By Mark Huffman
ConsumerAffairs.com
July 19, 2010
Many consumers and consumer advocacy groups hailed last week's final passage of the financial reform bill, even though it wasn't as strong as some would have liked.
Taking a completely different view, however, is the payday loan industry, which for the first time will fall under federal regulation. One company, Pay1Day.com, says it and its employees are worried that the Consumer Financial Protection Agency (CFPA), created under the new law, will put them out of business.
Why? Because the political backers of the new agency have vowed to put caps on interest rates for short-term loans. This new federal oversight also comes at a time when various states are cracking down, the company complained in a press release.
"For example, the State of Arizona recently banned payday loans, which forced many payday lenders, like Solomon Finance, out of the state," Pay1Day.com said in the release.
The company says banning payday loans and having to shut down business resulted in thousands of citizens losing their jobs in the state.
The company quotes Gabe Rodriguez, who it identifies as "an author for a website that writes about payday loans," as saying "States that have allowed regulated payday lending have very few complaints against our industry."
But there are indeed many, many complaints about payday lenders.
"I have paid these people so much money you would not believe," Sandra, of Fuquay Varina, N.C., wrote in a complaint about OneClickCash.com to ConsumerAffairs.com. "I think a law should be made to do away with these companies."
Monique, of Chicago, learned just how easy -- and expensive -- it can be to fall behind when she took out a loan from a PLS Payday Loan Store.
"I took out a loan for $900 and made two or three payments on it of $227," she told ConsumerAffairs.com. "The following payment I was unable to make so I went into the store to see what can be worked out. My options were not good. I was given the option of paying the difference and refinancing the loan for a larger amount and losing what I have paid already or paying it all off at a lump sum of $1,200 or let them take me too collections."
400 percent
When a consumer takes out a payday loan, typically for a small amount of cash, he is charged a fee that can amount to 400 percent or more. The loan must be paid back within a two-week period. The Center for Responsible Lending (CRL), one of the biggest opponents of payday lending, calls it legal loan sharking.
"Payday loans are marketed as a way to put quick cash into your hands when you have a budget shortfall, but the business is designed so that borrowers can't easily pay off their loans and walk away," the group says on its website. "The average borrower has nine repeat loans per year, and at $50 each time for a loan of $300, that means they're paying more in interest than what they borrowed."
But Pay1Day.com complains that the new financial reform law is not addressing the root causes of what led the U.S. economy to collapse in 2008.
"It was well documented and evident that subprime mortgages, the major wall street banks irresponsible lending, and the greed of CEOs and CFOs of those banks and financial institutions were the causes for the deep recession of 2008," the company says.
