A very popular and ever increasing industry in America is the Payday Loan industry. For those who don't know, a payday loan facility loans the patron a certain amount of money, for fee as a short term loan, to be paid back on the patrons "payday" (or close to that time).
The fee for this service is deemed exorbitant by many lawmakers and is capped at over 300% APR. This means that a three hundred dollar loan for a two week period of time would cost the patron $45.
In the banking world, this kind of interest is unheard of and lawmakers around the country are rallying to create state laws to strictly regulate this industry.
Although it is hardly arguable that the interest rate that payday loan companies charge is extremely high. However, this kind of service cannot be viewed as a banking service in the traditional sense.
The loans provided by these companies are extremely short term; typically two weeks or less and at a 30% APR similar to what banks charge, these companies will go broke.
Just as segments of the banking industry does, the payday loan companies serve a consumer who's credit is shot and do not have access to normal means of credit. As such, the payday loan companies, also like normal banks, charge more money because the RISK is much higher among these consumers.
While the States argue that the fees charged by Payday loan companies are exorbitant, they fail to recognize that banks charge much more than Payday loan companies.
If you borrow $300 from a payday loan company, you will repay about $45 in approximately two weeks. If you get a credit card with bad credit, from a normal bank, you will receive an interest rate of at least 30% and a minimum monthly payment of $12. Of that $12, approximately $4.52 will go toward interest.
When a person pays the minimum payment to the bank for a credit card at 30% APR, it will take 4 years and 3 months to pay off and will cost the consumer approximately $230...or almost 77% of the original loan amount.
This amount is above and beyond the annual membership fees, late fees and over the limit fees that these banks charge.
So how is it that the Payday loan companies are "predatory" and the banks that issue credit cards to high risk consumers are just fine?
In actuality, the Payday companies are far less predatory than the banks when it comes to dealing with the high risk credit consumer. At least the Payday loan companies are extremely short term and force the consumer to get out of debt quickly.
Check out your credit card interest rates here:
http://credit-cards.interest.com/content/calculators/credit_card_minimum_payment_calculator.aspThe banks however, have a much stronger, much deeper lobbying effort and command the attention of the politicians as they have for years. The payday loan companies are getting into the pockets of the banks and the banks want it to stop. THAT is why the politicians are passing the new regulations.
Aside of the hypocrisy of the laws currently being passed against the Payday loan companies, there are also jobs that are being lost as a result of these new laws. In Ohio alone, over 6000 jobs are at risk.
In addition, and most importantly, what happened to an individuals right to do with their money what they choose? What happened to personal responsibility?
This is just another way the Government restricts the free market, limits personal freedom all in the name of JUSTICE and PROTECTIONISM.
THIS is EXACTLY how Socialism plants its deadly roots and the everyday person thinks nothing of it in America.
Socialism in indoctrinated fractionally into our society. It isn't brought about by MAJOR changes in society but MINOR ones.
THIS is one of them!
