Payday Lending – Some Thoughts

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Dave

Dave is a part-time blogger that writes about whatever suits him at the time.

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270 Responses

  1. Avatar Mike Schilling says:

    Way too much nuance. Can’t we skip directly to “scumbag exploiters” vs. “heroic entrepreneurs”?Report

  2. This is an awesome post, Dave. Pure awesome. You got around to answering just about every question I was going to ask.

    My view is that it’s hard not to look at payday lending as a symptom of larger problems. And that either abolishing payday lending or regulating it to the point that they can’t do what they do doesn’t fix much, and would as likely as not make things worse for the people they are helping.Report

  3. Avatar zic says:

    This is awesome.

    And I want to know: do you curate sharks?

    In the previous thread (somewhere, it was long,) I’d posted a link to a Federal Reserve Bank study which reported on the geographic locations of Payday lenders (also pawn shops), finding concentrations in areas typically underserved by regular banking institutions; so financial-service deserts. I am curious if there’s some overlap with neighborhoods redlined by the mortgage industry, as well. I’ll go dig that link up if anyone wants.

    Thanks, Dave.Report

    • Avatar Jaybird in reply to zic says:

      One of the things that these payday lenders also have going on is that they are open late. Like, 9PM (or later!) and they’re open on Saturdays, Sundays, and (some of the dinkier) Holidays. They can go pretty much anywhere (I’ve seen them in strip malls in lots that previously held sandwich shops).

      They’re a lot more mobile than banks.Report

      • Avatar zic in reply to Jaybird says:

        I did a spate of reporting on Pay Day lenders about a decade ago for a bunch of mags I wrote for because they were sprouting up like weeds around military bases, and they were having a lot of trouble with active-duty folk getting in over their heads.

        One of the problems was how they moved around; it actually made it difficult for to track who the businesses were (this from brass on the bases in question), and in some instances, for borrowers to repay outstanding loans because the offices moved without notice. I heard a lot of stories about lenders searching out people; pitching the stuff. It was pretty aggressive marketing; not wait until the person came to them, but sussing out who might make a good mark.Report

        • Avatar Dave in reply to zic says:

          I heard something interesting about payday loans to military personnel. Closed-end payday loans were capped at a 36% interest several years ago (under the Military Lending Act). While it basically shut down the market for closed end loans, it appears lenders switched over to open-ended lines of credit with APRs that are higher.Report

    • Avatar Dave in reply to zic says:

      You’re welcome. Tod was kind enough to add the graphic. I’m not smart enough to be that creative.Report

  4. Avatar Mad Rocket Scientist says:

    Excellent work! I actually ignored a customers phone call so I could finish reading this!

    (OK, not really. I ignored his call because I didn’t want to talk to him right now, but I was reading this when he called.)Report

  5. Avatar Lyle says:

    So you would rather have the person go to the local loan shark, (who still exist and would come back), and has absolutely no regulation? I suspect some drug gangs might see loan sharking as a nice way to launder money. Of course the loan shark can take actions such a breaking legs that payday loan companies can not. Once you move to an illegal market there are no rules. Loan sharks existed before the payday loan companies, and will continue. It becomes which predatory lender do you prefer.
    All I can see doing is requiring the terms to be spelled out in large type, and a warning about the consequences and the like on the documents.Report

    • Avatar Pierre Corneille in reply to Lyle says:

      Lyle,

      I agree with your last sentence, or something like it, to make more information available to customers. I also agree with the spirit of your preceding sentences, such that bans are likely to do more harm than good. I will say, however, that Dave doesn’t seem to be arguing for bans.Report

      • Avatar Dave in reply to Pierre Corneille says:

        Thank you Pierre.

        I am not arguing for bans for the same reason that Lyle does not want to see bans. At best, the reasons are pragmatic.

        I am aware of some research that has been done looking at North Carolina pre-and-post payday lending ban in order to see if people were better off. It’s gotten some controversy because the authors claimed that the state was better off with payday lenders. Predictably, the Center for Responsible Lending jumped all over it.

        I don’t have an opinion on that issue as I haven’t read the research, but this kind of research could be helpful in making the appropriate policy decisions. Just a thought.Report

    • Avatar Kimmi in reply to Lyle says:

      Lyle, says who that payday loan companies cannot act outside the law? I’ll grant you that the larger ones are unlikely to but… desperate people do things that they probably shouldn’t.Report

  6. Avatar Fernand Sarrat says:

    Can you please post comments on the outcome of the Committee’s vote?

    Does it make sense to compare an APR for a 15 or 30 day loan, with one for a 4 year car loan?

    Superb post.Report

  7. Avatar Jaybird says:

    I checked out one of those places a few years back for some reason or another (writing an essay? probably) and walked in thinking that I, personally, would pay about $10 if I needed $100 RIGHT NOW and picked up a brochure.

    Then I wrote something like how I thought it was actually $121 or something like that if I wanted to do that and I thought… that can’t be right. I can’t be remembering that correctly. Let me check the webpage… and it’s $128.

    That can’t be right.Report

  8. At the same time, people who call for tighter regulation of payday lenders should recognize that usury laws with the kinds of interest rate caps that I’ve seen proposed (i.e. The Center for Responsible Lending has proposed 36%) would put payday lenders out of business (if they aren’t shifting their focus to higher APR open-ended lines of credit).

    The idea isn’t merely to regulate payday lending but to pay attention to the broader issue of the needs of the unbanked and underbanked. A policy on the issue of economic inclusion so as to avoid the desperation and exploitation of the vulnerable altogether. Establishing a public option like postal banking would be one such step.

    (I made a point similar in the other thread so forgive the repetition if you’d seen it already.)Report

    • Avatar North in reply to Creon Critic says:

      Call me cynical but while I can, if I stretch my imagination, imagine an electoral liberal victory that would enable the establishment of rules that’d outlaw (or effectively make untenable) payday lending I can’t in my wildest dreams see the kind of majority that would be required to establish a publicly owned bank. Hell, even the more liberal countries don’t have such a thing. We can’t even establish a public option for healthcare (a service with enormously better optics).Report

      • Avatar Lyle in reply to North says:

        All you would do is take payday lending back where it used to be in the hands of the local loan shark. The loan sharks existed before the payday lenders and will exist long after them. If we can’t stop the drug traffic how are we really going to stop loan sharking if payday lenders are abolished?Report

        • Avatar LWA in reply to Lyle says:

          If we can’t enforce the drug traffic laws how are we going to enforce shoplifting laws?

          Laws become unenforceable when there is some critical mass of people who are willing to flout it- like the 55 mph speed limit.

          Would loan sharking be like the speed limit, or like shoplifting?Report

          • Avatar trumwill mobile in reply to LWA says:

            His drug trade analogy is better. Both the drug trade and loan sharking are illegal activities that restrict otherwise mutually agreed upon commerce. That doesn’t really apply to your examples.Report

      • Avatar Kolohe in reply to North says:

        Create 51+ credit unions where the membership criteria is being a resident of that state/territory.Report

      • Avatar Creon Critic in reply to North says:

        Hell, even the more liberal countries don’t have such a thing.

        There’s a long tradition of postal banking across the developed world. The US used to have a postal banking system, and some suggest moving into basic financial services as a strategy for helping the USPS (How to save the USPS).

        Liberals in the US are a little too timid in their aspirations, fighting rearguard actions over past welfare state victories rather than outlining what the welfare state should like like in the 21st century. Also, if you don’t ask you don’t get.Report

    • Avatar Fnord in reply to Creon Critic says:

      If we do that, then presumably payday lenders would go out of business all by themselves, right? If the public option served all the needs of the currently underbanked population, at less cost to their customers, there’d be no market.

      So, why focus on payday lenders at all? Focus your efforts on providing better alternatives for the underbanked. You don’t cut off a service that people feel like they need until the people themselves decide they don’t need it anymore.Report

    • Avatar James K in reply to Creon Critic says:

      The trouble is that the reason these folks are unbanked is that they’re too risky for the banks to touch. Sure, you could offer them better-than-market credit with a government bank, but that’s just a huge subsidy on their borrowing. If you want to transfer money to them, you’d be better off doing so directly.Report

      • Avatar Creon Critic in reply to James K says:

        If you want to transfer money to them, you’d be better off doing so directly.

        I’m for direct transfers. Negative income tax, fine with me. The UK’s child trust funds, excellent policy (unfortunately, now repealed). Guaranteed minimum income, redistribution, pre-distribution, all have my support.

        That said, if this were a logic problem you’d be 100% correct. But this is politics. Unfortunately the persistent pattern of carving up the low wealth/low income population into deserving and undeserving, and the tendency to gin up resentment towards the low wealth/low income altogether, means that universal services, direct provision of services, indirect provision of services, and steering resources through regulation are all tools advocates have to use.Report

      • I think “unbanked” and “lacking access to credit” can be disentangled. I don’t necessarily endorse easy credit for the uncreditworthy, and I do tend to support transfer payments, maybe a negative income tax, depending on how it’s implemented. (If it’s only a yearly thing, like a more robust version of our earned income credit, I have my doubts about whether it would work very well).

        But another problem with being unbanked is simply not having a place to cash checks without having to pay a check-cashing fee and to store money. Banks, at least those in the U.S., won’t give checking accounts to some people who might, in the banks’ opinion, not use them wisely (that is, people who will overdraw so much without making good that the bank will have to charge off the owed amount). Savings accounts might be a different story. And as Zic mentioned, “bank deserts” can be a problem.Report

      • Avatar Kimmi in reply to James K says:

        I like free loan societies.
        Because there’s nothing like “Yo mama says pay up, child”Report

  9. Avatar Tod Kelly says:

    I said this earlier, but it deserve to be said here publicly: This was a fantastic post.Report

  10. Avatar LWA says:

    As with all these sorts of discussions, we need to establish right off, that payday loans only exist at the permission of the taxpayers, who provide them with the service of enforcing their contracts.

    So the taxpayers are completely entitled to ask what we get out of this bargain.
    Do payday loans provide a tangible benefit to our economy? Do they have costs which offset this benefit?

    On balance, do we believe it is in our best interest to continue to provide such a service to them?Report

    • Avatar Will Truman in reply to LWA says:

      See, this is where liberalspeak can just creep me out. I get the point LWA is getting at here, but I’d like to think that there is a less creepy way to put it than “Commerce exists at our pleasure, subject. Demonstrate your worthiness.”Report

      • Avatar Jaybird in reply to Will Truman says:

        So the taxpayers are completely entitled to ask what we get out of this bargain.

