I read an article in “Consumer Reports” that was beyond belief regarding payday lenders and the excessive rates they are allowed to charge a customer is in need of money until his or her next payday.
The article related the story of an educated, recently divorced woman from Albuquerque, N.M. took out a $400 loan from an online lender, which charged her an additional $l20 to borrow the money for just l6 days. That’s comparable to an annual interest rate of 684 percent.
To compound this chicanery, this woman didn’t have the full $520 to repay at the end of the l6 days, so she rolled over the loan for another $l20 in fees. Before she was able to get enough money to pay off the total, she had rolled the loan over five times and paid $600 in additional fees on the $400 loan.
What in the world would possess someone to enter into an agreement of this kind where they end up paying $600 for a $400 loan?
Compounding this problem, the lender can hold a borrower’s post-dated check or tap directly into his or her bank account to withdraw the money on payday.
With most traditional loans, the principal and interest are paid down in regular installments. With a payday loan, the borrower must pay off the whole loan on the next payday. This is sometimes impossible, so these people repeatedly pay hefty fees with nothing going to the principal. The sad part of this scenario is the borrower knows, or should know, all this in advance.
New Mexico allows payday lenders to charge up to 4l7 percent annual interest. As this New Mexico situation discloses, online lenders peddling payday loans can legally ignore rate caps.
Consumer protections vary widely by state. Only l5 states have caps below 60 percent, but the payday-loan industry is working to weaken those laws. During the 2008 election cycle, the industry spent almost $30 million on unsuccessful Ohio and Arizona ballot initiatives that would have removed the caps.
When we take a cursory analysis of this situation, we wonder why the woman didn’t go to a local bank and get a quick $500 loan rather than go online to a disreputable payday lender with unreal fees and interest rate spikes. It’s conceivable the borrower was too embarrassed to go to a local bank, disclosing her personal problems for a quick $500 loan.
In the final analysis, when we examine this unfortunate example of what is going on in the loan industry regarding payday loans, we wonder why our state legislature and our federal government do not re-enact the former usury laws that for years prevented banks and loan companies of all kinds and descriptions from charging excessive (abnormal) rates of interest.
When we look at our present national economic situation, this excessive fee situation on short loans impacts thousands of unfortunate people in dire need.
I wanted to know what Maine laws governing the interest rates on payday loans dictated. I called Will Lund, Superintendent of the Maine Bureau of Consumer Protection and was advised as follows: A first loan of $2000 or less has a cap of 30 percent per year. A loan of $75 or less dictates a $5 charge. A $l5 charge is effective on a loan over $75 or less than $250. This is indeed reasonable as compared to the exorbitant rates of other states as I have set forth.
In summary, Maine residents are indeed fortunate to have a department of Consumer Bureau of Protection, which regulates licensed companies in regard to these payday loan companies. However, in my telephone conversation with Mr. Lund, he expressed concern over the recent number of complaints (40 to be exact), received from various Maine borrowers on payroll loans.
He stated further that there are perhaps hundreds of borrowers in Maine that have been fleeced by going online to out-of-state, unlicensed payday lending companies and then paying exorbitant and parasitic percentage fees. Lund and the Consumer Protection Agency are now “leveling their sights” and going after these unregulated firms with a cease and desist order.
In regard to the needs of the other desperate borrowing element that exists throughout the nation, perhaps the voters should immediately contact their congressional representatives and adamantly request a national law governing usury in the financial lending industry.
Time is of the essence.
(Dick Halverson lives in Newcastle.)
