Payday Loans: a Needed Product Or a Scam?

A payday loan is a short-term loan worth $500 or less, and that is due on your next payday. The case “payday loans” is about how Ethan Dorsett, a retired and disabled marine, struggled for 5 years trying to pay back a $2,500 payday loan. The loan escalated and Ethan had to pay $50,000 in interest due. This all happened when Ethan’s wife, Emily, slipped on ice and broke her ankle, she needed surgery. The medical bills were $26,000 and she had no insurance covering it.

Ethan tried to borrow money from friends, family, banks, and credit unions. His credit rating was not good enough to borrow a large sum of money and he had to take out five $500 loans with paid interest every week. Ethan had to pay $475 extra in interest every 2 weeks. Ethan somehow managed to pay the loans off, but only after taking various jobs over five years and after losing their house and their car.

The biggest issue with payday loans is that it traps their customers in situations that are incredible hard to escape from.

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Ethan is one a the few people that actually finds a way out of it. Payday loans target people that are struggling from the beginning and that has it tough in financial situations. The interest rate on this type of loans are incredible high which is one of reasons why it is hard to pay back and get their financial under control. There were actually no regulations in the industry in the past. It was only after hearing more stories similar to the Dorsett family they start trying to protect the customer within the same situation.

New laws and regulations is something that came out of this situation. Payday loans were able to expand because of the lack of government intervention when it started to come up across America. The stakeholders are the payday loan lenders, the customers, and the government. The lenders are doing everything they can to make money, and a way for that to happen is when they take advantage of the people that needs the loan. The lenders are able to charge an unreasonable high interest rate because its customers are in a very bad situation and they are being desperate.

However, the government have started to put a limit on how much of an interest rate the customers has to pay. The government should have noticed this earlier but late is better than never. The payday loan companies have ethical responsibilities for sure. It should not be near to impossible for people to pay their loans back in the future. People’s lives could be ruined and companies should feel guilty about that. The payday loan industry has a very negative reputation. This could easily been avoided if they offered interest rates that are reasonable. People know about this know after learning from stories similar to what happened to the Dorsett family. Because the payday loan companies are being greedy, they are losing a lot of customers that now know better and seeks for other alternatives instead of seeking the help of a payday loan company. I believe that the consumers should have been more protected, and my advice is therefore that some sort of public policy should be enforced in order to do so. People that are struggling financial are already suffering, there is no need to hit them with an interest rate that will take them years to pay off and in order to achieve that, they have to sell their house and car.

Colorado and Indiana are a great example that it is possible to find some kind of balance. In Colorado and Indiana, they made it work for payday loans to exist without any crazy interest rates. Which is both good for the company, but also for people that actually needs to loan money. Payday loan companies should therefore allow the government to look over their practice. If all this would occur, the company would be able to act in an ethical and also in a moral way. This would benefit everyone involved and the reputation of payday loan services would instantly get better after people would here positive stories about their service. This would also work as an excellent promotion tool, because happy customers sells the best, even if it means they are not making as much money on one person.