He called payday loans servitude. I have mixed feelings about payday loans. On one hand, yeah, the people who offer them are generally scumbags who are preying on poor people. But, on the other, at what point should buyer beware end and government regulation begin? I guess to me it’s a question of what the unintended consequences are of regulating them, and I’m not sure what those are. Anybody care to venture a guess?
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The thing that gets me about regulations like this is that nobody really cares about the people involved, it’s really about the righteous indignation that someone somewhere is getting screwed.
For example, if they regulate these loans, and as a result some poor schmuck can’t get an advance to pay his rent on time, is John Oxendine going to notice when the guy is tossed out on the street?
Probably not, but at least Oxendine can sleep well knowing that the guy wasn’t charged too much interest.
True, but isn’t that how most of politics works? Most of the people passing most of the laws won’t be affected by them most of the time (unless they’re benefiting).
I’m all about free enterprise and whatnot, but charging 400 percent interest on a loan seems absurd. I’m not sure they should be regulated out of existence, but I am curious about what signage requirements were before the most recent ban passed.
Patrick makes a the pragmatic point to all of this. I think the upfront fee on $200 is $15. A bounce check fee is $35 + bank penalties. So if you know you’re not gonna make a payment, which is better? Give $15 to the scumbag payday lenders or $35+fees to the scumbag bank.
Even if 60% of the people using these loans are economicly illiterate fools, I’m not keen on the idea that this option be closed down for the rest of us. This paternalistic junk from both sides of the aisle forces everybody down to the lowest common denominator.
Since I work in lending/banking, allow me to say — at this time, banking is one of the most, if not THE most, heavily regulated industry. There are rules that must be followed regarding predatory lending, which is most often associated with lending in order to strip equity and/or foreclose for profit, but can also mean making a loan that the borrower does not have the means of repaying. Any reasonable means test would show that a person who needs a payday loan can’t pay back the original debt at an interest rate of, at the apparent highest end, 700-1800 percent. It’s completely wrong, period. No responsible lender would ever make a loan like that, and frankly, I’d be fine with getting rid of the lot of them. It’s the worst possible incarnation of old-school usury.
I think the places should be banned, too. My drug-addicted cousin was able to drag my 80+ year old grandmother, who really didn’t have a solid grasp on what was going on, into one and took out a loan based on her social security check.
The payday loan people didn’t blink an eye, nor did they care when my grandmother didn’t have money to pay for food or utilities that month.
Georgia needs a usury law. Most state do, with a cap at 20-25%. I am OK with payday lenders, but 300% interest for 30 days is a crime.
Payday loans are really just a bad financial tool. If you are financially literate enough to understand what you are doing (which I would venture to say that most people who get these are not), it’s really easy to see that a credit card, which most of us have or could get fairly easily, is a better deal than 99.95% of payday loans. I guess it’s coming from banking myself, and then my mom having worked in finance for forty years and growing up with it, but I’m just 100% against this kind of thing. The problem is that people don’t have (or don’t think they have) access to smaller community banks and/or credit unions, which will do smaller loans for short periods (say, $3500 for 60 days) at decent rates. And even if they DID know of a community bank or have access to one, they don’t necessarily know what to ask for.
Financial illiteracy in this country is totally fucking rampant.
I agree that at some point you have to say buyer beware, but the payday loans really don’t provide any long-term solution or service.
We don’t allow people to force their kids to work 40-hour weeks, no matter how much they could use the money. We don’t allow people to sell their kidneys. We don’t allow people to sell themselves into slavery. We don’t even allow them to sell their sexual services.
We don’t necessarily provide alternatives in every case, but I would say the hope is that keeping those things illegal would encourage people to find their own alternatives. And hopefully keep the exploiters (slavers, pimps, slumlords, sweatshop owners, …) away from their prey.
I second Nikki’s comment about financial illiteracy, but I disagree about access to credit cards being fairly easy. These payday loans are tailored specifically for people who don’t really have the access to credit that others do. This is a nontrivial justification for allowing these places to do business. Wikipedia quotes a Federal Reserve Bank study as concluding “payday loans help bridge the gap in household cash flow between paychecks, usually for urgent needs such as groceries, utilities, car payments and repairs and, therefore, provide a valuable service to consumers that may not otherwise be available.”
And why are they not otherwise available? It’s certainly possible that it’s entirely due to usury laws in the first place. A ceiling on interest rates that is set below the market rate that would be charged to a higher-risk borrower causes a shortage of loans for these consumers. This means that while the average low-income would-be borrower is now protected from being “ripped off”, he or she also can’t establish better credit or meet short-term needs like paying bills and buying food. Payday loans may actually somewhat fill this gap in supply and demand by providing an opportunity that didn’t exist otherwise.
I’m not that shocked and horrified at these “ridiculous” interest rates. You can’t just ignore the actual dollars that are being charged just because the percentages sound so much more outlandish. Sure, “700%” sounds a lot more evil than “$45″. If I borrow $100 from a friend, and promise to buy him a beer in return when I pay him back tomorrow, that’s a 7,280% APR, but come on, it’s $5 for a beer.