        There are quite a few essays I could see this sentence showing up in.Report

      • Avatar Mike Schilling in reply to Will Truman says:

        It’s really the point of the usury laws. “Yes, you can write a contract that charges 700% interest on a loan, but the state won’t enforce it.” Payday loans are definitely usurious and moreover, as dave pointed out, the business model still only works by predation (usury is insufficient to turn a profit.) So, yeah, I have no problem with letting the state (or, as it’s also known, the people) regulate this part of the market, possibly out of existence..Report

      • Avatar Stillwater in reply to Will Truman says:

        There is a better way. I don’t know that focusing in Government Dispensation is the most effective way to highlight the concern since it assumes that government has an open-ended authority to regulate firms practices. But it’s also sort of true, if the payday lender is a corporation. That means they only exist because of … well … a Dispensation.

        It’s probably better to focus on social utility given all the other stuff.Report

        • Avatar trumwill mobile in reply to Stillwater says:

          While it’s true that businesses exist at the pleasure of the government, playing that as a card for regulation is creepyland. The assumption should always start with the ability to exist and then challenged only in the event of significant social harmReport

          • Avatar LWA in reply to trumwill mobile says:

            The fact that it seems creepy to you is what I think makes it all the more important to emphasize, so as to make known that underlying truth.

            How often is it openly acknowledged that every contract has 3 parties, the Buyer, Seller, and Adjudicator?

            Even on political blogs that specialize in political theory, it is most often hidden- the discussions always start with the premise that all contracts must be enforced, unless fraud or coercion can be proven.

            I think its important to keep stressing, over and over, that the taxpayers have a stake in all transactions, and are entitled to assert that.Report

            • Avatar Will Truman in reply to LWA says:

              I think its important to keep stressing, over and over, that the taxpayers have a stake in all transactions, and are entitled to assert that.

              I don’t think the adjudicator’s role in a contract or transaction in and of itself should entitle it to intervention barring much stronger arguments against the contract or transaction than the adjudicator’s role in it. I find the notion that there should not be a strong assumption that the adjudicator allow people to conduct business as they see fit to be very problematic.

              None of this necessarily leads to the conclusion that the government shouldn’t prevent some loans from being issued, some products from being sold, and so on. Just that the role of the government in the transaction – a role the government has in every transaction – is not the salient issue. It’s basically arguing that “I can” when the argument ought to be “How justified would I be?”Report

              • Avatar LWA in reply to Will Truman says:

                I agree, actually.
                Once we make the point that the taxpayers are not obligated to enforce any old contract, no questions asked, then we can balance the needs and interests of society against the needs and interests of the other participants.

                We can start with the premise that the taxpayers should, as a general proposition, encourage a wide variety of contracts, and encourage a wide freedom in how they are structured.
                But we need to always keep in mind why this is so- this liberty in the long run has a beneficial effect on all of us, and when it doesn’t, we should rethink the ground rules.Report

            • Avatar Murali in reply to LWA says:

              Not in the ordinary sense. There is a sense in which the basic institutions of society should be to everyone’s benefit. I am on board with that. But this does not mean that society can arbitrarily veto voluntary arrangements people have with each other. So, I’d disagree with entited to have a say part.Report

    • Avatar Creon Critic in reply to LWA says:

      Exactly. Do these business practices comport with our values? I’d argue taking advantage of people in desperate circumstances is not something we ought to countenance. Contracts made with these huge power differentials deserve, at the very least, close attention.Report

      • Avatar Roger in reply to Creon Critic says:

        “Do these business practices comport with our values?”

        Do we all have the same values? If we have different values, is it worthwhile to coercively force our values on those disagreeing with us?

        Conservatives intolerantly want to determine which movies and magazines I can see. Liberals want to intolerantly tell me what kind of loans I can get or what wage I have to earn. Both promise me it is for my own good. I disagree.Report

        • Avatar BlaiseP in reply to Roger says:

          Relax, Roger. The Liberals don’t want to tell you any such thing. If you want to shovel trash for crap wages and all the garbage you can eat, we will not deny your masochistic urges for self-mortification. If, however, your gambling debts become accounts receivable with Miguel el Usurero, you are not the only one affected. El Usurero’s activities have an impact on the entire neighbourhood, him and his crooked deck and his forcing your daughter to turn tricks to pay your debts.

          I thought you guys were against Force ‘n Fraud. But it’s easy to see why you’d take such positions. Hypothetical threats aren’t actually dangerous. Must be nice to live in a world where lions lay down with lambs.Report

          • Avatar James Hanley in reply to BlaiseP says:

            If you want to shovel trash for crap wages and all the garbage you can eat, we will not deny your masochistic urges for self-mortification.

            Since when are liberals up for repealing the minimum wage? Last I knew they wanted to increase.Report

            • Avatar BlaiseP in reply to James Hanley says:

              Will all that garbage you’ll be eating count as taxable income?Report

              • Avatar James Hanley in reply to BlaiseP says:

                Cowardly Lion ducks issue, America unsurprised.Report

              • Avatar North in reply to James Hanley says:

                I’d like to interject here that I’m utterly ecstatic you’re both commenting but that you two (local) titans of your respective spheres can sometimes throw off sheets of fire when you clash and ya both end up being displeased with the final outcome. I suspect this is budding to be one of those clashes.

                Also are either of you considering Chicago? I’m having a hell of a time getting my schedule to align but if either of you are gonna be there I will need to treble my efforts.Report

              • Avatar Dave in reply to North says:

                North,

                I like your style. Can I deputize you? 😉

                Guys, what North said. I’m not pointing fingers but I can see how things get real ugly real fast. I’d rather not have to step in the middle of that when it gets to that point.

                As always, if anyone has any concerns, I am reachable via email. I’m much more likable in private correspondence. 😉Report

              • Avatar North in reply to Dave says:

                I dunno Dave, I’m an okay commenter but a terrible regular. Additionally I’m not around reliably. Also I don’t know if my lefty sensibilities could tolerate me working for the man.Report

              • Avatar Dave in reply to Dave says:

                The man? Me?

                Is it the pink ties?Report

              • Avatar North in reply to Dave says:

                The propeller through your nose is a dead giveaway. The military industrial complex gave it to you didn’t they?Report

              • Avatar Dave in reply to Dave says:

                I’m a sucker for the Flying Tigers, what can I say?Report

              • Avatar James Hanley in reply to Dave says:

                Sorry, Dave. I’ll go away for a while again. I just have a visceral reaction to people who lie, and the claim that liberals don’t care if people work for crap wages is a bald-assed lie. North, Stillwater, LWA, Shazbot, Jesse, Elias, Ethan, etc, I don’t think there’s a one of them who would try to pass off such a lie. Seemed like someone needed to point it out, and I’m just the kind of jerk to do it.Report

              • Avatar Dave in reply to Dave says:

                James,

                Actually, if you had anything to say about my post and wanted to discuss it, I’d be interested in hearing from you. I was hoping I would see you do that. No big deal if you won’t or can’t but just saying.

                No need to go anywhere. I just have a sense of history and would rather two people not get into the sort of situation that they have in the past is all. You addressing my post certainly qualifies, but again, only if you want to.Report

              • Avatar Shazbot5 in reply to Dave says:

                James,

                I hope your still around.

                I think Blaise is not really a principled liberal. I’d say his ideology is idiosyncratic. He’s a Blasist. (Much like his historical namesake.) He often, not just occasionally, says things that I don’t recognize as being remotely liberal, and I think he’d agree.

                I think those on your list are willing and would greatly enjoy to dispute you on fair terms, and are willing to apologize if and when the converstion goes sour. Blaise deploys a certain rhetoric that isn’t amenable to real debate. It cuts off debate. That can be fine if you want to persuade an audience, but I recommend ignoring it if you want, like I do, to engage in the kind of Socratic devate where everyone involved learns.

                Hopefully you come back fulltime soon.Report

              • Avatar Michael Drew in reply to Dave says:

                If for some liberals,

                some crap wages ? $7.25 (or desired min wage) ? other, still crap, wages

                then it seems to me it’s possible that

                If you want to shovel trash for crap wages and all the garbage you can eat, we will not deny your masochistic urges for self-mortification

                is not necessarily a bald-assed lie. Maybe a quarter-truth with a receding hairline or something. We’ll let you shovel trash for crap wages and all the garbage you can eat, just not for any crap wages. Above the table, that is.Report

              • Avatar BlaiseP in reply to North says:

                I won’t be going to Chicago. Allow me to rephrase that. Hell no, I won’t be going to Chicago.Report

              • Avatar North in reply to BlaiseP says:

                Fair enuff.. you’re close to the gulf right now aren’t you? I vaguely recall you mentioning the weather around there.Report

              • Avatar James Hanley in reply to North says:

                North,

                I’m not really back, just got bored today and was amused to see typical suspect spouting typical untruths. But the missus and I plan to be in Chicago, and she’s much nicer than me.9Report

              • Avatar North in reply to James Hanley says:

                And now my efforts must treble. *sigh*Report

              • Avatar Kazzy in reply to James Hanley says:

                Been wondering where you were, Hanley. What’s going on?Report

              • Avatar James Hanley in reply to James Hanley says:

                Kazzy, congrats on little Mayonaisse! I was going to say so privately, but I’ve lost your email. The wife and I are delighted for you and your missus.Report

              • Avatar Mike Schilling in reply to North says:

                Though if they’re both going, well, it’s a city that’s already burned to the ground once.Report

              • Avatar Stillwater in reply to James Hanley says:

                Well I had this nice comment written before North and Dave jumped in and I’m debating whether to post it, and thought, Oh what the hell.

                James, yaknow what’s a sufficient response to someone you disagree with? A clear, concise, objectively-phrased statement of why you think they’re wrong. Yaknow what isn’t? Voicing your impressions of that person’s faulty character or integrity.

                I mean, the whole issue between you two is dead already. Everybody knows it. You and BP don’t agree. About anything. So … why do you continue to prod him? Certainly not to get him to engage with you on your terms. He won’t do that, just as you won’t with him. Past history has demonstrated this again and again and again.

                And it’s clear you don’t like what I have to say either. That became abundantly apparent when you used a pseudonym to troll me in a ridiculously transparent effort to instigate me into fighting with you. Remember some of the phrases you used? They were real gems, my man! I might even post some of them so we can relive 975 in all his glory. I’ll give you points for that effort, James – cheesy tho it was – but in my mind it was an embarrassing display of immaturity and unprofessionalism. And also, I might add – given that this seems to be an argumentative device of yours – evidence of a person lacking in character. Why the pseudonymous trollery James??

