Payday Lenders Under The Gun

Want to get buried in debt really quickly? Go to one of those "payday lenders" you see popping up all over. How do they work? Well to those who have never fallen a little short just before payday here’s the deal.

You go in and see the rates no the wall. They are in dollars and cents, not percents. Typical rates run about $15 for $100 lent until payday. This is also typically a two-week loan. When you think of it on the dollar only level it doesn’t sound so bad, but that $15 represents an annual interest rate of 390%. How many people would pay that?

Payday lenders prey on low-income people who lead a cash existence. These people often times do not have bank accounts and live only with the cash in their pockets. If you have ever tried this, and I have, it is almost impossible especially if an unexpected expense comes along. For many that means a health emergency or car repair or other necessity that is unavoidable. If you make $300 or $400 a week, and need a $250 car repair, things get tight real quick. So you go to the payday loan store and borrow the money.

Here’s the catch. Payday rolls around and you pay off your loan with the interest at $287.50 and you have $12.50 to get you through the week. If you want to eat and feed your kids and have a roof, you head over to the next payday loan store and borrow another $250. Get it? In no time you are working for the loan store and stacking up debt at a phenomenal rate.

These guys used to be called "Loan Sharks" and they were strictly regulated until recently. The GOP mantra of deregulation was a windfall for these guys. Sensing the turning tide with the new congress they are taking a defensive posture and trying to appear self-regulating. In reality they are just covering their collective asses. They see the writing on the wall. About 13 states have effectively banned payday lending; the other 37 regulate the practice to varying degrees. State regulation is pretty much all that protects consumers from these sharks and now it looks like congress is going to take action and they are scared.

They should be. I have no problem with making an honest dollar. But, the payday loans just like the rent-to-own business make money on the ignorance of their consumers and that is just plain wrong.