Reason TV: Is payday lending immoral?

posted at 2:55 pm on November 11, 2010 by Ed Morrissey

This is no easy question.  In any other context, the interest rates charged for payday lending would be considered usurious, even loan-sharking — minus the knee-capping, of course.  But payday lenders operate in a high-risk market with essentially unsecured loans of such short duration that anything less in terms of interest would put them out of business.  That appears to be the intent of the new consumer-protection regulation passed by Congress and hailed by Barack Obama as the most comprehensive protections for consumers ever passed.  But without payday lending, will the new regulations wind up hurting the people Obama and Congress brag about protecting?  Reason TV’s Nick Gillespie and Ted Balaker look at the implications of the new regulation:

Few industries are more reviled than payday lending, which primarily services the working poor by offering short-term loans at high interest rates. Payday customers borrow an average of $350 for a period of two weeks, or until their next paycheck comes in. The money is handed over on the spot, once the payday store can verify that the customer has a job, earns enough to afford the loan, and hasn’t recently defaulted with another vendor. Payday loans are in high demand: There are 22,000 payday storefronts in the United States and in 2009 they loaned a combined $35 billion.

And yet the industry is fighting for its survival. Montana just voted to make it illegal for the payday-loan industry to operate profitably, so lenders are loading their wagons and wheeling out of “The Land of the Shining Mountains.” They’ve already moved on from Oregon, New Hampshire, North Carolina, Arizona, Georgia, and Washington, D.C, because of similar regulations. The annualized interest on payday loans runs about 400 percent, but the reality is that payday firms see returns closer to 10 percent, or about the same as other less-demonized financial service providers.

Now there’s a danger the federal government will quash the rest of the U.S. payday industry. The Frank-Dodd Financial Reform bill, passed in July, created the Consumer Financial Protection Bureau (CFPB), which posseses the power to regulate paydays at the national level for the first time. The vaguely written law doesn’t allow the CFPB to cap interest rates, but regulators have the latitude to enact other rules that would obliterate profits, such as limiting the number of payday loans a customer can take out over a set period of time.

The business model is basically a float — a way for so-called “wage slaves” to meet pressing obligations in advance of the next paycheck.  That often means the difference between eating and starvation, having the power on, or even keeping a roof over one’s head.  But it comes at a stiff price, at least in terms of the short-term transaction.  The consumer pays a significant amount of interest in the short-term loan, which regulators see as exploitation.

However, as Reason TV reports, the actual bottom line for payday lenders is rather modest: the average profit margin is around ten percent, or about half of what is seen for computer sales, for one example.  Payday lenders have to maintain storefronts, and they also have to absorb large amounts of losses, much higher than what it seen in credit-card debt.  The high interest rates charged typically amount to modest fees in practice of around $40-50 for each transaction.  The industry obviously fills a niche that serves significant demand.

Lending regulations prior to this year would have covered issues of fraud and exploitation.  The additional regulation goes far beyond the responsible role of government in preventing that kind of violation from a neutral position to actively seeking a desired outcome from market activity, namely the destruction of a $35 billion a year industry.  It seems, at least from this report, that the government has once again failed to learn about an industry before attempting to regulate it out of existence, in the same manner ObamaCare threatens private health insurance.


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I don’t care what they say – I saw a lot of Sailor’s lives destroyed by these abhorrent entities.

Hell – we’re regulating Tanning Salons now but not Payday Lenders.

World Turned Upside Down.

HondaV65 on November 11, 2010 at 2:57 PM

I blogged about this years ago. There’s an even worse one out there from some Indian Tribe, who does a 133% interest rate. Gary Coleman used to do one for 99%.

lorien1973 on November 11, 2010 at 3:00 PM

Hey, give them a break. It’s one of the few growth industries in the Age of Obama. What else is there? Repo man? Nightrain wine salesman? Being the guy who kicks people out of the houses they can’t afford?

forest on November 11, 2010 at 3:00 PM

Payday Lending is a frigging rip-off of the highest (or lowest) caliber!

You are facing finance charges here that would make the likes of George Soros howl, and it is just not worth the hassle.

It’s better to just plan ahead and avoid these con artists altogether!

pilamaye on November 11, 2010 at 3:01 PM

Amazon should sell books about how to payday loan, and payday loaners should be allowed to serve openly in the military.

Akzed on November 11, 2010 at 3:02 PM

I don’t think they’re immoral, but I do think in most instances they’re exploiting people. Let ‘em operate, but educate people that going to one is an extremely bad idea.

changer1701 on November 11, 2010 at 3:02 PM

When payday loaners are outlawed, only outlaws will be payday loaners.

Mob loan sharks are no doubt lobbying for their competition to be driven out of business.

Akzed on November 11, 2010 at 3:04 PM

caveat emptor.

ted c on November 11, 2010 at 3:06 PM

“This is just one of the many ways in which self-righteous busybodies leave havoc in their wake, while going away feeling noble.”