But by their very definition, these are payday loans, right? I don’t know the legal definition of “reasonable means” as it applies to banking, but they aren’t lending people money if they don’t have paystubs showing that they’re most likely going to have $XXXX in their account as of next Friday. That’s a pretty clear-cut test of their means to pay it back. And again, yeah, 1800% sounds ridiculous, but if they give you a loan for $300 based on your $500 paycheck, that $45 isn’t exactly going to cripple you. As the Wikipedia article points out, payday loans offer a means of meeting your short-term needs that is A) lower effective APR than bouncing a check, credit card late fees, and utility fees and B) far better for your credit score than any of these options.
I was going to tear you a new asshole for this classist BS, but given this quoted portion, I don’t think I even need to say anything. I’m not usually one to play “blog grammar/spelling snarksnob,” but… sometimes things just speak for themselves.
I also oppose payday loans. However, Garrett does have a point. When someone pays a $2 fee to take $20 out of an ATM, isn’t that usury as well?
Actually, you’re wrong about how the interest is calculated. If you borrowed $500 at 99% interest for 60 days, let’s say, you’d have to make two payments of about 282.00, which is 64.00 in interest. So, assuming that you can pay back the loan in two payments, you’re okay. However, most of these loans are even shorter term — say 21 days — and one site I looked at wants to charge you $139.65 for $500.00 on a 21 day note. Now, my example assumed a straight amortization (equal payments divided between interest and principal according to a schedule), but I don’t think that their money at 27 or so percent for less than half the time of my hypothetical loan at 99% is so hot. Jack it up to 500% interest and it gets worse. And this isn’t even taking into account any lender’s fees, late fees, or anything else. This is, incidentally, why “low” credit card interest rates also bite you in the ass.
Oh, and “reasonable means test” is one that takes into account the person’s income, current credit obligations, and their ability to encumber themselves further (so what you make, what you have out in debt, and the limits associated with whatever that debt is on, Mortgages, credit cards, whatever). We also take into account taxes from your gross income, living expenses, etc. A paystub is in no way a means test. It just shows that they will get paid, but it doesn’t show that you will be paid — if you don’t know what their obligations are, then you have no way of making a decent lending decision. It’s not really doing anyone a favor to doom them to eternal late fees or having their car repo’ed (which is what happened to some customers at a bank I used to work at, when they gave the payday loan sharks their account numbers to directly credit — and of course, debit).
Great move by Insurance Comissioner Oxendine. We can’t have joe redneck getting a loan on his camaro and buying crack. It would be wrong. Like, what if the same guy got hurt on the construction site, and then a corrupt insurance company with a bought and paid for Worker’s Compensation Judge, denied the poor fool his medical care? That just would not be proper. Tell that insurance company “you mean business!” As if. As if you had a chance with an unconstitutional law stacking the deck in the employer’s favor. peace out.
It’s actually about responsible, non-predatory lending. It’s not that it’s wrong to loan money to Joe Redneck. It’s that it is wrong to loan money knowing full well that Joe Redneck can’t pay it back, or with the intention of taking the title to his Camero, or purposefully reducing the equity in his home. This isn’t about limiting resources - it’s about limiting a type of lending that is 100%, unadulterated, pure-tee terrible. (Just for reference, and this is scuttlebutt, but first hand - when First Union bought Wachovia, the kept the Wachovia name partly because FU had ruined its name in the industry by owning too many payday loan houses. They are NOT good business.)
The real question behind these high interest rate is risk vs reward. I run and own a title pawn shop and I see the need for ” un-banked” to borrow money. Banks don’t want to loan less than $5000 to a single individual with bad credit. Neither do they want to cash their checks. Hence all of the Check Cashing places popping up all over our state. People need money, emergencies do happen, people do get sick, and banks foreclose on houses, thats how things are. If legislators keep taking away the only few ways people can borrow money, they are leaving people no choice than borrowing money from unlicensed lenders who will charge higher interest rates. Humans are never going to stop borrowing money no matter who they are.
Wow. I used to own a cash advance place and did very well. My customers were very angry when i read them the law. I was to be considered a nusance to the community and it would be a felony for every loan i did. I feel for some people that have gotten ripped off by competitors of mine, but believe it or not there were a few of us that were decent. Im sure i could have gotten a few hundred signitures wanting this law to be revised. If I felt someone was not capable of understanding the contract i would not give them the loan. I think most people are very one sideded on this issue and do not look at the good that people like me have done. Please if anyone wants to talk about this further email me, i will gladly answer any questions you have for me.
maybe the credit card companies want to take that business and charge that high interest for high risk on these fools. They no doubt bribed some legislator to then outlaw pawns and payday so they could Vulture in and make money.
John Oxendine did the right thing..sounds like the good hearted democrat he once was….