Are Payday Lenders Good For Consumers - Revisited
Why I Am Revisiting?
A month ago I did an article called Are payday lenders good for consumers. It was meant just to be a smaller article talking about some the issues that Ohioans will be facing this November.
Or so I thought.
The article ended you becoming very popular and controversial. With 17 comment left by readers who all had different opinions about the situation. So I decide to revisit the issue read over all the comments again and meditate on which may be the right decision.
I have received many comments from Donnie who explained that 391% interest is to much for anyone to pay on a loan and repeated that this is a trap to Ohioans. He explains that this is more or less predatory lending tactics that they are using to bring in customers and lock them in with high interest rates.
However Casey and Tara believed that the fee was only $15 for a two week loan which was better that paying an over draft fee. They also believe that there would be 6000 jobs lost as a result. They believe in the freedom of choice should be preserved to the consumers.
So in this article I have decide to go through all the facts and see how this might relate to you as the consumer and let you decide from there. If you feel these fact differ from what you know let a comment at the bottom of this article.
The Facts ( or at least what I have read)
- If the issue passes the maximum loan amount will go from $800 to $500.
- If the issue passes the borrowers would have 30 days to repay the loan otherwise if it doesn’t there will be no time period. (Not sure on this one let me know what you think?)
- If the issue passes the maximum interest rate would be 28% and if it didn’t it would be much greater than that.
- If the issue passes the government will be able to look at your financial records and decide if you will be able to have a loan or not. ( not sure if this true either.)
What’s true and what’s not
- Here are some video I came across. I couldn’t find any on you tube saying vote No on issue 5 so here is a link to those videos.
- The next video here is from those that are getting the raw end of the deal from payday lenders watch it and see what you think. You can also check out the vote Yes on website.
- This next video is from the CBS Evening News talking about the payday lending as a whole across the country. This is a disturbing video. Check it out and let me know what you think. Leave me a comment on how you feel about this.
My thoughts on the subject
I have been thinking about this issue a lot recently and have tried to put myself in the shoes of the consumer. My thought is if I were a consumer going to a payday lender to get a loan would I want to pay 300% interest or would I rather pay 28% interest. Sounds like a pretty simple decision to me.
The other things that I don’t understand is that they say that 6000 jobs will be lost. All they are doing is limiting the interest rate, loan amount, and time frame for the repayment. How will this lose jobs for us in Ohio?
Finally, if you would care to share your thoughts on the subject please leave me a comment. I also plan on doing a follow up article again in a few more weeks to display and discuss the comments that were made.
The issue is that by limiting the interest rate legislators essentially banned payday lending. It’s not as if many or any lenders can stay open at a 28% APR. That would mean that they would only be able to charge $1.17 per every $100 borrowed. Given that the average payday lender only makes between a 3% and 7% profit on the “high” interest rates currently charged, it’s difficult to see how they could remain in business with the lower rate. What will happen is that people who need a payday loan will not have that option and will turn to a less desirable alternative. It’s not as if getting rid of these loans will get rid of the need for these loans.
You remark “if I were a consumer going to a payday lender to get a loan would I want to pay 300% interest or would I rather pay 28% interest.” Borrowers don’t really seem to think this way. According to surveys of borrowers, they choose payday loans mainly out of reasons of convenience. They don’t shop around on price. That’s pretty clear when you consider that before the payday lending ban anyone could have opened a store to loan money at 28% APR. Why didn’t someone do so? It seems that if a businessman could have made a profit at that rate (a dubious proposition) and if consumers were really concerned about paying “excessive” interest, then the businessman who opened that store would have cleaned up in the market. The fact that this didn’t happen should indicate that it’s just not a realistic scenario, either from the business side or the consumer side.
I guess I’ll start things off this time around!
I agree with many of your points. Most consumers, if they knew what they were being charged (no payday lending ad mentions 391% APR or the fact that they are talking about payday lending), wouldn’t “choose” 391% APR over 28% APR. The industry has mounted a major effort to deceive and confuse voters. The jobs argument is one of the biggest cons out there. Of Ohio’s 1,600 plus payday lenders, 1,130 of them have applied for licenses from the Ohio Department of Commerce to operate under the new law. So, it appears most of them are still going to offer services of some kind. The payday lenders have also put up an ad suggesting that “Big Brother” is going to be watching you because the bill passed in June requires a database that ensures payday lenders’ compliance with the new law! What they don’t mention is that they payday lenders have their own UNSECURED database that has all kinds of information about you from your landlord/tenant records to your bankruptcy case proceedings.
Don’t fall for all their misleading ads and deceptive mailers! Reign in reckless predatory payday lending by voting yes on issue 5!
The truth is though that not everyone needs payday lenders in order to survive. And again as Donnie has pointed out 1,130 payday lenders have reapplied for licenses from the Ohio Department Of Commerce.
Donnie claims: “Most consumers, if they knew what they were being charged (no payday lending ad mentions 391% APR or the fact that they are talking about payday lending), wouldn’t “choose” 391% APR over 28% APR.”
You are confusing consumers with voters. Quite a few consumers choose the 391% APR. If they didn’t then payday lenders would be out of business. They see this as a fair price to pay for the loan they need or want. If they view this as a fair price, then I fail to see why the government should tell them they cannot pay it.
And the notion that someone can stay in business making a two-week, unsecured loan by charging $1.08 per $100 borrowed is ludicrous. If someone could do this then why haven’t these stores popped up in competition to payday lenders? Either it’s because it’s not profitable to do so or consumers don’t really care about the price of a loan. Either way, it illustrates the flaws of the payday loan “reform” law. I’m not sure exactly what the payday lenders are applying for under the new law. I can guarantee you they won’t be offering short-term loans at a 28% APR, though.
It’s sad that people have to resort to this type of financial product to keep them a float. I can’t stand to see the payday loan businesses. Still, I don’t know what I think about running them out of business. I mean, they are filling a need…but so would marajuana stores if they were allowed.
The free market man inside tells me to let them do what they do and that the uneducated will always make poor choices.
I guess at the end of the day, I’m just for more education. Something like the “truth in lending” act expanded for these loans would be beneficial.
I agree PT.
If the barrowers would have been educated more on there decisions this would probably solve half of the problem right there.
I also agree with the “truth and lending” act. Consumers should be educated about what they are getting into.
The Truth in Lending Act applies to payday lenders. The terms, conditions and fees of the loans they make are clearly spelled out on the form signed by the borrower. No one is “uneducated” about the loan they are taking. Surveys of borrowers indicate that they know very well both the amount they must repay as well as the time in which they must repay it.
I know you find it hard to accept, but the borrowers who take payday loans aren’t stupid and they aren’t uneducated. They are choosing the best product for their need. Yes, it’s a bad product for many of us. But for those who take it, it’s the best option available. They know the deal they are taking; the alternative is worse for them, though.
Christopher, since you are writing about this subject for your blog, I’d urge you to do some more research into it. I’d be happy to provide some resources for you if you want them. In fact, I wrote a study that summarizes some of the academic literature on this issue: http://www.buckeyeinstitute.org/docs/Payday_Lending_Study.pdf.