Wednesday, January 24, 2007
Editorial: Look at the math on payday loans
Not swayed by tragic stories from borrowers and former lenders that payday loans are a bane? Then take a look a the cold, hard figures.
From the RoundTable blog
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A state Senate committee advanced a payday lending bill this week that does little to protect borrowers from being sucked into a riptide of red ink.
Of particular disappointment is Roanoke Sen. John Edwards' refusal to recognize that legislation that slightly reshapes the fins of legalized loan sharks does nothing to lessen the unrelenting grip of jaws locked onto prey.
Edwards and his colleagues appeared unmoved by the stirring testimony of trapped victims and of former predators who couldn't look themselves in the mirror. Maybe the cold, hard facts found in the annual reports compiled by the Virginian Bureau of Financial Institutions could convince them.
The latest report, covering 2005, shows that 446,000 Virginians took out 3.3 million loans totaling $1.2 billion. That's an average of seven loans per customer. This number alone blows the cover that payday lenders fill a genuine need by helping people who have no place to turn to cover the one-time cost of an emergency.
Perhaps some people do use it once, pay the loan off on time at an average annual percentage rate of 386 percent and move on. But the bureau's report indicates that isn't so for the vast majority.
More than 288,000 borrowers received between two and 12 loans. Incredibly, 91,000 borrowers received 13 loans or more.
Senators might at this point say that's exactly what their bill would prevent. Customers couldn't carry more than three loans at a time. True, but if those loans (with an average term of 15 days) are continually rolled over with the payday lender exacting a heavy fee each time, the bill would have little effect. Far-fetched? Consider Marlena Hardy. She told a Roanoke Times reporter that she initially borrowed $300 with a $45 fee, and when she couldn't afford to pay it back, she rolled it over -- 24 times -- before she could pay it off.
Senators, do the math. Still think limiting the number of loans will help?
If so, look again at the bureau's report that blows away the other justification for payday loans: The fees are no worse than those banks charge for bad checks.
The bureau reported that 145,000 checks (written to payday lenders to cover loans) were returned unpaid by the borrowers' banks, which allowed the payday lenders to collect another $251,000 in returned check fees. Surely the borrowers were also hit with insufficient fund fees from their banks.
The numbers speak for themselves. Payday lending isn't filling a need; it's exploiting one.
