Should a state or federal gov. regulate the costs of 'payday loans'?

[Pure]

Apparently Bush is about to sign a bill settting limits to such small loan practices, at least for military personnel*. Other jurisdictions, including the Canadian Gov are considering regulatory legislation. Many states have some restrictions, but some explicitly authorize non-fraudulent practice as it is (see below** for a summary)

The 'cost' of borrowing is ordinarily considered as (mostly) 'interest,' and most areas have ceilings for 'interest' --i.e., define a 'criminal rate of interest' (say more than 10% a month; 360%/year). In the present case, the 'fee' is NOT called interest, as the excerpt from a 'payday site shows. The legislation would, of course, deal with the substance, the cost, considered as interest, *no matter how labelled,*

As to the amounts involved, this is what I've captured from that site, and it appears typical. E.g., to borrow a $100 for two weeks costs $115 in 'fees', of an annualized interest rate of %730.
----
Here are some numbers from a payday loan website; i believe it's typical. Many loan companies, of course, operate bricks and mortar establishments in areas of maximum demand, e.g., around military bases.

http://www.clickncash.ca/?gclid=CLn9yN_9jIgCFScyPgodHHjR-A#lcalc

[these are exact, verbatim wordings and figures from the site]

Cost of Borrowing $100.00

1 day - $7.50
• 3 days - $10.00
• 7 days - $15.00
• 15 days - $30.00
• 31 days - $60.00

Annualized Percentage Rate (APR) for 1-day loan, 2737%
APR for 14-day loan 730%

(based on a $100.00 loan until your next payday)

There will be a $100 charge on the first returned item and a $200 charge

Due to the short term of the loan (maximum of 31 days) and the small size of the loan,
administrative fees and costs may be higher than other lending products, as every time a loan is issued the Lender incurs administrative expenses in reviewing your information,
credit worthiness and processing your loan.

The Lender does not consider the Administration Fee to be interest or an expense or charge included in the calculation thereof for the purposes of section 347
of the Criminal Code. The Lender does not consider the Annual Percentage Rateto be interest for the purposes of section 347 of the Criminal Code.

----
*I don't have direct info., but perhaps he's considerind something like the Kansas law:

[...]New legislation establishes limits on a payday lender’s ability to collect on payday loans from military borrowers:

Lenders are prohibited from garnishing the wages of military borrowers;
Lenders must defer all collection activity against a borrower who is deployed to combat or a combat support post for the duration of such posting; and
Lenders may not contact any person in the military chain of command of a borrower in an attempt to make collection.
----
**
There is a summary of existing state laws, here:

http://www.credit.com/credit_information/credit_law/PaydayLoanLaws.jsp

 

[Guest]

 

[rgraham666]

Yep, for the reasons Jammies stated above.

 

[Jenny_Jackson]

Hell yes. The corporations who operated Pay Day Loan shops are evil. Under the UCC Usuary Section banks are limited to the annual interest they can charge. Corporation get around this law and generally charge higher rates. Some credit card companies charge as much as 25% per annum.

Pay Day loan companies charge as much as 25% per week. It's a total scam that creates a cycle. You need money so you go to them get a pay day loan. But you only get $75 for every $100 loaned. That leaves you short at the end of next week so...

These guys come from the same mold that made the Car Title Loan companies. We have legislation working to put those bastards out of business in this state. They should do the same to the Pay Day Loan creatures.

 

[SweetPrettyAss]

Hell yes. The corporations who operated Pay Day Loan shops are evil. Under the UCC Usuary Section banks are limited to the annual interest they can charge. Corporation get around this law and generally charge higher rates. Some credit card companies charge as much as 25% per annum.

Pay Day loan companies charge as much as 25% per week. It's a total scam that creates a cycle. You need money so you go to them get a pay day loan. But you only get $75 for every $100 loaned. That leaves you short at the end of next week so...

These guys come from the same mold that made the Car Title Loan companies. We have legislation working to put those bastards out of business in this state. They should do the same to the Pay Day Loan creatures.

I absolutely agree. Even though they don't call them interest, that is what they amount to. the rates amount to usury.

 

[Pure]

Just for the record, the case for "no cap"-- courtesy of Jeremy Bentham and Ayn Rand

because we, like Fox News, believe in balance, here are some reasons given why the government should NOT intervene

1) The 'free market' takes care of these matters-- the exorbitantly costly loan companies will meet competition, which will drive them out of business or down in their fees. This market-established level is superior to that set by some bureaucrat.

