Overseen at the payday loan store

[Hayden Frys Mustache]

So I'm picking up a garment at my local tailor today, which happens to be right next door to one of two payday loan stores at this intersection. I genuinely feel sorry for people who use payday loans and am always interested in why they do it. As I was busy feeling sorry for this poor subset of the population, a guy walks out tucking a check into his wallet....looks around...hops into his late model YUKON DENALI!?!?! What is that, a 50k vehicle new?? And he probably has a check for maybe $500 in his hand. There aren't enough face punches in the world.

[forummm]

I don't understand people.

[Elderwood17]

Sometimes I would just like to know the real story, as looks kind be deceiving both ways! 

I talked once to the guy who does financial counseling informally at our church and he said nothing surpluses him anymore, including the people making well over $100k a year but needing to get car title loans for a $500 unexpected bill because they have no cash and only maxed out credit cards.

[YK-Phil]

It is sad. My wife used to own a consignment store and some of her regular consignors, those consigning expensive bags and high end designer pieces, would call her, desperate to collect whatever was in their account before the expiry of their consignment period. Many would drive across town in late model European SUVs just to pick up a meagre $30 cheque.

[jinga nation]

Keeping up appearance ain't cheap. You gotta spend to look good.

[Drifterrider]

So I'm picking up a garment at my local tailor today, which happens to be right next door to one of two payday loan stores at this intersection. I genuinely feel sorry for people who use payday loans and am always interested in why they do it. As I was busy feeling sorry for this poor subset of the population, a guy walks out tucking a check into his wallet....looks around...hops into his late model YUKON DENALI!?!?! What is that, a 50k vehicle new?? And he probably has a check for maybe $500 in his hand. There aren't enough face punches in the world.

Maybe he is the guy who owns the store? 

[zephyr911]

Maybe he is the guy who owns the store?

A guy clever enough to own a store like that shouldn't have to physically collect a check to get paid. They're called EFTs and debit/credit cards....

[Hunny156]

Maybe he is the guy who owns the store?

A guy clever enough to own a store like that shouldn't have to physically collect a check to get paid. They're called EFTs and debit/credit cards....

And if he did need to make an appearance at the store, he'd be smart enough to do it in a beater, to not draw attention to himself.

[Bob W]

I'm sure you guessed the Denali is a rent to own?   He needed the check to make his $300 weekly payment. 

[greenmimama]

Those places are so sad, after explaining how they work to my 6yo, he doesn't understand why we can't just call the police, since they are basically stealing legally from people.

[2ndTimer]

I'm sure you guessed the Denali is a rent to own?   He needed the check to make his $300 weekly payment.

Bob W wins the thread!  As soon as I read this it was so obvious I was amazed I hadn't realized it.

[TheAnonOne]

Those places are so sad, after explaining how they work to my 6yo, he doesn't understand why we can't just call the police, since they are basically stealing legally from people.

Let's not overuse the term 'theft' here. This is a consensual transaction, however bad of a deal it may be...

[NorCal]

Our local paper did an interview a while back with people who used payday lenders.

They pretty much universally understood it was a rip off.  However, they all had an urgent cash need (as defined by them) like rent, preventing car repossession, or putting food on the table.  Many did own expensive cars and TV's, although the article didn't focus on that as much.

My personal opinion is that yes, they are a rip-off.  But if you consider the second and third order consequences of banning them (evictions, loss of job without a commuting vehicle, etc.), I don't think this is a consensual transaction the government should be involved in.

It's not like a ban or interest rate cap will fix stupid.

Maybe we should pass a law to outlaw stupidity in the first place?

[Hayden Frys Mustache]

Our local paper did an interview a while back with people who used payday lenders.

They pretty much universally understood it was a rip off.  However, they all had an urgent cash need (as defined by them) like rent, preventing car repossession, or putting food on the table.  Many did own expensive cars and TV's, although the article didn't focus on that as much.

My personal opinion is that yes, they are a rip-off.  But if you consider the second and third order consequences of banning them (evictions, loss of job without a commuting vehicle, etc.), I don't think this is a consensual transaction the government should be involved in.

It's not like a ban or interest rate cap will fix stupid.

Maybe we should pass a law to outlaw stupidity in the first place?

