In a just society payday loans would not exist

Via Lessig and as explained beautifully by Colbert, payday loans are evil.

The Colbert Report Mon - Thurs 11:30pm / 10:30c
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Being a Democrat is no protection from corruption by corporations, as Congressman Gutierrez demonstrates. I think this is a pretty bad example of the type of corruption that Lessig and Brayton have been having a back-and-forth over. Whatever they want to call it, I think we can all agree it's wrong.

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And for those of us in Canada who can't watch this(stupid restrictions!), here's the appropriate link:
http://watch.thecomedynetwork.ca/#clip162048

I'm too lazy to figure out the html to make it all nice, but I assume people can work with this. I don't know if it works for people outside Canada, though, or if it's just another form of the same restrictions, and it's not like I can conveniently check, so for my curiosity, does it work?

And more on topic, payday loans tend to suck in general. If no one else will lend you money, you shouldn't be surprised to find there's a catch with the one who will. Not that that makes their insane interest rates any more defensible, though. I recall having a conversation about this with my parents, and unless I'm mistaken or have misremembered, you can't charge interest rates that high in Canada. It's considered usury. I don't think this politician understands the concept of usury. He almost certainly doesn't understand the concept of "conflict of interest".

By Sari Everna (not verified) on 20 Apr 2009 #permalink

I disagree, payday loans can be a godsend in emergencies. Of course you shouldn't take out a payday loan to repay another, but there are responsible uses.

Even if there weren't, trying to get rid of expensive short term emergency loans will be near impossible: If interest rates on payday loans are too high, why doesn't anyone compete to offer lower rates? It's a sad fact that delinquency rates and transaction costs are very high for this kind of loan. The only way to get rid of the high interest rates is to ban payday lending altogether. Hey, prohibiting voluntary, consensual transactions works so well for drugs, let's drive another sector of the economy underground into the hands of organized crime! Open a new front in the War On Poor People, let the War On Predatory Lending begin.

On Canada: It's true that you can't charge interest that high there... but payday loan companies in Canada just get around that by charging the same amount in "fees" (for check cashing and the like).

Payday loans are a good idea and can be helpful for those that need a small amount of money quickly for a short period of time. These loans typically have a higher fee associated with them, but there are only one or two payments so the actual dollars are not as much as some may think. Most of the time each state has a set limit on how much can be charged and it's usually quite reasonable given the situation. I for one have used payday loans in the past and they help me get caught up until I got my next paycheck. I used it responsibly and it worked for me, and could help others as well. There are many good sites for online payday loans but make sure to read everything before signing.

The payday lenders have so much money they can pay people to blog for them (see previous blogs). Delinquency rates are not high and these loans are secured by access to people's bank account so the payday lenders get paid before almost every other creditor. If you have a financial emergency--do not get a payday loan because it will dig you such a big hole you may never get out. The internet loans are the worst and you should never do that. It is a felony to make an internet payday loan to Virginians but that doesn't even slow them down.

How interesting that a Denialist like Jay Speer would offer his opinion on a Denialist site.
Mr. Speer, since you seem to have so much interest in this topic and believe you are in the right, can we have a debate on the topic?

By Lawrence Meyers (not verified) on 21 Apr 2009 #permalink

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Guys, calling payday loans "Evil" and "wrong" is itself denialist. You have fallen for the misrepresentation of using APR to evaluate the value of payday loans. wrong wrong wrong.

Before calling yourselves anti-Denialists, don't behave like that which you oppose.
Educate yourselves first.

By PDL Defender (not verified) on 22 Apr 2009 #permalink

Wow. Another person who completely misconstrues the word "denialist" to mean "people who have the audacity to disagree with me".

Educate yourself, PDL. Taking advantage of the "financially challenged" by charging outrageous interest rates is called "usury". Look it up. It's one of those things in the bibble that are *seriously* frowned upon. Lend or don't lend, but charging those outrageous "fees" is obscene.

By LanceR, JSG (not verified) on 22 Apr 2009 #permalink

That's amazing, how quickly the bots found this posting. For a site that deals with science, that you got at least 3 "spammers" just shows you how desperate they are to fight back.

My Grandfather was a loan shark in Glasgow, he'd be amazed what you could do legally in the US (he never got those types of profits.)

By Evinfuilt (not verified) on 22 Apr 2009 #permalink

Okay, Lance, then let's have a logical debate, with all the supporting evidence you can find. Logic only allowed, as this is a Denialist Blog. Let's be civil and have a dialogue.

Simple facts, and then questions for you. This is just step one.

1) There is a need for short-term credit in this country

2) People in need have the following options (with costs and risks):

A) Borrow from friend/relative/employer
Cost: Probably zero
Risk: Complication of important relationship, embarrassment

B) Credit Card Cash Advance -
Cost: About $1 per hundred every two weeks
Risk: Fail to pay; your credit rating is damaged

C) Pawn -
Cost: $9.50 per hundred every two weeks
Risk: You don't pay back, you lose the personal item.