2) Who is the government to say how much profit I make in a transaction. There is no law against my buying a car for $1000 and selling it for $10,000, if I can get that. Unless I'm adulterating, defrauding, mislabelling, my freedom to buy and sell--including money-- is constitutionaly protected.

There are few other exceptioins involve public safety: selling porn to kids, or selling atomic weapons (or plans), or high explosives to terrorists.


3) The lender's apparently high 'interest' fee is because of the much higher risk he assumes; indeed, it's virtually an unsecured loan to someone who lacks a decent credit rating.

{{ADDED} For all people in normal circumstances, who simply want convenience, there is, according to the argument, clearly no reason to 'protect'. So let's consider the worst cases, the truly indigent.}

4) a) You harm the desperate borrowers by causing the payday services to turn away more of them; you are DENYING very desperate people the money they need.

b) in some cases this will force borrowers to go 'underground'--e.g., to organized crime.

5) You harm the indigent if you protect them from the consequences of poor choices. They only learn, as do all of us, through consequences.

(abridged slightly)

 

[SweetPrettyAss]

because we, like Fox News, believe in balance, here are some reasons given why the government should NOT intervene

1) The 'free market' takes care of these matters-- the exorbitantly costly loaners will meet competition, which will drive them out of business or down in their fees. This market establish level is superior to that set by some bureaucrat.

2) Who is the government to say how much profit I make in a transaction. There is no law against my buying a car for $1000 and selling it for $10,000, if I can get that. Unless I'm adulterating, defrauding, mislabelling; or selling or atomic weapons, or rifles to insurrectionists or terrorists, freedom to buy and sell--including money-- is constitutionaly protected.

3) To regulate the profits of lenders is basically a slippery slope; maybe next will be regulation on the profits of bottled water sellers, or sellers of prestige Swiss watches? One is on the road to destroying a fine system with misguided intent.

4) The lender's apparently high 'interest' fee is because of the much higher risk he assumes; indeed, it's virtually an unsecured loan to someone who lacks a decent credit rating. He's commendable in finding a way to do business in a very risky and uncertain market that is otherwise unserviced.

5) In the absence of fraud or mislabeling, our 'free market' society simply does NOT undertake to protect those who pay too much for something. Let's say, buy a $100 used car for $500. There is no law, nor should there be, against a foolish or ignorant choice of paying too much for a good or for a loan.

Such laws do NOT protect the innocent, or do so in a morally unacceptable way:

6) a) You harm the desperate borrowers by causing the payday services to turn away more of them; you are DENYING very desperate people the money they need.

b) in some cases this will force borrowers to go 'underground'--e.g., to organized crime.

7) You harm the indigent if you protect them from the consequences of poor choices. They only learn, as do all of us, through consequences.

8) You are being unduly paternalistic to the indigent, provided they are not being deceived. They know the price of the money, and they know, as at the website, the Annualized Rate. So it's up to them. You can't say, "Don't do this it's unwise for you," any more than you can say, "Don't buy and drink two bottles of whiskey."

The borrowers are not usually all that indigent. From the TV commercials I have seen, they are required to produce proof of employment, such as paycheck stubs, and a checking account. They write a postdated check for the amount of the loan, plus the interest being charged. If the check bounces, they could be subject to criminal prosecution.

People are protected al the time against unscrupulous sellers. It is illegal to sel tainted food or unsafe products.

 

[JamesSD]

Cost of Borrowing $100.00

1 day - $7.50
• 3 days - $10.00
• 7 days - $15.00
• 15 days - $30.00
• 31 days - $60.00

Annualized Percentage Rate (APR) for 1-day loan, 2737%
APR for 14-day loan 730%

(based on a $100.00 loan until your next payday)

There will be a $100 charge on the first returned item and a $200 charge

Due to the short term of the loan (maximum of 31 days) and the small size of the loan,
administrative fees and costs may be higher than other lending products, as every time a loan is issued the Lender incurs administrative expenses in reviewing your information,
credit worthiness and processing your loan.

The Lender does not consider the Administration Fee to be interest or an expense or charge included in the calculation thereof for the purposes of section 347
of the Criminal Code. The Lender does not consider the Annual Percentage Rateto be interest for the purposes of section 347 of the Criminal Code.

It makes me sad that these places exist at all. I blame society for not providing a living wage for many people, but also the individuals who don't live within their means.

Now, no one holds a gun to people's heads and tells them to take a payday loan. Clearly the fact they can continue to exist means they provide a service to some people.

There's always administrative costs involved in these sort of transactions. So, in the case of borrowing $100 for a day, at a more "reasonable" rate of ~25% annual interest (not that far off from credit cards), you'd be looking at, oh, around 7 cents a day. So clearly that's not an option for these companies.