                Fact is, when you’re on your game, you’re one of the best commenters in the Tubes. You rebut arguments, challenge points of view, inspire people to think outside their own presuppositions. But that doesn’t seem good enough for you. It seems to me that lately you feel affronted if people who you’ve been debating with for a while continue to disagree with you. So you’ve reduced yourself to making it personal rather than about the arguments.

                Take all that for what it’s worth, of course. I really wish you hadn’t become the fishing douchebag you are now because the site is better with a healthy James Hanley around. But it’s up to you to recognize where you’re at and deal with it. Or not. I wish you the best of luck.Report

              • Avatar James Hanley in reply to Stillwater says:

                Stillwater, too much to answer there. You’re part of the reason I pulled back my involvement. Things like thinking someone who dares to challenge you is trolling, always blaming any disagreement on the other’s bad behavior while playing the role of the babe-in-the-woods innocent. I got tired of that shit.Report

              • Avatar James Hanley in reply to James Hanley says:

                For the record, I went pseudonymous because my name has become a label to the extent people respond to the label more than my actual argument (and no doubt I do the same to others, unfortunately). As much as I enjoy the known relationships with one folks, if I do comment here again, it may mostly be pseudonymous. If anyone doesn’t like it, ask the powers that be to let me know it’s not kosher. But most folks here are pseudonymous, including, ironically, the guy above who’s criticizing me for hang gone pseudonymous.

                Also for the record, I scoff at Stillwater’s claim that I trolled him. He criticized the author (James K, was it?) pretty strongly, then reacted very defensively, and resorts to calling it trolling, when critiqued himself.

                So there’s a couple of applications of the double standard by Stillwater.Report

              • Avatar James Hanley in reply to James Hanley says:

                Actually, a third. In a post where he says I shouldn’t address another person’s character, Stillwater addresses my character. It’s too amusing in it’s hypocrisy to even bother being offended. 😉Report

              • Avatar Michael Drew in reply to James Hanley says:

                James,

                Would it be possible to point out someone’s propensity to move from substance to character and express a wish it were otherwise without being guilty of some quantum of hypocrisy? I’m not sure it would be and if not, I don’t think that should take that observation off the table. A person might just have to bite that bullet in order to get the point made and let the chips fall.Report

              • Avatar Jim Heffman in reply to Stillwater says:

                “Yaknow what’s a sufficient response to someone you disagree with? A clear, concise, objectively-phrased statement of why you think they’re wrong. Yaknow what isn’t? Voicing your impressions of that person’s faulty character or integrity. ”

                And then you say…

                “I really wish you hadn’t become the fishing douchebag you are now because the site is better with a healthy James Hanley around.”

                I mean, do you even hear yourself anymore?Report

              • Avatar Dave in reply to Jim Heffman says:

                The only place where a conversation like this one can go is into a pissing contest. Therefore, I respectfully ask that no one make any additional responses in this sub-thread.

                If I wasn’t too lazy, I would have already deleted the last 20 or so comments.

                Jim, so you know, I’m not upset with you nor calling you out by name. I’m trying to prevent a headache. If I wasn’t so lazy, I’d delete every one of the last 20 or so comments.Report

              • Avatar Mike Schilling in reply to Jim Heffman says:

                (Feel free to delete this if you think it’s unconstructive, Dave.)

                Everybody? It’s just a blog. Whatever anybody says about you here will not make your life any better or any worse. Winning an argument here won’t make you any richer, and losing one won’t lower your sexual attractiveness. If you’re not having fun, there is no reason for you to be here. Find something else to do that you will enjoy. Those of us who do stick around should all try to chill the fish out.Report

              • Avatar Michael Drew in reply to Jim Heffman says:

                +1 Schilling.

                I’ve made this point before and am glad it has reemerged. They key point is that we can all walk away immediately at any time. If you’re here it’s because you want to be. That should order how you internalize the things that are said here.Report

              • Avatar Shazbot5 in reply to Jim Heffman says:

                Wait this is a blog and not the Matrix?

                Then why am I wearing this leather jacket and cool sunglasses and skinny leather pants with my hair slicked down?Report

              • Avatar Shazbot5 in reply to Stillwater says:

                Wow, that was unexpected Stillwater.

                I’m not sure I read the incident that you are referring to, but I thought you two were pals who harshly disagreed.

                Oh well.

                I’m always amazed anyone wants to talk with me on the internet, largely because my comments usually irritate me when I make them. And I do find myself getting irritated a lot, too.Report

              • Avatar Dave in reply to BlaiseP says:

                Given the history involved here, I advise all parties to proceed with caution.Report

            • Avatar Kimmi in reply to James Hanley says:

              Minimum income from government, then repeal the minimum wage. Srsly.
              (am I no longer a liberal for thinking this?)Report

        • Avatar Creon Critic in reply to Roger says:

          Do we all have the same values?

          No.

          is it worthwhile to coercively force our values on those disagreeing with us?

          Yes. Isn’t living in a self governing society all about negotiating, among other things, precisely what legitimate impositions the community gets to make?

          Absent anarchy, or the state of nature perhaps, there is no position where values aren’t being imposed. Both answers to the alternatives you outline are imposing values. Conservatives determine the movies and magazines you have access to is one value, or alternatively, you determining the movies and magazines you have access to, another competing value.

          Sometimes I think that libertarianism is the constant discovery that the community has – legitimate! – power over the individual. The state can conscript you into its army and command you to fight and die in its wars. The state can quarantine you as Foucault’ so vividly describes in Discipline and Punish, observing all while canceling your freedom of movement and requiring regular reports on who’s alive, or not, in your household.

          Why does it come as such a surprise that the state can look at your employment contract or loan agreement and say, that’s void due to the predatory/exploitative terms? Really, it’s just another power that the state possesses. Not even the most impressive or dangerous power, just setting standards to prevent you being abused.

          And examining the other side of the equation, what’s the individual giving up when the state makes this intervention, I don’t see much worthwhile there. The ability of your employer or a corporation to mistreat you is not some grand autonomy that needs preserving.Report

          • Avatar Roger in reply to Creon Critic says:

            Thanks for the reasoned reply, Creon.

            “Isn’t living in a self governing society all about negotiating, among other things, precisely what legitimate impositions the community gets to make?”

            In my opinion this is a mistake. It turns into a destructive battle of wills where those on the left and the right try to force their intolerance on each other. Sometimes your side wins, sometimes theirs. We all lose though via the destructive arms race of intolerance. Instead, I offer a simple rule of thumb: where people’s actions don’t significantly harm others, allow them to decide which magazines to read and which gender to make woopy with and whom to borrow money from.

            It is none of your business who I sleep with or what terms I borrow at. No good comes of you trying to make it your business. Other than trying to rationally convince me. And if you can’t rationally convince me, then what does that say about your argument?

            “Absent anarchy, or the state of nature perhaps, there is no position where values aren’t being imposed.”

            Again I disagree. The ideal is to get us to agree voluntarily at the constitutional level. I agree to live under these rules with others playing by the same rules. The detail are off topic, but you probably get the point. I can agree to play by rules, without any imposition. If everyone agrees to play by the rules that you can’t sleep with same gender, then it is fine by me. They can build this into their constitution. I suspect that we won’t agree to this though, nor should we.

            “Sometimes I think that libertarianism is the constant discovery that the community has – legitimate! – power over the individual. The state can conscript you into its army and command you to fight and die in its wars.”

            I simply believe the ideal to strive for is that the optimal consequential outcome results from minimizing what is being imposed. The very fact it is being imposed implies that it is to the detriment of the party it is being imposed upon. Again, at the constitutional level, I am fine by saying that membership in this society requires fighting for the defense of the nation. Not that any of the wars over the last few decades have even remotely resembled that, of course.

            I am also fine with the constitutional rule that it is NOT OK to exploit, cheat, lie to, rape, steal or hurt another. The reason comes right out of basic game theory. Getting loans at terms a third party disagrees with rarely falls under this heading. Nor does who I sleep with.

            Let me repeat. Christians think it is for my own good that I don’t sleep with dudes. You think it is for my own good that I not be offered a job paying less than a certain amount. I disagree. If you can’t convince me, then you guys must force these intolerant positions upon me.Report

    • Avatar James K in reply to LWA says:

      As with all these sorts of discussions, we need to establish right off, that payday loans only exist at the permission of the taxpayers, who provide them with the service of enforcing their contracts.

      So the taxpayers are completely entitled to ask what we get out of this bargain.
      Do payday loans provide a tangible benefit to our economy? Do they have costs which offset this benefit?

      A bit like how since the government is the only reason you can leave your house without being assaulted or mugged, you should only be allowed to leave your house for reasons the government thinks are in the public interest?Report

      • Avatar LWA in reply to James K says:

        So having our contracts enforced, no questions asked, is a positive right we enjoy?Report

        • Avatar Mark Thompson in reply to LWA says:

          LWA – I think there’s a big problem that your argument on this doesn’t account for. Specifically, while you may well be correct that the “adjudicator” should be considered a part of every contract, I think your argument ignores what happens when the adjudicator is neither the government nor a third party whose decisions have the implicit weight of the government behind them (ie, an arbitrator). Sometimes in such circumstances, perhaps many times, the contract at issue doesn’t get made at all, which I think is essentially your desired result. But other times – especially in circumstances where one would-be party to the contract is desperate, or where demand for the good or service is otherwise inelastic – the contract will still be entered into as or more often than not, just without the government-approved adjudication. As your argument correctly implies, there still needs to be an adjudicator. But since the consumer of such contracts is willing to pay or do almost anything for the good or service, the supplier will get to appoint himself as the adjudicator.

          In such circumstances, the exploitation in the transaction not only fails to go away, it gets significantly, dramatically worse, as does the harm to society.

          That’s not to say that you don’t have a valid point – you do. It’s just that the point is not terribly useful in the circumstance of particularly exploitive contracts.Report

        • Avatar Jim Heffman in reply to LWA says:

          “So having our contracts enforced, no questions asked, is a positive right we enjoy?”

