I'm puzzled how you can claim that he has high ethical standards when he ran a business whose entire model is to rip off poor people.
You can get a bad checking account with high monthly fees, check writing fees, ATM fees, etc. I'm pretty sure you have to submit to a credit check or have additional deposits to get a free account.
While these bad checking accounts are probably less expensive overall, it's more difficult to judge the costs, especially for financially unsophisticated customers. One big fat fee from the payday lenders probably seems smaller than N smaller fees where N is unpredictable.
Not to mention there are cultural and demographical biases against banks and credit cards. When I was in China I knew many people who did not trust banks. They either did not want how much banks/government to really know how much money they had or weren't sure their interests would be looked after if something were to happen.
Wait, you're now arguing that the "loan sharks" are useful and helpful, after denigrating them elsethread?
In any case, I agree that you can cash a check at the bank it is drawn on, and that it can be difficult. Because my newly opened account had an eight day clearing time, I needed to cash my checks and trot over to my bank to deposit cash quite a bit last year (small employer had no direct deposit). It was comical what lengths they went to to try to avoid giving me cash.
"Are you a customer with us? [No.] Oh, I'm sorry." (But I didn't go away).
"Oh, you'll need two IDs." (Okay, here you go).
"Oh, we don't have that much money on hand." (It wasn't very much, especially for a bank).
"Oh, I'll have to get my manager." (in a vaguely threatening-maybe-you-should-just-leave manner).
"If you open an account with us, we can cash this." (But of course they could even if I didn't).
"We can't give out that much cash. Can you come back tomorrow?" (No).
"I guess we could do a cashier's check for half of that [said doubtfully]. Would you like to open an account with the remainder?"
Etc. The first few times, I was polite and firm, and eventually they recognized me when I came in and I didn't get any hassle. But lots of people wouldn't know that "We can't" doesn't mean they can't.
They are only useful and helpful in the absence of forcing banks to act like decent members of society. Fix that problem (which is very easy if you focus on corruption between corporations and elected officials) and you remove the need for the loan sharks.
Note: this goes for most states, not just the lovely one Chicago is in.
http://www.cashnetusa.com/how-it-works.html
I agree that payday lending probably can't be done that much cheaper. Competition does tend to keep profits low for most businesses. However, if the only loans which can profitably be made in a given market are extortionate, then I don't think that loans should be made in that market.
It's business, sure, and I do live with the fact that the world is full of businesses which profit by taking advantage of others, but I don't have to respect the kind of person who starts such a business.
That's not usually what it is. People use it once or twice and get addicted.
I'm not saying these services shouldn't exist (I'm personally heavily invested in the collections industry), but the parts of the credit/loan industry that target these markets are very analogous to drug dealing because they primarily profit off of people stuck in the cycle. Also importantly, the companies have all the power, they have the law on their side and can navigate the court system.
They don't go to a payday loan to cash a check. They go there to get a LOAN. It's a cash-advance so they can pay some bill out of desperation, like their rent or something like that.
Wal-mart cashes a check for $3.
I don't have any good data to back this up, but my guess is that Bank of America, Wells Fargo, etc., rip off way more poor people than this company.
$2 atm fees, $35 overdraft fees, monthly fees unless you have high minimum balances, all the "0%" interest credit cards you can handle (until bankruptcy), and my personal favorite---"keep the change", a debit card card that deposits the change into a savings account to help you save more! What they don't mention is that the savings account pays significantly less interest than the inflation rate and that the average consumer spends over 10% more when using a card than cash holding all else equal. You get to "keep the change" while bank of America keeps the 2% merchant fees on debit card transactions...
If your poor, the big banks don't care about you at all. They'd rather take all you have then kick you to the curb. Now if you have money, the banks are great. But I wouldn't attack this business because even if may be an expensive deal, at least they care about the low income market.
I find the debate about payday loans much more interesting than the debate of whether or not he should feel guilty for profiting. I don't know the regulations involved with payday loans but I assume they are very strict (and they should be stricter).
