Letter: Cap payday loan rates – The State Journal
Thank you for Deana Stroisch’s Sunday article about Springfield’s effort to rein in some of the damage done by the 21 payday loan/title loan business currently operating here.
Considering only payday loan stores (not title loans), we find there are 12 stores, five in Ward 7 (primarily along MacArthur Boulevard), two each in Wards 3, 4 and 5, and one payday loan store in Ward 2.
All payday loan stores charge a usurious 400 percent interest on these small-dollar loans. (See Advance American’s website reporting total fee/interest is 404.10 percent APR.)
Short-term payday loans may go up to 25 percent of a borrower’s gross income; the borrower can take up to two loans, which then can be refinanced multiple times. Here is the cost of a $500 loan after three “rollovers” at 390 percent interest: First loan: $500 plus $75; second loan: $575 plus $86; third loan: $661 plus $99; fourth loan: $760 plus $114. Total is $874. Other quick cash options might be: credit union loan at 18 percent, which after two months would cost $11 and a credit card advance, which at 28 percent costs $18. As shown above, the payday loan at 39 percent adds $374 more onto the $500 debt.
Usurious rates charged by the small loan industry have a serious negative impact on the community. The most recent available date (March 2009) demonstrates that in our five major central Illinois cities, working poor families pay $8 million annually from 400 percent APR payday interest rates. Springfield stores generated profits from interest of nearly $2 million, much of it leaving the community, going back to the big banks that supply their operational money.
The federal and state governments have placed a 36 percent APR cap on short-term payday loans made to active members of the military, and efforts are under way to amend state law to require the same cap for the rest of us. In addition, home rule ordinances are being designed so local home rule municipalities can regulate the usurious rates being charged our hard-working families. In addition, alternate small dollar loan instruments are being developed, in programs with community banks and church credit unions, for the much-needed small dollar loans with reasonable rates. These efforts are necessary to make a more healthy financial climate for working families.
— Barb Olson, Illinois People’s Action, Springfield
Article source: http://www.sj-r.com/opinions/x352570108/Letter-Cap-payday-loan-rates
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