Sorry to keep beating this drum, but Tom Sowell & co. have examined this already…I believe in one of his recent books.

Here’s an article I found quickly.

visions on November 11, 2010 at 3:08 PM

and they also have to absorb large amounts of losses,

So payday loans are basically frauds. . . with the honest but desperate mark paying usury rates to cover the fraud. Basically a license to steal.

Skandia Recluse on November 11, 2010 at 3:09 PM

I used to run a day labor place and a lot of our employees used these places. More than once these guys lost their cars to these places. They did not understand the terms of the deal.

I have mixed feelings about them. They charge high fees to cash checks. Many of these people would cash checks at banks if the bank cashing were less. It sort of forces people to these places that do not have bank accounts.

It was pretty hard to have employees once the light came on that they were screwed trying to hold back the tears. But then again no one else will loan these people money. They do exploit a lot of people.

USBB on November 11, 2010 at 3:09 PM

The fees might be outrageous but just because they have less money doesn’t mean the people getting the payday loans don’t understand the terms before they get it.

You can go a hell of a lot deeper into debt with an AMEX Gold Card than you can with Payday Loans and AMEX doesn’t care one way or another about you either. At least Payday Loan Sharks have to look their customers in the face.

jimmy the notable on November 11, 2010 at 3:14 PM

Good Lord when will this nanny state BS end. People go to these lenders and they pay whatever interest they have to pay because they are desperate. Desperate people do stupid sh!t. We can’t get rid of desperate people so we need these lenders to make them less desperate. I would rather have these desperate people getting their money at a legit business than in an alley while holding a gun on some poor schmuck.

David in ATL on November 11, 2010 at 3:15 PM

And you can feel bad for the day laborers who lose their shitty cars for not “understanding” the terms, but do you think every student who signed up for a loan to pay for college understood those terms? Of course not. Do you think every person who ever got a credit card read the fine print? No. Does it mean that lending money should be illegal? No.

jimmy the notable on November 11, 2010 at 3:16 PM

It’s called the lesser of two evils, with leaving the free market alone being the lesser.

Shy Guy on November 11, 2010 at 3:18 PM

If they’re going to go after the payday loan people, they should also go after the instant tax refund people too.

NoNails on November 11, 2010 at 3:20 PM

Pay Day loans to me are somewhat like renting furniture or renting a washer and dryer. Both a total waste of the money your desperately chasing.

SgtRed on November 11, 2010 at 3:24 PM

In Las Vegas, these establishments have overtaken pawn shops. You can drive around and see empty Albertson’s parking lots, yet go by any of these pay-day loan operations and you’ll usually see quantity of autos. But, I think they serve another purpose; to cash a check —-you know, the people, for whatever reason won’t use a bank.

betsyz on November 11, 2010 at 3:27 PM

I believe it was called usury in the bible. The Jews were prohibited from doing it if I recall correctly.

scotash on November 11, 2010 at 3:29 PM

The issue isn’t whether using payday lenders is a bad idea. The issue is whether we as adults are going to be allowed to make our own decisions, or a wiser-than-you government functionary is going to make them for us.

Where does this nanny-statism end?

Cicero43 on November 11, 2010 at 3:29 PM

Payday loans are not exploitation, calm down people. Yeah some people get screwed, but this is the way life is. Everyone knows someone who “isn’t good with money”. I’ve used these kinds of things when I was young and dumb and broke 2 days before payday. If anything, the high fees discourage routine use of this kind of loan. There are many times when I dug in my sofa for loose change or returned a bunch of empties to put gas in my car so I could make it to work for a couple days. The reason I didn’t walk down the street and get one of these loans was the high cost. I finally learned to put off immediate satisfaction and built the discipline to budget because of this. Payday loans are far less of a ripoff than credit cards, and far less easy to abuse.

Mord on November 11, 2010 at 3:30 PM

Pay Day loans to me are somewhat like renting furniture or renting a washer and dryer. Both a total waste of the money your desperately chasing.

SgtRed on November 11, 2010 at 3:24 PM

Agreed. Payday lending and furniture rental are a total rip off. $3K for a ordinary living room set? Give me a break. But if that’s what people want to do, I don’t think the govt should get involved.

Tasha on November 11, 2010 at 3:30 PM

I have a bit of sympathy for the payday loan consumers, but people doing the rent-to-own thing with flat screens get what they deserve.

rw on November 11, 2010 at 3:33 PM

Hell yes. The two-legged roaches who run those places are as bad as pawn shops.

Dark-Star on November 11, 2010 at 3:35 PM

Highway Robbery!

canopfor on November 11, 2010 at 3:36 PM

So payday loans are basically frauds. . . with the honest but desperate mark paying usury rates to cover the fraud. Basically a license to steal.

Skandia Recluse on November 11, 2010 at 3:09 PM

Hole in one Skandia.

Dark-Star on November 11, 2010 at 3:37 PM

It’s usury. It blows.

We had some Christian friends who ran one of these places. I never understood how they reconciled that one.

