Payday Loan Times

How does Dave Zweifel of The Capital Times feel about payday loans? Let’s paraphase his recent editorial and find out:

The so-called payday advance lending industry collects 90 percent of its revenues from borrowers who cannot pay off their loans when due.

That’s what the Center for Responsible Lending, a Washington, D.C., nonpartisan research and policy organization, reported last week after conducting a national study of the industry that feeds off people who are desperate for quick cash.

In other words, those stories the providers of online cash loans tell us about how they serve a real need for folks in need of quick cash who then pay them back with their next paycheck is a bunch of baloney.

In its report, the center calculated that predatory payday lending now costs American families $4.2 billion a year in excessive fees. It estimates that the share of that total for Wisconsin’s families who wind up doing such borrowing is $124 million a year.

“Taking the interest on the average payday loan principal as reported by state regulators, and multiplying it by the average number of loan flips per year, we find that the typical borrower ends up paying back $793 for a $325 loan,” the center’s report maintained.

Eleven states ban payday lending and as a result, the report added, they saved their citizens a total of $1.4 billion.

I’ve written about payday lenders several times in the past. Their most egregious practice was to set up shop across from military bases and then make loans to naive young soldiers on their way to Iraq, charging them fees and interests when they needed to “flip” their loans from month to month that amounted to annual percentage rates approaching 500 percent.

In other words, the faxless cash advance lenders had a virtual lock on the soldiers’ next paychecks.

After the New York Times did a major article exposing the practice, Congress passed a law that the president signed, capping the annual interest rate at 36 percent for consumer loans made to military families.

Additionally, the new law outlaws anyone from taking security interest in a military check, in effect prohibiting fast payday loan lending to the troops.

Indeed, that’s what the center thinks all states ought to do to stop the practice that is gouging the people with the least ability to pay. The industry keeps insisting that it is simply filling a need. If it weren’t around, these poor borrowers would be even more destitute than they are now, the industry claims.

What the new Center for Responsible Lending study shows, though, is that nine out of 10 of those borrowers would be a lot better off in the end if they never got that original personal loan against their next paycheck in the first place.

Better yet, the banks and credit unions could help with innovative programs that could help fill the need for working people desperate for cash because of a family or medical emergency.

Yes, because of the risks involved, the rates could be higher than typically charged for routine other payday cash loans. But something ought to be done to stop this unconscionable practice