The recent thread on loan sharks got me thinking about some financial problems I had a couple of years ago. I was consistantly coming up short from one paycheck to the next, and had to use the services of a check cashing service. IIRC, I’d get something like $100, and had to pay back $120 in a couple of weeks. If my math is correct, this come out to something like a 520% APR. Why is this not considered loan sharking?
From what I’ve read, the recent rash of check cashing services is coming under investigation in several states for violating usery laws. The services defend themselves by saying something along the lines of “You’re not paying an annual interest, but rather a weekly service fee for holding the check.”
“I guess it is possible for one person to make a difference, although most of the time they probably shouldn’t.”
You know what? There are three check cashing establishments of this ilk on my commute to work, and it’s an 8 minute drive.
Further proof that despite our booming economy, many of us are a missed paycheck away from being, maybe not homeless, but in deep dog dokie.
I know that if I missed a paycheck, I’d be fucked. Anyone else here in the same boat?
A significant number of us live from paycheck to paycheck. A few of the brave ones announce it with the “I Owe. I Owe. So Off To Work I Go.” bumper stickers.
In Texas the usury laws don’t kick in until a little over $300. Any TX legal eagle with the exact figure handy?
There are people who have taken out those little loans and end up paying over $1,200 before the thing is paid off.
Satan, I’m close, but not as close as I used to be. When I broke my leg in August I missed 3 weeks of work, less 4 vacation days I had remaining. I thought we were gonna be screwed, but we made it, just barely. Luckily, my wife makes more money than I do. Also luckily, I have good insurance; I just got the first statement from the hospital. $3,500 and rising, all covered except for the co-pays on the office visits and prescriptions.
Isn’t it amazing how they just change the wording and all of a sudden it’s legal?
Check holding fees instead of ‘interest?’ lol.
Not me. As of this weekend I have a buffer of about two months paychecks in my money market account. If that ran out I’d have to sell off some investments…
I think the problem is that too many people have the idea “I’ve got money so I’ve got to spend it on something” and buy more and more excessive than they need. My car is < 20k, I have a smaller house, my computer isn’t the latest and greatest, I eat at home more than I eat out and watch the VCR more than the theatre. On the other hand, I’m more than a few paychecks away from having problems. Not too many people seem to be willing to budget themselves that way though.
“You can’t run away forever; but there’s nothing wrong with getting a good head start.” — Jim Steinman
At the moment, I’m not. But that’s only because my husband’s father died recently, and left us a little money. We paid some stuff, and socked some away, because I’m pregnant & had to take time off work. I’m still getting paid, but it’s sick leave pay, which sucks.
Under ordinary circumstances, though, if I missed a paycheck, yes indeedy, we’d be screwed.
My wife and I, otherwise sensible people, got sucked into the buy on credit, pay later trap. Things got pretty desperate before we got smart. With some help from my parents and some serious budgeting we are back on our feet and only about four months away from having it all paid off. You can’t believe how good it feels to get that monkey of your back – and just in time, too, since we are getting into the college tuition time of life.
Since then we have become much more provident and should be in good shape for an emergency now (if it’s a short one!) and for retirement when the time comes. But it was touch and go for a while.
It was really embarassing for me (a really smart guy, right?) to find myself in that position and I exacerbated the problem by not dealing with it sooner, just out of embarassment. Worse yet, my wife and I didn’t talk about it with each other even when it was staring us in the face. That turned out to be the key, too. Once we worked together on it, it was easy to agree on what steps to take and where to cut back. Turns out it was pretty easy for one of us to make a stupid I-gotta-have-it decision but pretty hard for us both to fall prey to it at the same time.
“non sunt multiplicanda entia praeter necessitatem”
– William of Ockham
Not only have some of those places come under investigation, some of them have gotten into a hell of a lot of trouble.
Years ago before we were married with children and became responsible adults, my hubby and I used a check cashing service a few times. About a year later, we got a certified letter asking us to be part of a class action lawsuit on the premise that the company we used did not disclose an interest rate. When all was said and done, we got all of our fees back, plus interest.
I think that there is a difference between a fee and interest. For instance, many ATMs charge a fee, but they don’t charge interest. Money-wire companies also charge a fee, and that’s not interest. The thing about check-cashing is that the loan is on such a small scale, both in terms of monetary amount and time period, that fees, when expressed in terms of APR, seem incredibly large. If I were to take out a mortgage from a bank, I would consider only twenty dollars in handling fees to be small. Check cashing services may have fewer expenses than banks, but they still have some expenses.
" ‘Ideas on Earth were badges of friendship or enmity. Their content did not matter.’ " -Kurt Vonnegut, * Breakfast of Champions *