29Victor on November 11, 2010 at 3:37 PM

I used to run a day labor place and a lot of our employees used these places. More than once these guys lost their cars to these places. They did not understand the terms of the deal.

Not to wander to far afield, but this is another area where “public education” has failed. Many, many years ago in my elementary school days, we were required to many of this type of computations in our heads. Now you can’t even insist that an elementary student learn that 2 + 2 doesn’t equal 17. You might damage his self-esteem. So much more important that kids know that it’s OK for Heather to have two mommies.

Home school.

Yes.

It’s THAT important.

oldleprechaun on November 11, 2010 at 3:39 PM

And you can feel bad for the day laborers who lose their shitty cars for not “understanding” the terms, but do you think every student who signed up for a loan to pay for college understood those terms? Of course not. Do you think every person who ever got a credit card read the fine print? No. Does it mean that lending money should be illegal? No.

jimmy the notable on November 11, 2010 at 3:16 PM

Jimmy, I didn’t say they should be illegal. But yeah, I always felt bad when I had someone who was struggling, trying, working, doing they best they could not to be on welfare suddenly realized they were screwed.

I don’t think it is necessary to list every injustice in the world to express sympathy for a particular injustice. Sorry you didn’t understand your student loans–or at least you make it appear that you have have signed paperwork of some type that you did not understand. Just because you got screwed doesn’t mean it is ok for others to be screwed too.

USBB on November 11, 2010 at 3:40 PM

I can’t really find much sympathy for payday lenders.

sharrukin on November 11, 2010 at 3:41 PM

My bank offers “overdraft protection”. Its sooo much better, only charging $30 for every transaction in the red…

Or not if you need money for more than one thing.

A bank offers a service that’s functionally the same, but can cost way more (go over $1 its still costs $30) and its the payday lenders who are vilified?

taznar on November 11, 2010 at 3:41 PM

I see both sides. It is ridiculous, but what is the % of people who cannot repay the loan? If they give a loan out and a majority don’t repay, then this is a market driven rate.

jeffn21 on November 11, 2010 at 3:42 PM

We had a ballot proposition about payday lenders in the last election. October 1st of this year, payday lending was elimintated. I notice that a place near me is still doing check cashing and title loans, but have removed their “payday loan” signs. I’m sure they’ll find a way to stay in business.

azkenreid on November 11, 2010 at 3:43 PM

As antidote, just walk into any major casino on a Friday. The queues are usually 40 people deep. They’ll cash your payroll check for free. As an observer, just guess what I have discovered.

betsyz on November 11, 2010 at 3:43 PM

Report on Predatory Lending Practises Directed At Members
Of The Armed Forces And Their Dependents
=========================================

There are on-going efforts to persuade Service members not to fall victim to the lure of easy credit to solve their financial concerns, and to consider several better options. As a result, Service members are doing better with their finances, though considerable predatory lending problems still remain.

For example: Active duty Air Force E-4, assigned to Maxwell AFB, AL, originally obtained a $500 payday loan with an agreement to pay back $600 in two weeks. She then took out other payday loans and was forced to do multiple rollovers on each one. To pay off these loans she contacted an installment loan company who provided her with a $10,000 loan at 50 percent annual percentage rate (APR). Total cost to pay off the payday loans was $12,750 and her total obligation to the installment loan company was $15,000. Her financial problems were a contributing factor to her pending divorce.

http://www.defense.gov/pubs/pdfs/report_to_congress_final.pdf

canopfor on November 11, 2010 at 3:47 PM

Just GO to any gambling operation in Vegas. They pretty much have the same scam; cash your working-wages, payroll check for nothing. Just observe people with cash in hand.

betsyz on November 11, 2010 at 3:47 PM

Another huge scam. Don’t ever, ever enroll with a bank that offers protective “overdrafts” gigantic sum of money out of your wallet.

betsyz on November 11, 2010 at 3:50 PM

will the new regulations wind up hurting the people Obama and Congress brag about protecting?

That’s what happens with most regulations. Promise to protect the “little guy” while in reality it typically has the opposite results, instead hurting the little guy.

modnar on November 11, 2010 at 3:56 PM

Before outlawing Payday lending, we need to outlaw penalties for late payments by utilities, credit card companies, cable and phone companies and the IRS.

Payday lending has far superior interest rates to Con Ed.

levi from queens on November 11, 2010 at 3:58 PM

I have a solution. How about the US Government force banks to make loans to people who don’t have the means the enforce the loans, yet and similar interest or lower interest than those who have the means and can afford the loans?

That seems completely fair!

Nethicus on November 11, 2010 at 3:59 PM

I don’t like the rates they charge, but as others have already said, the people getting these loans usually can’t do any better anywhere else, and with the high rate of loses, it’s not as though they can afford to charge much less and still stay in business. I mean, there’s a reason these people can’t get loans anywhere else, and I don’t really have a problem with these loans being expensive. People should be discouraged from taking these loans.