I think the Planet Money podcast did a story on this exact topic a while ago - apparently it does serve some need...I wish I could get my hands on an industry financial survey to see what kind of margin they're making on 400% APR loans.

For those of you keeping track at home, that rate would turn a $10,000 investment into $33,000 in a year.

[sheepstache]

Our local paper did an interview a while back with people who used payday lenders.

They pretty much universally understood it was a rip off.  However, they all had an urgent cash need (as defined by them) like rent, preventing car repossession, or putting food on the table.  Many did own expensive cars and TV's, although the article didn't focus on that as much.

My personal opinion is that yes, they are a rip-off.  But if you consider the second and third order consequences of banning them (evictions, loss of job without a commuting vehicle, etc.), I don't think this is a consensual transaction the government should be involved in.

It's not like a ban or interest rate cap will fix stupid.

Maybe we should pass a law to outlaw stupidity in the first place?

I think the Planet Money podcast did a story on this exact topic a while ago - apparently it does serve some need...I wish I could get my hands on an industry financial survey to see what kind of margin they're making on 400% APR loans.

For those of you keeping track at home, that rate would turn a $10,000 investment into $33,000 in a year.

I'd be willing to drive a Yukon Denali for that kind of profit.

[dragoncar]

I'm sure you guessed the Denali is a rent to own?   He needed the check to make his $300 weekly payment.

Not even.  Probably a lease.

[hernandz]

Let's not overuse the term 'theft' here. This is a consensual transaction, however bad of a deal it may be...

Much like the sex traffickers and third-world warlords insist theirs is a consensual transaction. 

Here at MMM, you can find folks who think any debt above 6.5% is slavery -- I don't think it's too hard to consider 400% APR debt as slavery/human trafficking. 

[Erica/NWEdible]

Let's not overuse the term 'theft' here. This is a consensual transaction, however bad of a deal it may be...

Much like the sex traffickers and third-world warlords insist theirs is a consensual transaction. 

Here at MMM, you can find folks who think any debt above 6.5% is slavery -- I don't think it's too hard to consider 400% APR debt as slavery/human trafficking.

You're comparing payday loans to human sex trafficking? I like hyperbole too, but that's just too far, man. Not cool

[Drifterrider]

Maybe he is the guy who owns the store?

A guy clever enough to own a store like that shouldn't have to physically collect a check to get paid. They're called EFTs and debit/credit cards....

Sometimes smart people do dumb things....... like making 200K per year and always being broke.  Collecting in person rather than electronic.  You can't fix stupid (but you can numb it with a 2 X 4).

[NorCal]

Our local paper did an interview a while back with people who used payday lenders.

They pretty much universally understood it was a rip off.  However, they all had an urgent cash need (as defined by them) like rent, preventing car repossession, or putting food on the table.  Many did own expensive cars and TV's, although the article didn't focus on that as much.

My personal opinion is that yes, they are a rip-off.  But if you consider the second and third order consequences of banning them (evictions, loss of job without a commuting vehicle, etc.), I don't think this is a consensual transaction the government should be involved in.

It's not like a ban or interest rate cap will fix stupid.

Maybe we should pass a law to outlaw stupidity in the first place?

I think the Planet Money podcast did a story on this exact topic a while ago - apparently it does serve some need...I wish I could get my hands on an industry financial survey to see what kind of margin they're making on 400% APR loans.

For those of you keeping track at home, that rate would turn a $10,000 investment into $33,000 in a year.

Look up ticker symbol "CSH".  In 2014, they made a 53% gross margin and 9% net margin, with declining YoY margins and no real revenue growth.  Not a horrible business, but certainly not one that I would classify as making "extortion" profits.

[greenmimama]

They are definitely a high tax on people who can't do math, which is part of what got them in this bind in the first place.

I don't think it is excessive to call it theft, it may be legal, but many states are looking into closing them down.

I used to help people at my church with financing and budgeting, it was so sad, how quickly those loans would get out of hand, they would come in owing ridiculous amounts that they had borrowed for $300.

[ShoulderThingThatGoesUp]

Aren't the rates so high because the default rate is enormous? They are illegal here in Pennsylvania, and I don't think it makes any difference.