          It’s really weird how you’re using this as an argument *against* banks loaning money to people.Report

      • Avatar Mike Schilling in reply to James K says:

        A bit like how since the government is the only reason you can leave your house without being assaulted or mugged

        Poor analogy, I think, since you can walk unmolested almost every day with no government intervention required. Closer is that the government is where you go for redress if you are assaulted. Now, suppose you are assaulted after acting in a way that, while not by the letter of the law violent, amounts to inciting your assailant to act violently, and the government says “No, ordinarily we defend those who are attacked, but you were asking for it, and you knew you were asking for it, so we’re not going to stand behind your behavior by prosecuting that guy.” Could it ever be justified in doing so?Report

        • Avatar Jim Heffman in reply to Mike Schilling says:

          “you can walk unmolested almost every day with no government intervention required. ”

          Well, the chain of reasoning goes:

          1) violent aggression is the natural state of mankind.
          2) A functioning societal structure suppresses that nature through the threat of retribution and punishment by force.
          3) That force is wielded by an establishment which, at least in theory, sets itself above the concerns of individuals and looks to the good of society as a whole; which is as good a functional definition of “government” as you’re likely to find.
          4) Therefore, government is necessary for you to go outside without being mugged.Report

          • Avatar Mike Schilling in reply to Jim Heffman says:

            I don’t agree with 1. I mean, I don’t wake up every day ready to murder the next person that crosses me, held back only by the threat of consequences. I honestly don’t think you do, either.

            Agreed with 2 that a functioning societal structure is important, but that’s because it facilitates mutual rewards for cooperative behavior, which incents people towards acting better.

            For 3, sure, the thing that has the monopoly on approved use of force is a pretty good definition of government.

            But without 1 and 2, 3 makes government the thing you appeal to in the unusual situation that someone attacks you, not the thing that protects you every minute of your life.Report

  11. Avatar Troublesome Frog says:

    Brandon Berg:

    If payday lending is really “predatory” or “exploitative,” then they must be making very high profits, right?

    I usually like this argument (especially in my frequent discussions with a colleague about ATM fees that are “too high”), but I don’t think it quite holds here. I don’t think that tobacco companies, for example, make unusually high profits, but there’s a good argument to be made that they made their run-of-the-mill profits by selling a good that turned out to be a huge net negative to the consumer ex post.

    There’s “overcharging” people by charging way more than your cost. Competition makes that unsustainable. “Overcharging” people by charging way more than your service turns out to be worth is sustainable at normal rates of return given enough marks.Report

    • Avatar Stillwater in reply to Troublesome Frog says:

      Which in turn – if I’m understanding your argument correctly – makes exploitation and social utility the pivotal issues in the debate. And people disagree about that, yes?Report

      • I think “exploitation” is the strongest argument here. It’s the only one that really resonates with me. I’ve mentioned “social harm” a couple times, but the social harm most specifically would be exploitation.

        I still don’t think shutting these places down – either outright or through regulation that would cause them to withdraw – is a good idea. But it does make me more amenable to policies that would make these places redundant and unnecessary.Report

        • Avatar Stillwater in reply to Will Truman says:

          I agree with that Will. I’d also add that the concept of exploitation doesn’t have to entail exorbitant profits. Or any profits, for that matter. If we’re talking about a business practice, then profits are required, but that still misses the point.

          It’s entirely possible to exploit people even if there’s only marginal monetary gain. Profits are more or less irrelevant. And that’s because the practice of exploiting other people for financial gain is justified for a particular person or firm if (not only if!) their profits are better than any other reasonable alternative they are presented with.Report

          • Well, profits don’t matter on a moral level. They do matter on a practical level, however. With smaller profit margins, that takes some levels of remediation off the table. If we can’t demand that they lower their interest rates without driving them out of business, we have to take that into account.Report

            • Or, put another way, profit levels matter insofar as I think Montanans are made worse off by their decision to force unsustainable interest rates, a decision which drove payday lenders away. Which sort of leaves us in an odd place, where exploitation (or the ability to exploit) was better than the alternatives. Creon says we need to explore alternatives so that there is an alternative better than exploitation. I think that’s a good idea.Report

            • Avatar Stillwater in reply to Will Truman says:

              That’s a cost-benefit analysis, it seems to me. What lots of liberals are saying – and I’m pretty much in agreement with them – is that it would be better if people who avail themselves of payday lending services had an alternative that didn’t put the clamp on them.

              If the status quo is the market-oriented solution – and it is! – then maybe government has a role to play here.Report

              • That may be what some liberals are saying. What I see actually resulting from our animosity towards these lenders is something different. I am interested in what Creon has to say. I fear that, as someone else put it (Roger? Mr. Blue?), we’ll simply drive these places out of business and call it a victory for consumers.Report

          • Avatar Dave in reply to Stillwater says:

            I’m glad you agree. That was one of the key points I wanted to get across.Report

      • Avatar Troublesome Frog in reply to Stillwater says:

        I guess my question is, how many of their consumers walk away and say, “I’m glad I did that.” If the answer is that most of them do, I don’t see a compelling reason to worry. A valued service was purchased with profits at normal competitive levels. Win win.

        If most of their customers walk away saying, “If I knew then what I know now, I never would have gotten into the hole with these people,” then we’re not dealing with a healthy fully informed transaction, and maybe we’re better off losing the whole industry.

        My original point was just that you can have an exploitative situation without unusually large profits as an indicator. Middle of the road profit levels simply tell us that lowering prices into a range that we find less outrageous would probably drive the industry out of existence. But I don’t think that looking at the numbers alone tells us whether that would be a net win or a net loss.Report

        • Avatar Dave in reply to Troublesome Frog says:

          The answer to your question will depend on which side you ask. Personally, I have the sense that you’ll see more your second paragraph than your first.

          As I think I mentioned in my post, there are people that borrow from payday lenders, pay the loan in full upon the initial maturity and get what they need from the transaction. At the least, it is win-win for some people. My concern is that for a lot more people, this is not the case.Report

          • Avatar Fnord in reply to Dave says:

            Do you think it’s necessarily the case that only people who pay the loan off in full at initial maturity are walking away satisfied (that it helped them make the best of a bad situation, at least)? Is the mere fact that the loan is rolled over a strong sign that the customers feel “if I knew then what I know now, I never would have gotten into the hole with these people”?Report

            • Avatar Dave in reply to Fnord says:

              I would say that it’s a strong sign (not 100% definitive though) when multiple rollovers are involved (I don’t have a number but it needs to be quite a few). That’s where the critics of payday lending have focused their attention.

              If a customer rolls it over once or twice and gets out of it, maybe they’re not happy about having to roll the loan over, but there’s a better chance that they would be satisfied, at least based on the way I look at it.Report

              • Avatar Fnord in reply to Dave says:

                See, I don’t think that’s actually obvious for the numbers we’re talking about. People do rollover the loans frequently, given the short periods on the loans. But it doesn’t take them very long to repay them by the standards of conventional credit.

                Now, given the way most people use the loans, there might be an argument that marketing them as one-time products is deceptive, which might call for regulation on disclosing APRs and perhaps “if you take this long to pay off the loan, you’ll pay this much money” boxes like those required to be included on credit card bills.Report

              • Avatar Dave in reply to Fnord says:

                But it doesn’t take them very long to repay them by the standards of conventional credit.

                What standards are you referring to? I think that may be a bit too apples-to-oranges. That a payday loan can get paid off in six months where it takes someone else four years to pay off a car loan doesn’t seem to add much to the discussion. Perhaps you had a different idea in mind though.

                There’s the issue of deception which I did not spend a lot of time on in my post because I think the most troubling issues are the fact that the lenders for all intents purpose couldn’t care less about credit risk because borrowers can simply refinance out of an existing loan and the cycle continues.

                Given the low margins that payday lenders make, IMO there aren’t many regulations that would be effective AND allow them to continue operating. I think payday lenders are already required to make certain disclosures and follow truth-in-lending laws.Report

              • Avatar Fnord in reply to Dave says:

                I think the most troubling issues are the fact that the lenders for all intents purpose couldn’t care less about credit risk because borrowers can simply refinance out of an existing loan and the cycle continues.

                Except the cycle doesn’t continue indefinitely. The loans are paid off eventually (by most borrowers). And “eventually” isn’t even a very long time.Report

              • Avatar Fnord in reply to Fnord says:

                That first paragraph is supposed to be a blockquote.Report

  12. Avatar Shazbot5 says:

    I didn’t make it through the whole post, because I am really lazy.

    But I do think the government has a duty to and could run a program offering low interest loans to people in need of cash in the short term, that could be paid back through the tax code.

    You’d have to be careful about such a program. I’d actually start with a high interest rate to discourage borrowing, but after a certain period, it would become a very low interest loan that had to be repaid through the IRS, if avoided for too long.Report

    • Avatar Shazbot5 in reply to Shazbot5 says:

      Are payday lenders that much different from indetured servitutude or an old-school company store. (“You load 16 tons, what do you get? Another day older, and deeper in debt. St. Peter don’t you call me cause I can’t go. I sold my soul to the payday loans-people.”)

      Company store style arrangements (where you borrow money from the store to pay for goods, and the store gives you a wage, and loans you money, but you end up taking out more and more loans, until you are enslaved to the company through loans you’ll never pay off) should be illegal even if they survived and made only a small little profit and even if people unwisely entered into working for a company store.

      Sometimes people need to be protected from making a move that will save them in the present yet ruin their future.

      The fact that people have a need for such loans shows the intolerable degree of inequity in pur society that should be solved by other means.Report

      • Avatar North in reply to Shazbot5 says:

        Yes they’re quite different. With company towns you were purposefully paid less than the cost of living was through the company store so sinking deeper into debt was pretty much inevitable. While payday loans are structured to encourage you to take out another loan to pay the first there’s no requirement or compulsion forcing you to continue to become further indebted. The company town controlled both sides of the ledger: income, expenses and debts; the payday lenders control only one: debt, and that one only partially.

        To your proposal it bears noting that there would be enormous money and praise delivered to any company that could provide payday lending at lower rates, without trying to lure people into repeat loans so it’s safe to assume that a government lending program would be extremely expensive and quite likely a tangled inefficient mess on top of that. Frankly you’d be better off cutting out the whole lending shtick and just providing the money directly to the poor in transfer payments and aid. It’d be less disruptive, more of the money would get to the poor and it’d be better for the poor than fostering bad borrowing habits through some lending program would be.Report

        • Avatar Shazbot3 in reply to North says:

          You could avoid eating and keep working and escape the debt in a company store. Nobody was stopping you.

          You can’t do that? It’s too hard?

          Well, it’s also too hard to pay off a loan at usurious rates when you have a crap income. Some of the people who take these loans will just keep paying and paying and never catch up.

