by Joe Kirkpatrick

From its inception in the early 1990's, "Payday Lending" has been a controversial subject. Many people are disgusted by the way payday lenders "prey" upon the poor. In fact, a growing number of states now either prohibit payday lenders, or restrict the interest they can charge so as to in effect put them out of business.

You can see from the picture accompanying this article, that astronomical interest rates are commonly charged by these companies. In the particular loan contract in the picture, an annual percentage rate of over 390% per year is being charged.

The typical loan made by one of these lenders is $200. The borrower writes a check for $230. and the payday lender takes their check and gives them $200. In two weeks or less, the borrower is expected to come and pay $230.00 cash to pick up their check. The payday lender then has made a $30 profit on a loan of $200.00 for a term of two weeks. Sound outrageous?

Let's say the payday advance customer had $200 in bills they had to pay. One bill was $57, one bill was $63, and the other bill was $80, all of which totaled $200. Instead of going to a payday advance lender, they went ahead and wrote the checks on their account, knowing there was not enough money in their account to cover the total amount of $200. When the checks were sent to the bank, since there was not enough money in the account, the bank returns them unpaid to each merchant. In addition, the bank charged a $25 fee for each of the three checks they returned, and each merchant also charged $25 for each of the three checks. We now have a total of $150 in fees charged, PLUS, the person who wrote the checks still owes the merchants the original $200. So in essence, the check writer now has paid an annual interest rate of over 1500% per year, and yet, their $200 worth of bills are still unpaid.

Did you know the biggest lobbying group against the payday lending industry is the banking industry? Why? The biggest percentage of any bank's profits per dollar spent is "NSF" charges (charges for insufficient checks).

Another argument against payday lenders is they prey on the "poor." Most people who live below the poverty level and are considered "poor" do not even have a checking account, which is required by a pay day lender before they will make a loan. If payday lenders do not "prey" on the poor, then who do they "prey" on?

I happened upon a discussion group on the Internet several years ago about payday lenders. One person in the group stated they should be outlawed. The woman went on to say she and her husband together made over $100,000 per year, and they got in a habit of borrowing from check cashing places (payday lenders), and about went broke over it. I was sitting there, staring at my computer screen, shaking my head in disbelief, thinking, If I made a $100,000 a year and was so desperate to go to a payday lender to make ends meet, I would not be stupid enough to admit it on a public forum!
Another person on the forum said it best: "Payday lender customers are people who have already borrowed everything they can from banks, finance companies, and relatives, and all of those already know they won't pay it back, so there is no other place else for them to go."

The problem is not payday lenders, pawn shops, or loan sharks. The problem is people living way beyond their means, who continually spend more than they can possibly make. If all people lived within their means, payday lenders could not survive. And keep in mind, the banks make far more off of these people than the payday lenders could ever dream of making.

America has always taken pride in our system of free enterprise. Our economy is based on someone providing goods or services which someone is willing to pay for. When a person borrows from a payday lender, as you can see from the picture, the interest rate is clearly posted.

I have yet to see one of these lenders going out on the street and forcing someone to come in and borrow money at the rate they charge. If there was not a demand for their services, they could not exist.

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