Author Topic: Holy crap about payday loans  (Read 10999 times)

Stachey

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Holy crap about payday loans
« on: May 15, 2017, 08:33:07 PM »
I knew payday loan places were predatory but did you know they could legally charge 600% per year?!  Now the government has put in a new law so that they can only charge 202% per year. 

Another shocking statistic in this newspaper article was that a year ago (before the law changed) one payday loan company was issuing 30,000 loans PER MONTH!!!  In one province!  WT...?!

Paul der Krake

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Re: Holy crap about payday loans
« Reply #1 on: May 15, 2017, 08:36:01 PM »
Not surprising. The percentages look big but the amounts that people borrow are small. It's like borrow $200 for two weeks, pay $250 back.

Not defending the practice, but the scope matters.

Kimera757

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Re: Holy crap about payday loans
« Reply #2 on: May 15, 2017, 08:54:06 PM »
I knew payday loan places were predatory but did you know they could legally charge 600% per year?!  Now the government has put in a new law so that they can only charge 202% per year. 

Another shocking statistic in this newspaper article was that a year ago (before the law changed) one payday loan company was issuing 30,000 loans PER MONTH!!!  In one province!  WT...?!

No link. Is this from Canada?

I believe in most Canadian provinces you can legally charge 30-36% per annum, but that doesn't take fees into account. For instance, you might be charged a $20 fee to borrow $200 for 2-4 weeks. The effective APR is very high, but it's not officially called interest so it's legal. This does mean that, while the fee is very high, the fee itself doesn't rise over time (except possibly the interest on the fee, if that's allowed). The customer is still left to pay double the interest rate on a credit card even if the money could be borrowed without paying a fee.

cloudsail

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Re: Holy crap about payday loans
« Reply #3 on: May 15, 2017, 11:39:32 PM »
I remember when I was young for the longest time I'd see these payday loan places everywhere and could never figure out what they were for. Even after it was finally explained to me, I still couldn't get the logic. I mean, if you didn't have enough in this month's paycheck to pay all your expenses, how could you possibly have enough in next month's paycheck to both pay your loan and interest and your next month's expenses?

Just Joe

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Re: Holy crap about payday loans
« Reply #4 on: May 16, 2017, 02:39:36 AM »
This is anecdotal but in my town it looks like these damn things are fading away slowly. We still have half a dozen of them but we used to have 8-10. I'd love to think that people are getting wiser to these scoundrels.

La Bibliotecaria Feroz

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Re: Holy crap about payday loans
« Reply #5 on: May 16, 2017, 08:40:17 AM »
Highly recommend reading The Unbanking of America for a different perspective on check cashers and payday lenders. The author went semi-undercover at a couple of places.

MrsPete

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Re: Holy crap about payday loans
« Reply #6 on: May 16, 2017, 11:03:39 AM »
I remember when I was young for the longest time I'd see these payday loan places everywhere and could never figure out what they were for. Even after it was finally explained to me, I still couldn't get the logic. I mean, if you didn't have enough in this month's paycheck to pay all your expenses, how could you possibly have enough in next month's paycheck to both pay your loan and interest and your next month's expenses?
It doesn't make sense -- no matter what the scope.  If you're living paycheck to paycheck, and you must pay back $250 for that $200 you borrowed... you're now $50 short for the next week, and you're just entering a vicious cycle.  You cannot borrow your way out of debt.  Just.  Can't.  Happen. 

Kashmani

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Re: Holy crap about payday loans
« Reply #7 on: May 16, 2017, 11:38:56 AM »
I knew payday loan places were predatory but did you know they could legally charge 600% per year?!  Now the government has put in a new law so that they can only charge 202% per year. 

Another shocking statistic in this newspaper article was that a year ago (before the law changed) one payday loan company was issuing 30,000 loans PER MONTH!!!  In one province!  WT...?!

No link. Is this from Canada?

I believe in most Canadian provinces you can legally charge 30-36% per annum, but that doesn't take fees into account. For instance, you might be charged a $20 fee to borrow $200 for 2-4 weeks. The effective APR is very high, but it's not officially called interest so it's legal. This does mean that, while the fee is very high, the fee itself doesn't rise over time (except possibly the interest on the fee, if that's allowed). The customer is still left to pay double the interest rate on a credit card even if the money could be borrowed without paying a fee.

The usury provision in the Criminal Code, which makes interest of more than 60% per year criminal, does not apply to payday loans as long as those are provincially regulated. Provinces regulate the maximum amount that can be charged, and it is usually based on a maximum amount per $100 rather than interest. Interest tends to be pretty meaningless with short-duration loans for short times.

Think about it this way: A $1,000 loan for two weeks, at 20% interest (similar to what credit cards charge) would accrue about $8 of interest. Would you give an unsecured $1,000 loan to the type of person who needs payday loans in exchange for a return of $8? I certainly wouldn't, and most people assess the risk the same way.

That is the policy dilemma with respect to payday loans. They are obviously a horrible deal that perpetuates the debt cycle. Yet the type of people who use them don't have their sh** together enough to get decent-interest loans. They are horrible credit risks. Would killing the payday loan industry make them more responsible or just drive them back to criminal loan sharks?

