'Pay Day Loans' Exacerbate Housing Crisis

Lets say you bounce a $5.00 check. You re-stock your account the next day, but not before the bank nails you with a $35 NSF fee.

So, you just borrowed $5.00, for 24 hours, at a fee of $35.00.

What's the APR on that? Try 255,500.00%

you can also add up all the fees and surcharges over and above 'interest' on your credit cards, recalculate the apr, and blow a payday loan out of the water. There's a reason "financial institutions" are exempt from the 45% APR cap. They wouldn't make any money if they weren't.

A man by the name of Martin Eakes, who runs a credit union in NC, successfully lobbied to have payday loans banned in the state of North Carolina. In '07 Eakes' credit union revenue went up by $70 million in NSF fees alone. Fees that would have been avoided had the consumers still had payday loans available.
Eakes attacks the Payday Loan industry as predatory lending. The same Eakes obtains free government grant money to loan to low income families in the form of mortgages at 13%... yes, 13%. The same Eakes has foreclosed on homes for past due amounts less than $100.

I would have thought that here of all places, people would look at payday lending with a little more of an open mind. The view from the top is always pretty, but some people simply don't have access to a hundred bucks. We read horrible stories in the media, and constantly see payday lenders labeled as "loan-sharks", or worse. I tell you what, go stand outside your local payday loan facility, and ask a payday borrower what they think of the industry. The story you get from the borrowers is one completely different than the story the media tells. Not to mention the outright lies the media spews regarding the fees and rates associated. Every state that allows payday loans, regulates them tightly. Any lender that charges more than 20 percent of the amount borrowed, is either an off-shore company, or an unlicensed lender operating outside the limits of the law.

Average payday loan amount is $225.00.
Average payday loan term is 14 days
Average payday loan fee is $40.50

If you get paid next friday, but they're going to turn your power off tomorrow, you've got no family or friends who can lend you the money, any one of you would gladly pay back $240 when you get paid, to borrow $200 today, keeping the lights on and your family warm. Not to mention, in many states, payday loan fees are earned on a per-diem basis, meaning you only pay for the days you actually have the loan. Take a 14 day loan out, but pay it back after seven days, you pay only half the fee.

You'd also be surprised at the actual borrowers themselves. The media would like to paint a picture of impoverished families being taken advantage of over and over, drawn into a cycle of never ending and ever increasing debt. They don't mention the doctors, lawyers and executives who make frequent use of payday loans. From a sample of over 70,000 payday loan borrowers, the average income was a tad over $64k a year! These are people who can't manage their money, it's not that they're broke. They simply spend it before they earn it. They borrow a few hundred when they need it, and pay it back when they're due.

The fact of the matter is, the demand for short term loans is not going to go away. Make payday loans illegal, people will turn to illegal payday lenders...All harsh legislation does, is move payday loans from a tightly regulated industry to the unregulated black market.

Originally posted by BlueTriangle

What you've stated here is already nearing the rates mentioned in the article. They're charging you 10% for a 1 month loan. If you multiply that out for 12 months, you get 314% interest per year on your first loan. If it's 10% in 2 weeks as you stated for future loans, it multiplies out to 985% interest per year.

Glad you're not doing the math on my finances.

A $400.00 loan, at 10%, for 14 days is 260.71% APR.

Edit for spelling.

[edit on 3/25/2008 by Unit541]

If they sign willingly well tough titty.


Also, all lending that applies intrest is technically usury. It is outlawed by the Muslims and was outlawed by the Catholics until the reformation. Organized religion got one single thing right!

[edit on 25-3-2008 by Tinhatman]

Yes and double yes. Usury is definitely one thing religion got right. And yes, it is tough titty (lol love that one) if people sign and then can't pay. I've never personally used one of these services, but I have had checks cashed there and they sure do take a nice chunk of that - 5-14% depending on how much the check was for. If I had only known at the time that Walmart cashes checks under $1000 for $3.

And while we're ranting about the banking industry, how about how banks hold your paycheck for a week, two weeks, even up to 6 weeks? 1. It's easy enough for them to check and see if the funds are available to clear, especially if the business is local/regional. 2. If you have a history of cashing/depositing checks from the same business, good faith should be self evident. 3. If you have enough money in your account to cover the check if it bounces then the bank should make the funds available. Tell me, what good is a payroll check when I have to wait two weeks after I've deposited it to get the money? Guess they can just point me in the direction of the nearest payday advance

Originally posted by Unit541

Originally posted by BlueTriangle

What you've stated here is already nearing the rates mentioned in the article. They're charging you 10% for a 1 month loan. If you multiply that out for 12 months, you get 314% interest per year on your first loan. If it's 10% in 2 weeks as you stated for future loans, it multiplies out to 985% interest per year.

