Anytime I see people defend this kind of practice, the John Ruskin quote comes to mind: “The dullest of all excuses for usury is that some kind of good is done by the usurer.”
It saved me.
If it wasn't there, if it was regulated out of existence; I'd have gone to a shark. I was not going to let cash flow cause me failing.
Having said that, I'm very happy there was a lender of last resort that won't break my legs. Despite them screwing me in fees.
Honestly, I've never understood people who suffer from legislitis:
They see a population suffering so bad they get desperate and do something bad to get relief from their suffering.
The population that isn't suffering then decides that it's too horrible to watch the population that suffers do desperate bad things to get relief.
So then they decide to: Ban the bad thing people do for relief when they are desperate. All while not ameliorating the suffering that cause the desperate bad relief efforts.
Whether it's drugs, bad lending, prostitution, whatever. If someone is desperate enough to want to get into that, why make it harder? History has shown these consenting adults are going to do it in their private property (despite the horror of those who are well off enough to not feel desperate enough to engage in such situations)
I mean, no where do they seem to be hinting at creating a government agency for lending of last resort. We already basically create money out of thin air. We COULD be lending it out at whatever usury rates, but by the government, and given equally to the whole population maybe? This could create a floor and a large enough competitor to drive the worst offenders out of business. I don't know. Just seems like there could be things done to help people. But the efforts seem focused on restricting people.
When I had my first real job out of college, I didn't manage my money well and ran out of cash well before my next payday. I went to a check-cashing type of place to try and get a payday loan, but the state had outlawed them a couple of years prior. Had I been granted a payday loan, there's a good chance I'd still be in a cycle of debt stemming from that.
Fees arent bad if you have your shit together. But I did the math ahead of time.
I grew up poor in the 3rd world. Loan sharks, prostitutes, druggies... that's part of life there.
Honestly, your judging something from a certain position that's pretty obviously removed from ever really being needing money (in poor areas there are a options to get money, restricting those would be blessing to the illegal loan sharks that already operate in most desperate places)
I have to say, if you really ever were in such a situation, you'd be advocating not for restrictions, but for options.
Saying we should restrict it because it can be bad... well you should be arguing about restricting alcohol then... there are plenty of alcoholics. Maybe also restrict driving. And fatty foods. And salt. Maybe sugar? Keep at it.
The critics are 100% right. Sorry to say, but it seems you are annoyed at the sneezing, not REALLY caring about the sick.
Just saying as someone who grew up poor here in the (???) "first world" (I guess?), those things are part of life here. And our police are generally very aggressive in reminding us that all of them are illegal.
Payday loans are like the drug dealers. There really is no difference. They happily give you access to their product as long as you pay them, and then when you can't pay them, you're left in a worse situation than you were at the start. And worse, a lot of people start committing their own crimes to be able to afford those things again. Because they are hooked.
(Actually, nowadays I guess with the drug of choice being opioids a lot of the people just overdose eventually and die so they never get to that point of committing other crimes to get the drugs. So maybe the loan sharking is not quite as bad as the drugs? But it's still pretty bad.)
OMG. Ok. Personally I'm happy my payday lender wouldn't murder me like a drug dealer would. But.. I guess that's preferable? I'm at such a loss.
BTW, Don Vitto says thank you from the deepest part of his heart.
If you have no access to better credit, payday loans are often the least-worst option. If your car breaks down and you have no other means of getting to work, borrowing a few hundred bucks at usurious rates is probably better than losing your job. If you've received a parking ticket and don't have the cash, paying $18 to borrow $80 for two weeks might be better than going to court and paying a $160 fine plus costs.
The situation is analogous to drug prohibition - banning payday loans just pushes people towards criminal lenders, who charge even higher interest rates and enforce payment with baseball bats. The only credible solution is to improve access to credit for the poor, whether that's through the expansion and promotion of credit unions or some kind of state-subsidised emergency lending facility.
Some people just don't listen to those who suffer: they only have an ear for authority.