I'm a red panda

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Re: Holy crap about payday loans
« Reply #8 on: May 16, 2017, 12:09:25 PM »
I remember when I was young for the longest time I'd see these payday loan places everywhere and could never figure out what they were for. Even after it was finally explained to me, I still couldn't get the logic. I mean, if you didn't have enough in this month's paycheck to pay all your expenses, how could you possibly have enough in next month's paycheck to both pay your loan and interest and your next month's expenses?
The system relies on optimism and desperation combined.

squirrel

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Re: Holy crap about payday loans
« Reply #9 on: May 16, 2017, 01:40:26 PM »
Joining in the race to the bottom; the APRs on typical payday loans in the UK run to as much as 2000% and I do remember seeing one advertised on daytime tv at over 6000% for a 7 day loan!

The industry seems to have been scaled back a bit since advertising restrictions came in, but I still wonder how many people are in much bigger debt holes since they started.

Just Joe

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Re: Holy crap about payday loans
« Reply #10 on: May 17, 2017, 08:14:02 AM »
Highly recommend reading The Unbanking of America for a different perspective on check cashers and payday lenders. The author went semi-undercover at a couple of places.

Thank you.

I can't wrap my head around these things. In our town there are a dozen banks and credit unions to choose from. The CU we use has a pretty low bar to join and low cost to do business with. No ATM fees, generous checking fees aka low, etc.
« Last Edit: May 17, 2017, 08:24:01 AM by Tasty Pinecones »

Kimera757

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Re: Holy crap about payday loans
« Reply #11 on: May 17, 2017, 08:46:13 PM »
Highly recommend reading The Unbanking of America for a different perspective on check cashers and payday lenders. The author went semi-undercover at a couple of places.

Thank you.

I can't wrap my head around these things. In our town there are a dozen banks and credit unions to choose from. The CU we use has a pretty low bar to join and low cost to do business with. No ATM fees, generous checking fees aka low, etc.

I've read that book (ebook format from the library) and I can wrap my head around those things. Moneymart and similar companies provide a variety of services, ranging from slightly exploitative to usurious. The cheque-cashing business isn't as bad as I thought it was. Moneymart will offer a small fee to cash a cheque (a small percentage, and maybe a very small fee on top of that), and Walmart will apparently cash a cheque for $4 flat (I think the book is a bit old, so I doubt the fee is only $4 today). Many bank accounts cost more than $8 per month, and this way the customer doesn't have to wait for the cheque to clear. Of course, this only appeals to someone who isn't maintaining a chequing account buffer or an emergency fund and isn't financially literate enough to research a good bank. In the US, it's easy for someone who has made a mistake with their banking to be locked out of banking for as many as five years. (Finding a "second chance" account requires a certain level of financial literacy.)

And then there's payday loans, which I think should be illegal. It weirds me out a little that Moneymart has moderately bad services and horribly bad services from the same business.

Just Joe

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Re: Holy crap about payday loans
« Reply #12 on: May 18, 2017, 07:41:30 AM »
Yeah - the moderately bad services might lend credibility to the really bad stuff by creating the idea that the company really has your best interests in mind.

talltexan

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Re: Holy crap about payday loans
« Reply #13 on: May 18, 2017, 07:52:49 AM »
https://www.nerdwallet.com/blog/banking/post-office-banking-2/

Some people are arguing that basic financial services should be treated as a utility, and that justifies the government intervening.

Just Joe

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Re: Holy crap about payday loans
« Reply #14 on: May 18, 2017, 08:00:58 AM »
https://www.nerdwallet.com/blog/banking/post-office-banking-2/

Some people are arguing that basic financial services should be treated as a utility, and that justifies the government intervening.

Someone protecting an existing cashcow money flow will lobby to have this submarined. Makes too much sense.

MrDelane

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Re: Holy crap about payday loans
« Reply #15 on: May 18, 2017, 08:11:51 AM »
A couple of years ago John Oliver did a pretty great segment on Payday Loans.
Figured some of you might find it interesting (and entertaining) if you hadn't seen it before:

https://www.youtube.com/watch?v=PDylgzybWAw


boyerbt

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Re: Holy crap about payday loans
« Reply #16 on: May 18, 2017, 11:05:43 AM »
https://www.nerdwallet.com/blog/banking/post-office-banking-2/

Some people are arguing that basic financial services should be treated as a utility, and that justifies the government intervening.

Still reading the article but an instant thought I had when I read that banks aren't easily accessible to everyone is why not switch over to online banks? I know that not everyone has internet access but this could be a thought. Also, the article posts a quote regarding an hour drive each way to the bank for someone living in Marblemount, Washington: I did a quick search and it appears that there is a bank 21 minutes away (16miles), maybe select the closer bank then?

BreakTheChains

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Re: Holy crap about payday loans
« Reply #17 on: May 18, 2017, 02:27:17 PM »
Yeah, the 600%+ rate seems high until you realize that you're dealing with lower income people that are much less likely to pay back their loans. I'd love to see just how much return these payday lenders are making. I'm assuming if they could earn a decent profit at 200% or 100% one of them would've already done it, competition and market forces and all that. I'm guessing regulations will drive them out of business and these people won't have anywhere to go for advances.

La Bibliotecaria Feroz

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Re: Holy crap about payday loans
« Reply #18 on: May 18, 2017, 02:35:49 PM »
... I'm guessing regulations will drive them out of business and these people won't have anywhere to go for advances.

This is a real problem. While wanting to protect people from predatory lenders sounds laudable, regulating those businesses out of existence without offering other supports doesn't necessarily help. Loan sharks still exist, for instance.

daverobev

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Re: Holy crap about payday loans
« Reply #19 on: May 18, 2017, 06:32:25 PM »
Highly recommend reading The Unbanking of America for a different perspective on check cashers and payday lenders. The author went semi-undercover at a couple of places.

