At the risk of arousing your ire, a couple of points about "payday loans".

[MercutioATC]

(which have generally been ignored here at DU)

1) The interest rates charged are NOT as bad as detractors would have you believe.

"Payday loans" are two-week loans. They're not 12-month or longer in term. Those who demonize the lenders and/or cry for "20% rates" aren't doing the math: a 300% annual rate equates to an 11.54 rate if the loan is payed off as agreed. That would generate $23.08 in interest and fees for the lender on a standard 2-week, $200 loan.

...and if the annual rate was 20% as some here have suggested, the lender would only generate revenue of $1.54 for the same loan.

2) People who take advantage of the services of "payday loans" usually have no alternative.

Yes, that's unfortunate, but that's the current situation and while better education, a higher minimum wage, universal healthcare, etc. would help immensely, that's not the issue at hand.

Imagine the following situation:

You have a job that you have to drive to, no savings, and lousy credit.

The fuel pump on your car breaks. You can get the $200 to fix it, but not for two weeks when you get paid again. No bank will loan you money.

You have two options...take out a "payday loan" for two weeks, get your car fixed, and keep your job (paying $20-$30 in fees and interest for the loan) or wait until you're paid and lose your job because you couldn't get to work for two weeks.

My point is that "payday" lenders provide a needed service.


This may not be popular here, but we should at least address the facts as they exist...not a bunch of hype.

[xchrom]

1. they might provide a needed service -- but there is nothing, nothing

heroic or smart or anything else about 300% plus interest.

i don't care if it is a two week loan -- it's fuckin criminal.

[MercutioATC]

2. But it's NOT 300% interest! That's the point!

It's 11.54% if you pay off the loan as agreed. The only way you pay more than that (assuming the "300% interest" claim) is if you violate the terms of the agreement and renew a 2-week loan TWENTY FIVE TIMES in a row.

[xchrom]

4. if somebody renegs on something twentyfive times in a row

and the payday guy is still lending -- then there is something in it for the payday guy.

and i'm guessing that people who have to use this service -- are vulnerable to being late.

the system is designed to prey on the poor.

and it's fuckin criminal.
used to be called loan sharking -- still should be.

[GA_ArmyVet]

108. Absolutely Agree

It is designed for you to fail.

Same with the car title loans. They will continue to loan you money until you miss a payment so they can Repo you car. Thats the game...If you pay it back good we loan you ever increasing amounts, making money off the interest until you actually get to a point where you fail, and then we get to own you car and completely destroy your ability to commute to a job, or effectively earn your way out of anything.

It is a no win game, you have better odds betting against the house in vegas.

[WeDidIt]

5. No, it's 300% interest!!!!

Interest rates are calculated on a per annum basis, not on the life of a loan.

11.54% on a credit card is 11.54% PER ANNUM

They're worse than the fucking mob.

[MercutioATC]

13. No. The total interest paid on thre principle is 11.54%

...and that even includes processing fees.


"Per annum" is only pertinent on loans that are paid over one year or longer. Even if you extrapolate the interest and fees over an entire year, the interest rate paid (again, including fees) is only 11.54%.

[WeDidIt]

16. Sorry, but you are simply not being honest

Intrerest rates are ALWAYS CALCULATED PER ANNUM, so saying you're less than honest about the interest rate is actually an understatement.

Know how I know?

I came within a hair's breadth of taking one out.

The papers you sign spell it out, Your interest rate is listed right theere and it's over 300%.

If I'm that depserate for cash, I'll do what I did before there were such scam artists. I'll make do, improvise, and do without.

[MercutioATC]

28. Ok, what percentage of $200 is $23.08? It's 11.54%. How is that "dishonest"?

If you pay off the loan as you agreed in two weeks, you pay interest of 11/54% of the principle.

No "honesty" required...that's simple math.

[WeDidIt]

31. Bullshit

You are not an honest person.

[MercutioATC]

35. Again, what is dishonest about anything I've presented?

1) The actual interest paid is 11.54% of the principal.

2) On a $200 loan, that's a total interest/fee charge of a little over $20.

3) The only way you get 300% is to extrapolate the interest and fees to 25x the term of the loan.

[WeDidIt]

36. You keep saying the interest rate paid is 11.54%

nothing could be further than the truth because itnerest rates are always PER ANNUM.

[MercutioATC]

39. That's 100% true. The interest rate paid is 11.54%.

The annual percentage rate (APR) is 300%, but since the loan is only for two weeks the actual rate paid is 11.54%.

Why is this so hard to understand?

[WeDidIt]

44. The papers you sign say 300%

end of discussion.

[Dreamer Tatum]

46. You're being obtuse. End of discussion.

Oh, wait: I think you know it.

[MercutioATC]

48. Yes, 300% APR....but it's a 2-week loan.

The actual interest you pay is 11.54%.

