Go Back  DVD Talk Forum > General Discussions > Other Talk
Reload this Page >

Should payday loans be illegal?

Other Talk "Otterville"

Should payday loans be illegal?

Old 02-03-06, 08:39 AM
  #1  
DVD Talk Legend
Thread Starter
 
Vibiana's Avatar
 
Join Date: Jan 2006
Location: Living in a van down by the river
Posts: 14,585
Received 93 Likes on 59 Posts
Should payday loans be illegal?

For those who aren't familiar with payday lending, here's how it works:

Mary Smith runs short of cash and needs $50 or $100 or $500 till payday. Most banks won't lend small amounts, and even if they did, many Mary Smiths wouldn't have the credit rating to get a loan from a bank. So Mary goes to her local franchise of Check Into Cash or American Payday Loans, writes a check for $345 and postdates it until her payday, say ten days away.

The loan company gives Mary $300 and tells her to come back on the date the check is written for. When she comes back, she either pays $345 to get her check back or "rolls over" the loan by paying another $45 and postdating a new check until her next payday.

Not surprisingly, such loans are easy to get into trouble with. As you can see, if Mary rolls over her loan six times, she's paid almost as much in "fees" as she originally borrowed. ("Fees" is emphasized because they're the payday lender's way of operating legally. The $45 is not called interest, but a lending fee. If it were considered interest, the APR would be over the moon).

Critics of payday advance practices say that these loans further ensnare the working poor in a trap of debt. Defenders counter that payday loan companies offer financing options to people who would be unable to get approved anywhere else.

Should payday lending be illegal?

Should stricter regulations be placed upon it? If so, what regulations would you suggest?
Old 02-03-06, 08:44 AM
  #2  
DVD Talk Platinum Edition
 
Join Date: Jan 2002
Location: IL
Posts: 3,509
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by Vibiana
Should payday lending be illegal?
No. I'm of the opinion that people need to learn how to manage their money and look out for themselves. These payday loan places aren't hiding what they are doing. If someone needs quick cash, I see nothing wrong with these places. It's when people depend on Check Into Cash regularly that it becomes a problem, but in no way should it be illegal.

Should credit cards be illegal to own if you are a dumbass with credit? The credit card companies depend on those people!
Old 02-03-06, 08:50 AM
  #3  
DVD Talk Legend
 
Mrs. Danger's Avatar
 
Join Date: May 2005
Location: With Nick Danger
Posts: 18,139
Likes: 0
Received 50 Likes on 35 Posts
The State of New Mexico is considering legislation against this sort of thing. Most people who patronize these places wind up paying 500% in interest.

I'm of two minds about it. It's a stinky business. But, it preys on people who can't just wait until payday to get what they want. (often what they want is beer) A halfway educated public would offer no business for them. They thrive on people who want it NOW, and never learned to save up.

Something I noticed on my journeys around the bottom of the barrel is that many "poor" people are constantly running through a surprising amount of money. They are not so much poor as financially incontinent.
Old 02-03-06, 08:52 AM
  #4  
DVD Talk Gold Edition
 
Join Date: Nov 2000
Posts: 2,042
Likes: 0
Received 0 Likes on 0 Posts
Oddly I have used them b4, and have the credit rating and finances to not to most of gthe time. Had something come up not planning for and just quick and easy to use.
Old 02-03-06, 08:53 AM
  #5  
DVD Talk Limited Edition
 
Join Date: May 2000
Location: Colorado
Posts: 5,614
Likes: 0
Received 0 Likes on 0 Posts
While I don't think they should be illegal, I think they should be more regulated and the fees capped at a certain amount. These places are not in the business to help people, but to take advantage of people. Basically a legal loan shark business.
Old 02-03-06, 08:57 AM
  #6  
DVD Talk Hero
 
Join Date: Aug 2001
Location: in da cloud
Posts: 26,193
Likes: 0
Received 1 Like on 1 Post
since they operate on such short time frames and most of their people have bad credit there is no reason to cap the fees. if mary had good credit she would be using a credit card
Old 02-03-06, 09:09 AM
  #7  
DVD Talk Legend
 
Join Date: Jun 2000
Location: NYC
Posts: 17,016
Likes: 0
Received 0 Likes on 0 Posts
No, but I think they should be legally required to say what the lending fees are -- interest -- and be subject to state usury limits.

