Are Payday Loans Usury?

Are payday loans usury?There is a lot of debating around the question of whether payday loans are usury or not. If you go by the definition of what usury means, charging abusive or excessive interest rates, it seems pretty cut and dry that they are. But payday lenders say that they need their rates to be that high because of the risk involved.

The funny thing is that most people know they’re being taken advantage of, but they go through with it anyway. It’s like going to the last gas station for hundreds of miles. You know their prices are inflated, but you really have no choice if you want your car to keep going. Most people would rather choose to pay the big fees that fall behind on basic bills like utilities, or go hungry.

So as to whether payday loans are abusive, perhaps not. Excessive? Definitely. Payday lenders make money hand over fist, or at least the successful ones do. They’ve got their system in place and they know that if they open a new location it will immediately start making money. When you think about it, they’ve got very little overhead, they don’t produce anything, it’s a perfect example of money making money. There’s no inventory, they don’t have to worry about research and development, or coming out with a new product every year. They sell money, or more accurately, time.

So they really just have to pay for the office space, the utilities, and the employees, all of which are kept to a bare minimum of expense. The executives end up getting the lion’s share of the profits, so it’s a fantastic example of the 99% helping the 1% stay where they are.

Are Payday Loans Usury? Depends on Who You Ask

Lenders don’t think they’re usury, and apparently have no trouble sleeping at night. Those that take out the loans usually say the opposite, that the interest rates are excessively high, but that they are caught between a rock and a hard place, with the payday lender being the rock. There’s just no other options for them, so they end up getting a payday loan and suffering through the fees as the lesser of two evils.

What Would Be Better?
When a state wants to effectively shut down payday lending without making it illegal, they put interest rate caps on them. This essentially puts them out of business because they can’t make a profit by charging smaller rates. They would have to make up for it with so much volume that they wouldn’t be able to process enough applications per day to make up the difference.

The theory goes that if the loans were more affordable, more people would use them since perhaps they’re not using them because of the principle of the matter. But one loan with an effective APR of 400% or more would require many more loans at 7%, so it would be a matter of finding the resources, and paying the employees and scaling the operation in order to stay in business. Most just close up shop instead.

No Great Alternative
If you end up making payday loans less usury you drive them out of business, and then take away people’s one last attempt to save themselves from things like bankruptcy. Some people are able to stave off going totally broke by using payday loans. It provides the wake up call they need to make the changes that need to be made, either starting a savings account, cutting out unnecessary expenses, or living frugally for a few months. So in some instances they can actually help, but that doesn’t make them any more or less usury by nature.

So don’t expect payday loans to get any friendlier any time soon. In fact, the more the economy worsens, you can expect things to stay the same or get worse, with more and more people needing these services, and getting themselves further into debt. And with the rise of online loans and the wild west way that they operate, it’s getting tougher and tougher to navigate the muddy waters of financial turbulence that so many run into from time to time.

Add Your Own Answer to Are Payday Loans Usury? Below

GD Star Rating
a WordPress rating system
GD Star Rating
a WordPress rating system
You May Also Like:

Leave a Comment