from the Col. AG's office says that borrowers take out an average of nine loans per year. Also, two-thirds of all loans are "refinance-type" loans, which means they are loans taken out either as rollovers or the day their previous loan is paid off. The vast majority of loans made are extend the borrower's debt, not to help them through emergencies. These loans are long-term and APR is warranted.

Also APR is used to measure the costs in a way that is comparable to other loans. How else can people assess the true costs of these loans? We have to be able to put them into perspective.

2. HB 1261 gives borrowers a way out once they are already in debt. It does not PREVENT them from getting into debt. On a $300 loan, that means the borrower will have already paid $360 in fees(3 loans with a rollover on each) or even $180 (3 loans without rollovers) before they are even offered a way to pay off their loan. To me, this isn't fixing the problem, it is band-aid legislation.

Also, the regulators from the AG's office have said that they've found a lot of lenders are evading the payment plan by a variety of loopholes. They close the borrower's account after they use it, to create a disincentive to use the plan, or they don't let borrowers have out 4 consecutive loans by mandating a "cooling off" period between the 3rd and 4th.

3. These loans are predatory in that they charge usurious rates of interest to desperate people. This is NOT the kind of "credit" people need. Yes, it might help them through the very first emergency, but what about the 2nd or 3rd? Isn't it harder to get through an emergency when $120 a month is being funneled to your local payday lender? Yes, it is. Payday loans are not short-term credit, they are long-term debt.
March 4, 2008

4:55 p.m.

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LOUIE writes:

Vito, I read the Rent-To-Own site you gave; I am not fond of rent to own corporations. I took the time, but I disagree to thier definition of predatory. Several organizations representing minorities have spoken out against payday lenders. The site you gave was a rebuttal to thier arguement. It's not hard to find a credentialized academic to offer an opposing view to any viewpoint given. I am glad however, that you brought this site to my attention, because it touches on another subject not mentioned. Several prominent representatives, and national spokesmen, from several minority comunities have come together to oppose payday lenders as predatory on thier communities. Just another nail in thier coffin. If it were not for the fact they prey upon the weakest in our society with the highest intrest rates, I would not object. The poor, regardless of nationality or race, are thier target. In essense those of the least means are paying way to high a price. If it weren't for thier financial status of poverty, they would not have to be paying 540%. If your targeting the least in our society with the highest rates is that not in itself predatory? Your poor, you need medicine, and have little or no money, if you want the money, pay me 540% annual intrest and I'll help you. Thank God we have laws or the mob would surely rule.
March 4, 2008

5:11 p.m.

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Achilles writes:

"These loans are predatory in that they charge usurious rates of interest to desperate people. This is NOT the kind of "credit" people need." - COissues

You made some good points in your post about repetitive loans. But, I am not sure about the comment above.

If those loans are not the type of credit that people need, why are people taking out those loans?

And, if the government restricts the interest rate, do you not believe that less credit will be available? What would you replace that credit with? Government loans?
March 4, 2008

5:54 p.m.

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roger44 writes:

My Son was discharged a few years ago from the Army, They did fine on his paycheck with wife & Child, made some decent money, free housing & utilities. I don't see where people think military men & women are so needy. Pawn shops are limited as to interest, why not payday lenders?
March 4, 2008

6:32 p.m.

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LOUIE writes:

Right on point Roger; the payday lender wants to operate without limit on intrest charged. Unlike a pawn where value is set upon property as collateral, and a set amount of intrest, the payday lender's collateral is a finacial instrument, and he sets the amount of intrest beyond an acceptable legal rate since he has no cap. The payday lender's greed has come home to roost since he was unable to control or police his own greed. If you default with a pawnbroker, he doesn't care. The pawnbroker has legal limits set by law as to how much he is allowed to charge. Tell a payday lender you default on your check! Secondly, a pawnshop is highly regulated by laws well established; payday loans are relatively new on the scene. The payday lenders don't want to have restraint on thier intrest/fees like the pawnbroker has. If he were governed under banking laws he would collapse since he is not allowed to abuse the client financially. Lastly, having been in the military, they don't pay squat compared to the cost of living in the private sector. If you live on base, yes you can survive. The medical benifits are great. The truth is many of the lower enlisted men with families are being swallowed up in debt. Thus a Dept. of Defense study showed many of our lower enlisted personel have fallen into the predatory lending cycle created by the payday lender. So much so, the D.O.D. has asked congress to step in on the issues of the payday lenders practices. A pawnbroker doesn't enslave the client to endless spiral of financial encumberment like the payday lender. The payday lender set up shop targeting the least able in our society with his uncontrolable greed; now the states are standing up for the least of thier residents. Somebody has to protect the people from the unchecked greed of this type of lending practices. It sad, but if the government doesn't police this industry, it won't do so itself. If they didn't police loansharking, how many more would be hurt? It's who they targeted, and how the treated them, that has cause the people, and the government, to turn on them and issue laws to regulate them.
March 4, 2008

11:25 p.m.