          Now they could avoid food and rent and life expenses, just like the company store person could. But people can’t really do that. It’s too hard to expect people to do it. Just like it was too hard to expect people to get out of the company store, even though it was technically possible.

          Same thing, just different in degree.Report

          • Avatar North in reply to Shazbot3 says:

            Shaz, this strikes me as absurd. The entire point of corporate towns was that you could not, even if you wished to, pay yourself out of debt. You could not cut back on your rent and food expenses enough, even if you lived like a monk, to pay your way out. That was pretty much the entire point. It wasn’t difficult; it was impossible. Especially since typically you were inheriting debt from your parents on top of that amount.

            Payday lending, enormous rates though they are, is not the same. You can, if you cut back on expenses heavily, pay it off. In fact that’s kind of the point of many of the more unscrupulous lenders business policies: to encourage/trick people who are capable of paying the loan off into instead rolling it over into another loan. You don’t do that if they have no choice. The corporate towns didn’t have to bother with these kinds of things, the workers were trapped and both parties knew it.

            Payday lending has its good side side and it most assuredly has it’s bad side. I think you weaken your argument badly when you ramp the immorality of it up to the level of company towns or slavery. I say that, I hasten to add, as a great fan of hyperbole.Report

            • Avatar Shazbot5 in reply to North says:

              “You can, if you cut back on expenses heavily, pay it off.”

              Easier said than done.

              I’ve been poor enough to go without food for a few days or miss rent checks. It gest so tiring that you lose willpower fast. You blame yourself for not being able to have more willpower to save more of your limited resources, but then you fail.

              The same was true of the company store. You could make it out in theory, but it required more willpower than most humans could summon.

              So too with the usurious loans. A poor person thinks they can pay the loan back, out of optimism and a faith that they can be superhuman and pay it off by denying themself food and TV or gasoline, but often time they can’t, and they take more loans out to pay off more loans. This is called “churning” and it is how most payday places make their money.*(Some people do pay off the loan andescape the churning, often with the help of friends. These are not the customers who the payday people are wanting to work with.)

              It’s like loansharking with a different kind of threat than broken thumbs. That’s all it is.

              “Our report, Phantom Demand, shows that it’s very common for payday borrowers to take out their next payday loan on the very first day on which state regulations allow,” said Leslie Parrish, senior researcher at the Center for Responsible Lending and co-author of the report. “Rather than serving as a bridge to get a borrower past a financial emergency to their next payday, the data clearly shows payday loans work more like a shovel into deeper debt.

              http://www.responsiblelending.org/media-center/press-releases/archives/phantom-demand-unfair-payday-loan-terms-generate-most-of-loan-volume.html#sthash.kISsHsOE.dpuf

              Notice the similarity: You shovel 16 tons, and what do you get? Another day older and deeper in debt.Report

              • Avatar North in reply to Shazbot5 says:

                Shaz, I am sorry but I still think you are flat out wrong about the company story. You could not make it out in theory. That was the point. You had to pay more to the company story to keep yourself alive than you earned working at the company mill or mine, thus the ever escalating debt. Hell, for many company towns you didn’t even get paid in legal tender; you got paid in corporate script that could only be used at the company store. Also of course there was no legal bankruptcy and in some places children inherited the debts of their parents. These are all things that payday lenders do not have (though doubtlessly the more crooked ones wish they did). I think that to try and make this comparison work you’re both hyping up the abuses of payday lending and whitewashing the abuses of the old paternalist company towns.Report

              • Avatar Shazbot5 in reply to North says:

                Well, that’s mostly assertion with little argumentation.

                You are overstating how bad company stores were. At the very least, it’s controversial. I’d take a look at this:

                Did Coal Miners “Owe Their Souls to the Company Store”? Theory and Evidence from the Early 1900s
                Price V. Fishback
                The Journal of Economic History
                Vol. 46, No. 4 (Dec., 1986), pp. 1011-1029
                Published by: Cambridge University Press on behalf of the Economic History Association
                Stable URL: http://www.jstor.org/stable/2121820

                Most company store mines issued pay in U.S. currency and issued scrip only as an advance on payday, a service which was rarely offered elsewhere. (p.1022) And many miners were actually highly mobile and could move from town to town if they disliked their work. Mines had to compete for miners, and many of the company stores (outside of the most isolated areas) had to compete with regular stores.

                Debt peonage was avoidable and not that common in any mine. (p.1023) This suggests that miners could avoid debt peonage with sufficient effort or luck.

                Nonetheless the mines were awful. If you fell on hard times, you could fall into debt peonage. At the time, people could’ve offered the same defense of the mines as you are offering here: you can avoid peonage if you have the right combination of drive, smarts, and luck. But the whole problem is that not everybody has that combination; even the smart get unlucky, and some -due to being dragged down by the psychological toll of poverty- don’t act all that smart. They are the ones that company stores and payday loans exploit, not the smart or the lucky or the exceptionally driven.

                —-

                Also, I think you’re understating how difficult it is to repay even a small loan at usurious interest rates if you live in the level of poverty that would drive you to take out such a loan.

                If people could repay the loans, they would. They can’t and so they don’t, so they have to keep turning over the loan, until they bust.

                IMO, churning might be worse than debt peonage in mines/company-stores. (Though the mining companies could be violent, which is of course, worse.) It certainly isn’t a whole lot better.Report

              • Avatar Fnord in reply to Shazbot5 says:

                If people could repay the loans, they would. They can’t and so they don’t, so they have to keep turning over the loan, until they bust.

                This does not appear to be consistent with the evidence presented. In most cases, it appears people keep turning over the loan until they can afford to pay it back.Report

              • Avatar Shazbot5 in reply to Fnord says:

                About 76% of all payday loan volume is churned loans. Obviously, if you make one loan to Mr.X and then you churn it 9 more times, you have made 10 loans and 9 have been repaid. So if one loan out of 10 of the total loan volume is defaulted, that still means a high percentage of borrowers eventually default.

                The actual number is 50% of all borrowers default. But the company has made so much on fees, they still profit.

                “Payday loans result in long lasting financial harm . The debt trap and loan churn inherent to payday lending creates great borrower harm. Nearly 50 percent of borrowers default on their payday loans, triggering more fees and placing their bank accounts at risk. These borrowers face potential court action, wage garnishment, or having their debt sold to a collection agency. Payday loan use is associated with higher rates of bank account closures, delinquency on other debts, or even bankruptcy.”

                http://www.consumerfed.org/news/512

                I suspect those that don’t default after the churning are bailed out by a family or got very lucky to get a good paying job that could deal with the debt. The social cost of this is likely very big.

                I recommend the above link. It also cites a paper about NC that empirically puts the lie to the claim that these loans do any good:

                “Research from the University of North Carolina supports the notion that the debt trap of payday lending creates so many long-term problems that borrowers are better off without having access to these abusive loans.[20] The study, which reviewed the impact of North Carolina’s rate cap that effectively eliminated storefront payday lending in the state, found that the absence of payday lending has had no significant impact on the availability of credit.[21] Moreover, it has made helped more households than it has harmed.[22]”Report

              • Avatar Fnord in reply to Fnord says:

                Well, alright then. I find that to be much better evidence of a problem than evidence of “churn” in the isolation, and based on that I’d agree that at least a significant minority of borrowers are left worse off (I’m still skeptical of the 50% number, though I think it’s in the 95% confidence interval).

                So with that in mind, I’d support more regulation, even beyond labeling requirements.Report

              • Avatar North in reply to Shazbot5 says:

                That’s a good catch, maybe company towns weren’t so universally bad. Now, I think you sort of are undermining your argument a bit here since you started out invoking populist horror at the abuses of company mines/stores/towns and then end up demonstrating that said populist outrage was perhaps overstated but it’s an excellent catch none the less.

                Last question from me. Assuming that political reality doesn’t change and that a government subsidized lending service is not politically possible (setting aside that Dave and I think it’d be massively inefficient and expensive and you think that Government could pull it off more humanely and more cheaply than private lending companies can) but that regulations that would effectively shut down legal payday lending is possible what would you prefer: that legal payday lending be ended via regulation or that, in the absence of a Government alternative, it be tolerated?Report

        • Avatar Dave in reply to North says:

          so it’s safe to assume that a government lending program would be extremely expensive and quite likely a tangled inefficient mess on top of that

          Mildly put. I imagine that collection efforts would be very bureaucratic, very expensive and recover very little. It’s a business ripe for being politicized too.Report

          • Avatar Shazbot3 in reply to Dave says:

            This seems like ungrounded pessimism that comes from a prior commitment to libertarian ideology not from evidence.

            Government and non-profits do many things better than markets. Maybe they do this better. Give it a shot in a state or two and see what happens.

            I looked to see if any first-world country had tried small loans for its citizens and couldn’t find any examples.

            Small loans have some advantages over and uses beyond welfare programs.Report

            • Avatar North in reply to Shazbot3 says:

              Well since I have no commitment to libertarian ideology at all that seems unfounded.
              There are tons of NGO’s and companies that do low value loans, mostly to developing countries. They come in two flavors: you have companies that use extremely high interest rates and all the unpleasant tactics Dave mentioned in his post (have you read it yet) to earn rather unremarkable returns or you have the NGO’s like Kiva which essentially treat the money as donations and don’t try to turn a profit to begin with (which is laudable).

              The basic point remains Shazbot, there are enormous rewards waiting out there for anyone who could set up a company that could simply lend to the poor at a modest interest rate and without abusive practices. They’d end up both rich and acclaimed. That no one has managed it yet suggests this task would be very hard. That government tends to do things more expensively than the private sector does is also pretty well known (note that there’re many things government does that the private sector shouldn’t or can’t do). I see no reason to believe that a brand new government bank of all things wouldn’t become a wasteful inefficient mess attracting both fraud and massive regulation en mass.Report

              • Avatar Shazbot5 in reply to North says:

                Has the fact that no private company found a way to offer health insurance at a cheap rate a reason to believe that government can’t do better?

                No.

                Sometimes government does better.

                I meant the comment about libertarian ideology to be aimed at Dave’s comment.

                I suspect that you are more of a believer in parts of libertarian beliefs about markets than you are aware, especially since you just gave the argument that if no private company can make a profit, government can’t do it easily.Report

              • Avatar Dave in reply to Shazbot5 says:

                Sometimes government does better.

                Rather than waste time using political labels to express your disagreement, please describe to me WHY you think the government can do payday lending better. While you’re at it, please tell me HOW you think it can be done.

