Today’s editorial on our Opinion page talks about that surreal scene earlier this month when a Sunflower Community Action meeting about the dangers of payday loans was crashed by hundreds of people bused in by national lender LoanMax; it had paid each of these “supporters” $100 and given them T-shirts and free box lunches in exchange for showing up at the meeting as warm bodies for the industry.
We argue that “the tactic reveals just how far LoanMax and other payday and car title lenders will go to protect their cash-cow businesses,” and that state lawmakers should regulate these multiplying businesses. Ideas include limiting people to two payday loans each and requiring that a statewide database be set up to keep track of payday lenders and borrowers.
Or are those being preyed upon getting what they deserve for being fiscally irresponsible?
Posted by Rhonda Holman
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48 Comments
Of course people are responsible for their financial decisions.
But isn’t it a seperate question as to whether businesses should profit off of people who are not usually trusted by banks to the tune of nearly 400% APR? I say it doesn’t have to be that way and it shouldn’t be.
WSU is doing a survey of people who don’t usually use banks or credit unions on how they finance their purchases. I applaud this effort, but the problem is the survey is on-line. That sampling frame would be somewhat like asking Lexus owners what their food-stamp experience was like. I would welcome the thoughts of creative people on how to get the folks who need to respond to the survey, contacted. The WSU people tell me the survey has to be done on-line for cost containment purposes.
I have wondered about shuttling people from the Lord’s Diner over to Catholic Charities to use one of their computers. Ben, you got any ideas?
Thanks in advance.
Another idea. I know many homeless people use the downtown public Library during the day for air conditioning – maybe setting up some kind of notification at those public access computers would be helpful. Maybe the branch libraries would be useful places also.
Any way…
It is not just poor people who use these business. In fact I have read that middle class and working poor people are their biggest customers. Get the word out to people you know about the survey. I will look it up later and post the address tomorrow.
Realized it is tomorrow, already. The survey can be taken at:www.cffcu.com
It is sponsored by the Catholic Family Federal Credit Union in cooperation with the WSU business researchers. There are computers set up at the CFFCU for the survey at 1902 W. Douglas in Wichita.
Oh, yeah, Deb Gruver’s article describing the project:
http://www.kansas.com/mld/kansas/business/14796364.htm
It is a personal choice to get involved with a payday loan shark. If we really want to protect people from bad financial practices, how about outlawing fraudulent retirement schemes like Social Security? The Eagle puts on it’s suit of self righteousness over something that happens to a few and then supports plans that we are forced into without any guarantee of benefits.
Hear me Randy, you are wanting the biggest thief in the land to come in and make the other thieves play nice?
I am sympathetic to Proudman’s libertarian viewpoint.
Call me a fool if you must, but I think there is a modicum of representative government still in existence. Usury loan rates are not okay with me. My representative has heard that from me. If there is enough of a backlash, I believe that this issue can be re-visted by the legislature.
Payday lenders have hired the same lobbyist who represents Indian casinos. The guy is slick and I would submit a skilled liar.
I still think citizens can be heard. If I am wrong on that, it may be time to move to Canada – where they may have a more sympathetic totalitarian government.
So, the government should limit how many loans a person can get? What is next, limiting YOU to two credit cards? A law telling YOU how much mortgage you can get? A law telling YOU how much you can spend on a car?
Where does it stop? If high interest rates are the problem, then limit the rates that can be charged. Limiting the number of loans smacks of communism at best.
Open that door to the government, and just see what happens next. You will be told how much you can spend on clothing, whether or not you can borrow from your credit union.
Ahhh..but this doesn’t apply to YOU, does it? YOU don’t use these payday loans. Did anyone ever think of how such a law would impact people who use the payday loans responsibly? Nope…it is “poor victims” who are probably irresponsible with many things in their lives that “need protection”.
Hogwash. I cannot stand the idea of a LAW telling people how to manage their finances. Just wait..if this passes, what is next??
