We can be real honest here and state that nobody likes to pay interest. The fact of the matter is, though, that when one wishes to borrow money, there will always be interest to pay. Essentially, interest is the price tag that is slapped onto any loan or line of credit. If you were to rent a car for a few days, you’d expect to pay for it, right? Well, interest is just what you pay for “renting” (i.e. borrowing) money from a bank, lender or other financial institution. Why is it, then, that lenders get such a hard time about charging interest on the loans that they provide? This is especially true for payday lenders and other non-mainstream lending industries.
People make payday lenders out to be bad guys simply because they facilitate short term, smaller dollar loans that allow people to get access to fast cash when they need it for emergency expenses. Oh yeah, and they charge for the services they provide. What horror!!
Yes, it is true that payday lenders charge more for their loans than a conventional bank. This is because the loans are for very short terms. A 3.9 percent loan on a two week loan would be as crazy as a 22 percent APR on a traditional 30 year mortgage. Additionally, payday loans don’t take weeks or months to process or require borrower to fill out tons of paperwork.
Here’s how a payday loan typically goes down: A borrower presents a pay stub or car title as either collateral or proof of upcoming income. The person taking out the loan agrees to pay back the loan principle plus the loan fees that are charged by the lending company. Pretty simple and straightforward, right? Some critics, however, deem this whole process to be unfair and some even call it predator. These are the same folks who want to either restrict the availability of payday loans or make them outright illegal. A group called the Consumer Financial Protection Bureau (a government agency made up of unelected officials) is one of the biggest opponents of the payday lending industry and has been on a mission to destroy this industry once and for all.
In other words, the CFPB wants to be a nanny to American consumers and to tell us what types of financial products/services should and should not be made available to us. It’s not nice to know that a government agency essentially considers Americans to be pretty much morons, now is it?
The CFPB has made proposals for regulations that would require payday lenders to take action to ensure that the people who take out loans are able to pay them back. “Today we are taking an important step toward ending the debt traps that plague millions of consumers across the country,” according to CFPB Director Richard Cordray.
How so? When someone takes out a payday loan, the loan is based upon the borrowers pay. The pay stub acts just like income tax forms that people turn in when they take out conventional loans. But both conventional lenders and payday lending companies have to take things on good faith that the potential borrower is not biting off more than he or she can chew. Apparently, the CFPB and other government busy-bodies think that we are all incapable of borrowing responsibly. As such, they want to cut down an industry that provides essential financial services to unbanked and underbanked households all across the USA. Seems to be another case of our government – and its cronies – thinking that they know what is best for us and eliminating any option that they deem to be unseemly or not in line with their current agenda. Food for thought….