The main reason we have laws in the first place is because we consider many things immoral and unwise. The law can’t be separated from morality.
No, they’re not. The payday loan industry makes its bread and butter from the folks who get stuck on the debt treadmill, and they deliberately designed their policies to suck people into that trap.
A question for the legal eagles out there. Writing a check when you know you don’t have sufficient funds to cover it is illegal. Yet pay day lenders require their customers to write bad checks. Doesn’t that make pay day lenders accessories before the fact or something?
They do, huh? Let’s see a cite for those two claims. And I know you’ll probably turn to the Center for Responsible Lending for backup, which is fine, I guess. However, when you do I’ll gladly point you to scholarly analysis that points out the methodological flaws of their “studies.”
The fact is that payday lenders make their money like any other business – selling products that people want. No one is forced to take loans from them and, quite often (around a quarter of the time), people don’t repay these loans. These lenders take a huge risk making unsecured loans to people with shaky finances. The borrowers, however, feel they have the need for that money. If people want to take these loans and others want to provide them with money, both are engaging in a transaction that holds risks for them. Just because you don’t understand that transaction or don’t approve of it is no reason for that transaction to be banned.
Your questions shows you don’t really know how the process works. The lenders, in fact, don’t know this. Since many times (most, perhaps, depending on the state) lenders require proof of a job (hence the term “payday lenders”) it’s pretty clear that the people should have enough money to pay the lenders back. Of course, some people lie and deceive lenders. That’s immoral so I assume you’d support strict punishment of these predatory borrowers.
And that analysis will itself be perfectly unbiased and without flaw. Yeah, right.
The army considers payday loans enough of a hazard that they warn their personnel away from them. Journalists have reported plenty of people getting caught on that debt treadmill with payday lenders. There are plenty of people besides myself who see a serious problem here.
Oh, yeah, right. The lenders have absolutely no idea that any of those checks could be bad. If you believe that one, how would you like to trade your car for some magic beans?
Well, unlike the CFR studies, it will be academically sound.
The plural of “anecdote” isn’t “data.”
And those people, on the whole, aren’t well-informed about the facts on payday lending. They, like most people, see a high APR and think there’s something wrong. They don’t understand short-term loans, the business model of payday lending, or why people choose payday lending. They simply jump to a knee-jerk conclusion based on a few anecdotes.
So these lenders are purposefully lending to people who have no way of repaying, huh? Sounds like a pretty bad business model. If you lend money to people who can’t repay, you go out of business. If your assertions were true, then the average payday lender would be out of business in about two weeks.
Reality has disproven your thesis. The dire things predicted by Hayek have not happened since the publication of his book more than 60 years ago.
Feel free to postulate that “It’s taking longer than we thought” (Where have I heard that before?), but then also please explain why that’s the case.
That’s not how it works. I go in, I prove I have a checking account, a home address, a phone, a job, and I bring proof of how much I get paid. They crunch the numbers, decide how much I can be loaned at once (less than I get paid per paycheck, but still more than I have ever needed to borrow at once), and I tell them how much up to that number I want to borrow. I then give them a check, dated for my next payday, for that amount plus the fees. I can either come in and pay it off on payday or they will put the check through my bank and get their money that way (sometimes this can cost an extra fee for not repaying on time).
The payday lenders want me to have that money to give them. That’s how they make their cash. If I do not have that money, they do not make their money. They have to track me down and hassle me just like any other business that gets a bad check. At no point do they ask me or want me to write a bad check. What would that gain them?
It is a “bad” check because it is written at a time when the funds to cover it are not in the account. And since you cannot predict the future (fired, killed, laid off, injured and can’t work, etc.), there is no way to be certain the account will ever HAVE such funds, even if you insist the borrower have something like direct deposit of his paycheck.
A postdated check is not a “bad check”. From all cites I have seen, writing a postdated check is legal. I’d like to see a cite that it is not.
