Pew's Appalling Thumbs Up for Payday Loans With 129% Annual Interest
Payday lenders have found a powerful friend in the Pew Charitable Trusts. In a recent report on payday lending -- the culmination of two years of work -- Pew embraces reforms to this industry that would still allow the poorest Americans to be charged annual interest rates in the triple digits.
The logic chain of Pew's report goes like this: Most states have bad payday lending laws that allow lump-sum loans, with repayment of these loans requiring an average of one-third of an average borrower's paycheck. But there's good news out there, too: Colorado enacted a reform in 2010 that lowered permissible interest rates and allows borrowers to repay loans in a series of installment payments stretched out over six months. Pew reports that "this law has transformed a payday lending business with low-volume stores into one that serves more customers at each location, with borrowers spending less on loans annually."
But here's the catch: The loans from this expanded payday lending industry "remain costly—with fees and interest, the average annual percentage rate is 129 percent."
Now, granted, that's a lot lower than other states that allow much higher interest rates.