Payday Loan Legislators Do Not Understand Us!

By | Aug 3, 2008

It’s crazy how the regulators and legislators who feel the need to control our payday loan industry in an effort to “protect” consumers consistently fail to understand us!

Witness the latest introduction of payday loan legislation by the esteemed senator from Hawaii. These senators introduced a new act to”encourage mainstream institutions to be able to bank the unbanked”.

THEY DON’T GET IT! Payday loan companies ONLY make loans to consumers having a BANK ACCOUNT! HELLO!! Our customer is NOT UNBANKED! They know what they’re doing when they choose to use our product.

And as far as providing consumers with “financial literacy and educational opportunities”, THEY DON”T WANT TO BE BOTHERED! Why don’t the regulators ask? Payday loan customers simply want $300 to $1000 fast without a hassle! Most of the customers I talk to understand where the majority of bank and credit union profits come from Why Banks & Credit Unions Hate Payday Loans

For additional commentary on the stupidity of legislators we suggest you proceed to Payday Pundit

U.S. Senator Daniel K. Akaka (D-HI) introduced the “Improving Access to Mainstream Financial Institutions Act of 2008”. It is cosponsored by Senators Charles E. Schumer (D-NY), Joseph I. Lieberman (ID-CT), and Daniel K. Inouye (D-HI). It is endorsed by The National Association of Federal Credit Unions, the Hawaii Credit Union League, the Council for Native Hawaiian Advancement, and the Hawaii Alliance for Community-Based Economic Development.

Senator Akaka said: “About 45 million Americans do not have a bank or credit union account, denying them access to basic financial services. With these federal resources, mainstream institutions will be better able to bank the unbanked. This bill will also encourage banks and credit unions to provide an affordable alternative to predatory payday loans which typically carry exploitative fees. Several credit unions have developed similar products, including the Windward Community Federal Credit Union in Kailua (Hawaii), which used a federal grant to develop an affordable alternative to help the U.S. Marines and others they serve. More working families need access to affordable small loans.”

Senator Lieberman said: “At a time of rapid innovation in the financial services industry, it is discouraging that a so many Americans remain disconnected from the mainstream system of banking and finance. The sad reality is that in many low-income neighborhoods, the primary source for financial services is storefront check cashers, rent-to-own shops, money transfer operators, and payday lenders charging predatory interest rates. The legislation we are introducing today will help bring low-income communities closer to the retail financial services and savings opportunities they desperately need.”

“A bill like this has been a long time coming. It will promote a culture of saving by encouraging more people to open bank accounts. This bill will also help families get out of the cycle of debt caused by payday loans,” Schumer said.

U.S. Senator Daniel K. Inouye said: “Given the economic struggles currently confronting our nation, this legislation can help many Americans by bringing families without bank accounts into the mainstream of our nation’s financial system. I believe this bill will help many families build savings and improve their credit-risk profiles. That will lower the cost of payment services, and eliminate a common source of personal stress. Enabling more people to be a part of our mainstream financial system, whether through a credit union or a bank, will build the right financial foundation for many families.”

The bill creates two grant programs within the Department of the Treasury:

• The first authorizes grants intended to help low- and moderate- income unbanked individuals establish bank or credit union accounts, providing consumers with alternatives to rapid refund loans, check cashing services, and lower cost remittances. In addition, bank and credit untion accounts provide access to savings and affordable borrowing opportunities.

• The second provides consumers with a lower cost, short term alternative to payday loans by encouraging the development of affordable payday loan alternatives at mainstream financial institutions. Consumers who apply for these loans would be provided with financial literacy and educational opportunities. Loans extended to consumers under the grant would be subject to the annual percentage rate promulgated by the National Credit Union Administration’s (NCUA) Loan Interest Rates, currently capped at an annual percentage rate of 18 percent.

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5 Comments so far
  1. John August 4, 2008 2:19 pm

    Legislators are finally getting a bit of a backbone and are standing up for consumers. It’s rare when legislators are able to turn their cheeks when the check books are out. In Arizona and Ohio, legislators are doing the right thing by protecting consumers and ignoring campaign contributions.

    Check this out: http://www.dailypress.com/news/opinion/dp-ed_lobbying_edit_0730jul30,0,1178809.story.

    In Virginia the industry lobby succeeded in BUYING higher interest rates! Now they can charge 592% in Virginia, much higher than the already outrageous 391% they charge in Ohio.

    It’s unfortunate that the industry has been successful at buying favorable legislative decisions at all. They are attempting to buy an election in Ohio. According to filings with the Ohio Secretary of State’s office, the payday lending industry lobby (CFSA) is the sole donor to the effort to repeal House Bill 545, to the tune of $850,000 so far. It is likely that they’ll cough up more than $15 million to dupe Ohio voters. Let’s hope voters aren’t fooled!

  2. Jer August 6, 2008 7:07 pm

    John,

    Granted the fees for payday loans are high relative to the choices I personally have for borrowing money.

