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A differing view, March 18

The Rocky

Published March 18, 2008 at 12:05 a.m.

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Payday lenders get around payment plans

The March 4 editorial "Payday loan overkill" made some points that deserve scrutiny.

The editorial says that a Colorado law that took effect in July should be given time to work and that House Bill 1310 goes too far. The new law mandates that payday lenders offer a payment plan to borrowers after the fourth consecutive loan (after the borrower has failed three times to pay off the original loan).

In only a few months, the new law is being circumvented. In testimony on HB 1310, the state attorney general's staff said that some lenders are imposing a "cooling off" period after the third loan and taking other actions to avoid offering a payment plan.

The editorial cites a study by staff economists at the Federal Reserve Bank of New York (not officially endorsed by the bank) saying that "Georgians and North Carolinians do not seem better off since their states outlawed payday credit." A follow-up analysis by the Center for Responsible Lending concluded that the study's methodology was deeply flawed.

In North Carolina, the state banking commissioner asked the University of North Carolina to assess the impact on former borrowers after the demise of payday lending. The study determined that residents had found other, less expensive options and that they said they were better off without payday loans.

A broad coalition - including AARP of Colorado, ACORN, Colorado Coalition for the Homeless, Colorado Public Interest Research Group, LARASA, Lutheran Advocacy Ministry, Mile High United Way and Women's Foundation of Colorado - support HB 1310. These groups work with vulnerable Coloradans every day and think that paying $544 to borrow $343 is wrong, plain and simple.

* What do you think? Go to RockyMountainNews.com/opinion to join the conversation about this issue.

Rich Jones is the director of policy and research at the Bell Policy Center. Spiros Protopsaltis is president of the Center for Policy Entrepreneurship.

Comments

  • March 18, 2008

    9:45 a.m.

    Suggest removal

    putput writes:

    HB 1310 does GO TO FAR. If a consumer, went into a PayDay Lender and Borrowed $343.00 the FEE is ONLY $63.22. For a SHORT TERM CASH LOAN. Then the loan is due and payable on the next payday. The consumer pays that loan off in FULL.. Then if they decided to borrow more money THAT is thier choice. NO ONE is forcing the consumer to Borrow more money.
    As far as the vulnerable Coloradans, they may not know HOW to manage money. If I went out and got FIVE credit cards, MAXED them out, and could not afford to pay them back. Is that the credit card companys fault, or my fault?
    STOP the certain lenders from NOT OFFERING the payment plan, no "Cooling off" period. Let the new laws work for the consumer.
    if the PAYDAY lenders are foced to close, where are the consumers going to turn to then in case of a need for a short term cash loan ?

  • March 18, 2008

    4:09 p.m.

    Suggest removal

    gigithree writes:

    This legislation is taking away a *choice* for consumers. By removing options for people to get short term cash infusions, there is MORE risk to consumers not less. People that oppose payday loans always neglect to mention the estimate APR on an overdraft, late credit card payment, or bounced check. These are called fees, but calculated as an APR they compare to Pay Day loans. But worse than Pay Day loans, these actions not only cost money but can RUIN you credit. As any adult knows bad credit is extremely expensive, and if you pay 3% higher on a mortgage as a result of a credit hit from 'legitamate fees' then the APR becomes a multiple far far beyond Pay Day lending fees.

    The fees that lenders charge is based on risk to profit. If anyone lender charges more then competition lowers their rates, if the government forces a rate out of sync with what is profitable, then these companies fail. The proponents of this bill claim that there are other ways to help consumers, such as large banks, but A) they know they don't want to lose money so they will reject people that pay day lenders will work with B) Are perfectly happy to collect late payment, overdraft, or bounced check fees (and also the dreaded negative balance fee charged daily with a negative balance).

    This legislation is pure junk to make politicians and non-profit directors feel good and somethig to brag about come election time, nothing to do with people in need of financial resources...

  • March 19, 2008

    3:59 a.m.

    Suggest removal

    p_myers661 writes:

    My husband and I have made use of payday loans to avoid expensive overdraft fees when he or I have made calculation errors and face two or three checks usually averaging 20 or less, bouncing. Our bank will return the checks and charge 35 dollars for each one. Since the electronics can return a check twice in four days, or less, there will be four overdraft fees for a total of 140 dollars and the twenty five dollar charge for each check at the place that accepted them. Now we have 190 dollars. A two hundred dollar loan, twice what we would need, costs 45 dollars. That is one fourth of the bank's charges. We don't have credit cards because our income isn't high enough. Without payday loans we will survive but will pay much more to the banks.

    The whole point of this legislation is to help the poor from being victims of greedy lenders. Studies show that the people lose out when payday loans are prohibited. To be fair, why not forbid banks from charging overdraft fees of more than 5% of the amount of the check? Or some other similar law?

    Look at who is in favor of this then follow the name back to who took how much from the banks in campaign funds. We have some very well paid off legislators.

  • March 20, 2008

    11:08 a.m.

    Suggest removal

    gigithree writes:

    I wonder if this bill has anything to do with the Dem convention???? This is pure politics for the authors of this bill to make a name in front of all democrats at the expense of people in financial crisis. Politics at its worst. If they really cared they would focus on education (general and financial), bank fees, bounced check fees, credit score destruction, and subsidized alternatives. No, that would require to much work and could be poltically damaging, so they choose this approach.