[nobodyspecial]

I don't think it is excessive to call it theft,

Borrow $200 until next week and pay $20 = oppressive interest rate
Go overdrawn at your bank, pay a low 15% interest -  plus a $100 overdraft fee, plus $80 for the letter to tell you that you are overdrawn, plus a ding on your credit score so you pay an extra 0.5% on your mortgage .....

it may be legal, but many states are looking into closing them down.=

And the payday loan companies don't then gamble your money on the derivatives market, lose it all and get bailed out.
I assume they also don't make as many political campaign contributions or give director jobs to ex-regulators
 

[StacheEngineer]

Do people who use payday loans get a raw deal? Yes. But do they have any better options? My car that I need to get to my two jobs across town from each other broke down. I need $500 ASAP to fix it so I can keep my jobs. How can I get that money?

Savings? A minimum wage job doesn't leave any room for savings (in almost all cases, there might be a few on this forum who are making it work).

Friends and family? All the people I know are broke too.

Credit card? You need to have good credit and a steady income to get a credit card.

Overdraw checking account at bank? Even assuming I have a bank account (no savings and monthly fee), overdraft fees are excessive.

Payday loan? A relatively low fixed fee, will lend to me even with bad credit, there's one down the block, and very quick.

I think its lazy to explain other people's behavior as stupid or irrational. I'm not saying that everyone calculates in Excel what the APR on a loan is or how much in interest they will pay over the course of a 30-year mortgage. But for large groups of people to come to same behavior indicates that there are incentives or factors beyond stupidity that explain the behavior.

[zephyr911]

Borrow $200 until next week and pay $20 = oppressive interest rate
Go overdrawn at your bank, pay a low 15% interest -  plus a $100 overdraft fee, plus $80 for the letter to tell you that you are overdrawn, plus a ding on your credit score so you pay an extra 0.5% on your mortgage .....

Are these actual numbers from a known program, or are we engaging in hilarious hyperbole?

And the payday loan companies don't then gamble your money on the derivatives market, lose it all and get bailed out.
I assume they also don't make as many political campaign contributions or give director jobs to ex-regulators

I see the comparison you're making, but I'm not sure of its relevance to payday loans. Yes, it's a crying shame that justice is bought and sold in our nation, and the biggest financial crimes seem to be punished the least severely. Does that mean... payday loans aren't that bad?

[nobodyspecial]

Are these actual numbers from a known program, or are we engaging in hilarious hyperbole?

There was a big row in the UK when the church attacked payday loan companies and then discovered that the bank it invested in was much worse:

"Surprisingly, it is the Co-operative Bank that has one of the most hair-raising charging structures. It charges a flat £20 fee for exceeding your overdraft limit, and then imposes a further £20 each day this unauthorised overdraft increases."

HSBC charges:
"A payment from your account takes you into an informal overdraft for one day". £45  ($75)
"A payment from your account takes you into an informal overdraft".   £80     ($125)

[benjenn]

This reminds me of a few years ago when my sister (16 years old than me) received a large Social Security disability check for back payment from the time she had first filed until it was finally approved.  It was about $16,000.  She had no money (never had). 

I offered to take the check, put it in my credit union and pay all her bills for her plus give her a monthly allowance in order to make it last as long as it could.  This would also stop her grown children from asking her for money (because they wouldn't dare ask me).  She was going to start receiving monthly disability checks after that, too.

Rather than letting me do that for her, she took the check to one of those check cashing places that charged her 10% ($1,600!) and put the remainder on a debit card.  She then blew all of the money before the month was over and before she got her first regular monthly disability check, she called asking to borrow $200 until her check came in.

Seriously.  I am still amazed whenever I think about that.  How can one person make so many bad decision?  And how can those businesses think it's okay to take advantage of stupid people just because they will fall for it?  I just shake my head....

[Kris]

This reminds me of a few years ago when my sister (16 years old than me) received a large Social Security disability check for back payment from the time she had first filed until it was finally approved.  It was about $16,000.  She had no money (never had). 

I offered to take the check, put it in my credit union and pay all her bills for her plus give her a monthly allowance in order to make it last as long as it could.  This would also stop her grown children from asking her for money (because they wouldn't dare ask me).  She was going to start receiving monthly disability checks after that, too.