    But if payday loan companies are run out of business by artificially low legislated interest rates, where do you propose payday loan customers go?

    Friends and family either don’t exist or have already been tapped. Banks and credit unions cannot offer these small loans at a profit. Their credit cards are maxed. Their next payday is in several days. What do you propose these payday loan customers do to fix the car, turn on the lights, buy their prescription medication…

    PLEASE! What is the alternative?

  3. John August 12, 2008 8:15 pm

    Well, the payday lobby managed to tick off the farmers of Ohio – they very people they were trying to appeal to with their new ad. You can read about it here: http://www.daytondailynews.com/o/content/oh/story/opinions/columns/2008/08/12/ddn081208mary.html. There’s a couple mill down the drain!

  4. pablo m. September 19, 2008 10:26 pm

    uhh, john, just a couple of questions for you:

    are you aware yet that the FEES that payday lenders charge are just that–FEES???!!! not interest!! at least not in the sense of the word that we americans are all familiar with–meaning COMPOUND interest. those “interest” rates that you posted above are crap, because the FEES do not ACCRUE. we are talking about SIMPLE interest, and they do NOT project it out over an APR because it is a one-time fee for a one-time loan. $15 fee for a $100 loan is pretty standard, and it’s pretty affordable, ESPECIALLY considering how much overdraft “protection” costs these days.

    and john, will you PLEASE justify for us slower-minded simple folk…please justify why the BANKS and even some credit unions–the entities who will have a STRANGLEHOLD on the lending of ANY MONEY WHATSOEVER–why it is that POLICY forces them to push the LARGEST DOLLAR AMOUNTs (i’m talking CHECKS and/or DEBITS here) in a series through the account FIRST, which means that the poor consumer gets POUNDED for massive, REPEATED overdraft protection (AGAIN with that WORD…SO INAPPROPRIATE!) charges for all the smaller debits that crop up because the larger amounts went thru first (EVEN IF THEY WERE THE LAST ITEMS SUBMITTED…the banks hold all of them for as many as five business days, just to SEE if more items won’t come thru for larger amounts, so they can reap those charges)!!

    in other words, they PURPOSELY cause debits and checks for SMALLER amounts to go thru LAST, to increase the chance that, if overdraft protection is NEEDED, the bank will have many MORE ITEMS for which they can ASSESS THOSE CHARGES. example: a consumer has $500 in their account and they are seven days short of payday. they have over $750 worth of bills (seven bills total, in our case) to pay right NOW. SO…they purposely write the smaller checks FIRST (actually it was five checks and two auto-debits)…in amounts of $13, $15, $28, $55, $60, and $75. then we have that big one, for $440–it’s an automatic debit, taken every month, for child support.

    the BANK, in its infinite goodwill, held on to the first five checks/one debit for four days…and sure enough, that $450 automatic debit is due, and sure enough, the BANK forces THAT ONE THROUGH FIRST!!! THEN, for good measure, instead of putting through as many as THREE checks that would have CLEARED, the bank put through…you guessed it, the $75 check!! which obviously caused overdraft PROTECTION to kick in…ergo that FIRST $25 fee. so, the first item cleared just fine…but instead of putting three more through to clear, they CHOOSE to put the next largest check through KNOWING it wouldn’t clear. THEN…well, you know the story, don’t you–the next FIVE items have to be submitted…the first three at a $25 premium (for overdraft PROTECTION), and then they reached some kind of limit, which kicked in an even HIGHER overdraft fee of $30 for the last two checks!!!!!!

    do the math, john…that is $160 in overdraft “protection” fees, when, had the bank possessed ANY compassion or concern for its consumers (like how their lobbyists CLAIM that concern and compassion when decrying the “predatory lending” of payday lenders on the capitol steps), that consumer would have had just ONE fee of $25 if the bank had put items through in the order received. OR…even if they put the large item thru first but THEN put the rest thru in order…that consumer would have only been subject to $75 worth of fees.

    OR they could have taken out a payday loan for $300 cash, meaning a payoff of $315, and for a ONE-TIME FEE of $45, they aren’t subject to ANY overdraft fees AT ALL!

    tell me again how that is predatory, and how these people need to rely MORE on their BANKS for needs such as these? what crap, john, total crap. and if you have a DROP of intelligence to you, you know it.

