> Payday lenders do not charge refinancing/rollover fees, as with mortgages, and the interest doesn’t compound (unless of course she takes out a new loan to pay interest on the first loan)
Yes, they absolutely do charge refinancing and rollover fees. They don't call them that, of course, so they can skirt state consumer protection regulations, but that's what they are. And oh yes, they get their users to take out new loans to pay off the interests on the first loans. That's actually their entire business model. You know what proportion of payday lender's business comes from this exact thing? 76%! (http://www.responsiblelending.org/payday-lending/research-an...)
Their business model is wholly and fundamentally based on the inability of non-creditworthy people to keep their obligations. If their customers paid back everything on time, they would go out of business instantly. That is what I call unethical. At best.
> Their business model is wholly and fundamentally based on the inability of non-creditworthy people to keep their obligations. If their customers paid back everything on time, they would go out of business instantly. That is what I call unethical. At best.
The exact same criticism can be leveled at the credit card industry. Or any business based on unsecured credit, really.
Payday lending just takes a well-entrenched business model to its extremes.
Would that actually be true for credit cards? With the sheer volume of global electronic card transactions nowadays (168 Billion transactions in 2013 [1]) it seems they'd be multi-billion-dollar businesses just on card transaction processing fees alone. On top of that, many cards charge an annual fee as well. Seems they could survive even if everyone paid their card off every month.
Nope, because of fraud expenses, new customer acquisition and customer rewards, the fees from transactions alone aren't nearly enough to make them profitable.
Discover is right now giving me 10% cash back on Apple Pay purchases made in person ... :)
There's a category difference. I don't have a citation, but I would guess that credit card companies make a substantial proportion of their revenues from merchant fees. Also, they do turn down people. Not everyone can get a credit card.
Their point about competition is an interesting one. Usually where you find one payday lender, you find many. If there were a lot of profit in it, wouldn't someone arbitrage the interest rates and win all the business for themselves?
Then again, that's a bit of a straw man argument. We don't let people buy and sell organs, regardless of whether we could ensure that they were paid a fair price in an efficient market. Maybe the answer is, if the true break-even interest rate to lend to this market is 300%, then perhaps the moral answer is to not participate.
Payday loans are a necessary evil. That is the best rate that poor people can get, thanks to society totally failing to provide a better safety net.
While I am a huge defender of the payday loan industry, I should note that it does deserve scrutiny: I have worked in the industry and it is a magnet for scammers who prey on poor and uneducated people because doing so is easy and low-risk.
This details the operations of a guy who simply bought loan application data/leads (which included bank account and routing numbers) and then processed $30 echecks to each account with no consent or contact and without rendering a product or service. He amassed 25 million dollars over several years before catching any heat.
If you research the names listed in the byline, 2 are businessmen, one is a legislator, and the other is a corporate attorney.
Those people wouldn't be biased AT ALL /sarcasm
So much hand-waivy unsound logic too.
this blog post showed that blacks and Hispanics
were no more likely to use payday loans than whites
who were experiencing the same financial problems
Yeah, okay, the comparison should be demographic overall, meaning black/hispanic vs white, not "white people experiencing financial problems". Suggesting that they all have "financial problems" in common doesn't wipe away the racial issues.
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[ 0.41 ms ] story [ 433 ms ] threadYes, they absolutely do charge refinancing and rollover fees. They don't call them that, of course, so they can skirt state consumer protection regulations, but that's what they are. And oh yes, they get their users to take out new loans to pay off the interests on the first loans. That's actually their entire business model. You know what proportion of payday lender's business comes from this exact thing? 76%! (http://www.responsiblelending.org/payday-lending/research-an...)
Their business model is wholly and fundamentally based on the inability of non-creditworthy people to keep their obligations. If their customers paid back everything on time, they would go out of business instantly. That is what I call unethical. At best.
The exact same criticism can be leveled at the credit card industry. Or any business based on unsecured credit, really.
Payday lending just takes a well-entrenched business model to its extremes.
[1] http://www.nilsonreport.com/publication_special_feature_arti...
They could survive, but they wouldn't like it. They call people who pay off every month "deadbeats". You can't make this stuff up!!! http://www.creditcards.com/glossary/term-deadbeat.php
Discover is right now giving me 10% cash back on Apple Pay purchases made in person ... :)
Then again, that's a bit of a straw man argument. We don't let people buy and sell organs, regardless of whether we could ensure that they were paid a fair price in an efficient market. Maybe the answer is, if the true break-even interest rate to lend to this market is 300%, then perhaps the moral answer is to not participate.
Who would be taking the other side of the trade in order to allow you to arbitrage? {Payday Lender, "You", ???}
While I am a huge defender of the payday loan industry, I should note that it does deserve scrutiny: I have worked in the industry and it is a magnet for scammers who prey on poor and uneducated people because doing so is easy and low-risk.
Here's an example: http://krebsonsecurity.com/2014/12/payday-loan-network-sold-...
This details the operations of a guy who simply bought loan application data/leads (which included bank account and routing numbers) and then processed $30 echecks to each account with no consent or contact and without rendering a product or service. He amassed 25 million dollars over several years before catching any heat.
Those people wouldn't be biased AT ALL /sarcasm
So much hand-waivy unsound logic too.
Yeah, okay, the comparison should be demographic overall, meaning black/hispanic vs white, not "white people experiencing financial problems". Suggesting that they all have "financial problems" in common doesn't wipe away the racial issues.