Arizona voters rejected Prop. 200, which would have allowed payday lenders to continue to charge more than 36% interest. Current AZ law grants an exception to payday lenders from the state's usury laws, but will expire in 2010. At that time, payday lenders will start shutting their doors.
As we know, payday loans actually charge anywhere from 200-750% interest. Force them to only charge something less than 36%, and there's no way they can afford to stay in business.
So the wolves and lambs have voted on dinner. If that's what the people of AZ want, that's what they're going to get. But they should understand that shutting down payday lenders is the same thing as denying credit to the poor. The voters have decided not to allow poor people to take advantage of short-term credit offered by payday lenders. That's the real story behind all this.
I remember having to take out payday loans in graduate school. I'm glad I don't have to consider them any more. But I'm fairly certain I wouldn't have made it through those years without fringe banking products like payday loans and check-cashing services. If I'd been evicted or had my power turned off, I would've been derailed in my college education. (That honestly wouldn't have been a setback, but most people consider college important.)
For more info on this, including some good analysis of what the numbers mean, check out Warren Meyer's Coyote Blog.
Thank you for calling it like it is. Shutting down lenders is denying credit to the poor. It's as simple as that. I don't see how that will help the economy especially since the financial crunch we are all facing will be placing more and more people in that "poor" category.
Posted by: Payday Loans | November 11, 2008 at 09:41 AM
im glad that payday loans helped you out! i hate when people say we should get rid of them, because while some do use them unwisely, its so nice to have them available for the people that do need them.
Posted by: payday loans | November 11, 2008 at 05:46 PM
It is easy to condemn payday loans on the basis of the horrific interest rates, and the fact that if you spend money before you get it, that's a situation that is only likely to get worse. That in itself doesn't mean there isn't a place for payday loans - they are usually taken up by people with few alternatives. Getting an advance and paying it back quickly can certainly be preferable to some of the possible consequences of not doing this.
Posted by: Keith | November 15, 2008 at 12:48 PM
If something needs to be shut down then efforts should be made to put suitable replacement solutions in place. I've been to payday stores and interviewed both management and customers and one thing is clear, if the industry was regulated, there is still a need for their services. If the stores are all closed then people that needed legitimate short term loans for repairs, utilities, to bridge a gap, etc. will be harmed.
When payday stores don't exist, more bank fees will be encountered for bounced checks by people that use those stores. I had one client that incurred $400 in NSF fees from Bank of America just this month because from a gap that could have been bridged with a short-term payday loan.
Other people take cash advances from cards to cover the urgent need and they get really slammed by the card company until the entire balance is repaid.
In my research people have said that local credit unions will offer short-term loans in place of credit unions but I found that they are only to people that qualify for membership, must be current member, and must have direct deposit. Life just does plan that far in advance.
It is a shame that more consumer advocates can't work to improve a broken system instead of shutting it down.
Posted by: Steve Rhode | January 10, 2009 at 01:54 PM
That's why liberals drive me right straight up a wall: everything they do to help poor people ultimately makes them worse off. I don't doubt that everyone who is in favor of getting rid of payday loan shops is doing for the good of those who have to pay the exorbitant interest rates, but since these people don't have decent FICO scores, they can't get regular bank accounts so they have no access to the pretty little interest rates the rest of us take for granted. I wonder what they think these poor people are supposed to do for banking services now.
Posted by: The Maven | January 14, 2009 at 03:22 PM
Great article. Thanks so much about the info. Very useful since I'm currently studying about payday loans, debt consolidation, debt settlement, and others related to debt problems
Posted by: John Noble | March 30, 2009 at 11:34 PM
It's good to see there are two sides to every issue.
While I cannot condone the exorbitant interest rates payday loan companies charge, your description of your needs during college helps ballance the story.
Of course, there wouldn't be payday loan companies if the need didn't exist.
Thanks for your story.
Posted by: Bob Sherman | May 28, 2009 at 08:34 AM