                If you think my pessimism is ungrounded, you’re going to have to do much more than simply that you think it is before I am going to be persuaded otherwise.Report

              • Avatar Shazbot5 in reply to Dave says:

                I wasn’t using labels. I was just pointing out that your intuitions about whether government’s can effectively offer such loans effectively and efficiency carry zero weight. These same intuitions that markets are always more efficient are often misleading, especially in fields like healthcare.

                I should point out that governments can and do run loan programs effectively. Canada, for example, has run its own student loan program for some time. People who fail to pay or go into default can then be easily subject to liens and fees through the tax code, which makes the loan defaults less risky and costly to the lender, in this case the government.

                There is a national non profit, the Penfed ARK program that offers a low interest alternative to payday loans for military. Granted, the Penfed is run as a charity and takes losses and it needs donations to survive, but the losses are not so great that the program couldn’t be scaled up without too great a cost as a sort of welfare program for all needy people, especially if the government ran the scaled up program and could recover the defaulted loans, charge fees to people who defaulted and earned income later, etc.Report

              • Avatar Dave in reply to Shazbot5 says:

                Let’s dig a little deeper. I’ll run a hypothetical analysis. Please feel free to assume my intuitions carry no weight but since this is all business-related, point out where you have issues and we can go from there.

                I looked at this…

                http://www.pentagonfoundation.org/site/DocServer/ARK_StopPaydayLending2012.pdf?docID=741

                and noticed that the organization has deployed approximately $2.5 million to help 4,500 individuals and families. Good for them. That’s great because the payday lending that was going on around military bases was a major headache. I’m glad to see this. Really.

                However, it’s small potatoes. Advance America in 2011 made 10.6 million advances to 1.3 million people. That’s a total principal of almost $4 billion. It’s a 6,000 employee operation. There are 2,500 locations. It’s a very localized business. The people dealing with the borrowers are those located in the communities.

                You say that the losses aren’t so great that the program couldn’t be scaled up. Ok, what’s your evidence? What are the losses?

                As far as I can tell, you would need an operation like the one that Advance America runs as opposed to coordinating through credit unions (sounds like what Penfed ARK does). You most likely need storefronts. You want local people serving the borrowers as well as actually meeting with them before giving them money. You’re going to need a lot of managers and store employees. You’re going to have real-estate related occupancy costs. You’ll probably need to rent HQ space as well as district or regional offices in each market. When I start to think of the operating expense involved, which I can do because I have data up in the post that you were too lazy to read, I’m looking at a pretty high expense base. Intuition? Maybe. Supported by real world data? Yes.

                You’re going to killed on the revenue side. Why? Two reasons. First of all, no government payday lender would dare charge usurious rates so maybe you max out at 30%. Given that Advance America’s average APR based on their financials was almost 300%, you’ve just taken a 90% haircut on your rate.

                Using Advance America’s financials, the company generates approximately $625 million in revenue and $520 million in expenses. If Advance America took a 90% haircut on revenues with expenses being where they are, that would equate to a loss of $458 million. Ok, so you want to argue that expenses would be less? I’ll give you that, but you have an awful long way to go and cutting the fixed costs you’ll need to make this work is not going to be easy. It’s a high-overhead business even if you decide that you don’t need to run as many local offices as I think you would.

                Second, if you remotely operate the way payday lenders do not, you are not going to care about credit-risk. You are going to see people in need and want to lend to them. Fine. However, keep in mind, that you are now dealing with the same borrower pool and the same propensity to default. Collection practices will be far less aggressive than the private sector (as it should, this is a social service of sorts), require more time and lead to less recovered (good luck recovering those loans – there are tax cheats that owe the IRS more and they’re not paying up). You may not churn loans so you set up easier payment plans. That’s great for the borrower but a cost to you.

                Yes, it’s my intuition, but based on my sense of how the business operates in the private sector, replicating that business model in a way that would satisfy the goals and objectives you seek would leave the expense side of the equation relatively intact yet place enormous downward pressure on the ability to cover those costs through loan fees.

                It would be a headache. If you have a better analysis, I’d love to see what you have to say.Report

              • Avatar Zane in reply to Shazbot5 says:

                (This should follow Dave’s hypothetical in his reply to Shazbot5, but doesn’t look like it’s going to thread properly.)

                So if the problem is that many find themselves needing cash to weather an unexpected bill or to prevent rent being late, it doesn’t necessarily follow that the best way to provide that cash is by lending. Another option would be to develop a good asset-building policy targeting the poor. Having assets, even if it’s $500 in an account that can be built up again if spent, also addresses the need for urgent cash.

                Below’s a link to Michael Sherraden’s summary of an asset-building plan if you’re interested. (It’s at a housing advocacy site, and was written in 2000, so it has a section about homeownership for the poor. It’ll be a long time before that’s a major policy push again, I suspect.)
                http://www.nhi.org/online/issues/110/sherraden.htmlReport

              • Avatar Shazbot5 in reply to Shazbot5 says:

                Dave,

                I can use Social Security offices and post offices (via money orders) to offer the loans. I can also mandate private banks to do so (they get a lot from us in return, already) where they will be renumerated by the government, who will take the risk of the loan. So retail spending can be nill.

                By using the taxing power of the government you increase power to recoup losses in default.

                Sure, there are tax cheats, but when you are lower income, it is hard to cheat in significant ways. To reduce cheating, we can simply have a database of everyone who takes out a government loan and their income. When employers file the money they have witheld for their employees once, they get a note from the database saying their is a lien and they need to withold more. Problem solved.

                It’s worth an experiment at the state level.Report

              • Avatar Jim Heffman in reply to Shazbot5 says:

                ” I can also mandate private banks to [offer loans]”

                Congratulations, you invented the CRA. And while there were other issues, I think we can all say we know how *that* turned out.Report

              • Avatar North in reply to Shazbot5 says:

                I feel like I should pitch a fit about being read uncharitably and storm off in a huff.

                I am not saying that since only that no private company can make a profit government can’t do it easily. I’m saying that there’s enormous rewards out there for someone to set up a system that did small loans to very poor unbanked people at non extortionary rates and terms and the fact that no one has implies that the problem is a huge one. You have yet to have suggested what realistic reason we have to believe government could do so.Report

              • Avatar Shazbot5 in reply to North says:

                Other governments run lending operations.

                The power of the government to put liens on future tax income allows them to offer loans and recover losses from defaults at a higher rate than private lenders.

                Thanks for the shot about storming off. I suspect you are dsiagreeing, now, simply to be adversarial. Thus, I will stop.Report

              • Avatar Mike Schilling in reply to North says:

                You can leave in a taxi. If you can’t get a taxi, you can leave in a huff. If that’s too soon, you can leave in a minute and a huff. Report

      • I think it’s different from indentured servitude because the latter was an enforceable contract to sell oneself into temporary slavery. With payday lending, it’s a contract to sell oneself (effectively) into ever growing ratchets of debt. Maybe in the worse situations (or perhaps they’re typical), it approaches something like debt peonage of the stereotypical company town.

        Is my distinction too fine? Maybe. I’ve never been in a situation where I thought I might need a payday loan, and I’ve never been caught up in that ratchet. So even though I see a theoretical difference in formal terms, maybe in practice it’s more similar than it seems to me.Report

  13. Avatar Brandon Berg says:

    I’m not saying that payday loans are a great deal. I’m just saying—and you seem to be more or less in agreement—that the rhetoric about 700% APR (can we all agree that describing two-week loans in APR terms is dishonest?) and “predatory lending” is grossly overwrought.

    There is a real problem here, but payday loans are the symptom, not the cause. The root of the problem is that some people are just really bad with money, and can’t handle credit, period. You can’t just give them a line of credit, because they’ll max it out and have nothing left when they really need it. We all know people who’ve run up huge credit card debts. They’re stuck with payday lenders precisely because they’ve failed to demonstrate that they can be trusted with other forms of credit.

    Now, there may be a reasonable argument to be made that we should shut down payday lenders because most of their customers need to be protected from making bad choices for their own good—if they can’t handle other forms of credit, then maybe they just shouldn’t be borrowing money. I don’t want that level of paternalism, and I don’t like the precedent it sets. But if we’re going to treat people like children, blaming others for the consequences of their own financial choices, then let’s treat them like children.Report

    • I’ve certainly known a lot of people who are bad with money. And I think poor money-management skills help contribute to poverty. But I also think economic desperation cannot be reduced, or at least not always, to poor money-management. Sometimes people are in desperate circumstances, and payday lending is the best of a lot of bad choices.

      For the record, I don’t think we should ban them either. I’m pretty much in agreement with Lyle’s comment at 6:02 pm (April 17).Report

      • Sometimes poverty leads to poor money management. Poverty often results in a very different sort of risk environment in which they are extremely sensitive to fluctuations of fortune. There is a strong temptation to remain as liquid as possible, even if that precludes making investments that have good payoffs. What seems like a safe investment to the not so poor are actually very risky for the very poor as they can less afford to have some chunk of their already meager resources tied up.Report

        • Avatar Kimmi in reply to Murali says:

          +100. Damn fine comment.Report

        • Avatar Pierre Corneille in reply to Murali says:

          That’s a very good point, Murali.

          I’m certainly not poor, but I haven’t really any money to invest. A couple years ago, a friend was telling me how he “lost $10,000” in the financial meltdown. I was shocked and offered my sympathy. And then he told me that it was just a part of doing investing (he has a lot saved up and he has been putting away for a long time).Report

        • Avatar Zane in reply to Murali says:

          This is so true. Barbara Ehrenreich in writing Nickel and Dimed found that a number of the working poor housecleaners she was working alongside actually lived in motels. This made no sense to her at first, because this is perhaps the most expensive housing available. When she asked, she was told that it was because it was incredibly difficult to come up with a deposit and first and last month’s rent all at one time. And then because a motel room is so expensive, it contributes to the difficulty of saving up any money.

          On the surface, the decision seems to be the result of incredibly poor money management. It makes much more sense once you really understand the circumstances under which people live.Report

    • Avatar Dave in reply to Brandon Berg says:

      There are a lot of responses I want to get to, but since Brandon was the one that inspired my post, I feel the need to address him. Great comment btw.

      Did I imply that you said they were a great deal? I certainly didn’t mean to.

      You and I share the same skepticism about using APRs to evaluate the payday lending business. I don’t see using the APR metric as being dishonest, but if people don’t use it in the proper context, something like that may lead to faulty conclusions (i.e. high economic profit). It’s a low margin, low-revenue-per-transaction business. There are high fixed costs and loan losses are a major component of operating expenses. I’ve dealt with enough lenders to know that originating loans costs time and money. Below a certain threshold, the costs don’t move down a lot so as a percentage of the loan balance, it gets high. It seems like we both agree that there’s a high cost of business and ordinary (at best) margins.

