* Getting a legislative agreement on stuff like this can be tough…
With painful fuel prices and a slumping housing market some say the draw to borrow money from cash advance places like these is strong.
“The average income of a person who goes to pay day lenders is probably that 25 to 35 thousand-dollar income range,” says Tony Pierce.
As Vice President of the Central Illinois Organizing Project, Pierce is a warning consumers to avoid payday loan business until loopholes in the Pay Day Reform Act of 2005 are changed. […]
But Pierce says even if it’s an emergency situation payday lenders charging upwards to 400 percent interest on a loan is equivalent to loan sharking.
* Here’s the problem with the way our recent state law was written…
The current law limits fees and interest rates on loans and how much customers can borrow, but that only applies to loans lasting 120 days. Consumer advocates claim the payday lending industry skirts the restrictions by directing customers to loans lasting 121 days and longer to charge up to 700 percent in annual interest rates.
* All they did was find another financial instrument. The House has a bill that caps annual interest rates at 70 percent and removes the time limit. But one element of the payday loan industry says that’s not the right way to go…
Steve Brubaker of the Illinois Small Loan Association said borrowers won’t necessarily benefit from a lower interest rate. Customers most at risk are ones that can’t repay the debt and face staggering attorney and court costs, he said.
Brubaker favors a plan payday lenders discussed with the Senate that allows them to charge up to a 400 percent annual interest rate but restricts them from collecting attorney, court and triple damage costs. […]
“We haven’t really solved anything,” Brubaker said. “The process that we started with has been thrown out with the trash and now we have the same problem because we have consumers that have too much debt piled on top of them and lenders can still take them to court.”
* It’s easy to just say let’s do both: Cap interest rates and free borrowers from attorney and court costs.
But the reality of legislating stuff like this (in any state, not just Illinois) is that it’s always easier to kill something than it is to pass it, so you have to deal with the interest groups. There are just too many chokepoints along the way that opponents can use to stifle any change. That last reform bill was the end product of years of effort, and now it’s mostly worthless.
Often, a slow-moving system that works against change isn’t a bad thing. You wouldn’t want a completely unfettered legislative process, believe me. Lots of “change” ain’t so good.
But it’s stuff like this payday loan monster that drives some observers and participants up a wall.
One argument used on behalf of the payday loan companies is that a whole lot of people don’t have any other access to credit. So, the argument goes, we shouldn’t go so far as to put the payday loan companies out of business. The other side, of course, is that there’s plenty of money to be made in that business so there needs to be a reasonable but firm solution. 400 percent interest doesn’t look all that reasonable.