Thursday, July 09, 2009

Payday and Title Lenders Charge Up to 400% Interest

Arlandria LoanMaxThis article by the Washington Post identifies that payday lenders charge up to 400% interest. On top of that, most borrowers come back pay period after pay period.
Nearly 59 million loans totaling more than $20 billion fit this pattern, accounting for three-quarters of all payday loan volume, the study found. The loans resulted in $3.5 billion worth of fees each year.
So out of $20 billion in paychecks for these repeat borrowers, $3.5 billion goes to fees. That's 17.5% out of all money borrowed. Consider that this is after taxes and this is just lost money to people that likely have little disposable income to begin with.

A key to fixing this problem is to educate payday loan patrons about managing finances and banking in general. Last summer, Alexandria agreed not to raise the tax on Payday lenders in exchange for a voluntary $20K donation (see pg 8-9 of this pdf) towards financial education. Based on the linked document, $7,500 should have gone towards education initially with $10,000 due to the city over the following year for additional programs, pending the city coming up with an educational program and working with LoanMax. The additional $2,500 was to go to a 501(c)(3) organization of the city's choosing by December 31, 2008.

Here's the only city planned financial educational event that I could find, and it was back in January. Contact the Mayor and City Council to make sure the city is planning future financial education programs and not just letting these funds rot on the vine.

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