The Consumerist compares apples to oranges
July 28, 2008 | Washington Post, alternatives, industry critics | Comments (1)The Consumerist did a little dance on the grave of payday lenders over the weekend in touting the Washington Post story about credit unions filling the gaps after payday lenders left D.C. However, all they demonstrated was that they don’t get it:
Payday lenders whined that lending without 300% APRs was utterly unaffordable, but credit unions are proving that it’s possible to make long-term, low-dollar loans with interest rates as low as 16%.
NO, payday lenders pointed out that they couldn’t make SHORT-TERM loans. So the Consumerists thinks that rather than have competition between the payday lenders’ short-term loans and the credit unions’ long-term loans, consumers should be forced into one service. And that blog calls itself The Consumerist?
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I think most payday loan borrowers would like more time to pay back their loans, and if payday lenders gave them, say, six months to repay, the APR would be reduced to around 30% (at $15 per $100). But the problem is that the default rate would skyrocket, as payday lenders lend to people who are in difficult situations, who have bad credit or whose credit cards are maxed out, who may also borrow from other sources, who may lose their bank account, who may already be thinking about filing for bankruptcy, and/or who have not been on the job all that long and may lose their job. If credit unions give long-term loans to these people at double-digit interest rates they will simply lose money, and that’s why so few of these loans are being made.
The “consumer advocates” will argue that such people should simply not be lent to, but they are wrong as customer satisfaction surveys show that most people benefit from their use of payday loans – http://www.cfsa.net/customer_demand.html – and for some people with a real emergency a payday loan can be a lifesaver.