I got that from the library yesterday, actually. Very interesting read.

What.. makes "sense" but doesn't make sense either is "oh but I need the cash today; if I pay the cheque into the bank it won't clear til Wednesday". Because you have to pay bills/buy food for the weekend.

It's 100% bone headed. Like, you are losing so much money over the year to get your money three days earlier. But you need food now (why not go to a bloody food bank - and *in theory* once you've done that, waited the three damn days, you get 100% of your money not 98% less fee of it!! And then you can buy *more food* than before!). It's a circle/cycle.

But I guess it's habitual/too easy.

I'm just finishing the chapter about millenials, and that's... depressing. Again, poor choices - spending stupid amounts of money on university degrees and... nope.. no job. Retail. Low paid/min. wage.

Seems to make sense. But actually... in *hindsight*.. sigh.

The statistic that real wages have been in decline for 40 years is astounding. SO MANY Americans make SO MUCH money (Silicon Valley, or finance, or whatever in Washington) but the average is going down? Depressing. I mean, really.

But if we're moving past the 'age of work' (which I think we are), what does it mean? You have this bifurcation - people that get an education and get a *career*; vs those that... don't.

StudentEngineer

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Re: Holy crap about payday loans
« Reply #20 on: May 18, 2017, 06:38:38 PM »
I remember when I was young for the longest time I'd see these payday loan places everywhere and could never figure out what they were for. Even after it was finally explained to me, I still couldn't get the logic. I mean, if you didn't have enough in this month's paycheck to pay all your expenses, how could you possibly have enough in next month's paycheck to both pay your loan and interest and your next month's expenses?
It doesn't make sense -- no matter what the scope.  If you're living paycheck to paycheck, and you must pay back $250 for that $200 you borrowed... you're now $50 short for the next week, and you're just entering a vicious cycle.  You cannot borrow your way out of debt.  Just.  Can't.  Happen.

I feel for the people that frequent these types of places.  I just really hope that this is truly a one time expense they can pay off quickly, but the reality is likely different.

Hargrove

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Re: Holy crap about payday loans
« Reply #21 on: May 18, 2017, 07:13:48 PM »
"You're going to lose your car? Why not the house too! Ah, hell, keep the car for another week!"

Banning payday lenders is fine, but they're like an illness contracted by a weak immune system. Cure the illness, and the underlying problem is just waiting to find the next one.

We have to educate about credit and wealth.

A

lot

more.

Mrs. S

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Re: Holy crap about payday loans
« Reply #22 on: May 19, 2017, 02:59:25 AM »
How widespread is online banking and salary transfer in the US/UK? In past 8 years of my career I have only been given a cheque 3 times and almost every employer prefers to direct transfer the amount to our banks.
Additionally is it really difficult to open a bank account or does it require credit score to get a good banking option. Recently there was a huge drive in India to open zero balance accounts especially for the underprivileged. the costs of operating those and managing the demonetization has resulted in increased fee for certain types and modes of transactions and digital banking is encouraged.

Apologies for derailing but separate checking and savings accounts have never made any sense to me same as payday loans.

gooki

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Re: Holy crap about payday loans
« Reply #23 on: May 19, 2017, 03:45:30 AM »

Apologies for derailing but separate checking and savings accounts have never made any sense to me same as payday loans.

When you don't pay any account fees, I find it handy​ to have separate accounts.

daverobev

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Re: Holy crap about payday loans
« Reply #24 on: May 19, 2017, 10:34:00 AM »
How widespread is online banking and salary transfer in the US/UK? In past 8 years of my career I have only been given a cheque 3 times and almost every employer prefers to direct transfer the amount to our banks.
Additionally is it really difficult to open a bank account or does it require credit score to get a good banking option. Recently there was a huge drive in India to open zero balance accounts especially for the underprivileged. the costs of operating those and managing the demonetization has resulted in increased fee for certain types and modes of transactions and digital banking is encouraged.

Apologies for derailing but separate checking and savings accounts have never made any sense to me same as payday loans.

If you have a proper job you'll be paid electronically in the UK, Canada, US, pretty much any first world country AFAIK.

The EU has a law that you must be able to open a basic (= no fee) bank account somewhere in the country you live in.

Savings accounts sometimes pay interest! Just not very much at the moment. Mine currently has a promo for 2.5% til August/Sept, and another 2.3% variable.

CheapskateWife

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Re: Holy crap about payday loans
« Reply #25 on: May 19, 2017, 10:51:07 AM »
Highly recommend reading The Unbanking of America for a different perspective on check cashers and payday lenders. The author went semi-undercover at a couple of places.
Read...fascinating take on the check-cashing business.  The motivations are different thank I expected.  Thank you for sharing this!

boyerbt

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Re: Holy crap about payday loans
« Reply #26 on: May 19, 2017, 11:06:03 AM »
Highly recommend reading The Unbanking of America for a different perspective on check cashers and payday lenders. The author went semi-undercover at a couple of places.
Read...fascinating take on the check-cashing business.  The motivations are different thank I expected.  Thank you for sharing this!

I just checked this out at the library and will be reading it this weekend. Thanks for the recommendation

Kashmani

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Re: Holy crap about payday loans
« Reply #27 on: May 19, 2017, 11:27:00 AM »
How widespread is online banking and salary transfer in the US/UK? In past 8 years of my career I have only been given a cheque 3 times and almost every employer prefers to direct transfer the amount to our banks.
Additionally is it really difficult to open a bank account or does it require credit score to get a good banking option. Recently there was a huge drive in India to open zero balance accounts especially for the underprivileged. the costs of operating those and managing the demonetization has resulted in increased fee for certain types and modes of transactions and digital banking is encouraged.

