This economist article discussed how payday loans have been declining recently due to regulators. One example that was discussed was a woman making $12 an hour taking out a loan that would cost her $1,620 in interest, which was an annual rate of 838%. The woman fell behind on her payments, and ended up filing a lawsuit. The Delaware judge determined that the interest rate on the loan was not only illegal, but "unconscionable."
I have mixed feelings about the issue. While this interest rate is completely ridiculous, and isn't moral to charge someone this that makes $12 an hour, the woman took out the loan on her own will. While she wouldn't have done this had she made more money (which could even be an entirely different issue), it was her decision to take out the loan. It will be interesting to see if payday loans continue to decline, and if they do, what will take their place.
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4 comments:
I would expect payday loans to continue to decrease as it seems they have a bad reputation and interest rates continue to rise.
Considering that payday lending is one of the activities directly and most effectively targeted by the Consumer Financial and Protection Bureau, an agency that Trump would like to get rid of, I doubt the practice will diminish in any meaningful wholesale way.
I understand that it was the woman's choice, but it still may be a system that is taking advantage of low income individuals who are in desperate need of money. I do think the argument certainly gets in a gray area, where any decisions an individual makes are to some degree their own and they should be allowed that freedom. However, I think these type of loans are deceiving, especially to those who do not fully understand the amount they will pay back. But I understand arguments on both sides and could see leaning either way.
this was a interesting article to read. I have never used one of these payday loan places but they have a reputation of ripping people off because of there high interest rates. I think that this business will continue to slowly decline but will never totally go out of business because there are people out there that need quick cash and will borrow it with high interest rates.
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