The Pitfalls of Payday Lending
By: Nicole | August 22, 2008 | Category: Money
The Gov Gab comment box has recently been flooded with spam promoting payday loans. Fortunately, we don’t post spam, but these messages gave me an idea for today’s topic.
If you gather more than five consumer advocates in any one location for more than five minutes they will commiserate about the pitfalls of payday lending. For cash-strapped consumers, a payday loan is one of the most treacherous ways to borrow money.
Here’s an example. A person borrows $100 until payday. The lender charges $15. The borrower cannot repay the loan on time, so the loan is "rolled over" for another two weeks with an additional fee of $30. Already, this person has spent $45 to borrow $100, and the borrower is not out of debt yet.
Most payday lending models actually intend to keep the borrower in debt indefinitely. More than 90 percent of these loans are given to borrowers who use more than five payday loans per year.
Payday lending is illegal in some states. Use this map to determine if your state has laws that protect you from payday lenders.
If you find yourself short on cash, look for alternatives to payday loans.
For more information about managing debt, read our publication on Financial Fitness.
Have you ever been solicited by a payday lender?
Permalink
| View Comments [20]
| 
E-mail This Entry
| Tags:
bankruptcy
debt
finance
lender
lending
loan
loans
money
nicole
payday
predatory_lending
Bookmark and share: 
About social bookmarking
RSS Feeds
E-mail Updates
We need to end predatory payday lending in Ohio! Vote Yes on Issue 5!
http://www.yesonissue5.org
Comment PermalinkWhere's the proof, besides Mr Bill Faith's comment, about paying for signatures? Which BTW turned out to be COMPLETELY FALSE!
Please do us all a favor and educate yourself about the ins and outs of the Industry before spewing myths and untruths.
Comment PermalinkThe payday lobby collected signatures for 2 petition summaries before the 3rd summary for which signatures are being collected now. So, a petition circulator did, as a matter of fact, pay residents of a homeless shelter for their signatures in June. Fact. There are witnesses. It happened. Quit lying about it.
I'm going to vote yes on issue 5 to end predatory 391% interest.
Comment Permalink
Comment PermalinkThis bill/"law" is about Financial Freedom and eliminating 6000 jobs. And the mistakenly quoted 391% is incorrect since its a SHORT TERM LOAN, not an annual one. It's $15 for every $100 borrowed= 15%!!!
Many Ohioans need a short term, low fee loan option... who's going to fill that need if this "law" passes? Banks and credit unions have YET to step forward at 28%, have they?? 28% on 2 weeks is not profitable any way you look at it. And who's going to replace the 6000 jobs? Seems to me Ohio has many issues greater than pay day loans -- higher than national 1) foreclosure rate, 2) unemployment rate, 3) citizens on welfare 4) and loss of jobs for 2008. And oh yeah we're 60 MILLION DOLLARS in debt as a state!!!
HB 545 is about Adults making their own financial decisions based on their family needs. Don't mess with my money and I wont mess with how you choose to spend yours!!!
Get your facts about the Payday Industry and practices straight folks before you contribute to the garbage that others are spewing!!
Comment PermalinkCheck out this quote from Tom Dudte, an owner of a payday lending store in Columbus, Ohio: “If you don’t have customers always re-borrowing, you’re not going to make much money,” he said. “I did the best I could. I’d just love to find a buyer right now for my business.” You can read it for yourself here: http://www.theotherpaper.com/articles/2008/08/28/front/doc48b5d29002639711381304.txt.
I'm tired of hearing about how payday lenders are "just here to help the little guy." The payday lobby is in Ohio trying to protect their ability to charge outrageous interest rates and make huge profits off of our most vulnerable citizens. It's wrong and they should be ashamed!
Vote yes on issue 5! We need lower interest rates, not predatory interest rates! 391% interest is NOT financial freedom - it's a trap!
Comment PermalinkYou are merely contributing to the lies, myths and falsehoods. If you don't need a payday loan, then don't use it. Its as simple as that. However, there are thousands of Ohioans who need this option to be available to them. A payday loan is cheaper than bouncing a check, incurring a late rent/mortgage fee, or forgoing fixing a car, or not eating!!
As an adult, I can decide if I want to spend a portion or all of my hard earned money on smoking, gambling, alcohol, etc.... All of which are highly ADDICTIVE and 2 of which can contribute to quickening a person's death!! Yet, here we are discussing how I can spend MY MONEY!! Let's focus on the real issues--- loss of jobs, high unemployment, assistance programs, rising food and gas prices, foreclosures and our state debt!!
Why is everyone so fearful about letting Ohioans have a chance to vote and have a say in their Financial Choices??!! We all deserve the right to have our voices heard!!! Last I heard we lived in the United States, the voice of democracy!
Comment PermalinkThe same goes for credit cards, banks, credit unions, mortgage companies, casinos, etc. ANY company is in business to turn a PROFIT!! Business lesson 101. Your statement that the Payday Industry makes huge profits is laughable!! What is that statement based on... your opinion or actual fact?? Please do your research about how the ENTIRE industry operates before you try to state something as the "truth".
Comment PermalinkHere's another quote from one of your buddies, Dan Feehan, the CEO of Cash America at a Conference in 2007:
'And the theory in the business is you've got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that's really where the profitability is.'
So, who is spreading lies, exactly?
People who use payday loans for an extended period of time are NOT better off and you know it! Have you ever asked anyone how they felt when they are using payday loans for over a year?
Comment PermalinkI most certainly am a PROUD Payday Industry Employee, I have no problem admitting that. But I am also more importantly an American who encourages and supports Freedom of Choice.
