Interest Rate Double Standard

Published April 24, 2005

The first was about taxpayers who file their returns late but owe taxes. They are supposed to send the IRS “as much as they can” to avoid interest and late-payment penalties.

The second article was about a bill pending in Springfield that would put restrictions on payday loan businesses.

Will someone please explain to me why the IRS is allowed to charge a nonfiling penalty–a monthly 5% fine that could add up to as much as 25% of the taxes due–in addition to the interest on any unpaid taxes, and yet payday loan companies can’t charge up to 40% for their loans?

Illinois lawmakers want to restrict payday loan companies so they can charge no more than 16%–$16 for every $100 borrowed. Currently the rate is about $40 for every $100 borrowed. Why can the government charge so much interest but a business can’t?

Some credit card companies charge up to 29% interest, and auto loan companies can charge up to 38% interest. Do lawmakers intend to cap all interest rates but their own?

These businesses are around for a reason: They help people who lack good credit. Yes, they make a profit, too–businesses have to do that if they want to stay in business. Customers who use payday loan businesses have read, understood, and signed a contract knowing what the interest rate will be. If the customer doesn’t want to pay that rate, he or she can borrow money elsewhere.

It should not be OK for the government to charge outrageous penalties and interest when they spend our tax dollars to stop private companies from charging interest to customers who agree to pay it. Talk about a double standard!

Nikki Comerford
Crystal Lake, IL