NEW YORK TIMES: Payday loans at absurd rates

It seems like just a little loan, a few hundred dollars in advance of payday. But at an interest rate of $15 per $100, that little loan gets big in a hurry. And if another loan is needed, which sometimes happens, since the last payday loan took so much pay, total costs can soon exceed the amount borrowed in the first place.

Payday loans that are to be repaid on payday are so burdensome and so pernicious that in 2006 Congress effectively banned them for military families. Given all the problems workers face now, Congress should extend this protection to everybody. Unfortunately, some members are pushing an ersatz reform that would allow payday operators to charge what amounts to an annual percentage rate of 391 percent.

Rep. Luis Gutierrez, D-Ill., chairman of the House Subcommittee on Financial Institutions and Consumer Credit, argues that the bill would improve the payday rates in the 35 states with only minimal controls over payday loans.

His bill is supported by many people in the lending industry, many Republicans and some consumers.

This regressive bill is even backed by some members of Congress who should know how these loans prey on needy people. New York bans payday loans. But Rep. Gregory Meeks, D-N.Y., argued in a hearing on the bill that it would provide “options” for people who, in earlier times “would come back without a limb” if they failed to repay loan sharks on the street.

Others have argued that without these loans, people would bounce checks, incurring average costs of $27 or more per overdraft. The overdraft fees that some banks charge are scandalous and deserve more congressional scrutiny. That does not mean an industry that makes $50 billion a year in loans should be touted as an alternative.

A better option is already in place in some states and for the military, keeping short-term or small loans under a 36 percent annual interest rate, which is high enough. Rep. Maxine Waters, D-Los Angeles, assessed the Gutierrez bill correctly when she said: “We’ve got to resist any attempt to make it look as if we are cracking down, when in fact we are opening the door to more abuse.”