Actually the government does cap interest on loans. I believe it somewhere near 22% is the max any lending institution can levy.
The 400% APR people are talking about with Payday loans is what happens when you keep rolling it over and over again. But Payday loans are not designed to be an annual loan. It is a short term loan of I believe around 15%. Better than a lot of credit cards, but you are suppose to pay it back in a short time.
Are they preditory? Maybe! Credit cards, banks, car dealers, and etc. can be preditory also.
How many times do I go into a store like Best Buy, Target, Khols or JC Penny’s and they always ask me if I have their store credit card, when I say “no”, they always push it.
I just went furniture shopping this past weekend and how many stores are offering, “no interest, no payments” schemes in hopes that you do pay interest.
No Thanks! I pay in cash.
I agree with raptor… these laws are leading down the wrong path. What we really need is an “alternative”. Is there any legal way that a non-profit could be given grants to provide this service at a reasonable rate?
Where is the freedom of choice here? If people chose to use payday loan companies that is their right. Who are you to say what is in their best interest? Choice is only good when you decide.
One minute you want government to stay out of people’s decisions and the next you say it is ok to make decisions for them by the government? Which is it?
If people want to use payday loan companies it should be their choice not yours!
Raptor:”Where does it stop? If high interest rates are the problem, then limit the rates that can be charged.”
I agree with you Raptor. The rate should be limited.
And I think any part of a lasting solution to this problem has to involve credit unions providing alternative loan products for people who are now using Payday loan shops.
I don’t have data, but suspect that you won’t see mainstream banks stepping in to provide alternatives to payday lenders, because they ultimately profit by being the bigger fish in the food chain – they lend money to payday loan shops.
Kansassam:”What we really need is an “alternative”. Is there any legal way that a non-profit could be given grants to provide this service at a reasonable rate”
Credit Unions are non-profits and people helping one another. A collectivist approach, but none-the-less a good idea. See my response above.
Joe Williams:”The 400% APR people are talking about with Payday loans is what happens when you keep rolling it over and over again.”
Joe your post above suggests you do not understand APR. I will link to some calculators, so that you might empirically determine that the facts are biased against your opinions.
Ruby:”One minute you want government to stay out of people’s decisions and the next you say it is ok to make decisions for them by the government? Which is it?”
Don’t know who you are addressing, Ruby. But it can be both — no need for false dichotomies like you are offering. The government should stay out of people’s private affairs, but we also rightfully expect the government to help people, too.
Taking your argument to (I admit) the logical extreme. To a mugging victim, you could say, well don’t walk on that dark street at night. We could also ask the government to provide street lights, could we not?
I don’t see how allowing interest rate mugging is in the best interests of the Kansas economy.
If you have a different idea, perhaps you could explain it.
Joe:Here is the promised payday loan calculator. Actually a loan of $500 with interest payments of $75 due in two weeks equals 390% APR. Do the math and see for yourself.
http://www.paydayloaninfo.org/calc.cfm
Here is Federal Trade Commission report on payday lenders:
http://www.ftc.gov/bcp/conline/pubs/alerts/pdayalrt.htm
Ya know DD, it is probably a leftist/socialist/democrat calculator and it cant be trusted.
Dont you have the new Decider Model 2006 calculator?
You know, with no number keys left of the center line?
Speaking of calculators, don’t the people who patronize these businesses know how to use one?
Apparantly the people who patronize these biznesses are republicans. Why, you might ask?
I think they ARE using the same caluculator the republicans use in their control of BOTH the house and the senate.
How else could you explain that the conservative republicans are spending our tax dollars like drunken sailors?
Republican spenders = pay day loan calculators
Must be that charter school voucher math that lets them calculate the deficit they are busy building for YOUR children to pay off.