D) Payday Loan
Cost: Averages $16 per hundred every two weeks
Risk: A collection agent tries to recover what's owed; no damage to credit rating; no personal item at risk; no personal relationship at stake.
Myth: "Cycle of Debt" - 94% of loans are paid back on time -- that statistic is available in every single SEC filing of all public companies.

E) Bounce a check
Cost: Averages $45 per hundred borrowed
Risk: As soon as you bounce one check, you risk creating a domino effect, causing other checks to bounce and running those fees even higher.

Now, Lance, given all of the options above, please answer these questions.

1) Do you think that people will naturally gravitate towards the cheapest option available? Yes or no?

2) What do YOU believe is a "fair" amount to charge for a payday loan, per hundred borrowed?

That's it. I look forward to your answer.

By PDL Defender (not verified) on 22 Apr 2009 #permalink

Evinfuilt:

1) Ask your grandfather what the default rate was in his business.
2) Ask him what his overhead was.
3) Ask him how much money he, and his bosses, NETTED on the dollar.

Then we'll see who is "spamming" and who is making false analogies.

Here, let me answer for you:

1) Default rate was next to nothing.
2) Overhead was next to nothing.
3) 100%

You see, in your grandfather's case, he was operating illegally, in a business that had no costs, no default rate to speak of, kept 100% of every dollar he made, and people who did not pay were injured or killed.

The payday loan industry operates legally, in a business which costs $7000 at a monthly minimum just to keep the doors open, has a default rate of 6% nationally, and people who did not pay back were legally pursued for collections.

It is an outrage that people like you can come here, of all places, and offer up fallacies.

By PDL Defender (not verified) on 22 Apr 2009 #permalink

Okay, PDL... let's start with #1. "There is a need for short term credit in this country". Really? Who says? You? Loan sharks?

That is called an "unsupported assertion". After that, all of your other discussion kinda falls apart. I won't argue with your numbers, because I have better things to do than hunt down more accurate ones, but I will suggest that your D and E are quite the same. Think about it.

I am not suggesting that "payday loans" are inherently a bad thing. The outrageous interest or fees is all that I have a problem with. We used to have usury laws regulating the maximum amount of interest that could be charged. Those seem to have been lobbied legislated out of existence.

Just for humor's sake, what is your interest in payday loans? Own a company? Make your money off the misery of others? Just another bottom feeder?

By LanceR, JSG (not verified) on 22 Apr 2009 #permalink

Lance, am I to understand that you think there is NO need for short-term credit in this country?

The support for this assertion is quite clear.

If there was no need for short-term credit, then no short-term credit products would be used.

However, there are 25,000 payday loan stores, 22,000 pawn shops, and overdraft charges from people who have bounced checks. In 2008, there were 154 million payday loan transactions, nearly 70,000,000 pawn transactions, and over a billion overdraft charges.

The existence of this many transactions in the short-term credit industry clearly demonstrates a need for short-term credit.

If you cannot accept this most basic of facts, then this conversation will not be going anywhere.

But let's turn to a different question, because this is the real crux of the issue for you.

"The outrageous interest or fees is all that I have a problem with."

1) Tell me what you consider to be NOT outrageous.

2) Your definition of "usury" is both factually, logically, and even Scripturally incorrect.
Again, pure logic: http://www.bloggernews.net/120234

You final two sentences are simply name-calling. And because you have not yet supported your position, it doesn't serve either your argument, or your personality, well.
Please remain civil.

By PDL Defender (not verified) on 22 Apr 2009 #permalink

If there was no need for short-term credit, then no short-term credit products would be used.

If you wanted to have an ontological argument, why did you ask to have a logical one?

By Keep posting (not verified) on 22 Apr 2009 #permalink

Hmm... let's look up "Circular Argument", shall we? It says; "See Circular Argument".

Short term credit products are used because those people see a need for them. In a just society (hence the title of the post) there would be no need for these products.

Usury it is, and all of your semantic games will not alter it. The very fact that you need to play those games shows that you know it, too.

What's the matter? Asking about your interest in this topic is uncivil? Bullshit. I sense a certain, je ne sais quoi, *predatory* interest? Come clean, now. What conflicts of interest might you have? (Ooh. That was almost a pun!)

I can get uncivil if you really want... don't make me call my flying monkeys!

By LanceR, JSG (not verified) on 22 Apr 2009 #permalink

We'll get back to that question later. Right now, let's stick to the point.

1) Payday loans are not usurious, by definition (see above link)
2) People who call the fees "outrageous" forget that the *cost* of a product never exists in a vacuum.
3) The cost of any product can only be judged on A) The relative value of what is received in return, and B) If the fee collected by the seller provides him with enough profit to continue doing business.