Just isn't a very relevant argument. The reason you regulate things are because they provide, often strong, value to one or multiple parties but overall negative effects. Either eventually to the parties themselves or society at large. It is essentially a way to control externalities. So you would have to argue that these benefits are greater than the negatives.
> The only credible solution is to improve access to credit for the poor [...]
If payday loans are legitimate there is unlikely to be a need for such a solution.
Payday loans are often the least-worst option, but that doesn't prevent us from creating a better option. The best available option is not the same as the best possible option.
I'm not opposed to regulation if it is sensible and proportionate, but there is a huge knee-jerk reaction against payday lending that strikes me as paternalistic and mean-spirited. Assuming that poor people are being suckered by exploitative lenders is not a helpful starting point for what is a relatively complex social issue. I made my position clear in my original post - if you want to help poor people, then you should offer them more affordable credit rather than simply further restricting their ability to access what little credit is available to them.
If payday lenders really are ripping off the poor, then it shouldn't be difficult to outcompete them with a more affordable product; if it turns out that it's just expensive in percentage terms to lend small amounts of money for short periods of time to people who might not pay you back, then it may be necessary to provide subsidized loans.
It does. It isn't a realistic assumption that you as a society aren't going to regulate payday loans and at the same time be concerned about the well-being of those in need of them. Nations who care about peoples well being, also restrict access to things that hurt them. Because anything else would be working against that interest.
You do realize that there are any number of ways to have a bad time in the US. Payday loans aren't unique in any regard. It isn't therefor likely that this would be fixed sooner than anything else. The people who need payday loans already suffer from injustice. That payday loans themselves would also be unjust wouldn't be surprising, at all.
Why do you think people who can get fired, evicted, don't have health care or even die giving birth would suddenly be cared for when it comes to affordable credit, especially after legalizing unaffordable credit? Is the government is going to come in an fix this one issue in competition of the companies operating in the market?
Got it. Or do you mean spelling out what a debt trap is? Is that 'scientific literacy'.
The arrogance of those who want to restrict others is so obvious: You think people are incapable of taking care of themselves. Then you think yourself capable of knowing whats best for them. While simultaneously talking about science. And disregarding people who actually were poor and went through those things. And ignoring the points being made, without giving counter points.
You didn't answer what happens when you remove this lender of last resort? I thought a 'scientifically' minded person such as yourself would be interested in digging for the truth.
Even IF that is true.
What do you get by regulating out of existence?
It stops?
Or it goes underground.
Think marijuana. What happened when legal? What happened when illegal?
I'm not saying don't regulate. I'm saying don't regulate it to death where only 3-4 big companies can operate in the space and then play oligopoly games.
Paying $200 in fees and stuff over 12 months on a $50 loan IS 400%. Just like an overdraft fee of $50 on a $10 charge could be touted in the papers as 500% interest.
Is there stuff to be cleaned up? Absolutely. Did this bill do it? No. It was restrictive.
I actually think this is something better suited for states to decide. And that is what is happening now.
A.k.a the assumption that people should have agency
And so you get the central question: in what cases should you protect people from themselves? It's a hard question to answer. Given that financial education in the US is nearly nonexistent, I would personally err on the side of protections in the financial sphere. Does that mean that some legitimate cases get denied? Probably. Is that a worse outcome? I don't know the answer to that.
Hmm... what guarantees mob option will stop existing? That's what's happened with drugs. Drugs are easily available.
Or are you suggesting creating another lender of last resort?
I'm sorry, I'm not sure your offering a solution. It seems what is offered is a blind restriction to satiate your own feelings of 'protecting others'. Like we've done with drugs. It doesn't work because it doesn't address the problem, just the symptom. It's arrogant and short sighted.
I suggest you calm your anger and finger pointing and avoid reading things that I did not write.
I too agree that the War on Drugs is a boondoggle and has caused more harm and created more criminals (legitimate and otherwise) than we'd have without it. But I think we can agree that having a lot of people (for example) suffering and dying from opioid abuse isn't great either. Rehabilitation programs are the obvious answer, not just jailing people.
