payday and title loan places

[pinkytoe]

These kinds of loan businesses are popping up like mushrooms all over town - sometimes as often as one every few blocks on any particular street. They are almost always empty, ie no customers. Wondering what has changed that these things are everywhere now. Or maybe it's just in this part of the country. Just seems like a dumb way to come up with cash even in dire curcumstances.

[razz]

They have been popping up in our neck of the woods as well. I have watched them in a people-gazing mode and am amazed at the traffic that goes in and out.
Someone told me that if one doesn't have a permanent address that a bank requires, these work as the bank for those people. Transients or unemployed or temps or black market earnings or avoiding legal issues like family support based on earnings would find these facilities helpful.

[Gregg]

Lots of the payday places here, no title loan spots (other than pawn shops) because our usury laws limit what they can charge. I once called a title place in Missouri to see what their rates were. They told me 12 1/2%. I thought that was high, but considering what they are doing and who they are loaning to it didn't sound unreasonable. Then I found out that was PER MONTH!!! 150% per year!!! I couldn't even believe it, but apparently people are lining up to take out these loans.

[bae]

There is a entire industry devoted to this vulture-like behavior. I spent years doing financial cleanup for folks trying to purchase our land-trust homes here, and I came away with great distaste for paycheck loan/cashing places, pawn shops, furniture rental businesses, used-car lots, casinos, ...

Educate your kids.

[creaker]

I'm not sure if it's still the case, but I saw a report on payday shops a while back and most were owned by large banks.

[bunnys]

I'm not sure if it's still the case, but I saw a report on payday shops a while back and most were owned by large banks.

Do you happen to have a link to that? Sounds really interesting.

[creaker]

I can't find it :-) Actually, now that I've been thinking about it I believe it was actually check cashing stores and the story was pointing out the poorer neighborhoods had check cashing stores but no bank branches, but banks owned many of the check cashing stores - I saw it on TV so it had to be several years ago.

I did find this, though: http://www.nytimes.com/2012/04/26/business/chasing-fees-banks-court-low-income-customers.html?_r=1&pagewanted=all

[Lainey]

Another great source of information on this is the book by Gary Rivlin, "Broke, U$A - From Pawnshops to Poverty, inc., How the Working Poor Became Big Business." He describes in great detail how this predatory lending business started and grew. Note: state legislators are the gatekeepers, and unfortunately most of them have the attitude that businesses which financially rape people are just dandy, so they set the legal parameters to allow just that. Only a brave few states have forbidden this stuff. And don't get me started on how they deliberately open these stores by military bases.

I agree to advise everyone you know to stay far away. It runs the gamut from "instant tax refunds" aka big fee "loans" to loans on car titles, even when the car isn't paid off! Another example of how people can be robbed without a weapon.

[iris lily]

On this same topic years ago it was pointed out by an astute person (can't remember who) that payday loan places serve a real purpose for persons in a particular socio-economic class, and who are we, the middle class, to dis that?

I think it was an interesting perspective.

Of COURSE their service fees eat up a lot of capital, but let me ask you this: how many of you have a car payment? a house payment? Those are debts that are accepted in our tribe, the middle class, as a cultural standard. Those of you who take on this debt, umm, you know that you are throwing away tons of money to interest, right? I'm just sayin'.

[Alan]

These types of business definately serve a purpose for those who have no other options. It's a high risk business and the associated fees reflect that, but without them, what would their customers do?

My only problem with them is that if they didn't fill a need, there'd be no market for their service. I'd like to see the market dry up and make them un-necessary.

[pinkytoe]

payday loan places serve a real purpose for persons in a particular socio-economic class
I think the interest rate is the bone of contention between what is offered to middle-class consumers vs lower.
Banks used to make small personal loans but I guess they don't want anything to do with it now.

[bunnys]

Usury is pretty vile and it used to be illegal. Yes, 150% annual interest is usury.

I really feel sorry for people who are living hand to mouth and are compelled to go to those types of businesses to borrow against their next paycheck to buy food for their children's dinner that night.

[Lainey]

And to reiterate, it's not only the usurious interest rates, it's the predatory aspect. In the book I just mentioned, a Check 'n Go manager described how they made their real money from their "semi-regulars." Their computer spit out lists of customers who had gone 60 days without taking out a new loan. Managers were supposed to review that list and call that person and send them a letter. That is a daily list. Managers got bonuses on their "customer reactivation rate."

One woman had borrowed $300 after falling behind in her car payments. She ended up paying $2,000 in fees over a 2-year period before she finally caught up.

So the argument that it fills a need may be correct, but when state legislators are unwilling to put a cap on the interest rates to protect those most vulnerable - that's what I have a problem with.

And amazingly, the law in AZ allowing payday stores lapsed about 1-2 years ago. When the state leg said they could continue if they capped their interest rates at 36%, the declined, saying that rate of interest was too low and they could not make a profit! When is enough enough??

[Alan]

And amazingly, the law in AZ allowing payday stores lapsed about 1-2 years ago. When the state leg said they could continue if they capped their interest rates at 36%, the declined, saying that rate of interest was too low and they could not make a profit! When is enough enough??
What do you suppose the default rate would be for their customer base?

[bunnys]

What do you suppose the default rate would be for their customer base?

They aren't REQUIRED to lend to anyone they don't think is likely to repay.

I worked for a very well known large credit card issuing company once. They had predatory lending practices. They routinely solicited people who had just declared bankruptcy because they knew the law did not allow those (stupid, ignorant) people to declare bankruptcy for another 7 years and so their new debt could not be discharged.

They also solicited to people who were incarcerated.

They also solicited to people at events frequented by a lower socioeconomic and lower educated class of people and would lie to them about the terms of the card.

Additionally, when soliciting these desperate for credit consumers they would market a card with a expedited processing fee of $59 and an activation fee of $39 and not disclose this to the consumer. When the consumer received their card and activated it they suddenly had a balance of $100. These cards usually had only a $100. credit limit. The consumer would then go out and buy a tank of gas and instantly be over their credit limit! Then they'd get a $39 over the credit line fee. When the bill came it wasn't for $30. (the price of the tank of gas) but for $170! All these charges were legitimate because they had been disclosed in the fine print of the cardholder agreement they signed when they applied for the card.

This company made their money by shafting unsuspecting consumers who were desperate and uneducated. Personally, I don't think that's a fair fight.

I think it's true that a buyer should beware. But I don't think it's fair that a buyer should have to have a law degree to understand what they're getting into. Government regulation of business should be there to protect consumers from this kind of predatory behavior. If no one were engaging in predatory lending I'd say, "government keep your nose out of it." This isn't what's going on though.