Comments on: payday loan cap resolution http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/?utm_source=rss&utm_medium=rss&utm_campaign=payday-loan-cap-in-the-city Harrisonburg's Community News Network Mon, 26 Mar 2012 22:09:32 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Deb SF http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/comment-page-1/#comment-13083 Deb SF Wed, 26 Sep 2007 13:45:59 +0000 http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/#comment-13083 John argues in part that rates so high for payday lenders because they are engaging in a high-risk activity, and profits they do recover must cover not only their day-to-day operating expenses, but also their default rate for bad loans. But good data on default rates on payday loans is hard to come by. Some published reports indicate that the incidence of default on these loans is in the 20-25% range. But the majority of payday loans--77.2%--are rollovers. When a customer defaults on the 10th rollover, both the industry and industry critics--for their own reasons--can claim a default rate of 10%. In fact, while only the final rollover was defaulted, all 10 loans represented a final loss of principal. http://www.responsiblelending.org/issues/payday/briefs/page.jsp?itemID=29557872#five sez: With these renewals (or loan flips), they are never paying down the principal owed. In North Carolina, for example, only 6% of payday checks were returned for insufficient funds (NSF) and lenders recovered about 69% of the value on these. They also collected $2 million in NSF fees. In comparison, the credit card default rate, like the payday default rate, is also approximately 6% -- but the interest rate on a credit card rarely exceeds 29% (as opposed to payday loans that routinely charge 400% APR or more). Personal loans and car loans have default rates of around 2%, with APRs between 5 and 15%. Compared to other forms of credit, the exorbitantly high APR charged on payday loans is drastically out of proportion with the relatively normal risk involved in making those loans. Moreover, if a borrower defaults after repeatedly renewing a payday loan, a lender can actually make money, because accumulating fees quickly surpass the amount lent. In most states, a payday lender loses only 10-12¢ for every dollar loaned out in the few cases when a loan goes unpaid. "[Payday lenders] understate profits and overstate default rates to dissuade potential new competitors from entering the industry." John argues in part that rates so high for payday lenders because they are engaging in a high-risk activity, and profits they do recover must cover not only their day-to-day operating expenses, but also their default rate for bad loans.

But good data on default rates on payday loans is hard to come by. Some published reports indicate that the incidence of default on these loans is in the 20-25% range. But the majority of payday loans–77.2%–are rollovers. When a customer defaults on the 10th rollover, both the industry and industry critics–for their own reasons–can claim a default rate of 10%. In fact, while only the final rollover was defaulted, all 10 loans represented a final loss of principal.

http://www.responsiblelending.org/issues/payday/briefs/page.jsp?itemID=29557872#five sez:

With these renewals (or loan flips), they are never paying down the principal owed. In North Carolina, for example, only 6% of payday checks were returned for insufficient funds (NSF) and lenders recovered about 69% of the value on these. They also collected $2 million in NSF fees.

In comparison, the credit card default rate, like the payday default rate, is also approximately 6% — but the interest rate on a credit card rarely exceeds 29% (as opposed to payday loans that routinely charge 400% APR or more). Personal loans and car loans have default rates of around 2%, with APRs between 5 and 15%. Compared to other forms of credit, the exorbitantly high APR charged on payday loans is drastically out of proportion with the relatively normal risk involved in making those loans.
Moreover, if a borrower defaults after repeatedly renewing a payday loan, a lender can actually make money, because accumulating fees quickly surpass the amount lent. In most states, a payday lender loses only 10-12¢ for every dollar loaned out in the few cases when a loan goes unpaid.

“[Payday lenders] understate profits and overstate default rates to dissuade potential new competitors from entering the industry.”

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]]> By: finnegan http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/comment-page-1/#comment-13081 finnegan Wed, 26 Sep 2007 13:27:39 +0000 http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/#comment-13081 Last night council voted to support Staunton in this. <a href=http://www.whsv.com/home/headlines/10025901.html rel="nofollow">From TV3</a>: <blockquote>Tuesday night, the Harrisonburg City Council also went on board with the idea. At the meeting, the council didn't implement anything locally, it just supported what Staunton did, by passing a resolution of its own.</blockquote> Last night council voted to support Staunton in this. From TV3:

Tuesday night, the Harrisonburg City Council also went on board with the idea. At the meeting, the council didn’t implement anything locally, it just supported what Staunton did, by passing a resolution of its own.