Apologies for derailing but separate checking and savings accounts have never made any sense to me same as payday loans.

If you have a proper job you'll be paid electronically in the UK, Canada, US, pretty much any first world country AFAIK.

The EU has a law that you must be able to open a basic (= no fee) bank account somewhere in the country you live in.

Savings accounts sometimes pay interest! Just not very much at the moment. Mine currently has a promo for 2.5% til August/Sept, and another 2.3% variable.

On the cheque-cashing side, there is another factor that has nor been mentioned yet. Bank accounts can be garnished. A lot of people who have creditors chase after them (including child support enforcement), may prefer to have the cheque cashed so that their money cannot be garnished in an account.

MgoSam

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Re: Holy crap about payday loans
« Reply #28 on: May 19, 2017, 11:46:51 AM »
Last summer I was walking out of the grocery store and noticed a lady with her kid walking into a Check Cashing place. I mentioned to her that the grocery store has a TCF branch and there's a US Bank not that far away who will cash it for free if you have an account. She didn't say anything, just looked at me as if I were crazy, and proceeded to walk into the check cashing place.

Regardless of any legislation, individual behavior will permit the existence of such places.

acroy

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Re: Holy crap about payday loans
« Reply #29 on: May 19, 2017, 12:36:04 PM »
They only exist to fill a need. They deliver a service the major banks do not, for a price. No worse than $6 Starbucks coffee.

Cary on....

exterous

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Re: Holy crap about payday loans
« Reply #30 on: May 19, 2017, 01:34:58 PM »
A couple of years ago John Oliver did a pretty great segment on Payday Loans.
Figured some of you might find it interesting (and entertaining) if you hadn't seen it before:

https://www.youtube.com/watch?v=PDylgzybWAw

I'd counter with a bit more in depth look at payday loans:
http://freakonomics.com/podcast/payday-loans/

Quote
So in the state that didn’t pass it, payday lending went on as before. And this let Zinman compare data from the two states to see what happens, if anything, when payday-loan shops go away. He looked at data on bank overdrafts, and late bill payments and employment; he looked at survey data on whether people considered themselves better or worse off without access to payday loans.

ZINMAN: And in that study, in that data, I find evidence that payday borrowers in Oregon actually seemed to be harmed. They seemed to be worse off by having that access to payday loans taken away. And so that’s a study that supports the pro-payday loan camp.

and includes some commentary by the NY Fed:
http://libertystreeteconomics.newyorkfed.org/2015/10/reframing-the-debate-about-payday-lending.html

Quote
Do Economists Agree about the Perils of Payday Lending?
On the contrary, the roughly half-dozen studies published in academic, peer-reviewed journals are thoroughly mixed on “the big question” of whether payday loans help or hurt their users. On the harm side, researchers have found that access to payday loans leads to more difficulty paying bills, more involuntary bank account closures (due to overdrafts), and reduced preparedness by “airmen.” On the help side, researchers found that access is associated with reduced foreclosures after natural disasters, fewer bounced checks, and less difficulty paying bills. This study and this study find that access to payday credit does not affect users’ credit scores one way or the other.

I'll admit that I had a pretty anti-payday loan mindset but then modified my stance after seeing decent support for the idea that they can provide a useful service or at least aren't always as evil as they are portrayed
« Last Edit: May 19, 2017, 01:44:29 PM by exterous »

BreakTheChains

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Re: Holy crap about payday loans
« Reply #31 on: May 19, 2017, 02:03:51 PM »
A couple of years ago John Oliver did a pretty great segment on Payday Loans.
Figured some of you might find it interesting (and entertaining) if you hadn't seen it before:

https://www.youtube.com/watch?v=PDylgzybWAw

I'd counter with a bit more in depth look at payday loans:
http://freakonomics.com/podcast/payday-loans/

Quote
So in the state that didn’t pass it, payday lending went on as before. And this let Zinman compare data from the two states to see what happens, if anything, when payday-loan shops go away. He looked at data on bank overdrafts, and late bill payments and employment; he looked at survey data on whether people considered themselves better or worse off without access to payday loans.

ZINMAN: And in that study, in that data, I find evidence that payday borrowers in Oregon actually seemed to be harmed. They seemed to be worse off by having that access to payday loans taken away. And so that’s a study that supports the pro-payday loan camp.

and includes some commentary by the NY Fed:
http://libertystreeteconomics.newyorkfed.org/2015/10/reframing-the-debate-about-payday-lending.html

Quote
Do Economists Agree about the Perils of Payday Lending?
On the contrary, the roughly half-dozen studies published in academic, peer-reviewed journals are thoroughly mixed on “the big question” of whether payday loans help or hurt their users. On the harm side, researchers have found that access to payday loans leads to more difficulty paying bills, more involuntary bank account closures (due to overdrafts), and reduced preparedness by “airmen.” On the help side, researchers found that access is associated with reduced foreclosures after natural disasters, fewer bounced checks, and less difficulty paying bills. This study and this study find that access to payday credit does not affect users’ credit scores one way or the other.

I'll admit that I had a pretty anti-payday loan mindset but then modified my stance after seeing decent support for the idea that they can provide a useful service or at least aren't always as evil as they are portrayed

Great info, thanks for posting this. It's very easy to let your emotions get in the way when you see something like 600% interest, many people are programmed by the mass media and the very "progressive" US education system to view business or anyone successful as "bad guys" trying to take advantage of people, but I find the more you learn the more you understand that there is a reason why things are the way they are.

