Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending • Hacker News Board

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#101

Post by sangnoir » Wed, Feb 06, 2019, 10:50 PM UTC

pitaj wrote: post #63

firasd wrote: post #31

Anytime I see people defend this kind of practice, the John Ruskin quote comes to mind: “The dullest of all excuses for usury is that some kind of good is done by the usurer.”

Many people make use of payday loans. If you remove that option, those people aren't any better off. Restricting or prohibiting payday loans is politicians saying they can make better choices than the people they're claiming to help. Does it come from good intentions? Of course. But it's also fundamentally elitist.

> Many people make use of payday loans. If you remove that option, those people aren't any better off.

This is a false dichotomy - the options are wider than "unregulated lenders" and "non-existant lenders". Imagine saying in 1850: "Many 8 year olds work in coal mines. If you remove that option, those kids aren't any better off."

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#102

Post by threeseed » Wed, Feb 06, 2019, 10:50 PM UTC

rayiner wrote: post #59

The rules were misconceived to begin with, by people who mistook the symptoms for the problem. There is a ton of competition in payday lending—there is zero reason to believe that payday lending rates are higher than the efficient amount. There is no hint of market failure, systemic risk, or any of the other criteria that typically justify regulating financial institutions. That means this rule wasn’t really a consum…

Pretty extraordinary to be defending the most insidious form of business around.

Payday lenders do not remotely provide the same duty of care that more established lenders like banks do. And as such they need to be regulated to ensure that they aren't lending to people who are not in a financial position to repay the loans. Ignoring the impacts to consumers it is a systemic risk to the economy to allow this behaviour to persist.

And there are plenty of other mechanisms to give poor people credit than supporting loans to people on average 25% interest rates.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#103

Post by westurner » Wed, Feb 06, 2019, 10:51 PM UTC

From the article:

> The way payday loans work is that payday lenders typically offer small loans to borrowers who promise to pay the loans back by their next paycheck. Interest on the loans can have an annual percentage rate of 390 percent or more, according to a 2013 report by the CFPB. Another bureau report from the following year found that most payday loans — as many as 80 percent — are rolled over into another loan within two weeks. Borrowers often take out eight or more loans a year.

390%

From https://www.npr.org/2019/02/06/691944789/consumer-protection... :

> TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6% and perhaps a loss when adjusted for inflation.[2][3]

0.6%

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#104

Post by dbinder » Wed, Feb 06, 2019, 10:51 PM UTC

Nothing bothers me more than people making excuses for firms that charge outrageous rates. If your underwriting is so poor that you cannot maintain a profitable business without charging an arm and leg, you don't deserve to be in business. Having a looming cap on interest rates has driven innovation in payment schedules, collateral, and user experience across the industry. Constraints breed creativity. They only winner here is the lender who would have been out of business due to the law, we would be better out without them.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#105

Post by calvinmorrison » Wed, Feb 06, 2019, 10:52 PM UTC

mrhappyunhappy wrote: post #87

calvinmorrison wrote: post #75

Earlier quoted context omitted.

Honestly, they're providing a service and there are customers. Walter block who is a noted austrian-school economist did a fun set of books called "Defending the Undefendable" where he runs through thought experiments about Slumlords, Payday Lenders, Pimps, etc. I'm not asking you to agree with him, or start defending pimps but reading through some of those is a fun way to get a different take on things. Book is avai…

The service is masked in high fees that do not apply to your principle payments. They are borderline fraud. Had try been totally transparent then we wouldn’t need to regulate the industry as much. The fact that anyone can defend a payday lending operation knowing how it works is puzzling. I don’t know what your motivations are or of those who say nice things on behalf these “businesses” but they are certainly not in…

I guess you didn't actually read my comment. I'm gonna blow your mind with this: people have differing opinions on things and that you have to immediately question my 'motivations' or assume i'm some sort of 'paid actor' is the kind of ad hominem attacks I'm so used to seeing on HN.

Payday lending offers a very specific type of service. Extreme short term loans. Like all loans, there is risk associated. Unlike other loans traditional payment plans do not really apply. Interest rates will be different. However, with the market operating appropriately, people will move towards the better options. This might include, better service, better interest rates, better contractual agreements, who knows. It's the free market.

I wasn't even defending it. I was pointing to an economist who is a noted hard libertarian type who did defend it, in the hopes that someone might read it and think to themselves - for a fat second - "wow some people do not see the world the way I do", you have utterly failed that test.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#106

Post by chris_va » Wed, Feb 06, 2019, 10:52 PM UTC

CydeWeys wrote: post #71

andrewla wrote: post #12

Earlier quoted context omitted.

Arguably, the consumers that the CPB is protecting is those who are aware of the fees and conditions but still require payday loans, who would be excluded from consideration by the new rules [1], which do not change the interest rate requirements but exclude some customers from eligibility. If people didn't want these loans, the companies would not exist. If the loans were capable of being serviced at a lower rate, t…

> Arguably, the consumers that the CPB is protecting is those who are aware of the fees and conditions but still require payday loans, who would be excluded from consideration by the new rules [1], which do not change the interest rate requirements but exclude some customers from eligibility. I'm not sure many such people exist. Surely the vast majority of payday loan companies' customers are not these kinds of peopl…

"Also, the official, who spoke to journalists on condition of anonymity, said that if the rule had kicked in, some two-thirds of borrowers wouldn't qualify for a payday loan."