Rather than letting me do that for her, she took the check to one of those check cashing places that charged her 10% ($1,600!) and put the remainder on a debit card.  She then blew all of the money before the month was over and before she got her first regular monthly disability check, she called asking to borrow $200 until her check came in.

Seriously.  I am still amazed whenever I think about that.  How can one person make so many bad decision?  And how can those businesses think it's okay to take advantage of stupid people just because they will fall for it?  I just shake my head....

Ugh.  Sounds like my stepdaughter.  We have given her money on many occasions, which she always blows through in a heartbeat despite our suggestions that she actually try to think of the big picture and start saving for potential emergencies. 

Finally, we realized that giving her money was just enabling her and we needed to stop.  We told her we were done.  And then she called and asked my husband for money for something that we knew for a fact was a lie. He told her no.  She threw a fit and hasn't talked to us since.  Guess we know how much she cares about us.

Sorry to hijack.

[MgoSam]

This reminds me of a few years ago when my sister (16 years old than me) received a large Social Security disability check for back payment from the time she had first filed until it was finally approved.  It was about $16,000.  She had no money (never had). 

I offered to take the check, put it in my credit union and pay all her bills for her plus give her a monthly allowance in order to make it last as long as it could.  This would also stop her grown children from asking her for money (because they wouldn't dare ask me).  She was going to start receiving monthly disability checks after that, too.

Rather than letting me do that for her, she took the check to one of those check cashing places that charged her 10% ($1,600!) and put the remainder on a debit card.  She then blew all of the money before the month was over and before she got her first regular monthly disability check, she called asking to borrow $200 until her check came in.

Seriously.  I am still amazed whenever I think about that.  How can one person make so many bad decision?  And how can those businesses think it's okay to take advantage of stupid people just because they will fall for it?  I just shake my head....

Ugh.  Sounds like my stepdaughter.  We have given her money on many occasions, which she always blows through in a heartbeat despite our suggestions that she actually try to think of the big picture and start saving for potential emergencies. 

Finally, we realized that giving her money was just enabling her and we needed to stop.  We told her we were done.  And then she called and asked my husband for money for something that we knew for a fact was a lie. He told her no.  She threw a fit and hasn't talked to us since.  Guess we know how much she cares about us.

Sorry to hijack.

Wow, I am lucky that my siblings are good with their money (I assume at least). They both make significantly more than I do, and live in a very high COL areas, but they haven't called my parents for help with their mortgages or anything like that, so I am guessing that they are doing quite well.

[cautiouspessimist]

This reminds me of a few years ago when my sister (16 years old than me) received a large Social Security disability check for back payment from the time she had first filed until it was finally approved.  It was about $16,000.  She had no money (never had). 

I offered to take the check, put it in my credit union and pay all her bills for her plus give her a monthly allowance in order to make it last as long as it could.  This would also stop her grown children from asking her for money (because they wouldn't dare ask me).  She was going to start receiving monthly disability checks after that, too.

Rather than letting me do that for her, she took the check to one of those check cashing places that charged her 10% ($1,600!) and put the remainder on a debit card.  She then blew all of the money before the month was over and before she got her first regular monthly disability check, she called asking to borrow $200 until her check came in.

Seriously.  I am still amazed whenever I think about that.  How can one person make so many bad decision?  And how can those businesses think it's okay to take advantage of stupid people just because they will fall for it?  I just shake my head....

Ugh.  Sounds like my stepdaughter.  We have given her money on many occasions, which she always blows through in a heartbeat despite our suggestions that she actually try to think of the big picture and start saving for potential emergencies. 

Finally, we realized that giving her money was just enabling her and we needed to stop.  We told her we were done.  And then she called and asked my husband for money for something that we knew for a fact was a lie. He told her no.  She threw a fit and hasn't talked to us since.  Guess we know how much she cares about us.

Sorry to hijack.

I was going to say that benjenn's story was the saddest thing I've seen today, but I guess you topped that. How incredibly sad (both stories).

[expectopatronum]

This reminds me of a few years ago when my sister (16 years old than me) received a large Social Security disability check for back payment from the time she had first filed until it was finally approved.  It was about $16,000.  She had no money (never had). 