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peterpi writes:

The editorial says a person can roll over a loan four times before last year's bill kicks in. A poster in a different editorial says the payday loan rate is typically $17 on every $100 of money borrowed. So after 4 rollovers, a $300 loan can incur $200 in fees (we dare not call it interest). No matter how you slice it, a 67% rate on $300 in principal is usurious!
The AG is a solid Republican. Yet even he has spoken out against payday lenders. If they can't live with a %45 interest rate, there's something wrong with the way they do business.
And, yes, payday lenders are predatory.
March 5, 2008

12:11 a.m.

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aclark writes:

If the issue is the cost of default, shouldn't the legislature change the default fees? They're only $25 now, and interest does not continue to accrue once a loan goes into default.

SB1310 will take the choice of payday loans away from consumers, because the allowable fees will not cover the cost of doing business. How do you know a payday loan price is competitive? Compare it to a bounced check, overdraft protection or late fees. Calculate an APR on those fees and you'll find it's much higher than a payday loan. Also, don't assume that if someone takes out multiple loans in a year that they are consecutive. That's not the case. In addition, customers can opt into a payment plan. They are given a document that tells them they're eligible which they must sign to acknowledge they know they have this option. Why not allow the payment plan on any loan instead of waiting four loans? There are consumer protections that can be added to the law without eliminating the industry. If this law passes, it will cost more to buy a latte at Starbucks than to borrow $100 for a month. That's not a viable business model. Pass a law that makes Starbucks reduce their fees by 81% and they'll close up too.

And can we discontinue the name calling? Let's stick with the issues, not the sensational rhetoric that simply gains attention and reinforces stereotypes without facts.
March 5, 2008

3:22 a.m.

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Defend_Freedom writes:

The "annual percentage rate" of a loan (APR) tells you nothing about how profitable the transaction is for the lender - because it ignores his cost of making the loan - and it tells you nothing about how wise the transaction is for the consumer - because it ignores his other alternatives. The APR only has meaning and validity as a comparison tool between *available* alternatives, i.e. if you can borrow money at a 15% APR using a credit card then that is wiser then borrowing at a 390% APR using a payday loan.

But most payday loan borrowers are people who simply cannot borrow from a credit card, or any cheaper source, because they just don't have good credit. A payday loan may be their only saving grace in an emergency situation, or it can just be the least stressful and/or expensive alternative when otherwise there will be utility shutoffs and reconnection fees, bounced check fees and terminated bank accounts, credit card late-payment and overlimit fees, etc.

Yes, some people use the service irresponsibly and get themselves into a mess, but that is true of every good thing in the world and we don't abolish good things just because some people misuse them. People only learn to be responsible from the messes they get themselves into by being irresponsible.

A small-dollar, short-term loan *must* have a high APR because of the high ratio of the cost of making the loan to the amount being lent, and to seek to ban short-term loans because of their high APR - when most people who use them do not have a lower-APR alternative - is to apply a statistical tool in an invalid way to the detriment of the people who benefit from the loans and the people who earn their livelihood supplying them.

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. Usury laws are a "tradition" which belong with the "tradition" of slavery.
March 5, 2008

7:17 a.m.

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LOUIE writes:

Assuming everything you've said is true, why then has thier customers, the people, the military, minority spokesmen, the attorney generals of several states, the courts, want to cap thier intrest rates or like 10 states make them illegal? I guess these people are wrong in thier assessment. No, I think they need to be regulated further to protect the least in our society from thier unethical practices. The government is being swamped with complaints on payday lenders from every sector. Academic opinions are just that, an opinion, just like yours or mine. The sheer volume of complaints have made it quite clear the people want the government to regulate thier industry further. The academic community can be quite wrong, just like you or I. If they are so benificial why of all the lending industries are they the one most despised? When you profit off people misery to the extent they do, and you call it an option, I too have a problem with this. Why not loan money on thier organs to be harvested upon death, that should be considered a valid option too. I am sure the poor will use it if it's thier last resort, and we can solve the organ donor shortage. Can I find somebody with extensive academic credentials to support my opinion? Sure, just like I can find a prostitute on Colfax!
March 5, 2008

7:30 a.m.

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Achilles writes:

LOUIE,

Since COissues has not answered my questions, I'll try you.

If those loans are not the type of credit that people need, why are people taking out those loans?

And, if the government restricts the interest rate, do you not believe that less credit will be available? What would you replace that credit with? Government loans?
March 5, 2008

7:40 a.m.

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vudumom writes:

Are we going to eventually have to bailout Payday Lenders?Their system is set up for consumers to fail to repay loans.They can't afford something in the first place ,so they go to payday loans.Some people can handle these fine.Alot of people once again will fail to realize what they are signing and getting into.
Regulation is needed.Interest rates should be capped.If they are allowed to do business without any regulation then they are no better than the loan sharks that go to jail.It's the same thing.If Payday loans are allowed to do business without any regulation,then the government needs to release from prison anyone convicted of loan sharking,unless they broke someone's kneecaps or something.At least they should drop all loan sharking charges.
March 5, 2008

9:43 a.m.

