Do You Feel Bad For Victims of Financial Exploitation?

Miscellaneous and Personal Stuff I Must Share
41

In reading through the rest of the thread after I responded to you, JohnnyLA, I was struck by how many hold the view of the ignorant, unwashed masses who must be protected from their own ignorance.

I concede that your remarks were fairly even-handed in comparison to some others here.

WTF, people? This is the sort of elitist crap I’d expect to hear from rich Republicans, not self-proclaimed “liberals” or otherwise thinking folk. :smack:

It reads like a 19th century text on the moral and intellectual failings of the poor justifying why the wealthy must intervene and teach them the value of money, take their kids away to be raised correctly, and/or lock them up in workhouses.

I am well aware that there are many who lack even a basic understanding of economics or who have impulse control issues or addictions who use these services. There are as many or more of higher income who use other services and have these same characteristics. :wink:

The rich guy with the gambling or drug problem doesn’t tend to show up at the payday loan place, but plenty of his peers who happen to be lower income do, sure. :rolleyes:

I have long found amusing (and offensive) the common assumption that the poor, as a whole, are so terrible at budgeting and lack even the most rudimentary understanding of financial matters…excuse me, but I submit that the behavior displayed by most “poor” people in making it from paycheck to paycheck involves far more skill than the most complicated manuverings of Enron executives.

These are people who are working with VERY little, and making it go MUCH further than the average middle class, much less say RICH, person ever could imagine. They, in many if not most instances, manage to house, feed, clothe and sustain a family on the equivalent of what many would consider disposable income.

Most know what “floating” a check means. That is basic stuff. How many know what “kiting” a check means? (it is writing a check to buy groceries and writing it for cash over, which you then take and deposit to cover the check you floated a few days ago so it won’t bounce. You get both food and a few extra days before the bill comes due) Knowing exactly how long you can delay payment on your various utility accounts before shut-off and how/when to call and make arrangments to give you even more time. Stuff like that. “Creative accounting”, they call it in the white collar world. “Survival” they call it among the lower income folks.

These people are not dumb. They juggle this shit more or less constantly.

The elitism and condescension going on in this thread is amazing. All this generalized, stereotypical tripe about how arrested and ignorant and helpless the poor are and how they need to be protected from themselves. :dubious:

Almost as if “poor” equates to some act of God/natural state linked to inferior mental and moral development rather than simply level of income. Almost like 1800 again. :rolleyes:

42

i firmly believe that people, in general, do things for a reason.

It makes us feel better to say “the poor take them because they lack self-control” or are otherwise stupid. But every analysis of the poor has shown that they have developed a number of coping methods that may not seem intuitive to us, but fulfill their needs on some level. It’s usually picking the best of a limited set of options.

So what we need to do is figure out what need payday loans are fulfilling and use some creativity to figure out if there is a better way of fulfilling them. I know for a fact that there are statistical tools for analyzing if the amount of interest on payday loans actually represents the amount of risk…and I strongly suggest it does not. I think the problem is more about accessibility and an institutional distrust of banks.

I agree that micro-finance methods that have been successful in the developing world might have a place in solving this problem- with the caveat that micro finance is not a magic bullet. Anyway, peer-lending is a possibility that could help immediate poverty and create some social systems that can help the poor on a number of levels. Could universities and military organizations start peer-lending clubs? Could we create incentives for traditional banks to expand into impoverished areas? Are there ways that technology can help? Phone-based banking has revolutionized many parts of the world, are there variations that can work here?

43

Exactly. Very few people are aware of this, but the democratic process used to take care of this issue by capping interest rates. This was true in America from the time of George Washington until 1979. In that year, the courts knocked down the laws and allowed the sort of abuse that gonzomax describes to flourish nationwide. (For some reason all those Republicans who specialize in complaining about ‘activist judges’ never seem to mention this particular instance of judicial overreach.)

The plain fact of the matter is that the financial industry is not a wild west/Ayn Rand-style free for all. We have laws that regulate what financial companies can and cannot say and do. We have always had such laws. These laws make sense. They are logical. They are a necessary part of any modern-day economy. The payday loan industry and other players who exploit the poor do so by skirting the edge of the law and exploiting loopholes. They should be shut down by force, just as similar ventures were for most of American history and are in most prosperous countries.

