Sep 04, 2008
Do you want to know what it’s like being poor in America? It’s borrowing on the value of your next paycheck, and paying a 36 percent annual interest rate on the loan, if you’re lucky, and 500 percent and up if you’re not. It’s hocking title to your car for thirty days on the same handsome terms and losing it if you miss a payment, even if your vehicle is worth twice what you borrowed on it.
A recent study from the Consumers Union, the National Consumer Law Center, and the Consumer Federation of America lays it all out for us. They graded the 50 states on their laws regarding four “Short Term Loan Products,” which is what poor people live on from paycheck to paycheck. The states are left alone by the federal government in setting interest rates and other terms for these loans, which typically vary from $250 to $1,000.
The annual percentage rate (APR) on many of these loans is 36 percent, a cap common in state law and one recently endorsed by Congress for certain loan products extended to active-duty service members. However, many states have significantly higher APR caps or no cap at all. The Scorecard1 produced by the consortium of consumer groups gives a Pass or a Fail to four products: A two-week, $250 loan (often called a “payday” loan); a one-month, $300 auto-title loan; a six-month, $500 installment loan; and a one-year, $1,000 installment loan. If the states have a criminal usury law, the Scorecard also graded that law. The criterion used for grading these loans was whether the APR caps were 36 percent or below (Pass) or above 36 percent (Fail).
I live in Vermont and work in New Hampshire, so those two states were of particular interest to me. Vermont receives a passing grade in all five areas; it prohibits the first two types of loans and caps interest on the installment loans at 24 percent. New Hampshire, the “Live Free or Die” state, is a different matter. They fail all four loan categories, which have no APR caps at all, and were not graded on their criminal usury law because they don’t have one. This is arguably better than Missouri, where the cap on a $250 payday loan is 1,955 percent.
The “Show Me” State? They should call it the “Screw Me” State.
Find out at the link below the extent to which your state punishes the poor for being broke.
1The Scorecard (.pdf). (Accessed August 30, 2008)
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