High fees payday loans

[guitarplayer]

how much fee do you pay for payday loans? if you check out some of the fees or interest rates here http://www.moneysavingfreetips.com/no-teletrack-payday-loan.html

Mississippi ($400, 18%)
Missouri ($500, 75%)
Montana ($300, 25%)
Nebraska ($500, 15%)
Nevada (no limit, no limit)
New Hampshire ($500, no limit)
New Mexico (no limit, no limit)

75%? 25%? aren't these too high? they are more of ripoffs!

i wonder why these states allow such high fees?

 

[audreyh1]

Yet another way the little guy gets fleeced! Yes, it's outrageous. And so are the credit card rates they pay, and the car loans (someone recently was please to get 18% because she had "bad credit"). Oh yeah - and who plays the lottery?

I see stuff like this and I just don't know what to think except that the people who can't make it from paycheck to paycheck pay dearly for their situation.

Audrey

 

[NinjaPigeon]

Oh yeah - and who plays the lottery?

I do. Yah, yah, I know it's a math tax of sorts, but I still would like to believe I will beat the odds

 

[unclemick]

They raised the priced on Wisconsin sausages to .59 cents apiece next to the cash register where I buy my Powerball - still a buck at the quick stop. And non fattening.

heh heh heh heh - love the sausages though I'm trying to quit.

 

[youbet]

Yet another way the little guy gets fleeced!  Audrey

Please don't refer to me as heartless, because I'm really not........but.........  before these payday loans were available at every strip mall across the country, people found a way to do without them.  When they became available, people without the willpower to postpone immediate gratification flocked to them.  Sadly, there's often a self-defeating reason why those who need payday loans need payday loans.........

All the businesses that prey on those who lack will power or discipline are open to having their morals questioned I guess.  Race tracks, Vegas, lotteries, high interest loans, Sunday morning tv evangelists, they all prey on the weak and, big surprise, therefore poor.

 

[d]

if rates were capped at a "more reasonable" rate, you'd likely find precious few willing to make such loans. (what would be a "reasonable" rate for high risk loans?)

 

[free4now]

The real problem the poor face is that they don't have access to competing financial providers.   The major banks don't have offices in their neighborhoods, so in many cases the only providers who can process their paychecks are the places with garish yellow signs, bulletproof glass windows, and very high fees.

Living in a relatively affluent area I have access to all the major bank chains, and can easily find one that gives me free banking and ATM service.   Or I can use an internet bank which pays me interest.  The poor don't have these options.

They also pay more for car loans, mortgages, insurance based on nothing more than their zip code.   They don't have supermarkets nearby or don't have transportation to get to the supermarkets, so they pay higher prices for groceries from the corner liquor/food store.

Whereas you and I can do financial transactions with very low frictional costs, many poor have no option but to pay high fees.  This does reduce the incentive to save, and keeps them from getting ahead.

I can't say I know the solution, but I do recognize there is a problem.   Honest hardworking people in poor areas end up having to pay usurious fees even though they are not high risks themselves.  They just happen to live among high risk people.

 

[Cool Dood]

I can't say I know the solution, but I do recognize there is a problem. Honest hardworking people in poor areas end up having to pay usurious fees even though they are not high risks themselves. They just happen to live among high risk people.

I generally agree with what you said, but about that last part: pretty much every "honest hardworking person" will in very short order be able to afford moving to bettter neighborhoods -- at least better enough that there's banking etc. -- and so they don't "just happen" to live among high risk people, they choose to for whatever reason. Maybe they want to be near family, maybe they have some other good reason, but it's still something they're choosing with the known tradeoffs.

Anyway, you're right, there are no easy solutions.

 

[ash]

i wonder why these states allow such high fees?

Because if the government sets a price ceiling on interest rates, people who can only get loans above that rate will be excluded from the market and/or people below that rate will subsidize their loans. Do you want to subsidize loans for people with bad credit? I don't.

 

[justin]

I did a research paper on payday lending for my law and economics class during law school.

I'll try to post part/all of it when I get home (to bore you to death).

One thing I remember from the research: Payday lenders require customers to have checking accounts. They cash checks that are post-dated 2-4 weeks from the date the loan is made, and take a "transaction fee" from the loan proceeds. Repayment of the loan occurs when they cash the post-dated in 2-4 weeks.