To those saying people have had their lives destroyed by this, how is it any different from someone’s life being destroyed by legal alcohol or gambling? I feel for those who find themselves in this position, but in many, many cases, this could have been avoided with a little more responsible spending.

I have mixed feelings about them. They charge high fees to cash checks. Many of these people would cash checks at banks if the bank cashing were less. It sort of forces people to these places that do not have bank accounts.

USBB on November 11, 2010 at 3:09 PM

I’m not sure what you’re talking about here. Aren’t most of these places primarily for loans and not check cashing? There are a ton of places that will cash a check for you that don’t give loans, and if you go to the bank that’s on your check, they do it for free. So I don’t really get the problem on that specific issue.

Esthier on November 11, 2010 at 4:11 PM

For example: Active duty Air Force E-4, assigned to Maxwell AFB, AL, originally obtained a $500 payday loan with an agreement to pay back $600 in two weeks. She then took out other payday loans and was forced to do multiple rollovers on each one. To pay off these loans she contacted an installment loan company who provided her with a $10,000 loan at 50 percent annual percentage rate (APR). Total cost to pay off the payday loans was $12,750 and her total obligation to the installment loan company was $15,000. Her financial problems were a contributing factor to her pending divorce.

Please don’t think I’m trying be humorous here. This woman got herself into trouble financially, compounded her problem with an unwise decision regarding a loan and ultimately un-did her marriage. I don’t know if it’s still the same as when I served in the Navy, but excessive indebtedness would earn you a Section Eight. But reading through this again, borrowing to pay off debt; isn’t that the same thing Congress is doing to “we the people”?

oldleprechaun on November 11, 2010 at 4:14 PM

If they’re going to go after the payday loan people, they should also go after the instant tax refund people too.

NoNails on November 11, 2010 at 3:20 PM

Both are like the lottery: “a tax on people who are bad at math”

Seriously though, many people sometimes either have no idea what the rates are or the real cost of this instant money is — or sometimes they know, but they need to pay that car repair NOW to get to work so they won’t lose their (low paying) job. Then their old car breaks down a couple months later – lather rinse repeat.

I have a bit of sympathy for the payday loan consumers, but people doing the rent-to-own thing with flat screens get what they deserve.

rw on November 11, 2010 at 3:33 PM

My feelings exactly, for the reasons above.

inviolet on November 11, 2010 at 4:21 PM

I don’t have a problem with payday loans in principle. I know friends who used them. I always thought it was almost always a bad idea… but free will leads people to do things that don’t always make sense to other people.

And sometimes they are necessary.

So if you have to pay $50 for a payday loan of $350, that’s the cost of business.

However…if some guy got a payday loan, and then fell further and further behind, and couldn’t pay it off for like 8 months, and his $350 payday loan ended up costing him thousands of dollars… then I start to have a problem with this.

That is no different from a loan shark kicking your ass and taking your car.

Except the payday loan people just take your car. So at least the victim has that. Small favor.

EFG on November 11, 2010 at 4:22 PM

Do you think every person who ever got a credit card read the fine print? No. Does it mean that lending money should be illegal? No.

jimmy the notable on November 11, 2010 at 3:16 PM

What really used to frost me is when I would go to sign a car loan agreement, or an apartment lease, etc etc, they hand you like the five pages or whatever and then stand over you sighing like “just sign it; this is all it says” (and I’m a very fast reader).

It took a real effort to be be polite as I reminded them that anything I was signing I was going to have to live up to, so I was going to read it, and all of it. Never got any attitude after that.

inviolet on November 11, 2010 at 4:24 PM

It took a real effort to be be polite as I reminded them that anything I was signing I was going to have to live up to, so I was going to read it, and all of it. Never got any attitude after that.

inviolet on November 11, 2010 at 4:24 PM

I do apartment leases all the time as part of my job. My approach is customized to each tenant. If they are first time renters, I make sure to go through each paragraph so everything is clear. If they are experienced renters, I’ll give it to them and let them know that we can go through this lease as fast or as slow as they want, but it is a pretty standard lease with no clauses that are out of the norm from any other lease. If they want to burn through it quickly, I’m cool with that. If they want to read the fire print, I’m cool with that too.

EFG on November 11, 2010 at 4:29 PM

I like your approach to pushy salesmen/landlords though.

EFG on November 11, 2010 at 4:31 PM

It took a real effort to be be polite as I reminded them that anything I was signing I was going to have to live up to, so I was going to read it, and all of it. Never got any attitude after that.

inviolet on November 11, 2010 at 4:24 PM

Exactly! Its YOUR money. You are an adult and you deserve to understand terms that you are signing. If people don’t want to behave like adults because they want the government to protect them from all risk then this country is destined to fail. If they really want your money, then they shouldn’t have a problem waiting 5-10 minutes for you to read the fine print.

I don’t think it is necessary to list every injustice in the world to express sympathy for a particular injustice. Sorry you didn’t understand your student loans–or at least you make it appear that you have have signed paperwork of some type that you did not understand. Just because you got screwed doesn’t mean it is ok for others to be screwed too.

