There are many people who want to go after payday loans and stop them in their tracks. The U.S. Department of Justice and a number of state regulators are always going after them because of what they see as exploitation in the form of high interest rates. There may be some negative effects to a financial service that many people – mostly poor and working class people,
admittedly — rely on for legitimate needs. There are many areas of the country with no banks or other mainstream financial services available to them where they live and work.
Sometimes, working people have an urgent short-term need for cash for some sort of an emergency. A payday lender allows someone with a job and a checking account present proper identification and get a short term loan, usually up to $500, with the promise to pay the money back the next time they get paid. Sometimes, the borrower will write a post-dated check for the amount of the loan plus a fee, usually 15%. On the next payday the loan is either repaid by
the borrower or the lender cashes the check. The entire process takes a few minutes, and banks simply won’t do these sorts of things.
For the millions of Americans who are living from paycheck to paycheck and try to pay their bills, payday loans are a necessary resource. Sometimes they lose a few hours from work and need to make the rent. Sometimes, there’s a car repair or their electricity is about to be turned off. Not everyone has a friend or relative who can simply loan them a few hundred dollars when needed. Payday lenders offer a better way out.
Many of the people who criticize payday loans for their high interest rates have probably never had to borrow a small amount of money for something important. The can quote 400% APRs all they want. But the fact of the matter is, to a person who needs $100 to keep his electricity on, the $15 fee is a small price to pay for a service that no one else will even perform.