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badgov writes:

Everyone who's talking about 400-500% interest on a payday loan needs to get there head checked. No one pays 500% interest. They pay a fee to get cash that they don't have $20 on every $100.

When the consumer doesn't pay off the contract they don't keep getting charged more interest. They simply just have to pay off what they borrowed + the $20 fee.

I love how all of these foam at the mouth libs are chiming in like they have a clue as to what the hell is going on. My take on it is go ahead and pass it and get all of these idiot democrats out of office, because this will have an overwhelming affect on our economy.

$100 Payday Loan = $20 fee.
or the alternative if HB 1310 is approved------------
$NSF Fees on a $100 = $58 or more depending on how many bad checks

HB 1310 Passing = More NSF Fees, 2,000 Lost Jobs, Higher Forclosure Rates, Consumers with less discresionary income.

Go ahead and pass it and all those customers that use payday lenders... which must be more than customers that use mcdonalds (give me a break) will have all of the people that voted for this bill to thank.

Pass HB 1310 and voters will be livid over the huge dip in our economy, just ask Georgia or North Carolina.
Democrats will lose their seats in Colorado.
Priceless!
March 5, 2008

11:08 a.m.

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COissues writes:

John_II,

Why are they taking out these loans? There are many reasons:

1. They are the most heavily advertised form of lending in the state. Since there is NO competition among payday lending products in this state (since they all charge about the maximum allowed fee), advertisement, location, and customer service are the only ways in which they compete. There is no doubt they are appealing places.

2. Anonymity. There is no credit check and no invasion of privacy. Someone who is already over their head in debt to other lenders can go into a payday loan store and get a loan, no questions asked. OF COURSE people like this- they aren't held accountable to their previous debts.

3. Most people who use these loans are in desperate situations. They live paycheck to paycheck and this is simply the EASIEST (not the ONLY) way to get immediate cash. The only thing I would think about if I had immediate medical bills to pay for my children was "I need money now." Not the long-term consequences of this.

Where would they go instead?

Well, where did they go before 2000? There was a study from UNC that surveyed a random sample from a population in NC that is of an income level and demographic that is likely to use payday loans. Now that they are illegal in NC, where do they go? Friends, family, advances on their paycheck (from their employer), employer loans, overdraft fees (which I know are not great, but the fees ARE better than the fees on payday loans in CO), advances on credit cards, and the list goes on. In the same study, a focus group of previous payday loan borrowers said that they are most definitely better off with out them. One woman even said payday loans are like "rape."

Also, the FDIC and the National Assoc. of Credit Unions are launching programs to facilitate payday loan alternatives in their branches. There are at least 4-5 credit unions in CO who are already offering these alternatives to their members at MUCH lower interest rates, and with accompanying financial counseling and debt management.

And finally, there is another kind of state regulated lending in this state! Why do we not see it around? Because the payday lenders have saturated the market so heavily that they have been pushed out. No, this is not because of demand, it's because they are national branches with the pre-existing funding to advertise more aggressively than the small, locally owned small consumer lenders in this state. These lenders charge a much lower interest, have a 6-month loan term, and have a maximum of loan amount of $1000! Of course people would use this if there was room in this state for these lenders to move in. Payday lenders need to be reigned in by our laws in order to make it a more level and fair playing field for other lenders.
March 5, 2008

11:50 a.m.

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Achilles writes:

"They live paycheck to paycheck and this is simply the EASIEST (not the ONLY) way to get immediate cash. " - COissues

Your post was one big contradiction. First you say they do not need this type of credit, then you list reasons why they do need it. First you say there is no competition, then you state there are competing credit union alternatives.

You also stated that a valid replacement for these types of loans are "Friends, family, advances on their paycheck (from their employer), employer loans, overdraft fees (which I know are not great, but the fees ARE better than the fees on payday loans in CO), advances on credit cards..."

Well, if that is the case, what is stopping them from using those alternate sources of money right now?

I also find it odd, and not a little disturbing, that you provide an anecdotal quote from a woman who described payday loans as "rape".

Rape is a brutal act in which a man forcefully and violently sexually attacks a woman. The victim did not asked to be raped. In fact, the victim makes attempts to fight off her attacker.

In order for payday loans to be equivalent to rape, the woman would have to freely walk into the man's house, remove all her clothing, get on the bed, ask the men to have sex with her, get dressed, leave the house, and yell "No, no! Please stop! See you next month."
March 5, 2008

12:38 p.m.

