House Bill 6734’s the Disease, Payday Loans the Cure

Rimshot, Mr. Cobretti!

Payday loans for a healthy Illinois

The Illinois legislature – a cobra in the grass, coiled and waiting to strike – still thinks that Payday loans are the disease. But in fact, they’re the cure.

Just before being kicked out the door, defeated Illinois State Representative hopeful Joan Krupa of Peoria introduced House Bill 6734 to amend the Payday Loan Reform Act of 2005. This is just a sampling of the damage the bill will do:

• Changes maximum duration of a loan from 120 to 240 days

• A lender may not charge more than 36 percent interest calculated on an annual percentage rate basis

• Explicitly includes all small consumer loans with terms under 241 days

House Bill 6734 will also ban or limit fees and require fast payday loan companies to confirm a borrower’s ability to repay (which companies already do, so this is a moot point).

What this will do to the people of Illinois

Like other communities who have suffered when faxless payday loans have been regulated out of business, communities in Illinois should no doubt experience the same downturn. And during a recession on the edge of a great depression, no less.

Ms. Krupa, who campaigned for state office under the slogan “building a healthy community,” should know better. Payday loans is a legitimate business arena that provides consumers in need of short-term cash a safe, viable alternative when less than perfect credit and lack of time limit their options. While a certain amount of cost must be maintained so that businesses can cover costs, the loans are certainly not expensive.

The community voices its displeasure

Bob Wolfberg, President of PLS Financial Services Inc., is quoted by a Medill Reports writer as saying that “No one could afford a 90 percent drop. It’s an outlaw bill.”

This brings us to the constant misunderstanding when it comes to payday loans and annual percentage rate. Not only are payday loans not annual loans (typically, they’re two-week loans), but as Wolfberg suggests, sticking them with an APR is similar to affixing an APR to any one-time purchase. He compares it to  “regulating the annual cost of a $4 cup of coffee,” which would cost $1,400 per year. You pay once (upfront) for the coffee, you pay once in two weeks to clear a payday loan. Heaven forbid you go to a $200 hotel room in Illinois -  the APR would lead to more than a $70,000 bill! As you can see, a one-time payment product like a payday loan is a different animal than an annual, large-scale loan. The same laws shouldn’t apply.

As an unsecured loan, a no fax payday loan that costs $15 to $20 per $100 loaned is affordable, particularly when it is compared with checking overdraft, which typically costs at least $30 per occurrence.

Payday loans are your short-term loan solution

“For longer-term debt there’s certain types of debt that’s better,” Wolfberg said, “and for shorter term debt there’s certain types of debt that’s better.” He understands – as anyone who has actually done the research and not depended upon talking heads to think for them does – that payday loans are a great product when used in the appropriate short-term situation. Clean up your act, Illinois; don’t be like Joan (see video below)…