It’s somewhat predatory in that they cater to people with little to no math skills that don’t even know what an interst rate is. They give people money immediately and tell them their monthly payment going forward, sign here please.
If they spelled it out as “we will lend you $2525 and as you pay it back to us over the course of 42 months you will pay us $9095.10” these folks may think twice.
How do you know that? Even folks that are anti-payday lending are forced to acknowledge that almost every person who takes these loans knows the amount of money they must pay. 96% of borrowers knew how much they were being charged per $100 borrowed. Yes, they don’t know the annual percentage rates, but so what? They are taking loans that only last for a short period. Stretching the amount over a year is fairly meaningless. The borrowers knew how much they were expected to pay back when the loan was made. It’s hard to see how they were being preyed upon.
In most states the APR of payday loans is quite clearly labeled on the form. And since the loans are usually only for a short duration, I’m unsure why they need to be told the payment amount over some long period of time.
If you’ve ever taken out a signature loan from these sorts (I did many years ago at a paltry 27.5%), you sign the paper right below the payment schedule that tells you exactly how much you owe per month at what rate and how much it will be altogether.
If you are asserting that people are being cheated by this, those same people would be cheated by any loan at any rate for any amount of money. Failure of the borrower to understand the conditions of their obligation does not constitute usury on behalf of the bank.
I understand that not all people have the common sense of those on the Dope.
Let me put it in simpler terms, so you better understand the phrase “predatory lending”.
You want a loan. They tell you that you can have the loan, but the offer is only good today. Then, they point to where you need to sign, their hand covering the rate and payment schedule. They know your credit sucks. You know your credit sucks. They are pressuring you into the deal by telling you the offer is only good for today, cover up the details with their hand when pointing for where you need to sign, make a copy and fold it up, give you your check and out the door you’re gone.
That, my friends, dopers and neighbors, is predatory lending.
No, that’s breaking the law and deceptive lending. I’d like you to give me any evidence that this type of lending occurs on a regular basis. Hell, I’d like to see any instances of it.
I’ve studied the payday loan industry. I have studied the literature of those who oppose the payday loan industry. Never once have I heard anyone (even those who are seeking to outlaw it) use your argument to attack “predatory lending” of any sort.
What you describe is indeed despicable. It is not what is meant by “predatory lending,” though. You are simply describing outright fraud. That is already illegal and there is no evidence that any lenders practice it, even those who charge very high interest rates.
That, friend, is already illegal. You have just made a giant, unsubstantiated claim: That these lenders “cover up the details with their hand when pointing for where you need to sign”. You need to provide a cite that that is a widespread practice.
I think we can all agree that taking out one of these loans is almost always monumentally stupid. What I don’t get, what I’ll never understand, is people who think that just because something is stupid, there ought to be a law against it. Sorry, stupid is not illegal, nor should it be. Just how much of your free will are you willing to give up in the name of “protecting” people from themselves?
On review: Stopped to eat diner and Renob beat me to it.
I’d disagree with that. People take these loans for a reason. They have financial problems that mean they need money right now and the only people who will lend that to them are these lenders. Of course, if their financial situation were better they would not need to do so. I think that we can safely say that people who take out these loans have a lot of problems financially and it’s likely they need to learn better money management skills. However, they usually aren’t stuid for taking out these loans. Without them they would be in an even worse situation since they would still have the situation where they need the money (car breaks down, electricity being shut off, etc.) without any way to raise that money.
I will, however, agree with this.
Usury laws have existed for thousands of years. It’s not “big government interfering with free will,” it’s society collectively deciding we don’t want people stealing from others who are worse at math than them.
They wrote the bill. During the bankruptcy bill Kennedy brought up a provision to keep loan limits to 30 %. I thought that was huge. The Repubs voted it down. Not enough .
Absolute unadulterated bullshit.
It’s not stealing. Stealing is someone having something taken against their will. The signature on the loan belies that.
Yes, and slavery existed for thousands of years. Laws prescribing death to homosexuals have existed for thousands of years. I don’t think the fact that some ancient society banned something is any measure of whether or not a law is just.
There is no theft here. Two people voluntarily enter into a contract. There is also no indication that the borrowers are worse at math than the lenders. The lenders must indicate the exact terms of the loan. Most often those terms aren’t really that complicated – “pay back $X in two weeks.” What kind of math skills do you need to figure this out?
Given that the people most likely to enter into the usurious loans are the people least likely to be able to pay them off, it seems that this type of lending damages society. Just look at how far the dollar has fallen in the past year. Of course usurious loans are not as big a problem as the housing debacle, but they do allow people less money to use to support the economy. (I can tell you that when I was unemployed I didn’t contribute much to the economy. Now that I’ve been employed I’m still not buying a lot of consumer items.)