USBB on November 11, 2010 at 3:40 PM

I absolutely did get deep in student loan debt. Did I get screwed? No. I should have understood better what exactly it was that I was doing. Now I do and I’m so much better off because of it, and if I have to be in the hole to learn that, then so be it. I don’t believe I got screwed because the loan companies had all of the fine print available for me to read and I CHOSE not to read it because I wanted the money. Nobody can get screwed by a company if they understand exactly the terms they are signing off to. The people who don’t do that have my sympathies but I don’t want to screw over all of the people who CAN pay back those loans by depriving them of a system that allows them to get by if something happens just because some people chose to act immaturely with their money.

jimmy the notable on November 11, 2010 at 4:31 PM

They might be a better option than getting 5 overdraft charges at 35 bucks a piece.

Vera on November 11, 2010 at 4:31 PM

It’s certainly immoral, as is the state-sponsored immoral innovation of Lotto.

But I would let the market determine its destiny.

Forget all of the micro-managing by the the state and Federal governments.

molonlabe28 on November 11, 2010 at 4:34 PM

I do apartment leases all the time as part of my job. My approach is customized to each tenant. If they are first time renters, I make sure to go through each paragraph so everything is clear. If they are experienced renters, I’ll give it to them and let them know that we can go through this lease as fast or as slow as they want, but it is a pretty standard lease with no clauses that are out of the norm from any other lease. If they want to burn through it quickly, I’m cool with that. If they want to read the fire print, I’m cool with that too.

EFG on November 11, 2010 at 4:29 PM

Sounds like yours is a very good system, and respects each tenants’ prefs as well as what they may not even know they need to focus on (i.e. the new renters).

Topic’s fresh in my mind because I bought a new car about a month ago and the guy saw me starting to skim the contract (I really do read pretty fast) and he gave a big sigh and actually said, “you don’t need to read it all, it just says [X]“. I was civil but I think he knew I was somewhat irritated. And I did read it all.

inviolet on November 11, 2010 at 4:42 PM

Look, sometimes you need money when no one else will give it to you. They provide a service some people need.

SouthernGent on November 11, 2010 at 4:49 PM

The business model is basically a float — a way for so-called “wage slaves” to meet pressing obligations in advance of the next paycheck. That often means the difference between eating and starvation, having the power on, or even keeping a roof over one’s head. But it comes at a stiff price, at least in terms of the short-term transaction. The consumer pays a significant amount of interest in the short-term loan, which regulators see as exploitation.

It is.

The trouble with typical payday loans is clear. Let’s say you borrow the maximum $300 — giving you $255 after the $45 fee. You guarantee repayment in full from your next paycheck, but by then other bills are due. You can’t pay back the first loan and must take out another. The typical borrower in California ends up taking out 10 loans per year before he or she can break the cycle, according to the California Budget Project.

The fees are economic body blows for low-income families. According to the Center for Responsible Lending, charging $45 on $300 adds up to a whopping 459% annual interest rate, the maximum allowed in California. No wonder 15 states and the District of Columbia have capped interest rates to ban these types of loans.

Yes, they certainly provide a service.

Montana’s new cap: 36%

I think a 36%APR ought to meet almost anyone’s business model; I doubt payday lenders will go broke with that kind of profit. Now, admittedly, it isn’t a 459%APR, but you can’t have everything.

unclesmrgol on November 11, 2010 at 4:58 PM

some of you folks crack me up…evil payday lenders, evil pawnbrokers, evil rent to own companies, evil instant tax return companies…give me a break. People who use these services do so of their own free will. In my experence you know the terms before you agree to the service. If you get a payday loan they tell you the repayment will be x dollars on or by x date. They don’t hide the cost. People who use these types of services do so because they see no other option. When money was tight I used pawnbrokers as opposed to payday loans but I did so knowing the cost and the consequences of not completing my contract. You all really think that the service providers are to blame? They are just filling a market. If no one used the service the company would not be in business. The government should work on improving the economy not babysitting adults who are free to make bad choices.

JKotthoff on November 11, 2010 at 5:05 PM

Know what chafes me? People who get into a situation where they need to borrow from a “legal” loan shark (payday lender) and then whine and cry about what a bastard the payday lender is.

People. If you had your financial house in order, you wouldn’t be paying 133% interest.

Example: My 19 year old daughter tells me that she took her Christmas present laptop computer to a pawn shop because she need money for her power bill. “Dad, it’s only $30 per month for a $100.00 loan.” I then explained to her that she borrowed money at an annual percentage rate (APR) of 360 percent. (360%) Now, did I get all pissed off at the pawn shop? Or my sweet little 19 year old?

