Arkansas kicks out pay day lenders

[Balog]

Just heard it on the radio. Apparently the Arkansas Constitution has a clause against usury? Interesting.

Anyone else heard of this? Any thoughts?

[Standing Wolf]

Yet another government intrusion into matters that are none of its business.

[makattak]

Yet another government intrusion into matters that are none of its business.

Actually, although this is not the federal government's business, I have no problem with state or local governments getting involved with this.

People can vote with their feet in that case.

[Gewehr98]

Wisconsin is getting really close to doing the same.

500% interest?  OMG.   

[Balog]

This does seem kind of a states rights issue. On the one hand, yeah .gov interference in the free market. On the other hand, those places have zero redeeming qualities so I find it hard to care.

[charby]

Wisconsin is getting really close to doing the same.

500% interest?  OMG.   

I have a friend who owns a payday lending company. I asked him about the high interest but he said that was an apr rate and most folks pay their loans off in less than a month, so the actual interest if lower.

He also told me it is cheaper for folks to borrow $200 from him then to pay the fees banks charge when check bounce. He said banks are behind getting legislation changed to prevent pay day lenders, banks want their $20-50 per bounced check fees.

Makes sense to me.

[Gewehr98]

I would've thought that the banking regulations already on the books would come into play, but evidently, there's a loophole being exploited.

On one hand, nobody's forcing these people to do payday cash advances, but on the other, they're targeting a particular demographic with those horrendous 500% interest rates.

More here:

http://www.madison.com/tct/news/stories/460813

[Declaration Day]

This does seem kind of a states rights issue. On the one hand, yeah .gov interference in the free market. On the other hand, those places have zero redeeming qualities so I find it hard to care.

I live near Detroit, where if you blink while driving you'll miss five of those places.  While I think their practices are predatory, I can't support a law against them.  If someone is irresponsible enough to sign up for that "deal", they get what they deserve.

[freakazoid]

If I remember correctly we, those of us in the navy, are actually not even allowed to go to one of those pay day lone places.

[Gewehr98]

For good reason, Freakazoid.

Ever notice how many are located really, really close to a military installation?

[erictank]

Wisconsin is getting really close to doing the same.

500% interest?  OMG.   

Whoa!  And I thought ol' Charlie Falk, The Enlisted Man's Friend in the Hampton Roads region, was bad!  Ship's Legal Department had a brief for new arrivals, back when I was in the Navy, with a redacted contract from one of Mr. Falk's area dealerships.  APR for the car loan was, IIRC, 38% - mere PEANUTS compared to one of the payday-loan places!

[MicroBalrog]

Actually, although this is not the federal government's business, I have no problem with state or local governments getting involved with this.

People can vote with their feet in that case.

Lochner v. New York had a very good reasoning against this.

[AmbulanceDriver]

Well, Oregon recently (iirc) put in a cap on the interest that payday loan lenders can charge.  Actually, pretty sure it's a cap on any lenders interest rate.  Frankly, I don't agree with the cap.  I don't like the payday lenders, but a) I've never found myself in the position to need their services, and b) no one is forcing people to borrow from them.  If someone really wants to pay 500% interest on a loan, and they're such a bad credit risk that no one else will lend to them, then so be it.  As an interesting sidebar, the payday lenders said that when the cap was being debated if it were enacted it would drive them out of business, make them stop lending to people who had no other choice, blah blah blah.  There's just as many payday lenders out there right now as before the cap was enacted.  What a shock.

[brimic]

I have a friend who owns a payday lending company. I asked him about the high interest but he said that was an apr rate and most folks pay their loans off in less than a month, so the actual interest if lower.

He also told me it is cheaper for folks to borrow $200 from him then to pay the fees banks charge when check bounce. He said banks are behind getting legislation changed to prevent pay day lenders, banks want their $20-50 per bounced check fees.

Makes sense to me

Banks must have been behind the instantaneous check clearing/cashing too.

Back when I was in college, I was able to carefully kite checks to places like Kmart to come up with an extra $20 of drinking money until my paycheck from the factory came in later in the week.

[Firethorn]

If I remember correctly we, those of us in the navy, are actually not even allowed to go to one of those pay day lone places.

You're actually still allowed to go there, it's just that they can't legally issue you a loan with an effective apr above 36%, including all issue fees and such.  The payday places have mostly decided that 36% isn't enough for them to make money, and now decline to do business with military.

Other things affected are those tax refund advance loans - many of them were effectively above 100% because they only get you your money back a week or so early, and charge a couple percent.

The problem with those huge interest rates is the fear that somebody can get into trouble, borrow a bit of money, then quickly find themselves in a hole worse than getting money from the old loansharks would have been.

Saw an article where a NCO was going around to a bunch of different places and getting loans to pay off PD1 with money from PD2.  He burned through like $10k over the course of a year - for an initial loan of only $1k.

500% interest is LOW compared to what some PD places were charging.

Of course, my concern is that payday loans, much as I wouldn't touch one with a hundred foot pole, DO have a legitimate place in business, it CAN help those who get them.  It's just that they're very, very dangerous and those that can use them responsably are also the types who can get better terms.

