So they’re not exactly lying

The Denver Post – Lawmakers irate over payday rates:

In what they say is the toughest crackdown on payday lenders in the nation, lawmakers want to cap the annual interest rate on payday loans at 36 percent and prohibit lenders from giving people with unpaid loans more money. Lenders would have to check a database to see whether customers are already in debt.
Capping the annual interest rate at 36 percent is unfair because payday loans are typically for two weeks, not a year, said Lyndsey Medsker, spokeswoman for Community Financial Services Association, whose members operate about 180 stores in Colorado. “That’s effectively a ban on the industry,” she said. “If you apply an annual rate to a two-week loan, it just doesn’t work.” Under current law, payday lenders can charge about $17 to lend $100 for two weeks, she said. The proposed legislation would drop that to $1.38.

Of course, when your credit-card company lends you $100 for a couple weeks it costs even less than that, depending on what form you take the money out. But on the other end of the scale, if you asked an investment bank to write you a two-week unsecured loan for $100 from scratch, you’d be better off just giving them your house and car.

So there probably is some tiny bit of justification for letting a payday company charge a fee for the first time a customer comes in to do their paperwork, just because it does cost something to have some poor clerk sitting there recording the information and handing over the money. But if the loan isn’t repaid in two weeks, every subsequent rollover (which is where the companies make their money) should be just about free. It’s 30 seconds of that poor clerk’s time. (And subsequent loans to someone who’s already repaid previous ones — same thing. Maybe two minutes of clerk time.)

Anything is else just soaking people because you can. (Although that’s nothing limited to the payday loan folks. See this account of how major banks have changed their rules for kicking up credit-card rates from “you made a late payment somewhere or something” to “We need the extra money.”)


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