What do you think happens to the money collected by the lenders? They burn it? That just means they have the money to use to support the economy. And, since everyone here presumes that borrowers are just this side of retarded, then I guess that means smarter people now have the money and will use it more efficiently, right?
Actually, I fail to see how this type of borrowing damages society. Or, I guess it’s more accurate to say that it is only part of a wider pattern of misguided economic thinking that is good for no one. It’s not as if people who are responsible financially take these type of high-interest loans. It is people who live in such precarious circumstances that when they need a quick infusion of cash for an unexpected expense, they don’t have access to a savings account or credit cards or some other way of raising money. Generally if you’re in this situation you’re doing something wrong. You either earn too little or spend too much. Either way, it’s not like these loans are causing your problems. They may, in fact, be better than the alternatives you are faced with when you need the money.
Just focusing on these loans without looking at the decisions that ultimately lead people into needing them misses the whole picture.
Look at the mortgage crisis. A lot of people made very poor decisions. But it’s all OK, because the smart people who made loans they knew people wouldn’t be able to repay or packaged the loans and sold them as commodities got rich. So they have the money, and since they are the smarter people they’re using it to support the economy, right?
There are thousands of people losing their homes. Thousands more are managing to make payments, but do not have a lot left over to buy things and thus stimulate the economy. One has to wonder: Are the people who made a killing in the housing market buying the same number of consumer items as the people who are now not spending? How many TVs are they buying? Washing machines? Cars? Probably fewer. And from the reports I’ve heard on the subject, this is a large factor in the devaluation of the dollar. I think society and our economy would be better if predatory loans had not been made.
Usurious ‘fast cash’ loans are obviously not as large a problem, but it still reduces a spending pool to a smaller one.
I do understand your point. I really do. Lenders are taking a risk and they deserve to make a profit. But it’s better to have a lot of people spending money on a lot of things than a few people spending money on a few things. Otherwise, what good are such things as ‘stimulus checks’? Wouldn’t it be better not to give small amounts of money to the general populace to spend and give millions to a few people instead?
I have to go to bed shortly. Let me try to explain what I’m getting at with an overly-simplified model.
Tristan paid $14,000 on a $5,000 loan. Thus there is $9,000 that he cannot use to buy consumer items. The lender gets the $9,000. But suppose I have a store that sells widgets on which I make a profit of $500. They’re pretty good widgets. Everyone wants one, and they’re durable. Only Tristan can’t buy one because he’s using what money he has to pay back the usurious loan. But since the lender is a subset of ‘everyone’, he wants a widget too. So he uses part of that $9,000 to buy one from me. I’ve made $500. But if the interest rate wasn’t so high, the borrower could have bought a widget too, and the lender would still have money left over. So if the interest rate was not so high I would have made $1,000 instead. Now let’s say there are a thousand borrowers who don’t have the extra cash to buy my widgets because they have to pay usurious interest. Will the lender buy 1,000 widgets, netting me $500,000? Unlikely. As I said, they’re durable. Nobody can use a thousand of them. Since I can’t sell 1,000 widgets, I don’t order that many. So the widget manufacturer doesn’t make money. And the people who provide the raw materials don’t make money.
The way I see it is that it’s better to have x dollars being spread throughout the economy than for the same amount to be spent on a single luxury item.
Your analogy is exactly reversed. Slavery was something that was allowed and is now banned; usury is something that has been traditionally banned and is now being allowed. By your backwards logic, slavery should be legal. Or usury should be illegal. Or . . . oh wait, now I get it - the two have absolutely nothing to do with each other.
How can I dispute such an articulate and airtight argument?
Nothing in your post was true except the fact that usury laws have been around for thousands of years. Historically, usury laws came about out of a belief that it was against the Christian Bible to charge interest, not to prevent “stealing”. Laws that seek to prevent people from freely entering into a loan agreement that has it’s terms and conditions clearly spelled out because it might be “bad” for them is the textbook definition of “big government interfering with free will”. Since those terms are, by law, spelled out in the contract, the skill of an individual at math is immaterial. There is no argument here, shoddy or airtight. Your post was just flat out wrong, thus my classification of it as absolute unadulterated bullshit.
. . . in your opinion.
My post was simplified. Something you cannot disclaim yourself of responsibility from.
You can thank Jimmy Carter. When interest rates hit 20%, the usury laws, which were designed for saner economic times, had to be modified or repealed. In many states, the interest rate limit was 18%.
I saw an ad on TV offering a mediocre looking PC and some cheap freebies for “only” $29 a week, for 52 weeks. They were targeting the no-credit, bad-credit, demographic. Having just shopped for a new PC, and seen how cheap they are if you shop around, it struck me that this deal was a major rip-off, even if they have a high default rate.