# 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:** 2
**Author:** ![madmonk28](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/madmonk28/32/20811_2.png) [@madmonk28](https://boards.straightdope.com/u/madmonk28)\ **Post date:** [December 3, 2006, 10:28am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/21 "2006-12-03T10:28:01Z")
You know, in my neighborhood in DC there are several of these places and not many banks. In the same way that there are lots of convenience and liquor stores and not many grocery stores. Just because there is money to be had preying off the disadvantaged, doesn’t mean it should be made. When certain poor neighborhoods are filled with dozens of social traps (like these kinds of financial institutions) there is a real cost passed on to society in lost human potential, crime, and a host of other social ills. ---
**Author:** ![Lsura](https://avatars.discourse-cdn.com/v4/letter/l/7993a0/32.png) [@Lsura](https://boards.straightdope.com/u/Lsura)\ **Post date:** [December 3, 2006, 1:25pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/22 "2006-12-03T13:25:02Z")
[QUOTE=Stuffy] 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. [/QUOTE] Actually they did - I don’t know about California, because I never worked for one there (though the company I worked for operated there), but, for example, in Tennessee, the law that was passed required that 1) it be paid off in full every time it was due and 2) payday “advances” (in TN, they were not legally a loan and could not be called a loan) could be extended for the same amount to the same customer more than 10 times in a row, at least not immediately. What that meant in practice was that at the 10th time, the customer had to either change the amount they were borrowing or pay it off and leave for at least one day. The same law also required that we specifically as each person how many advances they had out and whether that amount (including fees) totaled $500. If my store would have been the third one or put them over that $500 limit, we could not do an advance with them - this put the responsibility on the store, but relied on the customer’s honesty. So were there people who had more than 2 or $500? Likely. Now, I worked for this company for nearly 7 years, and I could spout the company line as to how they actually helped these people. Now, with the benefit of a different career and time, I can see that while the first one might be helpful in a fix, the real problem is that it is so difficult for people to get out from under these loans - especially after the company I worked for changed it so that customers could no longer pay down by $10 or $15 at a time - when I first started, they could. Instead, there were amounts of $100 or $200 with no in between amounts. ---
**Author:** ![Ignatz](https://avatars.discourse-cdn.com/v4/letter/i/3be4f8/32.png) [@Ignatz](https://boards.straightdope.com/u/Ignatz)\ **Post date:** [December 3, 2006, 1:44pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/23 "2006-12-03T13:44:49Z")
North Carolina pulled the industriy’s plug last year. See a story at > **[payday loan industry watch : news story : Lenders cashing in on short-term loans](http://www.pliwatch.org/news_article_060716A.html)** > > Lenders cashing in on short-term loans - News at PLIWatch Part of that says, “…one client…was juggling 19 loans at the same time.” [Taken out consecutively to pay on the previous one] and “ **Forced out of N.C.** In the same year as the report, North Carolina lawmakers decided to put a stop to the practice when the state Legislature declined to extend a law allowing it. Lawmakers determined that the lenders’ practices breached the state’s 36 percent cap on interest rates. Lenders maintained they were not subject to the state law because they were agents for out-of-state banks. But last fall, the North Carolina Banking Commission ruled that Advance America was a lender, not an agent. The company subsequently shuttered its 117 North Carolina offices. By this spring, the remaining companies, too, had pulled out. Some consumer advocates would like South Carolina to follow suit and ban payday lending, or at least modify existing laws. In 2003, the state Legislature here did pass a law that required anyone borrowing money at higher-than-market interest rates to attend a free credit-counseling session.” _Esse quam videri_ ---
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [December 3, 2006, 1:58pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/24 "2006-12-03T13:58:27Z")
