My mom at one point had about 5 loans with different agencies. When I paid them for her, these people could not have been bigger assholes. I think they should be illegal.
Many people think of payday loans as a way to cover an unexpected emergency – such as a car repair or medical expense – until your next paycheck comes in.
But nearly seven in 10 people who use the short-term, high-fee loans rely on them for recurring, everyday expenses such as rent, food, utilities or car payments, according to a report published Wednesday. And instead of using them for one quick fix, many are either seeking extensions or borrowing similar amounts again and again. That’s putting many people in debt to payday lenders for months at a time, at very high cost.
“It’s not because of some unusual need that people are turning to payday loans. It’s because of some regular need,†said Nick Bourke of the Pew Center on the States, which published the report.
Payday lenders defend their industry, saying today's economic reality is that many people regularly need a financial bridge to their next paycheck.
“Of course there’s recurring use for this product. It’s often the best option for millions of Americans that are looking to manage their financial obligations,†said Amy Cantu, spokeswoman for the Community Financial Services Association of America, a trade group for payday lenders.
About 5.5 percent of American adults have used a payday loan in the past five years, and 12 million used them in 2010, the most recent data available. Demographic data compiled by Pew suggest that customers are typically parents, divorced people and others struggling to get by.
The Pew researchers found that parents are more likely to use payday loans than people without kids, especially if the household income is less than $50,000 a year, about the nation's median. In addition, people who are separated or divorced are more likely to use them than those who are married or single.
The vast majority of people using payday loans don’t have a four-year college degree, and seven in 10 have a household income of less than $40,000 a year.
More than half of the people using the loans are white, female and between 25 and 44 years old. But that’s partly a function of demographics. African-Americans, which represent a smaller chunk of the population, are more likely to use payday loans than other races and ethnicities.
The loans are typically for $100 to $500, and lenders typically charge $15 for each $100 that is borrowed for a two-week period, according to the Pew report.
Pew found that the average user takes out eight loans of $375 each year and spends $520 in interest. The researchers said the repeated use means that the loan is functioning more like a high-interest line of credit than a short-term fix to a one-time problem.
“People are paying a lot more in payday loan costs and fees than they anticipate going in,†Bourke said. Cantu, of the lenders trade group, said the fees associated with payday loans are clear to those who use them.
“We’re completely transparent on the terms of service and the costs associated with this product, and consumers choose it because it’s the least expensive option,†she said. But Pat Seaman, senior director with the National Endowment for Financial Education, said payday loans are among the most expensive ways to borrow money, and the group's research has shown people turn to them as nearly a last resort.
She suggests that low-income families try to avoid taking out such short-term loans by having an emergency fund of as little as $500. That’s far less than the six to nine months in living expenses many financial experts recommend, but she said it’s a more approachable goal that can help low-income people make it through a tough spot. If you do use a payday loan, Seaman said to just be sure you clearly understand the terms of the loan, and the fact that the lender is in it to make money as well as provide you with money.
Many states have tightened restrictions on payday lending, and Pew’s research showed that tighter restrictions led to less use.
This year, the new Consumer Financial Protection Bureau began supervising payday lenders at the federal level for the first time. That allows the government watchdog to investigate whether practices are harming customers and to take action when necessary.
The Pew report is based on a broad survey of the general population as well as in-depth focus groups it conducted with people who use payday loans.
Post by UMaineTeach on Jul 19, 2012 11:49:05 GMT -5
I agree with banning them outright.
but I can compromise with: -limiting you to up to 2 per year and they can't be issued in consecutive months - an interest rate that doesn't exceed some fixed % over prime. - through credit reporting and credit checks to make sure the person hasn't gone over the limit by hopping to different companies. - Oh and they are not allowed to advertise on daytime TV.
I hate payday loans with a passion. I don't think those who utilize them truly understand how expensive they are. I'd love to see them banned.
The first time? Sure. But I personally have had to use them when I was single and broke and I absolutely knew the cost. I also knew that it was cheaper than incurring $38 overdraft fees.
It sucks and they are very expensive, but you really can't say that they are duping people, as in my experience they are VERY upfront about the costs. It's just that most people that end up there have no other choice other than overdrafting their account or not eating.
For the people that want them banned: under what grounds do you think they should be? I understand regulating them so people are informed of costs but really, banning these loans is not going to decrease demand for them so Im not sure what problem you think its going to solve.
The cost is outrageous, sure, but like Daria pointed out, they might be the only option.