Payday lending is a totally different beast. I'm not sure what a great solution might be. While it's physically safer to take a loan from a payday lender than from an illegal, shady, mob-run loan shark, payday lending can still be incredibly harmful. Outright banning probably isn't the answer, but allowing them to run as they have been isn't great either.
I don't drink. Drunk people act stupid. Let's ban alcohol. It'll be great. Prove to me it won't!
Oh, you enjoy alcohol responsibly? That's just anecdotal. Not like MY anecdotal evidence, I see drunks everywhere... everyone knows that. And they are all alcoholics who are depraved by predatory beer companies.
My anecdotal evidence is good and corroborated by my tribe. And you must prove me wrong, despite the fact that I'm the one making statements like we need to regulate something.
Oh, and of course, once we ban it, no mafia guy is going to start offering it in a sketchy way... there's NO WAY that will happen in a low class neighborhood because we really take care of our poor. I have this all planned out. Going with my gut to make emotive detached decisions instead of dealing with the grit of reality is so nice. /s
Your argument is essentially 'I don't drive drunk, therefore we don't need any laws against drunk driving' since the expectation is that people will behave rationally. Or that we don't need regulations against things like cigarettes because people know the harm already.
Obviously there's room to debate on how socially dangerous something is and whether it warrents regulation; hence the ongoing debate on marijuana legalization; but in general he's right: relying on anecdotal evidence and extrapolating that is bad form. It provides context and reason for your arguments, but is not an argument in itself.
Let's see, who else does that... banks.
How? a credit score. Which has nothing to do with being able to pay truly pay long term or be sustainable. Some poor people have good credit. Some rich people have bad. It's... messy.
But please don't let the details of what you support actually alter what you support in name.
BTW, if the rules were only targeting continuation fees (i.e. multiple debit restriction part), I'd 100% support them. Remember, your talking to someone who has been there, done that.
I'm not against all legislation. I'm against privileged people sitting on a high horse, looking down on 'the commoners' and telling them what they need.
I personally would not have qualified under the new regulations when I took the loans.
I feel like I'm talking to someone who has good health wanting to ban sneezing instead of helping the sick. And you are talking to someone who has been sick.
But to make an actual argument here instead of solely an appeal to my history: I know exactly how companies will behave when untethered from regulations. A great example is that banks would deliberately delay checks my parents would receive so that they could collect overdraft fees.
I don't have much sympathy for payday lenders given one of the regulations in the article was to prevent payday lenders constantly trying to withdraw money from accounts in order to collect on fees. And the regulations would've prevented payday lenders from deliberately giving poor people incredibly large loans that they could never pay back and be effectively stuck in debt with due to high fees. Acting like these regulations would've somehow stopped lenders is wrong at best and fearmongering at worst.
States have wildly different liquor laws they all claim are “rational”, which may be true but they certainly aren’t rational to protect people. They are just designed to exploit moralizers to protect (liquor stores, grocery stores, bars, legal firms, etc).
These laws are so stupid that there are only a few cities in the entire United States where you can consume a beer in public despite there being separate laws banning public intoxication! WTF!?
People are far from “rational” when getting on the moralizing icky feelings bandwagon.
I think you need to look up the word scam. Then use words based on the dictionary definition of them the way the rest of us do. It helps in communicating when people use a dictionary to define words instead of the thoughts in their head.
If you want to be on the road when people are trying to get home from the bar, you should seek market solutions instead of ridiculous prohibition.
So has Google, when it started out. (Servers bought on the founder's overstretched credit cards.)
I think it was acceptable in the past when credit cards had a hard limit on the interest percentages (I recall maybe 12%?).
I was kind of appalled when the percentages were relaxed years back and when 24% and 36% became possible, they were immediately the norm.
Availability of capital is great, but not at the expense of perpetual indentured servitude.
Fees are also why payday loans can be attractive over real banks - a payday loan is likely cheaper than a checking account overdraft.
