Home Texas Payday Lending My view: The payday loan problem

My view: The payday loan problem

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“A friend of mine from Chile has a mentally incapacitated son. Because of her circumstances, she needed to send this son back to Chile to be with an uncle. She didn’t have funds for air passage and borrowed from a friend. Even though the son was clearly identified to the airline as needing help boarding and exiting planes and handling layovers, the airline people in Mexico failed to get him aboard the proper airline to Chile. He was stranded in Mexico for two days while my friend, desperate for funds to purchase a new ticket because the airline refused to own the problem, went to a payday loan center in Spanish Fork. They advertised loans of 30 percent interest and she was desperate and out of other resources.

My friend does not speak and understand English too well, but not having other resources felt she could afford the high interest rate, as she didn’t have collateral. She completed the application for the loan, being rushed because of her son still stuck in an airport in Mexico. She didn’t pay too much attention to the details of the loan and was not fully capable of understanding the details anyway. The payday loan center had a Spanish-speaking person who was friendly and that gave her assurance that she was being treated fairly.

However, here are the facts of the loan which we discovered. The payday loan center charged her a number of other small fees including an $85 document preparation fee [for two pages of documentation]. The actual stated interest on the loan was actually written at 106 percent interest, not the 30 percent advertised, which was never made clear to her. She informed me that she was paying 30 percent interest when I asked. In addition the interest was calculated using a one-year pay back, but the agreement called for her to pay the full loan plus interest in equal installments over only nine months. What that means is that she had to pay the full amount of interest for a one-year loan plus interest in just nine months.

The true interest including the document preparation fee for my friend’s loan turns out to be 235.75 percent. This makes me ask a couple of questions? How do we as a society justify letting people get treated this way? How can people who deal in usury in this manner manage to operate as legitimate businesses in a so-called civilized society?

On the one hand you have banks who will only lend on collateral and/or high credit ratings for personal loans. Then you have high-rate credit cards that also screen out the working poor. Then nothing exists until you get to loan sharks. Are they some kind of protected class? What impediments have we placed against legitimate business loans to poor people who need funds, who will pay their loans back and who are willing to pay a premium interest rate, yet who are left to deceptive lenders charging undisclosed high interest rates and fees?”

Read more at: Deseret News

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