      I don’t think that the predatory lending claims are overwrought based on my understanding of what predatory lending entails. As you said,

      The root of the problem is that some people are just really bad with money, and can’t handle credit, period.

      Exactly. Not only are they able to get loans, but the lenders making the loans, lenders that I am certain are aware of the customer base they serve, make absolutely no determination whether or not borrower can afford to repay the loan. It’s entirely possible that you and I end up agreeing to disagree on the basis that your definition of predatory lending differs from mine (I went to lengths to discuss that so readers know where I am coming from). Sound lending practices do not include lending to people that can’t handle credit (subprime lending became a disaster for that reason). Furthermore, if an industry is dependent on volume (which payday lending is) AND repeat business (which it is) from people that have no business being trusted with someone else’s money (a determination that was also market-driven given that all traditional (or dare I say “mainstream”) sources of credit have turned them away, I wonder whose interests are best served in situations. Yes, I would always expect payday lenders to pursue profits no matter what (as they should and need to). Nor do I expect the alignment of interests between lender and borrower to be identical, but I become very suspicious when those interests appear to diverge wildly.

      I don’t like the paternalism either, and as it appears from other comments, I wonder if I have indirectly argued to keep illegal drugs illegal (an angle I didn’t anticipate unfortunately). That’s a bit of a bind for me I suppose.

      Maybe I am looking at this issue too narrowly from a finance perspective, especially one that views lending from a more institutional/conservative perspective on lending. From that perspective, I see all sorts of problem in the payday lending market. However, I’m not sure what I would do.

      Thank you again.Report

      • Avatar Kimmi in reply to Dave says:

        A different perspective: The American Economy runs on consumer spending. These payday loan folks are funneling tons of money into their own pockets (encouraging innovation in more effective ways to bilk people out of money).

        I’d prefer we provided incentives for our smarter folks to make other things more efficient. Like cars, TVs or other “stuff”.

        Some amount of lending provides needed liquidity, of course.Report

    • Avatar Mike Schilling in reply to Brandon Berg says:

      (can we all agree that describing two-week loans in APR terms is dishonest?)

      Since it’s completely accurate and the arithmetic is correct beyond dispute, no, there’s nothing dishonest about it.Report

  14. Avatar Damon says:

    Services do not develop unless there is a market for them, baring gov’t interaction. There is a need for these services, as has been mentioned, because these people are underserved by the “banking community”. I’m sure we all know why. Among other things, they aren’t good credit risks, and in all deferernce to the CRA, you don’t make money on people who have no money.

    “I do not like the payday lending business…..That these transactions are voluntary in nature does not wash away the ugly reality in which transactions take place.”

    I don’t like it either, but it provides a service needed and desired. I also don’t like drug use, but folks want to get their high on and they should be free to do so if that’s there thing. It’s called “choice”, something increasingly less common that it should be.Report

    • Avatar Dave in reply to Damon says:

      Damon,

      What don’t you like about it?Report

      • Avatar Damon in reply to Dave says:

        The shady-ness of it all. I don’t like telemarketers and high pressure sales tactics either…Report

        • I hate those two things, too.

          I’m also the kind of guy that can sometimes be pressured to buy something that I know that I don’t want, even while I realize I’m being pressured, or baited-and-switched, or whatever. Other than buyers’ remorse laws and other things like laws against bait-and-switch, I don’t have a clear idea on what to do to stop it effectively. Even some of those laws are hard to avail oneself of if one is the sort of consumer who can be pressured into them.Report

  15. What a thoughtful post! I wish I had a better answer to the problem–and I do think it’s a problem–but yours is probably the only solution I think is doable.Report

  16. Avatar Thablackguy says:

    They dont just do payday loans. Theyre usually the only place we can go to cash a paycheck and they charge a shit-ton of money to do it, like 20 out of a 400 check. But they are open when everyone is getting home and they are close to home. Buses dont run enough at night for people who worked past 6 to try to get to the grocery in some richer neighborhood and back safe.

    Banking is shit because banks won’t locate in our neighborhoods and won’t treat us fairly. So we get this shit with the ripoff artists but its ALL WE CAN USE.Report

    • This is a good point. A lot of people don’t have access to banks. And people who comment on the unbanked don’t often acknowledge (or maybe they don’t realize) that banks sometimes refuse to open checking accounts for people deemed credit risks (I don’t know how well this applies to savings accounts, which pose much less risk of charge offs, if I’m not mistaken).

      Some banks, at least where I live (Chicago) and where I’m from (Denver) are experimenting with grocery-store branches that have expanded hours on weekends and later on weekdays. As far as convenience goes, this doesn’t necessarily match up with the payday loan / check-cashing places that stay open much later and longer. But it’s a start.Report

    • Avatar Kimmi in reply to Thablackguy says:

      Tried getting your church to start a credit union? I hear that’s been a decent thing where it’s been tried.Report

    • Granted that I don’t live in the sort of community you’re talking about and Pierre’s corollary to your comment is worthwhile. Nevertheless, I do know that my grocery store has been known to cash checks tendered along with a minimum purchases of a certain amount, say, $100.00.

      Now, I do realize that neighborhoods underserved by banks and credit unions are also likely to be underserved by grocery stores and for similar reasons of economic discrimination. But at least in some places, this might be an option.

      If there were a debit-only, electronic-transaction-only sort of account available, would that be something that people in your community might be able to avail themselves of? I’m thinking along the lines of a paycheck goes in as direct deposit, funds accessible as debit accounts through the equivalent of a credit card. But no checks can get written by hand and all withdrawals are instantly debited to prevent bounces or overpays, and the banks might be mandated through regulation to provide it at a minimal charge to the customer, the same way telephone companies and utilities are mandated to provide low-cost basic service to low-income users. This might accommodate a bank’s concern about someone being a credit risk while still allowing someone in a less-advantaged position to avail themselves of at least minimal banking services, without necessarily needing immediate access to a physical bank. But would it meet the needs of the sorts of people you’re describing?Report

  17. Avatar Zane says:

    There are three things that make payday lending as currently practiced exploitative. These are duress, asymmetry of information, and asymmetry of interests.

    In the US today, the poor have a less reliable social safety net available than in many other industrialized countries. As noted by an earlier commenter, the poor do not have the assets (savings) or resources (family members to borrow from, etc.) to navigate a short-term financial crisis. When desperate, people will take any deal, no matter how bad, to meet an urgent financial obligation. (Contributing to this, of course, is that almost everything is more expensive if you are poor.) This duress means that the poor are not in a position to walk away from a bad deal. That the lender did not (initially) create that duress does not make it any less real.

    Secondly, there is a great asymmetry of information between payday lenders and their customers. That asymmetry is not only in the terms of the loan (which are extremely arcane, even in states that have tried to apply some truth-in-lending regulations to payday lenders), but also in relative economic and financial know-how. There is also asymmetry in understanding the relative financial interests of the two parties. Everyone knows that the borrower wants to pay off the loan, but only the lender knows that the lender benefits most strongly when the current loan is refinanced.

    Finally there is that asymmetry in interests. How is this a problem? Let’s look at a similar example. Pre-securitization mortgage models incentivized both borrowers and lenders to want mortgages to be paid off on time. Bankers made their money off the interest, while borrowers benefited by being able to purchase a home. Their interests were aligned. It was not in lenders’ interest to loan money in amounts or at terms that the borrower would be unable to afford. We saw what happened when those incentives were changed by structural changes within the market. Loan originators no longer had any interest in whether the mortgage was payable by the borrowers. This was disastrous for borrowers and, ultimately, for the larger economy.

    Payday lending currently works like the post-securitization subprime mortgage market. Borrowers and lenders do not face the same incentives. Borrowers want to pay off the loans as quickly and inexpensively as possible. Lenders, on the other hand, want borrowers to delay paying off their loans or to take out additional loans to cover the costs of the current loans. Because these interests are not aligned, it is in lenders’ interests to keep borrowers in the dark about the negative consequences of borrowing. It is in the financial interest of payday lenders to create terms that encourage delay in repayment or require repeat borrowing.Report

    • Avatar Dave in reply to Zane says:

      Good response. I’m particularly interested in your last two paragraphs. I see where you are going, but I don’t completely agree with the path you took. It’s worthy of post-length response.Report

      • Avatar Zane in reply to Dave says:

        Thanks for that Dave. That was my inaugural comment on this site I’ve really come to value so much.

        I mentioned all three issues (duress, asymmetry of information, and asymmetry of interest), because all three apply to payday lending. Asymmetry of interest in the absence of the first two is unremarkable and alone wouldn’t lead to the exploitative nature of payday lending today.

        Asymmetry of interest (or non-aligned interests) is important because of the first two. Mortgages are a very good example. We know that mortgages are complicated transactions, and an uninformed consumer can make really bad decisions without some guidance. When lenders and borrowers have aligned interests, borrowers can actually rely to some extent upon the advice of the lender. Both parties want the mortgage to be paid. Securitization made the lenders’ and borrowers’ interests very different. No longer could borrowers rely on the advice (and sense of self-preservation) of lenders to protect borrowers’ interests.

        Payday lending is the same. The transaction is a bit less complicated, but there is the added problem of duress.

        Well, there I’ve probably just said the same thing in a different way.Report

        • Avatar Kimmi in reply to Zane says:

          … but few mortgage owners actually need an escrow account. let alone the bullshit banks are pulling to forcibly enroll you into them. (and it’s harder than hell to get the bank to acknowledge a homestead exclusion).Report

      • Avatar Zane in reply to Dave says:

        By the way, is there a way to email the folks in charge of the League? I think there used to be a link, but I can no longer find it.Report

    • Avatar Roger in reply to Zane says:

      Zane,

      I remain very unconvinced.

      Your first argument cuts both ways. You admit they are desperate, but your solution is to force them to wallow in their desperation. In other words the people that you most want to prohibit getting loans are the ones most in need and who will thus benefit the most. I agree that duress is a legitimate concept to interfere with “voluntary” interactions. I think you apply it way too liberally though in this case. If you can prove to me that most people getting pay day loans later come to regret the choice, I would be persuaded though. *

      I do not find the asymmetry of information convincing. I fail to see how it is relevant at all. I have no symmetry when I deal with Apple, or Lexus, or State Farm or Chase, and I don’t need to have it in an openly competitive market. Perhaps you could elaborate what your argument is here.