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]]> By: Deb SF http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/comment-page-1/#comment-13071 Deb SF Wed, 26 Sep 2007 10:08:58 +0000 http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/#comment-13071 David's comment from above doesn't quite work, in refering to the Fed lowering the Federal Funds rate to 4.75%.: "Consumer/Taxpayer pays government, Government lends money to banks at 4.75%, consumer pays bank 36% for their money back. Lovely. (satire illustrates best)" The Federal Funds rate is the rate that banks charge each other for loans, usual short term, with excess reserves they have on hand. The Fed affects this pretty precisely through the usual ways, but the Fed doesn't get this interest rate. Wachovia pays it to Planters, or BT&T, etc. whomever they borrow the extra reserves from. David’s comment from above doesn’t quite work, in refering to the Fed lowering the Federal Funds rate to 4.75%.:

“Consumer/Taxpayer pays government, Government lends money to banks at 4.75%, consumer pays bank 36% for their money back. Lovely. (satire illustrates best)”

The Federal Funds rate is the rate that banks charge each other for loans, usual short term, with excess reserves they have on hand. The Fed affects this pretty precisely through the usual ways, but the Fed doesn’t get this interest rate. Wachovia pays it to Planters, or BT&T, etc. whomever they borrow the extra reserves from.

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]]> By: Dave Briggman http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/comment-page-1/#comment-13047 Dave Briggman Wed, 26 Sep 2007 02:12:59 +0000 http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/#comment-13047 BTW, looking at the federal lawsuits it would seem that if you have money in Suntrust Bank, they appear to be bankrolling the operations of LoanMax. BTW, looking at the federal lawsuits it would seem that if you have money in Suntrust Bank, they appear to be bankrolling the operations of LoanMax.

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]]> By: Kyle http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/comment-page-1/#comment-13007 Kyle Tue, 25 Sep 2007 23:26:50 +0000 http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/#comment-13007 Try "corporation" next! Try “corporation” next!

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]]> By: Emmy http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/comment-page-1/#comment-13003 Emmy Tue, 25 Sep 2007 23:17:35 +0000 http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/#comment-13003 I hear ya! I have Fast Food Nation right now! I hear ya! I have Fast Food Nation right now!

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]]> By: Kyle http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/comment-page-1/#comment-12991 Kyle Tue, 25 Sep 2007 22:29:06 +0000 http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/#comment-12991 "Maxed out" id next on my queue too! Right after I return "Enron: The smartest guys in the room." I've got to stop with these depressing movies.... One of the best though is "Who killed the electric car?" you need to see this one...add it to your queue. “Maxed out” id next on my queue too! Right after I return “Enron: The smartest guys in the room.” I’ve got to stop with these depressing movies….

One of the best though is “Who killed the electric car?” you need to see this one…add it to your queue.

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]]> By: David Miller http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/comment-page-1/#comment-12990 David Miller Tue, 25 Sep 2007 22:26:25 +0000 http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/#comment-12990 Quoting The US Chamber of Commerce "Fed Reduces Funds Rate September 25--For the first time in four years the FOMC cut the funds rate, reducing it to 4.75%. On the inflation front, the consumer price index fell 0.1% in August while the producer price index posted a 1.4% decline. Concurrently, the housing market remains weak, as housing starts fell 2.6% to 1.331 million units. Last, the index of leading economic indicators fell 0.6%." Consumer/Taxpayer pays government, Government lends money to banks at 4.75%, consumer pays bank 36% for their money back. Lovely. (satire illustrates best). Quoting The US Chamber of Commerce “Fed Reduces Funds Rate
September 25–For the first time in four years the FOMC cut the funds rate, reducing it to 4.75%. On the inflation front, the consumer price index fell 0.1% in August while the producer price index posted a 1.4% decline. Concurrently, the housing market remains weak, as housing starts fell 2.6% to 1.331 million units. Last, the index of leading economic indicators fell 0.6%.”

Consumer/Taxpayer pays government, Government lends money to banks at 4.75%, consumer pays bank 36% for their money back. Lovely. (satire illustrates best).

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]]> By: Emmy http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/comment-page-1/#comment-12970 Emmy Tue, 25 Sep 2007 20:39:23 +0000 http://hburgnews.com/2007/09/25/payday-loan-cap-in-the-city/#comment-12970 Isn't he awesome Gxeremio? I learned a lot from his book and listening to him. I'm amazed at how many people he has talked out of filing for bankruptcy and actually shown them a different way out. I was really amazed at what I learned about getting loans without credit. To think millionaires are out there that have no FICO score! :) And again, I've spiraled this off topic! Isn’t he awesome Gxeremio? I learned a lot from his book and listening to him. I’m amazed at how many people he has talked out of filing for bankruptcy and actually shown them a different way out. I was really amazed at what I learned about getting loans without credit. To think millionaires are out there that have no FICO score! :)

And again, I’ve spiraled this off topic!

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