At first glance, a 36% maximum interest rate on a consumer loan appears to make a great deal of sense. After all, banks and credit unions are paying less than 1% on savings accounts. That equates to $100 in the bank for a year earns $36; $3 per month. No biggie. That barely pays for a family to eat at Kentucky Fried Chicken once/year.
South Dakota, Iowa, Kentucky, Arkansas, the military and a few other states, have passed legislation that enforces a maximum 36% APR on consumer loans.
What’s that look like in the real world? A 36 percent annualized rate offers lenders just $1.38 for every $100 they lend for two weeks. $1.38!
Now I’m not referring to consumers with 780+ FICO scores. Payday loan borrowers have either very poor or non-existant FICO scores. And their employment histories are “sketchy” to say the least.
When a payday loan lender funds a loan to the typical payday loan borrower, chances are 25%+ that this PDL consumer will not make ONE SINGLE PAYMENT!
That’s right! 1st-time defaults for payday loan borrowers typically exceed 25%!
What lender in their right mind would take a chance lending money to consumers having “thin” or non-existant credit files, jobs with Uber, Del Taco – name your poison – for $1.38 BEFORE paying their rent, payroll, store lease, insurance, phones, taxes, CRA (credit reporting agency), marketing costs…? NONE!
So… what’s a world without payday loan products look like? A WORLD OF NSF’s! Non-sufficient funds fees charged by banks and credit unions. A PERFECT WORLD FOR PAYDAY LOAN COMPETITORS!
“Follow the Money!” Who is really behind the anti-payday loan rhetoric? Bankers. Credit Unions. The competition…
According to the South Dakota Attorney General, the 36 percent interest rate cap does not apply to the following lenders:
- State and national banks
- Bank holding companies
- Other federally insured financial institutions
- State chartered trust companies
- Businesses that provide financing for goods and services that they sell
Contributors to the fight against South Dakota payday loan lenders included Sioux Falls Federal Credit Union!
The CFPB has stated that it will interpret bank NSF overdrafts as short-term lending. Great! Banks and credit unions should be forced to disclose NSF fees as an APR. We are talking 1500% APR’s!!
Overdrafts are short-term loans. At least that is how 60% of American households treat them. However, because banks call NSF’s “fees” instead of interest, they get away with huge profits and zero disclosure.
TO BE CLEAR, I don’t care if they charge $35 for a single NSF. BUT I DO WANT THEM TO BE FORCED TO CLEARLY DISCLOSE THIS TO CONSUMERS!
According to a study by Magnify Money, a simple $100 overdraft with Citizens Bank for 10 days would cost a consumer $83.93! Is it any wonder this bank wants to outlaw payday loan products? A cheaper loan product?
Bottom line? FOLLOW THE MONEY! Understand that more consumer choices = lower fees and multiple options for solving temporary financial challenges. Short-sided “consumer advocates” usually have an agenda; they are not always looking out for consumers. You must dig a little deeper to fathom what their REAL goals are!
Which brings up my agenda; I’m a capitalist! And I’m not ashamed to be one. You should be one as well. Make a LOT of $$ and spend it the way YOU choose to: not “Big Brother.” You want to build shelter for kids? Feed the poor? DO IT! YOUR WAY!!
Look no further than Cuba, Costa Rica, Argentina… for examples of “big Brother” gone wild.
The Business of Lending Money to Make Money. It’s all right here: “The Manual.” Invest in it. Read it. Read it again. Study it. Then, BEGIN!
Question? Comment? Hate me? Jer@PaydayLoanUniversity.com 702-208-6736 PDT