[QUOTE=Ignatz] North Carolina pulled the industriy’s plug last year. See a story at > **[payday loan industry watch : news story : Lenders cashing in on short-term loans](https://www.pliwatch.org/news_article_060716A.html)** > > Lenders cashing in on short-term loans - News at PLIWatch Part of that says, “…one client…was juggling 19 loans at the same time.” [Taken out consecutively to pay on the previous one] and “ **Forced out of N.C.** In the same year as the report, North Carolina lawmakers decided to put a stop to the practice when the state Legislature declined to extend a law allowing it. Lawmakers determined that the lenders’ practices breached the state’s 36 percent cap on interest rates. Lenders maintained they were not subject to the state law because they were agents for out-of-state banks. But last fall, the North Carolina Banking Commission ruled that Advance America was a lender, not an agent. The company subsequently shuttered its 117 North Carolina offices. By this spring, the remaining companies, too, had pulled out. Some consumer advocates would like South Carolina to follow suit and ban payday lending, or at least modify existing laws. In 2003, the state Legislature here did pass a law that required anyone borrowing money at higher-than-market interest rates to attend a free credit-counseling session.” _Esse quam videri_ [/QUOTE] The need for quick emergency cash being a somewhat inflexible need by many in desperate circumstances, have any followup studies been done as to where the poor and desperate now get their “emergency” money in S. Carolina? ---
**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, 3:30pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/25 "2006-12-03T15:30:42Z")
[QUOTE=astro] The need for quick emergency cash being a somewhat inflexible need by many in desperate circumstances, have any followup studies been done as to where the poor and desperate now get their “emergency” money in S. Carolina? [/QUOTE] Something that I think is interesting is that, around here at least, many respectable banks and credit unions are offering payday loans. ---
**Author:** ![asterion](https://avatars.discourse-cdn.com/v4/letter/a/4da419/32.png) [@asterion](https://boards.straightdope.com/u/asterion)\ **Post date:** [December 3, 2006, 3:55pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/26 "2006-12-03T15:55:05Z")
Well, I got yelled at once when I called one a usurer. (I was walking down the sidewalk of the strip mall, minding my own business, when I’m asked out of nowhere if I needed a loan.) Does that count? ---
**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, 5:02pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/27 "2006-12-03T17:02:00Z")
[QUOTE=astro] The need for quick emergency cash being a somewhat inflexible need by many in desperate circumstances, have any followup studies been done as to where the poor and desperate now get their “emergency” money in S. Carolina? [/QUOTE] The need is often not as pressing as it seems. That said, it looks like the problem was solved by good corporate citizens like Advance America, which simply kept doing what it was doing: > [@](#): > > These latest developments follow a decision in December 2005 by Commissioner Smith against Advance America, the nation’s largest payday lender. Cooper’s office prosecuted the case against Advance America, contending that the payday lender used a rent-a-charter relationship with an out-of-state bank to hide its illegal loans. Advance America has appealed that decision but is no longer making payday loans in North Carolina. > > Cooper believes that Check Into Cash, Check ’n Go and First American have used similar relationships with out-of-state banks to skirt North Carolina laws that cap interest rates on small loans. Cooper alleges that Check Into Cash used its relationship with American Bank & Trust of Wessington, South Dakota and other out-of-state banks, First American used Community State Bank of Milbank, South Dakota and Check ’n Go used First Bank of Delaware to try to evade the law.[ > > Consumers who took out a typical payday loan of $300 from one of these companies were required to repay the loan within two weeks plus around $60 in interest, more than 400 percent interest when computed as an annual percentage rate. People who didn’t have the money after two weeks often wound up taking out another payday loan to cover repayment of the original loan. The companies also made installment loans at rates over 300 percent. > \*\* > State law allows a maximum rate of 16 percent on loans under $16,000 except that licensed consumer finance lenders can charge up to 36 percent on loans under $600.\*\* (Emphasis added) [http://www.ncdoj.com/DocumentStreamerClient?directory=PressReleases/&file=paydaylenders3.06.pdf](http://www.ncdoj.com/DocumentStreamerClient?directory=PressReleases/&file=paydaylenders3.06.pdf) North Carolina only permitted payday lending for four years as part of an experiment. Before that, and, as the bolded portion of the quote indicates, currently, North Carolina licenses consumer finance lenders and permits loans up to $600 (similar amount limits apply to payday loans) at 36% interest. Here is the statute: [Chapter 53 - Article 15](http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/ByArticle/Chapter_53/Article_15.html) ---
**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, 5:18pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/28 "2006-12-03T17:18:46Z")
In South Carolina, the law, which hasn’t passed yet, requires the counselling only if the consumer wants to take advantage of a grace period to repay the loan–after the consumer already has the money. The consumer gets the grace period before the counselling, as long as the counselling is done within 7 days. [http://www.scstatehouse.net/sess117\_2007-2008/bills/76.htm](http://www.scstatehouse.net/sess117_2007-2008/bills/76.htm) Here is a good source of state law info on payday loans: [http://www.paydayloaninfo.org/lstatus.cfm](http://www.paydayloaninfo.org/lstatus.cfm) ---