44

I find this article interesting:

http://findarticles.com/p/articles/mi_qa4048/is_20070101/ai_n18781206/

If we accept the conclusion that payday lenders are not exceptionally profitable then it becomes harder to muster righteous indignation. They may not be desirable for other reasons, but like so many businesses it appears that they set their prices in response to competition and other market forces. This means that you can’t expect banks, for instance, to step in and take over the business at a lower cost.

So if they are to be forced to lower interest rates they may simply close down. Of course that may be the point of the push for higher rates. If that is the case then just legislate them out of existence. I tend to believe that full and fair disclosure is the most powerful weapon we have in these instances. Everyone has to make the best decisions we can and I would rather not treat the poor like idiot step children that we need to watch over. I am encouraged by the encroachment of Wal Mart into check cashing and even small business loans, perhaps payday lending will be next.

45

I think part of the problem here is comparing interest rates on short term loans of small amounts with those on longer term loans, generally for more money. We have seen quoted in this thread $26 interest for a loan of $200 for one month. If this compounds at the same rate every month, that is an annual rate of 333% by my match.

However, I would ask anyone here how much money they would expect to receive for lending someone $200 for one month. You have to pay staff (or yourself) for the time to write up the loan, for rent & utilities plus all other costs of running a business. You have to cover the costs of those customers who do not repay you. And you want to make some profit. I have to say that $26 does not sound unreasonable to me, even though when expressed in annual terms 333% sounds like a usurious amount.

46

**InterestedObserver **said it all.

47

Nice post.

And why the elitist liberals are at it, I suggest we also prevent the ignorant, unwashed masses from

  • Procreating and rearing children
  • Driving a vehicle or Operating heavy machinery
  • Purchasing alcohol or cigarettes
  • Voting

Those things seem to have far, far more serious consequences to themselves and society than a 100 dollar loan. But I don’t see anybody in the posts above calling for their prevention.

48

You know your situation best, but if you have a credit card, I am not sure that I see how it works out to your favor to pay $26 in interest (man, I hope that includes whatever fees are entailed in getting the loan) for a one month loan of $200 instead of using your credit card. Even if your CC rate is 30%, that is still only going to cost you about $5 for a one-month " loan" of $200. If you have no current balance on your credit card, and you pay off the whole $200 in a month, you won’t have to pay any interest.

Like you said, you can do the math, so there is obviously something I am not seeing.

Good luck with your efforts. I know how stressful it can be.

49

I can use my credit card and not pay a cent of interest for almost two full months if I time it right (and I did last month for my unexpected brake job on my car) - I charged it just after the cut-off for last month’s statement, and the interest doesn’t start accruing until after this month’s due date, so almost two full months of zero interest.

50

Legislation will not help people better manage money, or make good choices in general.

More legislation, more rules, government intervention = increased goverment employees, greater costs to John Q. Taxpayer. It’s not anyone’s obligation to pay for the offshoot of unnecessary legislation - more rules in need of enforcement which then have to be compensated for.

If people want to be foolish with their money it’s no one’s business to intervene. Or even worse, force someone else to pay for that intervention. Ultimately, people need to be accountable for themselves with decisions they make, whether it be about cigarettes, alcohol, or borrowing cash. This should not be the role of greater government control.

51

Can’t the free market take care of this issue? If a business could be profitable doing payday loans at 50% (or 75, or 100, or 200) then won’t somebody do the research and open a competing business to shut down the businesses that charge usurious interest rates?

I think another poster said it best, though. When you are talking about such small amounts of money for such short terms, you still have fixed expenses with document preparation, staff, rent, and utilities.

For example, let’s say that I came to your business and I wanted you to loan me $10 for one day. You have to devote an employee to write up the paperwork. Say you only charged me $1. That’s still 10% interest per day. Even without compounding, that comes to a 3,650% APR. Scandalous! Outrage! Close you down!

It’s not as bad as it seems at first glance.

52

I find it odd that so many people have this idea protecting people from making bad decisions is such a bad thing. I don’t see any value in the freedom to hurt yourself. I don’t understand this idea that it’s better to have chosen to be in hell than to have been taken against your will to heaven.

I also don’t see what relevance the finances of the company have. I don’t want to see the companies shut down, but if they can’t make the money without exploiting the ignorant, then I argue they don’t have the right to exist.

53

Should we shut down the tobacco companies, liquor companies, motorcycle manufacturers, bars, fast food restaurants? Who gets to make the decision as to whether people should be protected from bad decisions in these areas? If it is me, well, I drink but do not smoke or eat fast food, so they can be shut down to protect you from your poor decisions. Okay?

