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Blog: Payday loans from one consumer’s perspective

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If you’re like me, you’ve probably heard the term “predatory lender.”

According to Debt.org, predatory lending, in part, is “any lending practice that imposes unfair or abusive loan terms on a borrower.”

That covers the gamut of lending types, such as balloon mortgages, but I’ve heard it most often used in connection to payday loan companies.

This week, Features Editor Emily Letterman wrote a story about payday lending for the first Banking and Finance section of the year.

CU Community Credit Union is presenting its customers an alternative to the high-interest, short-term loans – with the help of a $2 million U.S. Treasury grant. Instead of paying an annual interest typically upwards of 400 percent, account holders with the credit union for at least 90 days can pay around 27 percent interest on short-term loans through its initiative.  

In the article, Letterman sought comment from several payday loan companies – as well as title-loan firms – but couldn’t get anyone to call her back. There could be any number of reasons why the companies she contacted didn’t want to talk for the story, but I suspect many in that line of business have adopted a defensive posture when it comes to the media. I suspect they’ve adopted that attitude because “predatory lender” is a moniker with which they don’t want to be associated.

The truth is, Letterman, who never used the term in the article, wanted to hear their side of the story, especially now that a new bill in Jefferson City sponsored by Rep. Don Gosen, R-Ballwin, would impose some restrictions on payday lenders. One key restriction is limiting the number of loan renewals customers could receive to two from six.

I’m sure these two moves combined pose a threat to payday loan businesses, but for Letterman’s story the voices of payday loan operators weren’t available.

Those who see payday lenders as predatory probably wouldn’t care.  

For what it’s worth, I thought I’d briefly share my experiences as a consumer. Working as a reporter is no financial windfall, and I am not ashamed to say I’ve used payday loans for years.   

When I graduated from Missouri State University in 2008, I had three credit cards that were maxed out, and I vowed that I wasn’t going to take another credit card until I paid off what I owed.

Several times since then, and even a few before 2008, I’ve turned to payday loan companies for quick money to cover bills. From hospital bills to car repair to Christmas, things have popped up, and I’ve appreciated having a short-term loan option.

As Letterman’s story points out, the cost of the loans – finance charges – may range from $10 to $30 for every $100 borrowed, and generally, $500 is the cap.

I know if I needed an extra $500, I could write a check dated out two weeks for $590. I also know if I needed to renew that loan a few times, I could do that, too. That’s expensive, of course, and I almost never renewed the loans I’ve taken out.

At around 400 percent annual interest rate, payday loans are a great Band-Aid, but a very expensive crutch.

While I’m sure there are people who have gotten stuck in a detrimental cycle of renewals, it should be noted that consumers in a free country aren’t obligated to take out loans they don’t want. To me, a $90 finance charge on a quick $500 is reasonable, which is why I’ve turned to that option before.

From my perspective, payday loan companies serve people in need of money with small loans. There is a niche in that market because banks, which face their own fair share of regulation, aren’t typically offering $500 loans.

Don’t get me wrong, I’m proud to live in a country where people look out for others in bad financial situations. With its $2 million federal grant, CU Community Credit Union will be able to provide a valuable service to customers, and I don’t blame it one bit for pursuing that path. However, I’m curious to see if that negatively affects payday loan businesses. Ironically, if they are hurt, one natural remedy could be to raise rates on customers. That means those who aren’t CU Community customers could be adversely impacted.  

I’m just one consumer here, but amid an environment where payday loan operators might have reason to be defensive, I thought it was worth noting I’ve never been a victim. Real people run these businesses, and the suggestion they’re preying on the public not only insults them, but it insults their customers who weren’t abused.

Perhaps, I’m not a typical customer. But I know the free market is addressing a need and simply adding industry restrictions – or introducing a competitive advantage to preferred lenders – does little to address the root problem.  

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