To me what would be "fair" would be to have a flat transaction fee, then have the interest on top of it, subject to normal rules on lending. 360% APY is still pretty good... where can I get some of that action with my money?

 

[bronzeage]

I've never used a payday loan company, but I have gotten phone calls to verify employment for people I thought were smart enough to know better.

I few years ago, I was very busy and my paycheck rode around in my briefcase for week. I started getting notices from my bank by Thursday and I was several hundred dollars overdrawn. They were nice enough to pay all the checks and charge me a fee for each. Later, when I figured up the cost of all the checks they had "loaned" the money to cover, the annual interest rate was about 500%.

My point is that nice middle class people have an extreme financial crisis, they have access to money at about the same rate.

The cost of managing a loan doesn't really depend on the ammount of the loan, so small loans always have high proportional costs. I think most of the payday loans make the costs very clear when they make a loan. I think the real problem is people who think they have no other choice.

 

[Liar]

I don't know how it works in other countries but in Sweden, mobile operators often give you a cell phone (or sell you one for pocket change) when you sign up for a service.

What they didn't do, was inform you that the service you signed up for was much more expensive than the same service, if you opted out on the "free" phone.

Or, ok, they DID inform you of that, in fine print in incomprehensible legal lingo.

Anyway, they were slammed by the guv'ment for not being clear enough about the total costs and economic risks involved in their offers.

I think the same should apply with payday loans. As long as the credit giver is reasonably upfront with the total cost of borrowing different amounts over different times, then I don't see why they should be forbidden to set whatever rates they want.

But it should say, upfront and clear: "Total cost for a $5.000 loan: $8.800" so that people get the point and don't walk into shit they can't handle.

 

[Pure]

youre gonna lose your 'social liberal' credentials over that stand, liar.

the payday loan website i referenced is quite up front about costs, and the percentages involved. iow, the better of these entities are fairly upfront, and some even discourage use of the payday loan, unless there's no alternative--but they still offer it:

at the site mentioned, they say it costs $300 to borrow $500 for one month [total cost, then, $800] i.e. ~700% annualized interest.

 

[SweetPrettyAss]

I've never used a payday loan company, but I have gotten phone calls to verify employment for people I thought were smart enough to know better.

I few years ago, I was very busy and my paycheck rode around in my briefcase for week. I started getting notices from my bank by Thursday and I was several hundred dollars overdrawn. They were nice enough to pay all the checks and charge me a fee for each. Later, when I figured up the cost of all the checks they had "loaned" the money to cover, the annual interest rate was about 500%.

My point is that nice middle class people have an extreme financial crisis, they have access to money at about the same rate.

The cost of managing a loan doesn't really depend on the ammount of the loan, so small loans always have high proportional costs. I think most of the payday loans make the costs very clear when they make a loan. I think the real problem is people who think they have no other choice.

Those nice, middle class people probably have credit cards and they can get a cash advance. There is usually a fee for this, as a percentage of the amount involved. There is also interest, but it s not at such a high percentage. In the OD checks, the bank paid them off through a special method, and incurred expense doing that. The fee they charged was in the form of a penalty, and they had told you upfront about the penalty.

All the ads I have seen on TV for these payday loans involve writing a post-dated check for an amount $25 or so higher than the amount recveived. The lender deposits the check on the date on the face, in the normal course of things, and incurs no expenses. It is quite profitable for them.

The borrowers are informed what they are getting into. The problem is that they are short of cash during the next pay period and might have to go back and make another loan. This leaves them short again, and is part of a vicious cycle.

The solutin is for the borrrowers to learn to live within their means. I know that sometimes they have a major expense, such as car repairs, but they should learn to cut back on expenses after that.

 

[bronzeage]

What you say is true, except that there is an expence for qualifying the check writer. The arithmatic is what kills people. You can only borrow a certain percent of your check which is kind of small anyway, so the real interest rate is gong to be high.
The real question to ask is, if you are short of money this week, why is next week going to be better.

One thing that makes Payday loans different from bank loans, is if you default, you have written a bad check, which is a crime. It could be a felony, depending on the ammount of the check. This puts the government in the position of being a collection agency.

I have read that District Attourneys in some city have started to refuse to pursue bad check charges involving payday loans.

Those nice, middle class people probably have credit cards and they can get a cash advance. There is usually a fee for this, as a percentage of the amount involved. There is also interest, but it s not at such a high percentage. In the OD checks, the bank paid them off through a special method, and incurred expense doing that. The fee they charged was in the form of a penalty, and they had told you upfront about the penalty.

