The B’ham Times wrote an article glorified press release about payday loans in Alabama based on this study by the Center for Responsible Lending.

From the article:

Alabama residents last year paid $225 million in extra fees for their small, short-term payday loans, the fifth highest amount in the country, according to a report released Thursday by a consumer advocacy group that opposes predatory lending practices.

…

Opponents argue such terms prey on those who can least afford them; advocates say they fulfill a legitimate need for people who need emergency cash.

Lending 101: the interest rate is a function of risk.  People who are seeking payday loans are probably the riskiest of all employed debtors.  If they don’t even have cash to pay their bills what are the odds they’ll be able to repay their loan?  The companies who put their capital at risk deserve a proportionate rate of return on their loan; otherwise they won’t lend the money.

Certainly the payday lenders use methods that reasonably savvy individuals wouldn’t tolerate.  Their favorite is to charge fees for various services associated with receiving a loan - in addition to the base interest rate.  When added up, those fees can result in a high annualized interest rate.

While their practices may be morally lacking, there is no law against honestly preying on the poor judgment of others.  If there were such a law then all of those “impulse” products at the check out lines of super markets would have to go.  As long as the companies are not defrauding their customers by not notifying them of fees and interest rates what is the problem?

By the way, the advocacy group that did the study should change its name to the Center for Responsible Borrowing since their goal seems to be to reduce the number of people who make stupid borrowing decisions.

Related content:

This entry was posted by Brian on Saturday, December 2nd, 2006 at 6:28 am and is filed under Alabama, News & Opinion, Social Issues. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Please note the copyright policy.