TheGrimSqueaker

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Re: Holy crap about payday loans
« Reply #32 on: May 19, 2017, 04:33:09 PM »
The advantage of a payday loan is that you are in complete control over how much you owe.

There's no such thing as a third-party factor that can cause you to bounce a check, overdraft an account, or have everything in your account stolen by an identity thief. You don't have to do any math, you don't have to keep track of how much you have in your account, and you aren't vulnerable to a situation where the utility company or a vendor enters a payment twice and zeroes out your account. If you live in a world where your bank account can be hacked at any time and all the money taken with no real form of redress or protection, and where you can be assessed penalties, fines, or even jail time for checks or automatic withdrawals that bounce as a result of something you had nothing to do with, it becomes easy to mistrust banks. Also, if your income fluctuates because you're a tipped worker, artist, or freelancer, then setting everything up to be automatic just isn't possible.

The other advantage to payday loans is that the entire deal is in writing up front. The bank can't squeak in a new fee for this, that, or the other thing, tell you about it on a slip of paper that may or may not arrive in the mail (mail delivery is unreliable and mail is often stolen), and then ding you for fees without your knowledge or consent. The payday loan company can't arbitrarily increase your interest rate or assess penalties retroactively for random arbitrary things.

People are willing to pay a very high rate of interest for that kind of peace of mind.

gooki

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Re: Holy crap about payday loans
« Reply #33 on: May 22, 2017, 02:31:29 AM »
No they're not. People pay that high level of interest because they believe they have no other choice.

I'm a red panda

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Re: Holy crap about payday loans
« Reply #34 on: May 22, 2017, 02:58:00 AM »


If you have a proper job you'll be paid electronically in the UK, Canada, US, pretty much any first world country AFAIK.


Every job I've had in the US, I've had the option of paper check or electronic. This includes multiple professional positions, and includes my current position (a company of over 2,000 employees and a global presence, so not a small thing.)

When I worked in HR (more than a decade ago) part of my job was trying to persuade people to go electronic. It's easier for the company. But many people don't trust it and won't.

Kimera757

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Re: Holy crap about payday loans
« Reply #35 on: May 22, 2017, 05:16:24 AM »
Last summer I was walking out of the grocery store and noticed a lady with her kid walking into a Check Cashing place. I mentioned to her that the grocery store has a TCF branch and there's a US Bank not that far away who will cash it for free if you have an account. She didn't say anything, just looked at me as if I were crazy, and proceeded to walk into the check cashing place.

Regardless of any legislation, individual behavior will permit the existence of such places.

She might have been locked out of bank accounts due to ChexSystems.

ChexSystems is a credit reporting agency (sometimes called a debit reporting agency) that only reports negative banking information, such as leaving an overdraft unpaid. It reports the info for five years, and some banks will not open an account for you if you're on ChexSystems. Others will only open a limited account.

Despite criticisms of ChexSystems, I actually support the idea. Why should banks let themselves be screwed by bad customers? Most American banks and credit unions, including basically every major bank, use ChexSystems.

The advantage of a payday loan is that you are in complete control over how much you owe.

I don't think that's true. You could get a $200 for $20 deal (pay $20 for 2-4 weeks of borrowing) but that only works if you can predict the future accurately enough to know you'll have $220 in 2-4 weeks. Users of payday loans are often desperate, unlucky and/or financially illiterate. They may honestly believe they can pay it off, then find they can't. Many people use payday loans to pay off ordinary expenses or have to keep "rolling over" the loans.

Many payday loan companies insist on getting a post-dated cheque from the customer (dated for 2-4 weeks). On the day the money is due, they use the info on the cheque to pull the amount due. However, the customer might not have enough money available, and would be pushed into overdraft, or they "roll over" the loan (reborrow the money) with another fee. This can happen repeatedly for months.

"Complete control" might apply to cashing a cheque at Moneymart, but it does not apply to borrowing money from them.

Hargrove

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Re: Holy crap about payday loans
« Reply #36 on: May 22, 2017, 02:56:33 PM »
Uh... yeah...

Under no circumstances whatsoever are payday loans a social good. Even if they're just symptoms of the bigger illness of financial illiteracy, we should not be treating that illness with a gram of Fentanyl.

If you would consider a payday loan, you can't afford a payday loan.

TheGrimSqueaker

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Re: Holy crap about payday loans
« Reply #37 on: May 22, 2017, 03:17:58 PM »
No they're not. People pay that high level of interest because they believe they have no other choice.

They don't "believe they have no other choice". They are fully aware that they have the option of going to a conventional bank or credit union so as to obtain services at what looks like a much lower price. However they have often had the experience of being hit by overdraft fees, fines, and worse. Many of them have had their bank accounts cleaned out one way or another, often due to fraud or identity theft.

Hargrove

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Re: Holy crap about payday loans
« Reply #38 on: May 22, 2017, 04:23:55 PM »
They don't "believe they have no other choice". They are fully aware...

The assumption that an entire class or group of people is fully aware of nearly anything is pretty clearly inaccurate.

And... no, besides. What services? No bank or credit union typically loans money to someone who doesn't have enough money to pay their bills, because it doesn't change their income-to-bills ratio (debt consolidation is different, but no one, at all, it debt-consolidating from a payday loan).