If the fees were "outrageous" by the standards apparently set by Lance (which so far are vague. I'm waiting to hear what he considers to be reasonable), then nobody would take out a payday loan. Yet 154 million transactions occurred in 2008 alone.

Since other credit options do exist, the only logical conclusion is that several million people feel that the credit they receive in return for the fee paid is NOT outrageous, but reasonable.

As it turns out, this is not only logical but pragmatic. It's the real world, folks. YOU may think it's outrageous, but I'm going to lay 100-1 odds that none of you has ever taken out a payday loan, ever set foot in a store, have only researched these loans to the extent of a Stephen Colbert video, never spoken to any customer or store owner, or done the math on why the fees are what they are.

in short, payday loan customers do not care what you think. They use the product and do so by free choice. To legislate them out of business is to force them to use more expensive and/or options they do not wish to use (or they would use them now). This stripping of free choice is counter to what America stands for.

But we'll get there.

By PDL Defender (not verified) on 22 Apr 2009 #permalink

Lance, you are a dunce and clearly not interested in discussing this issue.
Nor do you have any clue what a circular argument is.

The statement I made is an axiom. The answer is self-evident. That you cannot understand this shows your lack of intelligence, and knowledge of logic.

Second, rather than addressing the arguments I laid out in very specific and logical terms in the article, you just dismiss it. This is not rational nor logical argument. It is puerile silliness.

And finally, you claim a "conflict of interest". Whether or not I am in the payday loan industry is irrelevant. If the arguments are logical, which they are despite your ham-fisted attempts to dismiss them, then who I am and what I do matters not.

You may return to your cage and your ignorance. Enjoy.

By PDL Defender (not verified) on 22 Apr 2009 #permalink

PDL, nice ad hominems in the end there.

"An argument is begging the question if the conclusion is used as a premise in an argument."
* "Why am I the boss? It's because I call the shots around here."
* "Of course I had a reason, or I wouldn't have done it."
* "I didn't steal it. I'm no thief!"

what you said was a circular argument, not an "axiom."

If payday loan companies exhibit the same disregard for state usury laws that most credit institutions do (I.E. Moving their home base to a state with a higher rate of interest allowed legally) - then that's another issue to tackle.

Your link has this statement in it: "Since hundreds of millions of transactions have occurred in payday loan stores across the nation, both sides must obviously think the transaction is reasonably priced, or they wouldnât undertake it, per the analysis above."

This may be true on the surface, however people who don't "NEED" payday loans also don't "WANT" payday loans. Compare this to the statement (which may also be true): "People who NEED payday loans may not WANT payday loans."

The problem is in the whole idea that just because there is one option that appears to work doesn't mean that its solution is the best, is moral or ethical, or even valid.

For example, Killing someone in self defense is seen as morally and legally defensible in the US. However a pacifist wouldn't take that stance at all. Just because they can doesn't mean they will, or should, or even that the act of self defense is even ethical. (it's irrelevant what the truth is, here)

Providing a service that is a "last resort" for people in dire straits - and then saying that just because it falls in the realm of "legally defensible under current laws" doesn't mean that it's a good idea. I'm sure that there are ways to defend Racketeering as well - "they're paying for private security forces to protect them against bad things happening at their place of business! WHAT IS WRONG WITH THAT?"

By genewitch (not verified) on 24 Apr 2009 #permalink

Genewitch:
Well, the ad hom I threw in because Lance really is a dunce.

Circular argument or axiom. That's up for debate. The answer is self-evident. But let's move on from that point to practical matters that you fairly raise.

"If payday loan companies exhibit the same disregard for state usury laws that most credit institutions do (I.E. Moving their home base to a state with a higher rate of interest allowed legally) - then that's another issue to tackle."

In most states, PDLs are permitted under enabling legislation, i.e. a usury exemption.
in some states, they are unregulated.
The FDIC cracked down on the "rant-a-bank" model you refer to and it is basically gone.
Some online lenders do use a Choice of Law model, however. Nevertheless, if the client takes out a loan, and Choice of Law is disclosed, it is legal.

"Your link has this statement in it: "Since hundreds of millions of transactions have occurred in payday loan stores across the nation, both sides must obviously think the transaction is reasonably priced, or they wouldnât undertake it, per the analysis above."
This may be true on the surface..."

No, it's true, period. Other options exist, as listed above. If the transaction were unreasonably priced, they would choose another option. Next....

"People who don't "NEED" payday loans also don't "WANT" payday loans. Compare this to the statement (which may also be true): "People who NEED payday loans may not WANT payday loans."

Both of these are true, but I'm afraid I'm lost as to your point. Unless it's this....