**Author:** ![black\_rabbit](https://avatars.discourse-cdn.com/v4/letter/b/f19dbf/32.png) [@black\_rabbit](https://boards.straightdope.com/u/black_rabbit)\ **Post date:** [December 3, 2006, 6:11pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/29 "2006-12-03T18:11:21Z")
[QUOTE=Lsura] I can see that while the first one might be helpful in a fix, the real problem is that it is so difficult for people to get out from under these loans - especially after the company I worked for changed it so that customers could no longer pay down by $10 or $15 at a time - when I first started, they could. Instead, there were amounts of $100 or $200 with no in between amounts. [/QUOTE] This is the real problem I see with them. I had to use cash advance places a couple of times, when I was working an $11/hour job straight out of college and my wife was out of work, waiting for her disability to come through. I wouldn’t mind the astronomical interest rates if it were possible to pay off the principle in increments. Twenty bucks a week wouldn’t have killed us, but having to eat $250 out of a paycheck was out of the question. We ended up in a cycle of taking out loans to cover the last paycheck’s advance, though I was very careful to never carry more than one loan at a time. Eventually, we decided to bite the bullet and live on ramen and water for a couple of weeks. It takes a special kind of evil to make carrying a balance on one’s credit cards look like a good idea. Is there any other consumer-oriented financial device that requires the borrower to pay of the principle so quickly, at one whack? ---
**Author:** ![VinylTurnip](https://avatars.discourse-cdn.com/v4/letter/v/b2d939/32.png) [@VinylTurnip](https://boards.straightdope.com/u/VinylTurnip)\ **Post date:** [December 3, 2006, 6:21pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/30 "2006-12-03T18:21:23Z")
I don’t know about “evil,” but their incessant, horrendous TV commercials alone would, in a perfect world, earn the people responsible at least a severe beating. One of the major ones here (whose commercial features an elated young black woman dancing around with fistfuls of cash, giggling like she won the Powerball jackpot) proudly touts the fact that their rates are “50% less than the other guys!” Well, that’s true—I believe they charge 150% interest annually, compared to their competitors’ 300%. Legal or not, it smells like loan sharking to me. You just lose your car instead of your kneecaps. (Presumably.) ---
**Author:** ![Common\_Tater](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/common_tater/32/13846_2.png) [@Common\_Tater](https://boards.straightdope.com/u/Common_Tater)\ **Post date:** [December 3, 2006, 7:03pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/31 "2006-12-03T19:03:50Z")
A better question would be, since virtually all states have or had usury laws (defined as excessive interest), what happened to these laws, or why aren’t they being enforced? ---
**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, 7:05pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/32 "2006-12-03T19:05:51Z")
[QUOTE=Common Tater] A better question would be, since virtually all states have or had usury laws (defined as excessive interest), what happened to these laws, or why aren’t they being enforced? [/QUOTE] From Wikipedia: > [@Wiki](#): > > In the United States, most states have usury laws which forbid interest rates in excess of a certain APR. Payday lenders operate in those states by funding loans through a bank chartered in a different state. Under the legal doctrine of rate exportation, established by Marquette Nat. Bank v. First of Omaha Corp. 439 U.S. 299 (1978), the loan is governed by the laws of the state the bank is chartered in. This is the same doctrine that allows credit card issuers based in South Dakota and Delaware — states that abolished their usury laws — to offer credit cards nationwide. ---
**Author:** ![Diceman](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Diceman](https://boards.straightdope.com/u/Diceman)\ **Post date:** [December 3, 2006, 7:25pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/33 "2006-12-03T19:25:16Z")
Sounds like we need to lean on South Dakota and Delaware to make them re-enact those usury laws. ---
**Author:** ![Zsofia](https://avatars.discourse-cdn.com/v4/letter/z/7bcc69/32.png) [@Zsofia](https://boards.straightdope.com/u/Zsofia)\ **Post date:** [December 3, 2006, 8:09pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/34 "2006-12-03T20:09:31Z")
They’re also driving out the noble pawnshop, at which you could pawn your TV when you were desperate and try to get it back when you had more money. But if you couldn’t scrape it together, you’re out a TV and that’s it. You’re not involved in some terrible debt-spiral. I live a few miles from the largest basic training facility in the country. There have to be, I dunno, twelve of those things just by the back gate. Driven the pawn shops right out. It’s an ugly business, IMHO. ---
