Thomas Aiello: Proposed loan cap would hurt low-income Nebraska families | Chroniclers

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NRL views small, short-term lenders as predatory institutions whose sole purpose is to keep their clients in a never-ending cycle of debt. They like to mislead the public by relying on high Annual Percentage Rates (APRs) – which are simply the interest rate that a borrower will pay over the course of a year due to compounding – as evidence.

For example, NRL claims that “payday lenders are preying on vulnerable Nebraska families, profiting by charging interest rates that average 404% annual interest – and in some cases up to. 461%. Marketed as a short-term solution, the terms are designed to trap borrowers in a cycle of loans that result in long-term debt. “

The APR represents the actual rate of interest that a person pays over the course of a year due to compounding, the process by which interest is added to the principal outstanding. Short term loans act as a cash advance which is repaid in full at the borrower’s next pay period. So while loans may indeed have a high APR, the vast majority of loans are repaid in a matter of weeks or months, without being extended for an entire year. The use of the RPA to indict the whole system is completely without merit.

A cap of 36% of the APR would be detrimental to the consumer credit markets. As anyone who has followed Economy 101 knows, government-imposed price controls don’t work. Whether it’s gasoline, bank interchange fees, or prescription drugs, establishing price controls below market rates historically leads to shortages, tightening the cost bubble to another part of the world. economy and imposes a dead weight on society.


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