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LOUIE writes:

Okay, head check done Badgov, please go to the Federal Trade Commission site: www.ftc.gov/bcp/conline/pubs/alerts/pdayalert.shtm and read. It will help you understand it a little better. JohnII, I don't know why anybody would use a payday lender, except that they are desperate. Should they be allowed to take full advantage of thier borrowers poor finacial condition? No, I believe in the option being available, on this point we agree. We differ on a cap on fees/ intrest. Thus I believe the option should be available, but the lender has become quite greedy in his practices. Why do people go to a loanshark? Desperation, no bank will touch them. Same with a payday lender, they don't compete with the bank. The bank doesn't want this customer as thier credit is shot. So the payday lender comes in like a loanshark and buries the borrower and beats him finacially at terrible cost to his advantage. I understand the payday lenders desire to keep this cash cow going, but is it in the best intrest of the consumer? We all have computers here, type in payday loans and read the horrors they have committed on the public nationwide. These are not isolated occurances, volumes of cases are documented. Believe me when I say the owners of payday loans don't want it to end, they are reaping fortunes at the expense of those who can least afford it, the down trodden. The mob has done this for years. Denny McLain was charging 150% when the government nailed his morgage business in St. Petersburg back in 1986-87. His partners were the Gambino crime family of New York. Why did people use Denny's morgage company at 150%? It was thier last stop, nobody else would touch them. It was a mainstay of the criminal world to take finacial advantage of those who couldn't get a loan elsewhere. You see payday loans don't compete with anybody, no financial institution would touch thier clients. So they, like the mob, knowing this fact extract the most they can get out of a desperate client. They hurt a lot of people. The payday lender is different but equally as predatory in that you bury the client to thier advantage. The payday lender has done what the mob has done for years, difference is they are legal. Mob holds your marker, they hold your check. Can't pay me, no problem we'll roll it over. Now the government is stepping in and placing a cap on them, they're crying because they are being regulated.
March 5, 2008

1:05 p.m.

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Achilles writes:

"JohnII, I don't know why anybody would use a payday lender, except that they are desperate. Should they be allowed to take full advantage of thier borrowers poor finacial condition? No, I believe in the option being available, on this point we agree. We differ on a cap on fees/ intrest." -- LOUIE

So, you believe the option should be available yet do you not believe that less of that option would be available if interest rates were capped?

"The bank doesn't want this customer as thier credit is shot. "

Hence the high interest rates. Payday loans are available because interest rates are much higher than bank loans. If you cap interest rates on risky loans, less loans will be available.

"Why do people go to a loanshark? Desperation, no bank will touch them."

We keep coming back to this point. There is a reason no bank will touch them. The borrowers are too risky. The only way to compensate for their risk is to charge very high interest rates. Again, if you cap the interest rates, less loans would be available.

Also, your comparison to loan sharks misses one major aspect: contracts. If you go to a loan shark and verbally agree to certain lending terms, there is nothing stopping the loan shark from arbitrarily raising the interest rate simply because he can. But, even in payday loans, contracts are enforceable by the government. If both sides agree to a contract, neither side can legally break the contract.

But, back to the main point. Try not to get your logic caught up in the weeds of emotion. You keep referring to the "down trodden", desperation, and greed. Yet, you cannot change any of those aspects. Regulating interest rates may seem like the morally correct thing to do, but that very action makes it even harder for the "down trodden" to escape their troubles.
March 5, 2008

1:57 p.m.

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LOUIE writes:

As I said, go online and type in payday loans, you will see nothing but horror stories, states making it illegal, courts ruling in favor of the attorney generals, etc. If it's such a great option, why would so many entities along with the people be lining up against it? I have been respectful to answer your questions and debate on topic, please indulge me with a few answers. If it is such a great deal, why are so many states taking action to cap thier fees and regulate them? Why are so many of thier customers complaining to the government about thier practices, if they are truly serving the client's needs as you say? How many complaints nationwide has this industry recieved, and how many should there be before the government takes action?
March 5, 2008

1:58 p.m.

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Defend_Freedom writes:

It is true that competition in the loan business is stifled by the usury laws which payday lending was appropriately exempted from a few years back. But the answer to that is to get rid of the usury laws, which are essentially theocratic in nature, not to repeal the exemption.

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 and, or course, one *should* love other people as oneself and give, if not lend, them money free of charge. Today, not wanting to give up their bank interest, capital gains and savings accounts, moralists - or people who want to be seen by themselves or others as unselfish and try to attain that by accusing others of being selfish - define usury as charging "excessive" interest on loans and maintain that they are the ones who are qualified to judge what is excessive and what isn't.