Hell, even I'd be outraged if somebody had to pay $600 in interest on a $200 loan, but that's simply not what's happening.

[Political Heretic]

61. The interest rate, whichever way you slice it - is outrageous

And see my posts below

[MercutioATC]

65. So what rate would you deem acceptable?

It's a serious question.

[Political Heretic]

80. Multiple states have figured out something much more reasonable

It's not like its some big impossible dilemma to resolve.

We need states to keep moving in that direction.

[MercutioATC]

82. So do you have a suggested interest rate?

"300%" seems to outrage you. What's a reasonable annual percentage rate?

[Statistical]

86. Even 36%....

Even 36% w/ 6, 12, 24 payday payments would be a magnitude better than current payday loans.
No prepayment penalty.

The thiny veiled scam of payday loan is the payday loan lender KNOW the borrow can't pay the loan back in 2 weeks so they will need to flip it. Now flipping is illegal in most states so they make it a new loan. Borrower pays back original loan but is now broke so they take out another loan @ another 15% vig. 2 weeks later same thing. Note no option for payments. No option to pay down the principle. Just a never ending series of interest payments every 2 weeks.

Of course why would they settle for a mere 36% when they can have 391%?

Then again you knew that:
http://www.responsiblelending.org/pdfs/rr012-Financial_Quicksand-1106.pdf

Average borrower takes 5 transactions to pay off payday loan. 15%+15%+15%+15%+15%
Average loan: $325. Average amount pay back: $782.

[BlooInBloo]

87. 36% APR? So on a $200 loan for 2 weeks, what would I be paying back?

[Statistical]

91. As referenced in the doc I linked less than 1% payback payday loan in 2 weeks

So lets just cut the act that it is a "short term loan"

Everybody knows they are NOT.

So $200 36% APR on 3 month loan (6 paychecks) = $218
6 payments of $36.33

[BlooInBloo]

92. Ah. Just refuse to answer the question. So be it.

[Statistical]

94. So transparent....

so which is it
1) own a payday franchise
2) family member, friend, partner owns one
3) some poor slob who works for one

Sad.

But hey someday if you get too depressed about tearing families apart you could always try some crack to forget about it.

One dose is only $40 not like one dose will bankrupt you!

[Hannah Bell]

95. he answered it quite clearly.

[MercutioATC]

102. No, he didn't...he evaded by attempting to raise a separate issue.

I'd personally like to see an answer to the first question before we start dealing with new ones.

[Lance_Boyle]

115. but the loan contracts specify that they are to be paid in 2 weeks,

not one year or whatever period you imagine. What "everybody knows" is irrelevant - what does the contract say? That's the period agreed to.

[muriel_volestrangler]

107. $202.38

worked out as:

2 weeks = 1/26th of a year

1.36 ^ (1/26) = 1.0119

$200 * 1.0119 = $202.38

[MercutioATC]

103. Ok...let's see how "honest" you are....

If you really needed a dollar and I agreed to loan you a dollar today provided you gave me a dollar and a penny tomorrow, would you feel that I was taking advantage of you?

You're only paying 1% interest for the term of the loan.

...but that's 365% if you extrapolate the rate over an entire year.


My point is that the term of the loan is relevant when looking at rates...APR isn't the sole determining benchmark.

[Statistical]

66. Yes it is.

All interest is compounded for a year.

It is the only fair comparison.

A 20% credit card is 20%. Regardless of if you pay it off in a day, a week, a month, a year, or 20 years it is 20% APR.

Compare a $200 credit card (20% APR) and average payday loan paid off in 2 weeks, 2 months, and 2 years

[TahitiNut]

76. Next you'll be trying to sell the idea that PI should be an even 3.0 to make it easier.

Simple interest rates or compound interest rates are always quoted over an annual period. To be 'technical,' there's a difference between the INTEREST (the amount due) and the INTEREST RATE (the percentage over an annual period), but it's math illiteracy to claim the interest RATE is lower due to a short maturity period. (Try plugging it into ANY calculator's built-in functions or any software.)

:eyes:

[WeDidIt]

3. I think every fucking one fo them should be shut down

and the owners put in prison.

Sorry, they charge more than 200% interest no matter how you fucking want to slice it.

Payday lenders are fucking leaches who makle a bad situation worse.

[MercutioATC]

7. Ok, would you care to suggest an alternative?

...or, perhaps, explain why one should feel outrage when a company asks for a little over $20 in processing fees and interest on a $200 loan?

[WeDidIt]

11. Yes

Shut the fuckers down. If you can't get a normal loan, do what people do. WALK instead of taking your broken down car.

MAke do. Figure out alternatives. That's what we did back before there were payday loan stores.

They offer an easy out that only gets you in deeper and charge 300% interest (not your phone 11.54%). IT's a con job, nothing more. They're no better than the mob and in many ways they're worse.

