Payday lending gets legislative scrutiny

The Des Moines Register reports that several state legislators, including Sen. Jack Hatch and Rep. Janet Petersen, have decided to make payday loan reform a high priority in the coming legislative session.

Back in August, intern (and now Truman and Mitchell scholar) Alec Schierenbeck examined all sides of the payday lending industry in Iowa, painting perhaps the fullest picture of the issue available locally. In light of news that key legislators plan to move forward on a cap on payday loan interest rates, I’d recommend giving the story another read.

A few facts about payday lending that are important to keep in mind:

• 400 percent interest is very, very high — perhaps beyond the point of what should be legal — but the payday lending industry claims that capping interest rates at 36 percent (as the legislators tentatively proposed) would end the practice of payday lending in Iowa altogether.
• Consumers who avail themselves of payday loans frequently may end up losing large amounts of money each year, but they often do not feel taken advantage of. At least one frequent recipient of the loans says they have saved her life.
• Supporters of a ban on payday lending (or a cap in interest rates, which would likely have the same effect) say that without the availability of high-interest loans, consumers who are in trouble will start asking family and friends for money instead. This, they argue, is how it used to be, and it is only the social stigma attached to asking friends for money that keeps payday lenders in business.

It’s a tremendously complicated issue, and while there are plenty of folks in the lending industry who are out to take advantage of those who are already struggling, there are compelling arguments to be made on both sides. I’d encourage you to read on for more.