There is no legitimate reason why the cost of loans should not be governed by the same law of supply and demand which governs the cost of other goods and services and is the basis of our supposedly free-market economy. 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 capital, expertise, or equipment. But the free market has been interfered with in the field of payday loans, as the libelous criticism of payday lenders (such as their being called loan sharks when loan sharks are people who use violence to collect on illegal loans) and the specter of prohibitive legislation discourages new people from entering the business. Also remember that the balancing of supply and demand is a process which takes time. When a product or service which is needed, but has been repressed, is suddenly allowed, there is a huge demand and providers will naturally set prices high initially. Then, in the absence of libelous criticism and politicians using a deceptive and invalid argument (high APR) to try to ban the product, more people will enter the business and prices will come down somewhat. Nevertheless, as I wrote before, a small-dollar short-term loan will always have a very high APR when compared to other types of loans. If any credit unions are offering payday loans at a double-digit APR then they are simply being charitable or are losing money for public relations purposes, because such loans cannot be profitable.

Now it is true that some people have legitimate emergencies which entice them to take out one or more payday loans which they simply can't pay back or even make payments on, but their troubles are not the fault of the lender if he has advertised the service clearly and has not violated any provisions of the Fair Debt Collections Act. Those people do need help, and by all means the government, in my opinion, should help them - but not by clamping down on freedom and banning the payday loan product which many people do use to good effect.
March 5, 2008

2 p.m.

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Defend_Freedom writes:

And to address some other issues which have been raised, the fact is that there are extremely few consumer complaints made about payday lenders, and many of the complaints which have been made to state agencies have been induced by "consumer activists" telling people that they have been ripped off because of the high APR, which again is simply a distortion of the facts.

And note that when someone has rolled over a $300 loan four times and paid $200 in fees, they have not paid $200 for a $300 loan. They haven't paid anything for the loan, which they haven't even repaid. The lender has lost $100, plus his costs in processing the loan and rollovers, and he is now prohibited, if there is a 4-rollover limit, from charging any significant additional fees to recover the money lost. If the borrower should make a complaint that he is being ripped off by the lender who made it "too easy" for him to borrow money, at that point, he is like a rapist accusing his victim of getting him into trouble because she tempted him by wearing a short dress.
March 5, 2008

2:07 p.m.

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LOUIE writes:

Wikipedia gives them a great definition; libel is putting it mildly.
March 5, 2008

2:16 p.m.

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LOUIE writes:

Hey, just for kicks, go to: www.en.wikipedia.org/wiki/Payday_loan. You won't believe how they defined the business.
March 5, 2008

2:24 p.m.

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Achilles writes:

"If it's such a great option, why would so many entities along with the people be lining up against it?"

Because there are many bleeding hearts who do not understand basic economics.

"If it is such a great deal, why are so many states taking action to cap thier fees and regulate them?"

See above. Politicians do a lot of things that sounds good but actually harms the very people they intended to help.

"Why are so many of thier customers complaining to the government about thier practices, if they are truly serving the client's needs as you say?"

It is in people's nature to complain. The simple act of complaining means nothing in terms of right and wrong. People also complain about the cost of gasoline, should the government control gas prices?

"How many complaints nationwide has this industry recieved, and how many should there be before the government takes action?"

Who is actually doing the complaining? If you truly do not like payday loans, do not take a loan from payday lenders. It is that simple. You still have not acknowledged this point. All the complaints in the world are meaningless if customers keep using the service.
March 5, 2008

2:45 p.m.

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LOUIE writes:

JohnII, just for a minute please read: www.en.wikipedia.org/wiki/Payday_loan. Read the whole piece and tell me what you think. I read it and never realized Georgia has outlawed it for over 100 years. Apparently, it's not as new as I thought. It's interesting to read up on for sure. Tell me what you think after reading it, I just typed it in for the hell of it and was quite supprised. I think I'll research it more. Thank you for the debate, and especially for being skilled at keeping it civil and informative!
March 5, 2008

7:45 p.m.

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badgov writes:

If you are in favor of this bill, I only want you to answer one question truthfully. Please no B.S.

What is the NSF Fees on a $100 Bad Check?
How much is the fee on a $100 Payday Loan?
Which one is higher?

That is all you need to know.
From my understanding in the state of Colorado
NSF Fees on a Bad Check = $50
Payday Loan fee = $20

Does your bank disclose those overdraft fees in the form of APR?

Think about it.
March 6, 2008

5:58 a.m.

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LOUIE writes:

