Over the Hill

Predatory ‘payday’ lenders are overdue for regulation

Phil Dirkx
Phil Dirkx jjohnston@thetribunenews.com

“The rich get richer and the poor get poorer.”

That’s from a 1921 hit song, but it’s still true today. Think of this: “Payday” loan corporations now charge people an “annual percentage rate of 391 percent on a median loan of $350.”

I read that in the Oct. 6 Tribune, and it’s been on my mind ever since. It especially interested me because in the 1950s and ’60s I worked for a finance company for 13 years. I managed its branches in Sunnyvale and Paso Robles. Sure, we charged very high interest rates, but never that high.

The Tribune article said a bureau of the federal government has “finalized” some new rules to reduce the “payday” lenders’ outrageous charges. I put quotation marks on “finalized” because the new rules really won’t take effect for awhile and will be opposed in Congress by the “payday” lenders’ friends.

I’m afraid these new rules are going to need a lot of public support or they will just end up as another great idea that died in Washington.

We don’t hear much about “payday” lenders. People don’t brag about their “payday” loans. But the Tribune story said 12 million Americans get “payday” loans every year and those borrowers pay more than $7 billion in loan fees.

I guess they’re called “payday” loans because you get one when you run short of money before payday. So you borrow some to tide you over until next payday. But the trouble is, when your next payday comes around and you pay off that loan, you’re left short of money and need another loan.

About 80 percent of “payday” borrowers don’t pay off their first loan. Instead, they roll it into another one, according to the Consumer Financial Protection Bureau. That’s the federal agency that “finalized” the new lending rules this month. If those rules survive, they’ll take effect sometime next year.

About 45 percent of “payday” borrowers take out four loans in succession. Some also borrow to pay off other competing “payday” lenders.

Some people just can’t manage their money. That’s one of the things I learned while working in the loan business. I tried unsuccessfully to teach a few. They need protection.

The new rules would require “payday” lenders to make sure their borrowers can repay their loans without getting another loan to do so. The rules also prohibit more than three consecutive loans.

The Associated Press said 15 states now prevent “payday” loans one way or another. Unfortunately, California isn’t one of the 15. In fact, California has the most “payday” loan business, with repeat borrowers making up 83 percent of the loan volume.

The CFPB says its new rules might reduce “payday” lending by 66 percent. That’s good. Let credit unions and banks make all the small personal loans.

Phil Dirkx’s column is special to The Tribune. He has lived in Paso Robles for more than five decades, and his column appears here every other week. Reach Dirkx at 238-2372 or phild2008@sbcglobal.net.