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Payday loan interest rates astounding

May 23, 2008

During these difficult economic times, Missouri families are struggling to make ends meet. Gas and grocery prices are skyrocketing. Jobs are going overseas. And bills are piling up on kitchen tables around the state. Facing these daunting financial challenges, too many of our working families are making the desperate decision to take out a payday loan, beginning a vicious, and often unstoppable, cycle of debt.

For those who've never taken a payday loan, the reality of this industry can seem incomprehensible. Envision this: A single mother needs to put food on the table on Tuesday, but she doesn't get paid until Friday. She goes to a payday loan company for an advance and gets nailed with an interest rate of up to 1,950 percent. If she can't pay back the loan when it first comes due, the loan can be "renewed" automatically, with a huge spike in the interest rate.

The figure above wasn't a typo: Payday lenders in Missouri can charge APRs up to 1,950 percent, with a statewide average of 422 percent. According to the most recent report by the Missouri Division of Finance, nearly 3 million payday loans were issued in our state in 2006, and in 2005, Missouri families paid $317 million in fees and interest -- second in actual dollars only to the state of California.

Our attorney general, Jay Nixon, outlined a real plan to curb this escalating debt crisis last September, and a bill that could turn the plan into law was introduced in the legislature this year. Nixon's proposal would do three things: 1) Cap payday loan interest rates at 36 percent; 2) eliminate the practice of renewing loans, which already has been prohibited by every bordering state; and 3) empower the Office of the Attorney General to investigate and punish payday lenders who violate the law. These are common-sense, practical solutions that would make a profound difference for Missouri families. Unfortunately, Republican leaders killed Nixon's plan without ever giving it a fair hearing or an up-or-down vote.

Missourians who take out payday loans aren't wealthy insiders. They don't have lobbyists in Jefferson City. They're hardworking folks, the least among us. And they're counting on us to crack down on these predatory lenders.

I applaud Jay Nixon for standing up against the payday loan industry and putting forward this smart solution. It's a plan that would improve the lives of countless Missourians.

Source : http://www.news-leader.com/