Sometime after bush leaves office. Just like he said they’d have to solve the iraq problems after he leaves office. Or global warming. Or immigration, or….
you be the decider
Sam,You need to call your Muslim brothers over at the mosque and find out who runs their no-interest loan program, and go talk to him. I’m sure he will understand the problem and will be glad to help you set up a loan program for poor people, or for that matter, anyone who needs a no-interest loan. That would take business away from the loan sharks, banks,etc.
Jim,The people who borrow from payday loan companies are usually in a jam- have a utility threatening a cut-off, or no groceries, or a busted down car and no way to get to work. They need an alternative, not a calculator!
They need to be regulated more and not be allowed to charge such high interest. When these business are not so lucrative, maybe there won’t be so many of them preying on those who are living hand-to-mouth.Another idea is to set up free financial counseling centers right next door to them. This would be a great things for churches to get involved in.
“Speaking of calculators, don’t the people who patronize these businesses know how to use one?”
Good question, Jim. I also think in fairness, it is important to note, that fringe economy businesses like payday loan shops (in the earlier form of pawn shops) have been around for a long time. Two groups who have historically been — I hate to use perjoritive words — let’s just say two groups these businesses have engaged in commerce with – have been members of the military and reservation Indians.
Fringe economy business fulfill a demand. They will never be entirely erradicated, and it might hurt some groups of people if they were — illegal immigrants come to mind. Whether or not illegal immigrants should be exploited is perhaps a topic for a different thread.
My concern is that through, what I think were well-meaning restrictions, our legislature created a worse problem than what they intended to have happen. I think the restriction on only getting two loans per customer per shop (as Randy describes in the linked editorial) was meant to prevent people from getting too indebted to a lender. This created the pressure of multiple payday loan shops springing up (as Randy says there are over 60 in Wichita).
There is obviously money to be made with these loan products: witness the expensive TV commercials that are purchased by these businesses and the Rovian style town hall meeting described by Rhonda above.
A critical part of the solution is getting Credit Unions to work on providing attractive loan products to Payday Loan customers.
I am hoping the WSU/CFFCU rsearch program will help make that possible.
There is a reason these people have no where else to go. They’ve ruined their credit with everyone else. The high interest these companies charge is entirely justified, since they probably have a large percentage of customers who never pay them back.
Damoon,Great ideas.
Jim,Advance America, Cash Advance Centers, Inc. in 2003 brought in $489.5 million and they had a net profit of $96 million.
I don’t know about you, but those folks don’t sound like they operate as a charitable organization to me.
On a somewhat unrelated subject, I need to look into how much of our economy is driven by interest payments and debt. I am thinking that it is more than what it used to be, and more than what can be healthy for our economy. If anyone knows of resources to look at, I’d like to hear it.
Good point, DD. The last I heard the average American family has an average of $17,000 in credit card debt alone. When you think of the interst rates and people making minimun payments, the credit industry is raking in HUGE profits.
Jim,These people never had credit in the first place; they don’t make enough to qualify for regular loans; thaat’s why they have to go to loan sharks for money to get them through emergencies. Maybe you’d agree to increasing the minimum wage to a living wage?
Da,The interesting part of the credit card industry is that my wife receives at least two offers for a pre-approved Visa or Mastercard every week, and she’s been dead for almost 17 years!
DD! Nice in being selective.
But I guess you didn’t read my entire post, and you forgot to mention one thing in that caculator.
“Select either a seven day or a fourteen day loan term (The majority of loans are due in about two weeks)”
Again! Short term loan. I’m right DD. 400% – 500% is when you roll that loan over and over again.
I guess you don’t understand what a roll over loan is.
A good point was made earlier that most of the people using these services are people who don’t make enough to qualify for regular loans. If you watch TV and have seen a LoanMax commercial, you may have seen their “clients” saying “I’m proud to be part of the LoanMax family.”Somehow, this company (and others) have found a way to make the poor folks in this country feel good about being taken for a ride. Amazing!I would venture a guess that not one of those “LoanMax Family Members” turned around and repaid that $100 back to cover one of their LoanMax loans. But it’s just a hunch….
