Adversaries of the payday loan industry have continually assaulted the so-called high interest rates we charge. They make little allowance for the fact that there are significant costs in servicing a loan of $200 to $1000 or more. They ignore the high number of defaults we experience after granting these non-collateralized loans. And they fail to realize the increased costs we absorb due to increasing legislation and regulation.
Their most compelling failure, however, is their inability to understand that limits on usury can actually hurt the very families the legislators attempt to protect. PHD D. J. R. Clark, in an article at Low Payday Loan Usury Rates points out that in the 1960’s, Washington State consumer credit card loans were regulated at 18% APR’s. Consumer protectionists succeeded in lobbying for a reduction to 12% APR’s. As a result, the demand for 12% loans exceeded supply thus the families with the weakest credit were denied loans. This included the younger wage earners, new families, folks with unstable work histories, recent divorcees, the aged, welfare recipients, etc. Obviously, when these consumers need a few hundred bucks to fix the car, buy medicine, turn on the lights or gas, etc., they had fewer options. If they had already tapped out friends or family they were left out in the cold.
We know from specific experience that residents of states that do not allow payday loans to exist pay more for them. That’s right! They still get them. They drive for miles across state lines forced to spend more time and money to get access to a payday loan product they desperately need and use.
And they apply for and receive them via call centers and payday loan Internet web sites where the average cost is between $25 and $35 per $100 borrowed; MUCH higher than the rate paid in friendly payday loan states like Florida ($10/$100), California ($15/$100), Alabama($17.50/$100), Alaska ($15/$100), Arizona ($15/$100), and many more.
The fact is, the payday loan industry WELCOMES regulation. It helps the industry legitimize their industry, it manages the few unscrupulous payday loan operators that exist in all industries, and it creates a level playing field for consumers.
