Payday lenders do not practice predatory lending

Monday, October 4th, 2010 By

Shark

Payday lenders don't deserve to be labeled "sharks." Image from Wikimedia Commons.

Over the past few years, the term “predatory lending” has been brought up a lot, and the term is often leveled at payday lenders. The payday lending industry has been called just about every name in the book. These accusations are inaccurate. Furthermore, it isn’t fair to level these terms at the typical short term loan lender. In fact, it is hard to call any lending institution a “predatory lender.” The reason is that no one really knows what that phrase means.

Predatory lending didn’t exist until 1994

In the wake of the mortgage crisis, there has been great outrage at “predatory lending,” a buzzword of the last two decades. According to Adair Morse and others who have studied whether payday lending is predatory, the term was first coined in 1994, and rarely used until at least 2000, and didn’t gain prominence in the national lexicon until after 2005. The phrase, like others, are conjecture at best. A small loan lender is no more a predatory lender than a mortgage company.

The spread of buzzwords

There is a social phenomenon known as “buzzwords.” Some of them are tied to legitimate concepts, but any buzzword should be viewed with a skeptical eye. Many of them have differing meanings and fuzzy logic. The term “predatory lending” would presume that a loan was lent to a person who was desperate, couldn’t understand the terms, or couldn’t really pay it back. Since the typical payday advance lender explains terms well, and can’t afford to lend to people who can’t pay the loan back, that standard can’t really be applied. However, that is only a subjective definition. Someone else could think something else entirely.

Who is really predatory

Think of the debt burdens many think of as “good.” A new car costs almost $20,000. A new house costs over $150,000. These debts can lock a person into a lifetime of payments only to never realize the benefits of ownership. That sounds far more predatory than a loan until payday. You can read more in the payday loan facts and statistics report on Personal Money Market.

  • Rev. Dr.

    If charging 50% or more in interest on short term loans is not usury and completely exploitative of the poor then the words theft, cheat, loan shark, deceptive and cruel hoax should be removed from the dictionary.

    • PeterStone2112

      The interest rates are also misleading – you don't define if you mean APR (Annualized Percentage Rate) or simple interest. Simple interest is a ratio of the total paid to the amount of the loan itself, whereas APR is calculated as amount being paid back over a period of time.
      In terms of simple interest, most payday loans actually run about 15 to 20% simple interest. However, in APR a payday loan runs into the hundreds of percent, but ANY loan that has a maturity date of two weeks is going to. If simple interest was used as the criteria to judge mortgages, credit cards, and auto loans then payday loans would seem as sheep among the wolves.
      Furthermore, actual "loan sharks" are put out of business by legalizing small lending, and as far as cruel hoaxes, look into "home ownership." Few realize 100 percent equity in the home they "own," which can be foreclosed on by banks. Compared to the finance industry as a whole, payday lenders are actually pretty small fish in comparison, yet few seem willing to address that.

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