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Lenders say: The fee charged by Payday lenders is not really an Annual percentage rate of 390% because the borrower does not have the money for a year. Answer: That is like saying to a police officer who stops you for going 100 miles per hour, “But, Officer, I couldn’t possibly have been going 100 miles per hour. I have not been driving for an hour. I just left my house 5 minutes ago!"
Lenders say: People who use Payday Loans don’t have alternatives; they need Payday Loans. Answer: There are many alternatives, especially among Credit Unions. We don't hear about them on the radio or TV because institutions that charge 18% (or 24% or 36%, etc.) can't fund massive radio and TV promotions. Payday lenders, however, can afford large media, legal and lobbying budgets; they also make sizeable contributions to election campaigns. Lenders say: We support reforms. Answer: Measures short of an interest rate cap fail to fix payday lending problemA new research report from the Committee for Responsible Lending finds that the debt trap of payday lending persists even in states that have put restrictions on payday loans while exempting them from interest rate caps. In "Springing the Debt Trap," CRL finds that high numbers of borrowers are still caught in payday loans for long periods of time, even in states that have passed certain measures intended to stop this cycle. No measure short of an interest rate cap has effectively addressed the repeat borrowing that advocates, policymakers, and the industry itself agree is the central problem with payday lending. Some states have allowed payday lenders to operate with virtually no restrictions. Others have solved their payday lending problem with the interest rate cap. And a third group has tried to create a middle ground by passing measures that put restrictions on payday loans while exempting them from interest rate caps. Unfortunately, this middle ground is still quicksand for borrowers. The latest report finds: · 90 percent of payday lending business is still generated by trapped borrowers with five or more loans, even in states that have attempted reform. · 60 percent of payday loans go to borrowers with 12 or more transactions per year—that's at least one every month. · 24 percent of loans go to borrowers with 21 or more transactions per year. To break this last point down, for a borrower who is paid every two weeks, there are 26 pay periods in the year. Payday lenders represent their product as a short-term, usually two-week loan. But a quarter of their business comes from loans made to borrowers who are flipped into a new loan they can't afford to pay off —almost every two-week pay period of the year. Data from the state of Colorado shows that one in seven borrowers there have been in payday debt every day of the past six months. And another telling figure in our report: nearly 90 percent of repeat payday loans are made shortly after a previous loan was paid off. This is evidence that borrowers are going right back into the same payday debt, rather than paying their loan off for good. Some states have tried to spring the trap by putting certain restrictions on payday lending. The industry often supports these measures, because they already know they will not stop the repeat borrowing they need to survive. Our report shows that none of the measures have worked: · Renewal bans and cooling-off periods do not work. · Limits on the number of loans outstanding do not work. Payment plans do not work. · Capping the loan amount based on a borrower's income does not work. · Databases which only enforce already ineffective provisions do not work. Payday loans are designed to keep borrowers in debt they cannot afford to pay off. The only proven way for state policymakers to stop this abuse is to enforce a comprehensive small loan law with an interest rate cap at or around 36 percent.
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Presbytery of the James |