One of the big problems is flipping the loans. Every time the loan is due, the customer will come in and get a new loan, and pay the $35 fee (or whatever). So after a few months, they have paid more in fees than what the original loan balance was.

The customers aren't on the lowest rung of the social ladder. They have checking accounts, many times jobs, frequently college educations. They simply have zero "rainy day" savings.

 

[youbet]

The real problem the poor face is that they don't have access to competing financial providers.   

True. That is a problem in many low income neighborhoods.  But the payday loan issue is a little different and is more related to people's inability to get far enough ahead that they can wait until next week for payday.....week after week after week.  Payday loans are big in small towns, around gambling venues, etc.

I live in a very racially diverse urban neighborhood with many "recent" immigrants.  When I stopped by the currency exchange recently to do an address change on a car title, I was amazed at the long line of folks paying to cash paychecks, wire money back to their home country, pay utility bills, buy calling cards, etc.  They pay much more than I do for those kind of services and it's a shame. Hard to believe someone would stand in line to pay their utility bill and pay a fee to do so.  But that is a different issue than the payday loan fiasco. 

 

[haha]

how much fee do you pay for payday loans? if you check out some of the fees or interest rates here http://www.moneysavingfreetips.com/no-teletrack-payday-loan.html

75%? 25%? aren't these too high? they are more of ripoffs!
i wonder why these states allow such high fees?

How are these loans secured?

One thing I remember from the research:  Payday lenders require customers to have checking accounts.  They cash checks that are post-dated 2-4 weeks from the date the loan is made, and take a "transaction fee" from the loan proceeds.  Repayment of the loan occurs when they cash the post-dated in 2-4 weeks.

Looks like this may be the answer to my question.  If your check is bad, that is not just a loan in arrears, it is a crime. So the sheriff is your taxpayer funded collection agency. As long as those wily borrowers don't escape across the border, looks like you got 'em by the b*lls. 

Damn, this could be better than selling Ripple to winos.

Just kidding guys, I'm as PC as y'all are. 


Ha

 

[VoyT]

Living in a relatively affluent area I have access to all the major bank chains, and can easily find one that gives me free banking and ATM service.   Or I can use an internet bank which pays me interest.  The poor don't have these options..

  I live in a relatively affluent area too, and  there are payday loan outfits down the street from the major bank chains.  This tells me there are middle class folks out there who are (for whatever reason) coming up short between paychecks.

The customers aren't on the lowest rung of the social ladder.  They have checking accounts, many times jobs, frequently college educations.  They simply have zero "rainy day" savings. 

   Justin, methinks you hit the nail on the head ...

 

[justin]

Here's the paper I wrote a few yrs ago about payday lending. Someone requested it, so here it is. Hope it provides a little food for thought. I just kind of threw this paper together at the last minute for class, so don't be too critical .

Attached is part 1 of 2.

 

[justin]

Part 2 of 2 - This second half of the paper includes the footnotes that are helpful in understanding the paper.

 

[haha]

Thanks Justin.

Ha

I just read through your paper. It's good. My feeling about these businesses is the same as it was prior to reading your analysis. They aren't perfect, but then neither is the world. The main thing I see is that the borrower knows what he is going to pay and pays it upfront. So he doesn't risk loosing any teeth or suffing trauma to his knees.

Also, it is simplicity itself. Probably any payday borrower has a better handle on what he is doing and what it costs than the average mutual fund investor has on what he is doing.

I think this would be a good place for do-gooders to keep out of; as you pretty well demonstrated.

By the way sugar, how 'bout some Henny?

Ha

 

[justin]

By the way sugar, how 'bout some Henny?

Sorry, I don't like French brandy. Only the US kind for me

 

[free4now]

I thought I might have stumbled into a remake of "The adventures of Tom Sawyer", but turned out it was a well written paper on payday loans.

Probably any payday borrower has a better handle on what he is doing and what it costs than the average mutual fund investor has on what he is doing.

So true!

Makes me wonder if we could require that brokerages tell you how much you paid in fees, expenses, loads, commissions, etc on every monthly statement and at year's end. Maybe they could even do some accounting of how much bid/ask spread you've paid for.

I can guess why this hasn't happened... financial lobby.

 

[haha]

Maybe they could even do some accounting of how much bid/ask spread you've paid for.

This last is a real black box. The other stuff you mention can be put together with effort, but I don't know any way to get at what you mention above.

Ha