51–60 of 71 posts
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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.
Can you really? Do payday loan customers typically comparison shop?
There's demand for these sorts of loans, so if you outlaw them the demand doesn't go away - it moves to the blackmarket. The classic "loan shark", or local guy with cash that will have his goon break your legs if you don't pay it back. That's fine, we can outlaw and drive it underground, just as we tried with alcohol, and just as we do now with various drugs. Sometimes society would rather pretend demand for some pro…
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…
The overhead of regulation is not my concern. My concern is the detrimental effect on society that comes from trying to manage companies doing things that "have a detrimental effect on society". To me, payday loans are a symptom, not a cause. An inability to manage money is not going to go away if payday loans are stopped. An inability to manage money may in some cases be improved with education and mentoring which w…
When I took the classes in the late 90s, it was basically "learn how to bake this one thing and hand sew a ripped cloth." A few years later when my sister was in high school, home ec wasn't even a class anymore. I'm not sure if the class still exists in any US public school system. However, my parents remember being taking it in the 60s and being taught to make a household budget and balance a checkbook, in addition to cooking and basic mending/repair.
Point is, the education piece teaching people to manage money used to be there, and has been purposefully removed.
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> 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.
Sure, but it's not free to the employer (aside from making cash flow timing less predictable, regulating and monitoring are not free) and the contribution to the bottom line is dubious (it may even be negative: the employees for whom such a benefit would be most attractive may not be the employees a business most wants), so the business case for doing it rather than leaving employees to existing credit mechanisms is weak.
OTOH, there seems an obvious social benefit to having either this or same-day pay (which is also not free compared to status quo alternatives) as a norm, so that's maybe a role for government rules (either mandates or incentives.)
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I heard an interesting quote lately about how federal aviation regulations were "written in blood". That nobody really wanted the regulations but time after time common sense and commercial interests failed to provide a safe operating environment. I've been thinking about that a lot: while there are certainly some over-regulated industries, when you dig into the "why" on any particular rule you usually find some horr…
Just because an unlikely horror story occurs once in a while doesn't mean we need a regulatory response each time.
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.
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.
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Is there really any debate on whether or not 400% is obscene?
If you were asked to lend someone you knew was unqualified for a traditional bank loan $200 for a week, and you had to fill out paperwork, create a record, etc., how much would you want them to give back? If they gave you $205 ($5 for your trouble) you’d be roughly charging 130% APR and you wouldn’t cover your costs, let alone the risk. You can extrapolate 400% from this example. Understanding how short duration, ris…
BANKS don't even give out personal loans at such absurd rates.
Earlier quoted context omitted.
If you were asked to lend someone you knew was unqualified for a traditional bank loan $200 for a week, and you had to fill out paperwork, create a record, etc., how much would you want them to give back? If they gave you $205 ($5 for your trouble) you’d be roughly charging 130% APR and you wouldn’t cover your costs, let alone the risk. You can extrapolate 400% from this example. Understanding how short duration, ris…
Curious, but do you work in banking? I'm just wondering what else could potentially be motivating someone into thinking 400% interest on a short term loan that is by definition meant to be paid off on the next payday (anywhere from a week to fifteen days, or in some cases a month for individuals on a monthly/State-employee payroll) is anything but exploitative. BANKS don't even give out personal loans at such absurd…
To clarify, payday lenders exploit people by a) encouraging loans for bad reasons, b) hiding details from financially illiterate people, c) trying to keep competition out of their market, d) not publishing comparable rates. But the actual business margins are not as good as 50-400% sounds due to the high volume/short duration/default risk.
Earlier quoted context omitted.
Curious, but do you work in banking? I'm just wondering what else could potentially be motivating someone into thinking 400% interest on a short term loan that is by definition meant to be paid off on the next payday (anywhere from a week to fifteen days, or in some cases a month for individuals on a monthly/State-employee payroll) is anything but exploitative. BANKS don't even give out personal loans at such absurd…
I used to work for a credit union that had a branch in a very troubled low income area. We worked really hard to get people to consider us as a cheaper, more transparent and ethical alternative to payday lending. So I know a lot about it as competition. Nowhere I’ve said it’s not exploitative. However, exploitative doesn’t mean that a high interest rate is extremely profitable as is popularly believed. To clarify, pa…
You can extrapolate 400% from this example.
Consider me obscenely interested in understanding the math to break down measuring risk such that you end up with 400% annualized interest on a, say $1000 loan.
Again, even traditional banks don't hit applicants with poor credit this hard. Personally, I paid off a personal loan with my credit union down in Texas, only financial institution that would give me one with my credit. 18%.
I have yet to find anyone who can provide a convincing argument for why such a high interest rate is warranted compared to traditional lending sources who will have the exact same concerns and risks but charge demonstrably less.