[MercutioATC]

19. If you honor the terms of the agreement, you pay interest of 11.54% of the principal.

It's not a loan meant to be paid off over a year, it's specifically designed to allow somebody to secure a short-term (2-week) loan for emergencies.

The ONLY way you pay 300% is if you break the terms of the agreement...over and over again...25 times in a row.

[WeDidIt]

21. Your bullshit interest rate is just that, bullshit. n/t

[angstlessk]

57. so according to you...everyone who pays their credit cards off every month...are paying interest?

even tough they do not accure ANY INTEREST by paying them off every month? ARE YOU INSANE OR JUST PRETENDING TO BE?

[Lance_Boyle]

116. he's talking interest paid, not interest rate

and he's dead right - read the loan contracts. They specify that they are to be paid in two weeks, not a year. So the APR is really a nonsense number in terms of these loans. It's the AMOUNT of interest that accrues, not the rate at which it accrues, that matters. If you uphold your contract and pay the loan off within two weeks, your interest paid is not 300% of the amount borrowed, but 1/25th of 300% of the amount borrowed.

[GA_ArmyVet]

109. Thats the whole point..

There is no system of credit checks for these people, to ensure they can pay back the loan.. Infact that is who they target, people who do not have the ability to pay back the loan under the terms of the loan,...On a much larger scale that was what caused the whole crash we are in now with housing loans..Lenders kept loaning and targeting loans at people they knew could not keep up with the payments.

They too claimed they were providing a service, but it services no one but the lender to loan money to people knowing they can not make the terms of the loan.

[Freddie Stubbs]

117. Before payday loan stores, there were those who would make risky, unsecured short-term loans

They were called loan-sharks. They charged outrageous interest too, and because they operated outside the law, their collection methods were a little aggressive. If you shut down the payday loan industry, the loan sharks will simply take up the slack.

[ColbertWatcher]

6. Ire?

How about some satire?

http://www.predatorylendingassociation.com/

[Junkdrawer]

12. Thanks. Saved me a whole bunch of typing...

:rofl:

[ColbertWatcher]

25. You're welcome. n/t

[NNN0LHI]

8. Its like low-balling someone on a house or car they may be trying to sell

Sure it can be construed as taking advantage of a bad situation but what if the person really needs to sell that house or car?

Might be taking advantage of the situation but you just might be doing the person a favor too.

Don

[Liberal Veteran]

15. The risk to benefit measurement must apply however.

Yeah, we might be doing that one person a favor, but for every person we might be doing a favor to, we may be pushing another past the breaking point.

[Arkansas Granny]

9. Another point to consider:

Suppose that instead of getting a payday loan, you write an insufficient funds check to get your car fixed. It is quite likely that the service charge from your bank (even if you have overdraft protection on your account) would be higher than the interest you would pay in interest on the payday loan. You might also have to pay a charge to the person you wrote the check to in order to keep it from being turned over to the Prosecuting Attorney for legal action, which would cost even more.

[Sal Minella]

10. I know I went to school in the Stone Age, but "interest" back then always meant

"annual interest" not interest payments measured in time periods of three days or two weeks or whatever.

$23.08 interest for two weeks on $200 works out to $600.08 per year, or 300% interest.

The "if you pay the loan off as agreed" part is entirely irrelevant -- the interest rate is 300%. Period.

[MercutioATC]

14. So what? "Annual interest rate" doesn't have any real bearing on 2-week loans.

It's just an arbitrary standard...because most loans have a term of 12 months or longer.

I could just as logically get outraged that my 5% mortgage is actually 50% interest...extrapolated over 10 years.


The ACTUAL INTEREST PAID is 11.54% of the principal if the loan is paid off as agreed.

[WeDidIt]

18. The papers you sign have to list the real interest rate

and it's over 300%.

[MercutioATC]

22. Yes, they're legally obligated to calculate an APR.

Regardless, the loan is only for two weeks, not a year.

[WeDidIt]

24. Then your credit card only charges 0.75% interest

as a credit card is supposed to be paid monthly.

[MercutioATC]

30. If you contractually had to pay your entire balance every month, that would be true.

...assuming that you used a credit card as a responsible person uses a payday lending service...for isolated emergencies, not as a monthly line of credit.

[WeDidIt]

33. PAyday loan stores are the lowest scum of the earth

may they rot in hell forever.

PRicks.

[MercutioATC]

37. Emotional response, but you haven't yet refuted anything I've stated.

Nor have you provided a reasonable alternative.

...and neither have you explained what's so offensive about paying $20 in feed and interest on a $200 loan.

[WeDidIt]

45. Peple who advocate for scum of the earth

are lower than the scum they advocate for.

[MercutioATC]

52. I stated two facts in the OP. I'm not advocating for anybody.

As of yet, you have not chosen to actually refute either one.