**Author:** ![appleciders](https://avatars.discourse-cdn.com/v4/letter/a/85f322/32.png) [@appleciders](https://boards.straightdope.com/u/appleciders)\ **Post date:** [December 3, 2006, 9:07pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/35 "2006-12-03T21:07:27Z")
[QUOTE=Shalmanese] 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. [/QUOTE] Grameen Bank, the Nobel Prize you’re talking about, [charges no interest](http://en.wikipedia.org/wiki/Grameen_Bank). From the Wikipedia article: > [@Wikipedia\[/quote](#): > > This programme is focused on distributing small loans to beggars. The existing rules of banking are not applied: > > ``` > * The loans are completely interest-free. > * The repayment period can be arbitrarily long, for example, a beggar taking a small loan of around 100 taka (about US $1.50) can pay only 2.00 taka (about 3.4 US cents) per week. > * The borrower is covered under life insurance free of cost. > > ``` ---
**Author:** ![appleciders](https://avatars.discourse-cdn.com/v4/letter/a/85f322/32.png) [@appleciders](https://boards.straightdope.com/u/appleciders)\ **Post date:** [December 3, 2006, 9:08pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/36 "2006-12-03T21:08:49Z")
Whoops! Maybe a friendly mod will fix my coding, too. Thanks! ---
**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, 10:02pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/37 "2006-12-03T22:02:47Z")
[QUOTE=DrDeth] 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._ [/QUOTE] Well that makes perfect sense doesn’t it? If you artificially restrict supply of payday loans, then the lenders are free to jack up their interest rates sky high because they know people have nowhere else to go. What are the profits like where theres one on every corner and what are the interest rates like? Sounds to me like a case of perverse incentives. By restricting payday loan joints, they’ve actually made it worse for poor people because the joints that exist can charge excessive amounts of interest. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [December 3, 2006, 10:16pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/38 "2006-12-03T22:16:51Z")
[QUOTE=appleciders] Grameen Bank, the Nobel Prize you’re talking about, [charges no interest](http://en.wikipedia.org/wiki/Grameen_Bank). From the [/quote] That’s only for the small subset of loans granted under their charitable programs. Most of Grameen’s loans do charge interest. ---
**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, 10:46pm UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/39 "2006-12-03T22:46:35Z")
[QUOTE=Shalmanese] Well that makes perfect sense doesn’t it? If you artificially restrict supply of payday loans, then the lenders are free to jack up their interest rates sky high because they know people have nowhere else to go. What are the profits like where theres one on every corner and what are the interest rates like? Sounds to me like a case of perverse incentives. By restricting payday loan joints, they’ve actually made it worse for poor people because the joints that exist can charge excessive amounts of interest. [/QUOTE] That assumes a high degree of information available about payday loans, and that the people getting these loans are making rational economic decisions. Both assumptions seem pretty unlikely to me. ---
**Author:** ![Diceman](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Diceman](https://boards.straightdope.com/u/Diceman)\ **Post date:** [December 4, 2006, 4:37am UTC](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630/40 "2006-12-04T04:37:30Z")
[QUOTE=Zsofia] They’re also driving out the noble pawnshop, at which you could pawn your TV when you were desperate and try to get it back when you had more money. But if you couldn’t scrape it together, you’re out a TV and that’s it. You’re not involved in some terrible debt-spiral. I live a few miles from the largest basic training facility in the country. There have to be, I dunno, twelve of those things just by the back gate. Driven the pawn shops right out. It’s an ugly business, IMHO. [/QUOTE] I suspect that pawn shops have more-or-less evolved into payday advance lenders. Several years ago, I saw a story on the news (Dateline or somesuch show) about how poor people were being taken advantage of by loans from pawn brokers. These weren’t the typical pawn shop transactions, but something more like a normal loan, except with very high interest rates. The loans were so usurious that many people could barely afford to make the interest payments, making it almost impossible for these poor people to get out from under the loan. They showed an elderly black couple who had used their truck as collateral for a loan. After making payments for years, they were nowhere near paying off the loan, and eventually the husband realized that he had payed more money in interest than it had cost him to buy the truck in the first place! This prompted him to stop paying, and he just let the pawn broker take his truck. [Previous page](https://boards.straightdope.com/t/why-are-payday-lenders-considered-so-evil/382630.md?page=1)