BigAlSouth on November 11, 2010 at 5:32 PM

Once again, progressive socialists feel that the citizenry can’t decide for themselves how to run their own affairs, and feel they have to intervene to “save” the stupid masses from themselves.

keep the change on November 11, 2010 at 5:36 PM

I think a 36%APR ought to meet almost anyone’s business model; I doubt payday lenders will go broke with that kind of profit. Now, admittedly, it isn’t a 459%APR, but you can’t have everything.

unclesmrgol on November 11, 2010 at 4:58 PM

If a company is running at a 10% profit how do you expect them to stay in business, if you reduce their income about 92%?

Slowburn on November 11, 2010 at 5:38 PM

The interest rates are high because of the default rate, people. These are unsecured loans. Banks don’t give loans like that. If someone wants/needs cash now, unsecured, and probably with bad credit to boot, where are they supposed to go?

keep the change on November 11, 2010 at 5:39 PM

When payday loaners are outlawed, only outlaws will be payday loaners.

Mob loan sharks are no doubt lobbying for their competition to be driven out of business.

Akzed on November 11, 2010 at 3:04 PM

The lesser of two evils scenario rears its ugly head — this is worth thinking about. If there is a vacuum in the market, who will fill it?

Great point, Akzed.

hillbillyjim on November 11, 2010 at 5:46 PM

You know what else is really bad… drinking alcohol and smoking cigars. Lets ban those too.

I don’t smoke anything, I rarely drink, I have never used a payday loan place. Nobody is forcing anyone to use them, nobody puts a gun to anyones head. So all of you who think payday loan places need to be shut down because they are so horrible and bad, feel free not to use them also.

AndrewsDad on November 11, 2010 at 5:47 PM

Joe Peschi says:

Yooz goombaz betta watch it.

hillbillyjim on November 11, 2010 at 5:48 PM

I don’t believe in outlawing. I think the whole point of the article was to highlight how prominent these lending places have become in the past few years. More of a sick symptom of the bigger disease.

betsyz on November 11, 2010 at 5:53 PM

i can’t believe that any conservative on Hotair would endorse the regulation and/or banning of payday loans, or any other industry into which adults freely enter. That is the kind of nanny-state thinking that we mock on the right. I think those people need to reexamine their free-market principles.

keep the change on November 11, 2010 at 5:56 PM

It’s dangerous. It’s very close to usury. These lenders are barely a step above loan sharks.

But it’s possible that you really do need that money just a little bit early, and it’s worth a high fee to get it. I’m leery of banning practices that can serve a legitimate purpose because they have the potential for abuse.

Unfortunately, the more the government gets involved in nanny statism, the more likely people are to assume that questionable things are safe, or the government would have banned them.

Getting bit by this type of business, or by high-interest consumer loans can at least have the benefit of teaching you to look out for yourself rather than expecting the government to look out for you.

tom on November 11, 2010 at 6:00 PM

I’m not averse to educating the “folks” as O’Really would say, but if you outlaw these services, it will only fuel the loan shark industry, as Akzed alluded to earlier.

hillbillyjim on November 11, 2010 at 6:11 PM

I can’t really find much sympathy for payday lenders.

sharrukin on November 11, 2010 at 3:41 PM

I can’t really find much sympathy for payday borrowers. The majority of the borrowers have drug, alcohol or gambling problems. Not exactly the “plan ahead” types. They spent their living money on their habits.

Vegas Casinos cash pay checks at no charge, I assume their business (payday loans) in Vegas come from people who do have bank accounts. These businesses also let you write a check and hold it until a set date for a fee.

IowaWoman on November 11, 2010 at 6:29 PM

Every one of you who says the rates are too high… Here’s my challenge to you:

Invest some of your own money in a competing business that will charge “reasonable” rates (as you define it). Because your rates will be so much lower, you’ll get all the business away from these “unreasonable” operators, right?

Oh, what’s that? Not willing to put your money where your mouth is? Then STFU, and whatever you do, don’t send Men With Badges And Guns to force someone to offer a service at a rate less than what you’re willing to do. Only two people get to decide how much a good/service is worth: The buyer and the seller.

The Monster on November 11, 2010 at 6:42 PM

LEST WE FORGET:

Jimmy Carter is directly responsible for today’s “payday lending”!!! His incompetent administration, which gave us out-of-control inflation and double-digit mortgages, caused every state in the union to repeal their long-standing usury laws just so their economies would not stop altogether.

Payday lending is legal only because the usury laws in effect when Carter took office have not yet been reinstated.

landlines on November 11, 2010 at 6:45 PM

I ran a small loan business that had nine “stores” located across two states. We charged up to 990% (you read that right) annualized interest. Most people who paid, paid in a few days. A $300 loan at 900% interest is about $52.00 for a week. For most of our customers, the $300 now was much more important that the $52 later. If they could have gotten the money anywhere else, they would have. We were lenders of last resort. The owner of the loan company (not me) was doing quite well. He was making substantially more than 10%. It was hard to work in the business, because you felt so sorry for the people who had to use it, but they were desperate and had nowhere else to go. Without our stores, they would have been even worse off.

Buford Gooch on November 11, 2010 at 6:46 PM

I think a 36%APR ought to meet almost anyone’s business model; I doubt payday lenders will go broke with that kind of profit.

