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Online Payday Lenders Seek More Respect and Less Oversight: Call Them What You Like, They are Still 1,000% Long-term Loans

posted by Nathalie Martin

On-line lenders who are not tribal or offshore claim that they need the same lack of oversight that the tribal and onshore on-line lenders are getting. Otherwise, it isn’t fair to them.  Hmmm….. Fairness is as fairness does. Keep in mind that these on- line loans:

- accrue interest at twice the rate of storefront payday  loans or about 800-1,000% per annum, and 

-are designed so the fee is paid automatically out of the customer’s bank account, …over and over again, but the loan principal is never repaid. 

Lenders now request that we stop hurling derogatory epithets at them, such as er, “payday loan.”  They provide no explanation of why these loans are not payday loans but ask that we now call them “short-term, small dollar loans. Why we would call a loan like this (that is frequently kept out for months if not years) a short-term loan is beyond me.

Lenders are spending millions to lobby Congress to exclude these loans from state payday loan legislation and transfer all oversight of on-loan payday lenders from states to the Office of the Comptroller of Currency. Hello preemption! The prosed bill would also “loosen the rules for how short-term lenders disclose the total costs of the loans to consumers,” according to a Bloomberg story, by excluding any loan with an initial term of less than a year from the Truth in Lending Act. That way, I guess, customers would not know the loans carried interest rates of 800-1,000% and this would be further “fair” to these lenders.

With 35% of the payday loan market now in on-line loans, this is an incredibly important bill…to defeat. Let’s hope for a race to the top, not the bottom.




APR is a good high-level comparison, but for loans that are indeed short term it can be more useful to show other metrics.

If someone only need a loan for just a couple days and borrows $200 and agrees to pay back $210 this would yield an APR of 912.5%.

Hearing such a rate you would think that the lender is unscrupulous and is making a killing. The truth is they made ten bucks - not even enough to cover overhead and salary for the 30 minutes it took to process the loan/repayment.

I still think APR should be disclosed, but it should not be so prominent like the Truth in Lending laws require. Instead it would make more sense for these very short term loans to display the dollar amount of the cost of the loan and simply disclose the APR as an FYI.

Hate to say it, but the issue here is not the industry, it's the people who abuse it. If you're stupid enough to dig yourself into a massive hole using these services, it's your fault. It's like the people complaining about McDonalds making them fat. it amazes me every time I read articles/blogs like this claiming that payday loans are outrageous because they charge a 391% APR. These are not annual loans, they are two week, short-term loans and their rates are reflective of this.


I don't think that blame can be put squarely on the borrower. The borrower should know better and are committing when they sign the contract, but the lender has responsibilities as well. The lender should be clear and let the customer know exactly what they are getting into.

If the lender has contracts that are purposefully lengthy with enigmatic legalese designed to confuse the borrower, or if loan officers are instructed to hide true costs or implications of a loan - these things are destructive and not contributing to an honest transaction.

In short the borrowers are responsible for the contracts they enter into - but the lenders need to be scrupulous and transparent.

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