Here in Ohio a group funded by the payday lending business is pushing to get a measure on the ballot to repeal HB 545, which when signed in the spring capped the interest rate that can be charged on payday loans to 28%.
A payday loan is where someone needs some quick cash – under $800 – and goes to a payday lender. The user writes a check for the amount plus the fee for the loan that the lender then either cashes in 14 days or the borrow returns to the store and buys the check back. The fee amount is usually $15 per $100 loaned. It works out to be a 391% yearly interest rate.
The lenders are upset because HB 545 will cut into those fees and we’re told that they will have to close their stores – hurting the working poor who are the primary users of the service.
Pro HB 545 people counter that 391% is an outrage and the “service” can lead people in financial trouble into a worse cycle – needing to get more loans to pay off the previous ones. They equate payday lenders to predatory mortgage lenders that have caused all kinds of economic issues for many people.
I sit in the middle of the debate. Both sides have good arguments.
I too, think that 391% interest is inhuman no matter the reason but on the other hand it should be a person’s choice to either get the loan or for a lender to lend the money. $15 per $100 loaned is a lot better than $35 or more for a bounced check.
Could someone get stuck in a cycle of loans? Sure. I know from personal experience that it easy to do it. There was a time when I almost got sucked in, but I went 2 weeks without getting another loan and broke out. It was very hard to do – I remember it meant a lot of mac and cheese dinners and no outside entertainment.
On the other hand – crap happens. Sometimes bills come up outside of your pay check and I don’t know too many creditors who will wait until your next pay day. Many people only get paid every 2 weeks or maybe only once a month – in those circumstances if you already budgeted your money for current expenses – you can’t afford something unexpected.
Try to get a small loan from a bank. They put you through the same checks as if you were borrowing money for a house.
Traditional banks have overdraft protection but you have to have good credit to get it. Writing a bad check isn’t just dangerous fee wise but if you do it too many times you can get into legal trouble.
Also the fees associated with bouncing a check are outrageous – I know this from experience.
Several years ago I missed calculated my balance in my checking account by $3. Seven – yes I said seven – checks were bounced at $35 a pop putting me on the hook for $245 in fees alone besides the $180 in bounced checks. They took the small amount I had left in my savings account and closed my checking account, conveniently after the 7 bounces with through. I refused to pay the fees and they put me on the bad risk list keeping me from even getting a savings account. I figured I would wait them out the five years the black mark would be on my report but then they reissued the black mark after four years by sending another report to Chex Systems.
Payday lenders also provide other important services for those who don’t have bank accounts. Many of the lenders operate check cashing services. For those years I couldn’t open another bank account, payday lenders helped me by cashing my payroll check and letting me buy money orders to pay bills.
While I do think some regulation of payday lenders are needed, HB 545 hurts the consumer.