"The problem is in the whole idea that just because there is one option that appears to work doesn't mean that its solution is the best, is moral or ethical, or even valid."

Very fair issues to raise. Let's examine them, but first there is an overarching point. It is not up to YOU to tell THEM what solution is best, moral, ethical, valid. or anything else. It is THEIR choice. The moment YOU try to take away the option is the moment you support paternalism, and strip freedom from those who did not ask you to do so.

1) Best solution? By dint of the fact that they CHOSE a payday loan, it is the best solution for THEM. There are other solutions, but they CHOSE not to use them for reasons stated in earlier posts.

2) Moral/Ethical Solution? Your statement assumes something that is not true. NO BUSINESS IS MORAL. None. This is best explained in these two articles -- in short, no matter what business you choose, I will find something immoral about it somewhere in the chain of production or distribution. What is truly immoral and unethical is to legislate a credit option choice away from people because of what YOU think.

http://www.fool.com/investing/small-cap/2004/11/22/the-myth-of-socially…

http://www.fool.com/investing/high-growth/2005/02/16/the-myth-of-social…

3) Valid solution? I don't know what you mean by this. What I can tell you is the solution is perfectly valid if it solves the consumer's problem and they make use of it willingly. They do, therefore, it is valid.

"For example, Killing someone in self defense is seen as morally and legally defensible in the US. However a pacifist wouldn't take that stance at all. Just because they can doesn't mean they will, or should, or even that the act of self defense is even ethical. (it's irrelevant what the truth is, here)"

So you've proven my point. The truth doesn't matter. What matters is what the value of the product has TO THE USER. Your example also supports my position on a practical level. Since the truth doesn't matter, then leave the individual alone to make their own choice. If the borrower wants a payday loan, let them have that choice. (In fact, you support deregulation with your example. ). If you prevent that choice, they will be forced to other options that they have already rejected! ANd if you're a pacifist and don't defend yourself, it's your choice to end up dead.

"Providing a service that is a "last resort" for people in dire straits - and then saying that just because it falls in the realm of "legally defensible under current laws" doesn't mean that it's a good idea."

Who are you to say that? If it works for them, leave them alone.

" I'm sure that there are ways to defend Racketeering as well - "they're paying for private security forces to protect them against bad things happening at their place of business! WHAT IS WRONG WITH THAT?""

Straw man/False Analogy. You just used the word Racketeering which is, by definition, illegal. Payday loans are legal.

By PDL Defender (not verified) on 24 Apr 2009 #permalink

You're right; racketeering is illegal, but payday loans are legal.

Are you suggesting that's the only difference between the two?

I find it interesting that while you keep demanding that your critics tell you what is a reasonable interest rate, you decline to tell us what *you* charge, or what *you* think should be charged. Is this because you know you'll lose the argument if you admit that %200 is considered generous in the industry?

Some people do indeed need short-term credit, due to having overextended themselves woefully. It does not then follow that extremely high interest payday loans are the best solution, or that people actually want those loans. (A man dying of thirst really doesn't want to drink his own urine -- but he will if there's nothing else available. That doesn't mean he likes drinking pee.)

By Calli Arcale (not verified) on 27 Apr 2009 #permalink

Calli:
Read what I wrote. The racketeering example is a false analogy. There is no similarity between it and payday loans. They are completely different from each other.

I've already told you exactly what I think should be charged: whatever price that allows the transaction to occur or, simply put, whatever the free market settles upon. That price is whatever allows lenders to make enough profit in relation to risk so that they will risk their capital to provide the service AND is considered reasonable by borrowers to undertake the transaction.
http://www.bloggernews.net/120234

The reason I insist on what you others think should be charged is because you are the ones who want to limit the fees to a rate that will not permit the lenders to stay in business. The result is the product would vanish, forcing consumers to more expensive options.

Your final paragraph is fallacious and you ignored what I said earlier. Payday loans are NOT the only option. But 154 million transactions occurred because those people CHOSE them -- they were less expensive than bouncing checks or having utilities disconnected, more discrete, quicker, more convenient, and less embarrassing than borroweing from a friend or relative. Do they WANT to take out the loan? Of course not. Do they NEED a form of short-term credit? Of course.

Capping fees, however, will force them to other options that, HAD THEY WANTED TO USE THEM, they would have chosen them instead.

By PDL Defender (not verified) on 27 Apr 2009 #permalink

And, by the way, you are dead wrong that "200% is considered generous in the industry".
You make two mistakes:

1) The borrower does not care what the APR is. The price signal they respond to is the flat cost of the loan.

2) The COST of something does not exist in a vacuum. When it comes to a loan, you left out the question of what the RELATIVE RISK is to the cost. 200% means nothing if the default rate and overhead is high enough that you can't make a profit.