Its up to the payday company to figure out how to be profitable...and most are.
You might think "Boy, I hope I never get into a financial situation where taking out a payday loan is my best option!" And I'd agree with you 100%.
When you extend that thinking to "Boy, if I were ever in such a dire situation, I wish that someone would take my best option [which we just agreed above was a payday loan] completely off the table such that I'd have to choose some even worse option than that!" is where you've departed from what I consider rational, logical thinking.
If a payday loan is the best option for some overall disadvantaged consumers, why would one want to outlaw their best option, leaving them even more disadvantaged?
All in all, they're really the bottom of the barrel in terms of business ethics. Worse than crooks. I find it hard to believe that a payday loan company could be competitive without using all the shady tactics in the book, unless they did something radically different. There's no indication in the article that this one did something different, so it's fair to assume that this payday loan company was much like all the others.
I have some distant acquaintances that are horrible with money. In the last year they have been behind on their car and mortgage payments, the woman has been steadily employed but the man doesn't work any more than he absolutely has to. That said, on payday they buy PS2/PS3s and games, and are at the pawn shop on a monthly basis hocking them again (this cycle has happened 2-3x that I'm aware of, and I hear things third-hand). It's cultural for them to not trust banks, so they "keep" cash. These people place no value whatsoever on their credit score, and they seem totally unconcerned about using the tools at their disposal, despite the financial implications.
The husband went out of town a while back with a shady family member "to work". The shady family member had been in recent trouble (kept within the neighborhood -- they don't call the police) for home burglary and assault/robbery. There wasn't any hard evidence but there was the unstated concern that the "work" might not have been on the up-and-up.
Is it wrong to offer a paycheck loan service to people like this? There's certainly no way to draw causation here, but there's non-zero correlation. For people that choose to live this way how is it even ethically wrong? It's what they want and they're not concerned about the downside (living a little tighter next week), and they'd blow right past the boarded up paycheck loan shop to get to the neighborhood loan shark if that was the next best option.
Personally I'm of the mind that safe, legal, regulated access to loans for people who otherwise could not get them are a valuable service. Even if they're as unpleasant as needle programs for druggies.
I would agree with this, if it wasn't for the aforementioned shady tactics...
Taking your needle program analogy, it would be extremely unethical if the needle program was paid for by the dealers and they used that opportunity to sell you more drugs, chat with you to find out if you're thinking of quitting, and offer you some free heroin if you are.
Similarly, short-term loan shops often employ strong-arm tactics to ensure they do receive payment. I.e., if you don't pay back, they'll send a couple of burly men to stand in your doorway until you do (as far as I know there's no evidence of them actually using violence, but the message is fairly clear).
So, to me, it seems payday loan shops are closer to the mafia/drug dealer side of things than to the needle program side.
However, regulating these companies to death puts you right back at the start again...
And yes, from the sound of it, it is a complex, multi-faceted problem.
Did you really need an entire industry that charges high interest to solve that problem?
If such companies did not exist, what would happen? Electricity would get cut off right? Then what? It would happen to enough people in your community and together they would go to their local leaders and find solutions. Solutions that would not involve the creation of payday companies.
Apply this set set of thinking to other scenarios: car payment (car gets repo'd if you don't pay today), your out of weed (gotta get high man), need to pay the babysitter so I can go to my minimum pay job. Try being poor for a while, its quite stressful.
Every problem you can think of, by providing high interest loans to briefly avoid it, only causes these problems to get worse.
I'm sure people do use payday loans to go score weed to be happy and temporarily reduce the stress of their situation. IMO, they are better off for having that choice than not, and it's not my place or yours to force them to choose in way that we think is "more wise."
It is government's (society's) place to put limits on people's behavior. That is the primary purpose of such systems.
If you're asking government to act as your agent to put limits on behavior for my benefit, why not mind your own affairs and let me mind mine?
I don't claim that all commerce is allowed. I do claim that government ideally gets its power from the people's consent, rather than the other way around.