June 19, 2019

The Problem with Payday Loans

“Tim Worstall recently took issue with the Center for Responsible Lending’s position that payday loans should be capped at a 36% annual rate. He seemed troubled by the fact that with such a rate cap in place, payday lenders choose to no longer make their predatory loans.

I’d like to offer some clarity. First, yes, it’s true — we do want to see an end to dangerous lending practices such as unaffordable payday loans carrying 300% and 400% interest rates. And second, I’d like to explain why payday loans are predatory.

At the Center for Responsible Lending, we understand how access to safe, affordable credit can help ensure people have a path to building wealth. But access to harmful payday loan products does the opposite. It strips people of their hard-earned income, cars, or even homes. This means we must say no to predatory interest rates that ensnare borrowers in debt traps and say yes to common-sense underwriting to ensure borrowers can repay loans while meeting daily expenses. This is why we support a 36% rate cap (or lower) for small loans that don’t override stronger state consumer laws.”

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