I offered to take the check, put it in my credit union and pay all her bills for her plus give her a monthly allowance in order to make it last as long as it could.  This would also stop her grown children from asking her for money (because they wouldn't dare ask me).  She was going to start receiving monthly disability checks after that, too.

Rather than letting me do that for her, she took the check to one of those check cashing places that charged her 10% ($1,600!) and put the remainder on a debit card.  She then blew all of the money before the month was over and before she got her first regular monthly disability check, she called asking to borrow $200 until her check came in.

Seriously.  I am still amazed whenever I think about that.  How can one person make so many bad decision?  And how can those businesses think it's okay to take advantage of stupid people just because they will fall for it?  I just shake my head....

Ugh.  Sounds like my stepdaughter.  We have given her money on many occasions, which she always blows through in a heartbeat despite our suggestions that she actually try to think of the big picture and start saving for potential emergencies. 

Finally, we realized that giving her money was just enabling her and we needed to stop.  We told her we were done.  And then she called and asked my husband for money for something that we knew for a fact was a lie. He told her no.  She threw a fit and hasn't talked to us since.  Guess we know how much she cares about us.

Sorry to hijack.

What is it with family and money management? Kris, you're on the right side cutting her off.

I saw my brother (3 years older) for the first time in 3 years at my wedding (which he left early, and whose flight was paid for by our father). Three years ago when I was still in college, my mom and I flew out to see him. He had a full time job in the military. I spent a few hundred on a plane ticket and we split a cheap hotel room, but including everything, the trip probably ran me about $500 which came out of my savings and part-time campus job. On day 1, he shows up, we go out, Mom treats, Mom gives him check for gas since he will be driving us for the next 3-4 days, which he has taken off work.

Day 2, after a few hours of trying to get in touch, we finally leave around 11:30am and walk for lunch. Brother finally calls around 4pm, having "overslept". He comes to meet us, arriving sometime around 5, we eat dinner, I treat at a nice restaurant.

Day 3, more of the same. We go ahead and rent a car so we can explore other areas in the next few days. Brother shows up for dinner again. He feels "really bad he can't treat his mom and his sister to dinner". He then orders surf & turf at Joe's Crab Shack, 2 beers, and dessert. Mom pays. I am livid.

Day 4, more of the same. I pay for dinner, this time at a Smashburger as I'm running out of funds.

Day 5, he drives us around, showing us nearby areas. Evening, my mom pays for dinner, we are carpooling, and he says he's about out of gas. He'll need more money. My mom politely refuses, reminded him he received a check 4 days ago, and that was on the condition he would drive and that we could forgo renting a car. He throws a fit and yells at her. "Do you want me to just break down on the side of the road? It's almost on empty!"

Basically, he played my mom for money, mooched off both of us for dinner 5 nights in a row (only showing up late in the day, having no restraint in what he ordered/ate), and was totally unavailable to hang with us other than to eat. Wtf do you do to make $100 of gas disappear in 4 days? You go "off roading". So he'd leave after dinner, go drive his truck in the mud, then sleep until 3-4pm. Rinse, repeat. This was the first time I'd seen him in 2 years after he got kicked out of the house (following high school graduation) for lying, stealing, general manipulation.

tl;dr: If you have a sibling that doesn't try to manipulate you for money, that's awesome, because fuck that. Tip of the iceberg, here, too.


Yay group therapy.

[Indexer]

Do people who use payday loans get a raw deal? Yes. But do they have any better options? My car that I need to get to my two jobs across town from each other broke down. I need $500 ASAP to fix it so I can keep my jobs. How can I get that money?

Savings? A minimum wage job doesn't leave any room for savings (in almost all cases, there might be a few on this forum who are making it work).

Friends and family? All the people I know are broke too.

Credit card? You need to have good credit and a steady income to get a credit card.

Overdraw checking account at bank? Even assuming I have a bank account (no savings and monthly fee), overdraft fees are excessive.

Payday loan? A relatively low fixed fee, will lend to me even with bad credit, there's one down the block, and very quick.

I think its lazy to explain other people's behavior as stupid or irrational. I'm not saying that everyone calculates in Excel what the APR on a loan is or how much in interest they will pay over the course of a 30-year mortgage. But for large groups of people to come to same behavior indicates that there are incentives or factors beyond stupidity that explain the behavior.

