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The Loan Shark Protection Act would limit the interest on credit cards to 15 percent. An upper limit of 15 percent would be too low – naively too low. It is a pity that the bill sponsors Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez have not been more cautious, as their clumsy approach gives ammunition-and-ammunition to the enemies of those who really curb abusive forms of consumer credit, the most obscene example is Payday loan.

As the name suggests, a payday loan is a quick infusion of cash to bridge the borrower until the next paycheck arrives when it’s paid off. But that doesn’t usually happen. Here is the common scenario:

Joe takes out a $ 300 payday loan that will be repaid in two weeks. He would be billed about $ 45 in fees and interest. This corresponds to an effective annual interest rate (APR) of 391 percent. Quite a high cost of borrowing, but it’s just in case, isn’t it?

But more than 75 percent of borrowers don’t pay it back right away. They usually turn the loan into 10 loans a year. Each loan is not a new $ 300 loan. It cycles the same $ 300 loan nine times, adding those high fees and interest each time. So Joe’s costs pile up and he gets caught in a debt trap. The debt trap is the payday loan business model.

Payday loan rates and fees vary from state to state, with some allowing astronomical borrowing costs. A typical payday loan in Texas has an APR of 661 percent! In Nevada, Idaho, and Utah, it’s 652 percent.

Why do people take out such loans? Because they don’t know what they’re getting into. The payday loan showcases market their goods as “quick” or “easy” money that can be used in an emergency. Some lure customers into the net by giving them their first loan for free at zero percent interest.

The ideal payday loan customer is a trusted member of the working poor who is unfamiliar with personal debt. It is important that the borrower has a reliable income that he can tap into. The money could come from one or three jobs, or an invalidity or unemployment benefit. (Payday lenders like military personnel. And they always require borrowers to have a bank account.)

A recent Wall Street Journal editorial attempted to combine the unfortunate Loan Shark Protection Act with independent criticism of payday loan abuse. She praised payday loans as a welcome alternative to loan sharks and organized crime.

“The availability of legal credit helped put Louie Legbreaker out of business,” the editorial staff said.

Indeed, the credit business is alive and well with only Wall Street running it now. Private equity investors add payday loan companies to their portfolios. The desperate people who borrowed from Louie Legbreaker at least knew who they were up against.

“Upper price limits for any product or service inevitably reduce the offer,” says the editorial team. One might think that credit is a basic human right that cannot be denied. Indeed, there are people that even today’s payday lenders don’t bother with – those with no assets or income.

In any case, curtailing the supply of debt traps that its victims have described as “soul-crushing” and “a living hell” wouldn’t be a bad thing. This industry is hunting down individuals trying to survive on a typical income of just $ 25,000, for heaven’s sake.

Of course, the impoverishment of a large part of our low-skilled workforce cannot help the economy, let alone the human cost. Be honest, payday loans and the politicians who protect them are a shame on America’s moral standing. In all honesty, I don’t know how some people sleep at night.

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