Why Are Cash Advance Payday Loans Still Legal?

Tuesday, February 26, 2013

Check cashing services - the hated underbelly of America's personal finance system. Even Republican governments hate the ururious business so much that at one time, they tried more than once to shut it down. For instance, when the first President Bush was in power, he tried to bring in legislation that would make the distribution of all government benefits through government debit cards possible so that poor people would have immediate access to their money. But those good intentions were waylaid by technology. Today, the check cashing services have been replaced by businesses that deal in cash advance payday loans. In many cases, they live alongside of their new avatar.

How do these businesses take advantage of people, you ask? To begin with, they charge unconscionably high interest rates. And then as happened with swish marketing, they take money right out of your account without your knowledge. To get a payday loan, you have to fill out a form to give the lender authority to debit your account when you pay arrives. This is of course, a terrible idea, but there is nothing legally wrong with it. When you apply for your payday loan though, you are directed to a page where you have a few free offers and one paid offer. If you happen to miss the fact that one of the offers costs money, you're out $55.

Exactly how high do the interest rates go on these cash advance payday loans, you ask? Many of them go up to 500%. If you are wondering how much that works out in real dollar terms, that would be something like paying $100 in interest a year on a $500 payday loan. Certainly, that's not enough to send someone to the poor house. What they don't tell you is, they count on you rolling your loan over to the next month and doing this repeatedly. They get most of their profits from people like this. This is enough to bleed anyone white.

Payday loans or so egregious for the interest rates they charge, many states like New York for instance, ban them altogether. When the Pentagon saw that there were so many serviceman who got ripped off every month by these people, they made it against the law for anyone to make cash advance payday loans to service personnel. But there is no federal law against doing this with civilians.

What do the big banks and other lending institutions think of these businesses that gave lending a bad name? Banks like Well Fargo are neck deep in the payday lending themselves; they're the ones who bankroll the operations of the smalltime payday lenders. If only people could learn to manage their resources well enough that they didn't need payday loans.

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