Hawkins seeks ban on payday lenders

Spartanburg Herald-Journal ^ | Sunday, December 30, 2007 | Robert W. Dalton

[VRWCtaz]

I have a relative who used her checking account overdraft protection to “fill the gap” on a routine basis. It would have been much cheaper had these services been available then. Still would have been just as stupid - just not as expensive.

[M203M4]

Interest rates are deceiving when applied to very small, high-risk loans. A minimum fee is necessary to make any transaction profitable — but the fee for a small, short-term “payday loan” looks deceptively outrageous when translated to an interest rate. It should be remembered that these loans are not for creditworthy borrowers who have access to competitive lending markets. Payday loans are made to high-risk borrowers who present lenders with higher frequencies of expensive collections and write-offs. If meddling politicians mandate artificially low fees for small high-risk loans, lenders will put their capital to better use — and those with the worst credit will lose access to the voluntary lending market. Then, thanks to well-meaning do-gooders, high-risk borrowers will be left at the mercy of underworld loan sharks who handle collections with baseball bats. I would rather let free markets set the rates...

Exactly.

Nannyism always results in an inferior outcome, even discounting the fruit of eventual government corruption. The longer I live and the more history I read, the more it looks to be a law of physics.

[timm22]

I would be the last person to defend the wisdom of a payday loan. That said, nanny-state efforts to protect us from such loans leaves a bad taste in my mouth. I'm interested to see my fellow FReeper's views on this.

I think we're in agreement. I wouldn't ever recommend a payday loan to someone, but there are circumstances where it might be the best option for a person in a tight spot.

Even if payday loans are not the best option, I don't think we should interfere with the consenting transactions of two adults merely to "protect" one of them from himself. This opens the door to letting the government invade nearly every aspect of our lives.

Plus, as others have pointed out before me, banning these loans just means people will have to use extra-legal means to obtain money. I am certain this will lead to worse results than what we have now.

[timm22]

Nanny State ping

[delacoert]

same as for those who want the money NOW, instead of waiting for their tax refunds to arrive.

Anyone who lets state and federal government keep a significant portion of their income interest free is an idiot.

[zebra 2]

Walk into most any convience store when it’s busy and chances are you’ll wait in line behind obviously poor customers buying scratch-off. It beats me how politicians can fawn over such state-sponsored abuse of the poor while criticising others for joining the party.

[my right]

An aside to this story is: Tommy Moore, a long time Dem. state senator and close gubernatorial opponent of Mark Sanford quit his job after narrowly losing the election and is now a big shot with the payday loan people. I have it from a good source that he knocks down about 3m. a year in his new job.

[Eric Blair 2084]

M20 has it right. It’s the natural order that Socialism and collectivism fights against.

People are dumb. They will always be dumb. Gubmint supposed wisdom will not save them. Only they can save themselves.

[2harddrive]

PAYDAY loans - the new Subprime Crime!

[Son House]

filed suit against payday lenders claiming they knowingly make loans to people who lack the ability to repay them

They have the ability to repay them on ‘PAYDAY’, or they wouldn’t qualify to get them in the first place.

[VRWCtaz]

But in SC it's the "Education Lottery" - so it's for the children.

[VRWCtaz]

I shook my head at that as well.

[delacoert]

Then, thanks to well-meaning do-gooders, high-risk borrowers will be left at the mercy of underworld loan sharks who handle collections with baseball bats.

Hear. Hear.

And if the government doesn't allow for do-gooder, legal, abortions, then the poor will be left at the mercy of high-risk, back-alley, underworld, abortions.

[RetiredArmy]

My daughter worked in one of these payday loan joints for a couple of months. What a scam. She said her bosses threatened to fire them if they did not bring in more “customers” seeking loans. Like they were suppose to troll for people in money trouble and offer them these quick fixes. She said every week you saw the same faces as they got in so far that there was no way NOT to have to come into the loan store. The further in, the further it was to get out.

[Pablo64]

Like you, I am a little cautious about the government stepping in here, but I am also concerned at the exorbitant interest rates they charge people. Also, they often open their businesses as close to military bases as they can (like many pawn shops) and many of our young military families are getting trapped by this.

You could argue that they should be smarter and if not, then stupid should hurt, but often times what happens is a spouse will get hooked into a cycle of these loans and they (the lenders) can exert enormous pressure on them as some of these soldiers could jeopardize their security clearances if they get into bad financial trouble.

Bottom line for me, I think, is that they just seam so smarmy and shady. They charge rates that no bank would be able to charge, but that's why there are so many of them popping up -- there's money in it.

[VRWCtaz]

"Anyone who lets state and federal government keep a significant portion of their income interest free is an idiot."

I have actually been in situations where people were bragging about the size of their refund check. When I tried to explain that this was not a good thing all I received was a blank stare in return.

[Alberta's Child]

Industry critics say the annualized interest rate, nearly 400 percent, is too high a price to pay, and that too many people get trapped in a cycle of borrowing more to pay off previous loans.

If the business of "payday loans" was as lucrative as these critics say it is, then why doesn't someone like Bank of America start offering loans at 300% and undercut their competition?

The answer is that even lending money at 400% under these conditions is barely a viable business model.

I'd like to see the views of other Freepers, too. More importantly . . . I'd love to hear from any Freeper who has ever had to take out a "payday loan."

I'll be shocked if anyone here has.

[VRWCtaz]

Many years ago I had a part-time job as a security guard for a bingo parlor. As with your daughter, I saw the same faces week after week and these folks obviously had better uses for their money. I finally gave up the job it was so depressing.

[Bon mots]

I have a relative who used her checking account overdraft protection to “fill the gap” on a routine basis. It would have been much cheaper had these services been available then. Still would have been just as stupid - just not as expensive.

The banks know this.
Checks used to clear on a FIFO (First in, first out) basis, that is, you could write 4 checks and the last one would bounce if you got it wrong.

But then some years ago, they realized that they should bundle checks and then cash the biggest ones first. This way they can collect bounced-check fees on all of the little checks as they bounce!
The bank would not make as much in fees if they cleared all the little checks and then just bounced the big one, so it's designed to do the opposite!

All the banks now do this as a matter of course.
Now you know.

[VRWCtaz]

"The answer is that even lending money at 400% under these conditions is barely a viable business model."

That's a good point. I hadn't look at it from that perspective.

*Side issue: I just saw an ad on TV for auto insurance that said they would accept a postdated check if "things are a little tight" right now. That just seems wrong to me.