# Why are Payday lenders considered so evil? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [December 2, 2006, 11:00pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630 "2006-12-02T23:00:01Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [December 2, 2006, 11:00pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/1 "2006-12-02T23:00:01Z")
No one is forcing people to use them. [Why are they considered so evil?](http://hosted.ap.org/dynamic/stories/M/MD_NAACP_PAYDAY_LENDER_MDOL-?SITE=MDSAL&SECTION=STATE&TEMPLATE=DEFAULT) > [@](#): > > COLUMBIA, S.C. | The NAACP will look into questions about its South Carolina branch taking money and other benefits from payday lender Advance America. The civil rights group has said it won’t take money from the industry. > > The question came up Thursday during a news conference about a report showing that payday lenders take $4.2 billion out of consumer pockets each year through high interest rates and fees. > > Julian Bond, chairman of the National Association for the Advancement of Colored People, says the organization condemned the industry in a 2000 resolution. > > “So we wouldn’t be compromised in our fight to protect working families and communities of color from these financial predators, we established a binding NAACP policy affirming that we would not take money from the payday lending industry,” Bond told reporters. The policy, he said, “applies to all of our branches as well as our national office.” [Payday loans](http://en.wikipedia.org/wiki/Payday_loan) > [@](#): > > Defenders of the higher interest rates note that payday loan processing costs do not differ much from their higher-principal, longer-term counterparts such as home mortgages. They argue that conventional interest rates at these lower dollar amounts and shorter terms would not be profitable. For example, a $100 one-week loan, at a 20% APR (compounded weekly) would generate only 38 cents of interest, which would fail to match loan processing costs. > > A study by the FDIC Center for Financial Research found that “operating costs lie in the range of advance fees” [collected] and that, after subtracting fixed operating costs and “unusually high rate of default losses,” payday loans “may not necessarily yield extraordinary profits.” Based on the annual reports of publicly traded payday loan companies, loan losses can average 15% or more of loan revenue. Underwriters of payday loans must also deal with people presenting fraudulent checks as security or making stop payments. > > Payday loan makers also argue that the interest on a payday loan is less than the costs associated with bounced checks or late credit card payments. For example, bouncing a $100 check may inccur an NSF fee from the bank of $28 and a returned check fee of $25 from the merchant. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [December 2, 2006, 11:14pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/2 "2006-12-02T23:14:51Z")
[QUOTE=astro] No one is forcing people to use them. [Why are they considered so evil?](http://hosted.ap.org/dynamic/stories/M/MD_NAACP_PAYDAY_LENDER_MDOL-?SITE=MDSAL&SECTION=STATE&TEMPLATE=DEFAULT) [Payday loans](http://en.wikipedia.org/wiki/Payday_loan) [/QUOTE] Because their entire business involves making high interest lones to the financially challenged. By default they are the financial institution of last resourt. Before banking deregulation they were called loan sharks. ---
**Author:** ![Rigamarole](https://avatars.discourse-cdn.com/v4/letter/r/77aa72/32.png) [@Rigamarole](https://boards.straightdope.com/u/Rigamarole)\ **Post date:** [December 2, 2006, 11:22pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/3 "2006-12-02T23:22:13Z")
Like the lottery, payday loans are essentially a tax on the poor and stupid. I’m all for them. (before a slew of people wade in to say how they aren’t like the lottery, I’m being a bit tongue-in-cheek here) ---
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [December 2, 2006, 11:23pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/4 "2006-12-02T23:23:08Z")
[QUOTE=Magiver] Because their entire business involves making high interest loans to the financially challenged. By default they are the financial institution of last resort. Before banking deregulation they were called loan sharks. [/QUOTE] They would argue the interest rate they charge reflects the nature of the risk they are undertaking. If a relatively high risk borrower needs immediate cash fast what are their real world practical alternatives? ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [December 2, 2006, 11:34pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/5 "2006-12-02T23:34:59Z")
