By looking at the interest rate percentage, it does give a skewed picture. In reality, these places charge around $15 per $100 borrowed until your next pay. The problem with saying its over "1000% APR" is that most people that use these places think "I've found a place that only charges me $30 for the $200 I borrowed. I've found the angels of payday loans!". Most people don't understand the percentages. However, by using an explanation involving the debt cycle that it creates, you can open more eyes. For example, this game should let you take the payroll advance, then make you pay it back the very next pay (have a bubble pop up and say "Time to pay the piper! Payday loan due!" and automatically deduct the $200 plus $30 in fees. Then it should give you the option of taking out another payday loan. At the end of the month, one of the items on the end screen should show the service charges you paid to get the payday loan (approximately $30 per pay times 3 pays=$90). That's a large amount of money when they make you choose which utility to have shut off (It would pay the cell phone, and most of the electric/car insurance.). This game wants to show you all the hard parts of being poor, but none of the rewards for making good decisions. I had over $1100 left on day 28, and they still made me shut off my utilities because I couldn't cover the $175 worth of bills I had. If I lived near work, why don't I have the option of huffing it? Why can't I get a second job when my hours are cut due to me choosing to get paid hourly instead of by piece (warehouse worker)? Why am I paying a babysitter $30 to go to a free concert? (In real life, I pay $40 for all day while I'm at work, and $20 if the kids go to bed within 2 hours of me going out.) That's bullshit. First off, if I am donating to a charity such as this, I want them to teach people how to break the cycle by making good decisions and not lean on friends and organizations any time life get rough. This is from the organization's website: Translated: When you are down, we'll help you break even. If you are continuously down, we'll continuously help you break even. You will never get ahead. Accept it. Hell, if you blew $50 on beer last week and come driving in here in a Cadillac Escalade, we're here to help. We're compassionate... By their own program design, they have built in an overhead factor for themselves. They are there to help you once you are down. They aren't there to make sure it doesn't happen again. I understand that all charitable organizations have an overhead factor, but the true purpose of a place like this should be to educate the masses enough that (hopefully) they can disolve. They are a part of the problem, and don't even realize it.
Heh, I think they are abusive and perpetuate poverty but I'm certainly not against them existing, in fact if I wasn't so certain that mommy government was going to shut them down (like they did with car title loans) in the next couple years I would open one myself.
My two big "ideas" if I were ever in local school politics would be, first, demanding a mandatory personal finance class that seniors must pass in order to graduate. Secondly, mandatory gym glass for everyone that requires a mile warm up run every class. Loss some damn weight fatties!
Back up a second.... Payday lending is one of my areas of practice. We don't do it, but I was on an industry board that included payday lenders for a few years. When used for the right reasons, payday loans are beneficial. They're like knives; dangerous in the wrong hands. It's the person who uses them wrong that is the problem. That includes the business that sells people into them when they shouldn't, but there's not many businesses that will refuse a person who comes looking for their services with the apparent ability to pay. Payday loans are designed to get you through an emergency, not as a perpetual line of credit. When you have the choice between not paying rent and being homeless, or taking a payday loan, they don't seem so bad anymore. And anyone who wants to use the high Annualised Percentage Rate can choke on a dick. As I stated in another thread, $1 interest on a $100 loan for one day is 365% APR; despite only being $1. Short term lending, like payday lending, should never be annualised. It's a fee for service arrangement. You don't annualise parking garage rates, hotel tariffs, tradesperson charges and the like. All that invoking APR does is completely skew the numbers until they're unrealistic. Even looking at the dollar charge by itself, the amount of work that can go into these loans generally makes the business rely on large turnover to derive substantial profit.
Gosh, thanks Professor. I don't think anyone here understood that. The reason why most people find them problematic is that they primarily get used by people who have no financial education, never had a role model for responsibility, and are not trying to get themselves through an emergency but rather to stave off their utter financial collapse for another week at any cost. Most of them are targeted at the audiences that are least likely to be able to use them responsibly. Haven't you ever looked at where they are typically located? You think they're usually built in the middle class sections of town for the guy with a broken leg and a good credit rating and some home equity, who will be okay next week but just needs some short term cash? They're built by the dozen in the poor areas, the bad sections, stapling advertisements to the stop signs with gang signs spraypainted on them. That's the reality. I worked at a chapter 13 bankruptcy firm and probably 90% of my petitions had a thousand, two thousand, three thousand dollars in payday loans on them. Of course it's supposed to be the responsibility of the person taking the loan - but payday loans are predatory, preying primarily on those who are least likely to be able to use them responsibly or have any kind of fiscal education in their life. The entire model is predatory. We'll give you money this week, you give us your entire paycheck next week? Finances don't function like that. When was the last time you were so broke you needed a paycheck's worth of money now, but could afford to then skip a paycheck? Or even half a paycheck? If you're so utterly broke that you need a few hundred bucks a week before you get paid, chances are you're going to have just as big a problem paying it off in the short term.
