So, someone takes out a ruinously detrimental loan from you. Maybe they never had the opportunity to learn better. Maybe it was their only choice. Maybe they are stupid, or ignorant. Maybe they’re actually mentally ill.
Would you feel it was ok to take someone’s stuff if you were stronger than them, if you lived in a country where that was legal?
Does anyone want to stand before God and say “oh, well, I thought about feeling sorry for them, but decided not to”?
God doesn’t like it. Liberals don’t like it. Ayn Rand doesn’t like it. Who <i>does</i> like it?
The only justification seems to be from capitalism – the theory that if businesses compete freely, they’ll produce the best stuff. But this is supposed to be best for everyone. If your business is evil, but people choose it, not because it’s better, or because it’s more convenient, but because you manipulate them into doing it, that’s not a success of capitalism, but a flaw. (A prevalent one, unfortunately.)
I am certainly in the less regulation camp, but I also want to point out that the worst thing you could do is to put them out of business. That will just create a black market as the need for the service quite obviously exists. I would much rather have the legal protections afforded by legitimate businesses than the neighborhood loan shark.
I don’t know if I agree with you that this is financial exploitation.
That being said, to answer the title, I feel sorry for all poor people that have to resort to these places, but, I feel sorry for all poor who have to borrow, so I don’t rail on the payday loan companies.
The companies aren’t victimizing anybody, because they explain the terms. It is up to the consumer to understand what that means to him. The consumer DOES know about compound interest, but is just too lazy/troubled/hurried/etc… to sit down and figure it out, thinking that it can be fixed later. It isn’t right to call the people dupes, because that implies stupidity on their part, and deceit on the part of the lenders, neither of which need be true just because you don’t like the profits.
People aren’t the victims that you make them out to be, they/we know that money is a limited resource, and their spending habits aren’t going to be helped by doing dirt to companies that supply their wants for a premium amount.
Standard banks are nowhere around with their lower percentage rates, so regulation wouldn’t be a solution.
If you want an answer to the problem, here it is: the poor should be not poor!
If you want a fix, well, I don’t see one…
This isn’t just uneducated people. I had a lieutenant who had a BS in Physics from a good school get redlined (cut) for promotion to Captain because she was up to her ears in debt from these places. Before that happened, we worked with her for six months to try to get her to understand what she was doing to herself. she just couldn’t stop. She was eventually given the chioce to leave or be dismissed.
That being said, these businesses do serve a legitimate service. Sometimes, when you’re living paycheck to paycheck, things happen where a quick $100 buys a car battery that allows you to go to work. Banks don’t give these kinds of loans–they’re high risk. As with the person above, you sometimes think you have a good risk, and it turns out they can’t make the payment and default.
I agree with what was said above, you need education. When I was in high school, two weeks of history and a whole unit of math during my sophomore year in high school were dedicated to the mechanics of everyday life–how to regiter to vote, how to fill out a tax form, what the stock market is all about, how banks work, how interest works-both for you and against you, loans and promissory notes. We send kids into the world without the tools required to survive.
I’m a little mytified as to why the poor cannot get free of the credit traps they are in. Around here, there are numerous small banks and credit unions, which offer no fee checking accounts and short term credit.
To the typical client who pays 20% to get cash from a paycheck-live on bologna sandwiches and water for two weeks-and save up some cash-then you have a cushion to cover you. And cut out meals at McDonalds, and get rid of your cell phone.
In six months time, you will have enough money to maintain a savings account-then you won’t be paying these predatory rates.
But all of this takes discipline and denial-which is the hard part.
Do you feel sorry for Madoff’s victims? That was financial exploitation with more zeros. He emptied charitable funds, bank accounts of the rich and famous, and investment portfolios.
CNBC has a continuing series called American Greed. It is about hedge fund managers, bankers and other money managers who ripped off the wealthy and presumably educated .They steal billions. Do you have a sense of paternalism about them? C’mon RALPH tell me how foolish these people are and how you would have known better.
There have been exploiters forever. The difference we sanction it when it robs the poor.
Back in the late 80s, my husband was discharged from the Air Force after serving three enlistments, and we moved back to Fort Worth. We looked all over, and could NOT find a bank that would offer a no fee checking account without a huge minimum balance. If the consumer couldn’t keep that large balance, the fees were ruinouos. I can’t remember the minimum balance, but it was three times what the two of us had been making per month…which we couldn’t afford to let sit idle. We were finally able to get into a credit union, by way of his stepfather, so we were able to have checking and savings accounts.
