Stever Straughter is a young new blogger over at Examiner.com. Normally, I would ruthlessly excoriate the sheer number of ignorant statements made in his post about payday loans. Instead, I’m just going to politely counter them with the truth. Sometimes it’s helpful to just go back to the basics. Italics are quotes from Steve’s article.
“Did you just start working within the past year only to find yourself laid off from your job? Did you take on some temporary work to meet your basic needs? Did something unexpected occur like car troubles or major house repair? Well, combine all of these together and you are the poster child for the Payday Loan Sharks.”
You must have a regular job to get a payday loan. Second, payday lenders are not “loan sharks”, nor are consumers “poster children”. They are hard-working Americans who may find themselves short of cash.
“Payday Loans are high interest rate loans that are given to consumers in return for the illusion of fast cash.”
It is not an illusion. Customers get their cash in less than 20 minutes.
“Also remember that these companies are in business to MAKE money, so they are not doing you any favors!”
Actually, they are. Payday lenders exist because there so few other options for short-term credit. Where else can someone get a short-term loan with nothing more than a promise to pay it back? Will you, Steve?
“Bob needs to buy some new tires…he could not afford to miss work. He had no savings and no emergency fund so he really felt like he was in trouble. He had seen these blinking lights saying, “$1000 FREE CASH QUICK!” so he thought that would be a great solution to his problem. He goes into the store and they ask him a few questions, he fills out a couple of forms, and off he goes. Instead of just getting the minimum amount needed for the tires he takes the whole $1000. He does not read the papers he is signing because all he can think about is that he needs to get to work.”
Clearly Steve has never used a payday loan, gone into a store, or knows anyone who has done so. If he did, he would know that 99% of people who come in for a loan only take out as much as they truly need, because they know there are fees attached to the entire balance. As for reading the papers he is signing, that is always a good idea. However, all fees are disclosed under the federal TILA.
“Unfortunately, Bob is not alone in this scenario. So many people are taking these loans out at such an alarming rate that the US Congress decided to intervene to protect the consumer. Legislation to increase the transparency of these loans were established February 26, 2009.”
The reason Congress has introduced legislation has nothing whatsoever to do with how many loans people have taken out, nor the miniscule (.001%) of complaints received about them. It is a combination of politics — a congressman trying to look good to his constituency — and pressure from a mercenary credit union posing as consumer activists.
“Bob did not see that the loan carried the following conditions: Interest rate of 3000% per year (so if Bob does not pay off the loan on the due date he will end up paying $30,000 for them loaning him $1000)”
Absolutely, unequivocally false — not to mention that it’s a lazy and uninformed statement for many reasons:
1) The APR on most loans is approximately 390%.
2) The APR is not even an appropriate way to view the loan charges. They are fees, not interest.
3) Most people (94% according to SEC filings) pay back the loan on time. Nobody keeps a payday loan out for a year.
“If he fails to pay the loan back within 2 weeks, the loan will default (just means it will be considered a bad debt) and it will be recorded on his credit report”
False. Payday loans are not reported onto consumer credit reporting agencies.
“So Bob waited a month to repay the loan and he ended up paying back the original $1000 he borrowed but did not know that he had pay $2300 in interest after 4 weeks!”
False. First, every payday lender calls clients either before the loan due date or on the due date, to remind the customer the loan is due. Second, in a state that charges $15 per hundred, the amount due after 4 weeks would actually be $300. I don’t know where the other $2000 is coming from, but it demonstrates that the author of this article has no idea what he is talking about.
“They tell him that he should have paid after two weeks, but he says, “I didn’t know that!”
Oh, yes he did. Due dates are clearly posted on all loan paperwork, as required by law.
Finally, Steve offers up another biased media report that shortchanges viewers on the truth — and puts up a YouTube video, trotting out yet another irresponsible borrower instead of showing the vast majority of people who are helped. He also cites an already-debunked by Stegman, cited for its multiple methodological weaknesses by Dr. Thomas Lehman.
Steve, educate yourself.