Struggling States Crack Down on Payday Loan Lenders

By: Javi Calderon
Struggling States Crack Down on Payday Loan Lenders

In 2007 the United States hit a roadblock in the unprecedented economic growth that our country had been enjoying for many years. Though the recession had a negative effect on many industries, one industry in particular, the Payday Loan industry, began to flourish. While most critics would claim that lenders saw an opportunity to make a quick buck off people who were struggling, the fact of the matter is than in a capitalist economy a business or industry would not grow without the demand from consumers. No one forces a person to seek out and sign a cash advance loan, payday loan lenders offer a service that otherwise would be unavailable.

In the state of Wyoming payday loan lenders paid out $26 million dollars in the year 2000. The number grew steadily over the decade, and by 2009 they were paying out over $90 million dollars throughout the state – more than triple the amount at the turn of the century. The head of a local organization claims that as people fall into hard times they seek more desperate measures to stay afloat. On the other hand, banks would see someone dipping into the negatives as a liability, and would never offer them a loan. On the same note, banks don’t offer loans of such small quantities and time periods. In reality, these payday loan lenders are providing a quick-fix that otherwise would not be available, it is the responsibility of the consumer to make sure that they use the service wisely.

West Virginia and Arkansas Aim to Shorten the Leash on Payday Loan Lenders

Recently states have been taking actions against payday lenders, defining the practice as “predatory.” In West Virginia, Attorney General Darrell McGraw recently sued 8 different internet loan providers, demanding that they stop lending immediately. Since 2005 he has taken 107 different companies to court, and recouped around $2.5 million dollars in refunds and cancelled debts. My question is how much tax-payer money did it cost to take these people to court? Lawyer salaries, judges, litigation costs? All for loans, legal binding agreements, that customers (the same tax payers who are paying for these law suits) signed their names to.

In Arkansas, Attorney General Dustin McDaniel has sued two online loan companies and their owner for offering loans that carry an interest rate over the legal limit for the state. He claims that some loans came with an interest rate of over 700%. Does this even seem logical? Why would someone agree to a loan with a 700% interest rate? Payday loans are typically 14 days long and carry a reasonable interest rate. The issue starts when the loan is extended or rolled over into another 14 day loan. At this point, with some lenders the interest rate is compounded. A cash advance loan is intended to serve as a quick fix to an unexpected financial snag, not a solution to money or money management problems. Unfortunately, people who take out short term pay day loans tend to be frequent customers, typically taking out five or six loans in the span of a year. Therefore a service designed to help people who are struggling with a financial situation is abused, or misconstrued and becomes a problem. In these situations it is the customer who has to be responsible and wise.

You can even say that compounding interest is an obvious disincentive to perpetual use of these loans. Responsible customers, who read the fine print and manage their money properly, won’t fall into the bind of multiple payday loans and compounded interest. If you pay back the loan after 14 days it can be a very effective and useful tool when you find yourself in a tough situation. Our economy is not designed to babysit people who can’t manage their own money. Millions of people fall into credit card debt, back payment on loans and bankruptcy, yet no government officials come to their rescue. In short, financial stability and success comes down to responsibility and living within your means. Things do happen. Accidents do happen. When they do, and a short-term payday loan is the best option, pay it back on time to save yourself further grief.