Predatory Payday Lending
This article was personal to me because my family took out a loan from one of the many loan stores in and around Chicago during the economic meltdown in 2008. Our mortgage was not on a fixed rate and so our payments varied greatly month to month, sometimes they were out of control, costing us more than what our total income was for the month. On top of the mortgage, we had to pay our city property taxes. That is when we needed went into a loan store and took out a loan of $4000 to help cover the expenses of the property taxes. We were making on time monthly payments towards the loan, until we got hit hard with subsequent increased mortgage payments and we were no longer able to keep up with the loan repayment. Because we were in desperate need of the loan, I don't think anyone took the time to read the fine print and examine the terms of the contract and the outrages interest rates and fees of late and missed payments. Needless to say we owed over $11,000 on the original loan within the year. Had we read the fine print and had the contract really explained to us, I believe we would not have taken the loan out and instead tried to find other options with the city to pay our property taxes.
In regards to the issues raised in the articles, I believe that all of the United States should impose stricter guidelines for payday loan stores and outright ban them in neighborhoods were there are most likely to be used. There is a cliche that says "out of sight, out of mind". If these payday loan stores are far from the poor neighborhoods, I think it would make them less of an option for people due to having to go out of their way for a loan. People would most likely have to really need the loan and be willing to go out of their way to access it. According to the article "Other actions to combat payday lending have been taken at the local level. Recognizing the harmful impact of payday lending on low-income communities, Chicago announced new zoning regulations to limit the number of payday-lending locations."
Also, it would help to have education classes for the customers of these loans, so that they are made aware of the fine print and what it would mean for them to be in default. I firmly believe that when we know better most people will do better. Most of our financial mistakes occur because of our lack of knowledge on the subject matter. It helps to know that our Illinois Senator Dick Durbin, is recognizing the people's struggles with payday lending and has proposed to Congress Bill S.673 to help protect consumers form unreasonable credit rates charged form these institutions. Bill S.673 is asking to amend the Truth in Lending Act by capping the APR's for credit transactions and also forbidding "creditors from using checks or other methods of bank access as collateral."
Hopefully, with raising awareness to the issues of predatory lending and with the help of legislature, we are better able to control the way these businesses operate.
http://www.americanprogress.org/issues/economy/report/2013/08/20/72591/predatory-payday-lending/
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