Payday loans hurt those at their most vulnerable

In 2001 the sun set on payday lending in North Carolina. The law that allowed payday lending expired and wasn’t renewed by the N.C. General Assembly.

Sen. Jerry Tillman, R-Randolph, has proposed a bill that would bring deferred presentment services, or more colloquially, payday lending, back to North Carolina as early as this summer.

The passage of this bill would be detrimental to the personal finances of the residents of North Carolina and the wellbeing of the state as a whole.

Payday loans allow people to take out short-term, high-interest loans using their paycheck as collateral.

Proponents of payday lending claim it can be used by people who have hit hard financial times and need a bridge loan until they receive their next pay check. But most payday loans aren’t used for emergencies.

According to a Pew Study, only 16 percent of first-time payday loans are used by borrowers for unexpected emergency expenses, whereas 69 percent of these loans are used for recurring expenses.

The bill includes provisions intended to safeguard borrowers from overly predatory practices. These include limiting the loan to $500 and the interest rate to 15 percent per pay period — not to be confused with 15 percent per year.

Payday loans can often deepen and expand the cycle of debt. Those who can’t make ends meet take on a new liability simply to meet old liabilities.

Taking a payday loan indicates the borrower will be 92 percent more likely to become seriously delinquent on a credit card bill, according to a Wharton Business School report.

In an attempt to halt this cycle, the bill would not allow a borrower to take out loans from multiple payday lenders. But this aspect of the law is largely unenforceable and relies on the honesty of a possibly desperate borrower.

Active members of the military and their family members will not be allowed to take out payday loans. Either the bill is discriminating against the military or strangely protecting only a small subset of the population.

Passage of this bill may make good business for payday lenders, but it would create a predatory trap for the poor. We, as students, could fall into that at-risk population, and the harms of this bill far outweigh potential good.