Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

npr.org

Post reply on HN
Print view View original

31–40 of 71 posts

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#31

Post by odorousrex »

1123581321 wrote: post #6
afpx wrote: post #3

I'm generally not a fan of regulation. But lately, I've been changing my opinion on that. I don't see how we can all play in the economy game without having a set of unambiguous rules and referees to enforce them. Regulations do add overhead, sure, but how else can we prevent companies from acting in ways that are detrimental to society? Capital finds the shortest path to profits, and without rules, it becomes a quic…

What do you think about the idea that if someone is charging 20% on a loan and making easy money, you can offer the same service for 15% and take their business?* That is a race to the bottom, but it seems like it would be good for the customer. * This is essentially what credit unions do with signature loans.

This assumes people are A) rational and B) intelligent enough to shop around.

Neither is true.

It's quite likely that the company making 20% has a much higher marketing budget than the 15% one. People can't choose the cheaper option if they don't know about it.

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#32

Post by dalbasal »

afpx wrote: post #3

I'm generally not a fan of regulation. But lately, I've been changing my opinion on that. I don't see how we can all play in the economy game without having a set of unambiguous rules and referees to enforce them. Regulations do add overhead, sure, but how else can we prevent companies from acting in ways that are detrimental to society? Capital finds the shortest path to profits, and without rules, it becomes a quic…

I agree generally, but I don't think the problem with regulators is overheads. If it was just a matter of cost, I'd say we (as consumers and/or citizens) should pay it.

The problem is more complicated. "Regulation" (as it's usually done via a regulator) creates centralisation, usually. IE, fewer, bigger players. It creates a rigidity, where the way things are is locked in, incumbent companies and ways of doing things become hopelessly intertwined with regulationary systems.

Regulation also tends strongly towards bureaucracy, and it's impossible to tell where a company's bureaucracy starts and the regulatory bureaucracy begins. I've seen this happen in companies. "Compliance" becomes a magic word that justifies senselessness, wins every argument, and puts lawyers in command.

Idk what the answers are. Like you, I think there are plenty of problems that cannot stand. Left totally unregulated, payday loans gets very ugly. Pushed to the black market, it gets even uglier.

Itoh, I feel like we should reject the choice between known-2-be-bad regulatory regimes and the often worse problems they attempt to solve.

My best guess would be to try and make micro-lending a public or charitable service. Maybe it just doesn't lend well to a for-profit business model... But, I don't really know.

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#33

Post by mikeash »

tjansen wrote: post #21
mikeash wrote: post #14

Earlier quoted context omitted.

Why would removing regulation reduce fees, and why would adding regulation increase them?

Because compliance with regulation requires additional work and thus costs money. As every payday lender has to do this, they will raise their fees.

Obvious counterpoint: regulations which cap fees below the current level.

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#34

Post by SegFaultx64 »

dragonwriter wrote: post #29
SegFaultx64 wrote: post #19

Earlier quoted context omitted.

The way it actually works is that people get payed before their paycheck if they need it at zero interest. When executed correctly there is no debt the money they took is just deducted from their paycheck. This is how payday advances worked for most people before the age of complex payroll systems. You used to be able to ask your boss to get payed early for the time you had already worked. Now that is really hard bec…

> Now that is really hard because "the system isn't set up like that" No, it's really hard because systems (technology secondarily, primarily policy and administrative controls) are set up to prevent the discretion that practice relied on because it was a giant and frequently exploited opportunity for embezzlement, favoritism, and unlawful discrimination (including quid pro quo sexual harassment) by line and middle m…

Yep, absolutely. However there are ways to bring that into "the system" and regulate and monitor it just like other payroll functions. There is no reason that payday advances couldn't be done without those negative externalities if they we setup and structured correctly, rather than just your boss slipping you cash.

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#35

Post by 1123581321 »

robert_foss wrote: post #16
1123581321 wrote: post #6

Earlier quoted context omitted.

What do you think about the idea that if someone is charging 20% on a loan and making easy money, you can offer the same service for 15% and take their business?* That is a race to the bottom, but it seems like it would be good for the customer. * This is essentially what credit unions do with signature loans.