[QUOTE=astro] They would argue the interest rate they charge reflects the nature of the risk they are undertaking. If a relatively high risk borrower needs immediate cash fast what are their real world practical alternatives? [/QUOTE] No disagreement but that’s not the question. The question is about perception. It’s like saying it’s ok for Woody Allen to marry the girl he raised as a daughter because legally he wasn’t her father. What is legal and what is proper are 2 different things. ---
**Author:** ![SusanStoHelit](https://avatars.discourse-cdn.com/v4/letter/s/7ab992/32.png) [@SusanStoHelit](https://boards.straightdope.com/u/SusanStoHelit)\ **Post date:** [December 3, 2006, 12:32am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/6 "2006-12-03T00:32:28Z")
I love the commercials. They don’t show people getting emergency cash - they show smiling families talking about how they can take their “dream vacation” and still keep their car title! :smack: ---
**Author:** ![Thudlow\_Boink](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/thudlow_boink/32/320_2.png) [@Thudlow\_Boink](https://boards.straightdope.com/u/Thudlow_Boink)\ **Post date:** [December 3, 2006, 1:10am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/7 "2006-12-03T01:10:15Z")
Some religions have a problem with lending money at interest. For example, from the Old Testament: [QUOTE=Leviticus 25:35-37 (NIV)] 'If one of your countrymen becomes poor and is unable to support himself among you, help him as you would an alien or a temporary resident, so he can continue to live among you. Do not take interest of any kind from him, but fear your God, so that your countryman may continue to live among you. You must not lend him money at interest or sell him food at a profit. [/QUOTE] The idea being that, if someone’s truly in need, you shouldn’t take advantage of that need to line your pockets at his expense. Not all lending in modern society can be characterized that way, but the payday loan companies are particularly likely to be used by those who are needy or down on their luck or poor at handling money, and they’re seen, rightly or wrongly, as taking advantage of such people. ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [December 3, 2006, 1:13am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/8 "2006-12-03T01:13:59Z")
The argument is that people don’t really know what they’re getting into, and the payday loan companies do not adequately inform them. Do you know what kind of interest rates they charge? We’re talking order of magnitude larger than, say, introductory credit card rates. ---
**Author:** ![MsRobyn](https://avatars.discourse-cdn.com/v4/letter/m/90ced4/32.png) [@MsRobyn](https://boards.straightdope.com/u/MsRobyn)\ **Post date:** [December 3, 2006, 1:58am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/9 "2006-12-03T01:58:52Z")
Not long ago, one of the big payday lenders agreed not to do business with military servicemembers. I think it was Advance America. Anyway, one of the big criticisms made was that these companies target vulnerable people who generally don’t have access to legitimate financial services. The average user is younger with either flawed or no credit, a regular income, but who may still be living paycheck to paycheck and thus has a limited ability to repay the loan. ([Here](http://www.usa4militaryfamilies.dod.mil/dav/lsn/LSN/BINARY_RESOURCE/BINARY_CONTENT/2141721.pdf) is the DOD’s report on predatory lending and the military. It’s a fairly long PDF document.) Robin ---
**Author:** ![alice\_in\_wonderland](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alice_in_wonderland/32/176_2.png) [@alice\_in\_wonderland](https://boards.straightdope.com/u/alice_in_wonderland)\ **Post date:** [December 3, 2006, 2:07am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/10 "2006-12-03T02:07:49Z")
I think a large part of the issue is that they advertise themselves as a quick, easy, no consequence way to solve temporary money issues. However, the people that are forced to use them don’t have “temporary” money issues or they wouldn’t be using them. I think the problem can compound itself to where a person has to constantly keep going back month after month for another loan, essentially ending up upside-down on their paycheque. It allows people to live a lifestyle that they really can’t afford and then rather than having a a small fall they wind up in really dire straits. I don’t think that these lenders are particularly sympathetic if a person gets in over their head, either. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [December 3, 2006, 2:28am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/11 "2006-12-03T02:28:32Z")
[QUOTE=MsRobyn] Not long ago, one of the big payday lenders agreed not to do business with military servicemembers. [/QUOTE] Are you thinking of this story? [http://www.spokesmanreview.com/business/story.asp?ID=160322](http://www.spokesmanreview.com/business/story.asp?ID=160322) > [@](#): > > Although the rate cap does not kick in until October 2007, payday industry spokesman Steven Schlien says Advance America has already stopped lending to members of the military. Advance America didn’t agree to stop. A federal law caps the interest rate that they can charge at 36% annually. They’ve stopped lending to the military because they want to charge rates higher than that. [http://www.aba.com/aba/documents/winnews/DoD\_PayDayWhitePaper\_101206.pdf](http://www.aba.com/aba/documents/winnews/DoD_PayDayWhitePaper_101206.pdf) ---
