Reframing the Debate about Payday Lending

Yes, they absolutely do charge refinancing and rollover fees. They don't call them that, of course, so they can skirt state consumer protection regulations, but that's what they are. And oh yes, they get their users to take out new loans to pay off the interests on the first loans. That's actually their entire business model. You know what proportion of payday lender's business comes from this exact thing? 76%! (http://www.responsiblelending.org/payday-lending/research-an...)

Their business model is wholly and fundamentally based on the inability of non-creditworthy people to keep their obligations. If their customers paid back everything on time, they would go out of business instantly. That is what I call unethical. At best.

Then again, that's a bit of a straw man argument. We don't let people buy and sell organs, regardless of whether we could ensure that they were paid a fair price in an efficient market. Maybe the answer is, if the true break-even interest rate to lend to this market is 300%, then perhaps the moral answer is to not participate.

While I am a huge defender of the payday loan industry, I should note that it does deserve scrutiny: I have worked in the industry and it is a magnet for scammers who prey on poor and uneducated people because doing so is easy and low-risk.

Here's an example: http://krebsonsecurity.com/2014/12/payday-loan-network-sold-...

This details the operations of a guy who simply bought loan application data/leads (which included bank account and routing numbers) and then processed $30 echecks to each account with no consent or contact and without rendering a product or service. He amassed 25 million dollars over several years before catching any heat.

Those people wouldn't be biased AT ALL /sarcasm

So much hand-waivy unsound logic too.

      this blog post showed that blacks and Hispanics 
      were no more likely to use payday loans than whites
      who were experiencing the same financial problems