A Payday Loan Software Blog

What are we actually regulating?

It’s no secret that the Payday Loan industry is constantly facing changing regulations in States all over the United States.  Not to worry, there are several States that have incurred seemingly strict regulations and Payday Loan operators are still able to flourish and maintain profits in the face of these changes.  Of course, those who survive and maintain profitability have made significant and necessary changes to contracts, updated their Payday Loan software to stay current with new legislation and more.  Not an easy task, but necessary to survive in a changing industry.

Now we must first consider WHY Payday Loans are currently under fire and facing new regulations in several States.  Of course, getting a straight answer is easier said than done.

Many people say that customers need to be protected from high APR rates.  But why are 2-week loans being measured by “ANNUAL percentage rates”?  Doesn’t that seem a bit (see image) unfair?  After all, consider this quote from paydaypundit.org… “Payday loans are not high-interest loans because with a two-week loan the the APR is only 1/26th as significant a factor as it is with a one-year loan. At $15-per-hundred-borrowed (391% APR) the borrower only pays 15% of the loan amount in interest, whereas with a 30-year home loan at 5% APR the borrower pays over 93%.”

WOW!!  You think if you were legislating to cap payday loans at 36% APR you would knowingly be legislating to SHUT DOWN payday loans in your state!  Thankfully the folks in Wisconsin realized that, and “The Democratic-controlled Assembly voted 56-41 to kill an amendment that would have capped the interest rates lenders could charge at 36 percent.”

One of the most popular arguments for regulating Payday Loans would be “Consumer Protection”.  After all, if this new legislation was REALLY meant to protect consumers, wouldn’t it also apply to ridiculous bank over-draft fees (Banks Still Screwing Customers By Piling On Overdraft Fees)?  If I didn’t know any better, I would think that all this “Consumer Protection” legislation are aimed directly at limiting finance options to low-income Americans with bad credit and already limited (or in some cases, completely exhausted) access to short-term credit options.  I guess their only option is to just accept the excessively high overdraft fees that fund such a large percentage of banks profits each year (roughly $38 billion in overdraft penalties this year!).

In my opinion, the Payday Loan industry will continue to survive, adapt and thrive.  We offer a service to millions of hard-working families in times of crisis where they would have no other option for cash or credit.  Although the fees and APR’s associated with a Payday Loan are considered “high”, those of use who take the time to understand how APR’s are actually calculated and the default rates associated with lending to “high-risk” consumers understand that fees in the range of $15-$25 per $100 lent out are completely justified to maintain sustainable profit margins.  And ask if you ask nearly any Payday Loan customer, or read nearly any study on public opinion of said matters you will surely find that the average Payday Loan customer is actually very content with the services provided.