These arguments are why these things are actually legal in 'some' states.  It is all flawed.

If you don't have $500 right now what is the likelihood you will have $700 next month?  How about $950 the following month?  Yes you can argue that maybe it is a short term emergency and they have a payday about to come up.  However lets face it; if they are already living so paycheck to paycheck that they can't handle a $500... or even $100 emergency then it is highly unlikely they will have the $500 available in their budget after that paycheck.  They might pay off the payday loan with their paycheck, but then when rent comes due they will be right back at the payday loan office.  Very soon they will be paying so much in interest they will be deep in the negative every month.... game over.  Get bailed out by grandma or expect a call from collections.

And you can't compare a payday loan to overdrafting your checking account.  Average overdraft fee = $35-40.  A short term payday loan could easily turn into several hundred dollars of interest.  This is one case where you overdraft the checking account.  Please do not call overdraft fees excessive in a topic about payday loans. 

[ender]

The problem with payday loans isn't a 1-off usage, though that's bad enough.

It's when people live next-paycheck to next-paycheck and the payday loan charge is effectively a tax on them they cannot find a way out of that it's a problem. That company effectively is shamelessly taking money from someone in a terrible financial situation and rather than helping them, is taking advantage of them.

[JAYSLOL]

Not sure if this has been posted before - John Oliver on Payday Loans - https://www.youtube.com/watch?v=PDylgzybWAw

[Avidconsumer]

I saw a lady step out of a Hummer H3 and enter a paydayloan store. I hope she owned the place...

[zhelud]

The problem with payday loans isn't a 1-off usage, though that's bad enough.

It's when people live next-paycheck to next-paycheck and the payday loan charge is effectively a tax on them they cannot find a way out of that it's a problem. That company effectively is shamelessly taking money from someone in a terrible financial situation and rather than helping them, is taking advantage of them.

The child care center where I was on the board offered the employees small, no-interest loans when they were in need- the repayments would be deducted from future paychecks. We had a policy that any individual loan would not exceed a certain amount, and that we would never have more than a certain amount outstanding at once. I know that we helped a lot of employees avoid payday lenders this way.

[fartface]

This reminds me of a few years ago when my sister (16 years old than me) received a large Social Security disability check for back payment from the time she had first filed until it was finally approved.  It was about $16,000.  She had no money (never had). 

I offered to take the check, put it in my credit union and pay all her bills for her plus give her a monthly allowance in order to make it last as long as it could.  This would also stop her grown children from asking her for money (because they wouldn't dare ask me).  She was going to start receiving monthly disability checks after that, too.

Rather than letting me do that for her, she took the check to one of those check cashing places that charged her 10% ($1,600!) and put the remainder on a debit card.  She then blew all of the money before the month was over and before she got her first regular monthly disability check, she called asking to borrow $200 until her check came in.

Seriously.  I am still amazed whenever I think about that.  How can one person make so many bad decision?  And how can those businesses think it's okay to take advantage of stupid people just because they will fall for it?  I just shake my head....

 Did you actually loan her the $200? 'Duh! She would have had that + $1400 if she'd listened to you! And I'm also questioning the 'disability' if she can run around town blowing $14K in one month.

[vivophoenix]

This reminds me of a few years ago when my sister (16 years old than me) received a large Social Security disability check for back payment from the time she had first filed until it was finally approved.  It was about $16,000.  She had no money (never had). 

I offered to take the check, put it in my credit union and pay all her bills for her plus give her a monthly allowance in order to make it last as long as it could.  This would also stop her grown children from asking her for money (because they wouldn't dare ask me).  She was going to start receiving monthly disability checks after that, too.

Rather than letting me do that for her, she took the check to one of those check cashing places that charged her 10% ($1,600!) and put the remainder on a debit card.  She then blew all of the money before the month was over and before she got her first regular monthly disability check, she called asking to borrow $200 until her check came in.

Seriously.  I am still amazed whenever I think about that.  How can one person make so many bad decision?  And how can those businesses think it's okay to take advantage of stupid people just because they will fall for it?  I just shake my head....

