Moving can be expensive, when you factor in the cost of movers, taking time off work, and, if you are downsizing or trying to sell a house, putting some possessions into self storage. Despite the expense, if you have to go into debt to pay for all your moving expenses, it is better to find a way to do so without taking out a payday loan. Payday lenders tend to charge exorbitant interest rates. Even a credit card will charge a lower -- MUCH lower -- interest rate than a payday loan will. A better way to finance the self storage side of your move is to go to a self storage company that offers the first month free. Or, if you are a student, are retired, or are a veteran or an active member of the military, try going to a self storage company that offers discounts to students, retirees, veterans, or military families. You may be able to find movers that will offer discounts, as well.
Last week, President Barack Obama signed a financial reform bill, creating a new agency, the Bureau of Consumer Financial Protection (BCFP). The new agency will not be up and running for another year yet. When it does open for business, advocates hope that the BCFP will help to protect consumers from abusive financial practices and loan sharks. It is thought that the BCFP may target the exorbitant interest rates charged by payday lenders, the fees charged by check cashers, and other predatory lending practices. In the meantime, though, it’s prudent to avoid using a payday loan if you possibly can.
As he signed last week’s bill, Obama remarked, “Our financial system only works--our market is only free--when there are clear rules and basic safeguards that prevent abuse, that check excess, that ensure that it is more profitable to play by the rules than to game the system. And that’s what these reforms are designed to achieve.” (The President was quoted in The Wall Street Journal the next day.)
Unfortunately, those clear rules and basic safeguards are not in place yet. According to The Huffington Post, a person who regularly cashes his or her paycheck at a check casher instead of going to the bank may spend $1000 each year on check cashing fees -- to pay for a service that all banks offer for free. (The fee varies from state to state -- and in one third of states, there is no limit to how much you can charge a person to cash a check.)
Payday loans are even worse. Currently, payday loans are so abusive that they are totally banned in a few states. The interest rates charged for payday loans vary, but are almost always over 300 percent, and often much higher. In fact, the Texas campaign to regulate the industry is spearheaded by a group called “500% Interest Is Wrong.” Because the interest rate for payday loans is so high, many users roll their loans over month by month, taking out more and more loans simply to pay the interest. Eventually the amount they owe is so high that it is nearly impossible ever to pay those loans back. Many consumers go bankrupt trying to pay back their loans. The same fate awaits people who rely too much on credit cards -- but consumers who take out payday loans go bankrupt much faster.
Payday loan industry spokespeople claim that the new bill will unfairly target the only loans available to many working class people. “Small, short-term loans play a necessary role, providing hard-working people with a reasonable, well-regulated option for meeting unexpected or unbudgeted expenses and other short-term financial needs,” commented industry spokesman Rob Norcross in last week’s Dallas Morning News. Norcross did not explain what made charging an annual percentage interest rate of more than 300 percent more “reasonable” than using a credit card that might charge a 14 to 20 percent APR.
Credit cards, too, will be regulated by the new BCFP. Agency advocates hope that new regulations will prevent credit card companies from tricking people into signing agreements without being fully aware of the terms and conditions of their new card. New regulations may require credit card companies to do away with their “fine print” and state their terms clearly and plainly, up front, prior to accepting a new card application from a consumer.
The BCFP will have to word its regulations carefully to prevent the industry from finding ways around the new rules. According to political scientist Robert Mayer of Loyola University Chicago, who was quoted in Las Vegas City Life, “This is a very wealthy, well-organized lobby that is also very clever in recrafting its product and finding the loopholes after laws are passed.” Mayer pointed out that when the state of Illinois, for example, tried to rein in the payday loan industry by regulating short-term lenders -- lenders who issue contracts for less than a year -- Illinois payday lenders reacted by rewriting all their contracts to last exactly one year.
Case, Brendan. “AARP, others seek tighter rules on payday loans in Texas.” The Dallas Morning News. July 24, 2010.
Case, Brendan. “With payday loans, poor get the loans, firms get the payday.” The Dallas Morning News. July 25, 2010.
Fellowes, Matt. “Payday lending’s final payday?” The Huffington Post blog. July 22, 2010.
Franklin, Ross D. “Policing Main Street: the poor also need protection.” Newsweek. July 25, 2010.
Hurlburt, Mary. “For average family, reform’s impact limited.” Cincinatti.com. July 26, 2010.
Kingsley, Amy. “Payday mayday.” Las Vegas City Life. November 25, 2010.
Paletta, Damian. “Fight over consumer agency looms as overhaul is signed.” The Wall Street Journal. July 22, 2010.
“What will financial reform do for poor Americans?” PBS Newshour. July 19, 2010.