Financial Advisor: Extend Military Payday Loan Cap to Civilians
By Paul RizzoPayday Loan Writer
Michelle Singletary is a personal financial consultant. She supports the recent measure to cap interest rates on cash loans to the military - but fails to understand why this cannot be extended to all consumers …
If payday loans are a bad deal for the military, they are a bad deal for everyone.
To acquire a payday loan, you have to have a bank account. You have to give the lender permission to cash a post-dated check or electronically take the funds out of your account. That means you're giving a creditor direct control over your cash.
"It's just wrong to charge 400 percent, no matter how severe the need is," Travis Plunkett, legislative director for the Consumer Federation of America, said. "These loans are inherently abusive, whether they are directed at members of the military or the general public."
Plunkett said that what's good about this legislation is that interest is defined to include all extra charges and fees, including the sale of related products, such as credit insurance.
The measure prohibits lenders from making cash advance loans to service members based on checks written without adequate funds in the bank. It would also bar lenders from arranging loans that give them priority to electronically access a service member's bank account or paycheck. Finally, the provision would ban loans secured by a service member's vehicle. That type of loan is called a title loan.
Title loans versus payday loans: Like regular and/or no faxing payday loans, car-title loans are marketed as small emergency loans. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is usually made for much less than the value of the car.
In a title loan transaction, you keep your car and the lender keeps the title as security for repayment of the loan. If a borrower fails to repay the loan, he runs the risk of losing his car.
The payday advance loan industry characterizes the small, short-term loans it offers as a financial taxi to help people get from one paycheck to another when faced with an unexpected need for cash.
The payday loan defnse: Payday loans are cheaper than bouncing a check or paying a late fee on a credit card, said Darrin Andersen, who is president of QC Holdings, a payday advance lender, and president of the Community Financial Services Association of America, which represents more than half of the estimated 22,000 payday advance industry outlets.
Most payday customers use the service about six or seven times a year, Andersen said. His company and others are filling a need, he added.
It may be that payday loans are in demand, but you can't base the demand for this type of business on the satisfaction of cash-strapped, desperate individuals.
And to say that getting a quick cash loan is better than bouncing a check is like saying it is better to smoke one cigarette a day than two. Both are bad for you.
Helping the military steer clear of predatory, high-priced debt is a good thing. It would be even better if the legislation were expanded to include all consumers.
