December 17, 2008

Time to reform high-interest payday loans

 Despite tough times, Iowans want to do the best for their families.  You can start the New Year right by avoiding debt this holiday season, particularly high-interest payday loans that may charge more than 360 percent interest. 

Lending someone money at 300 to 400 percent interest is not a service.  It’s a rip-off and should be illegal in Iowa, just as it is in other states. 

Payday loans are promoted as short-term cash advances that a borrower can repay when they get their next paycheck.  The borrower receives the amount of the loan minus a fee for the payday loan company.  When payday rolls around, the borrower repays the money or renews the loan by paying the lender’s fee again. 

Unfortunately, what’s promoted as a short-term term loan for emergency situations is actually an extremely high-interest burden for most Iowa payday borrowers.  Data from the Iowa Division of Banking indicates that Iowa payday loan borrowers lead the nation by taking out an average of 12 loans per year per payday loan store.  The effective annual interest rate on this sort of repeat borrowing can top 300 to 400 APR.

We should reform Iowa’s payday loan industry by limiting interest rates to 36 percent APR.  This is the same commonsense consumer protection that Congress has already extended to our military families.