    NOW…i am ALL in favor of more ALTERNATIVES. the thought that there MAY be a CHEAPER short-term loan alternative is PLEASING TO ME. if a bank can produce that product, cool beans…

    but to be honest with you all, i doubt that would last for long. know why? because the people that NEED these products typically have poor credit for a good reason. they are a much HIGHER RISK. so before too long, banks would have to petition for higher allowable fees to cover their LOSSES on defaulted loans such as these. THAT is why payday lenders charge what they charge, by the by.

    so let’s just recap, john…these so-called INTEREST RATES charged by payday lenders??? NOT INTEREST, at least not in terms of our understanding of interest rates. these so-called consumer advocates who, in a coincidence to end all coincidences, just so HAPPEN to ALIGN THEMSELVES WITH BIG BANKING and the uber-powerful BANK LOBBY in order to rid the nation of this PDL SCOURGE…

    they cite APR’s…that stands for “annual percentage rates” ( unless we’re talking “acoustic paramagnetic resonance”–are we?? is that it?) on a PRODUCT that is not an ANNUALLY-BASED PRODUCT. it’s a WEEKLY-based product, whose fees are assessed ONE TIME ONLY. if the loan defaults, they can only charge a simple NSF FEE, and THAT IS IT. the debtor can then pay back over the course of a YEAR, TWO YEARS, THREE YEARS, and under NO CIRCUMSTANCES are the lenders allowed to assess that magical INTEREST RATE. NO HOW, NO WAY. NEVER.

    so NO…it cannot be done. that 391% APR??? FICTIONAL, john. FALSE. UNFACT. TRUTHLESS.

    sure, if you take that fee that covers up to two weeks and MULTIPLY IT TWENTY-SIX TIMES OVER, and divide by the principle…sure you get a FIGURE just like these so-called interest rates…but NONE of these lenders DO THAT. they CANNOT CHARGE these fees twenty-six or even fifty-two times over. granted…THEORETICALLY it is possible for a borrower to take out a loan and pay it off every two weeks…although even now most states enforce limits on the frequency of payday loans.

    but AGAIN…it is MUCH MUCH BETTER than paying NSF or overdraft fees, 5, 6, 10, 15 times a month at $20, $25, $30 a shot. anybody want to do the math and figure out what the “APR” would be on THOSE FEES? here, i’ll help: if the bank held a check for three days and then applied its $25 overdraft “protection” fee…if we’re talking about a simple $50 check (because remember, they force the BIG checks thru FIRST, so they’re usually smaller checks garnering these fees), it works out to 16.67% interest PER DAY, or better put as their OWN CHOICE for labeling fees: 6,084.55% APR!!!!!!!!!!!!!!!!!! $8.34 of new interest accrued PER DAY. the only GOOD THING about it? it’s SIMPLE interest…can you imagine if it COMPOUNDED????

    SO…is it unreasonable of me to apply such maths to the banks’ overdraft fees? i don’t think so, not since they work SO DAMNED HARD to make sure they can ASSESS THEM…and DEFINITELY NOT AS LONG AS they (“they” being banks, bank lobby, POLITICIANS on capitol hill, and consumer advocates who CLEARLY side with the banks on this issue) continue to FORCE payday lenders to post their one-time FEES as these ridiculous APRs.

    so yeah, what’s worse? 391% APR or 6,084% APR? and guess what? if the bank only holds the check for ONE DAY, that APR TRIPLES to 18,250% APR!!! in the words of will hunting: “how bout THEM APPLES!”

    and john, one last question: why do consumer advocates and lobbyists ASSUME that consumers are JUST TOO STUPID TO THINK THIS THROUGH FOR THEMSELVES? WHY DO THEY ASSUME THAT BORROWERS ARE JUST TOO DUMB TO UNDERSTAND WHAT THEY’RE GETTING INTO? these people KNOW. they DO have bank accounts…and they DO UNDERSTAND how those accounts WORK. that is PRECISELY WHY they take these loans out, because they UNDERSTAND that it’s better to pay for payday loans instead of paying the BANKS. besides, don’t the banks have monopolies on ENOUGH of the financial world? why do they have to also OWN the short-term loan market?

    if there weren’t so many damned SHEEP just following along with these so-called consumer advocate CREEPS, bunch of yes-men kow-towing it along while these butt-nuggets tell us all we’re TOO STUPID to discover for ourselves just what these loans are about and how much they cost…and telling us we’re TOO STUPID to take RESPONSIBILITY FOR OURSELVES, make right DECISIONS FOR OURSELVES. NOBODY is FORCED to take these loans out…if that oh-so-terrible interest rate is SO BAD, don’t take the loan out.

    how about…instead of OUTLAWING THE PRODUCT, you come up with a COMPETING PRODUCT…find a product that will drop drastically the amount of business that payday lenders can do. i’ll use it if they come up with it (and assuming i need it, of course). you kidding? a short-term loan with interest to rival that of traditional loans? come on…it’ll be HUGE. but…banks couldn’t be bothered, not if they can only charge traditional interest rates.

    here is a whopper to close with: at this moment, WELL OVER 60% of all payday loans are BACKED (as in: UNDERWRITTEN) BY BANKS OF SOME SORT. and YET…they want to outlaw the companies writing these loans that are NOT backed by banks??? wow. can you say hypocrite?

  5. pablo m. September 19, 2008 10:27 pm

    yes, i know…SUPERLONG post. sorry, had a lot to say. that’s my bad habit…i let things pile up for awhile, then i cut loose with superlong posts. sorry.

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