Ergo, no, not a single person is getting a payday loan because of a preference over getting a normal, won't-destroy-you-forever bank loan.
« Last Edit: May 22, 2017, 04:26:12 PM by Hargrove »

TheGrimSqueaker

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Re: Holy crap about payday loans
« Reply #39 on: May 22, 2017, 08:07:39 PM »
They don't "believe they have no other choice". They are fully aware...

The assumption that an entire class or group of people is fully aware of nearly anything is pretty clearly inaccurate.

No more inaccurate that an entire class or group of people (in this case, payday loan borrowers) "has no choice" except to do something or other.

Not all payday loan borrowers are poor or uneducated. But those who are tend to grow up more in front of the TV than the average kid, due to lack of adult caregiver ability. So they can't help but be exposed to a variety of ads including the ones for banks and credit cards. Even so, they choose the services they think are right and appropriate for them.

Banking and credit union service typically begin with a savings and/or checking account. That's the gateway. In fact, credit unions require such accounts for membership and won't offer a mortgage or credit card otherwise. But savings accounts are regarded by many people as a waste of time (I'll get to the reasons in a moment), while checking accounts are considered downright dangerous.

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And... no, besides. What services? No bank or credit union typically loans money to someone who doesn't have enough money to pay their bills, because it doesn't change their income-to-bills ratio (debt consolidation is different, but no one, at all, it debt-consolidating from a payday loan).

Actually, the entire subprime mortgage crisis was caused by bankers doing just that: intentionally lending money to people who were bad credit risks due in part to their income-to-bills ratio. Credit card companies routinely solicit business from people whose credit rating is slipping; it means they stand a higher chance of collecting interest fees and late penalties.

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Ergo, no, not a single person is getting a payday loan because of a preference over getting a normal, won't-destroy-you-forever bank loan.

Payday loans aren't for debt consolidation, I'll agree with you on that, unless of course a person is rolling forward one loan into another larger one. Payday loans are more likely to be for medical co-pays, vehicle repairs, or other emergencies. The middle-class equivalent of a payday loan is not a credit card but a cash reserve.

People who choose payday loans instead of maintaining a cash reserve believe it's bad or immoral of them to tie up money in cash reserves that could be used "now" to pay for something they perceive as more important. Interest rates in savings accounts aren't exactly sky-high, in fact they're not even high enough to beat inflation. Plus, many people have massive cultural or religious pressure on them to invest the money in social capital by helping out a close friend or family member who is in financial need. The poorer the family, the more emergencies occur.

A person with immediate, pressing expenses sees very little value in putting money into a bank account where it (a) is not immediately accessible due to ATM withdrawal limits, (b) tends to be nibbled away every month with mandatory fees including $5 or more just for the privilege of keeping the account open, (c) can instantly disappear due to identity theft or an erroneous double electronic withdrawal, (d) might be accessible to an unreliable or malicious family member, and (e) creates nothing but drama with the extended family, many of whom are in a worse position financially and resent a relative "hoarding" money instead of helping them with funerals, moving expenses, bail money, dental work, etc.

Hargrove

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Re: Holy crap about payday loans
« Reply #40 on: May 22, 2017, 08:46:08 PM »
No more inaccurate that an entire class or group of people (in this case, payday loan borrowers) "has no choice" except to do something or other.

Edit: Lol wait, so you admit you don't even consider your own statement accurate. What are we doing here?

The material challenges of poverty, now exactly the same as assuming everyone is enlightened about their options. Also, we landed on Jupiter - news at 11.

People who are bad at evaluating all manner of options have protections to minimize how much they're fleeced. The point of having inalienable rights is that no, not even you should be able to sign them all away, because it's not good for the society to allow that much advantage to be taken of its citizens, even if they consent to it. Payday loans deserve that level of protection (a total ban).

There is no meat in an argument that escaping possible overdraft fees might be done by paying enormous and certain interest instead.

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Actually, the entire subprime mortgage crisis was caused by bankers doing just that: intentionally lending money to people who were bad credit risks due in part to their income-to-bills ratio.

So which is it? Banks won't lend to them and they need payday loans they can't afford, or banks will lend to them (making payday loans completely unnecessary)?

Subprime lending did happen wholesale, and it helped cause a major global financial disaster. Some steps were taken to prevent it from happening again. You would prefer more of it?
« Last Edit: May 22, 2017, 09:27:28 PM by Hargrove »

Kimera757

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Re: Holy crap about payday loans
« Reply #41 on: May 22, 2017, 09:52:42 PM »
What would be a reasonable source of short-term credit for the poor? Especially the unemployed (who won't qualify for payday loans from many providers)?

In the UK, the lending giant Wonga (now struggling) was targeted by the Anglican Church, whose charities are trying to put it out of business by lending money at more reasonable rates. Of course, a non-profit doesn't actually have to turn a profit, so lending to people who often can't pay them back doesn't hurt them as much as it would hurt Wonga. (It's still expensive though. Charities aren't supposed to suffer losses either.)

TheGrimSqueaker

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Re: Holy crap about payday loans
« Reply #42 on: May 22, 2017, 10:25:44 PM »
No more inaccurate that an entire class or group of people (in this case, payday loan borrowers) "has no choice" except to do something or other.

Edit: Lol wait, so you admit you don't even consider your own statement accurate. What are we doing here?

It's a statement that is true for the most part, although there are a few specific contradictory cases. Please don't fall prey to the popular liberal tripe about poor people being stupid, helpless, or unaware of their options. They live in a very different kind of economy and the decisions they make frequently make a lot of sense given the context.