Disprove my math or show me a current viable alternative to my second point. Otherwise, you're making a very empassioned, but completely illogical argument.

[Statistical]

79. What about a loan shark that charge 3% interest per day.

By your "logic" the loan shark is a better deal than a payday loan.

I mean $100 loan if you paid it back in 1 day would only be $3 in interest right?

[MercutioATC]

83. If the term of the loan was one day, absolutely.

However, the traditional "loan shark" scenario involves a long-term debt with a high weekly rate. That's not the case with payday loans. The term is clearly defined as 2 weeks in this scenario. it's not a long-term or revolving debt, it's a clearly defined short-term debt.

[Statistical]

85. Except for the majority of payday loan consumers....

THEY CANT PAY LOAN OFF AFTER 2 WEEKS.

They know it, you know it, the payday loan companies know it.

So lets stop pretending.


http://www.responsiblelending.org/pdfs/rr012-Financial_Quicksand-1106.pdf

90% of payday loans are made to borrowers who required 5+ loans to repay.
68% of payday loans are made to borrowers who required 12+ loans to repay.

Average payday loan was $325 and average borrower paid back $782.

[MercutioATC]

99. And, again, how is the fault of the lender or the practice?

The terms are clearly spelled out in the contract (including the inflated APR).

For those who are responsible, payday loans can get them out of an occasional jam. Those who abuse the practice get screwed.


You're really advocating the banning of something that helps some people simply because some people abuse it?

[Statistical]

113. Once again..... THE LENDER KNOW THIS

They know. The entire system is BUILT around bleeding the poor dry.
Period.

Casual payday lending would quickly be unprofitable. The debts many times are uncollectable, add in fraud, unemployment, etc and the losses rack up.

If 90% of payday borrowers were this "rainbows & puppy dogs" fantasy that you believe in PAYDAY LOAN COMPANIES WOULD GO BANKRUPT.

They survive because as the stats show 90% HAVE TO ROLL OVER THE LOAN. Where are they magically going to get the money next week that they don't have this week?

The payback period is INTENTIONALLY SHORT TO ENSURE virtually ALL LOANS ARE ROLLED OVER!

Would you also support drug dealers that require a "contract" for casual use only?

[Sal Minella]

29. The actual interest rate is 300% no matter how you want to slice it and dice it.

It's "arbitrary" because it's standard practice, whether you like it or not.

[MercutioATC]

32. The actual ANNUAL interest rate might be 300%, but the interest actually PAID is 11.54%

[WeDidIt]

34. No, the interest rate PAID is 300%

Interest rates are calculated PER ANNUM.

You're less than honest.

[BlooInBloo]

56. How much did you borrow? How much did you pay back?

The easiest way to get out of the semantic dance you seem to love so much.

[Sal Minella]

40. The interest PAID is 11.54% of amount borrowed. The interest RATE is 300%.

I don't know who you're trying to kid, here, but you don't seem to be getting anywhere.

[MercutioATC]

88. The interest RATE is 11.54 for the term of the loan.

If one chooses to assume that the borrower will default on the loan 25 times in a row, the effective rate would be 300%.

[Sal Minella]

98. Wrong. You may have yourself convinced of this (which I doubt)

but you need to go to a messageboard of stupider people to convince anyone else. You really are wasting your time here. The rate is 300%. period.

If somebody tells you "Gas is $3.00 now" -- do you ask, "Is that per quart, or per third-gallon, or per five-gallon gas can?"

Some things (like interest calculated per annum) are simply understood because they are standard.

[MercutioATC]

101. If the stated unit is "Per Quart", then the price is per quart.

If the term of the loan is two weeks, then why would anybody insist on extrapolating that rate over an entire year? The interest that person is going to pay is 1/26th of the annual rate.

I'm not arguing that the APR is anything other than 300%. I'm simply stating that the actual rate paid is 1/26th that. People use the APR to make it sound horrible, but the effective rate of interest is 11.54% because the loan is only a 2-week loan.

If I told you that I'd loan you a dollar but I wanted to be repaid a dollar and a penny tomorrow, would you consider that to be a horrible thing? No. You's abide by the contract and pay me $1.01 tomorrow...for an effective interest rate of 1%.

If I extrapolate that over an entire year, however, one could claim (deceptively) that the rate was 365%.

Which is the more accurate representation of our transaction?

[hfojvt]

41. how much of the payday loan business is built on repeat customers?

You make is sound like somebody only gets one of those loans once every five years or something, but that's ridiculous. Many of the people I know who run behind on their money are always running behind. They get paid on Friday and have no money left by Monday, and they do that every payday.

People who get monthly checks are the worst, especially if they are on mental disability. Here we are asking somebody to plan their expenses for a whole month on a fairly small check. Not only that, but the person we are asking to do that has a mental disability. They run out of money by the 15th. Same with poor people living on social security.

You know what really contributes to their problems? Payday loans.