I have a title loan through one of these companies.Yeah, it’s 274% interest. But, because of some mistakes I made back in 1990 when my father died, no bank will even let me have a savings account.How the hell do you overdraw a SAVINGS account?Meanwhile, back in the days of the S&L debacle, I remember reading through a catalog of distressed properties (I was a lot better off then), and seeing almost 20 pages of golf courses.For some reason, the Fed thinks it’s better for Terradyne to go belly up to the tune of millions of dollars than take a risk on some poor working stiff for a couple of grr.Until somebody puts the beatdown on the Fed and the banking industry, and gets them to act like responsible members of society, payday and title loans are a necessary evil.
Joe this is a cut and paste from the second link, I provide above:********************************************************************A cash advance loan secured by a personal check – such as a payday loan – is very expensive credit. Let’s say you write a personal check for $115 to borrow $100 for up to 14 days. The check casher or payday lender agrees to hold the check until your next payday. At that time, depending on the particular plan, the lender deposits the check, you redeem the check by paying the $115 in cash, or you roll-over the check by paying a fee to extend the loan for another two weeks. In this example, the cost of the initial loan is a $15 finance charge and 391 percent APR. If you roll-over the loan three times, the finance charge would climb to $60 to borrow $100.********************************************************************
I will grant you that APR is a confusing concept and it is sometimes calculated in different ways. In the above example the $15 on a $100 loan comes out to 391% APR. As you will note when you “roll over” a loan, you double the interest due. If you roll it over again, you double the double and so on.
You may be right that the APR in these examples are if your repayment is stretched over a year. The $15 per $100 borrowed is the rate allowed in Kansas. The loan period is two weeks.
So let us say you borrow $100 and have $15 in interest due in two weeks, and you roll over the loan the first time your monthly interest would be 30% or $30. you roll it over again the interest is 60%, you roll it again the interest is 120% – we are just thru two months – next roll = 240%, next roll 480% – 3 months – next roll would be $960, next one would be $1920 – just 4 months . . . [Hope this example lets you grasp my points about the excruciating nature of this interest rate]
I think we can agree, surely, that however you want to define the APR, when using these loans, we are talking about racking up a lot of interest, in a short time, and if you had several of these loans, you could get into trouble very quickly.
Payday loan companies likely would not let you roll over so many times – I am guessing they have limits. These companies DO NOT work with people in allowing them to repay their loans.
Mr. Controversy, please take this survey – the data goes to WSU’s mainframe computer:
http://www.cffcu.com/
The results will be used to help people develop borrowing alternatives. It is available in Spanish. Tell anyone who has any trouble with banking to take the survey. Thanks.
“$500 with interest payments of $75 due in two weeks equals 390% APR.”
Not that I want to belabor a very small point, but the above is directly from my post — hence, I did take into account the two week time frame and mentioned it explicitly.
Please practice reading comprehension before your accuse others of having problems with it. Fair enough?
And one last thing, you are right Joe that APR is what the loan would be if paid off over a year – the reason they call it ANNUAL percentage rate, rather than bi-weekly rate. This standardization allows a comparison among loan products. Though as I point out above, there are different ways of computing this figure – so the comparability among APR figures is not always perfect.
In the above example – we got 8 rollovers making for a total of $900 but we owed $1950 in interest money – meaning we over over one hundred percent of interest over 4 months – multiplying that by 3 – roughly approximating the 390% APR we saw at the start of the example.
APR = 365/{(interest/principle)*number of days}
Any number larger than 1 exceeds 100 perecent.
Consumers have not been protected against exhorbitant interest rates of 24, for example, and huge fees on credit cards, esp. as those banks and other money corps have been cash cow contributors for Congress and state legislators. I’d be really surprised–shocked–if anything is done about payday loan companies.
DD! I’m not denying that the Annual Percent Ratings are skyrocket high, because they are.
But you made a good point. It is a specialized loan product that generally misleads the consumer.
