Payday lending is just in-state debt trap
Pennsylvania lawmakers banned the payday lending industry several years ago for good reasons, which still exist.
Lawmakers have been conducting hearings on allowing payday lenders to reopen, however, hoping that some restrictions they would place on the industry would protect low-income borrowers with poor credit.
Payday loans are short-term loans secured by the borrowers next paycheck. Advocates say they are important to help low-income workers in need of cash, and that the industry can be regulated to prevent abuses.
Yet proponents of payday lending would allow credit to be assessed at a rate of 12.5 percent per short-term loan period, an annualized rate of more than 350 percent. It is unfair, payday lending advocates say, to calculate annualized percentage rates because the loans do not have annual terms.
But in practice the track record is clear. Borrowers often cannot repay the loan in the short-term period and usually borrow again to pay off the first loan, and again and again. According to a study by the Pew Charitable Trusts, the average borrower who takes out a two-week payday loan actually remains in debt for five months.
Proponents contend that barring payday lending just puts it beyond the reach of state regulators. Indeed, the $7.4 billion industry has many online branches.
That should not prompt state lawmakers to expose low-income workers to in-state debt traps. Instead, they should continue to bar that type of lending and call on Congress to better protect low-income borrowers nationwide.