 Did you actually loan her the $200? 'Duh! She would have had that + $1400 if she'd listened to you! And I'm also questioning the 'disability' if she can run around town blowing $14K in one month.

i dont think she literally ran

[Cheddar Stacker]

I think the Planet Money podcast did a story on this exact topic a while ago - apparently it does serve some need...I wish I could get my hands on an industry financial survey to see what kind of margin they're making on 400% APR loans.

For those of you keeping track at home, that rate would turn a $10,000 investment into $33,000 in a year.

Look up ticker symbol "CSH".  In 2014, they made a 53% gross margin and 9% net margin, with declining YoY margins and no real revenue growth.  Not a horrible business, but certainly not one that I would classify as making "extortion" profits.

I work with a payday lender. The interest rates are crazy high. So are the bad debts. This shouldn't be considered a justification, just some thoughts/facts/notes about the industry from a semi-insider for your viewing pleasure:

Bad debts as a % of total revenue = 18-25%
Bad debts as a % of total loans outstanding = 7-10%
It can be a profitable business for certain.
It is a risky business for certain.
When someone doesn't repay the loan, you are writing off the cash you lent, plus any interest you would've charged.
Since 10% don't repay, on 10 $100 loans you will only get back $900 principal on average.
To clear a 10% profit on the loan principal in this example, you need $200 to reach $1,100.
$200 / 9 = $22 on a $100 loan.
Most loans are 2 weeks, so $22/$100=22%/14*365=574% annualized.
Since a large % of your money will never be repaid, you need a big profit margin on the ones who do repay in order to make a profit.
In reality, most people never dig out of the debt and eventually default on the loan.
Before that, they refinance the loan 5 times with new fees each time.
Also before that they try to dig out for 6 months and incur various late fees and return check fees in addition to the high interest.

The company I work with, which has between 50-100 stores, has a bottom line equal to about 6% of gross revenues after all the dust settles. There are many, many unique costs to this industry. Armored trucks, security cameras, employee theft, complex software needs, returned check fees, etc. It takes quite a few very sharp people to run an operation this size as well, and there are some big salaries for the upper management but nothing crazy. I've worked with big-wig Carpenter's who make 3-4x what the CEO at this place makes.

Again, not defending the industry, just sharing what I know.

[benjenn]

Did you actually loan her the $200? 'Duh! She would have had that + $1400 if she'd listened to you! And I'm also questioning the 'disability' if she can run around town blowing $14K in one month.

No, I didn't loan her the $200 and told her how sad I was that she hadn't let me help her when I offered.  I was a single mom at the time with two kids and she had no idea how much money I made (though I was obviously way better with it than she ever was) so I used that as my excuse for not "helping" her with a loan (that would have never been paid back, I'm sure).  Her disability was real... she had 3/4 of her stomach removed and also had pancreatitis so that kept her from working.

I loved her but could never understand the choices she made.  She wasn't a bad person... she wasn't manipulative or selfish... I'm sure she let her kids have most of the money and Lord knows what they did with it.  She always put herself last.  She just had a complete lack of common sense.

[Syonyk]

When someone doesn't repay the loan, you are writing off the cash you lent, plus any interest you would've charged.

If you're willing to discuss it a bit more, how does this end up working with selling bad debt to collections agencies?

My impression was that the ideal customer defaults after paying for a while.

You loan someone $100.
They make a payment or two, pay you back maybe $70 (half of what they owe).
Between interest, late fees, etc, the balance goes up to perhaps $700 before you give up.

You get to write off a loss of $630, turn around, sell that debt to a collection agency for five cents on the dollar ($31.50), but you're actually ahead ($101.50 paid back on your $100 handed out) despite being able to write off the loss.

[Cheddar Stacker]

The $630 loss w/o is merely an offset of the revenue created by the exact same loan. It's a wash, not really beneficial to the lender. In your example they made $1.50, over a period of many months while their employees had to make the loan, tack the activity, and attempt to collect. That $1.50 gross profit would become a $10-20 loss after factoring in all the overhead.

You're correct though, the ideal customer is the one who can't dig themselves completely out of the hole.