Like Binary mentioned if you're in a position where you need to give up your next paycheck to pay rent today, you probably will need money again soon, it creates a perpetual need for short term lending. To think that pay day loan shops are designed to help out the responsible guy who just had a really bad month or that they could even survive with this type of customer base is laughably ignorant. For every guy that would benefit from a pay day loan you have fifty idiots that will be launched into perpetual short term borrowing, they are the ones that keep the business running. Like I said before though, I have no problem with them existing, but trying to sugar coat their intentions with a straw man example of someone who could benefit from their services is flat out ridiculous, let their marketing department do that. When you take out a payday loan almost every paycheck (like most people who apply for them in the first place) I think it's fair to use an annualized rate.
I wish I had a dollar for the number of people, including academics, government regulators and elected officials who don't understand that. If they're that fucked when they walk in the door, a "bad" payday loan is going to make no difference. You know, since they're already staving off their "utter financial collapse for another week". Or is it better that they collapse? What business locates and markets itself where they're not needed? Do they stalk the streets in packs rounding up poor people? Hold guns to their heads? By your logic, anyone who advertises to their target market is predatory. Holy crap, Useless Crap Toys Inc airs ads during kids cartoons... bastard predators. Oh no, McDonalds is making everyone fat. There's Ronald McDonald with a net, a tranquiliser gun and a sack of Big Macs to forcefeed people with. Payday lenders are a business like any other. If people walk in their doors, that's their choice. Any problems they bring with them are theirs. Payday lenders who lend someone so much that their whole paycheck is needed are dumbasses who deserve to be shut down, because there is zero chance of getting repaid. They're playing Russian Roulette hoping that the borrower will rollover enough to repay principal and some interest before they fall over. Contrary to popular belief, that's not the way payday lenders seek to do business; it loses them customers. I wasn't sugar coating. Get a payday loan and pay rent, or get evicted. I'd say not getting evicted is a benefit. If you use a payday loan to get drunk or something similar; you're an idiot. If you're using it because you're on the bones of your ass and desperate; your troubles started before you walked in the door, not because you did. Spurious logic, at best... but a common argument. You live in an apartment/house every day of the year yet they don't state rent as an annual figure. Some people get a cup of coffee every day of the year, but price are still quoted per cup. There is no logical reason to use APR for payday loans. All it does is invoke emotional argument because it's a hugely magnified figure. "I just paid $1,222 p.a. for a cup of coffee! That's extortion." "Dude, it's $3.35 a cup." "But I get one every day."
Loans compound an already bad financial situation. Suddenly you're paying fees for your money to advance it by a week or two, and you put yourself into a cycle where you inch further and further behind. One payday loan might be harmless, but it never stops at one. It's two or thee or four and suddenly you're living off the loans, never seeing your full paychecks, and paying fees the whole time. It's virtually always better to suffer initial problems associated with going under for a small amount than piling up loans and going under anyway, because now you've gone under the weight of your initial bills PLUS the loans. So you're agreeing with me now? You just said, "It's the person who uses them wrong that is the problem. That includes the business that sells people into them when they shouldn't..." Do you honestly think that the large majority of people located in a poverty-stricken slum is the ideal candidate for money lending? Again, they are targeting the audience that is least likely to process the implications of what they're doing, and most likely to get dragged down into a fee-laden cycle of money lending. This is just stupid logic. I'm sorry, but you're simply blind if you can't see why there is fault on both sides of these financial issues. I see that a lot with people who have never experienced hardship, or are smart/educated and believe everyone perceives the world in the same way they do, through the eyes of a smart/educated middle class family with positive role models. Of course personal responsibility is important. But just like credit card companies that give 30% APR cards to high risk targets, and mortgage lenders who give loans to poor candidates, there is responsibility on both sides. Most of the people taking these payday loans are too uneducated and have literally no sense of fiscal responsibility. How do people make good choices when they've never had a model for good choices? I'm not saying we can protect stupid people from themselves, but to argue that this isn't predatory is patently absurd and shows a total lack of understanding of the environment most of these people exist in.