Here's how it works. Get a check for $600 on the 1st of the month (or the 3rd). Run out of money by the 21st. Get a payday loan on the 25th for $200 (less a $30 fee). On the next 3rd you get another check for $600. Only this time the check is only $400 because $200 of it just went to pay off the payday loan. Guess what. If you couldn't make it through the month on $600, you ain't gonna make it on $400 either. Not to worry though, because you can get another payday loan and pay another $30 fee. Ultimately that person is living on their small income minus $360 a year in payday loan fees. It's a hole they will have a very hard time getting out of.

But no worries. It's not like they are REALLY paying 390% interest? Just 180% interest on $200 borrowed 12 times.

Do you know why I know this is a likely scenario? Because I used to have friends in this exact same situation. They borrowed money from me every month (and paid it back when they got their checks, only to borrow again two weeks later when they ran out of money again). Which is how people would get by if there were no payday loan places - with a little help from their friends. The highly profitable payday loan industry - they are not one of them. They are no friend to the poor.

[MercutioATC]

90. So who is really abusing the system?

The terms of the loan are clearly spelled out but the borrower chooses to be irresponsible and that's the lender's fault?

[Statistical]

96. 99% of payday loan revnue is repeat customers

99%

http://www.responsiblelending.org/pdfs/rr012-Financial_Quicksand-1106.pdf

(page 6) whole report is good though. If there was any doubt these companies weren't pure scum this report will change someones mind (unless they have a vested interest).

91% required 5 flips to pay back debt
62% required 12 flips to pay back debt

many have had same payday loan for months or years.

CRL study concluded without predatory tactics and repeat borrowers (endentured servants) payday loan companies wouldn't be profitable.

Default rates are high so they need a sucker to latch into and bleed dry one vig payment at a time.

[GA_ArmyVet]

110. When I did my Re-finance this year on my house

it listed in the closing paperwork what the APR and Actual Interest rate, which was quite different...It included closing cost and other fees, which actually raised the amount of payback on the loan. My acutal rate was higher than my APR.

I thought ths was somewhat deceptive, but took the loan as I needed to dump my ARM and get into a fixed.

If I recall my APR was 5..25 but my acutal rate ended up being 5.5 or 5.65.

[walldude]

17. I don't know where you got your interest rates from but as I said

in the last thread, here in Colorado the rate is $75 per week on a $500 loan. If my math is correct that is 120% per month.

[WeDidIt]

20. The OP is being less than honest n/t

[EFerrari]

26. And I just saw a report on Amy's show that here in CA,

these f#ckers are overwhelmingly located in poor black neighborhoods.

Who can POSSIBLY defend these people?

[EFerrari]

23. This is a joke, right? ETA: Link to Amy's report:

http://www.democracynow.org/2009/3/26/usury_country_why_are_millions_of

[Junkdrawer]

27. No, this is a failed attempt at advocacy. n/t

[ddeclue]

38. Does anyone have a 40 foot ladder I can borrow?

My "ire" got stuck on the roof and I can't get it back down...

:argh:

[cdsilv]

47. Having used them ......

.....some folks around here need to get down off of their high horses and join the rest of us in the real
world.

Walk? 20 miles to work? Not gonna happen.

Did I like having to use them? No. Could I have gotten the money any other way (including selling
plasma)? No.

Did I pay it off with my next paycheck. Yes.

Will I ever use it again? - if backed into a corner by my own bad decisions, probably.

Do I plan to? No.

I hope those who criticize payday loans, pawn shops never find themselves in need of one. It is a humbling
experience.

Sheesh.

[ddeclue]

53. Loan sharking is still loan sharking...

This is legalized loan sharking.. If the rates were reasonable they'd still be loaning you the money, we shouldn't let them get away with it.

[EFerrari]

54. Just because I had to hock my class ring doesn't mean it isn't USURY.

It's not about being "too good" to need quick money. It's about lending practices that are designed to make low income folks slaves to that lender. There is a middle ground, you know?

[Ioo]

42. CROOKS - All of them. 11% on 2 weeks is still NUTS

Should all be outlawed.

[BlooInBloo]

43. What's maddening is how complainers needlessly exaggerate the matter into a caricature...

If they wouldn't blow it out of all proportion, THEY WOULD HAVE A GOOD POINT, AND BE CORRECT.

But instead, they pretend to have no idea about how a flat fee gets converted into an APR, and make their deceitful case based on that.

There is already a good case to be made against their lending practices. I really don't understand why they feel the need to caricature it.

[Political Heretic]

49. Your facts are factually WRONG.

Payday loans are not "just" two weeks loans. They are usually defined as 1 pay period loans. Some people get paid once monthly and some payday loans will go for that duration.

Know how I know this? Because I've had payday loans.