By PDL Defender (not verified) on 27 Apr 2009 #permalink

First to avoid confusion I am Lance not LanceR.

While I don't wish at this time to defend or assail the ethics or economic dynamics of pay day loans I would just point out that there exist a financial service that takes your money and then charges up to 10% of that money to hand it to some one else.

Western Union, among other money transfer companies, demand cash so there is no risk and the only expense is the cost of maintaining the office.

Talk about a racket, especially in a world where eletronic funds are securely transfered in the blink of an eye.

In other words, Lance ( or LanceR), you have no way to defend an anti-PDL position as I've already dismantled arguments against it.

As for Western Union being a "racket", yeah? So what? If people don't want to use the service, they can transfer money some other way.

By PDL Defender (not verified) on 29 Apr 2009 #permalink

Ah, yes. The old libertarian "It ain't dishonest if I can find a sucker" ploy. Just because you *can* take advantage of those less fortunate than you, does that really mean that you *should*? Didn't your momma treat you any better?

PDL *is* racketeering, only with the shiny veneer of bought and paid for legislation making it "okay".

You and your kind are part of the problem.

By LanceR, JSG (not verified) on 29 Apr 2009 #permalink

Having bad credit can certainly be difficult when trying to get financing, but it's good to know that there are places that people with poor credit can get the loans that they need. However, like with any loan, there are fees and interest involved and typically the loans that are given to people with poor credit usually have a higher rate than those with good credit. This means that there are options out there for people with bad credit, but it's a good idea to do the research and find the one that is best for the person, and to read everything before signing.

See? Completely ignore the problem, and blame the victim. "read everything before signing" is one short step away from "there's a sucker born every minute."

By LanceR, JSG (not verified) on 30 Apr 2009 #permalink

LanceR; Rather than addressing the arguments any of us have laid out in very specific and logical terms in the article and here on this board, you just dismiss them. This is not rational nor logical argument. It is puerile silliness.

I am done with you.

By PDL Defender (not verified) on 30 Apr 2009 #permalink

The problem I see here is the classic problem with arguing with a free-market purist. Just because there is a market for something, or a product is used, that doesn't justify the existence of the market, or the practices one can get away with. Market arguments are not relevant to us, justice is.

Further I would disagree that the higher percentages exist to deal with risk. These are payday loans. These people have jobs that are confirmed by the lender. The lender gets a check from the employer. What is the risk?

This is taking advantage of people at their most vulnerable. This is discouraging healthy investing. This is abusing the poor.

When Washington DC effectively banned these practices, the result wasn't that people couldn't get short term credit, but the predatory monsters that screw the poor got pushed out in exchange for responsible lenders.

The goal is to get the unbanked into credit unions. That's what happens when we get rid of PDLs. There is no factual basis for your claims that these loans are needed, or that a superior market for loans won't replace the current predatory, and frankly evil market that exists. The historical data show states that improve their laws get their citizens better loans, and into banks. That's called victory.

Of course, passing those laws requires going up against a pretty well funded bunch of lobbyists and free-market purists.

Disclosure: I used to be a customer of post-dated check loans, until I got into the credit union at work. Now I can get small loans with minimal hassle, at under 10% APR!!

Just because you *can* screw people doesn't mean you *should*.

Your turn for disclosure, PDL Defender: What's your interest? You've been assiduously avoiding that question since this started. Come clean, now.

By LanceR, JSG (not verified) on 01 May 2009 #permalink

This is not rational nor logical argument. It is puerile silliness.

No, it's just Lance being Lance, his usual socialist self.

I used to be a customer of post-dated check loans

You mean you did such a poor job of managing your finances that you needed to use these services?

Just because there is a market for something, or a product is used, that doesn't justify the existence of the market, or the practices one can get away with. Market arguments are not relevant to us, justice is.

Translation:

Why can't everyone just do everything MY WAY, dammit? I'm smarter than y'all, and I know how things should be. Just let me make all of your decisions for you.

??? Is that you, Limp Willy? Why are you hiding behind punctuation?

Again, you're using words you don't understand. Socialist does not mean what you think it means. My finances are *my* business, not yours. And that's a nice strawman in the last comment.

Whoever you are, you're an asshole. Have you stopped beating your wife yet?

By Anonymous (not verified) on 01 May 2009 #permalink

??? Is that you, Limp Willy? Why are you hiding behind punctuation?

Why are you hiding behind anonymity, Lance?

Again, you're using words you I don't understand. Socialist does not indeed mean what you think it means.

Fixed that for you there Lance.

My finances are *my* business, not yours.

Which I guess is why you chose to discuss them on a blog viewable by the public.

And that's a nice strawman in the last comment.

Which strawman is that?

Whoever you are, you're an asshole.

Did you come up with that one all by yourself, or did mommy and daddy help you?

Have you stopped beating your wife yet?

