Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Payday Loans, Tongue out of CheekIn response to my post about the satirical Predatory Lending Association website, yesterday an anonymous commenter wrote the following:This site you are trying to get people to take notice of is a fake! The fact that you are promoting a fake site that is complete satire makes you as bad as the scum that created the site to fight dirty against this industry! I have had my ass saved by the occasional payday loan and it is a respectable service for those that use it wisely. The idiots that missuse it and then cry about it do so on their own. There will always be the borrower who is just trying to score their next bag of weed or get money to drink on, but what about the person that is about to have a couple of small checks hit the bank and because of an accounting error they made by accident, their bank is going to charge them $34 for each check and then demand that they cover this fee by the next day? (What’s the APR on that 1 day loan?) What about the senior on welfare that needs a prescription not covered by their Medicare? What about the working single mother that is about to have her electric shut off in the middle of December? There are reasons that the service serves people for the good. There are also people that will abuse the system and get themselves in debt. People that don’t think. But that doesn’t mean that we need our government to think for everybody! Don't take away what for some is the only option available to them! In a free country, people are free to do good and bad. Free to do smart things and stupid things. That is the price of freedom. The government needs to keep their noses out of the business of American people!Since I didn't have time to reply yesterday, I'm going to post here rather than back in the comments. If we have an economy in which people are on the edge in the way anonymous describes, (a) why is that, and what can we do to change that? (b) in the meantime, can we have places people can turn for short-term financial help that don't charge such exorbitant interest and risk putting people in debt? Dollars & Sense recently ran an article by Howard Karger, who has written a book about pay day loans and other businesses that have predatory relationships with low-income or heavily indebted consumers, e.g., pawnshops, check-cashers, tax refund lenders, rent-to-own stores, and "buy-here/pay-here" used car lots. In his article, Karger discussed some of the current research about these businesses in what he calls the "fringe economy." Southwest Center for Economic Integrity found that 67% of borrowers used their loans for general non-emergency bills. The Center for Responsible Lending found that 66% of borrowers initiate five or more loans a year, and 31% take out twelve or more loans yearly. Over 90% of payday loans go to borrowers with five or more loans a year. Customers who take out 13 or more loans a year account for over half of payday lenders' total revenues.The Center for Responsible Lending has found that "ninety-nine percent of payday loans are flipped" rather than paid back* and "ninety percent of payday lending revenues are based on fees stripped from trapped borrowers." In other words, the industry is based on people getting caught in widening spirals of debt and not on people like anonymous who only need an "occasional payday loan" and can catch up at the next check. (And who do you think payday loan companies are targeting especially? African Americans and military families.) But anonymous brings up an important point: the need for some alternative to payday loans. In the long term: an economy in which so many people aren't on the edge; in the short term: some kind of micro-lending system that isn't so usurious (through community-supported credit unions, maybe?). Karger is very good, by the way, about not wanting to simply shut down payday loan businesses without offering an alternative; to do so would be to make people vulnerable to real loan sharks. ~ *Flipping the loan means renewing it for a large fee without being able to pay down the principal. Labels: african american, center for responsible lending, consumer debt, fringe economy, howard karger, low income, military families, payday loans Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!).
Comments:
"But anonymous brings up an important point: the need for some alternative to payday loans."
Credit unions, perhaps? Or a Proudhonian mutual bank? Iain An Anarchist FAQ # posted by
 : Wednesday, November 28, 2007 5:19:00 AM
I recently read a Reuters news article, written by Nick Carey, Mar 23rd, 8:15pm ET, titled, "’Pay day’ loans exacerbate housing crisis". I would like to clarify that there are some great inaccuracies and bias in this story that really must be pointed out.
I have had extensive experience with pay day loans, and, though I agree that the APR (annual percentage rate) is quite high, and people can get into trouble when they do not use these loans as they are designed to be used, this news report highly exhagerates the cost of a loan. Read from the article as follows; "A pay day loan is typically for a few hundred dollars, with a term of two weeks, and an interest rate as high as 800 percent. The average borrower ends up paying back $793 for a $325 loan, according to the Center." This is not accurate! And there was much more inaccuracy than this in the article. A pay day loan from a legitimate financial retailer generally costs about $15 for every $100 up to $500. This means that for a loan of $100 for 15 days the charge will be $15, totalling the loan at $115, which must be quoted as an APR of 365%. the actual total pay off for a $300 loan is $345. In reality it is only a fee that is being paid, not interest. However, government regulations require that it be quoted as interest, as an APR. The only way that a short-term loan, a pay day loan, could build up to the absorbitent amount qouted in the news story, is if the loan were to be "rolled over", which is highly illegal in nearly every state that regulates these loans, so, thus, it would be highly improbable that there would be an average of borrowers that pay such amounts. Pay day loans are for exactly what they are named. A short term small loan to be paid off by the next pay date of the borrower. These loans have saved many a borrower, in a temporary financial pinch, to pay some bill(s), from much harsher penalties and costs that are incurred by banks and credit institutions if checks do not clear or payments are late. The proper use of a pay day loan actually shows a personal and professional level of responsibility when it is used properly. Yes, people do mis-use these loans, people get into trouble, people borrow beyond their means, and there are less than savory lendors who do not do what is right in order to avoid such disasters for their borrowers. Pay day lendors must exercise great responsibility to protect borrowers and potential borrowers from becoming victims of borrowing beyond their means. That might even mean turning down a less than able and questionably qualified customer from borrowing. I am disturbed to also hear lawmakers and politicians who are buying into mis-information and threaten the reasonable management and existence of a very useful and helpful service to many people. Bruce - Washington # posted by
: Thursday, March 27, 2008 11:17:00 PM
Payday loans are a tool. If used properlly they can be very benefitial. if not they can cause lots of damage. All the good payday sites disclose their APR's and you know what you are getting into... They also tel lyou to not keep the loan out for a whole year because they are meant a short term emergency thing.
# posted by
: Tuesday, April 15, 2008 12:28:00 PM
I have read an article at this site: http://personalmoneystore.com/moneyblog/2008/07/24/think-payday-lenders-are-getting-fat-on-profits-think-again/#comment-61 This article mentions about the issue of lenders and payday loan provider, and the perception of excess profits that goes to their pockets. Do you think that it is still convenient to apply for a payday loan, or a no fax payday loan rather? Discover it in this site.
# posted by
: Wednesday, August 06, 2008 3:35:00 AM
The website the last commenter directs us to--his own site, I am assuming--seems pretty biased. Here are a couple of links for more information about this predatory industry:
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