To answer your question: what we are about to start doing is quibbling over semantics. It'll bore both of us if we do.

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The material challenges of poverty, now exactly the same as assuming everyone is enlightened about their options. Also, we landed on Jupiter - news at 11.

Umm, not quite. Payday loan users aren't universally poor or uneducated. That's a common misconception. A lot of the time they're just starting a new job and awaiting that first paycheck. Borrowers include judges, members of the serving military, and plenty of other individuals who for whatever reason do not wish to go through a more formal loan process. Or who don't have time.

Likewise, poor people aren't universally stupid or uninformed. I'm going to do you the courtesy of assuming you don't actually believe such a thing. It takes savvy to navigate the working-poor economy. If you want a good fish-out-of-water story about a middle-class person trying to get buy in a working-poor economy, read Barb Ehrenrich's "Nickled And Dimed". While I don't agree with all her conclusions, she does a great job of illustrating how a lot of mainstream assumptions about shopping, spending, and what constitutes a "good" buy don't fit the working-poor economy.

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People who are bad at evaluating all manner of options have protections to minimize how much they're fleeced. The point of having inalienable rights is that no, not even you should be able to sign them all away, because it's not good for the society to allow that much advantage to be taken of its citizens, even if they consent to it. Payday loans deserve that level of protection (a total ban).
Only when it comes to extremely high-risk investment options. When it comes to borrowing options, the law doesn't actually require as much protection for the borrower. Such protections as are in place such as minimum income requirements are sadly mostly for the lender's benefit, unless voters clobber legislators until they rein in the lenders.

I don't favor a total ban on payday or title loans or on pawn shops (which is how people without a job get loans). It looks like you and I will have to disagree on that since I see reason to believe they provide a valuable service and you don't. But I do like legislation that requires disclosure of all terms, caps the interest at no more than 200% per annum, provides the right to make partial payments, forbids penalties for paying off a loan early, and limits the number of rollover renewals. I also like having a legal path to short-term loan options because I don't like the idea of steering people to loan sharks who operate in an almost completely unregulated environment.
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There is no meat in an argument that escaping possible overdraft fees might be done by paying enormous and certain interest instead.

There is, because the amount being borrowed is so low that even a truly exorbitant rate of interest doesn't work out to a dollar figure high enough to make the customer balk. The interest and fees are still lower than the financial consequences of pursuing some other option.

A $20 charge to borrow $200, receive it in less than an hour, and pay it back in a month is far better than even one $25 overdraft fee due to a bounced check, or an eviction begun or a vehicle repossessed while waiting for the bank loan to be approved or the credit card to arrive in the mail.

People seldom use pawnshops or payday/title loan companies for grins and giggles; it's only after conventional sources of slack have been exhausted.

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Actually, the entire subprime mortgage crisis was caused by bankers doing just that: intentionally lending money to people who were bad credit risks due in part to their income-to-bills ratio.

So which is it? Banks won't lend to them and they need payday loans they can't afford, or banks will lend to them (making payday loans completely unnecessary)?

Banks can and will lend to them especially if they have assets such as equity in a family home or even a vehicle. However the loan products banks offer are seldom good in an emergency. A mortgage, even a subprime one, requires an application process lasting days or weeks. Credit cards typically arrive in the mail in three to five business days. That won't help a person who needs money immediately. Furthermore, unlike banks title and payday lenders are open until 6 and 7 PM and frequently on Sundays. It's physically possible to get in and do business without taking time off from a 9-to-5 job.

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Subprime lending did happen wholesale, and it helped cause a major global financial disaster. Some steps were taken to prevent it from happening again. You would prefer more of it?

Most of the steps, unfortunately, didn't create much hardship for the affluent investment bankers but it made it much more difficult for poorer people to buy a home. While I'm not in the homebuying-is-for-everyone camp I can't help but notice how many people have benefited from gradual accrual of home equity particularly as they approach retirement. Having somewhere to live in old age really does make a difference in a person's quality of life and it also creates a means to pass wealth on to the next generation. Charities such as Habitat for Humanity recognized this a long time ago and have identified home ownership as a key way to help individual families exit generational poverty.

The global financial disaster was caused by a perfect storm involving sizable loans to high-risk borrowers, and mass securitization of those loans which were then marketed as being substantially more reliable than they really were. Although some of the high-risk borrowers did indeed default, the majority did not. For most of them, the "liar's loans" and the subprime mortgages worked as intended. Those borrowers knew exactly what they were doing and accomplished precisely what they set out to do.

I'm not a fan of lying on loan applications especially when it's not the borrower doing it but the mortgage broker. I don't object to regulations requiring more transparency and cracking down on dishonest lending, and I'm quite bummed out about the gradual weakening of the Glass-Steagall Act intended to deter banks from creating a conflict of interest by investing significantly in securities on their own behalf. That, I believe, caused more harm than simply lending to poor people.

Mrs. S

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Re: Holy crap about payday loans
« Reply #43 on: May 22, 2017, 10:35:45 PM »


If you have a proper job you'll be paid electronically in the UK, Canada, US, pretty much any first world country AFAIK.


Every job I've had in the US, I've had the option of paper check or electronic. This includes multiple professional positions, and includes my current position (a company of over 2,000 employees and a global presence, so not a small thing.)

When I worked in HR (more than a decade ago) part of my job was trying to persuade people to go electronic. It's easier for the company. But many people don't trust it and won't.