If you bounce a check on them for (N)one (S)ufficent (F)unds, yes there are charges. If , out of desperation you write a bad check to the lender, he uses the the law to pursue you. The NSF Fees would be higher. See the problem is the lenders fee is charged every two weeks. If at the end of the two week loan you can't pay the principle, he rolls you over by having you write a new check for another loan. When you keep adding intrest every two weeks, in Colorado it adds up to 480% intrest over a year. Over two thirds of the loans are rolled over in Colorado, because his clients are so poor and desperate, they are unable to pay off thier loan. Thus the cycle begins leaving the borrower in an even worse position than when he first came to the payday lender. If at the end of this cycle the borrower can't pay off the loan, unlike the pawnbroker who doesn't care because he is collateralized with property pledged, the payday lender pursues check fraud against the borrower. This is a very predatory practice. You see the payday lender argues the overdraft protection fee are greater, however most of his clients are so poor that the bank doesn't extent overdraft protection to this type of client. The bank gives overdraft protection to it's better established clients, who most likely would be able to secure a loan from the bank at a standard APR under 20%, not 480% as offered by the payday lender who is taking advantage of the fact the client can't get a loan elsewhere. I have a limited education as I didn't go past the 8th grade, I was a ward of the state growing up. What we need is somebody with an accounting background; I had my two accountants explain it to me as some years ago I was going to do both check cashing as well as payday loans. Instead I stuck with the businesses I knew, I didn't feel comfortable after it was presented to me. The other thought I felt was sure to happen is that the state would eventually step in on the business with banking laws to regulate the payday loan business since some state made them illegal because of thier conflict with the states banking laws. That why some payday lenders circumvented the states banking laws by using an out of state bank as explained on the Wikipedia cite. If I have to fight the people, the state, and one day perhaps the federal government to do business, I don't care how much profit thier is, it's not worth it. Secondly, it could possibly place my family's other businesses in a pinch because of the nature of thier business. You really don't want to fight the law enforcement community, or the state, to do business. My family is extremely wealthy and maintains an excellent rapport with both. We have always took the high road and listened to thier concerns, it's better business. Even if it's legal to do, the law enforcement community, and the local and state governments opinions weigh heavily in my family's decisions. They are the last people I am going to get in a pissing match with.
March 6, 2008

7:48 a.m.

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badgov writes:

LOUIE,

With all due respect you are misinformed.

First you say:
If at the end of the two week loan you can't pay the principle, he rolls you over by having you write a new check for another loan. When you keep adding intrest every two weeks, in Colorado it adds up to 480% intrest over a year.

You are wrong there. The way Payday Lenders are currently legislated they can only charge you 20% on ea. payday loan. So lets say for instance you have a $100 loan, you simply have a $20 fee. Payday lenders can charge you no more than that even if the customer doesn't pay back the loan until 3 years from now.

Unfortunately where it gets complicated is where the payday lender must by federal law disclose the APR on their fee, which ends up being on average two weeks. This usually ends up being something like 400-500%. But that amount of interest is never charged on one loan.

Lets say for example you have 3 $10,000.00 loans on 3 different cars at %10 APR. What is your avg. APR on your car loans? The way many people whom support this bill are explaining it to you that would be 10%/loan on a $10,000 loan *3 = 3,000.00 interest on a $10,000.00 loan = 30%.

That is wrong and misleading to the public reading this article. The interest is actually 10% that is it. I have been hearing this whole debate that people are paying around 535.00 just in interest on 360.00 loans. That is not true. They are paying 535.00 interest on (7) 360.00 payday loans. 7*360= $2,520.00.

The public is not getting the full truth as to what is actually going on here. As far as people continually rolling the loan over that is also untrue. In Colorado you can only roll the loan over once by state law and then it must be paid in full before another loan is issued.

Now, is that still a higher interest rate that is being charged. Well concidering how wealthy you are, I am sure you are probably not used to seeing those types of interest rates. The avg payday loan customer unfortunately must pay those rates because they are such a high risk loan because they have already exhausted all of their lines of credit due to poor money management and banks won't even look at them. So who can they turn to now?

Family? Sorry, in all likelyhood their family is not as well off as yours is. They can't just walk in the door and ask for $500 and it suddenly appears on the table. This is a viable service for them which the state appears to be taking away from the public all due to incorrect and uninformative figures. Oh well, too bad. I guess that revenue will now have to leave the state and end up oversees in someone else's pocket. Because now payday loans in Colorado will be from unregulated online lenders.

Badgov
March 6, 2008

12:41 p.m.

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LOUIE writes:

Lets not forget if he walks away totally from the loan that he can't pay, then he gets charged with check fraud. I guess the law is his tax-free enforcer. Sure beats knees huh? If the intrest is structured as you say, 10%, why fight the cap which allows greater intrest than the 10% your stating? No pal, they enslave the client. Two thirds of his clients are rollovers because they can't pay it off. You can't compare a car loan to payday loan. No need to cap a 10% loan, but that's not the case. Read up on it a little more. If it were 10% why are they fighting the cap? Yes, my family is wealthy, we came from very humble beginings. We didn't do it on the misery of others. Today we give considerable sums back, we raise money for everything from National Jewish to Crime Stoppers, Police Association, etc.. Wealth comes with an obligation to help others. It is a sad trait to live selfishly in envy of others. I have never asked my family for money, I learned to handle my affairs quite well. Helping others is not about money, it's teaching them how to make thier world better. Personally, I work with kids who for one reason or another have run afoul of the law or are in danger of doing so. Because of my past, my time does more than money ever will. I am not wealthy, my family is. The head of my family taught my brothers and I to run not one, but several businesses. I am not blood related. They cared enough to take me in off the streets and teach me. Thus I owe to help others as I was helped. They taught me the love of family, for which I never had. Now, I have a debt I must pay. We were going to do payday loans. A man from the profession came in and gave us a presentation. Told us how much money we could make. We turned it away. We would rather help people rather than make thier condition worse for our gain. Last year a employee of a large bank came in and offered several services to my brother and I. One of the services was to assist us should we set up check cashing and a line of credit to do payday loans. It's a cash cow, but do you want to bleed the poor to do it? I don't, let the some other greedy person have it.
March 6, 2008

1:34 p.m.

