Payday Loan Times

The following is a paraphrased editorial from the Foster’s Daily Democrat in Dover, NH:

It might seem easy to argue caveat emptor in the debate before the Legislature over no fax payday loans. But suggesting it is simply an issue of “Let the buyer beware” would not address the problems created by these loans.

Several bills currently working their way through the legislative process would put caps on the annual interest rates payday loan services could charge. These would be akin to limits commonly found with credit cards.

But quick payday loan advocates argue that such limits would put them out of business.

For example, loaning someone $100 against next week’s paycheck can cost $20. While steep, that amount may not seem unreasonable to the borrower. Except when the loan is not repaid on time and is rolled over, the debt can rapidly escalate — at more than 500 percent per annum.

One cash loan online spokesman contends a suggested cap of 36 percent on a two-week loan would mean a fee of only $1.38, not enough to justify doing business.

Part of the dilemma facing the Legislature is figuring out who the demon is in this debate, if there is one. On the one hand, there are legal loan services, which have to cost-justify their existence. On the other, there are workers who find themselves short of cash with no hopes of borrowing from a bank — either because of poor credit or the short duration of their loan request.

Some who advocate for caps liken fast cash advance companies to loan sharks, taking advantage of people they know — or should know — will default. Loan companies defend themselves with statistics like Advance America, which claims a 95 percent repayment rate.

Striking a middle ground in this debate appears to be state Sen. Lou D’Allesandro, who suggests passing legislation that would keep the door open for those with poor credit and little where else to turn.

“Are we going to force those people to illegal, illicit loan sharks?” D’Allesandro told the Associated Press.

If this is the route to be pursued, the Legislature must emphasize full and clear disclosure.

While there may be fine print — which sometimes can’t be read without a magnifying glass — bad credit cash loans as they currently exist are an accident waiting to happen.

For example, did anyone first reading this editorial equate the $20 fee referenced above with an annualized rate of more than 500 percent?

If you did not, you have plenty of company.

This does not mean that even with full disclosure no one will assume the risk of a payday loan. But New Hampshire is a state strong on individual responsibility.

If the Legislature is willing to level the playing field with reasonable caps and guaranteed full and understandable disclosure, there is a strong argument that there is a valid role for payday loan services to play.