I’m Not Big On Taking On My Own

Except, lately, Don Balfour, but I think this is worth pointing out:

In 2004, Earl Ehrhart, in a floor debate on SB 157, said:

And this section I think is critical to the honesty of this debate. It just merely says that anything above the face value of a loan has to be expressed as an APR. That’s a real simple concept. Everybody plays on the same field. Everybody gets characterized the same way. If you walk in and ask for $500 and walk out with $300, it’s expressed as whatever kind of APR it is. If you’re a payday lender, if you’re a GILA lender, or if you’re another type of lending institution, how can you argue about that unless you don’t want them to know what it is they’re paying for and you want a little bit of a special deal for the way you do it and you don’t want the other ones to have any ability to do the same thing?

Debating the current bill on payday lenders, a Peach Pundit source says that Rep. Ehrhart, in a committee meeting, well, according to the source:

voiced his opposition to the notion that the interest on payday loans should be expressed in terms of annual percent interest. Ehrhart argues that payday loans are short term loans and it is disingenuous to annualize the interest paid on them.

So, which should it be?

I think APR, being the commonly used and understood mechanism by which we convey issues of lending interest, is the best way to move forward with this bill.

14 comments

  1. Jason Pye says:

    It’s a service fee. Most individuals who use pay day lending services cannot get a loan with a bank, so this is the only recourse they have.

    I agree with Erhart’s reasoning and I support the bill.

  2. buzzbrockway says:

    I’ve changed my view on this bill after speaking with a Rep. who explained there are a number of safeguards to insure people go into these situations with their eyes wide open.

    As Jason said poor people need access to loans from time to time. If the rent is due on Monday and you don’t get paid until Friday where do you turn?

  3. DougieFresh says:

    His current statement is correct, and he has probably corrected his reasoning on the matter.

    Look at it this way…

    You borrow $100 for one day in order to cover a floated check. The bank charges you a $5.00 service fee to initiate the loan. You pay it back the next day, and lets say the bank does not charge you interest on that loan.

    If you used the annualized APR, the bank just charged you 1,800 % interest. Is that a fare and equitable way to calculate interest?

    In order to make a loan, the company has to pay staff, electricity, rent and still make a profit. It is not unreasonable to charge a flat service fee on a loan, even if it is short term.

    Your credit card will charge 3% for a cash advance, plus 22 % interest. If you paid that back in 2 weeks, like one would with a payday loan, it would be about 100% interest, when annualized. Where is the outcry on that?

  4. jsm says:

    I’m curious about those safeguards, Buzz. There are people getting loans everyday at finance companies and unknowingly signing for insurance, auto clubs, and towing service without even looking at the paper they sign. Some more observant customers are being told they can’t get a loan without signing for these add-ons. I’m not so concerned about those who don’t pay attention, but some may be forced into fees, add-ons, etc., to get loans.

  5. Buzz, the eviction process takes much longer than just Monday to Friday. If rent is due on Monday but you won’t have it until Friday, at probably just about every apartment complex you could negotiate a much nicer penalty than Erhart’s earlier example: $200 charged for $300 loaned.

    My mortgage has a 15 day grace period for payment, and after those 15 days it is an extra $50. Only a $50 charge on a 4 digit payment, (less than a 5% penalty) compared to a percentage rate of easily over 30% for these other loans.

    The truth is, most people who turn to payday lenders have probably already negotiated late payments with landlords, car dealers, credit cards, whatever and have run out of good will. They will be turning to payday lenders because they have no one else to turn to — not out of convenience. These people need counseling, bankruptcy or something else, not a “convenience”.

    Ask yourself this, who would rather have the “convenience” of paying hundreds of dollars for a short term loan to a payday lender than the inconvenience of asking a landlord if they can pay their rent a few days late for a smaller charge?

    If you can answer that question and live with yourself, I guess you belong in the modern Georgia GOP. (And shame on Al Williams for co-sponsoring this).

  6. Jason Pye says:

    It’s supply and demand, Chris. There is a market for this. Admittedly, I’ve used the service four years ago due to a lack of fund and rent was due and there was no point in taking out a loan because I was only $100 short, in this case getting a pay day loan was much simpler and cheaper than paying the late fee on my rent.

  7. Jason Pye says:

    Should we allow prostitution too?

    It’s a so-called “victimless crime” where no rights are infringed upon. Nevada has legalized it and kept it regulated, if there are similar standards in place…I don’t have a problem with it.

  8. buzzbrockway says:

    jsm,

    I think what you’re referring to are GILA loans, which are currently legal. The bill in question deals with payday loans and they would not be allowed to do the things you mentioned.

  9. buzzbrockway says:

    chris,

    For sure payday loans are not the best way to deal with funding problems. However, if there are safeguards to keep people from being tricked I don’t see why they should be illegal, especially when GILA’s are legal.

  10. cdubs says:

    Buzz, first of all, there are no “safeguards” in HB 163 that the payday industry hasn’t already figured out how to bypass. They wrote the bill, after all.

    Second, why set the bar so low? Your argument is, if we allow GILA, we should allow payday. But just because there are problems with GILA, why does that mean we should open the door to payday lenders? Wouldn’t it make more sense to fix the problems with the GILA lenders (get rid of the fees and add-ons)?

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