What was that about strawmen again?

MarkH:
"Just because there is a market for something, or a product is used, that doesn't justify the existence of the market, or the practices one can get away with."

Mark, you are ignoring a few simple facts about this particular market.
Short-term credit options are available, but limited.
The market's existence is justified by 154 million transactions annually -- transactions that are undertaken by the customer's own free will and their choice.

If the practices you refer to were truly onerous, nobody would undertake the transaction.

"Market arguments are not relevant to us, justice is."

INjustice would be the removal of this choice from consumers via legislation, forcing them to less desirable options. If those options were more desirable, then the market would not exist nor the product used 154 million times per year.

"Further I would disagree that the higher percentages exist to deal with risk. These are payday loans. These people have jobs that are confirmed by the lender. The lender gets a check from the employer. What is the risk?"

The risks are huge, Mark.
These are UNSECURED loans. People are simply promising to repay, that there will be money in the checking account linked to the post-dated check they leave behind. Just because someone has a job doesn't mean the money will be in the account when its due, that they will show up to pay on time, or at all.

"This is taking advantage of people at their most vulnerable. This is discouraging healthy investing. This is abusing the poor."

100% wrong on every count. Please educate yourself on who uses payday loans (www.cfsa.net). Let me also remind you that bank overdraft and NSF programs are 3 times more expensive than payday loans.

This does not discourage "healthy investing" because the people who do use these loans use them to make ends meet or for financial emergencies. The money they would be using if they didn't take out these loans goes to those same expenses, not investment.

"When Washington DC effectively banned these practices, the result wasn't that people couldn't get short term credit, but the predatory monsters that screw the poor got pushed out in exchange for responsible lenders."

Also false. First, payday loans are only considered predatory by those who don't use them. A study out of the NY Federal Reserve clearly concluded that these loans do not fit the defintion of Predatory: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962711

Furthermore, Credit Unions are only "filling the gap" in small percentages. From the very article you quoted, you apparently didn't read this sentence: "n 2006, the latest year for which figures are available, the two largest payday lenders in the District made a total of 260,000 loans, worth $125 million. This year, by comparison, "stretch pay" programs -- payday-loan alternatives offered at 43 credit unions nationwide -- have issued only 8,656 small-dollar loans. Just a few hundred of those were made in the District."

Just a few hundred in D.C, Mark. WHere do you think all that demand got pushed to?

I'll tell you:
1) More expensive internet lenders (which charge $25-$30 per hundred)
2) Bank overdraft fees.

And still further, households fare far worse when payday loans are banned, again you didn't read the sentence from your own source: "Although their terms can be onerous, payday lenders do help some people meet their bills. Their absence can be a hardship. A 2007 study, for instance, found that bankruptcy and bounced-check rates increased in North Carolina and Georgia after the states swept out the lenders."

Here's the study for you to read: http://www.newyorkfed.org/research/staff_reports/sr309.html

"The goal is to get the unbanked into credit unions."

Payday loan customers must have a bank account.

"That's what happens when we get rid of PDLs."

False per my sentence directly above, the study I cited, and the article you cited.

:There is no factual basis for your claims that these loans are needed"

Really? So then families living paycheck to paycheck DON"T need short-term credit? You're saying people DON'T come up short every now and then?
Of course they need short-term credit! If they did not need short term credit, then why do people borrow from friends and relatives, take out credit card cash advances, take out payday loans, and bounce checks by the literal billions?

"or that a superior market for loans won't replace the current predatory"

Really? Well, Mark, then tell me: where is this superior market? If that market existed, it would have appeared. You also contradict yourself. ON the one hand you say there is no need for payday loans, implying there is no need for short-term credit. Then you infer that there is a need for short-term credit since a market for it would appear if there were no payday loans.

We have a standing offer to anybody, including consumer activists, the CRL, churches and people like you: Propose an alternative product that meets short-term credit needs, that also provides a reasonable profit to the lender that reflects their risk, and we'll fund it. You'll own 49%.

Nobody has ever taken us up on it. You know why? Because no such product exists!!!!!

"and frankly evil market that exists"

Really? Evil? I can't wait to hear you justify that.

"The historical data show states that improve their laws get their citizens better loans, and into banks. That's called victory."

Mark, you are totallly ignorant. BANKS charge bounce check fees that are TRIPLE those of payday loans. Payday loan customers already ARE banked.

