The business of payday loans has exploded over the last few years. What exactly is the service that is being offered? Basically a company is offering to loan you money until you get your next paycheck. Hence the name, payday loans. Just like any other kind of professional loan, you will have to put up some sort of collateral to ensure that you pay the money back.
Most of the time you will have to show proof that you have a job (usually in the form of a paycheck stub). then write them a check that is dated for after your payday (this way the check won’t bounce for lack of funds in the account). They will give you the money right then and there and collect their money when your payday comes around.
Like I said, nothing about this so far is illegal. These business’s are doing the same thing that mom and dad have been doing since the beginning of time. The issues start to come into play when you actually read the fine print (which no one ever seems to do these days). These companies are offering a service that can really help if an emergency comes up or unexpected expense. The problems start to come to the surface when people become “addicted” to the service. Their entire paycheck is gone before they get it. The other major problem is the interest rate that is charged.
If you went to the local branch of your bank and asked for a loan and they informed you that it would be no problem, you just have to repay the amount plus interest that is figured at a rate of anywhere from 30% to 100% you would walk out the door and probably find a new bank. This seems crazy doesn’t it? Of course it does. If you have really bad credit, or get the money on a credit card advance, you can expect to pay an interest rate between 18% to 20%.
So in answer to the original question, should payday loans be legal? Yes, there is nothing wrong with loaning someone a little cash for a week or so. Not even anything wrong with getting a little interest for the trouble of making the loan. What should be illegal is the fact that these companies are charging interest rates that would make the crime families of the Mafia envious.
I am the first to question the government intervening in yet another aspect of our life, but maybe this is an exception to my “big brother” attitude. There should be some kind of intervention as to what the interest rate that these companies are charging. I agree that it is not a necessary service, but it is one that people use. If Americans won’t or can’t watch out for themselves, then maybe laws should be in place. That is the only problem I see with payday loans. The legality of them shouldn’t be in question, only the amount of interest that they can legally charge a customer.