I'm of the mind that many of these lenders are indeed predatory, but prohibiting loans to high-risk borrowers at realistic rates (based on the risk) just leaves them unbanked rather than poorly-banked.
If they have, say, a $200 NSF charge, and your payment bounces, they can try every business day, racking up $1,000 a week in NSF fees.
Companies that do this kind of thing aren't trying to collect their original payments in good faith, they're trying to suck every last droplet of blood from those lenders who have a temporary problem but then get some money.
Limiting attempts to two would stop that.
Realistically, people who can't get even a (legal) payday loan often turn to places where someone breaks your legs when you don't repay.
Making usury illegal has no downsides.
And, ironically enough, these bonds are _high yield_, meaning market does not trust that these companies are making money hand over fist.
Any negative macroeconomic shock (like recession) can easily raise average loan default rate 2-3x and sink payday lender business in a single quarter.
Such is life.
Even assuming this is true, which I doubt, am I supposed to care that predatory lenders are suffering? It'd be good if they shut down. I'm all for making them unprofitable.
Before these regulations were originally enacted they were making $9.2B, that dropped to $6B. The regulations are now being removed. So they were in fact making money hand over fist, and will be again.
https://www.pewtrusts.org/en/research-and-analysis/reports/2...
Pay day loans are primarily used as a way to prolong an unsustainable lifestyle. That is not banking. That is selling people a fantasy and helping them dig themselves deeper into a hole of debt.
Not saying that we should therefore allow paydays. Just curious about what the situation is.
The offering is "I will advance you $400 in cash today for a $415 check dated in a week. You can come back and buy your check back for $415. If you do not, I will deposit it." The security here _is the check drawn on your checking account_; without that the payday loan has markedly higher collection costs and markedly lower probability of collection.
Also, they use the fact of writing a check to (in some jurisdictions) gain legal leverage that they would not otherwise have access to, because making someone a promise to pay and failing to follow through with it is generally under the notice of criminal law, but (in some jurisdictions) writing a check which one knows to be unbacked by funds is a criminal offense.
But, I was under the impression that people who use payday loans and have bank accounts are considered "underbanked," while those who truly have no bank accounts are considered the "unbanked."
Maybe the distinction doesn't matter that much. In truth, I don't know enough to have a strong opinion.
When I took out a payday loan they made me sign a PAD authorization (pre-authorized debit) that was timed to hit my account the same day as my next payroll.
They also needed my last bank statement so they could 1.) verify my payroll was through direct deposit, and 2.) help them estimate the right date for their PAD.
In other words: yup! You must be banked!