The banks don’t WANT little tiny accounts, other than student accounts, and they’ll do whatever they can to discourage them, now that so many of the banking functions have been deregulated. Now, back in the good old days when banks were more heavily regulated, they might want five or ten bucks as an initial deposit, but those days are no more. Check out those “no fee” accounts, and see how much the minimum balance is. Remember, we’re talking about people who occasionally need a loan of a hundred bucks here…so take that into account.
While cutting out meals at McDonald’s is probably a good idea for everyone, eating baloney sandwiches is very nearly as unhealthy, which is going to cost a lot of money down the road, and might cost a lot of money in the short term, too. Giving up a cell phone makes sense only if you don’t have to pay a fee to terminate the contract…and if you have a landline. Many people DON’T have a landline these days.
In short, frequently I do feel sorry for people who use payday loans and pawn shops. Sometimes they do it because they’re stupid, sometimes they do it because they’re grossly uneducated, and sometimes they know better, but they do it anyway. And sometimes it’s the best option. But in most cases, I think that the companies who offer these services are counting on getting people up to their eyeballs in debt, and counting on repeat business.
He said he would do one thing, and did something else, so that was fraud. As long as the payday loan companies have a clear contract and follow it, that is a very different matter.
I think there is more actual harm from having a storefront cheque-cashing/payday loan operation on every other corner in economically depressed areas.
A lot of people use these services because they’re bullied into them. Collection agencies regularly pressure people to use them - it’s their instant gratification that is being catered to. Of course people have an obligation to meet their obligations, but they are often harassed and given the impression that they have an obligation to take out a high-interest loan in order to meet them immediately. The veneer of legitimacy can make it hard for people to assert that it is against their interest and negotiate for installments or some other solution that they can manage without being forced deeper into debt.
It’s ridiculous to suggest that (absent the ability to take out a legal micro-loan at 600% interest) a significant number of people would seek out underworld loan sharks, or that loan sharks would be lined up to pony up ~$200 sums so that people could satisfy their creditors in the short term.
Not necessarily, many of his early investors made a lot of money. He was priming the pump.
But the attitude here is you should be smarter and know better. Too bad for poor who get hosed by payday lenders. By the way, they do disguise the dangers to their customers.Like Madoff, they are taking advantage of their customers.
I was working with a young adult who asked our opinions about getting a small payday loan one week; everyone discouraged him STRONGLY from doing this, and explained why it was a bad idea. The company I worked for at the time offered the occasional paycheque advance (as long as you didn’t abuse the privilege), and if I recall correctly, that’s the way he went instead. He wasn’t a stupid kid or anything, he just didn’t know why they were bad, and we had the opportunity to teach him - I truly hope he learned from all us old farts.
They kind of do - in the form of credit cards. Credit cards are easy to get and if used at least somewhat responsibly can be a good way of negotiating an unexpected cash crunch. Again, the onus is on the person getting a credit card to not turn one little $1000 limit card into a soul-crushing mountain of debt.
I don’t know if the same has happened in the US, but here in Canada, there has been recent legislation that has forced credit card companies to be more user-friendly - they are now required to explain on the statement how the interest works, notify you of changes of interest, and not charge interest until after the first payment date*. Our government has agreed that credit card companies do need some controls, at least.
*This is my understanding/recall of the changes. Any corrections are welcome.
They don’t disguise the dangers. The interest rates charged on these loans are posted in huge typeface in every pay day loan shop I’ve seen. Whether the consumer chooses to read them, or whether the consumer chooses to educate him or herself on what they mean, is not the shop’s problem. The shops make all legal disclosures, the extent of which I feel are satisfactory. You may feel otherwise. But since I am content with the level of disclosure, I’m content with not calling them morally deficient organizations.
As others have said, do you believe there is a meaningful difference between payday loans and the multitude of other ways folk get themselves in financial trouble?
We don’t need to go to the extreme of Madoff to find examples of people investing their life’s savings in things they do not understand. Should there be a test before allowing someone to invest in futures or on margin? Heck, even blue chip stocks and money markets have turned out to be FAR from the secure investments so many were intended to believe.