Generally I'm in favor of letting people make their own bad decisions, but getting trapped in a cycle of payday loan debt is a herculean effort to get out of for most poor people.
Old 02-03-06, 10:24 AM
  #8  
DVD Talk Gold Edition
 
Join Date: Jan 2002
Location: Balanced on the Biggest Wave
Posts: 2,149
Likes: 0
Received 1 Like on 1 Post
Originally Posted by Breakfast with Girls
No, but I think they should be legally required to say what the lending fees are -- interest -- and be subject to state usury limits.
Old 02-03-06, 10:24 AM
  #9  
DVD Talk Special Edition
 
Join Date: Jun 2005
Location: Summerfest
Posts: 1,224
Likes: 0
Received 0 Likes on 0 Posts
In Wisconsin they tried to pass a law that would only allow a certain amount per mile. Since in 1 mile on the south side of Milwaukee had 13 of them.
Old 02-03-06, 10:32 AM
  #10  
DVD Talk Hall of Fame
 
Join Date: Aug 2002
Location: Triangle, NC, USA
Posts: 8,872
Received 6 Likes on 6 Posts
No they shouldn't be illegal.
Yes, people, including poor people, can get in trouble with them. Just like people, including welloff or rich people, can get in trouble with credit cards or home mortgage/auto payments or trips to Vegas.

Sometimes people, including well-off, need some legal cash quick. A couple hundred bucks. If the vast majority of those people went to a bank to ask for a loan, they would either be laughed out of the office, or not allowed to get a loan that low.
The other option would be borrowing from friends or family [hard to do for many people], or borrowing from a credit card [assuming they have a credit card that has available credit]. And the credit card, if you don't pay it, they just charge you more, and a late fee or overlimit fee virtually the same as the payday loan fee. Whereas the
payday loan people have your check and will cash it, so it's 'prepaid.'

I agree, people of all economic statuses need to remember what a piggy bank is, what 'delayed gratification' is, and understand the dangers of 'bad' credit. But I also think these should be available to provide an intermittent, but very useful, service.

"These places are not in the business to help people, but to take advantage of people."

Half right. They're in business to make money. Which is what business is. I don't care if a company "cares" about me [though I certainly don't mind if it does things like, say, donating money to charities or articipating in Toys for Tots]. As long as it treats its customers fairly [ie, nondiscriminatory--clearly stating terms, outrageous as they may be, and sticking to those terms, is fair], and represents itself accurately, that's what I expect. Going into a company, saying, "I need 100 bucks", and they say "Okay, but you pay us 130 next Friday", and I voluntarily agree, that's all that's needed.

13 in one mile: I would think that would be a *good* thing. Obviously that is where a lot of their business comes from, so it's convenient; and having 13 businesses provide the same service should only help the consumer by competing and offering more attractive deals to the customer.

And the fine print on most of those contracts do say something like "If this were a loan, the APR would be 361.5%". So the information is clearly and easily available.

Last edited by tonyc3742; 02-03-06 at 10:36 AM.
Old 02-03-06, 10:37 AM
  #11  
DVD Talk Legend
 
FantasticVSDoom's Avatar
 
Join Date: Jan 2003
Location: No longer trapped
Posts: 11,610
Likes: 0
Received 1 Like on 1 Post
They really arent all that different then Credit Cards in many respects, so if we are going to make payday loan places illegal, then we need to make credit cards illegal as well.
Old 02-03-06, 11:17 AM
  #12  
DVD Talk Hero
 
Join Date: Jul 2000
Location: Madison, WI ("77 square miles surrounded by reality")
Posts: 30,012
Received 2 Likes on 1 Post
dtcarson said it all.
Old 02-03-06, 11:44 AM
  #13  
DVD Talk God
 
kvrdave's Avatar
 
Join Date: Aug 1999
Location: Pacific NW
Posts: 86,189
Likes: 0
Received 2 Likes on 2 Posts
Originally Posted by Breakfast with Girls
No, but I think they should be legally required to say what the lending fees are -- interest -- and be subject to state usury limits.
If that is all they could charge, they probably wouldn't be in business. Personally, the $45 that Mary spends at the check place is no different that the $45 she spends on lotto to me.
Old 02-03-06, 11:50 AM
  #14  
DVD Talk Legend
 
Join Date: Feb 2001
Posts: 14,812
Likes: 0
Received 0 Likes on 0 Posts
Hmmm...I can see how it would be easy to get into a lot of trouble if you have a few bad months in a row. I don't understand why you have to "buy back" your post-dated check with cash, though...when your payday comes, why can't the loan company just cash your check? I mean, unless you show up and pay the 15% to continue the loan because you have no money?