And some people (including one in this thread) understand the costs of payday loans and still feel that they are useful for them. Should government deny them that ability because “government knows best”?

54

Amarone, what we should do is that if those companies make a dangerous product they are made to pay damages for any harm done, real fast too. Then it would be up to them to decide if they want to remain in those businesses.

The real problem here is our SCHOOLS, if we would teach what kids need to know instead of nonsense like Moby Dick and knowing the generals in the 1812 war, they would not be taken in. Why not teach kids how to buy a car, a house, how to rent an apartment, about credit and their rating, about scams in the marketplace and all that? If the schools taught useful skills like this most of the problem would never have happened.

Even things like history, well teach the HISTORY of big companies and how they came to be and what jobs are available and how to prepare for a career, instead of useless drivel about the 1600’s no one will ever use. Take the kids on tours of local jobs, teach something useful for life and the exploitation would never happen.

Commission salespeople were the real root of all evil in the financial collapse, making all kinds of fraudulent applications so as to get their damn commission, if anything needs outlawing start with that, and also make them serve hard time for any false information submitted, right along with the homeowner too if he lied. Many times it was all these loan brokers who did the lying just because of their damn commission system.

55

So many above posters have made things far more coherent than I could.

A quick question for Nava (or anyone else):

How many of your “friends” live in hotels or motels to avoid cleaning etc? This is not something I have ever experienced- apart from those who are on employer funded benefits- this is a genuine question- where I am, it doesn’t seem to exist - to my knowledge anyway.

There are a heck of a lot of good points. I agree with those who push “those with little are often very good money managers as they have been forced to learn”. The instant gratification seems to be more of a problem than the lender (ignoring such things as drug addiction.

56

Yes - I am not saying there should be no regulation at all. I think there should be a plain English disclosure form that the applicant must sign that says, in at least 12 point font, what the total charges would be if the applicant paid on time, and after various longer periods.

If the payday loan company did not do this, or used deceptive/false practices to get people to sign up, then that would be against the law (it probably already is) and make them subject to fines and/or prison.

And I agree with your points about providing better education on financial matters in school.

57

I took a short term loan once. It was a weird situation that was my fault and is unlikely to repeat itself. I needed cash NOW and didn’t have access to my checking account, which always has a few months’ pay in it. There was no trickery; the man I spoke with was very clear about how expensive this was going to be. I was quite happy to have the option to pay for this service. Had this option been legislated away, I would have been screwed. I don’t recall what the interest rate was, not too ridiculous IIRC, but there were also fees that bumped it up since I paid it off quickly.

58

There were always laws against Usury, and I remember where the only high interest place allowed was pawn shops. Wasn’t it Bill Clinton who changed all that? I know it was he who allowed most of the scam financial bonds that collapsed in the recession. I bet he was behind payday loans too.

Why aren’t PAWN SHOPS the leader in payday loans NOW anyway? They would seem the logical choice to allow to do this, yet they are not doing it. I smell some kind of bribery at work in the legal system because that is who ought to have had the right to make payday loans and they were already here. Does anyone know what keeps them from doing this now?

59

The bottom line is that there’s a nearly endless supply of stupid and irresponsible people. The payday loan places are simply taking advantage of their stupidly. If we use the police power of government to eliminate payday loan outfits, should we also use the police power of government to eliminate fast food, rent-to-own, timeshare presentations, and whole-life insurance?

Living in a free society has its risks. If we use the police power of government to try and minimize every consequence resulting from poor decisions, we will no longer be free.

60

Well the test is IS IT CAUSING HARM, if it is then two things should occur, the maker must be responsible for bad health effects and pay injury from say a bad harness or seat, or cigarette smoke, and in the case of pay day loan places, simply MAKE them tell the truth in large letters on signs right at the business as well as in paperwork. Signs like WE CHARGE 495 percent, Credit cards 30 percent (or whatever the legal max is) BANKS charge xx percent, and these numbers would be an average of the max loan charges of those businesses within 50 miles. and would also say the total payback in dollars of say a hundred dollar loan, on a sign visible outside the place in say at least 3 inch letters.

Now if someone goes in there no one can claim he did not realize it was over 10 times what a credit card charges. This is the answer. Yes you can’t stop stupidity, but you can be sure the person knew everything before going in. Be sure they list what a pawn shop charges because even that is less too. You fight stupidity by making the person going in smarter, right on the spot.

Crafter we are not a free society or else pawn shops would have always made such loans and they still can’t.