Payday Loans are Indefensible

Over the weekend I stumbled across a blog post over at PunnyMoney called Mayday to Payday: Why One Woman Loves - Or at Least Sometimes Likes - Payday Loans.  If this was a satire post, then I might have been able to stomach it…but the guest author is being serious when she claims “when you’re desperate, payday loans can provide a relatively attractive alternative by heading off even worse financial woes, especially if you enter with your eyes wide open.”  She then goes on to explain how she borrowed $100 and repaid $121.

I was shocked.  I was horrified.  My jaw hit the computer desk.  I needed a few days to try to come up with a more diplomatic response to this than what you are about to read.  And, I remembered my own experiences with these insidous nasty horrible leeching slime known as payday loans. (I have more words to describe how I really feel about payday loan places, but they are definitely not considered polite.)

Yes, I have had my foot caught in one of those leg traps before.  Remember the Bugs Bunny cartoons with those big steel jaws that snapped shut around the characters’ ankles?  Those are leg traps, and they are illegal in most states.  Too bad payday loan places aren’t just as illegal, because they are the financial equivalent.  Congress has even passed a law limiting payday loans’ interest rates to the military because so many servicemembers have lost their security clearances due to these bottom feeders.  I’ve done the payday loan thing both as a civilian and as a dumb private, and each time it was financially traumatic.

Before I discovered Dave Ramsey’s plan at the end of 2006, I would just let checks bounce, or suck it up, bite the bullet, sell something, or simply do without until I had the money just to avoid going back into one of those places.  I knew they were bad news from personal experience, and from seeing others get caught in that trap, but I wasn’t completely sure how to really avoid them when I have never even made average income.  Nowadays, I understand that if I have two simple things I will never need to step foot in one again: a budget and an emergency fund.

The author does not mention the dreaded “B” word at all in this post, but she has something to say about her (lack of) emergency fund: “Savings? Ha. Good one. I also had no credit left on any of my cards for a cash advance, and payday (as well as the nearest plasma bank) seemed a million miles away.”  This woman could have saved herself hours and hours of stress by simply having a tiny emergency fund of even just $500.  As it was, she walked into the payday loan trap, and thinks she did good with 21% interest on what I will assume to be the standard two week period.  According to my calculator, she paid 546% APY interest!!  No, I didn’t forget a decimal  point…that was FIVE HUNDRED FORTY-SIX percent interest when you calculate that for annual interest.   And then she writes a blog post as guest commentator to attempt to justify this.  Perhaps the most telling quote is this: “Routinely getting payday loans is a bad, bad idea… but, when used strategically, they can be a powerful weapon in any financially irresponsible person’s arsenal.” (emphasis mine!)

If I were queen for a day, one of the first things I would do is shut down each and every single one of those scummy payday loan places…yesterday!  That would free up a lot of real estate around military posts and in lower-income neighborhoods, and it would also free a lot of people from the cycle of taking on more and more two-week loans at interest rates that make loan sharks wince.  Since I am not “queen” and it isn’t up to me, the best I can do is say stay far far away from these nasty financial leg traps!  Payday loans are truly indefensible.