Interested in no-interest?
The North Dakota legislature isn’t afraid to tell the truth about payday loans, particularly when it comes to interest charges. If proposed legislation passes, there will be a number of regulations to the faxless payday loan industry, including a provision worded as follows (parenthesis added by me):
A licensee (payday loan company) may charge a fee for the deferred presentment service (fast payday loan)… This fee may not be deemed interest for any purpose of law.
A recent KXMB CBS 12 Bismark story draws our attention to the aforementioned House Bill 1421, which will reform a few key areas of the industry in North Dakota. President Obama and critics of the industry should take some notes, particularly on the point of interest. Nearly all critics of the payday loan industry claim that payday lenders charge “exorbitant interest rates” in the neighborhood of 391 percent annually. We’ve showed you before that payday loans aren’t annual loans. Charging $15 per $100 loaned is a 15 percent charge. That’s it – no more, no less. An annual percentage rate is meaningless, regardless of whether the Truth in Lending Act requires that rate to be given in stores and loan materials. Get over it; it’s an antiquated law.
Your HB 1421 scorecard
- Limits fees to 15 percent, which would reasonably enable businesses to charge $15 per $100 loaned
- Cuts maximum loans to $250 – This is troubling… many other states allow up to $1,500 – this may not be enough to help some consumers, depending upon the severity of their short-term emergency situation
- Puts a $300 limit on the amount of money someone may have from a single payday lender at one time – Again, this may be too limiting. The previous limit was $600. Perhaps a compromise would be better?
- After paying off loan monies, there will also be a three-day waiting period before another can be taken
- A loan cannot be renewed more than once, and the renewal fee may not exceed the standard 15 percent of the total loan amount. Plus, a renewal must be paid in less than 60 days but more than 15
- Payday loan businesses can only operate additional businesses on their premises that are of the pawnbroking nature unless the commissioner provides written authorization otherwise – This could slow down diversification efforts, which are essential during a slow economy
Final grade?
For the interest clause alone, I’d pass HB 1421 with flying colors. The caps on dollar amount are a bit too low, however. North Dakota should keep their current limits on payday loans. No interest is more than interesting; it could set a national precedent that Mr. Obama can’t ignore.
Related video
- Are Payday Loans Responsible for the Cycle of Debt! (personalmoneystore.com)
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This is great! At least one state in the union is recognizing the legitimacy of the service, and allowing for both protection of the consumer and the business. The amount cap does seem a little stifling, however.