Can Payday Lenders Be Stopped?

Posted on 21. Aug, 2006 by in News

loanshark.gifIt has taken some political pressure from the Pentagon to do something nobody else seems able to do – apply a ceiling to the ridiculously high interest rates that payday loan lenders can charge. Personally, I’ve been in small claims court and listened as the local Check City payday loan lender goes through a stack of 50 folders of people – mostly minorities – that haven’t been able to pay back their payday loans. Why? Because not only is the interest rate sky-high but it costs the individuals $50 every two weeks just to keep the loan rolling forward!

But apparently since the U.S. government isn’t paying its soldiers enough, many of them have been applying for payday loans. Which isn’t really a problem until you get called away to Iraq in the middle of the night and don’t come back for a year or more. Then that interest seems to add up…

Which is why the Pentagon is calling for federal and state restrictions on the credit that payday lenders, car-title lenders and others extend to service personnel. “Predatory lending,” it declared, “undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force.” Payday lenders, car-title lenders, rent-to-own stores and other types of lenders, the Pentagon said, “seek out young, financially inexperienced borrowers who have bank accounts and steady jobs, but also have little in savings, flawed credit or have hit their credit limit.”

Although the proposed 36% ceiling is still higher than most credit card or short-term personal loan rates, the payday loan industry is getting a little scared that they can no longer take advantage of their customers. According to one woman from the Community Financial Services Association (the national trade group of payday lenders), “Payday advance lenders could not even meet employee payroll at that rate, let alone cover employee payroll, other fixed business expenses and make a profit.”

I’m with Steven Levitt on this one when I say that the credit card companies have done fairly well charging much less. My only criticism of this proposed legislation? That it’s only for military personnel.

I think the cap on payday loan rates should be universal! The payday lenders are nothing but sharks that prey upon people who are desperate and financially uneducated.

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