Payday loans fail the sense test
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ayday loans -- why would anyone get one?
We've knocked our heads together on that question and the only answer is that a person with a decent income, but with a poor credit history, might take a loan if they really need cash for a couple of weeks.
Then he or she would pay it back, albeit with a bite worthy of Shylock from Shakespeare's "The Merchant of Venice." As the Standard-Examiner's Marshall Thompson explained to readers in his report on payday lending, these businesses charge several hundred percent interest.
But, even in the situation described, we would urge a middle-class borrower to steer clear of payday lenders. There are better solutions. Borrow from a family member or talk to a trusted financial institution. Many offer credit cards geared for those wanting to re-establish credit. If paid back on time, a legitimate credit card is a better deal than a payday loan.
And there is a darker side to the payday loan industry. It can trap the poor into a long cycle of debt. As ridiculous as it sounds, a borrower can borrow $300 and spend thousands of dollars just paying off the interest. This is all legal. Utah, in fact, is a paradise for payday lenders because it has no laws to cap interest rates.
Military personnel are a key consumer target for payday lenders. Thompson reported that "last year, military families paid more than $80 million in payday loan interest," according to the Center for Responsible Lending. Fortunately, a new federal law forces payday lenders to cap service members' interest at 36 percent.
As a result, the payday loan industry will no longer offer loans to airmen at Hill Air Force Base. They say they can't make a profit. Frankly, we can think of no negative to payday lenders staying away from our servicemen and servicewomen. We urge banks and credit unions to work with members of the military and their families struggling financially. They deserve better terms than the payday lenders were offering them.
And so do the rest of us. We hope that House Bill 329, sponsored by State Rep. Lou Shurtliff, D-Ogden, gets a full hearing this next legislative session; it would cap payday loans in Utah at $500.
Payday lending doesn't pass the sense test. It provides a short-term solution, at best. At its worst, it can lead to a cycle of financial stress that destroys hope, marriages and self-respect.
We urge borrowers to seek other options.
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