Bloomberg reports that payday lending is under fire in Iowa, a state where lending laws are already among the tightest in the nation. Payday loan rollovers are forbidden and fee limits are less than permissive, but consumer advocates that include members of the Iowa Catholic Conference and National Association of Social Workers are lobbying the Iowa Legislature to clamp down the rate cap on payday loans to 36 percent APR.
Iowa payday loans bill sponsored by 16 senators
Sixteen unnamed Iowa State senators have co-sponsored a measure that will be brought before the state Senate this week. The measure would limit the rate cap on payday loans to 36 percent APR. While various advocates claim this is fair, the mathematics are far from practicable. Applied to a two-week loan, a 36 percent APR amounts to $1.38 that a payday lender earns for every $100 loaned. That’s less than 10 cents per day, and it doesn’t take into account a payday loan company’s operating costs, including employee salaries.
Personal responsibility is paramount
While it is true that some borrowers use payday loans irresponsibly, current independent payday lending research suggests that this is far from the norm. As rollovers – where a second loan is taken out to repay the first – are not allowed with Iowa payday loans, those who argue the “cycle of debt” in that state are misinformed.
What payday lending comes down to is personal responsibility on the part of Iowa consumers. While the Iowa Catholic Conference and others argue that government must protect people from themselves, nanny-state style, Republican Iowa Sen. Brad Zaun of Urbandale sees through the endless legislative loop, reports Payday Pundit.
“It’s just more government regulation,” Zaun said. “There has to be some personal responsibility.”
If a consumer only borrows what they can afford to repay and only resorts to the use of credit in essential situations, they’re exercising financial responsibility.