All of your support and encouragement of a superbly predatory practice comes from that line. You were happy that nobody broke your legs.
Do compare that with the history of slavery, where outside of conquest, people became slaves because they couldn't fulfill their financial obligations.
> "I mean, no where do they seem to be hinting at creating a government agency for lending of last resort"
North Korea has a government agency that is a collector of debts of last resort. For the debtor, or their immediate or extended family, or friends.
So tell me, oh wise one; how do you deal with people who need a lender of last resort?
I mean, in your kind, humanitarian and knowledgeable opinion that takes into consideration the reality of people with cash flow issues?
Why are you so interested in getting the vulnerable category even more indebted?
>"oh wise one"
You'll have a hard time in life with that attitude.
Don't take the loan shark desperate option, accept homelessness/bankruptcy instead of trying to stay afloat. Then you can try and work up from there because it is easier.
I honestly can't believe you want to make the lender of last resort worse for poor people in an effort to get them to hit rock bottom so they can then climb.
I might have had a hard time in life (I've actually taken out short term loans to stay afloat) and I might have an attitude from it, but I can tell you have little compassion for those who were in my situation; so you'll have to excuse the fact that this is personal. A 19 year old me would have been homeless with people like you. I actually am happy I wasn't. I'm happy there are 'exploitative capitalists' and not just 'warm hearted well wishers' up on high horses.
There's another option, of course: create regulations to limit only the harmful effects of the thing.
It's not like there's some law of economics that says we can't find a way to make loans accessible to people who need money without also enabling predatory lending.
The new laws would have removed 90% of the industry, including my ability to have participated.
I fully supported the limitation of debiting end user accounts, which was part of the legislation.
I'm completely against the need to 'verify someone can pay'... which I read as basically requiring credit scores. Which again, don't really protect people as they have little to do with your ability to pay (just your previous history of payment)
I'm seeing this as filled with details that need to be considered and making decisions to support or oppose based on that.
But please, don't let details or getting to know what you are talking about get in the way of your decision to support something or not.
But that doesn't stop making them a service.
Listen, if you could figure out how to charge even 40% yearly interest on a $100 one week loan (i.e. you'll make $0.7 gross) then you should do it and offer a better service.
Restricting people from accessing the service because you read some outrage entertainment (the news) is not good. To be clear, that is what this law did.
It's like lottery. It's basically a tax on the poor. I hate it. But if it was overly regulated, we'd see the numbers racket come up again. And personally, I prefer regulated markets over black markets.
And to be clear; I think lottery should be further regulated by limiting advertising, and even creating an opt out system for problem gamblers. But if a legislation was passed that had those elements WITH elements that would drive the industry underground, I'd 100% be against it.
When you ban these things, you're imposing your value judgement on others, because you think you know better than "them poor folk".
I am fine with some regulation to make it clear what the cost is, something like: "you are borrowing $100, if you pay it back in 1 month, you will have to pay back $130. If you pay it back in 2 months, touch will pay back a total of $170 etc. ..."
Hey, it's great that a pawn shop helped you out in your case, where you didn't have a credit card or apparently any other option. That doesn't even a little bit offset the predatory nature of payday loan outfits, and they are predatory. I have no problem with people who want to loan money to other people who have trouble getting loans. I do have a problem with turning it into a business practice that brazenly targets poorer communities and levies fees and interest rates that ensure that poor people stay poor.
But, if it helps make this a more black-and-white issue in your mind, sure, keep believing that people like me are in favor of payday loan regulation just because of our moral superiority complex.
I support one part of the legislation (limiting debits to user accounts).
I don't support another part of the legislation that would basically create a regulatory burden that would make payday lending more akin to credit cards.
As a thinking person, I research what I support and don't.
I look into whether what I support will actually help. This should apply doubly if I'm supporting congress to limit someone else's freedom to associate and engage in 'in state commerce'.
I'm supporting something based on my own personal experience.
