Payday Loans Can Be A Lifeline For The Poor -- Meddling Bureaucrats Would Yank It Away

Despite Barack Obama’s Hope and Change promises to fundamentally transform the U.S., there remain a great number of Americans who live paycheck to paycheck (when they have work at all). Occasionally, they find themselves in desperate need of short-term credit to avoid a financial disaster, but they don’t have good credit.

One of their options is to get a short-term advance from a “payday lender.” In the typical transaction, a storefront lending business provides a cash advance of a few hundred dollars to the borrower, who promises to repay within one or two weeks with a fee of 15 to 20 percent.

Suppose auto mechanic Joe Smith is short $100 of being able to pay for repairs to his refrigerator. He goes to a local payday lender and gets the $100. When he gets his next check in two weeks, he repays the loan plus $15. To Joe, that’s much better than having the refrigerator break down, costing him a lot of wasted food.

Someone might point out to Joe that the annualized interest rate is usurious and claim that the lender is exploiting him. Joe would probably reply that he doesn’t care because it’s the best option he has. He might even tell the individual to go away and mind his own business.

Unfortunately, Washington, D.C. is full of bureaucrats who think that almost everything is their business, and won’t go away because they have power.

I have worked in the Payday Loan industry for 20+ years. The liberal news media, liberal politicians and liberal consumer groups hate the loan industry and therefore ‘poison the well’ about the industry by constantly telling lies about the industry. They have been very effective at doing this by some of the misinformation posters here have made in this thread.

1) A staff from the NY Federal Reserve a few years ago did on study on Payday loans debunking the liberal myth that payday loans are debt trap. The study found people in states where payday loans have been banned have a harder time financially than those in states where payday loans are allowed:
https://www.newyorkfed.org/research/staff_reports/sr309.html

Other lies about Payday loan industry debunked by the NY Federal Reserve study:
http://libertystreeteconomics.newyorkfed.org/2015/10/reframing-the-debate-about-payday-lending.html

2) there is a difference between interest rates and APR. No one is charged triple digit INTEREST. For a one week loan I charge $4 for a $50 loan, $8 for a $100, $10 for a $125 loan $12 for a $150 loan and so on. What I charge is more than fair and reasonable. Yet when one does the math:

$4 charge on a $50 loan is 8% fee.

365 days in a year divided by a 7 day loan = 52.14.

52.14 times the 8% fee gives a 417.12% APR.

8% interest is the the actual interest rate that is charged, NOT 417%. Yet even though I am only charging $4 the liberals only want to talk about the triple digit APR making it APPEAR that I am charging much more than just $4 on a $50 loan. In doing the math, you can see that it is IMPOSSIBLE to do short term loans without having high APRs. Even charging as little as 2% creates a 104.28% APR. Yet charging 2% (a 104% APR) would not generate enough money to pay the utility bill or the phone bill. The high APRs are misleading on short term loans and the liberals know that but twist it to make it look worse than what is really being charged. APRs should only be on loans that are 12 months or longer.

3) There is a myth Payday loans take advantage of the “poor and desperate”. If I loaned money to a poor person, how would I get it back? The average household income of my customers is about $40k year. Here in the rural area I am in, $40k is very GOOD money. I run a small business and actually have customers that make as much, if not more than I do. The end of last year one customer who has a household income of $120k stole from me. He and his wife make a lot more than I make, yet he is the “victim” and I am the loan shark.

I deal with every day common people as customers. I have had school teachers, police officers, firemen, preachers, RNs, engineers, factory workers, a medical doctor, a veterinarian, college dean, college administrators/professors, hospital administrator, a retired military Colonel, license plumbers, electricians, welders, top level managers from all sorts of business for customers. Many of my customers have college degrees.

4) There are two kinds of people that use Payday loans:

1) those that use it responsibly
2) those that abuse it

The news media purposely locates those that go out to all the loan companies, they buy many things they do not need on credit, that max out their credit cards and have buried themselves eyeball deep in debt and the media claims these are the typical borrowers. The news media has never, that I have seen, done articles on those that borrow money responsibly for they would shed a good light on the industry. Before making a loan, I always ask the customer 3 TIMES, (in writing and orally), DO YOU HAVE OTHER PAYDAY LOANS CURRENTLY and more often than not I get lied to. DO not blame the industry for those that abuse it. People go out and eat 3 square meals a day a fast food places and get obese, diabetes, high cholesterol and people want to blame the fast food businesses while no personal accountability and responsibility is upon the individual. In my state it is ILLEGAL for a person to take out more than 2 payday loans. I have talked with the state auditors and with those in the state capital to start cracking down on this financial fraud for it is the abusers that gives the industry, for the most part, a bad name, but the state will not do anything. So I wonder why they made it a law if they will not enforce it? Those that abuse loans of all kinds get themselves in their own debt traps but the Payday industry gets the blame. I have many customers that use the loans responsibly and very often I get ‘thank yous’ from them for being here when they need me.

