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PayDay Loans
Payday lenders usually loan only a few hundred dollars to a customer, for a two week period, or until the customer gets the next paycheck. These short-term loans are paid by the lender taking a postdated personal check as collateral.
If the lender charges $20 per $100 borrowed, considered a "reasonable" charge by the payday lenders, it figures out to an annual rate of 521.4% interest!
The state of Illinois just made the news because they are considering putting a 36% interest rate cap, which one payday lender says will put him out of business. The Community Financial Services Association of America, a payday lender trade group, says an average of up to one fifth of their customers default, so interest rates have to stay high.
Twenty three states have imposed payday loan interest rate caps to date. The highest is Georgia with a 57.86% cap. The lowest is Arkansas with a 17% cap. Illinois also says it will require lenders to disclose their rates on in-store posters and in pamphlets.
Copyright © 2000 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 10, No. 1, 1/00
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