Economics: PayDay Loans- Bastards or Black Sheep?

[heydaralon]

As an aside, is there anyone who actually thinks that payday loan places are in danger of going out of business, whatever politicians say? Banks are like life in Jurassic park: They uh...uh..find a way. They might pass a law marginally restricting certain practices (which will be quite easy to circumvent
) but there is no way this business model which rakes it in is gonna stop. I don't think payday places should be illegal. They obviously serve as a stopgap for the desperate, and the desperate got to where they were by having a less than stellar credit rating, hence the high interest. Libertarians and free marketers need not worry! Its not as if poor people are gonna start being financially responsible overnight, and these lenders will no longer be able to hose them down like a Birmingham civil rights protest. It is what it is. The people who are against payday loans have less political clout than a dustmite's asshole. We should focus this libertarian zeal on restoring the fourth amendment, or ending the drug war, or taking back the first amendment on college campuses and not worrying about multi billion dollar industries that financially insulate themselves from any political fallout.

[DBTrek]

Most places usually want the loan AND interest paid off within two weeks. That is a recipe for disaster for a lot of people since they usually go to these places because it's a last resort.

They should not take the loan if they can't pay it back. They should eat Ramen for a week or live without the electric. We all make choices.

To be fair, we only make the choices available to us. Clearly some folks feel very strongly that payday loans should not be a choice. From the few citations I've seen it's because they feel others aren't capable of making these kinds of decisions.

Here's an anti-payday loan piece that unintentionally contains some revealing information:

Myth #3: Payday loans are the best recourse for borrowers with no other options

Prof. Lehman refers to payday loans as a vital credit option “for households with no other recourse for loans”, who would otherwise be faced with bank overdraft charges, late fees and disconnect penalties from utilities.

In reality, most payday borrowers have less expensive options. The Pew Survey asked borrowers what they would do if faced with a cash shortfall and payday loans were unavailable. Eighty-one percent said they would cut back on expenses, 62 percent would delay paying some bills, 57 percent would borrow from family and friends, and 57 percent would sell or pawn personal possessions.

https://okpolicy.org/payday-loans-myths-and-reality/

Holy . . . wow. Looks like the people who are suckered into the "predatory debt trap" of payday loans have a list of alternatives already planned out, in the event that they can't get a fast $300 from the local lender. Crazy alternatives like - cutting expenses.

[Penner]

Most places usually want the loan AND interest paid off within two weeks. That is a recipe for disaster for a lot of people since they usually go to these places because it's a last resort.

They should not take the loan if they can't pay it back. They should eat Ramen for a week or live without the electric. We all make choices.

A lot of times it's between pay8ng rent or not taking a loan.

[clubgop]

Most places usually want the loan AND interest paid off within two weeks. That is a recipe for disaster for a lot of people since they usually go to these places because it's a last resort.

They should not take the loan if they can't pay it back. They should eat Ramen for a week or live without the electric. We all make choices.

A lot of times it's between pay8ng rent or not taking a loan.

Wow, scroll up one post above yours. DB got you covered.

[DBTrek]

As an aside, is there anyone who actually thinks that payday loan places are in danger of going out of business, whatever politicians say? ... The people who are against payday loans have less political clout than a dustmite's asshole.

Right.

There are 12 states in the country where payday loans are completely banned, but there are many more in which the industry is restricted in some way or another. In fact, only six states have no cash advance interest ceiling whatsoever.

Those states that prohibit payday loans altogether are:

• Arkansas
  Arizona
  Connecticut
  Georgia
  Maryland
  Massachusetts
  New Jersey
  New York
  Pennsylvania
  North Carolina
  Vermont
  West Virginia

. . .

...All other states have payday loan laws that that limit their usage and lender practices in some way or another. Most of these limitations regard the amount of interest or fees that lenders may charge borrowers. Other limitations include the amount of times a borrower is permitted to “rollover” their financing.

Only 45 out of 50 states restrict or outright ban payday loans, but you know, their political foes have no traction. So why don't I talk about the 4th Amendment in my thread on economics and stuff?

[clubgop]

PA must be new or at least the don't operate in PA but residents can still borrow thanks to the internet. Also Indian reservations have banks that will give these type of loans.

[Hanarchy Montanarchy]

My argument is that if we can consider payday loans a tool to keep the poor from starving or having their power shut off, then we can make the case that they aren't 'freely' entering the contract.

Additionally, if we aren't arguing that they are a vital tool, whence all the concern that the people of Oregon would seek to limit the practice?

It's not a monopoly tool, is it? The vast majority of us (including the low income) all pay bills and buy food without taking out a payday loan. So I'd ask under what circumstance is a payday loan the only choice? It's a choice. At least, until the know-betters decide that it shouldn't be a choice for anyone else because they disagree with the practice for whatever reason.