All the ads I have seen on TV for these payday loans involve writing a post-dated check for an amount $25 or so higher than the amount recveived. The lender deposits the check on the date on the face, in the normal course of things, and incurs no expenses. It is quite profitable for them.

The borrowers are informed what they are getting into. The problem is that they are short of cash during the next pay period and might have to go back and make another loan. This leaves them short again, and is part of a vicious cycle.

The solutin is for the borrrowers to learn to live within their means. I know that sometimes they have a major expense, such as car repairs, but they should learn to cut back on expenses after that.

 

[Pure]

bronzeage, i agree with several of your points, however this is not correct:

One thing that makes Payday loans different from bank loans, is if you default, you have written a bad check, which is a crime. It could be a felony, depending on the ammount of the check. This puts the government in the position of being a collection agency.

I have read that District Attourneys in some city have started to refuse to pursue bad check charges involving payday loans.

To write a postdated cheque, intending it to be good, but then find oneself lacking, though circumstances, the ability to cover it, is not a crime; you cannot be charged, but you can be sued. the amount is immaterial, afaik.

That is why part of the agreement is to pay the payday folks a hefty fine if your cheque bounces [see the site i referred to, above]. (You do, of course, additionally incur a hefty fine from your bank, with a bounced cheque; i believe that's now $40 in some places.)

{I have revised the numbers, slightly, 10-24;
The following are based on the numbers from the website referenced; the only 'made up' number is the $50 rollover fee}

So if you borrow $200 for a week, agreeing to pay $230 at the end of the week, and your cheque bounces you may also owe a $100 fine to the payday folks and $40 to your bank (on top of the $230).

Further to roll over the debt another week {I believe you} will incure a 'service charge' on top of the these amounts. Suppose that's $50 bucks.

You are now have a two week loan that is going to cost: $30 original fee; $100 bounce fee; $40 bank charge; $50 rollover fee, and of course the additional $30. So this two week adventure has cost you $250 dollars plus the original principle or $450.
Leaving aside the money paid to the bank for the overdraft, you're paying $410 to the payday folks to borrow $200 for two weeks, or 105% interest, which, 'annualized' over 5000 % (if my math is correct).


The DA's, it sounds like, are just *ceasing* to be accomodating and serve as the enforcers of the payday loan folks. ---

Some of the recent legislation to protect military men from these loans folks, makes it impossible for the payday loan people to garnishee the pay of any man in combat role, and forbids them to contact those in the 'chain of command' above the defaulter [as a way of pressuring said defaulter].

 

[SweetPrettyAss]

bronzeage, i agree with several of your points, however this is not correct:

One thing that makes Payday loans different from bank loans, is if you default, you have written a bad check, which is a crime. It could be a felony, depending on the ammount of the check. This puts the government in the position of being a collection agency.

I have read that District Attourneys in some city have started to refuse to pursue bad check charges involving payday loans.

To write a postdated cheque, intending it to be good, but then find oneself lacking, though circumstances, the ability to cover it, is not a crime; you cannot be charged, but you can be sued. the amount is immaterial, afaik.

That is why part of the agreement is to pay the payday folks a hefty fine if your cheque bounces [see the site i referred to, above]. (You do, of course, additionally incur a hefty fine from your bank, with a bounced cheque; i believe that's now $40 in some places.)

So if you borrow $200 for a week, agreeing to pay $215 at the end of the week, and your cheque bounces you may also owe a $100 fine to the payday folks and $40 to your bank (on top of the 215).

further to roll over the debt another week will incure a 'service charge' on top of the these amounts. Suppose that's $50 bucks.
You are now have a two week loan that is going to cost: 15 original fee; $100 bounce fee; $40 bank charge; $50 rolloever fee, and of course the additional $15. So this two week adventure has cost you $220 dollars plus the original principle or $420. Discounting the money to the bank, you're paying $380 to the payday folks to borrow $200 for two weeks, or 90% interest, which, 'annualized' is %1300 (if my math is correct).


The DA's, it sounds like, are just *ceasing* to be accomodating and serve as the enforcers of the payday loan folks. ---

Some of the recent legislation to protect military men from these loans folks, makes it impossible for the payday loan people to garnishee the pay of any man in combat role, and forbids them to contact those in the 'chain of command' above the defaulter [as a way of pressuring said defaulter].

Pure, you are making up those numbers, and not even denying it. Actually, I think the interest would actually be more than $15 on a $200 loan for a week.

 

[JamesSD]

But it should say, upfront and clear: "Total cost for a $5.000 loan: $8.800" so that people get the point and don't walk into shit they can't handle.