Secondly, I wrote a check for 131$ for my 100 loan. Now I'm sure that a white middle class male probably cannot fathom how exploitative that rate really is. But that's a problem with said white middle class male, nothing more.

Third, the notion that payday loan companies must charge predatory rates to mitigate their risk is simply not in keeping with the actual data.

MYTH: high fees are necessary to protect against risk
The industry claims its extremely high fees are necessary on account of the risk being taken and its high loss ratio. In fact, in Colorado, one of the few places in the country that collects actual data from the industry, payday lenders charge-off only 3% of the loans made from 1996-1997, while their loans had an average APR of 485.26%.(5) Conversely, California banks charged off 2.7% of credit card debt in those same years, while having an APR of 15 - 22%.(6) Thus, the payday loan industry's claim of risk and loss simply does not stand up to close scrutiny and do not justify the high rates charged. Therefore, there is plenty of room for rates to decrease, as called for by SB 834.

Further evidence of the low risk is the rapid growth of the industry, both in California and around the country. Since payday loans were legalized in California effective January 1, 1997, more than 3,500 payday loan outlets have opened in the state. The industry is extremely profitable. A State of Tennessee report stated that the industry return on equity in 1997 was 30%.(7)

http://www.consumersunion.org/finance/paydayfact.htm

Info a bit dated, but still basically accurate. I would *guess* that the default rate is mildly higher now given our bad economy.

Also:
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=5399184&mesg_id=5400468

[MercutioATC]

93. No, they aren't.

I'm sure there are plenty of different individual contracts written. The scenario I presented was typical of payday loans...I never stated that it encompassed the specific details of ALL payday loans.

As representative numbers, my facts are correct.

[SoCalDem]

50. You dont have the $200 for a fuel pump this week, and by next week you won't either

Living paycheck-to-paycheck MEANS that there is NO EXTRA in your budget for ANYTHING..

this is why payday loan places have proliferated... they KNOW you will not pay it in 2 weeks because you STILL won;t have it then:(

[Statistical]

78. DING DING DING.

Someone w/ $0 to pay for car repair writes check for $200 which costs him $250.
Next payday he is going to be short....... $250 so he reduces spending $50 but he is still short $200 so I guess he needs a payday loan for ..... $200 = $250....

Next payday, etc.

Payday lenders make their money on repeat business just like crack dealers.

There is a study out that showed
1) vast majority of payday loans are repeat business
2) payday lenders would NOT be profitable without repeat business

once again kinda like crack dealers.

Only difference is we don't have crack dealers posting on DU that "casual crack" isn't that bad.

[Blue-Jay]

51. I'm still not aroused. Can you read your post in a "sexy voice"?

[MercutioATC]

55. Not even a little?

What if I tell you I'm wearing something sexy while I post this?

[Junkdrawer]

58. OK, so NOW do you guys see why Truth In Lending laws were needed?

This kind of "It's only 11.54% interest" nonsense was common until Truth in Lending laws were passed.

[BlooInBloo]

60. How much do you borrow? How much do you pay back?

[Junkdrawer]

64. So I get a full year to make the check good?

Cool....

[BlooInBloo]

68. Is that the deal you sign? Specify the parameters of the deal - don't be cute...

You've actually got a decent case to make, if you wouldn't get caught up in "ZOMG 3 brazillion% interest over a millenium!! this is HUGH!!!" distractions.

[Junkdrawer]

69. Oh, so I'm paying $23.08 to use $200 for TWO WEEKS? Gosh...that's 300% APR....

Pricey

[BlooInBloo]

71. Do you know what the *century* percentage rate of that is? The millenial?

They're even worse, you realize. Just think of the outrage you could generate with THOSE numbers!!!!

:rofl:

[Junkdrawer]

73. I saw that in an earlier article...I really was going to post those numbers...

and say "APR is actually a modest way of computing interest"

[BlooInBloo]

74. Of course you were.

[Junkdrawer]

111. Compound Interest on the "Rollovers"....

....

The Payday Lending Trap

Ron and Deanna Cook have two children and a combined family income of $48,000 -- more than twice the federal poverty line but still $10,000 below Georgia's median income. They are the working poor.

To make ends meet, the Cooks borrow from payday lenders. When Ron and Deanna borrow $300 for 14 days they pay $60 in interest -- an annual interest rate of 520%! If they can't pay the full $360, they pay just the $60 interest fee and roll over the loan for another two weeks. The original $300 loan now costs $120 in interest for 30 days. If they roll over the loan for another two-week cycle, they pay $180 in interest on a $300 loan for 45 days. If the payday lender permits only four rollovers, the Cooks sometimes take out a payday loan from another lender to repay the original loan. This costly cycle can be devastating. The Center for Responsible Lending tells the tale of one borrower who entered into 35 back-to-back payday loans over 17 months, paying $1,254 in fees on a $300 loan.