By PDL Defender (not verified) on 01 May 2009 #permalink

At the other end of PDL Defender's first link, is an uncanny likeness of what PDL has said here, especially in style. Perhaps, then, this answers your question, LanceR:

Full Disclosure: At the time of writing, Lawrence Meyers was long shares of EZCORP, and held April call options on Advance America and EZCORP. Lawrence Meyers is a former writer for the Motley Fool, and is President of PDLCapital, a private equity firm (www.pdlcapital.com). This article is only an expression of the authorâs opinion, may contain inaccuracies, and is not a solicitation to buy or sell any security. All readers are advised to consult with a financial advisor prior to making any investment. The author may be contacted at pdlcapital[at]earthlink[dot]net

Seeing "writer for the Motley Fool" made me wonder who wrote those two pieces from fool.com he linked. Three guesses.

As for authors with different names, Donald P. Morgan is an author of both studies linked by PDL. I found this critique of one of them.

BTW, this is the first time I've seen the "God doesn't remove free will with his ultimatums: People can freely choose unimaginable agony for all eternity, or to do what he says!" argument in the wild. Should I add this to some kind of scrapbook?

By Excluded Layman (not verified) on 03 May 2009 #permalink

Congratulations. You know how to use the internet.

Now you need to learn how to research like an adult.

1) Okay, so you've identified Donald Morgan as a researcher of two studies. Congratulations. Are you going to rebut his arguments or just make a pointless statement?

2) The "Critique" is put out by the Center for Responsible Lending. If you did your research, you'd learn that they are nothing more than a front for a credit union, which competes directly with payday lenders, and a hedge fund which shorts their stocks.

http://activistcash.com/organization_overview.cfm?oid=489

And their own studies are not only biased, but ridiculously poor in their methodology, as indicated by Dr. Thomas Lehman, who is not beholden to the payday lenders, the CRL, or any other entity.

http://www.cfsa.net/downloads/One%20page%20Predatory%20Profiling.pdf

I could go on and on:

http://www.bloggernews.net/120329
http://www.rtoonline.com/Content/article/Nov06/PaydayLoanReportFalse113…

3) You manage to completely ignore the actual argument regarding payday loans by posting the ridiculous statement at the end.

By PDL Defender (not verified) on 04 May 2009 #permalink

Mark, you are ignoring a few simple facts about this particular market.
Short-term credit options are available, but limited.
The market's existence is justified by 154 million transactions annually -- transactions that are undertaken by the customer's own free will and their choice.

You could make the same argument for crack cocaine. The existence of a market isn't justification for its existence. The problem is that people are getting loans for tiny amounts of money and having to pay back quantities absurdly higher than they borrowed. These loans are not risky. The abuse of the borrower is unjustified and morally wrong.

"This is taking advantage of people at their most vulnerable. This is discouraging healthy investing. This is abusing the poor."

100% wrong on every count. Please educate yourself on who uses payday loans (www.cfsa.net). Let me also remind you that bank overdraft and NSF programs are 3 times more expensive than payday loans.

Wait what? Are you trying to say that payday loans encourage savings? If other bank programs are abusive, and I agree they are, the answer is to correct those abuses as well.

This does not discourage "healthy investing" because the people who do use these loans use them to make ends meet or for financial emergencies. The money they would be using if they didn't take out these loans goes to those same expenses, not investment.

By investment I meant basic savings, using interest-bearing savings and checking rather than losing 10% of every check to a checks-cashed store, or being abused by pay day lenders usury.

"When Washington DC effectively banned these practices, the result wasn't that people couldn't get short term credit, but the predatory monsters that screw the poor got pushed out in exchange for responsible lenders."

Also false. First, payday loans are only considered predatory by those who don't use them. A study out of the NY Federal Reserve clearly concluded that these loans do not fit the defintion of Predatory: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962711

Furthermore, Credit Unions are only "filling the gap" in small percentages. From the very article you quoted, you apparently didn't read this sentence: "n 2006, the latest year for which figures are available, the two largest payday lenders in the District made a total of 260,000 loans, worth $125 million. This year, by comparison, "stretch pay" programs -- payday-loan alternatives offered at 43 credit unions nationwide -- have issued only 8,656 small-dollar loans. Just a few hundred of those were made in the District."

Just a few hundred in D.C, Mark. WHere do you think all that demand got pushed to?

One would not expect the market to be covered by credit unions overnight. But the point of the article overall is that credit unions are interested in filling the gap, just that their advertising is limited so that people don't know that they exist for such services. The article was about how the problem, and it is a problem, of payday loans still exists because credit unions haven't adequately reached out to this population.

I'll tell you:
1) More expensive internet lenders (which charge $25-$30 per hundred)
2) Bank overdraft fees.

I don't get what overdraft fees have to do with loans. And citing the usury of internet pay day lenders as a reason not to have payday usury seems inconsistent.

Really? So then families living paycheck to paycheck DON"T need short-term credit? You're saying people DON'T come up short every now and then?
Of course they need short-term credit! If they did not need short term credit, then why do people borrow from friends and relatives, take out credit card cash advances, take out payday loans, and bounce checks by the literal billions?

