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Subject: Payday loan stores/ Check-cashing places rss

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Have you ever had to use one (as opposed to a bank or a credit union)?
Yes, once
Yes, twice
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Without being overly judgemental about this, I cannot believe the necessity and/or sheer number of these businesses.
To me it appears like they are preying on the poor, the unlucky, and the unknowing.
If you don't have a bank who can handle your transactions for free, for whatever reason, and if you have no choice but to utilize their services then I'm truly sorry for you.
It must seem impossible to be able to break the cycle. I certainly wish that places like those didn't have to exist.

There are a few poorer neighborhoods in the big city next to where I live.
I drove down one main street, toward downtown, and counted nine payroll/ check-cashing places in a six block stretch. Nine!
They can all survive even with competition just a half a block down the street (sometimes directly across the street) from them.
If I added in the pawn shops, then the count would be at fourteen.

What a shame. soblue
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Not just a shame, but a genuine tragedy.
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Orangemoose wrote:
Not just a shame, but a genuine tragedy.


And to a large extent, a crime. These businesses charge rates that can only be called usurious.
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I'm always surprised at how many people live off the grid, many of them voluntarily. I assume that these places are required from time to time by these folks. Not saying I approve or understand it, but them's the facts.
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I did once in college...that and I pawned something. I still feel dirty.
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What do they average 400% interest rates or higher? Had a friend who was a math professor that told me once, but all I remember it was ungodly high.
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steven1mac wrote:
What do they average 400% interest rates or higher? Had a friend who was a math professor that told me once, but all I remember it was ungodly high.


There are many "payday loans" companies here in the UK whose interest rates are over 1,000%+. It's genuinely obscene. A close friend of mine took a loan like this out a few years ago with an APR of over 5,000% - it's almost impossible to believe it was allowed...
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These businesses can be bad for some, but for a lot of people of limited means and credit, they serve a valuable purpose. Listen to the Freakanomics podcast on this for new insights. You may change your mind on this one. http://freakonomics.com/podcast/payday-loans/
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Yeah the effective rates charged are really high. This industry spends big $$$ to lobby in Washington and in state capitals to avoid regulation, and even when regulations occur, they make some sort of legalese change to the structure (on paper) of their business so they can go on charging.

It's not so much the existence of very short-term ways to get hands on cash I object to (yeah, sometimes that's needed and an appallingly high proportion of Americans cannot sustain a $500 emergency expense). It's the way they structure them so sometimes some loans could have an effective interest rate over 1000% (one thousand percent). And, as happens with a majority of "customers", one loan has to be rolled over into another, it can get pretty bad.

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There are also some of these places that loan money for possession of your vehicle title. Sure they let you keep the vehicle. Until you can't make the payments and they take away your ability to get to work or even get to their office.

I'm sure the owners have no conscience when it comes to easy money, but I can't imagine being a sleazy low paid employee who could easily be a victim themselves.

And then there are telemarketer scammers and spammers. Ugh.

I have no delusions about the good old days. Just different names for the same results.
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Until the last two years, they didn't even exist here (where I live - I'm sure they've been around for a bit longer in the capital cities).

I don't like the fact that they exist at all.

They are mostly about loan-sharking here, because cheques are a dying thing, and most wages (and all government benefits) are paid directly into bank accounts by electronic transfer these days.
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I'm sure one of the reasons for the high interest rates is the high default rate.

One of the funniest (or saddest) things I've seen is a title loan office advertising "You Keep Your Car". Out back was a barbed-wire-topped, fenced area full of people's old cars! shake
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They're nothing more than legal loan sharks. Mind you I expect they deal with a good deal of fraud and pass that risk onto their customers. These check cashing places are very much like those car dealerships that cater to people with bad credit.

When my wife and I got married we needed a new car and we went to a used car place. We had good credit and everything but I didn't realize that this car place was one of those places that catered to people with bad credit. I figured it out really quick though when they tried to sell me a one year old car with 20k miles on it for several thousand dollars more than a new one cost. When we tried to walk out one of their people literally stood in the doorway and I had to politely threaten him to get out of my way. We ended up buying a former leased vehicle from a regular Toyota dealership (was a fantastic car) but the lesson was learned.