....

http://www.alternet.org/story/45813

See also DUer hfojvt's now archived post:

....
Which is just wrong. Rates actually reach 10,000 percent or more. Unfarkingbelievable, but true. It's the power of compounding. One example given in the articles is a loan of $300 for two weeks which charges $60 interest. That's 20% in two weeks. The Payday Loan Places multiplies 20 by 26 and advertises that as an APR of 520%. But that's not how compounding works. A $300 loan at 520% APR would charge $1,560 interest in a year's time if no payments were made. However, look at what actually happens.
300
360
432
518.4
622.08
746.5
895.8
1074.95
1289.95
1547.93
1857.52
2229.02
2674.83
3209.8
3851.75
4622.11
5546.53
6655.83
7987.00
9584.4
11501.28
13801.53
16561.84
19874.21
23849.05
28618.86
34342.63

$300 grows to $34,342.63 in just a year's time. That's not a bad little return on an 'investment' if you can find a bunch of people with the combination of stupidity and desperation enough to pay those kind of rates. That's $300 + 34,042.63 in interest. Interest/principle * 100 = an APR of 11,347.5%.

...


http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x865966#869126

In practice, most payday lenders limit the rollovers to 4 - they know you can't squeeze $34,342.63 of blood from a rock. But if they could....

[L0oniX]

59. Go without beer and cigs for a month and then you'll have enough to open a checking account.

[Political Heretic]

63. Many people are declined from opening checking accounts

[flvegan]

62. Isn't one of the rules of the loan to write a post-dated check as "security"?

I'm not really sure of the rules, but I thought I had heard that.

[Statistical]

97. Most do and then threaten criminal charges for check fraud to keep the juice flowing. n/t

[flvegan]

105. The very act is a commission of a felony in Florida.

Also, if it bounces, treble damages can be awarded.

Stay classy, payday loan program.

[MadHound]

67. Sorry, but payday loans don't provide a "needed" service

They provide a service that they created a need for. They gave people the illusion that they were making life a bit easier for them, but at a horrible price.

For years and decades we survived without payday loans. People figured out a way to deal with their problem, bumming rides, using public transit, or what have you. Only the very desperate visited loan sharks, which by the by, generally charged less than payday loan places.

Then payday loans came, to the poorer, less educated parts of town (for a good reason), and gave people what appeared an easy way to deal with problems, but it came at a huge price. Don't bother your neighbor for that ride, no, step right up to the payday loan place, we'll give you that money right now in exchange for taking you for a ride later.

And please, don't be disingenuous, the payday loan joint thrives on people kiting those loans, paycheck after paycheck, for weeks and months, so yes, the interest that they charge cranks up through the roof.

These places are scum suckers, worse than pawn shops, hell, worse than loan sharks. The don't provide a needed service, they created the illusion that they're a needed service. They are out to prey on the poor and uneducated, skimming more money from those who can least afford it. They're despicable, and frankly every last one of them should be driven out of business.

Sadly, now that many of the chains have the backing of the big banks, as partners and financiers, it doesn't look like they're going to go away anytime soon.

[Junkdrawer]

72. +1 Great Post

:thumbsup:

[tjwash]

89. +2

:thumbsup: :thumbsup:

[Name removed]

70. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Egalitariat]

75. The only real question should be: "Are the borrowers free to shop for a better deal?"

Or are they required to borrow from the Payday Lenders?

If they can't get a better deal, there's probably a reason for that. And they probably had a lot to do with creating the reason.

[Statistical]

77. At the risk of arousing your ire, a couple of points about "crack dealers"

(which have generally been ignored here at DU)

1) Crack doesn't cost as much as you think.

"Crack" is a short term drug. They don't sell it to the consumer in 12-month or longer terms. Those who demonize the crack dealers and/or cry for "will bankrupt you" aren't doing the math: a single rock of crack can be as cheap as $40. $40 for a couple hours of getting high. What a value! Less than the cost of buying a Season of Alias on DVD.

Now sure if you smoke a rock a day for a year you quickly will go bankrupt. It isn't the dealer's fault you didn't follow the contract. Crack is for short term use only. If you use it once it might be as little as 0.005% of your gross income.

2) People who take advantage of the services of crack dealer usually have no alternatives.

Yes, that's unfortunate, but that's the current situation and while better education, a higher minimum wage, universal healthcare, etc. would help immensely, that's not the issue at hand.

Imagine the following situation:
You have a job that you have to drive to, no savings, and lousy credit.

You see some horrible stuff like daily violence, your best friend getting his head blown off, your sister getting raped, or maybe just a lifetime of hopelessness.

What are your options:
mental health - thats for rich people
beer - thats for people will less serious problems.
Crack - exactly.

Without crack you would have no way to cope with your emotions.

See crack dealers are doing a service. Sure they have to shoot at other dealers but unless they protect their turf they can't provide this valuable service. Occasionally they will miss in a drive-by and blast up some kids but who's fault is that?