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Achilles writes:

Badgov,

A valuable lesson I have learned on this forum is that you can lead a horse to water, but you cannot make it drank. Great post at 7:48 today.
March 6, 2008

2:25 p.m.

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LOUIE writes:

One last thing on the one time rollover mentioned. It is true they can only rollover once in Colorado, but that is cicumvented by writting a new loan for a greater amount up to the 500.00 dollar limit. Technically that is a new loan, to me that is still a rollover in disguise. Right or wrong? I don't like limiting people's options, and many will close with the new cap. Personally speaking, I don't care to make it on the backs of those who can least afford it. If he could walk away like a pawnshop and dump the loan entirely, okay. However, if they dump a payday loan, it goes to a criminal prosecution for check fraud. Right or wrong? If there was some other collateral other than a financial instrument. Talk to this horse, I'll listen.
March 6, 2008

8:03 p.m.

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Achilles writes:

LOUIE,

I sense that you are a nice and caring guy. So, please do not take my comments as any type of insult.

I understand that you care for those who are having a tough time financially. I care just as much as you do.

But, you seem to confuse your compassion with logic. There is a reason that some folks take out these types of loans. There must be a valid reason, would you agree? If there was not a valid reason, they would not take out these loans.

We all agree that paying high interest rates on loans is something we all want to avoid. Fortunately for us, we don't have to consider such expensive loans. But, other people need it. The fact the others are profiting from these loans is irrelevant. If you are sick and go to a doctor, does the doctor not profit from your suffering? Of course he does. But, I bet you're glad that we have so many doctors.

So, imagine being so poor that you need these short term expensive loans to manage you finances. Now, imagine being so poor and having no loans at all to help you out, not even expensive loans. That is exactly what will happen if the government mandates lower interest rates: less loans will be available to those who want them the most.

You can take away the high interest loans and feel proud that the poor are no longer paying for these expensive payday loans. But, where will those poor go when you take away a credit option from them? Will they bounce checks and ruin their credit even worse, thus trapping them in the bad credit cycle? Will they revert to selling drugs? Prostitution? Gambling? It is so important to remember that, as much as you hate the idea of these types of loans, there are many people who need them. If the government restricts interest rates for high risk borrowers, less loans will be available.
March 7, 2008

5:40 a.m.

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LOUIE writes:

I grant you people will use these loans regardless of the fee/ intrest rates, true enough. So the state is not outlawing them, just regulating the amount of intrest, number of rollovers, etc. The state is evening out the playing field which is going to step on thier profits. The payday loan market is way over saturated, I really have no objection to thinning out there numbers. In Denver you can put up a new pawn license, you must by an existing one, Why? Oversaturation. The payday loans even exceed the pawnshops APR which is fixed at 240% APR, or 20% a month. When the APR exceeds 300%, even though the loan is for a shorter duration, don't you think that is a little steep? Give them the same deal as a pawnbroker, 20% every thirty days instead of two weeks. Don't allow a rewrite of the loan after the second rollover, and freeze the the loan after the second rollover thus giving the client a chance to pay it off. 14% or therabouts, bounce checks on the payday lender by defaulting on the loan. Who encouraged who to write a bad check? Secondly, if by desperation of the client he writes a bad check to the payday lender, why should the public tax dollar be used to collect by charging the client with check fraud? They should either write it off, or use private collection agencies, not the public dollar to enforce thier trade practices. Lastly, how many organizations have complained about thier trade practices and the industry just ignors them and goes on business as usual? Don't they have some civic responsiblity to improve, because the complaints are outpacing the benifits. If by sheer volume these complaints are mounting daily, what is the governments responsibilty to the people? I don't like gun laws, but the exist because enough people have asked for them. Why shouldn't payday lenders be put under state banking laws concerning lending practices? A bank answers to the state, why not the payday lender? A pawnshop answers to the state, why not the payday lender? They are not going to police themselves. I don't want them outlawed, I want them regulated. Thier rates are way to high, and I understand why they are fighting regulation. In this state as well as others they have oversaturated the market because of the high intrest the can charge. If two thirds of them disappear there will still be more than enough to handle the need at a greater advantage to thier client by having fair trade practices in place to better serve the client. Sacrifice the two thirds and give the clients a better deal, unless the client likes paying high rates.
March 7, 2008

7:08 a.m.

