| Payday loan rates capped
Posted: 4/5/2008 7:26:15 AM |
Manitoba will be the first province in Canada to cap what payday loan companies charge their clients for borrowing small amounts of money.
Friday's decision by the arm's-length Public Utilities Board to regulate money-lenders outraged the payday loan industry. They claim the cap will drive smaller lenders out of business and force cash-strapped consumers to go to pawn shops or even organized crime to get a loan.
"That's bunk," provincial Finance Minister Greg Selinger said in reply. "This won't drive it underground. The whole purpose of this is to protect the consumer from unfair practices."
The PUB, which also regulates hydro and car insurance rates, said the maximum cost of credit will be 17 per cent for loans up to $500; plus 15 per cent for $501 to $1,000; and six per cent for loans between $1,000 and $1,500.
The board also went one step further by reducing borrowing costs for those on employment insurance or social assistance. For these consumers, the maximum cap will be six per cent of value received to $1,500.
I have used these services, though not for years. As far as I am concerned, they provided a service for me that banks would not provide, as I was a bad credit risk. Yes, they charge high rates - they also take very high risks. There is a reason the banks don't service this type of need, it is too risky.
There are quite a number of different payday loan companies springing up as the major banks continue to reduce the the number of locations they have. I would think that if a company could operate on a lower interest rate, then one of them likely would be slashing their rates to get all the business. I believe this regulation will put people out of work, and send the people it purports to protect to loan sharks.
In the news release, it says "more than half the states in the United States have taken the same steps." If this is reality, what happened there? Were the regulations similar, or did they allow the companies to protect themselves better? | |
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| Payday loan rates capped
Posted: 4/5/2008 7:50:26 AM | | Maybe they should do some real good and put a cap on credit card rates. | |
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| Payday loan rates capped
Posted: 4/5/2008 10:26:39 AM | .
How anti-business...... too much regulation.
How will they keep the doors open???
Some states in US have more Payday’s than FAST FOOD restaurants...
911% interest......
According to a Wall Street analyst covering the industry,
"the average customer makes 11 transactions a year
The owner of the store, Avrum Schulzinger, went on to say that "he expects all customers to default eventually."
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"Payday" loans are small, short-term loans made by check cashers or similar businesses at extremely high interest rates. Typically, a borrower writes a personal check for $100-$300, plus a fee, payable to the lender. The lender agrees hold onto the check until the borrower's next payday, usually one week to one month later, only then will the check be deposited. In return, the borrower gets cash immediately. The fees for payday loans are extremely high: up to $17.50 for every $100 borrowed(1) , up to a maximum of $300. The interest rates for such transactions are staggering: 911% for a one-week loan; 456% for a two-week loan, 212% for a one-month loan.
The industry claims its extremely high fees are necessary on account of the risk being taken and its high loss ratio. In fact, in Colorado, one of the few places in the country that collects actual data from the industry, payday lenders charge-off only 3% of the loans made from 1996-1997, while their loans had an average APR of 485.26%.(5)
http://www.consumersunion.org/finance/paydayfact.htm
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| Payday loan rates capped
Posted: 4/14/2008 8:51:41 AM | Is this like the scheme that many pawnbrokers do, where they will lend you money against a paycheque? If so, pawnbrokers in the UK do loads of schemes like this. They will lend you money against a paycheque, against a social security cheque, even a letter promising you will get a cheque, they will buy second-hand goods and sell them on, you can buy second-hand goods from them at a vastly reduced cost. Basically, they are the place to go, if you have very little money. More and more of them are going into this sort of thing, because of the recession. Many of their customers are regulars, who give their paycheck every week to them, because they don't have a bank account.
But they don't charge anywhere near as much as in the US, and they are ALL regulated. Personally, I'd just cap it all at 15% and have done with it. Easy for the consumer so he never thinks he's going to get more money than he will, so he never overspends.
Maybe they should do some real good and put a cap on credit card rates. Hey. Stop bringing common sense into it. We all know common sense in government is an oxymoron.
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| Payday loan rates capped
Posted: 4/15/2008 8:41:31 AM | Payday loans are predatory lending at its worst. Before the rates were capped in New Mexico, rates could be close to 1000% annually. If a customer borrowed $100, he could almost never pay it back.
These loans prey on those who cannot borrow from any other source. All they require is a checking account and a job. They make the debtor sign an authorization for an automatic debit to his/her account on payday to allegedly repay the debt. Knowing that their customers are likely to not have the money, they don't submit one debit for the full amount due, they submit multiple debits for smaller amounts in the hopes that some of them are paid. If the borrower's checking account is overdrawn, he is charged by his bank for up to 20 insufficient funds charges. The borrower can now face up to $700 in NSF check charges thanks to the payday loan automatic debits bouncing. Now he not only owes the original payday loan, the accrued interest, but is now overdrawn probably more than his next paycheck thanks to the predatory lender.
These companies are absolutely the worst! | |
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| Payday loan rates capped
Posted: 4/15/2008 6:37:50 PM |
If the borrower's checking account is overdrawn, he is charged by his bank for up to 20 insufficient funds charges. The borrower can now face up to $700 in NSF check charges thanks to the payday loan automatic debits bouncing.
Hummm....it makes one wonder if the banks have any holdings in these institutions.... | |
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| Payday loan rates capped
Posted: 4/16/2008 8:21:08 AM | | Unless that law takes into account how they already get around the "loan sharking" laws (lower "interest" rates but higher "service charges") I would expect it to be ineffectual. | |
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