Socialist-in-Chief Barack Obama would not have said it any different. “I do think that at some point, you’ve made enough money.”

Sounds kind of shocking when the statism comes out of your own mouth, doesn’t it?

Cicero43 on November 11, 2010 at 6:46 PM

The main problem here is the assault on Federalism: not the rates charged.

Why should the Federal Government dictate payday loan rates, rules, or regulations for the entire country??? The Feds have the LEAST knowledge of what is going on, and the LEAST knowledge about why people want or need a payday loan.

Before Carter, this was a LOCAL matter governed by State and Local authorities.

I say, “let a thousand experiments take place” to discover the best way to handle (or NOT handle) payday loans. Leave it to the LOCALS!!! The Feds will only create a giant, stinking, mess with too many nonsense regulations and no benefits for anyone!!! The Feds might even require you to strip naked to qualify for a loan (ala TSA)!!

landlines on November 11, 2010 at 7:01 PM

What is immoral are the Payday companies going door to door forcibly removing from their homes and at gunpoint making them take out a loan./

CWforFreedom on November 11, 2010 at 7:48 PM

I’m not sure what you’re talking about here. Aren’t most of these places primarily for loans and not check cashing? There are a ton of places that will cash a check for you that don’t give loans, and if you go to the bank that’s on your check, they do it for free. So I don’t really get the problem on that specific issue.

Esthier on November 11, 2010 at 4:11 PM

Those places do both check cashing and loans. It is NOT TRUE that a bank on which the check is drafted will cash it for free–they used to do that. Most banks at least in this area will not a cash it for free unless you have an account with them. They will charge you a fee of $5-10 to cash a check drawn on their bank.

USBB on November 11, 2010 at 7:48 PM

Hell yes. The two-legged roaches who run those places are as bad as pawn shops.

Dark-Star on November 11, 2010 at 3:35 PM

No surprise. You are an idiot on this subject too.

CWforFreedom on November 11, 2010 at 7:48 PM

They might be a better option than getting 5 overdraft charges at 35 bucks a piece.

Vera on November 11, 2010 at 4:31 PM

Tell that to dummies like DarkStar

CWforFreedom on November 11, 2010 at 7:49 PM

I ran a small loan business that had nine “stores” located across two states. We charged up to 990% (you read that right) annualized interest. Most people who paid, paid in a few days. A $300 loan at 900% interest is about $52.00 for a week. For most of our customers, the $300 now was much more important that the $52 later. If they could have gotten the money anywhere else, they would have. We were lenders of last resort. The owner of the loan company (not me) was doing quite well. He was making substantially more than 10%. It was hard to work in the business, because you felt so sorry for the people who had to use it, but they were desperate and had nowhere else to go. Without our stores, they would have been even worse off.

Buford Gooch on November 11, 2010 at 6:46 PM

Great example. I briefly worked for a consumer lender that charged around 30% interest at a time when you could usually get 18%. I had a hard time justifying it because I knew while making the loan that it was not good practice. Some would borrow about $1000 at 30% interest, start having trouble paying off their loans about halfway through the term, and roll it over into a new loan for a few hundred more at 30% interest. So they wound up paying interest on the interest they owed from the last time they borrowed.

Spectacularly bad financial practice. But the people who borrowed the money needed it, and even though they were paying more in the future for the privilege of money now, it was worth it to them.

But don’t blame the finance company. When your need for money is desperate, paying more later may well be worth it to escape the current crisis.

tom on November 11, 2010 at 7:50 PM

Pay day lending is clearly not immoral. To try to stop it is immoral. You do not have to use it.

proconstitution on November 11, 2010 at 8:01 PM

I’m having trouble getting past Montana being referred to as the “Land of the Shining Mountains.” I’ve never heard my state called that before.

acasilaco on November 11, 2010 at 8:11 PM

Seems to me that there is plenty of competition in that market. Unless you want to argue that the loans themselves are addictive and harmful, I don’t think there is much cause to regulate. The rates should be held in check by the fact that the customer has a number of choices.

Count to 10 on November 11, 2010 at 8:20 PM

It’s simple. If you think they’re immoral then don’t use them.

The biggest lobby against these payday loans is…You guessed it (or should have). Big banking. See, banks would rather these poor people just open checking accounts and then bounce checks. That’s a $30 bounced check fee from your bank plus another $30 fee from the stores bank. What’s the interest on that for an $80 transaction? Way more than what these payday loan organizations charge.

This is a business of opportunity and while it is unfortunate that some must use it to get by it serves it’s purpose. Leave this, and all other industries alone Uncle Sam.