"or that a superior market for loans won't replace the current predatory"

Really? Well, Mark, then tell me: where is this superior market? If that market existed, it would have appeared. You also contradict yourself. ON the one hand you say there is no need for payday loans, implying there is no need for short-term credit. Then you infer that there is a need for short-term credit since a market for it would appear if there were no payday loans.

The market does exist, and it expanding to meet the demand. That was the point of the cited article that you're being purposefully obtuse in your interpretation. There is a need for short term credit. There is not a need for 400% interest rates. 36% is more than fine, and I'm shocked anyone would find a rate that high unreasonable.

We have a standing offer to anybody, including consumer activists, the CRL, churches and people like you: Propose an alternative product that meets short-term credit needs, that also provides a reasonable profit to the lender that reflects their risk, and we'll fund it. You'll own 49%.

Nobody has ever taken us up on it. You know why? Because no such product exists!!!!!

"and frankly evil market that exists"

Really? Evil? I can't wait to hear you justify that.

Taking advantage of people who are struggling to make it is frankly evil. What you are defending represents one the most rotten and despicable impulses humans possess; the desire to prey on people who are the most needy, the most fragile, for personal gain. It is despicable, and wrong, and as a defender of it you make me ill.

"The historical data show states that improve their laws get their citizens better loans, and into banks. That's called victory."

Mark, you are totallly ignorant. BANKS charge bounce check fees that are TRIPLE those of payday loans. Payday loan customers already ARE banked.

Totally ignorant? No, I would just address bounce check fees separately. If they are outrageous, you address that practice. You don't charge people desperate to pay their bills a loan at 400-800% interest.

The article I cited showed credit unions offer a product that fills the need with reasonable interest rates. The issue is that they have to do outreach to capture the market that pay day loans were filling. I would be shocked if within one year they were able to make up the gap. After all they will need to expand their infrastructure, market to the relevant population etc. The idea they should replace the market in an instant is an unreasonable expectation.

36% effective APR translates to just over 1% over a two-week period. You couldn't even cover operating expenses with that... The reason these rates are so high is because of transaction and operating costs. If you forbid people from charging more than $10 for a $1000 two-week loan, people will stop giving out $1000 two-week loans. You can think of that as a good idea, but please be honest and admit that fixing the rate at 36% will destroy this form of short term credit.

Can someone please tell me how much I would typically expect to pay back in interest if I took out a $200 loan at a payday lender and payed it back in:

1 week
2 weeks
1 month
6 months
1 year

Thanks.

The mother has the life appeal person very much. Records events from me, I have visited many others, but always thought that our family is warmest, perhaps this somewhat has the ingredient which some chi flat irons first impressions are most lasting, but also to lives at the arrangement and the daily cleaning with the mother works inseparable. our family was not big at that time, also does not have any repair desirably, cannot give the feeling which the human many star classes lives at now, but scattered and organized lives at the thing and the ornament ornaments, the window bright several environment only always lets the human be pleasant. The mother said that regardless of any scale may build one kind of feeling, perhaps this is family's significance, because belongs to our harbor, can therefore the special intention. Mother's gradually influencing, I have also been hung the pale blue window blind in mine room, was having my curtain quiet dream, window external string wind chimes, was singing the mood gently in the rainy night. the mother idle time likes in the balcony manipulating flowers and plants, but she ever not desirably purchases from the flower market, some are transplant from the buy ugg boots outside government, some are neighbor when the plantation cleaning up pulls out throws in the roadside, also some are I hike dig. Unconscious, these not well-known flowers and plants also accumulated several troughs, the vigorous vitality has increased another kind of gracefulness for my family.
Afterward, the mother receded another region along with the father, has not carried off in family's any thing, when I also exited went to school, our family has become the dust full screen window vacant room.after graduates, I have chosen one to parents very near city, this is parents' wish, they said that like this is a complete family, before leaving, I returned formerly to live the place, the thing is the human must lets me feel dejected also lets me be at a loss. may, when I see the parents again, I astonishedly in the mother another family who builds in the so crude place, had not seen you for a long time family's feeling to let my hot tears filling the eyes crawl to the mother bed on and she talked in whispers for one evening. when work I had my dormitory, I am chi flat iron familiar with call it to make the dormitory not to call it the family. I am always unable it to tidy up neatly, because my common one kind of thought that âis not in any case my familyâ, occasionally the mother will come then to help me to clean changed beyond recognition, I will let the mother restlessly so do not work hard, how also won't have in any case family's feeling again, will go back nobody early and I speaks, late will go back also nobody to wait for me. The mother consoled said that a person should also understand the feeling life, more was the low key more can be lonely.

The payday lenders have so much money they can pay people to blog for them (see previous blogs). Delinquency rates are not high and these loans are secured by access to people's bank account so the payday lenders get paid before almost every other creditor.