It doesn't take much detective work to discover the payday loan truth. (Photo: ThinkStock)

In the financial news industry, the media will periodically run an anti-payday loan story in which the same talking points are used. In the case of a recent Lansing State Journal article entitled “Going with payday loans might not be worth fees,” those talking points include 391 percent annual interest and varying levels of state regulation. As we’ll see, these are instances of politically convenient bullet points that fail to address the full reality of taking out a payday loan.

A payday loan in Michigan is not an annual loan

For consumer convenience, the Truth in Lending Act (a federal law) requires that all consumer loans – including payday loans – clearly advertise the annual percentage rate (APR) charged. For an annual loan, this is useful. However, while a payday loan is a consumer loan, it is not an annual loan. In Michigan, the average fee (interest) charged per $100 on a two-week payday loan is about $15. That’s 15 percent, or $15 dollars above the principal loan amount. The Journal reporter admits that the payday loan in Michigan ranges in term from as little as seven days to as many as 31 depending upon the lender, although two weeks is standard. Does that sound like an annual loan to you? If it were, you’d be paying 391 APR in interest. For a two-week payday loan, $15 is 15 percent interest paid.

Some lenders charge more than others

The Lansing State Journal is right to advise consumers to “be careful.” Researching the best lender rates ahead of time makes sense and is advised by any pro-payday loan group worth its salt, including the Community Financial Services Association. While some lenders charge $15 per $100 loaned, others may charge more. It varies by lender, and regulations vary by state.

However, the example the Journal uses is suspect because of its lack of context. A payday loan customer named William Lee claims he had to pay back $400 for a $250 payday loan. There is no mention of whether Mr. Lee defaulted on his loan, perhaps because he borrowed more than he could afford to repay. There is also no mention of any other loan terms. As the Michigan Office of Financial and Insurance Regulation allows a maximum of $35.50 (plus a 45-cent database verification fee) charged on a $250 transaction, it seems likely that Mr. Lee either defaulted or the lender he used was operating under the radar. It’s impossible to say for certain based on the article, which makes the Lansing State Journal’s piece nothing more than an unsupported scare piece straight from the Center for Responsible Lending’s playbook.

Do your research, and don’t choose based on emotion

A payday loan can be a useful tool in the right situation. If a consumer shops for the best rate and avoids borrowing more than they can afford to repay on their next payday, there should be no trouble. Impulsive action can lead to financial ruin, whether a consumer is looking for a payday loan, a mortgage, an auto loan or a host of other things. Research lenders online, make sure you understand fees charged before you apply and let the numbers do the talking. The annual APR scare tactic the Lansing State Journal and Center for Responsible Lending use is just that.

Sources:

Lansing State Journal

Truth in Lending Act

Related Video:

An Aerial view of the Silverdome. From Wikimedia Commons.

The Pontiac Silverdome, located in Pontiac (duh) Michigan, just outside of Detroit, has sold for a cool $583,000.  An entire sports arena, for between the cost of two and three average homes in America – that’s getting some big-time real estate on the cheap.  One wonders if the new owners will ever need mortgage loan modification.  It was bid on at auction by a private Canadian Real Estate firm out of Toronto, whose name isn’t available presently. They delivered the winning bid, but the sale isn’t final yet.  According to an article from the Detroit Free Press (See: http://freep.com/article/20091116/NEWS03/91116065/1318/Canadian-firm-submits-winning-bid-of-583000-for-Silverdome), it was costing the city of Pontiac about three times that much just to maintain the place per year, and the Detroit area isn’t exactly the land of milk and honey lately.

The former loud and proud home of Detroit Sports

A local college professor and high school sports star, C. Don Davidson, was the lynch pin.  He had grown up in the Detroit area and returned to the Detroit area in 1965, surprised to see the Pontiac area having declined since his absence.  He thought it would be a dandy idea to build a stadium for the Lions.

In 1966, he was hired by the University of Detroit in the architectural department.  (He held a Masters in Urban Planning and Architecture, and previously had helped design Jacksonville International Airport.)  His big project was an urban renewal of Pontiac, including a sports stadium.  He began with talks with William Clay Ford, owner of the Lions for a move.  By 1970, Pontiac was approved as the site for a new stadium, and he was hired as chief project designer by O’Dell, Hewlett and Luckenbach, an architectural firm.  The stadium was completed in 1975 – at a cost of almost $56 million – as the new home of the Detroit Lions.  They had previously been sharing Tiger Stadium with the Detroit Tigers, as was common even back then for professional football teams, and by fall 1975, the Lions’ new home was open for business as Pontiac Metropolitan Stadium.

Why “Silverdome?”

The top of the stadium was made of fiberglass coated with Teflon, which is white to the naked eye, but silver with reflection from the sun.  The roof was entirely supported by air pressure within the stadium.

From the ’70s until recently

In 1978, the Detroit Pistons moved in, and shared the building with the Lions until 1988.  It was the largest (it seats over 93,000; 80,000 for football) and loudest stadium in the NFL until 1997, and it’s still the third-largest stadium in the U.S.  (FedEx Field and Cowboy Stadium are second and first, respectively.)  The Lions moved out in 2001 to Ford Field.  It was largely empty afterward, though the parking lot was used as a drive-in cinema from ’03 to ’06.

The Present

The Silverdome has been host to many events, including WrestleMania III, the sporting event with the largest attendance ever (the record still stands). It’s also been host to legions of concerts – you name the huge band, they’ve played there.   By October 2009, the city of Pontiac put it up for auction.  The new owners, who will have a very reasonable mortgage on a HUGE building, plan to use it to host Major League Soccer games.  Granted, they paid more than a few payday loans, but they got an incredible deal.