Yes, you may lose your job in the future. But a payday loan is collected, generally speaking, on your very next payday. The one that pays you for the work you have done or are doing now, as shown in paperwork you provide. It’s a regular check. If you write it and receive funds for it, you are promising that this check will be good. If you go around bouncing checks, you will have legal troubles. This is true whether you bounce them on a payday loan business or your local grocery store. Their business is modeled on the idea that people pay back the loans. They gain nothing by having to track you down, turn your check over to the authorities, etc.
Well, the law in Virginia defines a bad check as one uttered “with intent to defraud…knowing, at the time of such [uttering] that the maker or drawer has not sufficient funds…”
So I think these check fail the criminal test because an unforeseen future event causing the funds to be available is not “knowing” or “intent to defraud” conduct.
Now, it’s true also that Virginia law says that the mere fact a check is dishonored is prima facie evidence of intent to defraud, so the burden would be on the issuer to show that some unforeseen event occurred.
But the key element is: not per se bad checks, at least under Virginia law, even though they’re issued at a time when no funds exist.
Because you say so? Because it told you what you wanted to hear?
Cliches are not insights.
Because personally observing what it does to actual individuals isn’t academically sound?
When you’ve squeezed enough fees and interest out of them, when a loan keeps getting rolled over so that a customer has paid $300 or $400 on a $100 dollar, you’re going to make money on that loan even if it eventually goes bad.
Their business is modelled on the assumption that a significant number of their customers will have to keep rolling over their loans until they’ve paid back several times the amount of the original loan in a relatively short time. Guess what? That’s usury.
I agree that is their hope. That you will have to turn around and reborrow some or all of the same amount the next day. But that has nothing to do with writing bad checks. In fact, someone who is in the habit of writing bad checks won’t bother to go to a payday loaner in the first place - he or she will simply write bad checks for what they want. The person a payday loan business prefers to deal with does NOT want to write bad checks, and is willing to pay a fee to the loaners to get the money to cover the expenses they already have.
The system absolutely has problems, especially for serial reborrowers. Being persuaded to write bad checks is not one of those problems.
Not according to their financial statements…the public companies I just peeked at have HUGE allowances for doubtful accounts.
I’ve seen payday lenders threaten prosecution. It seldom works.
Some state laws just come out and say the deferred presentment lender cannot threaten or initiate prosecution based on a bad check: http://www.nclc.org/issues/payday_loans/content/NCLC_SUMMARY.pdf
http://www.aocg.com/resources/CA1-CASH%20ADVANCE%20CONTRACT.pdf
http://kyjustice.org/displaynodepublic?nid=1262&tid=431&synname=Pay%20Day%20Loans&termnum=1060200
http://www.in.gov/dfi/FAQ_-_Check_fraud_.pdf
In the rest, the facts of the transaction itself serve as a rebuttal. (I assume you know this Bricker, and I see that you aren’t arguing otherwise.) It’s a postdated check, made as repayment of a loan. It’s obvious that the drawer of the check didn’t have the funds to cover it when the check was written–that’s why he needed the loan. He entered into a transaction and explained how he would get the money to repay the loan (paycheck). The payee took the check with full knowledge it wasn’t good when it was written, having requested the check as security for the loan. Nobody was misled. Of course, some consumers might do the deal with the intention that they would take the money and run. I think the prosecution would have to affirmatively prove that, just like any other promissory fraud case.
http://ago.mo.gov/ConsumerCorner/blog/10127/Payday_loan_checks_are_not_bad_checks/
http://www.iowa.gov/government/ag/protecting_consumers/ICCC_Opinions/87a.pdf
Yes, when I have been forced to use them for childcare due to lack of hours at work, I have nearly always had to take a second partial loan in order to clear it out. The issue is with those who see it as just an advance on a paycheck, and somehow don’t see the 675% interest rate…
Not in virginia, tho
Yes, my apologies, I didn’t mean to make a legal argument in precision, just an assertion that the check is what most of us would consider “bad” because it cannot be cashed at that moment with funds to cover.
Their financial statements may have huge allowances, but they still depend on rollovers. Here’s a tidbit that popped up in my local weekly
http://blogs.nashvillescene.com/pitw/2009/04/harpers_magazine_looks_into_th.php
And who wouldn’t be? Every scratch-off ticket is another step closer to Easy Street!