I will tell you. The community. When have you EVER seen a community build a gun ragne for gang bangers. If gangbangers had somewhere to train they would be better at killing other gangs and that would reduce both # of bullets and # of bystanders.

It is your fault DU unless you support gun ranges for gangbangers.

(For the parody impaired yes this is a parody of the OP. See anything can be good if you pretend it is).

[MercutioATC]

84. Oh, c'mon. You can do better than that.

You're correct that both drugs and credit can be addictive to some people.

You're also correct in your implication that the poor have a greater predilection to abuse both drugs and credit.

The difference is that short-term loans, if used responsibly (and according to contractual agreement) can have a benefit.


Crack use has no such upside...it's universally destructive.

[varkam]

81. Your hand-waving about 11.54 percent kind of misses the point.

You're just restating the interest in a way that will be more palatable to people, because people are used to thinking of APR. If you think about "normal" rates (e.g. those having some relation to prime), then that 11.54% interest rate is still several orders of magnitude greater than others (presuming that you calculate "normal" interest rates on a bi-weekly basis instead of an annual one).

[donheld]

100. I'd love to see ALL of them closed down

April 6, 2009 never to reopen.

[baldguy]

104. Payday loans are made by bloodsucking weasels.

Just one more way out of the million ways that exist to keep the poor in poverty.

God bless America.

[TheMadMonk]

106. To the loudest screamers.

Let's look at a standard 25 year home loan. As a rough rule of thumb, if you make minimum monthly payments, by the time you pay out the loan you will have paid out a total amount that is IIRC roughly three times the amount borrowed. Now simply by switching to making fortnightly payments that are exactly proportional to the required monthly payment you will pay off the loan several years sooner and will save yourself an amount that is a very significant percentage of the amount borrowed. And paying a few dollars above the minimum required amount will also result in huge savings.

Loans have several features: principal, term/period, anualised interest rate, and total interest paid. Failing to take into account all such features, results in utterly nonsensical arguments. By picking and choosing which features to emphasise and which to ignore, I can argue that a home loan is charged out at 200% interest, because I choose to focus only on the total amount ultimately paid to clear the loan. Your argument revolves around focusing on the APR which is legally mandated to be stated in the terms of the contract for the purpose of allowing borrowers to make an informed comparison with other loan products.

Payday loans are something like the early/more frequent payment scenario I outlined above, except they are actually explicitly written into the terms of the contract. Meet those terms and you pay a steep, but not entirely excessive fee, but you will not pay anything like the amount you would ultimately pay if you attempt to pay off the same loan over an extended period.

I will agree that the vast majority of payday lenders do knowingly target the poor and ignorant, and do so in what can only be described as a predatory way. However, in the end it does ultimately boil down to you have to agree to be gouged before the gouging can commence. The lender does not hold a gun to the borrowers head and force them to sign. Social and other circumstances may hold the gun, but that is for any number of other arguments that take place frequently on these forums.

If circumstances do force you into taking out one of these loans then if you have any intelligence at all you do your damnedest to make other arrangements as soon as is humanly possible. Talk to your employer and arrange an advance in your next paycheck, visit a food bank, make choices.

I know this does not in any way shape or form apply to all people, but I do know (and know of) many people who cry poor when they chose to live on fast food amd pre-prepared meals for 3 weeks out of four and on the fourth week are regularly standing in line at one charity or another with their hands held out for a food parcel. Who budget their drugs and alcohol first and then rely on charity to feed their children. Who have any number of expensive toys, but claim to be unable to put food on the table.

Personally I've never taken out a payday loan, and hopefully I never will have to. But from my own personal knowlege of friends and aquaintances who have used payday loan services I would estimate that at least a quarter took out the loans not to cover an emergency situation, but to buy drugs and/or alcohol and perhaps the same again who took out the loan to cover what they fed into the pokies. Others bought some entirely unnecessary thing which they had to have right now. The same sort of people who rent unnecessary appliances at ridiculous rates, because the $1 buyout offer after 36 months is too good to be true. Yup it is, it's a way for the rental business to offer loans at entirely arbritrary rates without having to meet even the most basic legal requirements of a loan agreement.

I'm not saying innocent people don't get caught up in these traps. Of course they do, and it is often circumstances beyond their control that force them into these situations.

However, payday lenders, loansharks and hire purchase companies are not formed to capitalise on human misery, they exist to capitalise on human stupidity, and that unfortunately is a bet which has always been a sure thing since time immemorial, and is not something which you can prevent without directly interfering in the lives of those people, just as much as the right to lifers wish to interfere in the lives of all women.

[Romulox]

112. So if you convert APR into an unfamiliar unit of measure, people have a hard time comparing rates?

What a stunning insight! :silly:

[Junkdrawer]

114. Par for the course for the OP. n/t