Payday loan bill bad for consumers
Debbie Goldstein's Aug. 2 letter charging that payday loans and other short-term loans are "legalized loan sharking" substitutes name calling for facts.
By extrapolating what short-term loans may cost if they are not paid on time, it is possible to arrive at the high interest rates that she cites.
But the same would apply to banks that now charge for subprime credit cards (360 percent to 800 percent) and bank overdraft charges that have imputed rates of over 2,000 percent.
The legislation sponsored by Sen. Durbin does not address these high interest rates and the fact is that banks, unlike companies such as AmeriCash Loans, do not provide loans to individuals without credit checks or collateral.
The notion that cutting loan rates to 36 percent "will reward responsible lenders" is belied by the facts.
Responsible lenders cannot cover their losses and overhead at this rate and will shut down if they are forced to charge 36 percent interest.
A researcher with the Federal Reserve Bank of New York found that after ill-advised legislation eliminated payday loans in North Carolina and Georgia, consumers in those states bounced more checks, filed more complaints to the Federal Trade Commission about lenders and debt collectors and filed for Chapter 7 bankruptcy at higher rates than before the legislation was passed.
If responsible short-term loans are shut down for people outside the credit mainstream, they will have no choice but to turn to high interest credit cards and unregulated Internet loans (at rates in excess of 600 percent) or succumb to costly bank overdraft and bounced check fees.