Payday loans certainly get their share of news coverage. States throughout the nation have been looking at ways to regulate, even ban, payday lending, most typically citing the high annual interest rate. That, of course, conveniently ignores the fact that a payday loan isn't taken out for a year. It is a short term
personal loan, usually taken out for a period that corresponds to the period between pay checks, hence the name. The associated fees seem, to many users, a reasonable cost for immediacy and ease, and they are willing to pay for the convenience of a quick cash loan. However, politicians and
certain advocacy groups seem to be unable to bear the concept of free choice, particularly among those of lower income, and payday loan legislation has now gone federal.
Rather than focus on the rampant abuses by banks, such as the
involuntary short-term loan program with the Orwellian and insulting to the intelligence name of overdraft protection, that studies have shown are
more costly for many consumers, Congress is busy with payday loans. There are a couple bills currently moving through congress, both with differing degrees of regulation. One, “sponsored by Sen. Richard Durbin (D-Ill.) in the upper chamber and Rep. Jackie Speier (D-Calif.) in the House,” according to an April 8, 2009, article in the Washington Independent, is seeking to cap APR at 36 percent, which would effectively ban payday lending, as it would not permit them to charge enough to make the risk of lending worthwhile. After all, two weeks worth of a 36 percent annual rate would be a pittance, really.
Another, which the usual payday loan critics are loudly complaining about, is backed by Rep. Luis
Gutierrez (D-Ill.), who heads the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. “The Gutierrez bill,” according to the
Washington Independent, “attempts to strike a compromise between those positions, capping biweekly interest rates at 15 cents on every $1 borrowed — a rate equivalent to 391 percent annually. The proposal would also create a system allowing borrowers to pay back their loans in installments, rather than in lump sums. And it aims to prevent lenders from refinancing loans at higher rates when borrowers aren’t able to pay on time.”
Critics point to the amount of money payday lending industry lobbyists have contributed to political campaigns, making snide comments about buying influence. How hypocritical, considering that these amounts – thousands -- are minuscule compared to the amounts – millions -- that the
banking industry contributes and the amounts that come from Wall Street. Consumers can choose not to use
payday loans and thus not pay the fees, but how many can
completely avoid banks and their abusive fees? And, adding insult to injury, the American tax-payer is forced to bail out the banking industry, so that the industry can continue to enjoy the ability to charge $35 dollar overdraft fees on forced loans of a few dollars, rather than do the decent thing and deny the transaction, as well as the myriad of other predatory practices employed by the banking industry.
Perhaps it is the freedom to choose something other than being fiscally assaulted by
banks that drives this constant push to eliminate payday lending. Maybe part of it is a paternalistic desire to control the choices of those lower on the socio-economic ladder, on the assumption that if they were capable of making wise decisions they wouldn't be low income in the first place. It could also be a sort of disconnect on the part of legislators, living so high on the hog for so long on tax-payer dollars, they forget what it is like in the real world, when the unexpected does happen to those without ready lines of credit. Whatever the reasons, it seems that we can expect a continued legislative push against the payday loan.
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