I’ve seen a few people posting here that they know of people who have ruined themselves using these services. Well, that’s too bad and they shouldn’t have. It is a tool that is to be used the way it is designed. If these people abused the tool then, like all abused tools, they either break or they break you.

watson007 on November 11, 2010 at 8:53 PM

Payday loans with those kind of (yes, necessary) interest rates are just plain evil. It leads ignorant people down a terrible hole. Period.

disa on November 11, 2010 at 9:20 PM

If you think these Payday places are bad, just wait till you’re a victim of identify theft and you have to deal with the Bank of America. They treat you as the criminal and immediately report you to credit agencies so your credit rating falls into the pit. Dealing with the Bank of America is almost enough to make one a flaming liberal. But not quite.

Dhuka on November 11, 2010 at 9:53 PM

Damn right put lots of regulations on those Amscot et al payday lenders; they are killing my loan business. I do 2 for 3 and 3 for 5 and I am having a hard time keeping customers. I am a small business and I need your help obamah.

jarhead0311 on November 11, 2010 at 10:13 PM

Bruthuh can u spare me a dime?

hillbillyjim on November 11, 2010 at 10:32 PM

I think a 36%APR ought to meet almost anyone’s business model

Is that you, Obama?

I think we should cap all wages at $35,000. That should be enough to meet almost everyone’s needs.

xblade on November 11, 2010 at 10:39 PM

HondaV65 on November 11, 2010 at 2:57 PM

That and unscrupulous car dealers are the two top financial killers if young soldiers/sailors/airmen/marines.

I’m torn. Just because something fills a market “gap” does that make it justified? Payday loans, like leasing cars, and Rent-to-own establishments, are bad financial decisions, but does that mean we should “protect” others from exercising their God-given right to make bad financial decisions?

I suspect Reason T.V. might just have found the only non-slimy Payday loan proprietors, what with their talk of dignity and all.

I don’t know. Too complicated for me to solve.

Rightwingguy on November 11, 2010 at 10:50 PM

watson007 on November 11, 2010 at 8:53 PM

Just read your comment after posting mine.

Your point about bounced check charges versus a Payday loan is in fact a very good one. Ideally, a person should never reach the stage where either happens, but then again, it isn’t the government’s job to protect people from bad circumstances beyond their control or bad decisions.

Rightwingguy on November 11, 2010 at 10:53 PM

This is kind of funny:
I’m taking the classes that Dave Ramsey does and he calls PayDay Lenders the scum of the earth.
I get why PayDay lenders are there. I get what their function is, but I do agree with Dave Ramsey on this one. People are getting screwed.
At the same time, if people don’t read the contracts/terms of lending, then it’s not really the Lenders’ fault. Adults need to figure out what they are getting themselves into.
It’s like Adjustable Rate Mortgages or Credit cards. Figure it out, then decide if you want to do it.
It’s hardly the business’ fault if people are stupid morons who can’t read.

mjk on November 11, 2010 at 11:29 PM

My bank offers “overdraft protection”. Its sooo much better, only charging $30 for every transaction in the red…
Or not if you need money for more than one thing.
A bank offers a service that’s functionally the same, but can cost way more (go over $1 its still costs $30) and its the payday lenders who are vilified?
taznar on November 11, 2010 at 3:41 PM

Simple: Don’t spend money you don’t have. Its your responsibility to keep up with your finances.

Overdraft fees are easily avoided and people complain that the bank secretly takes money from them. The bank I work for gets all kinds of complaints like this. Next time, keep up with your finances.

Besides, the laws had already changed regarding overdraft fees. You should have recieved a letter from your bank. By default, instead of allowing a transaction your debit card gets declined if you don’t have the funds. That is unless you opt in to allow transactions and pay the overdraft fee.

Don’t think going to a credit union will get any better, many will kick you out if you overdraft often.

Dealing with the Bank of America is almost enough to make one a flaming liberal.

I’ll admit, they’re probably the worst in customer service in the industry. My mortgage was bought by them but so far I never missed a payment.

Lay-Z on November 11, 2010 at 11:47 PM

When loaning money is outlawed, only outlaws will loan money.

percysunshine on November 12, 2010 at 7:33 AM

I know a lot of folks who use AMSCOT (huge payday lender) when they are desperate. There is no other place for them to go! If you are elderly, poor, no family, and need money for rent b/c of an unforeseen expense, you can go to AMSCOT and borrow $300 and pay them back $331 in two weeks. Your social security comes in and you pay it off. People use it to EAT, or to HAVE A PLACE TO STAY. I’ve been there, too. AMSCOT is not shady, is well-run, people are friendly, terms are CLEARLY stated, contract signed, they have an abuse line to call if you feel pressured or confused in any way. I’d rather lose $31 than go two weeks begging for food on the street or sleeping next to a dumpster. Unless there is a govt program or alternative service out there, who are we to deny people this service? Oh yeah, govt shouldn’t help, of course. And private sector shouldn’t play a role, either? Whatever

RW Wacko on November 12, 2010 at 7:47 AM

No surprise. You are an idiot on this subject too.

CrazyWingnutfor’Freedom’ on November 11, 2010 at 7:48 PM

People who live in cardboard houses shouldn’t play with flamethrowers.

Dark-Star on November 16, 2010 at 2:28 AM