Another business along these lines are the rent-to-own places. By calling it a rental they basically can charge much higher interest rates than the law actually allows. Again like the check cashing places and car dealerships they target people with bad credit and/or lower income.
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There are a ton of these places all over Delaware. The lower the income in the area, the more of them they are. I don't understand how they're legal because they're just predatory businesses that take advantage of a) those who don't know any better and/or b) those who think they have no other option. The other places that I despise are the title loan places.

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Yeah these places are a stain on society, the fact they are there and the tragedy that some people need them. I personally think that in a just society there should be a maximum interest rate allowable above the Bank by law ( say 30% for higher risk).

There is a store in the UK ( maybe other places) that is called "Bright House" ( it should be called "bright house - bleak future" ) , that lets people on low incomes buy new household goods for 3 times the true value, but they pay each week. A family members friend is known to use the store and when they are half way through paying off their "loan" , they are actively seduced by the firm to take on more and more .

What is very interesting is that the Queen of England ( yes our queen) has been named in the paradise papers as bank rolling this hideous business, albeit indirectly by her estate investing in it . Outrageous
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Cardboard Conundrum wrote:
steven1mac wrote:
What do they average 400% interest rates or higher? Had a friend who was a math professor that told me once, but all I remember it was ungodly high.


There are many "payday loans" companies here in the UK whose interest rates are over 1,000%+. It's genuinely obscene. A close friend of mine took a loan like this out a few years ago with an APR of over 5,000% - it's almost impossible to believe it was allowed...


I had wondered this as well, and being in accounts receivables for many years, was very curious about the details. One place I'd looked into (I believe it was MoneyMart, but I'm not sure. It was almost 20 years ago)charged 59.95% annual. (Canada's Criminal Code at the time had 60% as the limit for Usury at the time). But when you work out an average payday loan over 2 weeks, that works out to peanuts.

So how they got you was that you wrote out a check, dated the day you got paid. And they charged you a "Check cashing fee". I forget the exact amount, but I think it was in the neigborhood of $25 or $35. THeoretically you could avoid this charge by paying the loan off 1 day early, and only pay the interest. But obviously paying it off before payday is not possible for 99% of the applicants.

I don't know if this is the standard practice, or how most places do it. But it does raise a question of how and when you can just label something a "fee" instead of "interest". Is it really that easy to get around criminal interest rates? That does seem a little too simple.

All that being said, for the most part, I support a free market. They provide a service, and if customers are willing to pay it, so be it. I do feel bad for people who get trapped in the cycle though.
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One of my best friends states that you can tell how depressed a neighborhood is by how many corners of an intersection feature one of these establishments.
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Reading all of this and all of the righteous indignation from those who by and large are not in a position that they need such credit is a little irksome. Lets agree that downright usury and some of the business practices described above are illegal as well as morally unacceptable.

However if we change the semantics and start speaking about microcredit suddenly everyone gets enthused about how wonderful this is for 3rd world countries and some low income families. The microcredit that Gates (see here) invested and was lauded for also charges high APRs.

In the UK as I recall there is a rather older financial institution called Provident which has historically had a mixed reputation. They do - amongst others - doorstep lending and credit for people with bad credit. As far as my understanding goes, it functions by giving small loans - payday loans too - and weekly collecting interest and principle. The visit will include a review of the household finances, assistance with planning so that people can meet commitments and so forth. When I was first appraised of them I was highly sceptical. A little look around would tell you that in a business with tens of thousands of clients there were more than a few complaints and the establishment in London looked down on them something fierce. When I consulted the MEP for Glasgow (Labour) I got a completely different feedback. They were seen as essential social helpers in deprived areas. Despite the cost it was felt they served a genuine need and assisted people who could not handle regular credit.

Beside the fact that the process for micro-lending is far more labour intensive than your regular loan from a high-street bank it should be no surprise they have higher default rates as well. The way lending works in financial institutions is that such defaults are applied against the other lenders to compensate.

It may be hard for some of you on BGG to accept this. But a non negligible part of the population is completely unable to manage their personal finances. The European Union looked at micro-lending (inside the EU - see here) in 2007. Here is a surprising recommendation for you:

Quote:
2. Avoid setting interest rate caps too low Too low interest rate caps can hinder the provision of microcredit because they prevent
the coverage of higher risk and higher administrative costs. Interest rates on microloans should make risk-adjusted, cost-covering lending to business possible. However, Member States should ensure that certain minimum quality standards for the pricing of microcredit are applied. Transparent information and understandable conditions for microloans must be taken as preventive measures against usury and predatory lending.