The problems with them are (1) there aren't other, better options which is why they are able to get away with charging so much; (2) its fucking hard to make ends meet when you are the working poor which is why people turn to them; and (3) the debt collection methods they use. As it stands, they are technically covered by the Fair Debt Collections Practices Act, but these operators are so shady and fly-by-night, that it's hard for private citizens to hold them accountable for some of the shit they pull.
I saw a commercial for one of those loans (well, they claim that it's not a payday loan... but it's still a scammy loan program). The fine print at the bottom of the screen is where they disclosed that the money is loaned at 139% interest.
ETA: My bad... it was 139% interest. Typical loans are $2,600, but they go up to $10,000.
Post by statlerwaldorf on Jul 19, 2012 12:36:07 GMT -5
I used to work for a payday lender. The majority of our regular clients were white, middle aged, women making more than $40k and the average amount was $500-800. We didn't make much money off of the lower income clients. The amount a person could take out is based on income. A person making minimum wage would only qualify for $100 or $150.
I struggle with it. I would see so many regular customers that would pay off their loan with their tax refund and tell me they are never coming back only to take out another loan a couple months later. But the $15 for $100 fee was much more affordable for someone living paycheck to paycheck than what the bank would charge for overdrawing their account plus returned check fees from wherever they are bouncing their check from. The regular customers were running out of options and it was going to catch up with them sooner or later. The payday loan certainly hurt them a lot more than it helped them. Those are the people that are supporting the business. But those customers that came in once because they were going to overdraw their account or they needed to get their car fixed to keep their job, what other options did they have?
Post by statlerwaldorf on Jul 19, 2012 12:38:19 GMT -5
I think the interest rate was 391.07%. We would write it out on the forms in bold right along with the amount borrowed and the interest charged. This was before payday loan reform in my state, so I don't know what they charge now.
No one should be paying 150-300% interest or whatever my mom was paying. That simply should not be legal.
I'm a commie socialist and honestly think they should be banned because we shouldn't be living in a society where people get that fucking desperate and have NO other options available, except cooking meth in the kitchen, hooking, or giving up food. Especially in It's Holiness America That Does No Wrong.
There should be other, better options. These guys may as well be mafia the way they harass people for late payments and charge ridiculous rates, and take advantage of people.
I saw a commercial for one of those loans (well, they claim that it's not a payday loan... but it's still a scammy loan program). The fine print at the bottom of the screen is where they disclosed that the money is loaned at 139% interest.
ETA: My bad... it was 139% interest. Typical loans are $2,600, but they go up to $10,000.
Dude! Western Sky. I have no idea why they are not illegal. One of the commercials I saw was talking about a $5000 loan. The interest rate was 116.73%, paid back in 84 payments of $486.58. That $5000 is going to cost $40,872.72. :-|
Im ok with limiting interest rates to an extent but I think if you limit interest rates too much, you are just going to cut off credit to some of these people. Any loan above 4% would be a bad deal for me. Paying full retail for clothes is a rip-off. Buying the most expensive car insurance wouldnt be in my best interest. There is only so much you can do to protect people from themselves. Cutting off the credit isnt going to make them suddenly handle money any better. They will have to go without. Things like food, shelter, medical care-I would never want to be sacrificed but you cant micromanage their spending habits just because you know what's better for them.
I saw a commercial for one of those loans (well, they claim that it's not a payday loan... but it's still a scammy loan program). The fine print at the bottom of the screen is where they disclosed that the money is loaned at 139% interest.
ETA: My bad... it was 139% interest. Typical loans are $2,600, but they go up to $10,000.
Dude! Western Sky. I have no idea why they are not illegal. One of the commercials I saw was talking about a $5000 loan. The interest rate was 116.73%, paid back in 84 payments of $486.58. That $5000 is going to cost $40,872.72.
They are on a Native American reservation and have argued sovereign immunity. The FTC has begun to file lawsuits against reservation-based payday lenders however, so it's going to be a very interesting legal battle.
I hate payday loans but what other options are there for people? The OP mentioned a $500 emergency fund. I think that is a good goal to aim for but this sounds like a goal far more likely to be achieved by people who haven't been requesting payday loans on a regular basis since those people are going to be in the red for quite some time.
Im ok with limiting interest rates to an extent but I think if you limit interest rates too much, you are just going to cut off credit to some of these people. Any loan above 4% would be a bad deal for me. Paying full retail for clothes is a rip-off. Buying the most expensive car insurance wouldnt be in my best interest. There is only so much you can do to protect people from themselves. Cutting off the credit isnt going to make them suddenly handle money any better. They will have to go without. Things like food, shelter, medical care-I would never want to be sacrificed but you cant micromanage their spending habits just because you know what's better for them.