If the 'invisible hand of the market' was indeed working, why are such obscene rates common? In my mind it's profiteering on the backs of impoverished people.

Do you think there is a level of default risk that justifies a higher interest rate?

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#36

Post by cdoxsey »

afpx wrote: post #3

I'm generally not a fan of regulation. But lately, I've been changing my opinion on that. I don't see how we can all play in the economy game without having a set of unambiguous rules and referees to enforce them. Regulations do add overhead, sure, but how else can we prevent companies from acting in ways that are detrimental to society? Capital finds the shortest path to profits, and without rules, it becomes a quic…

Regulators also have incentives. In particular the rise of crony-capitalism in the US means that regulations end up becoming a cudgel to stifle competition as a form of rent-seeking from the government.

It's the baptist and bootlegger problem: https://en.wikipedia.org/wiki/Bootleggers_and_Baptists

> "Such a coalition makes it easier for politicians to favor both groups. ... [T]he Baptists lower the costs of favor-seeking for the bootleggers, because politicians can pose as being motivated purely by the public interest even while they promote the interests of well-funded businesses. ... [Baptists] take the moral high ground, while the bootleggers persuade the politicians quietly, behind closed doors."

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#37

Post by SegFaultx64 »

rootusrootus wrote: post #28
SegFaultx64 wrote: post #19

Earlier quoted context omitted.

The way it actually works is that people get payed before their paycheck if they need it at zero interest. When executed correctly there is no debt the money they took is just deducted from their paycheck. This is how payday advances worked for most people before the age of complex payroll systems. You used to be able to ask your boss to get payed early for the time you had already worked. Now that is really hard bec…

I wonder why we don't have pay-as-you go for income. There is no particular reason we couldn't pay people at the end of every day just as easily as every two weeks or once a month.

A few companies do, including Uber. The real issue is that the American banking system is insanely slow and outdated so transferring large sums rarely is way more economical than doing small sums frequently. ACH takes 1-3 days. Push-to-debit is expensive and not universal. Cutting checks daily would be a nightmare and raises a whole other set of issues around check cashing.

People are working on this from a tech perspective, but we are not there yet. In other countries this would be a lot easier to implement because the underlying banking infra is just more sophisticated and modern.

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#38

Post by mikeash »

leetcrew wrote: post #23
mikeash wrote: post #14

Earlier quoted context omitted.

Why would removing regulation reduce fees, and why would adding regulation increase them?

complying with regulations costs money. obviously if you are exploiting people in a way that becomes illegal, you have to stop doing that profitable thing. this is probably not bad. however, even if your business is already compliant with the new regulations, you still still have to pay someone to understand the new rules and confirm that you are not breaking them. as regulations grow in number and complexity, you ha…

I understand how regulations increase costs. But increased costs can be recovered from in increased prices, decreased profits, or increased volume. I don’t see why it necessarily must be the first one, especially when these regulations often put a cap on fees.

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#39

Post by dvtrn »

calvinmorrison wrote: post #20
robert_foss wrote: post #16

Earlier quoted context omitted.

If the 'invisible hand of the market' was indeed working, why are such obscene rates common? In my mind it's profiteering on the backs of impoverished people.

What makes you think the rates are obscene?

What makes you think 300% interest on a financial instrument ISN'T obscene? I don't know of any other loan or line of credit with that kind of interest rate but payday loans.

Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending

#40

Post by cletus »

To those arguing against regulation and pointing out there's a demand for these loans, you're missing the point.

These products are designed to be deliberately deceptive. They exist to prey on the desperate and uninformed.

I honestly don't know the point of the Obama-era rule referenced in this article. To me this is simpler:

- "Fees" that scale with the loan size aren't fees. They're interest and should be legally treated as such. This would subject the loans to state usury laws.

- Providers should disclose what the annual interest rate is for the loan the borrower is intending to take out.

- Payday loans should be prohibited from being mortgage loans. This is an esoteric point but in some states to get around state laws on payday loans, they're treated as mortgage loans. This also adds the problem that someone could lose their house from payday loans.

- Come to think of it, primary residences should be excluded from being taken to repay payday loans.

Post reply on HN