Payday Loans & Freedom of Choice

By | Oct 31, 2008

There are a lot of great posts regarding payday loans, Ohio, big brother issues and more over at .

Here’s an example and we recommend you head over there for more pros and cons on payday loans and big brother…

Casey had an interesting insight:
“Payday loans are faulty product deserving of some common sense regulation.” (1) PD loan are already regulated in Ohio. This new “law” limits PD lenders from operating and extending loans by SIGNIFICANTLY cutting their profits per loan. (more on that later)

“The free market works best when there is freedom and choice.” 2) ABSOLUTELY 100% agree with this statement! Financial Freedom of Choice is a BASIC FUNDAMENTAL RIGHT!

“The payday industry may shroud itself in the mantra of choice, but in reality the people trapped by payday loans have few choices. If they did, they’d probably looking for an alternative to a 391% interest loan. ” (3) Do you know why the typical PD customer makes the CHOICE to use our services? B/c we are cheaper than bouncing a check (released yesterday from– ” A bounced check costs an average of $28.95, up 2.5 percent from a year ago, according to the survey. (AP) WHAT?? How crazy is that??!)
Customers choose to borrow from a PD lender b/c we offer a better rate/fee. $15 per $100 borrowed. So if I have a $100 check that I know will bounce— do I decide to suck it up and pay my bank’s charge of $28.95 OR do I look at my options and decide to get a PD loan for almost exactly half my bounced check fee…. Hmmmm…. this is a tough one…. gee>>> I think I’ll GO WITH THE PD LOAN!!!!!

Banks are notorious for their EXPENSIVE hidden charges, late fees, bounced check fees, daily fees, minimum balance fees, etc. And the average profit margin for the top 10 banks in the US are 18.5% compared to the top 5 payday lending companies in the country who are at 6.6%!! (PDF- source) And oh IHOP is at 12.6%. They are sure making a killing off our eggs and pancakes!! So really now, who exactly is profiting more?

But why haven’t banks and credit unions stepped up to write a similiar PD loan product?? Let’s look at why….
Consider the difficulties payday lenders face to stay in business under a law that limits their interest rates to 1.08% for a two-week loan. That is, if you take the new 28% yearly interest rate and divide it by 26, you get 1.08%, which is what lenders will be allowed to charge per every $100 they loan. Under the old Ohio law, they could charge up to $15 per $100 borrowed, or 15%.
So….. in case you are missing the point….
28% on a SHORT TERM LOAN IS NOT PROFITABLE!!!! For any business!

And oh yeah it’s not 391%. PD loans are 2 week loans, not 52+ week loans. Equating them with an annual loan product is absurd. If you rent a car at Hertz for 3 days, you pay $29.99/day…. Yet NO ONE computes what that cost would be annually b/c it’s only intended to be for a SHORT TERM!!


7 Comments so far
  1. Payday Loans & Freedom of Choice October 31, 2008 1:22 pm

    […] Payday Loans & Freedom of Choice PD loans are 2 week loans, not 52+ week loans. Equating them with an annual loan product is absurd. If you rent a car at Hertz for 3 days, you pay $29.99/day…. Yet NO ONE computes what that cost would be annually b/c it’s only intended … […]

  2. Laurie October 31, 2008 4:04 pm

    As long as payday loans are used like they’re supposed to be, short term. Thanks for the info. I know how I’ll be voting.

  3. Payday Loans October 31, 2008 4:31 pm

    Thank you for this article. I think that payday loans can be a great benefit to people who find themselves in financial emergencies. They can get you money fast and easy and are always there to help.

  4. Payday Loans October 31, 2008 6:50 pm

    The great minority of borrowers are in over their heads. The vast majority aren’t. The thing that is true is that their are no other similar alternatives.

  5. payday loan October 31, 2008 11:32 pm

    The freedom of choice is one that should never be taken away. When used wisely payday loans can help save money and get you through tight financial spots.

  6. payday loans November 1, 2008 9:15 pm

    I agree that it should be the freedom for people to choose where and with whom they want to spend or borrow money. payday loans are one of those things I would love to continue to do them

  7. Payday Lending Rep November 5, 2008 9:32 pm

    Casey’s support for the payday lending industry is greatly appreciated and I enjoy following her comments on various blogs.

    It goes without saying that the opinions of millions of hard-working payday advance customers have been lost in the debate over payday lending. Their voices are overshadowed by critics who have never actually used the service. Our customers are real people who use payday advances to solve real problems. Prohibiting payday lending only forces consumers to use the other, more costly short-term credit products available, such as overdraft protection, late fees on credit cards and other bill payments and off-shore Internet lending. CFSA members want customers to use payday advances wisely and want the service to be a solution for those who need low-dollar, short-term credit. A payday loan may not be the best choice in every situation, but that’s no reason to eradicate it completely. There is still a need and a demand for this service. CFSA promotes laws and regulations that protect consumers while preserving their access to credit options.

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