[daymare]

If anyone's interested, here's a pretty decent academic paper on Payday loans that I read this year -- the identification strategy is tricky, because there are a lot of factors that go into a Payday lender's selection of community/location.  They want a place where people use Payday loans, and more than once, and pay over a long period of time.  But I think it's arguable that Payday lenders certainly do fulfill some function without their communities.  In this paper, the author used natural disasters (as exogenous shocks), to find that communities with payday lenders had lower foreclosure rates than those without. (By basically comparing differential trends, in a method called difference-in-difference.)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1344397

[jabes]

I doubt this is what actually happened, but I do mystery shopping on the side and used to mystery shop a chain of payday loan stores.  I only actually applied for a payday loan once (and was mortified when they called my bank to check on my checking account balance and realized that I had over $2000 in my checking account; I'm sure they wondered wtf was I getting a $500 payday loan!?!), but usually I would just buy a money order or something as part of my shop.

[Syonyk]

But I think it's arguable that Payday lenders certainly do fulfill some function without their communities.

Within their communities, perhaps?

So does the Mafia, though I don't particularly care to have them around...

[zephyr911]

There was a big row in the UK when the church attacked payday loan companies and then discovered that the bank it invested in was much worse:

"Surprisingly, it is the Co-operative Bank that has one of the most hair-raising charging structures. It charges a flat £20 fee for exceeding your overdraft limit, and then imposes a further £20 each day this unauthorised overdraft increases."

HSBC charges:
"A payment from your account takes you into an informal overdraft for one day". £45  ($75)
"A payment from your account takes you into an informal overdraft".   £80     ($125)

Holy shit, that's godawful.
That too should be f'ing illegal.

[daverobev]

There was a big row in the UK when the church attacked payday loan companies and then discovered that the bank it invested in was much worse:

"Surprisingly, it is the Co-operative Bank that has one of the most hair-raising charging structures. It charges a flat £20 fee for exceeding your overdraft limit, and then imposes a further £20 each day this unauthorised overdraft increases."

HSBC charges:
"A payment from your account takes you into an informal overdraft for one day". £45  ($75)
"A payment from your account takes you into an informal overdraft".   £80     ($125)

Holy shit, that's godawful.
That too should be f'ing illegal.

"NSF" or not sufficient funds tends to be $45 here in Canada now. That doesn't put you into an overdraft though, it's just "oh, payment attempted, payment failed, $45 please" - God help you if you have a few bills going out on the same day.

[Sid Hoffman]

Let's not overuse the term 'theft' here. This is a consensual transaction, however bad of a deal it may be...

It's predatory lending.  That's why it's already illegal in many states.

[Rosy]

This reminds me of a few years ago when my sister (16 years old than me) received a large Social Security disability check for back payment from the time she had first filed until it was finally approved.  It was about $16,000.  She had no money (never had). 

I offered to take the check, put it in my credit union and pay all her bills for her plus give her a monthly allowance in order to make it last as long as it could.  This would also stop her grown children from asking her for money (because they wouldn't dare ask me).  She was going to start receiving monthly disability checks after that, too.

Rather than letting me do that for her, she took the check to one of those check cashing places that charged her 10% ($1,600!) and put the remainder on a debit card.  She then blew all of the money before the month was over and before she got her first regular monthly disability check, she called asking to borrow $200 until her check came in.

Seriously.  I am still amazed whenever I think about that.  How can one person make so many bad decision?  And how can those businesses think it's okay to take advantage of stupid people just because they will fall for it?  I just shake my head....

Yup - I got a story just like that. She blew the back pay on a boob job. WTH?

[Cathy]

This thread inspired me to do some Google research on who exactly uses these "check cashing" places, and I found this brilliant post on the topic (the first post on the page, by user "Pierce2011").

The linked thread is a discussion of whether there is any good reason to use a check cashing store. Some users replied to suggest that only uneducated persons, criminals, and people unlawfully present in the country, use these facilities. Pierce2011 replied to offer an alternative point of view.

Pierce2011 describes himself as an upstanding law-abiding citizen. He says that he uses check cashing places for a very good and respectable reason: namely, he's concerned that he is about to lose a lawsuit, and he wants to make it more difficult for the judgment creditor to collect the judgment. Therefore, he is avoiding the conventional banking system. "I'll be damned if I'm going to let some court take my life savings", says Pierce2011.

I found the post hilarious.