"A repititive long term customer" is what EVERY company strives for-- that's what leads to profitability. For banks, gas stations, airlines, stores, casinos, etc. That's why companies are in business!!
HOWEVER, Mr Feehan didn't state what line of business he was referencing, did he? Cash America is one of the largest PAWN brokers in the US... he could have very well been commenting on that business unit. It's no surprise Payday Lenders are interested in making a profit... the issue is that critics believe the rates we charge are "unfair".. they quote 391%--- UNTRUE & a LIE!!!! It's $15 per $100 loan. No more, no less.
Bottom line-- as an adult don't tell me how or where or when I can spend my money. It's MY choice, not the government's.
Comment Permalink**99% have borrowed money!!**
If I need to borrow $$, I want options available to me… and payday loans are a viable, easy, low cost option. They are cheaper than bouncing a check, getting a late payment on a credit card, rent or mortgage payment and are certainly a GREAT alternative to going without food, gas or medicine until next pay day.
The “myths” that the critics continue to state are baseless, untrue and try to manipulate people’s opinions. 391% is NOT accurate for figuring a 2 WEEK LOAN!! What’s so hard to understand that it’s 15% and no rollovers are allowed in Ohio?? THAT IS FACT!!!
Bottom line– 400,000++ Ohioans signed the referendum to put this issue to the citizens of Ohio— soon the Sec of State willl confirm enough signatures and we will all wait until Election Day. This is democracy at it’s VERY best— let those affected, the residents of Ohio, decide for themselves. Let them decide how, where, why and when they spend THEIR money!! VOTE NO !!!
Comment PermalinkI think that's probably it. Well, I'm not falling for it. I'm voting yes on issue 5!
Comment PermalinkAnd 391% is FALSE!!! It's a 2 week loan at 15%!!!!!
Let Ohioans decide--- they are smarter than the Ohio General Assembly, any day!!!
Comment PermalinkVote yes on issue 5 to truly lower interest rates! http://www.yesonissue5.com
Comment PermalinkQuite frankly, just b/c you don’t seem to need a payday loan doesn’t equate to them being unnecessary. They are a viable option and alternative for many to avoid the fees for late payments, bounced check fees, etc.
Payday lenders are not ripping off the poor, anymore than the laundry mats are (since they are heavily concentrated in urban areas). Anymore than low income housing is mainly in city areas. Anymore than smaller convenience stores are. A Payday loan is a service, just like those others I mentioned. Companies exist to make a profit so to state they make XXX and should only make X is ridiculous--- plus there are so many other industries that make MUCH MORE $$ than Payday Lenders.
First rule of any business– study the demographics of your audience, target your area where your customer base is and establish presence. Just b/c you start a business does not mean people are OBLIGATED to use it. They decide to or not!! They weigh options and make their own choices. I choose not to smoke and therefore don’t buy cigarettes, but I do drink alcohol. I choose WHERE, WHAT KIND, WHEN and HOW MUCH I PAY, etc— I am an adult and am entitled to make those responsible decisions for myself. If I choose to go to a drive thru to get wine or beer and pay a bit more for the convenience than I would at Walmart– so be it!!
VOTE NO— so you can spend your money as YOU see fit!!
Comment PermalinkIn red letters is your "imaginary" 391% APR, which is required to be disclosed to borrowers by the Federal Truth in Lending Act (TILA). So, payday lobby, now is the time to stop lying about the interest rates and fees and admit that your product is predatory.
I have a feeling I'll see a pig with lipstick fly before the payday lobby acknowledges that their product is designed to trap borrowers in debt! Want lower interest rates? Vote Yes on Issue 5!
Comment PermalinkPayday loans in Ohio are $15 for every $100 borrowed. Which is 15%. Borrow $100 and pay back $115. No hidden fees, no additional interest or charges. And 15% is waaaay cheaper than incurring a bounced check fee, late fees, utility cut off, etc.
Do you understand that Aaron? Payday loans are a viable l
LESS expensive option for many Ohioans and that's their right to choose or not.
VOTE NO on ISSUE 5!! Preserve financial freedom in Ohio!!!!
Comment PermalinkWhen compared to traditional banks, payday lenders' profits are measly. The average profit margin of the top 10 banking holding companies in the United States is 18.5 percent. Traditional banks earn far higher profit margins on late charges, bounced checks fees, ATM fees, over-draft protection, and credit card balances than what payday lenders earn on their regular fees. The bank profits come from charges most people don't think twice about paying nearly every day. But again, no one is accusing the traditional banks with overcharging Americans."
(- PD Source)
Comment PermalinkAlso, thanks for that quote about payday profits from Lynn DeVault, the president of CFSA (the national payday lobby)! Such a credible source - one of the lobbyists, whose job is dependent upon trapping borrowers in debt! Payday lenders in Ohio make over $300 million in fees each year off the backs of working folks in the state.
End predatory lending in Ohio! Vote yes on issue 5!
Comment PermalinkThe Editor of Gov Gab here. The arguments back and forth are flying thick and fast. Thank you for sharing your perspectives--you're all very passionate about your beliefs. But we haven't heard from anyone who has actually used a payday loan and was either helped or hurt by it. As they're the ones who stand to benefit from or be hurt by the referendum in November, I'd like to turn the floor over to them for a couple weeks.
So if you have used a payday loan, please share your experience with us. Were you able to pay off the loan in the stated time? How did taking out the loan help or hurt your family's bottom line? Do YOU think the interest rate for payday loans should be limited?
Comment Permalink