22
Aug

Payday Loan Statistics – Misleading Politicians and the Media

Thomas Sowell at the National Review wrote an interesting article about payday loans and the magic of numbers. In it he wrote, “A common practice in making small loans of a few hundred dollars for a few weeks is to charge about $15 per hundred dollars lent. Politicians, the media, community activists, and miscellaneous other busybodies are able to transform these numbers into annual percentage charges of several hundred percent, thereby creating moral melodramas and demands that the government “do something” about such “abuses.”

Mr. Sowell goes on to discuss the ramifications of the passage of legislation in Oregon that reduced the maximum allowable usury rate to 36% resulting in the closure of Oregon small businesses, the misinterpretation of “numbers” by politicians and the media to achieve their wrongheaded goals and more. He ends with this, “In other words, numbers do not “speak for themselves.” Politicians, the media and others speak for them — very loudly, very cleverly, and often very wrongly.

He also wrote, “Not surprisingly, most of the small finance companies making payday loans in  Oregon went out of business. But there are no statistics on how many low-income people turned to loan sharks, or had their electricity cut off, or had to do without their medicine.”

“This is just one of the many ways in which self-righteous busybodies leave havoc in their wake while going away feeling noble.”

It’s an inciteful article. It’s entitled, “Magic Numbers, Don’t be misled by payday-loan statistics.” It’s short and concise; certainly worth a few minutes of our time!

Again, here’s a link: “Magic Numbers Don’t be misled by payday-loan statistics.”

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Comments ( 1 )
  • Michael Adams says:

    We would agree. It takes a certain administrative cost to originate a loan whether it is for 10 days or 10 years. If you are going to take that fee and use it to calculate APR for the year- it gets very misleading.

    By the same token, when you pay a credit card bill of $50 late by 4 days, you could get hit with a $30 late fee. Works out to 60% for 4 days or 5400% for the year. But that’s a misleading way to look at it.
    There is a segment of the market that payday loans serve and governments would be ill served by making these services less accessible to people.

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