... pretty brutal. From the CFPB[1], 82% of loans are renewals, and ~50% are longer cycles of debt. So, naively, of the 66% of people no longer eligible, one might expect 75% (50%/66%) of those to be stuck in a debt cycle and 25% (16%/66%) to no longer have access to credit.

[1] https://files.consumerfinance.gov/f/201403_cfpb_report_payda...

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#107

Post by echohack5 » Wed, Feb 06, 2019, 10:52 PM UTC

rayiner wrote: post #59

The rules were misconceived to begin with, by people who mistook the symptoms for the problem. There is a ton of competition in payday lending—there is zero reason to believe that payday lending rates are higher than the efficient amount. There is no hint of market failure, systemic risk, or any of the other criteria that typically justify regulating financial institutions. That means this rule wasn’t really a consum…

Microloans exist, and offer credit at non predatory rates to low-income people, especially in third world countries.

Your comment reeks of astroturfing bad-behavior.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#108

Post by kbenson » Wed, Feb 06, 2019, 10:52 PM UTC

rayiner wrote: post #59

The rules were misconceived to begin with, by people who mistook the symptoms for the problem. There is a ton of competition in payday lending—there is zero reason to believe that payday lending rates are higher than the efficient amount. There is no hint of market failure, systemic risk, or any of the other criteria that typically justify regulating financial institutions. That means this rule wasn’t really a consum…

As someone that provided development and system administration support for multiple payday lenders for a few years, I will say that their adherence to the rules each state enforces for payday lending companies I dealt with was often "spotty". It was a regular occurrence that they would have a state regulator visit to look at their operation, and they would all of a sudden be scrambling to make one or two accounts that they had completely dropped the ball on disappear. E.g. where they had rolled over a bi-weekly payment of $125 on a $500 loan for over 50 consecutive weeks.

Let's keep in mind this is the industry that responded to legislation that you can't have the loans continue past a few periods by laving that last payment immediately preceded by another loan of the same amount, of which the amount needed to pay off the prior loan was immediately subtracted, resulting in zero difference in payments, but a new loan on the books. IIRC, for some states that required the loans be paid in full at the first opportunity, it meant a new loan was issued every pay period (that is, loan of $500, two weeks later a new loan of $500, which is used along with a $125 charge to close out the prior loan balance of $625 and issue a new $500 loan, continue as long they're unable to pay off the loan amount of $625).

There is some benefit to the system though. I did see plenty of accounts where the customer paid it off in full at the first payday, which still results in a large fee, but that's acceptable for people getting same day short term loans. There's also quite a bit of defaulting on the loans, which means there's some justification for the high fees/APR. It's just where the system is abused and customers are funneled into systems used to milk them for large amounts long term where I was particularly upset by how it worked.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#109

Post by Arbalest » Wed, Feb 06, 2019, 10:53 PM UTC

rayiner wrote: post #89

Arbalest wrote: post #84

Earlier quoted context omitted.

GP starts with a fairly simple premise, the rate of default is high, so that much interest is required to make up the shortfall. Of course the rest of it is hinged solely on this premise, rather than acknowledging that the very act is taking advantage of people who can't or won't think far enough ahead to see why it is a very bad idea. It is of course the old argument that some economists use a little too regularly t…

The idea that selling products and services to poor people is “taking advantage of them” in the terms reality demands is bonkers.

Stating that still assumes rational actors. It is based off the premise of "freedom" above all else. The problem with freedom is that the way it is defined really depends on what you want to achieve. Infinite choice is the simplest form of freedom, but in this case, you are enabling market forces to remove the ability for people with poor judgement to lose any capacity for future financial freedom, a form of freedom I would argue is more important that short term choice.

Edit: I would also like to state that extending credit also increases demand, pushing up prices in the rest of the market, increasing the demand for credit for all players. This is exactly how housing bubble flames are fanned, and it applies at any level of the economy. If people at the bottom are unable to afford necessities, providing them more credit doesn't actually increase their capacity to afford necessities, it is simply a time shift. If that is the scenario that is coming up, a different solution must be found, otherwise you just end up with more interest going to people who already have the money. Classic Gamblers ruin.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#110

Post by Angostura » Wed, Feb 06, 2019, 10:54 PM UTC

rayiner wrote: post #59

The rules were misconceived to begin with, by people who mistook the symptoms for the problem. There is a ton of competition in payday lending—there is zero reason to believe that payday lending rates are higher than the efficient amount. There is no hint of market failure, systemic risk, or any of the other criteria that typically justify regulating financial institutions. That means this rule wasn’t really a consum…

In what way is a rule that “ requires payday lenders to check borrowers' ability to pay” misconceived?

Payday lenders have a perverse incentive to ensure that borrowers can pay the initial interest, but then have to roll the loan over, accruing more interest. Market competition doesn’t change that.