**Author:** ![MsRobyn](https://avatars.discourse-cdn.com/v4/letter/m/90ced4/32.png) [@MsRobyn](https://boards.straightdope.com/u/MsRobyn)\ **Post date:** [December 3, 2006, 2:34am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/12 "2006-12-03T02:34:23Z")
[QUOTE=Gfactor] Are you thinking of this story? [http://www.spokesmanreview.com/business/story.asp?ID=160322](http://www.spokesmanreview.com/business/story.asp?ID=160322) Advance America didn’t agree to stop. A federal law caps the interest rate that they can charge at 36% annually. They’ve stopped lending to the military because they want to charge rates higher than that. [http://www.aba.com/aba/documents/winnews/DoD\_PayDayWhitePaper\_101206.pdf](http://www.aba.com/aba/documents/winnews/DoD_PayDayWhitePaper_101206.pdf) [/QUOTE] When I heard about this, it wasn’t framed that way. It was framed as a “salute-the-troops” move. But this is the same thing. Robin ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [December 3, 2006, 2:45am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/13 "2006-12-03T02:45:44Z")
[QUOTE=MsRobyn] When I heard about this, it wasn’t framed that way. It was framed as a “salute-the-troops” move. But this is the same thing. Robin [/QUOTE] This article spins it a little differently: > [@](#): > > The new policy, which takes effect Oct. 15, comes after the Department of Defense released a report last month that stated payday lenders target military personnel and that predatory lending undermines military readiness and harms morale. > > Ken Compton, chief executive of Advance America, said Monday the policy is intended “to remove any perceived distraction to members of the military.” His company maintains it does not market to military personnel. [http://www.thestate.com/mld/thestate/15608657.htm](http://www.thestate.com/mld/thestate/15608657.htm) The article discusses the reactions of those who doubt AA’s bona fides. And there’s this one: [http://www.rtoonline.com/Content/Article/Sep\_06/AdvanceAmericaStopsLendingMilitary092506.asp](http://www.rtoonline.com/Content/Article/Sep_06/AdvanceAmericaStopsLendingMilitary092506.asp) 😃 ---
**Author:** ![Flutterby](https://avatars.discourse-cdn.com/v4/letter/f/6f9a4e/32.png) [@Flutterby](https://boards.straightdope.com/u/Flutterby)\ **Post date:** [December 3, 2006, 5:15am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/14 "2006-12-03T05:15:23Z")
Having gone to one myself in the past, they’re evil because once you take out a payday loan you get in a cycle of having to constantly get them just to scrape by. (I had no credit and was working retail. I went to get one so I could buy groceries…) You need cash, you go get a loan, when you go to pay back the loan you need money again so you take out another one. Just goes on in a circle. I’m pretty sure the one I went to was forced to pay people back some of the money they had paid in interest, but I had no documentation left and couldn’t even remember if it was the same one so I missed out. ---
**Author:** ![Nuveau\_Geek](https://avatars.discourse-cdn.com/v4/letter/n/a3d4f5/32.png) [@Nuveau\_Geek](https://boards.straightdope.com/u/Nuveau_Geek)\ **Post date:** [December 3, 2006, 6:19am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/15 "2006-12-03T06:19:50Z")
My husband works for a payday loan type place, and I think it’s inaccurate to say that the lenders are dishonest about the terms and interest rates. I’ve heard his spiel, and the policy cannot be more clear. Unfortunately, many of the people who are in the situation to need such a loan either A)aren’t bright enough to understand (they can’t grasp the payoff terms though I think they’re pretty clear) or B)know exactly what it means but are in such a dire situation, they don’t care. When I hear about the people he deal with, I fluctuate between sympathy and a feeling that they kinda deserve it. Some people need to pay medical bills, or get their cars fixed, or something dire is really going on. Other people want to buy luxury items. He doesn’t ask what they need the money for—the just volunteer the info. ---