Not sure why that is maybe a cultural thing. Not being paid in cash or cheque is considered a sign of working in a good organization. With a hoard of IT companies paying electronically it is almost a norm among other decently sized establishments in almost all fields.

talltexan

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Re: Holy crap about payday loans
« Reply #44 on: May 23, 2017, 07:21:27 AM »
Really glad someone posted that FREAKONOMICS podcast about payday loans. I recall listening to them and actually softening on my stance toward them.

And they were really unfair to that Economics Professor. His explanation that he had editorial responsibility seemed sufficient to me.

MrMoogle

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Re: Holy crap about payday loans
« Reply #45 on: May 23, 2017, 07:25:42 AM »
"You're going to lose your car? Why not the house too! Ah, hell, keep the car for another week!"

Banning payday lenders is fine, but they're like an illness contracted by a weak immune system. Cure the illness, and the underlying problem is just waiting to find the next one.

We have to educate about credit and wealth.

A

lot

more.
I don't think education is enough.  You'd need to do brainwashing or behavior modification, aka change society, in order to accomplish it.  A lot of educated people do really dumb things just because society says so. 

middleclasswhitetrash

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Re: Holy crap about payday loans
« Reply #46 on: May 23, 2017, 09:38:32 AM »
I have asked a very close friend of mine, who is of a different race, why so many people do not use banks to keep their money or lend them money instead of only carrying cash or using pre-loaded debit cards, etc. Also asked about why not go to banks to cash checks instead of the local check cashing joint. His response was that many people of color do not trust banks. Many come from families who faced a lot of racial discrimination in the past from financial institutions and that is ingrained into their psyche. He did also add that some don't do it so the government can't see how much money they make at cash jobs which will affect other things.

Chris22

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Re: Holy crap about payday loans
« Reply #47 on: May 23, 2017, 10:04:45 AM »
How widespread is online banking and salary transfer in the US/UK? In past 8 years of my career I have only been given a cheque 3 times and almost every employer prefers to direct transfer the amount to our banks.
Additionally is it really difficult to open a bank account or does it require credit score to get a good banking option. Recently there was a huge drive in India to open zero balance accounts especially for the underprivileged. the costs of operating those and managing the demonetization has resulted in increased fee for certain types and modes of transactions and digital banking is encouraged.

Apologies for derailing but separate checking and savings accounts have never made any sense to me same as payday loans.

If you have a proper job you'll be paid electronically in the UK, Canada, US, pretty much any first world country AFAIK.

The EU has a law that you must be able to open a basic (= no fee) bank account somewhere in the country you live in.

Savings accounts sometimes pay interest! Just not very much at the moment. Mine currently has a promo for 2.5% til August/Sept, and another 2.3% variable.

On the cheque-cashing side, there is another factor that has nor been mentioned yet. Bank accounts can be garnished. A lot of people who have creditors chase after them (including child support enforcement), may prefer to have the cheque cashed so that their money cannot be garnished in an account.

Yup.  My employer has a ton of low-paid, low-skill employees and many of them insist on paper checks instead of direct deposit for this exact reason.  In fact, we're trying to move them to getting paid on a debit card (cheaper for us), we can't force them to move to direct deposit.


I remember when I was in college, 15 years ago, I naively tried to use a check-cashing place.  I had lost my ATM card somehow about 2 days before I was to drive home for Christmas break.  I had money in my account, but no way to access it since my bank was a local one near my house (at home, 250 miles from school).  I didn't have a credit card.  I did have a check book, but no one was going to take a check for gas to get home, so I hit a check-cashing place intending to write them a $50 check so I could have cash to get home.  They, of course, shot me down.  I think I ended up writing a friend a check instead and he swapped cash for me, but I remember it was a PITA and a little scary.  I switched to a local-to-me bank after that.

Paul der Krake

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Re: Holy crap about payday loans
« Reply #48 on: May 23, 2017, 10:31:10 AM »
I used to work at a small company that employed unskilled labor from the bottom of the socio-economic ladder and paid them just above minimum wage. Early on, every payday was a circus. People would disappear for hours to run all their errands. Some just wouldn't show up that day. Others approached the white collar employees to go deposit their checks and give them cash, or other questionable shenanigans. Like clockwork, that department ground to an almost complete halt every last day of the month.

The company then hired an economic counselor to get everyone on a program with a local credit union to help the underbanked. After that, you could barely tell when it was payday and turnover was reduced significantly.

scantee

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Re: Holy crap about payday loans
« Reply #49 on: May 23, 2017, 11:00:24 AM »
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The statistic that real wages have been in decline for 40 years is astounding. SO MANY Americans make SO MUCH money (Silicon Valley, or finance, or whatever in Washington) but the average is going down? Depressing. I mean, really.

I've been thinking about this a bit and my (totally not based in any research) sense is that 30 to 50 years ago, large corporations were more likely to employ people from the full range of socio-economic statuses in society at large. In boom times, this was great, because it meant everyone reaped the benefits of profit. In modern companies that are highly specialized, particularly the tech and finance sectors, the majority of workers are highly-skilled and highly paid. In boom times (like now) there is no place to push down profits to lower-paid, low-skill workers, there just aren't enough of these people employed by these companies to do that. So what happens is that the already high incomes of the high-skilled workers grow out of proportion to the work they're actually doing (perhaps, maybe...) and people in those sectors develop a false and inflated sense of the health of the economy overall. Low-skill workers, however, are left no entree into these sectors and no way to partake in the gold rush.

Not sure how to address this problem, but I do think this is unhealthy and unsustainable and will need to be addressed.