Payday Loans - Loan Sharks or Life Saver?

Published on January 26, 2007 By Dr Guy In Current Events

A few years ago, I noticed all these shops popping up. They were advertising short term loans for the cash strapped. Up to $500! For that short term loan to tide you over to payday. I did not think much of them, nor did I ever try to avail myself of them. I knew the catch without going in to check on it. They would charge a fee for a loan of a week or so. And annualized, that fee was worse than a cash advance on a credit card. How else could they do business?

But I figured that perhaps there were some fish out there that would swallow the spiel and take advantage of them. But since they were up front about the charges, I saw no problem. You make your own decisions.

The annualized interest rates turned out to be about 360+% or some such ungodly number. Ok, So? It is short term, and not mandatory.

But then our over protective legislature decided that "This MUST stop!". Because the rates were akin to loan sharking. Even though they opened the door for the loans to be legal. Until they went back to remedial math and figured out the annualized percentage rate.

I am sure there are many states that do not allow these type of loans. Pappa government must protect their little chicks. But I am curious. Does anyone think they are a bad idea? This is not a long term loan, but they company needs to make some money or they cannot stay in business (remember the joke about the Rolls Royce owner getting a $5k loan and using his car for collateral in ManHattan - and then paying it off in 30 days and the interest all $15 of it? Parking in Manhattan for 30 days for $15 dollars!).

Personally, while I have never done a cash advance on a credit card (due to the up front 2% fee plus macaroni and cheese is not a bad dinner), I would have had I ever been in those straights. But for others (as my wife is a paralegal in bankruptcy), I do understand that some just cant manage money to save a penny. So why not let them avail themselves of this service.

Or not. I guess I cant see why Papa Government would even care. And by deciding it is bad, they are basically going to shaft the poor (when was the last time a middle or upper income person needed a short term $500 loan?). The poor cannot go to a bank for a loan. So they have 2 choices. Payday, or Guido.

If I was there, I would chose Payday.

Comments (Page 1)

Gideon MacLeish

on Jan 26, 2007

They are a bad idea. But the solution is not in legislation, but in advocates for the poor putting their money where their mouth is. If you want to get rid of the payday loan places, start opening loan places that put them out of business with attractive rates for the poor.

Dr Guy

on Jan 26, 2007

If you want to get rid of the payday loan places, start opening loan places that put them out of business with attractive rates for the poor.

Interesting proposal coming from a libertarian. Seriously, the only way they can be put out of business is with government subsidies. Think about it. The only way these short term places can pay salaries and rent is to charge a "fee" and since the loan is so short, it has to cover those costs. Not many people would work for pennies a day. But for a reasonable rate, that is what they would have to.

I personally dont like them. And I dont understand the mentality that does. But as long as everything is up front, that is their decision. I am not their parent.

Gideon MacLeish

on Jan 26, 2007

Seriously, the only way they can be put out of business is with government subsidies.

No, that's not true, Dr. Guy. Why can't NONPROFITS like the Rainbow Coalition, etc, put money they've already extorted from businesses into the community in ways that help the poor instead of lining their own pockets?

Government subsidies aren't needed for a multimillionaire to put up their own cash to provide services to these communities. The interest rates, by the way, actually sometimes top 1000% APR...now, granted, some of these people take them to rent to own big screen TV's, or buy cigarettes and such, but some individuals actually use them for car repairs because they have no choice.

Gideon MacLeish

on Jan 26, 2007

Also, now that writing a bad check is a felony in many states, payday loan places have effectively brought back the debtor's prison.

SanChonino

on Jan 26, 2007

payday loan places have effectively brought back the debtor's prison.

This is a vicious cycle I see at the bank. People, rather than living from paycheck to paycheck, live from payday advance to payday advance. They lose so much more on interest than they'd care to realize.

I feel really bad for them; I wish there was something I could do, but there's nothing from my end of things that I could possibly do to fix things.

But, it is a cycle, and once you're in it, it seems inescapable.

MasonM

on Jan 26, 2007

I used one of these places once several years ago. My car was dead and I needed the money to buy parts to fix it. I didn't have enough cash so I did one of the payday loans. While the rate was absurdly high, it did allow me to repair my car so I could get back and forth to work.