**Author:** ![Shalmanese](https://avatars.discourse-cdn.com/v4/letter/s/45deac/32.png) [@Shalmanese](https://boards.straightdope.com/u/Shalmanese)\ **Post date:** [December 3, 2006, 7:01am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/16 "2006-12-03T07:01:41Z")
If payday loan companies are making just enough to cover their costs, then where is the inequity? Isn’t the interest rate only so high because of the risk of defaults? If payday loan companies are making excessive amounts of profit, then why aren’t there more people scrambling to get into the business? It seems like he barriers to entry are fairly low and no real special skill is needed to start one. Also, much vaunted “microcredit” schemes in 3rd world countries levy interest rates many times higher than payday loan places. On the order of 100% or more. Yet microcredit gets a nobel prize and payday lenders are considered usurious. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [December 3, 2006, 7:17am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/17 "2006-12-03T07:17:58Z")
[QUOTE=Shalmanese] If payday loan companies are making just enough to cover their costs, then where is the inequity? Isn’t the interest rate only so high because of the risk of defaults? If payday loan companies are making excessive amounts of profit, then why aren’t there more people scrambling to get into the business? It seems like he barriers to entry are fairly low and no real special skill is needed to start one. . [/QUOTE] In some areas there are one every few blocks- all that the market will bear.Or now,all that the City will let them open. In many areas, they won’t let too many open.The profits are very very good indeed. _Trust me._ **Flutterby** is absolutely correct. It’s not so much the “one time emergency cash” it’s the over and over and overandover with no way to break the cycle that’s the evil. _Payday loans are essentially a tax on the poor and stupid?_ :rolleyes: Yeah, it’s a “tax” that us taxpayers _don’t benefit from_. How is _that_ a good idea? Waht do you have against the poor anyway? :dubious: ---
**Author:** ![Rigamarole](https://avatars.discourse-cdn.com/v4/letter/r/77aa72/32.png) [@Rigamarole](https://boards.straightdope.com/u/Rigamarole)\ **Post date:** [December 3, 2006, 8:19am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/18 "2006-12-03T08:19:25Z")
[QUOTE=DrDeth] _Payday loans are essentially a tax on the poor and stupid?_ :rolleyes: Yeah, it’s a “tax” that us taxpayers _don’t benefit from_. How is _that_ a good idea? Waht do you have against the poor anyway? :dubious: [/QUOTE] Well, it just contributes to keeping the poor poor and the not-so-poor (the lenders)… not-so-poor. I prefer that system to a heavily middle-class nation. If you feel like you’re going to wind up middle-class no matter what you do, what’s the incentive to go above and beyond? I digress, MHO, and I admit I could be wrong. ---
**Author:** ![Stuffy](https://avatars.discourse-cdn.com/v4/letter/s/f17d59/32.png) [@Stuffy](https://boards.straightdope.com/u/Stuffy)\ **Post date:** [December 3, 2006, 9:00am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/19 "2006-12-03T09:00:42Z")
Geez, dont you guys know any poor people? A quick dirty example: Joe Blow needs to fix his car to make it work but lives paycheck to paycheck. He goes to ABC Check Cashing and takes out a payday loan of say $200. Joe has to make out a check for whatever $200 + interest + processing. This check is written to be cashed on Joe’s next payday. Let’s say it for $255. (it’s late, I could probably get a quote online, but don’t feel like it) Now remember Joe is living paycheck to paycheck, and Joe knows next week he has to pay rent; his check won’t cover that payday loan and rent. Luckily for Joe, he doesn’t have to pay that loan on payday, he just has to show up and pay a new processing fee ($55) to continue it until next payday. If Joe does this four-six times or so (it happens, a lot\*), he’s already paid back $200 in processing fees yet still owes the $255. Not only that but typically, right across that street from ABC Checking is 123 Checking where Joe is free to take out another payday loan, which he treat pretty much like the first. Since it’s not a typical loan, no credit check is performed. We can dispense with mentioning Fast Loan Co and Easy Payday lender down the street right? [sub]\*I vaguely remember California and some other states making moves limit the amount of rollovers a borrower could do, however since some of our bigger banks finance the payday lenders, the cynic in me doubts any of these passed. [/sub] ---
**Author:** ![DMark](https://avatars.discourse-cdn.com/v4/letter/d/e68b1a/32.png) [@DMark](https://boards.straightdope.com/u/DMark)\ **Post date:** [December 3, 2006, 9:34am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/20 "2006-12-03T09:34:13Z")
[QUOTE=SusanStoHelit] I love the commercials. They don’t show people getting emergency cash - they show smiling families talking about how they can take their “dream vacation” and still keep their car title! :smack: [/QUOTE] Exactly! Free money! And as others have pointed out, the people who buy into this legalized scam are not exactly the most educated people on this planet - I mean, seriously, “Louie the Icepick” used to give better interest rates back in the mob days. [Next page](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630.md?page=2)