A few states have passed legislation capping the annual interest rates on payday loans so low that lenders are forced to close their stores and consumers are left with fewer credit options. While critics argue that payday loans can be offered under these annual rate caps, they also admit that these low APRs ban the product. In fact, Uriah King, with the Center for Responsible Lending (CRL), has acknowledged lenders often close their doors when a 36% annual rate cap is adopted and admits that, “driving the practice of payday lending out of the state—not simply reigning in interest rates” is CRL’s goal .

The real-world examples are proof of the consequences of overly restrictive annual rate caps. Hundreds of stores have closed, thousands of employees have lost their jobs and hundreds of thousands of consumers are left to choose among less desirable credit options.

Read more about annual rate caps in Oregon, Ohio, New Hampshire and D.C.

Realizing that the Federal government was missing the boat on regulating an entire industry out of existence, Senator Durbin of Illinois introduced legislation that would do just that.  His press release states:

“Within blocks of my home in Springfield, Illinois, there are payday lenders charging interest rates of two and three hundred percent of the value of the loan,” Durbin said. “These excessive rates are often hidden and can have crippling effects on those individuals who can afford it least. Congress must enact protections against predatory lending. America’s working families depend on it.”

The fees of a CFSA member’s payday loan are never hidden and the “two and three hundred percent” interest rates are unfairly extrapolated annual percentage rates (as required by law) that are being applied to two-week termed loans.

The Payday Pundit can only assume that Senator Durbin’s legislation provides for some kind of magical short termed loan with lower fees than what a highly competitive industry currently offers.  We should all sleep soundly knowing we can depend on Senator Durbin and the U.S. Senate — we have to… now that we can no longer depend on the option of short-term payday loans in an emergency.

This is the official news release of the DC Department of Insurance, Securities and Banking regarding Internet lenders.  The Payday Pundit’s favorite quote:

Since the payday lending law had been amended, we have seen an increase in the number of unscrupulous persons trying to take advantage of residents in other venues, namely the Internet,” said DISB Commissioner Thomas E. Hampton.

Yes, Commissioner; as we said during the debate, regulated storefront lending is the safest and best way for consumers to be protected.

During the rate cap fight in Washington, DC last summer, industry representatives warned the DC City Council that residents would use unregulated offshore Internet payday loan services if storefronts were effectively banned.   Well, the consumer reporter at local Channel 4, Liz Crenshaw, says that what’s happening. 

Crenshaw, who produced several biased reports against the industry, doesn’t go as far as to say the industry was right, the media wrong, but this story is a start.  From her story:

And finally a warning from the DC Department of Insurance, Securities and Banking about illegal payday loans. We did several Payday loan stories last year before DC essentially put the stores out of business last January. But DC warns that new payday lenders are illegally making the loans available via the internet, charging borrowers up to 2-thousand percent interest, and taking payments directly from the borrowers checking account.