The way I see it, if people are willing to pay these rates and feel like they need the money, what's wrong with it? Nobody is forcing them to use the service.

Dr Guy

on Jan 26, 2007

I stand corrected! I dont know the answer, but thank you for reinforcing my faith in you!

Dr Guy

on Jan 26, 2007

Also, now that writing a bad check is a felony in many states, payday loan places have effectively brought back the debtor's prison.

Not here (a felony). But I can see the rock and hardplace in states that are.

Gideon MacLeish

on Jan 26, 2007

The way I see it, if people are willing to pay these rates and feel like they need the money, what's wrong with it? Nobody is forcing them to use the service.

As far as the business is concerned, from a legal perspective, I agree. From a moral perspective, now there we get into a debate.

I also agree the government should not legislate these places. Because, as bad as they are, as you and I have discovered, sometimes, there are no alternatives. After you've hocked everything of value, you have to do something.

The people preaching against these places, though, are part of the problem, not part of the solution. They're doing nothing to help the poor and needy, they're just pointing at businesses that, for better of for worse, provide services that do potentially help the poor. As I said before, the solution would be for them to put their resources towards providing other solutions.

If people can start loan coops in third world countries without subsidies, why the heck can't it be done here?

Dr Guy

on Jan 26, 2007

But, it is a cycle, and once you're in it, it seems inescapable.

Good perspective. And true. But the cycle is in the need to have everything. When I was in college, I worked a 40 hour week (Jr and Sr. Year), and went to school 18 credits a semester. My car died. And I thumbed. To work and school. And I did not have a TV.

Today, everyone (IMHO) thiniks they have to have it all, with no consequenses. Perhaps this is their slap in the face. So that they realize, you deal with what you have, not what you want.

Dr Guy

on Jan 26, 2007

The way I see it, if people are willing to pay these rates and feel like they need the money, what's wrong with it? Nobody is forcing them to use the service.

Those are the people they are using in their ads (both promoting it and to lobby your legislators to keep their mitts out of it. Once or twice seems to some to be ok. Living like that is an addiction as bad as a drug habit.

I support them for people in your past situation. But I know it will be abused (or the users will be) by others. Still, it is their choice.

Dr Guy

on Jan 26, 2007

Now that is the Gideon we know! And I totally agree! (quoted part abreviated).

No argument from me!

SanChonino

on Jan 26, 2007

Today, everyone (IMHO) thinks they have to have it all, with no consequences.

I've thought a lot about this lately, especially since I see it a lot more often now in college than I noticed it before. In my local conservative rag, the Deseret Morning News, they had an op-ed piece about it. Here are some excerpts to make you think a bit:

"In 1966, 42 percent the freshman class at UCLA said they thought it was essential or very important to be 'very well off financially.'
"Fast forward 40 years. Nearly three-quarters of UCLA freshmen surveyed in 2006 said being affluent is very important to them. A Pew Research Center poll mirrored those results. It found that among 18- to 25-year-olds in this country, 80 percent see getting rich as a top goal for their generation."

"Research has determined, when adjusted for inflation, that today's parents spend 500 percent more money on their children than just one generation ago. It's almost as if parents have an "allergic reaction" to their kids being unhappy."

Read the article here.
It seems like everyone wants to get rich. It's the gimmie-gimmie-gimmie attitude that permeates the younger generation. (Yes, I'm part of this younger generation.

) I don't know how we got so broken in the head, but I wish we could fix it.

Dr Guy

on Jan 26, 2007

don't know how we got so broken in the head, but I wish we could fix it.

HOw is easy. Because we (America) are more affluent. And kids dont want to start out with nothing, they want to go from Mom and Dad's lifestyle to the same thing, as soon as they leave the nest. Not realizing that Mom and Dad took 40 years to get there, and did not start out that way.

Dr Guy

on Jan 26, 2007

On a side note, any one object to Blue Hippo? I mean when was the last time anyone paid $1560 for a starter computer? Yet they are a thriving business (a friend actually worked for them for a while). It is the same thing. Like Rent-a-Center and such. People who want it all before they can afford it.

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