5) Banks make too much money on their overdraft fees to waste time doing small high risk loans as I do. Some local banks/credit unions have a overdraft protection scheme where the customer can “borrow” up $500 on their checking account....the bank lets the account get overdrawn up to $500. When in the overdraft, the bank charges $35 on each and every transaction. Get $25 out of the ATM while in overdraft— the bank lets you have it but then charges $35. Write a check for $50— the bank clears it but charges $35. Write another check for $50 the bank will clear it too and charge another $35. The bank essentially “loaned” you $125 and charged you $105, a true 84% interest rate. When the account holders paycheck is directly deposited to the account, the bank gets its money back. Banks are making a fortune on this with little risk, so why would they would they want to do risky Payday loans for less money??? Last data I received, in all of the financial service industries, Payday loans have the smallest profit margins, the fewest consumer complaints and the average Payday loan store makes about $37K a year.

6) I once worked in restaurant mgt. in fast food chain where there were minimum 500% mark ups upwards to over 100% mark ups. That restaurant could not stay open without repeat business. Some people (same people that use a payday loan service) would be in every other weekend to buy a pizza. They may buy 30 pizzas over the course of a year. 30 pizzas with a 500% mark up on each one means the owner was getting a 15,000% return on his money, you might say he was getting a 15,000% APR...he was “rolling in the dough” and living large yet no one complained about those mark ups in what he charging those poor and desperate folks. Maybe I should I close my Payday loan business and open up a pizza business or retail business of some kind and charge the same people I made loans to a 500% - 1000% mark-ups.

Although I have never taken out a payday loan I can’t say there were not points when I was a younger (and less responsible) where I probably would have. And I most likely would have dug myself a hole in doing so.

Nonetheless, you have some very valid points. I’m sure you have helped many people who did not have any alternative get out of some tight spots and your business has a place and proper function in society (IMHO). I find it interesting that PDL firms are vilified when not used responsibly by the customer but when banks issue credit cards with absurd limits and the cardholders run up insane debt that they can never repay, the banks are never faulted. I know people like this and they can barely make their minimum payments and keep a roof over their heads. They are financial zombies whom despite having good incomes can barely put gas in the tank because they have tens of thousands of dollars in CC debt.

Also, if you structured your business on an APR schedule, let’s say at an annualized rate of 25% (around the % of a cash advance on a CC to someone with iffy credit), on a $50.00 loan for one week, you would make less than twenty cents in interest. Not worth the time to handle the paperwork or mitigate the risk of putting cash in the hands of someone who needs that little money that badly in the first place. I would venture that the loans you are making would be considered “extremely” high risk and can’t help but wonder, if someone stiff’s you for let’s say $100 bucks, is it even worth it to pursue in collections?

A few months ago, I had a very bad month. In just ONE day, the postman comes by and leaves my mail. I see an envelope from my bank...and I know what’s in it. Opening it up I find about $1400 worth of bad checks. (It should not be a surprise that on my last check-up, my Nurse Practitioner put me on Losartan HBP meds. Can’t work 20+ years in this business without it having some sort of mental or physical effect on you.) 2014 was one of my worst years. About 80% of all the new business I opened that year went bad with in a short time. I started turning away most new business and I was ready to throw in the towel back then, but I stayed with it. If anyone here is willing to make good on all my bad debt I will lower my fees.

I will add, some of the people I do business with have GOOD credit. They find it much easier to come in and in less than 2 minutes get a loan for a week or so and pay it back than go to the trouble to go to a bank. One lady came in a few years ago after she withdrew money out of her IRA retirement account and the gov’t penalized her for early withdrawing the money out (I believe she was 53 years old at the time) then she had to pay taxes on top of the penalty on HER OWN MONEY. She found out is was cheaper to borrow from me than to pay the gov’t penalties/taxes to get access to HER OWN MONEY.

I find it highly ironic Dems want to accuse payday loans of being debt traps, but the Dems have me in a debt trap forcing me to pay for those high premiums on Obamacare or penalize me, I am in a debt trap paying personal income tax every quarter or put me in jail, I am in a debt trap paying property taxes or they take my property away, I am in a debt trap to buy driver’s license, license plates, stickers and liability insurance for my car or I cannot drive.

In states that limited the APR to 36%, I could make about $1.38 on a $100 loan for two weeks. I shouldn’t have to say it...but no money can be made on a 36% APR even though 36% sounds like it would generate a lot of money. So I cannot understand how there are those that think a 36% APR is fair and reasonable. Why not force steakhouses to sell steak dinners with all the trimmings for $2?? Seems just as reasonable.

If you were young and came into my office, I would turn you around and shove you back out the door. I have found in my 20+ years experience young people (18-23 years old) are completely worthless in handling their finances.

I noticed that someone earlier in this thread said they were on fixed income. Again they come into my office, I shove them out the door behind you. I quit taking fixed income accounts years ago...most were truly awful to deal with. One reason, they know if they do not pay, you cannot garnish a gov’t check, you essentially have no way to get your money back.

So even payday loans, at least mine, do not service the needs of all people.

Yes, the biggest problem are those that abuse payday loans. Many years ago I knew guy that went out and got 17 payday loans going at one time. I can’t even imagine that. I do not know you or what you make, but I can guess with 99.99% certainty that if you did just ONE payday loan it would not financially ruin you, it would be a small blip on your debt radar. I personally think more people would use payday loans but the news media, Dems, consumer groups have stigmatized it and demonized it so much, people do not really understand what is going on. Some thing if they came into my office I would charge them 417% interest not understanding the difference between interest rate and APR.

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