NYTs Urges End to Payday Loans

Lets get some usury laws up in this piece.

I don't think it's right to use A.P.R., or annual percentage rate when talking about payday loans. A payday loan has an opening interest rate of only 15%, for most states and some capped the rate around the same amount. This means that a person pays $15 for every $100 borrowed. Does this sound bad, no, of course not. However, if the person decides not to pay it back, and rolls the same loan over 26 times, meaning every two weeks when the loan comes due instead of paying it off like they should, they roll it over to another loan again and again. If this was the case, then this would be an A.P.R. of 400%, but the same is true for any loan and if not paid back or not paid on time, then there would be more fees and penalties. The last time I checked, credit card companies charge me $40 for being over, $40 for being late, and heck they charge $40 if their own interest puts my balance over. If the person pays the loan back on time, according to the terms, then the APR is only 15%. There is no other hidden fees or payments. That is it, 15%. What are people crying about? Would a bank loan money if they were only making pennies? I don't think so, but if they are making pennies every month for several years then they might, and thus the reason they have long term loans with lots of payments. They make money over the long run and take money every month, but a short term loan doesn't have the same advantage and there is only one payment, so we can't use the same formula to calculate and regulate these two different types of loans.

You, Mr. Lillis – and the New York Times – are enemies of humanity. You are proponents not of consumer protection but of authoritarian legislation which will hurt both consumers and businesses (except banks, which will profit when payday lenders are gone because people use payday loans to avoid their high overdraft and NSF fees).

Usury laws are un-American, because we are supposed to have an unalienable right to life, liberty and the pursuit of happiness as long we don't infringe on the equal rights of others to the same (as you are trying to do). That means freedom of commerce, sir, the right of citizens to engage in mutually-agreeable commercial transactions where dangerous goods are not involved. It means the right of independent merchants and service providers set their own prices, in accordance with market conditions, and the right of consumers to decide for themselves which honestly advertised products and services they wish to avail themselves of.

Consumer protection is not about telling businesses how much they can charge – or limiting consumers choices to only those products and services which you think are wise choices for them. It is about curbing dishonesty in the marketplace, and providing consumers with information to help them make better choices.

But professional critics like you with no regard for the principles of freedom which our country was founded on – and no regard for the truth about relatively-high-interest loans for people with bad credit – have perverted consumer protection in their zeal to be the “good guys.”

You cannot look at the APR of a loan in a vacuum and think that you can draw an APR line between a loan that is useful for consumers and one that isn't. That is nothing but a myth, a superstition based on antiquated religious concepts – and the current persecution of payday lenders based on the APR of the loans is in fact no different than the Salem witch hunts of several hundred years ago.

If a 365% APR was “outrageous,” then the statement “I will lend you $100 today if you will pay me back $101 tomorrow” would be an outrageous statement, but it obviously isn't. In fact, most people would not make that statement – especially to a stranger with bad credit – because they wouldn't want to risk losing $100 for just $1 in profit.

A 36% APR cap would make it illegal, in the United States of America, for any citizen to say to any other, “I will lend you $100 today if you will pay me back $100 and ten cents tomorrow.” That isn't consumer protection, buddy, that's insane authoritarianism.

A 36% APR is not always better than a 391% APR. A two-week payday loan of $100 at 391% will cost you a grand total of $15. By contrast if you took out a six-month $100 loan at 36% and fell prey to the temptation to wait until the end to pay it back, you'd end up paying $18, 20% more. The longer-term 36% loan is of course a better deal overall, but people with bad credit cannot be profitably offered a six-month loan at 36% APR, because the default rate will be way too high.

The people whom you claim you want to protect are not asking for protection in the form of having options taken way from them. They don't want payday lenders put out of business by a law that requires the loans to be offered for a fraction of what it costs to issue them. They want payday loans to be available because they are a lifesaver for some people, saving them eviction or from losing their job when they need to get their car repaired quickly, and they are a useful financial tool for others, saving them from paying more money than the loan costs in late fees and bank charges.

Taking out any loan is of course a gamble, and for some payday loan customers – and especially those who borrow irresponsibly – the gamble doesn't pay off. But customer satisfaction surveys – and the fact that millions of people continue to use the service – testify to the fact that overall it's an important option for people to have, despite the fact that some people need to learn from experience to be more cautious in their use of it. Many people also need to learn to be more cautious in their use of ice cream and other high-fat foods, but that is no reason to ban those foods which would punish those who use them responsibly.

The payday-loan service would also be improved if the lenders weren't operating within very narrow exemptions to ridiculous state usury laws. For example, people who know from the start that they won't be able to repay the entire loan on their next payday should be able to sign up for an installment payday loan instead, whereby the loan is set from the start to be paid back in installments over several paydays. Lenders could offer installment payday loans at a lower APR than regular payday loans because they would be receiving interest for a longer period of time and would be spared the costs of processing the refinance or new loans of customers who need more time to repay, as currently occurs.

There is no reason whatsoever why a free market in loans is not the best solution to meeting the credit needs of consumers. Yes, there should be strong regulations to make sure that consumers are not deceived in any way and understand exactly what they are getting into – and lenders should of course be required to strictly comply with debt collection statutes – but beyond that freedom, believe it or not, works best for all involved.

But it doesn't work best for professional critics and moralists, who feel that they should be the ones to decide how everyone should behave. As people like you gain more and more influence, Mr. Lillis, the United States looks more and more like the People's Republic China.

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Let me tell you something alright? Leading up to the time that we had to take out a cash loan, we didn't see anything but negative remarks from others online about the cash loan industry. We ended up almost losing our car because we waited. At the last minute, we borrowed $400 from http://www.cashloancity.com and I really believe it is the only thing “at the time” that saved us. I understand that there's a problem with some people abusing this industry and crying about it later, but what about the people that really need it and pay it back on time? We're even getting ready to have a positive mark on our credit because of it. Why are the people that never need this type of loan the same people that keep others from being able to get one?

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You can't put an APR on a 1 week or 2 week loan lol. Come on!! Capitol one charged me $40 for being 1 day late not too long ago and turned around and charged me another $40 because their first charge put me over my limit. Nothing wrong with that though right? No way.. too many lobbyists working around the credit card companies. We used cash loan services from cashloancity.com and we feel like we got great service from them. Sometimes you have to have it when you need it! The only people that aren't complaining are the people that use the services with intention on paying their loans back.

[...] News Sources wrote an interesting post today onHere’s a quick excerpt [...]

Great Info.

Great Info.

Wow, I've never heard someone tell their story like this, and I found it very moving that you would share you're personal story. It's too bad that there are so many people who are hurt by poor decisions, that stories like yours seem to get overshadowed.

Wow, I've never heard someone tell their story like this, and I found it very moving that you would share you're personal story. It's too bad that there are so many people who are hurt by poor decisions, that stories like yours seem to get overshadowed.