Dont think I am some closet hardcore financial person - the Huffington post looked into the same issue (see here). In a similarish vein to the EU study they conclude that an APR of 26% in a competitive environment for microcredit institutions is quite reasonable.

You may still object morally and say the advent of the internet will be the great equaliser. It should bring interest rates down - and insofar as we speak of competition in general I believe this to be true. However there have been a number of peer to peer lending sites set up specifically to cater to the microfinance market. The ones that did not include very far reaching methods to ensure they got good lenders collapsed (e.g. see here)

Let me again underline I am not advocating illegal business practices nor that I am applauding 50% APRs. I am not - I am just saying its easy in our BGG ivory tower, surrounded by the highly educated and generally affluent, to scoff at the folly of the underprivileged that make use of these services and deride the ones who run those businesses. For sure there are too many excessed but be careful about being too judgemental. Just saying...

Hopefully not RSP in 5 4 3 2 ...
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TrustyJules wrote:


Dont think I am some closet hardcore financial person - the Huffington post looked into the same issue (see here). In a similarish vein to the EU study they conclude that an APR of 26% in a competitive environment for microcredit institutions is quite reasonable.


A 26% rate is quite different from 400%, even 1000% effective interest rates.
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TrustyJules wrote:
Reading all of this and all of the righteous indignation from those who by and large are not in a position that they need such credit is a little irksome. Lets agree that downright usury and some of the business practices described above are illegal as well as morally unacceptable.

However if we change the semantics and start speaking about microcredit suddenly everyone gets enthused about how wonderful this is for 3rd world countries and some low income families. The microcredit that Gates (see here) invested and was lauded for also charges high APRs.

In the UK as I recall there is a rather older financial institution called Provident which has historically had a mixed reputation. They do - amongst others - doorstep lending and credit for people with bad credit. As far as my understanding goes, it functions by giving small loans - payday loans too - and weekly collecting interest and principle. The visit will include a review of the household finances, assistance with planning so that people can meet commitments and so forth. When I was first appraised of them I was highly sceptical. A little look around would tell you that in a business with tens of thousands of clients there were more than a few complaints and the establishment in London looked down on them something fierce. When I consulted the MEP for Glasgow (Labour) I got a completely different feedback. They were seen as essential social helpers in deprived areas. Despite the cost it was felt they served a genuine need and assisted people who could not handle regular credit.

Beside the fact that the process for micro-lending is far more labour intensive than your regular loan from a high-street bank it should be no surprise they have higher default rates as well. The way lending works in financial institutions is that such defaults are applied against the other lenders to compensate.

It may be hard for some of you on BGG to accept this. But a non negligible part of the population is completely unable to manage their personal finances. The European Union looked at micro-lending (inside the EU - see here) in 2007. Here is a surprising recommendation for you:

Quote:
2. Avoid setting interest rate caps too low Too low interest rate caps can hinder the provision of microcredit because they prevent
the coverage of higher risk and higher administrative costs. Interest rates on microloans should make risk-adjusted, cost-covering lending to business possible. However, Member States should ensure that certain minimum quality standards for the pricing of microcredit are applied. Transparent information and understandable conditions for microloans must be taken as preventive measures against usury and predatory lending.


Dont think I am some closet hardcore financial person - the Huffington post looked into the same issue (see here). In a similarish vein to the EU study they conclude that an APR of 26% in a competitive environment for microcredit institutions is quite reasonable.

You may still object morally and say the advent of the internet will be the great equaliser. It should bring interest rates down - and insofar as we speak of competition in general I believe this to be true. However there have been a number of peer to peer lending sites set up specifically to cater to the microfinance market. The ones that did not include very far reaching methods to ensure they got good lenders collapsed (e.g. see here)

Let me again underline I am not advocating illegal business practices nor that I am applauding 50% APRs. I am not - I am just saying its easy in our BGG ivory tower, surrounded by the highly educated and generally affluent, to scoff at the folly of the underprivileged that make use of these services and deride the ones who run those businesses. For sure there are too many excessed but be careful about being too judgemental. Just saying...


+1 sir.
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wifwendell wrote:
TrustyJules wrote:


Dont think I am some closet hardcore financial person - the Huffington post looked into the same issue (see here). In a similarish vein to the EU study they conclude that an APR of 26% in a competitive environment for microcredit institutions is quite reasonable.


