Don’t be too quick to ban payday loans.

The Register has called for payday loans to be outlawed. (See link below.)  Just know, that if payday loans are banned, people who have a need for short-term small loans will simply not be able to get one – from any legal source. Using the calculated annual rate of interest is somewhat misleading. If a person borrows $500 for two weeks and has to pay back $550, the annual rate of interest is $260%. If the maximum allowed annualized interest rate was 36%, then interest on a two week loan for $500 would be capped at $7. No legal lender will make a $500 loan for 2 weeks to only earn $7. The Register quoted Democratic Iowa Senator Joe Bolkcom as saying, “In Iowa, they would be better off getting a loan from a loan shark.” If Iowa bans payday loans, we may find out whether or not Senator Bolcom is correct.

Link: http://www.desmoinesregister.com/story/opinion/editorials/2016/05/28/editorial-state-must-do-more-stop-payday-lending/84584084/

 

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