There has been quite a bit of noise lately about payday lenders and their very high (some would say "predatory") interest rates.  Last Tuesday, 12/5/06, House Bill 619 was defeated in the Virginia House of Delegates.  The purpose of the bill was to repeal the Virginia Payday Loan Act of 2002, which had exempted these payday loans from the maximum interest rate of 36%.

Anyone with a checking account, an ID, and evidence of a job can borrow against their next paycheck, with a "payday loan".  The concept is simple enough, and sounds like it does the job exactly as the payday lenders proponents say it does.  They say that these loans help people in real financial distress dig themselves out of a hole.

The problem is that the interest rates and the policies are set up such that cause these individuals who borrow this way end up in a downward spiral that is very difficult to break.  The opponents of payday lenders say that other options exist for individuals that need to borrow, and that the payday lenders are taking advantage of people that have no choice.  Every state around Virginia, has agreed and banned payday lenders with similar legislation — Maryland, North Carolina, and West Virginia.

I am a big believer in allowing market forces to decide what is necessary and what is an unsustainable business model.  BUT, there are situations where the public needs to be protected from themselves — and this might be just such a situation.

What does everyone else think about this?

3 Thoughts on “Loan Sharks or Saviors?”

  • i agree. i think they should be limited to being able to only make a few of these loans at a time, before paying them all off. i hear that is one of the proposed options. i also heard that if one of these companies has 50 or so loans made in a year, they make their total profits needed for the year.

  • i used to work at one of those places… yes, 300% sounds like a lot of interest, but that figure is based on a yearly loan – payday loans are paid off within the month (thus the term- payday). If you only let the lender make $3.50 on each loan – they won’t be open and there to help people in need.

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