For a lot of people, they aren't mismanaging or needing someone to know what's better for them. They simply don't make enough money to cover necessities like rent and food, and we don't feel the need to have adequate safety nets in this country because... bootstraps. Right now, we've got what? Food stamps? And you only get those if you have basically nothing. But everything else, healthcare, medicine, rent.....the wait for subsidized housing is 10 years in many cities. Where are you going to live until then?
If we had actual safety nets, we wouldn't need payday loans for people to eat. They are not a necessary evil. Plenty of countries provide for their citizens and have no 1-800-payday-loan-and-sell-a-kidney coming on during every commercial break.
Why could these places not exist charging say, 20% instead of 200%? I have never understood the "you're a higher risk so we have to charge you higher interest" justification. If I can't pay you back at 15%, what makes you think I could pay you back at 55%? How does charging higher interest make me more likely to pay?
Why could these places not exist charging say, 20% instead of 200%? I have never understood the "you're a higher risk so we have to charge you higher interest" justification. If I can't pay you back at 15%, what makes you think I could pay you back at 55%? How does charging higher interest make me more likely to pay?
Because some people don't care if you gouge poor people.
Because Payday loan operations have a lobby.
If poor people were smarter and more business-minded, they would have come up with this business venture on their own. Missed the boat.
Why could these places not exist charging say, 20% instead of 200%? I have never understood the "you're a higher risk so we have to charge you higher interest" justification. If I can't pay you back at 15%, what makes you think I could pay you back at 55%? How does charging higher interest make me more likely to pay?
Because they know they have their customer base by the balls and they will pay 200% to get the cash now.
Why could these places not exist charging say, 20% instead of 200%? I have never understood the "you're a higher risk so we have to charge you higher interest" justification. If I can't pay you back at 15%, what makes you think I could pay you back at 55%? How does charging higher interest make me more likely to pay?
Because if they are only getting $.75 for every $100 lent, they wouldn't make enough of a profit to cover all of those that default. They don't care about the customer's financial situation. They only care about their profit.
Why could these places not exist charging say, 20% instead of 200%? I have never understood the "you're a higher risk so we have to charge you higher interest" justification. If I can't pay you back at 15%, what makes you think I could pay you back at 55%? How does charging higher interest make me more likely to pay?
It doesnt make an individual customer more likely to pay but the higher interest rates covers the increased loss from that group of high risk customers not paying it back. There is not incentive to lend to high risk groups other than charging higher interest.
Summer-I fully support expanding nets like food, housing, medical care but that still isnt going to help someone who needs money because their car broke down and they still need to get to work or because they havent paid taxes or child support and their wages were finally garnished. Getting rid of these loans isnt going to make those safety nets appear and some of these issues IS a matter of handling money.
Post by statlerwaldorf on Jul 19, 2012 14:17:56 GMT -5
A problem locally is that we have a housing assistance place that will grant help with rent once annually. The grants are through HUD I believe. BUT the grant states that the rent has to be affordable as defined as 30% of your gross monthly income. Most low income people cannot find apartments for less than 30% of their income and therefore cannot get any help. We have two different housing programs here, but one wait list is completely closed and the other one has a very long wait list.
I worked at one of these places. It was horrible. Our interest rate was 305%.
There was a requirement that you had to wait 7 days between paying off a loan and getting a new one but you could refinance a current one once. They also did title loans and I know they had to repo 2 cars in the few months I worked there.
The sad part is most people just signed the forms without really reading them. And you could tell most people zoned out when you tried to explain the interest rate.
It was also a horrible place to work. Lots of practices I wasn't comfortable with - one employee alone in the store, I always had to go to the bank by myself with several hundred dollars if not into the thousands (even worse b/c it was winter and the last run was done in the dark and we were required to park on the side of the building where no one could see our cars - my dad, dh, and fil hated that I had to do this). Plus there were words we weren't allowed to say - like "require" - we'd get in trouble if the boss heard.
Post by statlerwaldorf on Jul 19, 2012 18:45:07 GMT -5
What about the banks? Should it be okay for them to charge $35 per item for an overdraw? How about choosing to pay the largest items (like a rent check) first so more items bounce resulting in more charges? Should they not be able to turn away people with bad credit from programs like overdraft protection?