Payday loan stores hit from both sides
Protesters in Virginia post up at a payday lending store.
In Harrisonburg, Va., today several picketers held up signs and passed out fliers in front of a payday loans store. Currently legislation is working its way through the Virginia legislature that would ban these lenders from using “open end loans.”
Virginia lenders that issue short-term loans started following open end loan regulations after the state put a cap on interest rates last year. Protesters are coming out in support of the new legislation, but do they really understand the whole story?
Hurting companies and consumers
The protesters are saying that payday loan and car title lenders are using “a loophole” by offering open end loans. However, these businesses are simply trying to keep their companies viable. The interest rate caps would eventually put these companies out of business, leaving the people who protesters and legislators are trying to protect with even fewer options.
Open end versus payday loans
People who take out open end laws actually stand to get a better deal than they would if they got payday loans. Generally when borrowers take out payday loans, they agree to pay it back within two weeks. If the loan isn’t paid back on time, interest begins to accrue.
Understanding your options
Under open end laws, lenders are not allowed to charge any interest or fees for the first 25 days. That means a person will have even more time to pay back the loan, and it will cost even less. Short-term loans are meant to be exactly that. Borrowers who need more than a few weeks to be able to pay back a loan should seek other forms of credit.
Ultimately ineffective
If Virginia lawmakers pass the bill that bans payday lenders from using open end loans, those lenders can simply close down their payday loan shops and start open end lending firms. The bill does not make open end loans illegal. So, in the end, the bill will only cause a shift in lending practices and leave borrowers without the option of payday loans.
Wait – let me get this straight for a second here. So if a person gets a payday loan, and pays it back within 25 days, they pay no interest or fees of any kind, not even a service charge – and that isn’t good enough? What, should people get money for free? I’m sorry, this isn’t Wall Street – people who work for a living have to pay their debts, and no interest short term debt; are you kidding me? That isn’t good enough? Wow.