These are hard times in America.
People have lost their jobs through outsourcing, downsizing or failure to perform. Many have been forced to make do with lower paying jobs, or to take second jobs, to provide money for rent and food. Commuting to distant jobs has become a financial nightmare at the gasoline pump. With payday two weeks away, many low-paid workers find they don't have enough money in their wallets to buy bread and milk for the kids.
So what do they do?
They visit a payday loan business and pay a high fee for every $100 borrowed. Later, if they roll over the loan, another fee gets attached.
This month, the California Assembly's Banking and Finance Committee significantly weakened a bill that would have slashed interest rates charged on payday loans. Assemblyman Dave Jones, D-Sacramento, said his bill to cap interest at 36% a year would afford all California borrowers the same protections extended last year to members of the military.
In response to complaints about predatory lending, Congress passed a bill that imposed that limit on loans made to Americans on active duty and their families.
However, lobbyists for the payday loan industry told the legislators that the 36% rate - a mere fraction of the 459% now allowed by state law - on loans to all Californians would put them out of business.
That annual interest rate is not a typo. Nor are the whopping examples from other states that do not have the 459% cap. Costs expressed here are annual percentage rate for two-week terms:
A $100 bounced check with $48 NSF/merchant fees = 1,251% APR.
A $100 utility bill with $50 late/reconnect fees = 1,304% APR.
More than 1.4 million people borrowed $2.5 billion from California payday lenders in 2006, the latest year for which figures are available. The state's 2,400 licensed branches made more than 10 million payday loans. The average amount was $254.
Since August, the Federal Reserve has cut interest rates 2.25% on overnight lending that banks charge to each other.
But that action has no effect on the enormous rates charged on payday loans.
People who use payday loans to tide them over until their next paychecks should be sure to pay off their debt sooner, rather than later.
The California Legislature must continue to work on alleviating this severe financial problem that ends up crippling families who are faced with severe income shortfalls in these days of mounting monetary misadventures.
Source:http://www.avpress.com/n/24/0424_s20.hts
