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August 5th, 2008 · 3 Comments
Tags: Bill Faith · COHHIO · Ohio · industry · industry critics · media coverage · regulation · states
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3 responses so far ↓
1 Neal // Aug 5, 2008 at 4:14 pm
Took a look at the website. Where does it talk about the fees and APR going back to 391% APR? Or why a bipartisan group of legislators and governor passed the law? Or why dozens of cities passed ordinances against expanding lending shops? I guess I will keep surfing for those answers. I am sure they are up on that page somewhere…
2 Jon Schultz // Aug 5, 2008 at 9:05 pm
Neal, why is the 391% figure so important to you? Does it tell you how much profit the lender is making? No, because it doesn’t factor in the cost of making the loan. Does it tell you how wise the transaction is for the consumer? No, because it doesn’t factor in what his other alternatives are. All it tells you is that payday loans are more expensive, on an annual basis, than many other types of loans. But this is a two-week loan, not an annual loan, and most payday loan customers don’t qualify for those other loans anyway. So the APR is not anywhere near as significant as you critics are trying to make it out to be.
If a 391% APR was “outrageous” then the statement “I will lend you $100 today if you will pay me back $101.07 tomorrow” would be outrageous, but it isn’t. In fact most people wouldn’t make that statement because they wouldn’t want to risk losing $100 for just $1.07 in profit. And that doesn’t even consider any cost whatsoever in making the loan.
Nobody pays 391% interest with a payday loan. They pay 15% (and for those who can’t repay, CFSA-member companies offer an extended repayment plan which gives the borrower four additional pay periods, if I’m not mistaken, to repay the loan, with no additional interest whatsoever). By contrast, with a 30-year home loan at 7% the borrower ends up paying back 240% of what he borrowed - plus origination fees.
The APR is only a small part of the picture.
3 Jon Schultz // Aug 6, 2008 at 10:36 am
Addendum: To make that an apples-to-apples comparison I should have said that with the home loan the borrower pays 140% in interest as compared with 15% for the payday loan, or a total repayment of 240% as compared with 115% for the payday loan.
I was correct about the CFSA extended repayment plan. Full details at:
http://www.cfsa.net/public_education_campaign/guidelines/guidelines_extended_payment_plans.html
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