I would strongly favor legislation capping the amount of interest payday loan services could offer. And I would prefer strict limits on credit cards and other lending practices, and the repackaging of debt. But our economy and society seem to be based on little other than the acquisition of disposable consumer goods - which credit enables in the short run.
Realistically, I think that a huge percentage of investment opportunities are too complicated for the average individual to comprehend, essentially creating opportunities for a few insiders to prey off of the masses’ greed and ignorance. But I also understand that folk should generally be free to contract for whatever they choose. Heck, many call the lottery essentially a tax on the poor and ignorant - or bad at math.
In the absence of increased legislation, caveat emptor.
Many people believe that because it is a business it must be regulated so that they can’t ruin their customers or they think ‘why would they do that? Then they won’t have customers.’ and of course they are wrong.
Get money out of politics so the ones with the most get their way by buying legislation.
Not simple I know.
I personally don’t think the businesses are inherently predatory at all. That’s not to say that there aren’t places out there that have gone into this business specifically because they are effectively manipulating people out of their money, but it’s not inherently predatory. If started a business that helped people in poor neighborhoods get short-term loans because I felt that people were unduly suffering due to a lack of micro-credit availability, I’m not being predatory. If I charge the amount that brings me the most income, am I unfairly exploiting people or being a good businessman? It may not occur to me at all that these people will be trapped by my repayment terms and be worse off - especially because they were informed exactly what they were getting into and it’s not my fault if they failed to understand. What about limiting the potential interest rates? Well, then some of the businesses might close down because they’re no longer profitable, and the places that close down are likely in the areas that legitimately need those businesses the most.
The problem is not the lenders, it’s the urge people have to get the next big thing, the lack of patience to wait for more income, and the laziness of buying prepared products instead of ones that require a lot of effort to use/consume once purchased. The way out of these sorts of things you can’t be taught in schools as one teaches any other subject; they have to be day in and day out instilled into people, hopefully starting with their parents. In order to break people out of this cycle, we need to teach parents how to raise their children. Unfortunately, there are no qualifications on becoming a parent, and the qualifications on staying a parent are extremely easy (don’t abuse them, make sure they’re fed, etc). And if we want to keep living in a “free country”, how much more can we legitimately require of parents?
To answer the question as posed, I do feel bad that society is at the point where people are led into this endless cycle of debt. I feel bad that they didn’t receive proper parenting and education so that they make poor decisions with their money. But I don’t think there are reasonable solutions that target the lenders or borrowers. Instead, I think we should look for solutions by targeting the makers of the products the lenders are buying. The one thing that I believe very strongly in is government regulation of advertising. People should be protected from corporations that convince them that they need their products. Advertisers are given far too free of a reign; if it was up to me, most of the advertising we see would be illegal.
A completely different topic that warrants a new post:
One thing one could do to stop this is to support local micro-credit non-profits, if any exist. I think I’ve heard about some in much poorer countries, but I don’t think I’ve ever heard about any catering to the disadvantaged in prosperous countries. If enough people cared that these businesses were being predatory and extracting too much money from their customers, they should be able to get support to build a non-profit venture that would be able to undercut the predatory businesses.
I think the thing that makes payday loans problematic is that by their nature they are marketed to people who live paycheque-to-paycheque and are already finding themselves in financial difficulty.
It seems larcenous to hide usury behind a friendly-looking mascot. “Just write us a post-dated cheque and we’ll hold it until you get paid! We’re your cash solution!” (Although you have to give them points for cryptic honesty, with the “Money Tree” / Caterpillar combination. That little bastard will eat up any green that presents itself, laying waste to anything you have.)
So, in your opinion, it is a worse offense to prey on peoples’ financial ignorance dependent on the victims’ economic level? Perhaps, but I’m not sure I feel comfortable with such distinctions.
In some ways, I feel payday loans are more “moral” than some complex instruments such as credit default swaps, derivatives, and crap loans bundled and rated AAA. The latter prey on people “institutionally” - rather than as clearly in a one-on-one freewill contract, a group’s pension plan suddenly becomes underfunded. And although payday loans are aimed at poor people, I suspect there may be more chance of a poor person understanding that a loan shark charges crippling interest, than an average person realizing that this AAA-rated instrument is worth jack squat.
