I have been called many things and crazy is one of those.  Yet does this adjective apply to all payday loan users?  You may be wondering as to why I am asking this question.  The answer is this – I ran across an article online wherein the author was saying that people who take out payday loans are crazy or not in their right minds.  Of course, my initial reaction was “No way!” This is such a sweeping generalisation!  So I went ahead and read it anyway – to see if what the person was saying made sense.

He noted down several points that I would like to address as well.  First, he wrote:

If you could qualify for a loan for interest rates of 10-20%, or even higher from these payday loans specialists, then I believe you can qualify for loans from a traditional lender for about half that rate.

If one did not know more about payday loans, this statement may make a lot of sense.  However, one of the biggest reasons people opt for payday loans is the fact that they cannot get loans from the conventional institutions – either that or they do not want to go through the hassle of applying for one wherein the process is long and tedious.  So, although it is true that conventional loans could have much lower rates as compared to payday loans, the fact is that many people who take out payday loans may not qualify for conventional loans.

Furthermore, he wrote:

Think about it if they were not making money on these loans, why do you see more and more of these businesses?

Of course payday loan providers are making money out of their products!  Don’t all business have the same agenda?  We have to face the truth here – all businesses, banks, and credit unions exist to make some sort of profit.  Otherwise, how would they be able to continue to provide the service or product that they have to offer?  Going along these lines, banks and other credit institutions have been around for the longest time.  If we follow the reasoning of the above statement, doesn’t it also mean that they are making money on their products and services?

Another point:

The majority of the payday loan customers are also young and poorer people who simply cannot afford the addition of another high interest loan.

If you read up on the statistics on payday loan customers, the fact is that “poor” people are not the bulk of the clientele.  In fact, this was just a point raised in my previous post.  Though the setting of that comment is in Canada, I bet that it is basically the same most everywhere.  The fact is that people need money sometimes and it is not just the “poor” who make use of payday loans.

In fairness to the author of the article, he did say that “This does not dismiss the fact that people should have personal responsibility in there own lives. These payday loans are simply an extension of credit to people many times without the consideration of ability to re-pay.”

Indeed, the ultimate responsibility lies with us – the consumers.

It seems that it is not only in the UK and in the US that payday loan companies are catching the attention of the government.  I ran across an article over at LFPress, Ca detailing how the government is planning to place restrictions on payday loan companies.  The article says:

Ontario introduced legislation yesterday to crack down on payday loan companies to protect the province’s “economically vulnerable” and while those in the industry applauded the move they took exception to how the Liberal government categorized their clientele. The proposed law — similar to legislation passed in several provinces — seeks to limit how much payday loan companies can charge Ontario customers and enhance consumer protection by licensing all operators.

If passed, the new law would see a cap placed on the total cost of borrowing and the establishment of an inspection and enforcement regime. It would also ban controversial lending practices such as issuing concurrent and back-to-back loans.

“Those are the so-called roll-over loans where borrowers take a loan on a loan and are saddled with exorbitant interest rates and a damaging cycle of debt horror stories,” Government Services Minister Ted McMeekin said.

Though the thought of the government meddling in such affairs makes me feel a bit iffy, I do seem to have an affinity for the idea presented in the third paragraph – concurrent and back-to-back loans being limited.  Now, I think that it is a good thing to be able to take out concurrent or back-to-back loans – in very dire and special circumstances.  But we have to face the fact that there are many people out there who may not have the financial common sense or the self-discipline to stay away from borrowing practices that could lead to their eventual financial ruin.  If these practices are regulated a bit more strictly, it could very be a good thing for many of us.

I do, however, disagree with the first part of the article, which asserts that payday loan companies prey on the economically vulnerable.  As the Canadian Payday Loan Association says, the majority of their customers cannot really be classified as “poor.”

Research released by the association last November suggests most of its customers have household incomes equal to the general population of Ontario. The telephone poll of 503 payday loan customers found a majority of them were employed full-time, that half had a post-secondary education and two thirds normally borrow less than $300. I take exception with the labelling of payday loan customers as vulnerable and poor,” said Stan Keyes, the president of the association which represents eight payday loan companies in Ontario — some 269 of the 700 storefronts. The CPLA represents 23 companies across the country, or 40 per cent of all payday loan outlets.

“(Our research) demonstrates that customers are well educated, that they’re responsible borrowers, that they have other credit options, that they’re knowledgeable about the product,” he said.

As such, I think that this kind of legislation may have some good points but I fear over meddling by the government.  What do you think?