[Headless Thompson Gunner]

You're actually still allowed to go there, it's just that they can't legally issue you a loan with an effective apr above 36%, including all issue fees and such.  The payday places have mostly decided that 36% isn't enough for them to make money, and now decline to do business with military.

This, I think, is an interesting point.  Given the nature of these payday lenders, the incredibly short duration of the loans, and the extreme riskiness of the typical borrower, I bet it's very difficult to break even and make a profit without charging multi-hundred percent APRs.

Run the math.  500% APR is a bit less than 10% per week, so a $300 one week payday loan at 500% results in an interest payment of less than $30.  For 30 clams, the payday business must cover all of the costs of issuing the loan: administrative, overhead, default risk, collections, the time value of the money, and still have enough profit leftover to justify operating the business.  Seems like a tall order.

Is it still usury if the loan really does require that much interest just to cover the basic costs of issuing the loan?

[Firethorn]

Is it still usury if the loan really does require that much interest just to cover the basic costs of issuing the loan?

Thus my point that paydays DO have a place, but I'll point out that credit cards manage to fill that niche as well, and they mostly don't charge 36%, much less 500%.

Including merchant fees, I figure my credit card company averages 24% off of the money I borrow and pay back to them each month.  I cycle most of my spending through the card.  I don't pay interest, they pay me a bit to use the card.

On the other hand, I wish I still had that application for a bad credit credit card - over $400 in fees, for a card with a $500 limit. I laughed and tossed it after reading it in a sort of sick fascination.

[roo_ster]

Yep, some folks are such a risky borrower that you need things like 500% APR.

[Headless Thompson Gunner]

It's not just the rate, it's the duration of the loan.  No matter how high the rate is, as the duration of the loan approaches zero so does the interest accrued.

[AZRedhawk44]

It's not just the rate, it's the duration of the loan.  No matter how high the rate is, as the duration of the loan approaches zero so does the interest accrued.

500% annual comes out to around 41% monthly.

I used one of these guys, once, back in college.  Needed rent money.  Borrowed $500.  It took 2 months to get them off my back.  It was really, really, tough, since my income was only about $600 a month.  I don't think the interest rate came out to 500% annual... IIRC it was "only" about 200% annual.  It cost me $50 or so in interest fees over that 2 month period.

[Headless Thompson Gunner]

Maybe I misunderstand how payday loans work.  I thought the idea was that they'd front you a few hundred dollars to carry you until you get your next paycheck, which would be within a week or two.  I didn't think they were supposed to be used for loans that would take multiple months to pay off.

[Firethorn]

Maybe I misunderstand how payday loans work.  I thought the idea was that they'd front you a few hundred dollars to carry you until you get your next paycheck, which would be within a week or two.  I didn't think they were supposed to be used for loans that would take multiple months to pay off.

They're not, but, well, if your income is so low that you need one, how likely are you to actually have the money to pay them off?

IE if your income is $1100/month, and you spend $1000/month normally, but have an emergency that you need $500, you can't just drop your expenses by $500 to pay it off on time.

And the lenders are perfectly willing to roll over, renew, or issue a new payday loan to cover the expiring one, using your spare $100 to pay the interest/fees.  Some places the borrower simply goes to lending place B to pay off A, then C to pay off B, etc...

[AZRedhawk44]

They're not, but, well, if your income is so low that you need one, how likely are you to actually have the money to pay them off?

IE if your income is $1100/month, and you spend $1000/month normally, but have an emergency that you need $500, you can't just drop your expenses by $500 to pay it off on time.

And the lenders are perfectly willing to roll over, renew, or issue a new payday loan to cover the expiring one, using your spare $100 to pay the interest/fees.  Some places the borrower simply goes to lending place B to pay off A, then C to pay off B, etc...

QFT.

My $600 a month income and $500 payday debt was a horror.  I only used the service once, but I had to re-use it to finance the debt for 4 paychecks.  I ended up picking up extra work on weekends at a day labor center in order to pay it off.

I'm glad it was there when I needed it, but it's something you HAVE to bust your hump to pay off.  Some people don't bust their hump and they just get in really deep, and the payday loan store is usually the last place left to get any credit... before people hit the bottom of the barrel.

I think attacking the payday lenders is fighting a fire with a squirt gun, though.  It still boils down to consumer culture rather than saving culture.  We were much stronger in the 40's and 50's than we are now... and we were a saving culture then.

[Firethorn]

I think attacking the payday lenders is fighting a fire with a squirt gun, though.  It still boils down to consumer culture rather than saving culture.  We were much stronger in the 40's and 50's than we are now... and we were a saving culture then.

I'm willing to bet that you'd have had to bust your hump a whole lot less if you'd done it BEFORE the expense occured that had you visiting the payday place.

We don't need a saving culture so much as we need an investment culture.

[cassandra and sara's daddy]

Banks must have been behind the instantaneous check clearing/cashing too.

Back when I was in college, I was able to carefully kite checks to places like Kmart to come up with an extra $20 of drinking money until my paycheck from the factory came in later in the week.

now banks are doing the kiting.  they caon and do clear your stuff fast. unless you deposit a large check then they play the 5 day hold game.  quite amusing when you have acess for both accounts and see how quickly the checks actually clear