No one is forcing people to use them. Why are they considered so evil?
Because their entire business involves making high interest lones to the financially challenged. By default they are the financial institution of last resourt. Before banking deregulation they were called loan sharks.
Like the lottery, payday loans are essentially a tax on the poor and stupid. I’m all for them.
(before a slew of people wade in to say how they aren’t like the lottery, I’m being a bit tongue-in-cheek here)
They would argue the interest rate they charge reflects the nature of the risk they are undertaking. If a relatively high risk borrower needs immediate cash fast what are their real world practical alternatives?
No disagreement but that’s not the question. The question is about perception. It’s like saying it’s ok for Woody Allen to marry the girl he raised as a daughter because legally he wasn’t her father. What is legal and what is proper are 2 different things.
I love the commercials. They don’t show people getting emergency cash - they show smiling families talking about how they can take their “dream vacation” and still keep their car title!
:smack:
Some religions have a problem with lending money at interest. For example, from the Old Testament:
The idea being that, if someone’s truly in need, you shouldn’t take advantage of that need to line your pockets at his expense. Not all lending in modern society can be characterized that way, but the payday loan companies are particularly likely to be used by those who are needy or down on their luck or poor at handling money, and they’re seen, rightly or wrongly, as taking advantage of such people.
The argument is that people don’t really know what they’re getting into, and the payday loan companies do not adequately inform them. Do you know what kind of interest rates they charge? We’re talking order of magnitude larger than, say, introductory credit card rates.
Not long ago, one of the big payday lenders agreed not to do business with military servicemembers. I think it was Advance America. Anyway, one of the big criticisms made was that these companies target vulnerable people who generally don’t have access to legitimate financial services. The average user is younger with either flawed or no credit, a regular income, but who may still be living paycheck to paycheck and thus has a limited ability to repay the loan. (Here is the DOD’s report on predatory lending and the military. It’s a fairly long PDF document.)
Robin
I think a large part of the issue is that they advertise themselves as a quick, easy, no consequence way to solve temporary money issues.
However, the people that are forced to use them don’t have “temporary” money issues or they wouldn’t be using them. I think the problem can compound itself to where a person has to constantly keep going back month after month for another loan, essentially ending up upside-down on their paycheque.
It allows people to live a lifestyle that they really can’t afford and then rather than having a a small fall they wind up in really dire straits.
I don’t think that these lenders are particularly sympathetic if a person gets in over their head, either.
Are you thinking of this story? http://www.spokesmanreview.com/business/story.asp?ID=160322
Advance America didn’t agree to stop. A federal law caps the interest rate that they can charge at 36% annually. They’ve stopped lending to the military because they want to charge rates higher than that.
http://www.aba.com/aba/documents/winnews/DoD_PayDayWhitePaper_101206.pdf
When I heard about this, it wasn’t framed that way. It was framed as a “salute-the-troops” move. But this is the same thing.
Robin
This article spins it a little differently:
The article discusses the reactions of those who doubt AA’s bona fides.
And there’s this one: http://www.rtoonline.com/Content/Article/Sep_06/AdvanceAmericaStopsLendingMilitary092506.asp
Having gone to one myself in the past, they’re evil because once you take out a payday loan you get in a cycle of having to constantly get them just to scrape by. (I had no credit and was working retail. I went to get one so I could buy groceries…)
You need cash, you go get a loan, when you go to pay back the loan you need money again so you take out another one. Just goes on in a circle.
I’m pretty sure the one I went to was forced to pay people back some of the money they had paid in interest, but I had no documentation left and couldn’t even remember if it was the same one so I missed out.
My husband works for a payday loan type place, and I think it’s inaccurate to say that the lenders are dishonest about the terms and interest rates. I’ve heard his spiel, and the policy cannot be more clear. Unfortunately, many of the people who are in the situation to need such a loan either A)aren’t bright enough to understand (they can’t grasp the payoff terms though I think they’re pretty clear) or B)know exactly what it means but are in such a dire situation, they don’t care.
When I hear about the people he deal with, I fluctuate between sympathy and a feeling that they kinda deserve it. Some people need to pay medical bills, or get their cars fixed, or something dire is really going on. Other people want to buy luxury items. He doesn’t ask what they need the money for—the just volunteer the info.
If payday loan companies are making just enough to cover their costs, then where is the inequity? Isn’t the interest rate only so high because of the risk of defaults?
If payday loan companies are making excessive amounts of profit, then why aren’t there more people scrambling to get into the business? It seems like he barriers to entry are fairly low and no real special skill is needed to start one.
Also, much vaunted “microcredit” schemes in 3rd world countries levy interest rates many times higher than payday loan places. On the order of 100% or more. Yet microcredit gets a nobel prize and payday lenders are considered usurious.
In some areas there are one every few blocks- all that the market will bear.Or now,all that the City will let them open. In many areas, they won’t let too many open.The profits are very very good indeed. Trust me.
Flutterby is absolutely correct. It’s not so much the “one time emergency cash” it’s the over and over and overandover with no way to break the cycle that’s the evil.
Payday loans are essentially a tax on the poor and stupid? :rolleyes: Yeah, it’s a “tax” that us taxpayers don’t benefit from. How is that a good idea? Waht do you have against the poor anyway? :dubious:
Well, it just contributes to keeping the poor poor and the not-so-poor (the lenders)… not-so-poor. I prefer that system to a heavily middle-class nation. If you feel like you’re going to wind up middle-class no matter what you do, what’s the incentive to go above and beyond?
I digress, MHO, and I admit I could be wrong.
Geez, dont you guys know any poor people?
A quick dirty example:
Joe Blow needs to fix his car to make it work but lives paycheck to paycheck. He goes to ABC Check Cashing and takes out a payday loan of say $200. Joe has to make out a check for whatever $200 + interest + processing. This check is written to be cashed on Joe’s next payday. Let’s say it for $255. (it’s late, I could probably get a quote online, but don’t feel like it)
Now remember Joe is living paycheck to paycheck, and Joe knows next week he has to pay rent; his check won’t cover that payday loan and rent. Luckily for Joe, he doesn’t have to pay that loan on payday, he just has to show up and pay a new processing fee ($55) to continue it until next payday. If Joe does this four-six times or so (it happens, a lot*), he’s already paid back $200 in processing fees yet still owes the $255.
Not only that but typically, right across that street from ABC Checking is 123 Checking where Joe is free to take out another payday loan, which he treat pretty much like the first. Since it’s not a typical loan, no credit check is performed. We can dispense with mentioning Fast Loan Co and Easy Payday lender down the street right?
[sub]*I vaguely remember California and some other states making moves limit the amount of rollovers a borrower could do, however since some of our bigger banks finance the payday lenders, the cynic in me doubts any of these passed. [/sub]
Exactly! Free money!
And as others have pointed out, the people who buy into this legalized scam are not exactly the most educated people on this planet - I mean, seriously, “Louie the Icepick” used to give better interest rates back in the mob days.