Credit Card have to advertise their APR’s, although their loan product is only suppose to be for a 30 day (month) time period. You are suppose to pay it off within that time, but if you don’t, then the interest accrues.
Do they want you to pay off in time? No! Because they make tons of money off of you in penalties and interest. They also make money off the transaction by getting around 2% of whatever is purchased.
What makes payday loans a little more scary is that the loan is not displayed as interest paid for the loan, but a “fee” for the temporary and quick loan. But turning that fee into interest and rolling it over for a year will be in the 400% range.
It’s playing with numbers and unfortunantly the working poor scraping by is the one that suffers.
I just found this page and don’t have time to read everything or compose an original post right now, but in the meantime please see the article “In Defense of Payday Lending” by Tom Lehman, Assistant Professor of Economics at Indiana Wesleyan University, at http://www.mises.org/freemarket_detail.asp?control=454
Thank you, Joe -My points exactly, may God bless you.DD
And Joe,Any interest in doing some volunteer work to rectify the situation? My email on the blog is hot. Thank you again.
Not too many years ago, such interest rates were termed “vigorish,” and were the realm of the mob. I find it alarming that loan sharking has now become a legitimate business practice.
Jed,
A borrower is financially better off doing business with the mob than with these lenders. That may not be the case if they fail to repay, however.
Saw something the other day that was disheartening to me. A young girl, probably in her 20s picked up her check from the Pizza Hut where she works and then went immediately into the payday loan shop next door to the restaurant – apparently to pay them. I am glad she is taking care of her obligations, but it seemed sad that she was doing business with those folks.
I contend that these businesses take advantage of decent, low wage earning people. I’d like for someone to provide convincing evidence that this should be allowed.
DD,Unfortunately, ripping off poor people has become our new national sport. I don’t hold much hope for a legislated remedy. The only thing we can do is find ways of providing alternative loans so poor people aren’t forced to do business with these legalized mobsters when an emergency arises.
The Merchant of Venice had its Shylock. In times past we had pawn shops. The free market will always find a way to provide loans to those who do not qualify for conventional financing. I’ve heard that 30% of America doesn’t even have a checking account. Fees are high because of the short-term nature of the note, and the high probability of default. The link to the piece by the economics professor was excellent. This is the effect folks, of our tolerance of poor education. This is not the cause of a problem, it’s the symptom of a much larger one.
Legalized mobsters! LOL @ the drama.
I’m sure the guys from payday loans are going to come break your legs if you’re late on a payment.
Todd,Oh, they’ll do worse than that! And you can’t even call the cops when they do. The cops and the legislature are on their side.
Payday loans are like any other product: consumers CHOOSE whether or not to use them. They are told exactly what the price is for the service and they CHOOSE whether or not to use it. Furthermore, this linked article correctly points out that most consumers don’t even consider APR to be relevant when taking out a payday loan:
http://www.mises.org/freemarket_detail.asp?control=454
Nobody forces people to take out a loan. Furthermore, what right does government have to limit rates (and therefore, profits) of any industry? As evidenced in states without usury caps, the free market has policed itself — a cap naturally has formed in those states (about $20 per hundred borrowed).
These are UNSECURED loans, so of course rates will be higher than with a collateralized loan. The lender is taking on a higher risk, and should receive a higher return for that risk.
Meanwhile, the paternalistic elitist liberals seem to think THEY know what’s best for consumers. Yet, if rates are capped at too low an amount to engender a positive rate of return, payday lenders will be put out of business. This will force consumers to more expensive (and less secure) online loans ($30 per hundred borrowed) or go back to bouncing checks ($30 per bounced check). But the opponents of payday loan never consider that. They only see the tree and not the forest.
The Wichita Eagle needs to get off its high horse and EDUCATE itself about the industry.
Wouldn’t be a part of that vile industry would ya Matt?
I guess society has to have scavengers and parasites and bottom feeders. Too bad they get rich doing it. They are the lowest order of scum.