SOWELL: The truth about payday loans
The mindset of the left was recently displayed in a big, front-page story in the October 30th issue of the San Mateo County Times. It was an investigative reporter’s expose of the “payday loan” business and its lobbyists.According to the reporter: “In California lenders charge up to $45 in fees on a maximum $300 loan. This amounts to an interest rate of 460 percent, trapping some borrowers into a never-ending cycle of debt.”
Let’s take this one step at a time. Whatever the merits or demerits of the rest of the argument, $45 is not going to trap anyone in a never-ending cycle of debt, even if they are making only the bare minimum wage. Personal irresponsibility in managing money can trap anyone, but that is regardless of whether or not they take out payday loans. Now to the 460 percent rate of interest. You don’t need higher math to figure out that $45 is 15 percent of $300. How did we get to 460 percent? Very simple: By distorting the actual conditions of most payday loans.
As the name might suggest, payday loans are short-term loans to tide people over until they get their next check, whether a salary check, a welfare check or whatever. Payday loans are relatively small sums of money borrowed for very short periods of time, often by low-income people who want some cash right now, for whatever reason.
The 460 percent figure comes from imagining that the borrower is not just going to borrow the money for a couple of weeks, but is going to keep on borrowing every couple of weeks all year long.
Using this kind of reasoning, you could quote the price of salmon as $15,000 a ton or say a hotel room rents for $36,000 a year, when no consumer buys a ton of salmon and few people stay in a hotel room all year.
What about the $45 that is at the heart of all this runaway rhetoric? Does that do more than cover the risk and the costs of processing the loan? Apparently our crusading investigative reporter did not find that worth investigating, even in a long article taking up another page and a half inside the newspaper.
truth and lending laws payday loans - News
The APR is a central consumer protection of the 1968 Truth in Lending Act because it allows borrowers to weigh one loan against another. When they approve payday advances, banks do not measure the borrower's ability to repay the loan,
It was an investigative reporter's expose of the “payday loan” business and its lobbyists. According to the reporter: “In California lenders charge up to $45 in fees on a maximum $300 loan. This amounts to an interest rate of 460 percent, trapping some
One task likely undertaken by the new agency is the combining and simplifying of two overlapping mortgage disclosure forms that emerged as a result of the Truth in Lending Act (TILA) of 1968 and the Real Estate Settlement Procedures Act (RESPA) of 1974
The originating bank or lending firm must keep the loan, forever, and 100% of that loan, until it's paid off. If it can't do that, it shouldn't be in the lending business in the first place. We need to make it a law that all loans remain with the
That's why they came to Congress and asked us to modernize and strengthen financial regulations, leveling the playing field against the shadow banking industry, entities such as payday lenders and mortgage brokers that had been created to avoid
Mainstream banks also offer payday-style loans | Payday Loans UK ...
Tired of being buzzed into a storefront encased by bulletproof glass, Carl Martineau found a more dignified place to get a cash advance on his Social Security checks: a Berkeley branch of Wells Fargo Bank.
To California residents who just cannot make ends meet, the bank’s polished decor looks so much more inviting than the gritty payday loan shops that offer bruising triple-digit interest rates in the state’s poorest neighborhoods. However, mainstream financial institutions are increasingly peddling similar loans.
In California, payday lenders charge a 460 percent annual interest rate for a two-week cash advance on a borrower’s pay or benefit check. The terms at major commercial banks are only slightly better — an average of 365 percent for a 10-day cash advance.
“People who might know to stay away from payday lenders think that if a bank is offering it, it must be safe,” said Lauren Saunders, managing attorney for the National Consumer Law Center. Yet “a bank payday loan has all the same problems a traditional payday loan has. You’re getting sucked into the same debt trap.”
Bank officials say low-income customers at times desperately need the cash advances. But they emphasize that they do not advise repeat borrowing because of the admittedly high cost of the product — which banks say they do not heavily promote.
Yet Martineau, who lives in his Honda Civic and has relied on as many as five payday loans at a time from traditional
shops, sees the bank as a new salvation. He has arranged his first Wells Fargo advance to begin in December.
“Payday places have a lot of stigma. You really feel like you’re at the bottom of the barrel,” said Martineau, 59, who has struggled with manic depression most of his life. “Going to the bank is a lot more dignified. You don’t feel so ostracized.