Glad you're not doing the math on my finances.

A $400.00 loan, at 10%, for 14 days is 260.71% APR.

Edit for spelling.

[edit on 3/25/2008 by Unit541]

I'd be happy to show you how I arrived at that number. We're talking 10% interest twice per month. It looks to me like you forgot to account for compounded interest. Surely you don't think that the $40 added to the principal every 2 weeks is going to be free money...interest will be charged on that too.

The result is that the $400 turns into $440 at the end of 2 weeks, then after 2 more weeks, it's $484. Two more weeks and it's $532.40. At the end of one year, the amount owed is 984.97% times the original loan. That's 1.1^24.

reply to post by DimensionalDetective



This cracks me up. Gay Marriage is illegal in most states but Usury is alive and well...

Boy aren't we cafeteria puritans.

So for all the people on this thread that say "Oh it's the responsibility of the person signing the doc..."

Take a look at this link about Usury There is a REASON why there is a word for this.

When will you folks wake up and realize that it is in the best interest of our colletive economy to guard against people borrowing money who can't pay it back? I really don't care how bad these individuals who signed these docs are hurt, what I DO care about is our economy which is going in the toilet because of irresponsible and predatory lending, not irresponsible borrowing.

We will never be able to regulate borrowing, but we DO have laws which regulate lending. And these laws have been loopholed which allows our economy to be in the shambles it is.

It's time we the people as the governement take responsibility and reign in the lenders.

[edit on 26-3-2008 by Quazga]

[edit on 26-3-2008 by Quazga]

reply to post by BlueTriangle


lol. We're talking APR here, silly rabbit. I know just a little about it, I've been writing software for the payday loan industry since 1991. Software that has to calculate things like Annual Percentage Rates.

First, the principal does not increase after two weeks. The only thing that happens after two weeks is the loan becomes due. In some states (not all), the borrower may choose to refinance the loan for another term. This does not "double" the apr, as the terms of the loan remain the same...

There is no "compound" interest with payday loans. Simple interest only.

Do you really think the borrowers care about the APR anyway? The only thing that matters to them is what they have to pay back, and 100% of borrowers feel it's worth it to them, to pay back 240 in order to borrow 200 for two weeks.

The bottom line is that Payday Loans are not the evil menace to society that you, and the media make them out to be. The numbers reported to the public on interest rates, etc. are meaningless, because like you, they have no idea what they're doing when it comes to these calculations, or what they actually mean.

I ask all opponents of payday loans this: Where else can one go to borrow a couple of hundred bucks for two weeks? Short answer is "nowhere".

How many credit cards would we all have if they were forced to conform to the 36% APR cap? Short answer is "none".

It cracks me up, people whining and complaining about the payday loan industry, all the while being taken to the cleaners by every other financial institution they do business with.

Originally posted by Unit541
The bottom line is that Payday Loans are not the evil menace to society that you, and the media make them out to be.

I guess we'll have to agree to disagree on this. I would go one step further and say that credit card companies are an evil menace to society as well. They have created legions of Americans who buy items they can't afford and end up donating a portion of their income every month to the all mighty plastic god. It's really not that different from slavery in the old south.

Payday loans use to be all over the place in Arkansas, my home state. I am very proud to say that instead of being the last in line, we are finally in the forefront. Arkansas outlawed the Payday loan usury jerks and is shutting them down all over the state.

It probably helped that the Arkansas constitution forbids interest rates higher than 17%.

I read the article in the paper a few days ago and if I read it right, all loans are forgiven and in some cases the creeps have to give the money back.

This was preying on the poor in it's worst form.

I'm glad to see it gone.

reply to post by mrwupy


You are incorrect sir, the payday industry is alive and well in Arkansas. The law is a little funky, but since they passed the new legislation, lenders are making more now than they use to. How much sense does it make to cap the interest at some ridiculously low amount, then allow outrageous "setup fees"?

It's funny, the only people who think payday loans are a bad idea are those that don't need them.

Originally posted by Unit541
It's funny, the only people who think payday loans are a bad idea are those that don't need them.

I'm guessing that the 1 in 5 who default on their payday loans and have their lives completely ruined would disagree with this statement.

Originally posted by Unit541
reply to post by mrwupy

 

You are incorrect sir, the payday industry is alive and well in Arkansas.

Attorney General Dustin Mc-Daniel began a process Tuesday to try to close all payday lending stores in Arkansas. McDaniel mailed letters to 156 Arkansas payday lenders Tuesday telling them to “cease and desist your payday lending practices

Seems the AG is on it.

Thats from the statewide newspaper. Just go to Arkansas Democrat Gazette and search payday loans.