Since it's not the only choice to get food or pay a bill (though it may be the only choice for some to meet these ends through obtaining a loan), it can hardly coerce anyone to do anything, can it? Coercion requires a lack of alternatives in the face of danger and/or a threat of harm, and payday loans represent neither.

The "concern" over Oregon limiting the practice is simply an observation. People make a political choice to shut these institutions down, I suspect this is based on the very emotional reactions we've seen to the issue here, and they thereby deprive others of access to this economic tool. Did they achieve whatever goal they envisioned by doing so? Have the poor somehow been uplifted by having one less choice in their life of limited choices?

That's a question for them to answer, I guess. Though again, I suspect the emotional do-gooders simply carry on in smug satisfaction without asking themselves what their legislation actually achieved vs. what they think they've achieved.

There are two important conditions for a valid contract that I think are often overlooked. One is what we consider coercion and the other is the idea of equivalent information. There is certainly a market for short term, high interest, high risk loans. The question is when we can consider these contracts to be usurious by betraying the conditions of a valid contract. This is a political consideration, since there is bound to be disagreement. Pillorying the very idea that some of the payday loan practices might be usurious by accusing the opposition of operating too emotionally doesn't address any of the concerns about contract validity.

You can accuse some Oregonians of being 'know-betters' that are depriving fellow citizens of payday loans. On the same token, I am not sure that reading a couple of Sowell and Hoppe books means I know better than the Oregon demos what should count as usury, and what should count as valid.

[Hanarchy Montanarchy]

My argument is that if we can consider payday loans a tool to keep the poor from starving or having their power shut off (two conditions I didn't bring up myself, I might add), then we can make the case that they aren't 'freely' entering the contract.

You can live without power - ask the people who survived a hurricane or tornado. Check with a Puerto Rican.

I could have easily lived on Ramen noodles for three days. I chose not to. I got a quick $100, paid it back in 4 days - it was probably $120 or so. Easy decision. I paid $20 so I didn't have to eat Ramen for three days. (Or something like that.)

No deaths; just a choice I made freely, knowing damn well I was paying a price.

Would that all climates were as amenable to human comfort as Florida and Puerto Rico.

[DBTrek]

On the same token, I am not sure that reading a couple of Sowell and Hoppe books means I know better than the Oregon demos what should count as usury, and what should count as valid.

You have amazing faith in average Oregon legislators, if you think their knowledge of economics not only exceeds Sowell and Hoppe, but also believe that their predictive powers of where "usury" begins are superior to allowing the market forces of supply and demand set price points.

Those have to be the most unbelievable representatives in the world. In fact, with those powers of prognostication they may simply be the most gifted humans in the world.

... but having been to "we aren't competent to pump our own gas, Oregon" multiple times, I find that possibility extremely unlikely.

[heydaralon]

As an aside, is there anyone who actually thinks that payday loan places are in danger of going out of business, whatever politicians say? ... The people who are against payday loans have less political clout than a dustmite's asshole.

Right.

There are 12 states in the country where payday loans are completely banned, but there are many more in which the industry is restricted in some way or another. In fact, only six states have no cash advance interest ceiling whatsoever.

Those states that prohibit payday loans altogether are:

• Arkansas
  Arizona
  Connecticut
  Georgia
  Maryland
  Massachusetts
  New Jersey
  New York
  Pennsylvania
  North Carolina
  Vermont
  West Virginia

. . .

...All other states have payday loan laws that that limit their usage and lender practices in some way or another. Most of these limitations regard the amount of interest or fees that lenders may charge borrowers. Other limitations include the amount of times a borrower is permitted to “rollover” their financing.

Only 45 out of 50 states restrict or outright ban payday loans, but you know, their political foes have no traction. So why don't I talk about the 4th Amendment in my thread on economics and stuff?

Years ago, I had a friend that used to work debt refinancing. He dealt with people who had multiple cards with interest rates that were approaching 30%. He told me about a guy who had 32.99 which I didn't even think was legal (I guess it was a penalty rate or something this was awhile back). Sears' business model is basically just issue cards and rake in the interest. Don't worry dude, there are plenty of banks that are happy to step in and help solve this problem. I'm not even disagreeing with you on this issue. I just don't think we will ever get to a point where the poor won't be able to find an entity that will give them money and loans for less than generous terms.

This is neither here nor there, but I remember reading about some of those adjustable rate loans that were being given to people that made me look like Warren Buffet before the housing crash. People with no income whatsoever. If banks could find a way to get these people mortgages (and when I use myself as a favorable financial comparison you are really up shits creek), then I'm confident that they will find a way around laws banning relatively small loans. Apparently, these payday places have started opening up on Indian reservations as well to get around local laws. Title loans are another option too. Something crazy like 1 in 16 Americans use payday loans. This isn't something that they are gonna just lay down on. The earning potential is enormous, and banks will ride this cart till the wheels fall off. Worrying about the end of pay day loans and usury is like worrying that in the future girls won't be able to sell their bodies for money.