June 22, 2007
Payday Loan Companies Targeted by Council
At a hearing before the Public Services and Consumer Affairs Committee yesterday, the D.C. Council heard testimony both for and against the so-called payday loan industry, which has often been criticized for predatory lending practices. The businesses market themselves as a way for lower income individuals who don't qualify for credit or a bank loan to get emergency cash. The industry's opponents charge that payday loans prey on our society's most vulnerable people by charging obscene rates of interest, often topping 400 percent per year.
This is an issue that has popped up in state legislatures all over the country, as more and more stories of endless cycles of debt as a result of these payday advance loans surface. Oregon successfully recently passed legislation that caps interest rates on consumer loans like car titles and payday loans at 36 percent. Ohio looks set to soon consider a similar bill. In Arizona, legislators were debating placing restrictions on payday lenders but now appear to be deadlocked. The industry has responded to the recent spate of legislation with a pointed PR campaign, arguing that they serve a part of the population that tends to be ignored by traditional banks.
A committee vote is expected next week on D.C. attorney general Linda Singer's proposal, introduced in the Council by chairperson Mary Cheh (D-Ward 3), to limit the annual rate charged at payday loan services to 24 percent. The other members of the committee include Jim Graham, Marion Barry, Kwame Brown and Tommy Wells, and you can contact them to let them know what you think through the D.C. Council web site.
UPDATE: Also see the Examiner's earlier story on this bill.
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A correction on the bill: It wasn't introduced by AG Singer. The bill was introduced by Barry and Cheh. Singer issued a report a month or so ago called "The High Cost of Being Poor in DC" and supports the bill.
And Virginia also tried to get rid of payday lending, but fell short.
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Let them charge whatever they want, it's a free market. They provide a pretty high risk service and should be compensated for their rate of risk.
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Yes, this is a nasty business. Also, there was legislation last year that gave DoD the ability to regulate the payday lenders that pop up around military bases, which was somewhat controversial b/c consumer finance is usually the bailiwick of the finance committee I believe.
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J: So we should allow loansharking?
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I've been following this debate for awhile and continue to be baffled by the lack of understanding of basic financial terms like APR, etc.
First of all, people walk into these location on their own. No force involved. And if any of you have ever walked into a payday loan store, you'd see the fees are fully transparent and spelled out very clearly. Nothing predatory about that.
Problem is people don't seem to understand that payday loans are not annual loans...and to apply an annual rate just doesn't work.
Seems straight forward to me. You borrow $100 for two weeks and you pay a maximum fee (per DC law) of $16.25. Cheaper than bouncing a check, etc.
And this whole notion about lending money to people who can't pay you back...seems like a terrible business model to me. Don't think that's the case.
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In a city where almost a third of the residents are functionally illiterate, I'm doubtful many people who borrow from Check 'n Go are highly knowledgeable about APR calculations and amortization periods. More likely they're one or two paychecks from eviction and while these companies may help them make ends meet now or then, people who don't have financial sense end up being the big losers. Sure, we could say 'too bad for them,' and leave it up to the market, but that doesn't sound like the mark of a humane society to me.
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The US economy is of great threat these days because of the forthcoming election. People mainly focus on how they will choose the right candidate who sometimes, in the end, manipulate the government revenues which threaten the economy.
Is the United States better off today than it was in 1932? That’s the year that Franklin Delano Roosevelt was first elected president, and the country was spiraling into a severe recession. FDR’s “New Deal” economic policies radically restructured the way the U.S. economy worked. Essentially, the government’s role in the economy expanded to a degree America had never seen. In the short term, Roosevelt's policies provided the country with a needed lift, but it can be argued that they caused significant long-term damage. In this Wall Street Journal article, Paul Rubin suggests that while the current state of the U.S. economy is not in the state it was in 1932, many of the same indicating factors are there: stock market in a tailspin, credit markets locking down and a popular Democratic presidential candidate – Barack Obama – is running on a platform that will inject increased government regulations into problem areas like the economy. An Obama presidency, coupled with what could be a 60-seat, filibuster-proof majority in the Senate, would bring the country as close to a pure liberalist agenda as it has ever been. Proponents of a free market economy are concerned that Obama’s governmental “hands-on” policies will not provide the American economy with the long-term direction it needs. Those who support the ideals of capitalism won’t say that we’re better off today than in 1932. They’re likely to tell you that we’re in for more of the same – a “New, New Deal.”
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Well, so much for the spam filters, by which I mean Sommer and a daiquiri.