Details matter. Let's not keep it at the level some people seem to not be able to get past: "pay day loan bad, people suffer, make illegal, people not suffer". This requires two assumptions: 1- all/the vast majority of pay day users are suffering because of they are stupid and NEED your smart help and 2: no one will offer pay day loans illegally and collect with a bat.
> A typical two-week payday loan comes with a $15 fee for every $100 borrowed and has an annual interest rate of nearly 400%, according to the CFPB. Over
It's technically 400% APR, but its because the amount borrowed is very low. What should the rate be? 10% or ~$0.40 for the two week loan? There is a certain amount of overhead in processing a loan. Especially considering that the clientele often prefers a brick and mortar location and personalized service.
this is the crux of the business challenge here, and it’s common for long-tail businesses like payday lending. fixed and marginal costs are high relative to marginal revenue and to loan amounts.
but the social and ethical issue is rooted in bias and discrimination mediated through the credit bureaus who have a poor track record with low-information and/or highly-dynamic credit landscapes. they apply a static model that works fine for the affluent while shutting out the poor.
payday lenders transfer default risk to borrowers through high fees rather than relying on imperfect creditworthiness models applied to borrowers that often have little credit history or bad credit from difficult life circumstances.
in that situation, is it possible to create credit models that better predict default risk based on information available in our interconnected age? some startups tried using social media data for this, but none seem to have emerged victorious.
I would also point out that the companies vary in profitability, and they're not particularly good businesses. Default rates are so high that the lenders often generate returns on equity below many regular banks, or just on par.
Does it come from good intentions? Of course. But it's also fundamentally elitist.
This is a false dichotomy - the options are wider than "unregulated lenders" and "non-existant lenders". Imagine saying in 1850: "Many 8 year olds work in coal mines. If you remove that option, those kids aren't any better off."
For that matter, ever notice how if you wanted your kid to work the fields, that school holidays sure have mighty convenient dates ? That's not a coincidence ...
So they very much did not remove the option of having kids work in the coal mines and on the fields. Not for a LOOOONG time after the 1850s.
https://en.wikipedia.org/wiki/Child_labor_laws_in_the_United...
You could apply that here: the government could get into the payday lending business and enforce a maximum interest rate that way.
I disagree that it does not still matter.
For the past few centuries or so (depending on what country you're looking at) the church had the monopoly on morals and the state had the monopoly on violence. It seems to have in the last 100yr (in the US at least) the government, and to a lesser extent corporations, have replaced the church as the source of morals for a great deal of the population in Europe and North America.
Public education is a great net good but we need to be careful with it because the line between education and indoctrination is a fine one. I think that the replacement of church provided education with public education poses a slow long term risk to secular societies.
You do not want the entity that has a monopoly on violence also controlling education and with it morality. That's how you get the crusades, the USSR, etc. I'm not sure what the solution is. I don't think increased religion is it.
FWIW I am not religious.
> Imagine saying in 1850: "Many 8 year olds work in coal mines. If you remove that option, those kids aren't any better off."
Why are kids working in mines if they already have better alternatives? If it wasn't their best option, why would they pick it? Yes, you're making them worse off by removing their best option.
if kids don't have a better option than working in a coal mine at 8, society needs to come up with that better option, rather than giving the kid/family the current "best".
Don’t ban the undesirable thing, figure out why people are doing the undesirable thing in the first place and address that.
Btw the children example is bad because there is an entirely separate argument about the child not being old enough to make decisions that completely muddies the point.
It used to be that kids were treated like little adults and were considered fully capable of decision making. Now it seems like a lot of people want adults to be treated like kids and protected (if you can call it that) from opportunities to make bad decisions.
Only that they are heavily regulated to ensure that (a) consumers are fully informed, (b) no lending occurs to people who can't afford them and (c) interest rates are capped to reasonably levels.
Perhaps instead of restricting options, you should offer free poverty counseling or something. Expand people's options, don't restrict them.
What if it’s not in the heat if the moment and you’ve taken my best option away because of a blanket restriction.
This has nothing to do with morals, it's just economics.