Unfortunate, since these companies obviously prey on people down on their luck, but everyone knows what they're getting into here. Like credit cards (usually).
Old 02-03-06, 11:51 AM
  #15  
DVD Talk Ultimate Edition
 
Join Date: Jun 2000
Location: Upright, in a cool, dry place
Posts: 4,268
Received 4 Likes on 4 Posts
Technically, what the OP is describing is not a Payday Loan, it's a cash advance. The small lenders came up with that to get around the lending/usury laws. In many states, check cashing is totally unregulated and states are scrambling to try to pass legislation to close the loophole.

An actual payday loan IS subject to state and Federal disclosure laws. It works like a regular loan, where you borrow a small amount of money unsecured (no collateral), and you pay the loan back usually between 1 and 18 months, depending on the state. They use the maximum interest rate, acquisition charges and fees allowable, then add on "credit insurance", which they usually underwrite themselves, meaning they don't actually buy insurance from a third party, they just assume all the risk and keep the entire premium. The fees, interest and premiums all have to be disclosed on the form the borrower signs in a payday loan.
Old 02-03-06, 12:14 PM
  #16  
DVD Talk Godfather
 
The Bus's Avatar
 
Join Date: Aug 2001
Location: New York
Posts: 54,900
Received 6 Likes on 6 Posts
Fees are interest. Those places do need to disclose their APR.

For example: "LOAN AMOUNTS AND FEES. Mycashnow.comTM currently provides loans ranging from $100.00 to $1500.00. The finance charge for these loans is based on 485.450 percent APR and the number of days of the loan. See fees for a complete breakdown of amounts and charges for various length loans."

American Cash Advance discloses that their APR could be up to 1825% annually.

Any of these places that operate legally have to disclose all this stuff due to Regulation Z / Federal Truth-in-Lending Requirements.

What should be illegal is places that do not fully disclose this information or lie about the costs.

Statements like these:

Julian Bond, chairman of the Board of the NAACP, said, "Visits to payday lending stores which open their doors in low-income neighborhoods at a rate equal to Starbucks openings in affluent ones are threatening the livelihoods of hard-working families and stripping equity from entire communities. The NAACP is dedicated to eliminating payday, because wealth-building and saving for the future are vital to the economic success of communities of color."

Source: Responsible Lending
This person is a lunatic. Payday Advance "prey on hard-working families" no more than "Buy Here, Pay Here" used car dealerships prey on hard-working drivers. They are all the result of providing financial services to those who regular banks, credit unions, and credit card companies are avoiding due to financial risk.

Is it terrible that people pay a 500% APR. Hell, yes. It's disastrous. But people still do stupid things.

I am still surprised that no one is ever taught financial responsibility. Everything from investments to mortgages to credit to loans, etc. There should be forced education on this. Not for adults, but for children. Most states require some sort of health class or health education. I think a half-year financial education class would probably work wonders for a lot of people.
Old 02-03-06, 12:17 PM
  #17  
DVD Talk Godfather
 
The Bus's Avatar
 
Join Date: Aug 2001
Location: New York
Posts: 54,900
Received 6 Likes on 6 Posts
Originally Posted by Breakfast with Girls
No, but I think they should be legally required to say what the lending fees are -- interest -- and be subject to state usury limits.
They do state them. Vibiana's comment is totally off-base.
Old 02-03-06, 01:45 PM
  #18  
DVD Talk Legend
 
Join Date: Jun 2000
Location: NYC
Posts: 17,016
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by The Bus
They do state them. Vibiana's comment is totally off-base.
Ah, I didn't know that.

(Luckily, I've never had to use one.)

I do wonder how a mother that earns, say, $1000 per monthly check and gets a payday loan for a good chunk of that amount (for whatever reason -- let's say someone crashes into her car and drives off, and she has to pay a deductible in order for it to be repaired so she can get to work). How do they ever get out from under that? When next month comes, she needs to go back to get another loan, or else she can't pay her rent, buy food, etc.
Old 02-03-06, 02:27 PM
  #19  
DVD Talk Godfather
 
The Bus's Avatar
 
Join Date: Aug 2001
Location: New York
Posts: 54,900
Received 6 Likes on 6 Posts
Originally Posted by Breakfast with Girls
Ah, I didn't know that.

(Luckily, I've never had to use one.)

