IF PEOPLE ARE DESPERATE, THEY SHOULD PAY THE PRICE!

IF PEOPLE ARE DESPERATE, THEY SHOULD PAY THE PRICE! In two past blogs, (Credit Card Companies Are Not All bad- May 23, 2009 and You Owe You Should Pay-Feb 19, 2010), I defended the interest that credit card companies charge. I pointed out that 26 percent of Americans, or more than 58 million adults, admit to not paying all of their bills on time. (Source: National Foundation for Credit Counseling, 2009 Financial Literacy Survey, April 2009) When one does not pay their bills, they obviously have to suffer the consequence and pay for the privilege of borrowing money. Interest is what is charged when you borrow the money from a company or person. Don’t borrow and you don’t have to pay! It is that simple. Because there are so many deadbeats in the world, companies base the amount of the interest they will charge on the ability of the borrower to pay the money back. The worse one’s credit score, the higher the interest rate charged. If a company is worried about one’s paying back a loan, they have to charge a high interest rate. This is third grade mathematics.

People who are really desperate for money and cannot get bank or credit card loans resort to what are called payday loans. They are totally unsecured loans and have an extremely high interest rate because of the massive default on repayment. These companies are not predators as described by the media, but businesses that serve a purpose. Nobody is holding a gun to people’s heads telling them they have to get a payday loan; they do it by free choice. Crain’s reports that the Consumer Installment Act is expected to be amended to impose a cap of 99% interest on consumer installment loans under $4,000. The Payday Loan Reform Act will be amended to increase terms of loans to six months.

Lynda DeLaforgue, co-director of Citizen Action Illinois praised the legislation, which is expected to pass the House when lawmakers return to Springfield saying “We will for the first time have set rates on these unsecured loans made to the most vulnerable borrowers.”

The borrowers are vulnerable, why? Because they are paying high interest rates for unsecured loans! What caused them to be “vulnerable?” Their own act of being deadbeats! Their being vulnerable is not the same as the vulnerability of a child who is susceptible to attack or injury. This is self-inflicted vulnerability. I have no sympathy.

According to Crain’s, “The compromise, negotiated by bill sponsor Sen. Kimberly Lightford, D-Maywood, would impose a cap of 99% on consumer installment loans under $4,000 and 36% for those above that threshold. Previously, interest rates under the consumer installment loans were unregulated, leading payday lenders subject to rate caps to offer slightly longer-term loans in order to fall under the less stringent law.

The Payday Loan Reform Act, meanwhile, would be amended to increase the allowed terms of the loans to six months from four. Remaining the same is the limit of charging no more than $15.50 per $100 loaned out every two weeks.” “For our association, it’s a very hard to swallow,” said Steve Brubaker, executive director of the Illinois Small Loan Association. “We do expect to see store closures and job losses. “ How will that affect the industry? Fewer lenders will result in more people who are desperate for a loan and cannot get it. More desperate people will result in more crime. More crime, more costs for law enforcement. So the bottom line is that that it will cost the good citizen tax-payer if the law changes.

So once again the people who pay their bills on time will be punished because of those who don’t. But as Microsoft founder Bill Gates said, “Life isn’t fair. Get used to it.”