| It is apparent from reading the newspapers and | | | | $98.83, giving her some breathing room until payday. It |
| browsing the internet, that payday lending has a lot of | | | | is obvious, how in this case, a payday loan is the better |
| critics, and receives quite a bit of negative publicity. The | | | | choice. Additionally, it is obvious, what her bank (which |
| arguments they make against the industry are that the | | | | does not have to give an APR on its fees) would |
| interest is outrageous, that they prey on the poor, | | | | prefer her to do. While this is just one specific |
| uneducated masses, and that they trap people in a | | | | example, I see similar scenarios every single day. |
| cycle of debt that they cannot get out of, except | | | | Banks charging outrageous fees, while claiming they |
| through bankruptcy. | | | | are doing it with the customer's best interest as their |
| Let us examine these arguments a little closer. A | | | | goal. If the critics want to talk about companies preying |
| common argument is that the interest rates on a | | | | on the poor and uneducated, then they need to put |
| payday loan are extremely high, usually around 500% - | | | | banks and credit unions on the top of their lists. It would |
| 600% APR. The first problem here is that while | | | | seem that those who use a payday loan appropriately |
| payday loan companies are required by law to | | | | are acting more educated about their finances than |
| disclose an annual percentage rate, they are also | | | | those who let their banks handle their finances for |
| required by law not to let their customers have loans | | | | them. Also, if it were true that payday loan companies |
| out more than 12 weeks as a maximum. In general | | | | put "people on the fast track to financial ruin," as one |
| though, the average payday loan fee is less than | | | | critic said, how is it, that they stay in business? |
| $20.00 for loans of $100.00. $20.00 simply is not an | | | | The idea of a cycle of debt is misleading. You either |
| "outrageous fee" to get a little money in a hurry. | | | | are going further into debt or climbing out of it. If a |
| In my line of work, I occasionally will look over bank | | | | payday loan company was putting people more into |
| statements with my customers who are frustrated | | | | debt, eventually they would run out of customers, as |
| with their bank of choice. I had one customer whose | | | | customers run out of money. And a company without |
| account had a transaction put her available balance at | | | | a customer base will not be in business long. The |
| -$1.17. The bank then charged her a $35.00 overdraft | | | | number of successful payday loan companies that we |
| fee. Her account was now at -$36.17. The bank then | | | | see would indicate, as they claim, that a majority of |
| did a complimentary overdraft protection transfer from | | | | their customers pay off their payday loans within a |
| her credit card account of $40.00 to put her back into | | | | week or two, and move on. |
| the positive. However, by transferring the $40.00 from | | | | Maybe it's time for the critics of payday loan |
| her credit card account, it caused that account to be | | | | companies, to acknowledge that some of their attacks |
| over limit. She was then charged a $39.00 over limit | | | | are unfounded. We should be educating people that a |
| fee on her credit card account. Essentially, she just | | | | payday loan is an available and better option when it |
| borrowed $1.17, and her fees added up to $74.00, and | | | | comes to their finances, rather than trying to shut them |
| her bank account was at $3.83, essentially ensuring | | | | down. By trying to limit their financial options, you are |
| future overdraft charges, unless she could wait until | | | | not doing them any favors; you simply leave them no |
| payday without needing any more money. | | | | choice but to pay, in most cases, a higher amount in |
| I showed her how a payday loan could have saved | | | | fees by using overdraft protection. There is a reason |
| her quite a bit of money and stress. Let's say she | | | | that so many people choose payday lending over |
| borrowed $100.00 at a cost of $20.00 until her payday, | | | | other alternatives, and that reason is that it is a less |
| and deposited that $100.00 in her account before the | | | | expensive, less stressful way to go. |
| above item was presented. Her account would be at | | | | |