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Achilles writes:

"If two thirds of them disappear there will still be more than enough to handle the need at a greater advantage to thier client by having fair trade practices in place to better serve the client. Sacrifice the two thirds and give the clients a better deal, unless the client likes paying high rates." - LOUIE

You could have saved yourself a lot of typing by simply writing the above comment.

You spent nearly the whole post telling me how high interest rates are. We already established that they are high. You are simply trying to appeal to emotion instead of reason.

What I really wanted from you was the answer I quoted above. You admit that two thirds of these lenders would be eliminated yet you somehow believe that there will be enough credit supply to "handle the need". That is complete nonsense. If two thirds of lenders disappear, much less credit will be available. If you cannot admit that then you are being intellectually dishonest.

It may make you feel good to say "Sacrifice the two thirds and give the clients a better deal", but what you are sacrificing is credit options for the very people who need it most.
March 7, 2008

10:16 a.m.

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LOUIE writes:

You know we may not agree, but at least you made me think; I really do appreciate the discussion. Today some idiot wants to outlaw them for servicing illegals in a letter to the RMN. You should flip over and see the posts; I was tempted to respond, but sometimes people get way out in space. Thank you for your imput, at least I can walk away from this discussion, and really think about the many points you made. I don't want them gone, just regulated better. My solution is not the answer, that I admit. Hopefully it will be resolved, if but for the sake of the industry and those who do truly need them. If they ever do try to outlaw payday loans, you may find me using some of your comments that I truly found valid in thier defense (if you don't mind). Thanks for having taken the time, we'll debate again I'm sure of it.
March 7, 2008

11:50 a.m.

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Achilles writes:

Well said, Louie.
March 10, 2008

9:39 p.m.

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royg6852 writes:

Let me tell you something alright? Leading up to the time that we had to take out a cash loan, we didn't see anything but negative remarks from others online about the cash loan industry. We ended up almost losing our car because we waited. At the last minute, we borrowed $400 from http://www.cashloancity.com and I really believe it is the only thing "at the time" that saved us. I understand that there's a problem with some people abusing this industry and crying about it later, but what about the people that really need it and pay it back on time? We're even getting ready to have a positive mark on our credit because of it. Why are the people that never need this type of loan the same people that keep others from being able to get one?
March 10, 2008

10:49 p.m.

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Billco writes:

It is important to note that this entire industry was created by the banks in the mid 1980s once they started issuing “stealth loans” to consumers in the form of covering bad checks and then charging a fee. Per U.S. Banker/CRL it is estimated that banks make anywhere from $18-20 billion a year in overdraft fees and more shocking is that more than 60% of credit union's profit come from these less risky and highly profitable, NSF fees.

Payday loan customers are cost conscious consumers and simply seek out the least expensive alternative for their short term cash flow needs. Consumers understand that to borrow $100 for a fee of $20 for 14-30 days is much cheaper than bouncing a $100 check and paying a $40 fee, and having the bank cover it for only 2 days. For all of you stuck on the erroneous APR argument, The payday loan APR=243% the NSF/Bank Loan APR=7,300% but of course the banks do not disclose a 7,300 APR, they keep that little secret to themselves and laugh all the way to the bank!

It is also important to note the timing and who is the behind this bill. Historically, payday lending reform in Colorado only comes around every few years and unless there is a huge public outcry (which has not happened, payday lenders have some the highest customer satisfaction of any industry) legislators usually shy away from these little to gain types of bills.

But this year, House Bill 1310 came out of nowhere with the main sponsor Senate Pres. Peter Groff. Fortunately, it has met bi-partisan opposition over its absurdity but democratic leadership will not stop and is pulling all stops to get this bill passed, even though any legislator who spends any due diligence on it quickly determines it is bad for both Colorado workers and consumers by starving them from much needed liquidity in tough times.

So why is the Colorado Democratic leadership pushing so hard for such a bad law for Colorado, which has gotten to the senate more by political strong-arming rather than its merits? Unfortunately the answer has more to do with party politics than consumer protection; The August Democratic National Convention here in Denver. Both Barack Obama and John Edwards have endorsed APR rate caps on payday lending in an inept attempt to pander votes from both big banks and consumer interest groups, and the DNC wants to tout the Colorado payday loan trophy bill to the entire nation at the August Democratic National Convention.

In the mean time 2000 Colorado workers and 250,000 consumers/voters lives are on hold until sensibility returns to the Colo Democratic leadership. I hope before the next election, Colorado Dems wake up and understand that Moderate Republicans and Independents did not elect them to pass these kind of political junk bills. And if they don’t the Dems will pay the ultimate price by losing their legislative and executive majority. Just ask sidelined Republicans how tough CO voters are and how quickly things can change…

Home › Opinion › Editorials

Payday loan overkill

Lawmakers should give last year's bill a chance to work

The Rocky

Published March 4, 2008 at 12:05 a.m.

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