Nonprofit payday lenders still have usurious rates
The New York Times is churning out consumer articles lately, including its latest look at nonprofit payday lenders. I have posted quite a lot about payday lending, but this may be the most interesting twist on the trade yet. Let’s recap. From the article, here is why payday loans are an astonishingly bad deal:
Peggy Truckey, 53, knows the allure. Last year she owed nearly $1,300 to four of those stores, and was paying about $600 a month in finance fees alone. “I thought I was going to have to take a second job just to pay off the interest,” Ms. Truckey said.
In other words, Ms. Truckey was nearly paying the entire principle balance every two months. That adds up to a 572% APR! (By comparison, most credit cards are around 20% APR right now, and rarely exceed 30%) So when Truckey heard that GoodMoney, a collaboration between Goodwill and Prospera Credit Union, was offering payday loans at a mere 252% APR, she jumped at the chance, and is apparently thrilled with the results.
“I have almost $100 in savings,” said Ms. Truckey, who earns $9.50 an hour as a supermarket meat clerk. “I’m in a comfortable position for the first time in many years.”
So is a payday lender that charges half as much a good guy, even if the interest rate is still usurious under any common-sense conception of the word? Well, if consumers need a quick loan and don’t have a credit card to cover the costs, GoodMoney is definitely a better deal. But it is still a terrible terrible financial decision. For low-income consumers, borrowing money should be the very last resort. This is (obviously) easier said than done. But consumers need to wise up. If not, there are thousands (millions?) of payday lenders happy to take advantage of ignorant consumers who want money now.
Should something be done? Bringing back the federal usury law would be a good start, but legislators like South Dakota’s Senator Tim Johnson, the key to the DFL/Democrat Senate majority, are doing everything they can to prevent that from happening.
