The Battle Has Ended Sadly for Payday Loans Lenders in New Hampshire.
New Hampshire’s Banking Commissioner has denied the request of payday loans lenders to charge 365% on open-ended lines of credit.
The South Carolina lender Advance America Cash Advance was fighting the the law that passed 8 day ago in New Hampshire capping annual interest rates on payday loans to 36%.
Peter Hildereth, the banking commissioner, declared the latest request to be unreasonable and predatory.
The request by Advance America was to loan money under a different section of banking law that would allow them to loan out money without being subject to the interest rate caps.
After stating that a consumer who borrowed $500 dollars at 365% interest for a year would end up paying a grand total of $2325 in interest, Peter Hildereth said the following;
“Brought down to its basic level, it just is not fair”
I agree, and I think that anyone would. $2325 dollars in interest on a $500 dollar loan is clearly an injustice when examining the situation at a quick glance. Looking at the situation a little closer, however, reveals an entirely different story proving that the lenders are actually the ones who have been dealt with unjustly.
The Truth Made Clearer
For instance, the 365% interest rate here has been explained using an unrealistic example. First of all, the interest rate here is an annual percentage rate which means that the $2,325 dollars in interest being charged on the $500 dollar loan in the example above, is based on the assumption that the consumer borrowing the loan would have to let the loan loan lapse for an entire year without making and effort to pay anything back. You would be hard pressed to find a consumer who would be so irresponsible as to miss payments 26 times in a row. The standard term for payday loans is two weeks.
Payday loans lenders typically charge up to 521% when it comes to interest rates. That being said, even at the highest percentage of 521%, far above the 365% charged by Cash Advance America, the total interest charged on a loan of $100 dollars for the standard term of two weeks, would cost the consumer only $20 in interest charges.
This is only a 20% interest charge on the money borrowed and a far cry from the ridiculous claims of misinformed payday loan opponents.
Putting things into Perspective
Now that we have revealed the truth in payday loan lending rates, let’s consider the situation from the side of Advance America and other lenders who are suffering from these interest rate caps.
As mentioned above, the caps were enforced at an annual percentage rate of 36%. For lenders this means that on a $100 dollar loan given on a two week term, the total profit made on interest charges for each loan would be $1.38 or just short of a dime a day.
You can now understand Advance America’s request to loan funds under different laws, as these low annual percentage rates will prove devastating to them and other payday loans businesses.
Adding Insult to Injury
It’s shocking that laws such as these are being passed with our economy in such a fragile state. These laws will create additional job losses as lenders will be forced to lay off employees or close stores altogether. For consumers everywhere who are having a hard time making ends meet, payday loans are a saving grace when the need to avoid late payment penalties with creditors or other small financial emergencies arise.
Show Your Support!
For those of you who have used payday loans and have seen their advantages, consider writing your local and state officials showing your support and expressing your concern over the latest trend sweeping the country capping lender’s interest rates.
It’s Should Be The Consumer’s Decision
When it comes to interest rates, consumers like you should decide what is acceptable and what is not through your simple choice to use or not use the services of payday loan lenders.
One thing is for certain, if things don’t change, these sources of of obtaining quick payday loans will cease to exist.
I doubt there were many people who allow this type of loan to lapse to the point of interest being charged at the yearly rate. Another case of over legislation.
This is an unfortunate ruling which was quite slanted in it’s presentation. Laid out the way it was, mathematically computes, but the likelihood of a borrower waiting an entire year to pay off a small loan is incredibly remote. This is not helpful for consumers and will eliminate another choice to borrow emergency funds.
Fantastic article. I am saving this one to my computer for future printouts the next time I hear someone crying out some horror story that they were not even involved in.
It has been said that “the irony of the information age is that it gives new respectability to uninformed opinion.”
I don’t who exactly is going around saying that trying to do away with entire industries is a good idea, not to mention that APR doesn’t really apply to payday loans. A loan paid back after two weeks to a month does not have an annual percentage rate, and getting rid of a multi-billion dollar industry and creating more unemployment is just a bad idea right now.