Editorial: Predatory Payday Lending Must Be Banned

San Jose Mercury News 
October 22, 2009

The stance of the San Jose Mercury News is that payday lending is a "predatory" business that profits from trapping borrowers in "a cycle of debt" and should be banned. While paying 400 percent in annual interest seems absurd, the paper notes than an estimated 1 million California residents take out high-cost, short-term loans each year. The practice is legal in the state and 34 others, despite the fact that such high rates are prohibited when attached to other types of consumer loans. The Mercury News editors cite research illustrating the negative impact that the industry has in the state. One study finds that applicants who successfully obtained payday financing are two times more likely than those applications were rejected to file bankruptcy within two years due to excessive fees, while another shows that borrowers obtaining more than four loans per year account for 90 percent of payday lenders' business. The paper calls for Congress or state lawmakers to impose interest rate caps of 36 percent on payday loans, noting that the Center for Responsible Lending says these limits are the most effective weapon against predatory payday lending. Congress already has imposed a 36 percent ceiling on short-term loans made to military personnel, but the Mercury News editors argue that all borrowers have a right to such protections.

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