Home > Payday Loans > Payday Loans: Legislature Creating Troubles For The Borrowers
Payday Loans: Legislature Creating Troubles For The Borrowers |
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It is becoming more expensive to be poor in US thanks to the Legislature. While maximum attention has been on the concealed weapons bill and same sex marriage, two measures adverse to the interests of the lower income consumers preceded largely unnoticed by the public. They involve the two key aspects of the fringe banking industry, rent-to-own contracts and payday loans. Though small, payday loans have higher interest rates too. Thus to avoid the debt trap of payday lending, avoid these loans as well. Both industries offer instant access to cash and consumer goods with their target being low income consumers with bad or no credit. Consumers frequently discover that the price can be extremely high. Rent-to-own contracts and payday loans clearly outline how the poor end up paying more than the wealthy. Payday loans are usually short-term of around two weeks, for fairly small amounts like $100 to 300. The fee charged by the lender usually comes to about 20% of the loan value. This makes borrowing $300 cost $60. The interest rate is thus over 500%. In the event of inability to repay the $300 once the loan comes due, as it does for a majority, an extra $60 can enable rolling over, but no more cash is received. Thus, consumers end up paying more in fees than the amount borrowed in the first place, snowballing into overwhelming debt. The harsh reality of payday lending is that it completely depends on the massive fees from defaulting borrowers. 91% of payday loans are availed by families trapped in a cycle of over five loans a year with only 1% of payday loans accounting for borrowers taking one loan per year. The industry claims that its loans are meant for occasional use but the findings differ. Financial experts do not favor payday loans due to the compromise it creates in efforts at building wealth and savings in communities of color. Redlined in the past, the communities now make up the desired marketplace for this legal extortion. Washington has maximum payday loans fees of $15 per $100 for loans under $500. The fees on a maximum loan of $700 can be up to $95. The duration is up to 45 days. Critics complain about the staggering interest rate, especially since consumers need the money for at the most, a few weeks. The $45 fee on $300 payday loans for two weeks amounts to an annual rate of 391%. Payday loans industries argue that it should be the market which determines the interest rate with the competition favoring the consumer. However after over a decade since the first payday loans, interest rates have remained the same. So, What Has The Legislature Done About These Problems? Last month the Legislature supposedly passed a consumer-friendly payday loan bill that is more likely to harm than benefit, offering helpless tips like cautioning that payday loans aren't the answer to long-term financial problems. Obviously desperate consumers do not have the distant future in mind when approaching a payday lender. The need for the cash is right now. It is also futile to inform consumers of their ability to cancel the transaction at any time until the cash is received. One of the major attractions of payday loans is the speed. Not many consumers are likely to change their minds between completion of an application and receipt of the money. The bill also specifies a cap of four rollovers per customer. There is no means of enforcing the limit on rollovers nor can consumers be prevented from approaching a second payday loans lender to pay off a loan from them first. The biggest drawback in the bill is however is that it will preclude sound payday loan regulation in the country due to the unlikelihood of the Legislature reverting to the subject in the favor. The only means of checking the excesses of payday loans is to cap their interest rates. It is still early enough to halt the excesses of payday loans by capping their interest rates. Nor is it too late to persuade the Governor to set things right. |
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