Why would you borrow just 5 bucks?

(Sorry, couldn't help myself. I'm sure you Brits hate the way we write $5,000.00)

 

[bronzeage]

To write a postdated cheque, intending it to be good, but then find oneself lacking, though circumstances, the ability to cover it, is not a crime; you cannot be charged, but you can be sued. the amount is immaterial, afaik.

].

I am not a lawyer. My knowledge of this is only from practical business experience. In this state, if funds are not in the account on the day the check is dated, it can be considered check fraud. The good intentions will not be a defense. Any penalties that the original contract calls for would be a civil matter, but the original bad check remains a criminal case.

 

[Liar]

(Sorry, couldn't help myself. I'm sure you Brits hate the way we write $5,000.00)

Not a Birt, but...

Yep. Comma is for decimals, damnit.

 

[JamesSD]

Not a Birt, but...

Yep. Comma is for decimals, damnit.

But that's why we call a . a "Decimal point"!

 

[Liar]

But that's why we call a . a "Decimal point"!

Yes you do. And it's ever so annoying.

Actually, I'd rather write it

1 000 000,25 $

but that looks weird to almost everybody.

 

[R. Richard]

I am not a lawyer. My knowledge of this is only from practical business experience. In this state, if funds are not in the account on the day the check is dated, it can be considered check fraud. The good intentions will not be a defense. Any penalties that the original contract calls for would be a civil matter, but the original bad check remains a criminal case.

True in at least most states in the US. A single offense is not normally priosecuted, but may be if the amount is "sufficiently large." A businessman who normally writes checks in the $1,000 and up range might need to write a bad check in the $10,000 and up range. A really poor guy who only writes checks in the $10 range might get nailed for a $100 check. The defense that "I expected to have the money" is weighed against the bad check writer's normal cash flow.

 

[R. Richard]

But that's why we call a . a "Decimal point"!

Actually, the general term is "radix point." It is only a decimal point when it is used with a decimal number. Computer programmers often use hexadecimal or [now rare] octal numbers.

 

[Pure]

note to rr, note to 'sweet pretty'

yes, rr, the 'normal pattern' of cash flow would be evidence. but i think you are simply reporting a disposition of DAs to favor businesses. it's a principle of law that there must be 'mens rea.' ("guilty mind" loosely). hence anyone of good character who, simply through lack of foresight wrote a *postdated* check which bounced, simply needs a good lawyer. BUT i agree what pattern of cash flow and previous bounced cheques go to the 'good faith' of the writer (whether he is believed in court).

i personally have had the experience of talking about a postdated cheque (I had received) to the cops. they dismissed the issue, out of hand, as a civil matter.

what i started doing, for people less well known, is to take a NON postdated cheque, but making an oral agreement to sit on it for the specified period. if you write a NONpostdated cheque without the money there, that is a crime.

----
hi sweet,

thanks for calling my attention to some of the figures.

i intended to make the figures reflect pretty much those at the website. i see that $15 is, as you say, too low [for $200 for one week]. it should be $30 to borrow $200 for a week. the only speculative figure is the 'rollover' fee, but the overall setup is pretty terrible, regardless.

i have adjusted the posting. obviously correcting the error makes a worse picture than I had painted before (and evenwith a $0 rollover fee it would be almost as bad as i stated originally).

 

[Dr_Strabismus]

yes, rr, the 'normal pattern' of cash flow would be evidence. but i think you are simply reporting a disposition of DAs to favor businesses. it's a principle of law that there must be 'mens rea.' ("guilty mind" loosely). hence anyone of good character who, simply through lack of foresight wrote a *postdated* check which bounced, simply needs a good lawyer. BUT i agree what pattern of cash flow and previous bounced cheques go to the 'good faith' of the writer (whether he is believed in court).

i personally have had the experience of talking about a postdated cheque (I had received) to the cops. they dismissed the issue, out of hand, as a civil matter.

what i started doing, for people less well known, is to take a NON postdated cheque, but making an oral agreement to sit on it for the specified period. if you write a NONpostdated cheque without the money there, that is a crime.

----
hi sweet,

thanks for calling my attention to some of the figures.

i intended to make the figures reflect pretty much those at the website. i see that $15 is, as you say, too low [for $200 for one week]. it should be $30 to borrow $200 for a week. the only speculative figure is the 'rollover' fee, but the overall setup is pretty terrible, regardless.

i have adjusted the posting. obviously correcting the error makes a worse picture than I had painted before (and evenwith a $0 rollover fee it would be almost as bad as i stated originally).

flirt.