It's interesting how the very industry so eager to "protect consumers" by proliferating the "Payday Loan APR Myth," citing exorbitant rates as their justification to pummel the Payday Loan industry, is charging higher rates for what amounts to the same thing.

The banking industry, notorious for lambasting the Payday Loan industry for charging high rates, has no problem charging consumers more than double PER OVERDRAFT than Payday loans typically cost for a $100 two-week payday loan.

Here's a realistic scenario which puts this into perspective.

Let's say you have 3 payments that you need to make before your next payday and your checking account has $15 in it. The amounts of the payments that you need to make are $10, $30, and $50. Here are two scenarios which realistically compare two possible solutions: Payday Loan vs Bank Overdraft Fees.

Payday Loan Scenario:

Solution: Take out a $100 Payday Loan

Cost: $15

Bank Overdraft Fees:

Solution: Go ahead and write all 3 checks and contend with the overdraft fees. When they hit the bank on the same day, according to most bank policies, the checks are reordered so that the largest one comes out first, immediately overdrafting your account.

Cost: $90-$105 (depending on how much your bank charges)

What will your choice be when finances get tight?

A high-res version of this image is attached for printing and distribution.

[Link to original article]

Here are some quotes from the article cited above. Below are my comments. Feel free to contribute.

“In California alone, there are more centers to get a loan based on your next paycheck than there are McDonald's restaurants.”

This is a bad comparison. Although McDonald’s is a highly successful restaurant chain, it is still one franchise among many. This would be similar to saying that there are more oranges on an orange tree than there are seeds inside a single apple on a neighboring apple tree. There’s simply no basis for this type of comparison.

This comparison represents a sensationalist tactic that seems to give a quantitative comparison, but is actually meaningless when you take into consideration that you’re comparing an entire industry to a component of one.

“…the fee can be as much as $100. The average payday loan comes with a whopping interest rate of 396%.”

The 396% (APR) that he, along with other ill-informed nay-sayers, love to talk so much about is actually a misnomer.

The most important thing to realize is that the “Annual” Percentage Rate that they’re citing is improperly figured. In reality, the interest rate is more like 15%, or $15 per $100 payday advance for two weeks. If the individual borrowing this amount takes out a $100 loan every two weeks for an entire year and pays this 15% every two weeks, then, compounded, it ends up equaling 390% (15% x 26 weeks). The only problem with this formula is that, at this point, the borrower has actually borrowed $2600, not $100, so that pretty much blows that formula out of the realm of logic.

A full-resolution version of this is attached for download and disbursement.

As I was looking over some information in Check Into Cash's Media Center, I noticed an interesting analogy comparing the convenience of Payday Loans to buying coffee at a convenience store. I think there is an indication based on the very existence of smaller-quantity/higher-priced items in convenience stores that consumers are willing to pay extra for the convenience and availability of goods.

Extending this analogy a bit, I believe that the hostility that some legislators have shown to the Payday Loan industry which has led to effectively shutting down many of these organizations is fundamentally the same as if coffee (used in the Check Into Cash example) is only allowed to be sold per ounce for the price which is established by the high-volume retail establishments. Then we ultimately will see the convenience option disappear. If this happens, we end up having no choice but to drive across town to the local "supercenter" and stand in line at 10PM because we want to make coffee in the morning. As I see it, the problem, which is clear in this extended analogy, is that government intervention limits consumer choice.

In the same way, paying $15 for a $100 Payday Loan for two weeks is a convenience. There is no credit check involved compared to getting a loan from a traditional bank or credit union, and the "quantity" borrowed is much lower than most, if not all, traditional banks or credit unions are willing to lend.

So unless you have a rich relative who has the resources to lend you $100 if you end up with a flat tire on your way to work and money is tight, without options, you're going to have to find another way to get to work.

Control over consumer choices ultimately makes government stronger and destroys the advantages of a free market. How can we as consumers allow our legislators to take our choices away in this manner?