I do wonder how a mother that earns, say, $1000 per monthly check and gets a payday loan for a good chunk of that amount (for whatever reason -- let's say someone crashes into her car and drives off, and she has to pay a deductible in order for it to be repaired so she can get to work). How do they ever get out from under that? When next month comes, she needs to go back to get another loan, or else she can't pay her rent, buy food, etc.
Hence the need to have savings. Payday Loans are really for the absolute bottom rung of the ladder, right before you completely fall off and start dealing with Sal the Loan Shark.

The way I see it:
- You don't need to spend the money
- Enough money in checking account
- Dip into savings
- Use available credit lines
- Borrow from friends or family (not always desirable, acceptable, or possible)
- Sell something
- Payday Advance

The problem is a lot of people don't know or understand the first three concepts.
Old 02-03-06, 02:39 PM
  #20  
DVD Talk Hero
 
Join Date: Dec 1999
Location: Shackled
Posts: 35,372
Likes: 0
Received 1 Like on 1 Post
Originally Posted by Mrs. Danger
The State of New Mexico is considering legislation against this sort of thing. Most people who patronize these places wind up paying 500% in interest.
With the only problem being that the day after the law goes into effect up will pop illegal payday loans with double the fees, and *other* methods of collecting unpaid loans.

Banning things which a market exists for generally works out poorly. See bootlegging. See war on drugs.

Fuck in NY where I grew up, liquor stores weren't open on Sundays. The results? Sunday bootleggers in the poor part of town.
Old 02-03-06, 02:41 PM
  #21  
DVD Talk Legend
 
Join Date: Jun 2003
Location: Capitol of the Empire! Center of all Commerce and Culture! Crossroads of Civilization! NEW ROME!!!...aka New York City
Posts: 10,909
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by Breakfast with Girls

I do wonder how a mother that earns, say, $1000 per monthly check and gets a payday loan for a good chunk of that amount (for whatever reason -- let's say someone crashes into her car and drives off, and she has to pay a deductible in order for it to be repaired so she can get to work). How do they ever get out from under that? When next month comes, she needs to go back to get another loan, or else she can't pay her rent, buy food, etc.
You have to be HORRIBLE at paying for a LONG time to not be able to get a 11% interest (minimum) credit card
Old 02-03-06, 02:43 PM
  #22  
DVD Talk Legend
 
Join Date: Jun 2003
Location: Capitol of the Empire! Center of all Commerce and Culture! Crossroads of Civilization! NEW ROME!!!...aka New York City
Posts: 10,909
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by FantasticVSDoom
They really arent all that different then Credit Cards in many respects, so if we are going to make payday loan places illegal, then we need to make credit cards illegal as well.
Hell yeah...Im just paying off a 29% interest credit card (from the college days) that I inherited when I married my wife
Old 02-03-06, 02:48 PM
  #23  
DVD Talk Legend
 
Join Date: May 2000
Location: Under Golden Gate Bridge
Posts: 10,911
Likes: 0
Received 1 Like on 1 Post
Yeah, the interest rates are posted on the wall. Scares the hell out of you to see 400% interest rate. I had a friend who parked in a handicap parking space by mistake and slapped with a $600 fine. With no way to pay it, he took out 2 of these loans. After hearing about the mess he had gotten into, I offered to loan him the money free of interest. Otherwise, he would have never gotten out of the hole.

Guess I wouldn't outlaw them. Better thing would be to put restrictions on their "fees."
Old 02-03-06, 02:55 PM
  #24  
DVD Talk Legend
 
Join Date: Jun 2003
Location: Capitol of the Empire! Center of all Commerce and Culture! Crossroads of Civilization! NEW ROME!!!...aka New York City
Posts: 10,909
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by big whoppa
Yeah, the interest rates are posted on the wall. Scares the hell out of you to see 400% interest rate. I had a friend who parked in a handicap parking space by mistake and slapped with a $600 fine. With no way to pay it, he took out 2 of these loans. After hearing about the mess he had gotten into, I offered to loan him the money free of interest. Otherwise, he would have never gotten out of the hole.

Guess I wouldn't outlaw them. Better thing would be to put restrictions on their "fees."
He could have went before the judge and told him he couldnt pay...he would have gotten a plan with almost 0 interest, if not 0
Old 02-03-06, 02:56 PM
  #25  
DVD Talk Hero
 
Join Date: Sep 2003
Location: Portland, OR
Posts: 25,057
Likes: 0
Received 1 Like on 1 Post
H&R Block is getting in on the action. They're advertising "W-2 loans" in my neighborhood.

Thread Tools
Search this Thread

Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service - Do Not Sell My Personal Information

Copyright 2018 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.