A 26% rate is quite different from 400%, even 1000% effective interest rates.


The Huffington post says - and in fact the EU study sort of concurs - that under effective competition the maximum APR that gets charged is around 26%. This is borne out by the fact that the highest US Credit Card rate is 36%. According to CreditKarma the US average CC rate is 15.96%. Credit Card companies are completely free (based on contract with the card holder) to set any rate they like and I guess we can say they operate in a competitive environment. Supreme Court and FED rules ensure that fees are incorporated into interest rates for legal purposes.

Generally speaking the US situation is that FDIC affiliated financial institutions can avoid any restriction on the interest rates they charge. The imposition of usury laws is left to the US states according to Supreme Court judgements. Pay day loans are generally not issued by FDIC affiliated institutions but of course some are, H&R Block which gives loans based in tax credits for example clearly is affiliated with the FDIC. Many state usury laws have very hefty penalties (triple damages and part restitution of the principal) and jail time associated with it. So any old ratty business should be careful because unlike federal, state or other accredited financial institutions they are subject to these rules and penalties. The NY state attorney successfully prosecuted against several institutions as recently as 2014.

Wendell, your statement implicitly means that there is insufficient competition in the market where you found these 400%/1000% rates. The always complex interplay of US constitution, Supreme Court Precedents and the mix of state and federal law means that the greatest democracy in the world cannot ban usury, it can only foster competition that prevents it from occurring.
 
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TrustyJules wrote:
wifwendell wrote:
TrustyJules wrote:


Dont think I am some closet hardcore financial person - the Huffington post looked into the same issue (see here). In a similarish vein to the EU study they conclude that an APR of 26% in a competitive environment for microcredit institutions is quite reasonable.


A 26% rate is quite different from 400%, even 1000% effective interest rates.


The Huffington post says - and in fact the EU study sort of concurs - that under effective competition the maximum APR that gets charged is around 26%. This is borne out by the fact that the highest US Credit Card rate is 36%. According to CreditKarma the US average CC rate is 15.96%. Credit Card companies are completely free (based on contract with the card holder) to set any rate they like and I guess we can say they operate in a competitive environment. Supreme Court and FED rules ensure that fees are incorporated into interest rates for legal purposes.

Generally speaking the US situation is that FDIC affiliated financial institutions can avoid any restriction on the interest rates they charge. The imposition of usury laws is left to the US states according to Supreme Court judgements. Pay day loans are generally not issued by FDIC affiliated institutions but of course some are, H&R Block which gives loans based in tax credits for example clearly is affiliated with the FDIC. Many state usury laws have very hefty penalties (triple damages and part restitution of the principal) and jail time associated with it. So any old ratty business should be careful because unlike federal, state or other accredited financial institutions they are subject to these rules and penalties. The NY state attorney successfully prosecuted against several institutions as recently as 2014.

Wendell, your statement implicitly means that there is insufficient competition in the market where you found these 400%/1000% rates. The always complex interplay of US constitution, Supreme Court Precedents and the mix of state and federal law means that the greatest democracy in the world cannot ban usury, it can only foster competition that prevents it from occurring.


Don't put words in my mouth. I said right out that this is essentially loan-sharking and the rates are only as high as they are because the industry pays off legislators in DC and state capitals to avoid effective regulation, and wiggles its way (with protection) around any regulation that is put in place.
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wifwendell wrote:
Don't put words in my mouth. I said right out that this is essentially loan-sharking and the rates are only as high as they are because the industry pays off legislators in DC and state capitals to avoid effective regulation, and wiggles its way (with protection) around any regulation that is put in place.


Your statement above is false in almost every respect.

Because this is chit-chat and I dont want to introduce the very special RSP brand of discussion here, I am drawing a line under the discussion. You can open a thread in RSP if you want to hear why.
 
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TrustyJules wrote:
wifwendell wrote:
Don't put words in my mouth. I said right out that this is essentially loan-sharking and the rates are only as high as they are because the industry pays off legislators in DC and state capitals to avoid effective regulation, and wiggles its way (with protection) around any regulation that is put in place.


Your statement above is false in almost every respect.

Because this is chit-chat and I dont want to introduce the very special RSP brand of discussion here, I am drawing a line under the discussion. You can open a thread in RSP if you want to hear why.


Pass.
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