Payday nightmare

Payday loans are a form of predatory lending that should be reformed, if not ended.

Across the nation, more attention is being focused on so-called payday lenders. These lending companies offer short-term loans to individuals who might not qualify for traditional borrowing. As the economy continues to worsen, states are starting to pursue strategies to protect individuals from being victimized by these loan operations.

The payday loan companies advertise on television with smiling people holding giant wads of cash, but that’s not exactly an accurate portrayal of their services. These companies specialize in speed and non-discriminating service. With no credit check, you can get a loan in 24 hours, but you will pay dearly in interest and fees.

Now the Minnesota state legislature is trying to make the system of payday loans fairer. The plan, which will soon be introduced in the House and Senate, would limit annual interest rates to 36 percent. This would be a huge step forward for borrowers who can currently pay up to 600 percent in annual interest rates.

The issue of fixing the payday lending system is a bit tricky. On the one hand, desperate individuals sometimes have nowhere else to turn for quick money, but at the same time, the loan companies are taking advantage of their customers. The payday companies say that their rates are justified because they offer quick money with no required collateral.

Setting a cap of 36 percent interest would be small enough to put many lenders out of business, and perhaps that’s the true aim of the legislation. According to the Center for Responsible Lending, payday lenders cost Americans $4.2 billion every year in fees; an outrageous amount that we should try to reduce quickly. If Minnesota does pass the proposed legislation, it will join about a dozen states that have passed similar interest rate caps or have completely banned such lending practices. Our state should pass this legislation and ensure that “payday” is once again a term that is only associated with getting paid, not getting robbed.