As a raging liberal myself, I have to DISagree with this. Maybe that’s because I am currently a POOR liberal. Look, I’m a widow with 2 kids, one of them in college, a returning university student myself working on my second degree, living on SS survivor benefits, student loans and Pell grants, and sometimes I NEED to procure one of these usurous loans to make it to the next payday.
In fact, I have one NOW. It’s almost end of term AND almost the end of the month, meaning the student funding is gone already and the next installment won’t be released until a week before the start of next term (early in January) and the next SS payment is not until the 3rd (in my experience, LOTS of students are looking into such loans or hitting up mom and dad or pawning whatever they can right about now…always are this close to finals week :p)
I don’t borrow money to satisfy some urge for instant gratification or to compensate for frivolous spending or poor budgeting, but to afford to EAT. As in buy groceries and cook from scratch, not eat out.
I am quite aware the interest rates are high; I can DO math. I am not “ignorant”. I didn’t get my 3.85 GPA for naught.
Fact is, I consider it a great deal that I can go and borrow $200 for a month and pay “only” $26 in interest on it. I beats the hell out of 1. going hungry 2. running up credit card debt. Esp. since I always pay it back ahead of schedule and save on the interest.
I also use the pawn shop as needed…in my state, the interest rates are capped and they have to make 90 day loans with a 30 day grace period. But I end up paying MORE in interest to get my DVDS or Guitars out than I do to get a shorter term payday loan.
We no longer HAVE car title loans in my state, 'cause those with issues about how “exploitive” they were passed a law capping the interest rates at such a low level every company offering them shut down. Thanks, guys…you just eliminated my ability to leverage my MOST valuable asset to my advantage; removed the ONLY option some have to get a much needed short-term loan.
Look, if I want to use my car (or my musical instruments or extensive DVD film collection or my future income) as collateral in a business transaction, that is MY business. I do not need to be protected from myself, only from fraud, and there is no fraud involved in me being fully aware of the terms of a transaction and basing my choice to enter into it or not on my particular situation. (“hmm, I can buy groceries and keep the lights on for the next few weeks and only be out $26 for the convenience of the advance on my income…what a deal!”)
You seem to feel that those of us who use these services do so because we are ignorant, undisciplined, poor budgeters, or suffer from some other “character flaw”. In reality, many of those using such services use them sporadically for emergencies or to make it through short-term cash-flow problems.
Speaking for myself, the only thing I could do to “get out of that situation” is drop out of school, which is NOT going to happen; I’ve got a yr or so left to go and I intend to graduate as planned before re-entering the workforce. I consider that a financially sound and worthwhile “application of my resources” at this time.
But if some have their way and eliminate my option to use short-term, higher interest loans to bridge the occasional gap between financial aid/fixed income and
expenses, that’s exactly what I’d be forced to do. The kids gotta eat, period.
I think this is an example of “knee-jerk” responses found on both/all sides of the political spectrum; a position which fails to take into consideration all aspects of an issue before leaping to a conclusion. Eliminating these forms of “poor peoples’ credit” will HURT a lot of lower income and even middle income people who lack the ability to get other loans or have savings to fall back on. These services can be the only thing standing between someone and getting evicted, losing their job due to a needed vehicle repair, or being able to remain in school and graduate with a higher earning potential.
Do such services exploit the poor? Sure. Our entire economy does THAT. What else is new? Those WITH money can always get more on great terms, no problem. Those without have always had to pay more for the same privilege.
But eliminating such services (or capping the interest to the point that those providing them stop doing so…same diff) effectively DISempowers lower income people by preventing them from leveraging what capital/assets they HAVE.
That was certainly not my intention. But you have to admit that there are people who get into a payday loan cycle that it’s virtually impossible to get out of.
I also said ‘or suffered a setback where they need cash to cover expenses. Payday loans are a temporary solution.’ So you see, I do know that not everyone is ignorant of financial management. My points are that the people who are uneducated or undisciplined should be educated and helped to become better at managing their money; and that they should not be preyed upon by companies charging outrageous interest.
Look, I’m a widow with 2 kids, one of them in college, a returning university student myself working on my second degree, living on SS survivor benefits, student loans and Pell grants, and sometimes I NEED to procure one of these usurous loans to make it to the next payday.