Three points: 1. You can't compound "utter financial collapse". It's kind of an absolute. Unless, you're misrepresenting the problem.... 2. Business location is not predation. I'm not agreeing with you. Easy, accessible, convenient... yes. 3. Send me a PM and explain to me how any payday lender is directly contributing to someone's problems before they ever set foot in a lender's business (which is what I said).
This is probably not that uncommon, especially if your biggest expense is a single, monthly lump payment. You know, like the rent. You get paid $400 a week, rent is $500. You need your second check a week early every month, but other than that you might be okay.
Yeah, but the people who don't have the foresight to set aside the money for a rent payment that comes every month are also usually the people with massive credit card debt, spend $50 a week on lottery tickets, go to the bar every day after work, etc... And now their rent becomes $550 a month because of interest on the loan.
This is the situation I was in first summer of law school. Rent's on the first day of the month, paychecks are on the 15th and 30th. On paper I was fine, but because of the timing, I was perpetually 2 weeks behind. I took a couple late penalties on my apartment until I could get ahead on my finances, and that made it very difficult to get an apartment later. Rent + Payday loan fee could be less than Rent + Late fee, meaning the payday loan would make more sense. The general argument given in defense of payday loans is that it's better to dig yourself into a deeper hole than to be homeless, and I think that's true. But, it could also be that having payday loans as a bit of a safety net means you're less likely to get your finances in order. Given the choice of austerity or payday loans, you might take the loan; if we make the choice austerity or homelessness, some people will end up homeless, but more people will get their shit together than otherwise would have.
That is a perfect example of how payday loans SHOULD be used, unfortunately it probably represents about 2% of the people who actually get them. Remember too, you were in law school (probably) not working a big boy job. I'm thinking of the 35 year old who after 13 years of financial independence and decision making still couldn't get to the point where he could cut some expenses to get ahead to where getting his paycheck early wouldn't be make or break financially every single month. Increasing his debt capacity isn't exactly doing him a favor, but these are the people pay day loan services really exist for, without them there's not enough business.
Care to give some backup for that figure? I'm interested. In my experience, this sort of reaction is more due to media beatup and vocal anti-industry proponents than actual research.
Where did this say it was a discussion about payday loan joints? Enough. Back on topic or it'll be locked. Those of you that care that much can take it to PM.
I think the people who criticized the game (and its organization) of not really giving people the help they need make a good point. Teach people how to fish. Since the game gives you options about what groceries to buy, it'd be nice to see their recommendations. Take the average price of certain products and put together a weekly grocery list and meal plan for different sized households. Most of us can figure this out on their own, but maybe some people don't know how to make a grilled cheese sandwich (butter flavored Pam and Mrs. Dash). And, figuring out the best nutritional bang for your buck is probably pretty time consuming. Enriched white bread or eggs? Milk or frozen spinach?
I found that rice, beans, pasta, soy sauce, bread, peanut butter, dry milk, and frozen orange juice concentrate are about as cheap as you can get without dying from pellagra. Someone who knows something about nutrition can contradict me, but I think I'm hitting all the nutrients. If you're not completely fucked financially, then getting crappy cuts of beef to put in the pot (to combine with the beans - buy some chili powder, tomato puree, and a couple onions, and you have chili) are excellent. Bacon and lentils are good too. Real milk isn't too bad either. Food is cheap enough that as long as you're buying basic raw ingredients, you're going to have a hard time starving. The only way that you're going to spend more on food is by buying stuff like Hot Pockets and other prepackaged stuff. Not saying that Pizza Rolls and taquitos are bad, but when you're feeling the crunch, those should be the first to go. Unfortunately, a lot of people value convenience over work. But that doesn't really make sense to me. How long does it really take to measure out the water, put rice in the rice cooker, and press "Cook?" Sure, you're waiting for half an hour before you eat it, but it's not like you're doing anything anyway. Twenty pounds of rice will feed a family for a long time... and it's really cheap.
My observation of aged pensioners tells me that you can survive a really fucking long time on a diet of canned baked beans. And that said canned baked beans are cheaper per calorie than catfood here. Personally, I like living in reasonable proximity to a good Asian market. One that actually caters to poor ass Asian migrants who don't speak good English. If you can't subside shopping there - your only hope is a soup kitchen.