      Finally, I am not moved by your asymmetry of interest argument either. I can think of all kinds of contracts where the interests of contracting parties are 180 degrees apart. Service contracts or warranties for example. I fail to see the relevance of this point. Again, perhaps you could elaborate and help me get it.

      * see the concept of euvoluntary exchangeReport

      • Avatar Zane in reply to Roger says:

        Roger, I may have said something unintended, but I’m pretty sure I didn’t actually offer a solution. I was trying to think through what contributes to a problem.

        When talking about asymmetry of information, it’s important to keep in mind a number of things. First, asymmetries of information occur all the time, as you note. A particularly good example is in airline ticket pricing. Airlines provide completely different pricing structures to different consumers, and work to insure that consumers have little information about the prices offered to others. Payday lending is not like airline pricing in that sense. Rather, payday lending depends upon borrowers being unaware of the likelihood and overall costs of rolling over a loan. This is in part because payday lenders don’t tell borrowers such things, and typical payday borrowers lack not only such information but also often have less financial education, experience, and access to expertise than many consumers.

        However, this lack of financial know-how would be less of an issue if payday lenders’ and borrowers’ interests aligned. Were those interests aligned, payday lenders would not lend more money to a borrower than they thought the borrower could afford to pay back. The reality is the opposite. The report from the Kansas City Fed and a study from Pew noted below cites studies that find that payday loans are not profitable for the lender until they have been rolled over 4-5 times. It is not in the borrower’s interest to have this happen.

        This discussion is reminding me that an important aspect of all this is the level of risk. If I make an uninformed and bad decision that costs me 5% of my income, I have surplus income, assets, and resources (such as family and friends) to help me weather the fallout. I will be able to pay my rent and utilities, buy groceries and medications, see my doctor, and keep my car in repair. If someone who is actually poor makes an uninformed and bad decision that costs them 5% of their annual income, disaster may very well result. They may not be able to do one of those things, and failing to do one of them may result in a long-term economic tsunami.

        (sorry I don’t know how to link these more gracefully!)

        http://www.kansascityfed.org/PUBLICAT/RESWKPAP/PDF/rwp09-07.pdf

        http://www.pewtrusts.org/our_work_report_detail.aspx?id=85899452768&category=327397Report

        • Avatar Roger in reply to Zane says:

          I fail to see the moral significance of depending upon repeat business as part of the model. This is true of many industries. Insurance companies, for example make all their profit on renewals.

          Indeed if roll overs were prohibited, the market response would be to change the terms of the contract to ensure profit absent rollover.

          I will agree that there are some industries which are by definition exploitative. They are ones which harm the participants. The crack industry comes to mind. Perhaps time shares. If you can convince me that most loan recipients wish they did not have access to payday loans, I will agree that they are harmful and exploitative.Report

          • Avatar Kimmi in reply to Roger says:

            … crack? as in crack cocaine? I sincerely think you can find better examples. You might try meth.

            Roger, I’m pretty sure most people who get payday loans wish they were in a position where they never needed one. I’m also certain that payday loans are detrimental to our economy.Report

        • Avatar Fnord in reply to Zane says:

          Were those interests aligned, payday lenders would not lend more money to a borrower than they thought the borrower could afford to pay back.

          This idea seems to come up a lot in the anti-payday loan arguments. You say that the borrower can’t afford to pay the money back (and hence the loan is predatory). But what you mean is they can’t afford to pay the money back in two weeks, so they have to roll over the loan.

          This idea that someone can only “afford” a loan if they can pay back the principal in two weeks is really confusing to me. It seems they can (in the median case) afford to pay back the loan in sixth months, and can afford to make the required payments in the mean time. If the loan was packaged as a 6 month loan with the exact same payment schedule would it still be a problem?Report

          • Avatar Dave in reply to Fnord says:

            I’ll answer this. I think I owed you an answer elsewhere but it looks like a similar topic.

            You say that the borrower can’t afford to pay the money back (and hence the loan is predatory). But what you mean is they can’t afford to pay the money back in two weeks, so they have to roll over the loan.

            If there is a loan with a two-week maturity, and the borrower is unable to pay off that loan within the two-week period (or in full at the maturity date), then it is completely safe to assume that the borrower cannot afford that loan given the contractual terms. If someone needs four years to pay a three-year loan, no lender will make a three-year loan on the basis that they can’t pay it back by the maturity date. As far as rolling over the loans, I don’t know if that is technically correct. The loans are not “rolled over” but rather paid off from the proceeds of a new loan (maybe you meant to use the term refinance).

            Also, as a technical point, a feature of predatory lending is making loans to people that can’t afford to pay them back on time. You can have loans that are made in good faith to people that lenders believe will make good on them but they don’t. In payday lending, whether or not the borrower can afford to pay back a loan by the maturity date is not even considered.

            If the loan was packaged as a 6 month loan with the exact same payment schedule would it still be a problem?

            I would still have an issue if lenders aren’t doing any real underwriting in order to determine the creditworthiness of borrowers. That said, I think potential borrowers would choke on this.

            Assume a $100 loan, a 600% APR (simple) and a 6 month loan. Six months of interest is $300. If you tell someone that they get themselves a $100 loan and pay back the $100 AND an additional $300 in six months, I think that will scare people. Even if they end up having to pay that kind of money, they will be more apt to enter a transaction if they believed that they were only going to pay $25 and stay in a loan for only two weeks even if that expectation was irrational.

            That’s only a guess though.Report

            • Avatar Fnord in reply to Dave says:

              As far as rolling over the loans, I don’t know if that is technically correct. The loans are not “rolled over” but rather paid off from the proceeds of a new loan (maybe you meant to use the term refinance).

              This really feels like a distinction without a difference to me. I mean, if the loan terms were written to make it technically a rollover rather than separate loans, does it become OK, in your mind? Is there a substantive difference in the borrower’s situation if the lender is willing to rollover the loan in exchange for a fee instead of making a new loan in exchange for the same fee?

              Also, as a technical point, a feature of predatory lending is making loans to people that can’t afford to pay them back on time.

              This seems to be the major crux of our disagreement, because I think focusing on this technical point is putting form over substance. Predatory lending is a problem because it (foreseeably) leaves the borrower worse off. That’s both necessary and sufficient for there to be a problem with the situation. That a loan is not affordable without refinancing is may be a warning signal, but it’s not a problem in and of itself. And it’s notable that this warning signal was, as far as I know, developed for a situation that’s significantly different from the payday loan situation.

              I would still have an issue if lenders aren’t doing any real underwriting in order to determine the creditworthiness of borrowers.

              Here’s my issue with this: it seems that the major driver of the high interest rates for these loans is costs that are independent of loan amount. And it seems that adding substantial underwriting costs to low-value loans is likely to make the problem worse.

              Despite that, I could be convinced that the lack of underwriting is a problem, if it really leads to people who can’t afford to pay back the loans at all. But you haven’t really pointed to a problem with actual defaults, and indeed the Pew report you link to suggests that the rate of eventual repayment is actually fairly good.

              That said, I think potential borrowers would choke on this. Assume a $100 loan, a 600% APR (simple) and a 6 month loan. Six months of interest is $300. If you tell someone that they get themselves a $100 loan and pay back the $100 AND an additional $300 in six months, I think that will scare people.

              Ahh, now we’re getting to a real problem. People go in expecting to pay $25, and end up paying $300, because the service is marketed at as a one-time fee for a two week loan and in practice it almost always ends up being a multimonth loan with multiple payments. Form over substance cuts both ways, and in substance this is deception.

              But, it seems that the first step is trying to mitigate the deception, rather than block access to the service. Labeling before interest caps.

              As you say, they’re already bound by the Truth in Lending Act, but it looks like the current labeling isn’t working, probably in no small part because the way the service is labeled doesn’t reflect the way anyone actually uses it. I have no objection to specialized labeling rules along the lines of “On average, our customers refinance these loans X times before they’re able to repay them in full, resulting in an average total financing cost of $Y”. Perhaps even requiring that loans be presented with a minimum term, with the fees disclosed for the full term, and early repayment presented only as an option rather than the default.

              If everybody does choke and the payday lenders go out of business, then good riddance if they have no customers after honest labeling. But it seems at least worth trying the labeling, rather than outright interest caps that amount to bans, especially given the Pew reports findings that a majority of payday borrowers feel they will likely use a payday loan service again, even after having the experience of taking months to pay back the loan.Report

              • Avatar Will Truman in reply to Fnord says:

                Fnord has been awesome this thread.Report

              • Avatar Dave in reply to Fnord says:

                He has and I didn’t respond to it. I should now but I only have a few minutes.

                This really feels like a distinction without a difference to me. I mean, if the loan terms were written to make it technically a rollover rather than separate loans, does it become OK, in your mind?

                There’s a big difference from my perspective. You can effectively roll over a loan with an extension option. In commercial real estate, I see this all the time, especially in floating rate loans or construction loans. I’m wondering why they don’t do this in payday lending. I have a few ideas but I haven’t been able to fully vet them (i.e. could the loans be subject to traditional banking regulations – again, not sure)

                Is there a substantive difference in the borrower’s situation if the lender is willing to rollover the loan in exchange for a fee instead of making a new loan in exchange for the same fee?

                I don’t mean to sound overly evasive here, but in payday lending, there’s no way for the lenders to know that given how little underwriting they do. If it’s a distinction without a difference, that could also be because the lenders see no difference because they don’t bother to look.

                My world of commercial real estate is a bit different because if I help a client source a loan with a 3-year term and two, one-year renewal options, there are differences in situations that would lead to the choice of either extending for one-year or refinancing for three. Furthermore, outside of the extend and pretend game that has gone in with a lot of underwater commercial loans, it’s not a good idea to just extend loans (one reason being changes in market conditions), and in some cases, i.e. with securitized mortgages, it can’t be done legally.

                That a loan is not affordable without refinancing is may be a warning signal, but it’s not a problem in and of itself.

                I think you’re right in that this is our point of disagreement. Traditional banks would never lend to this kind of credit risk, even if usury laws didn’t exist IMO. Maybe I’m just too conservative about it.

                But you haven’t really pointed to a problem with actual defaults, and indeed the Pew report you link to suggests that the rate of eventual repayment is actually fairly good.

                We could go back and forth for hours on defaults if only because of the controversial nature of them. Critics argue that default rates are understated because people take out loans to pay back loans they couldn’t pay off. The loan loss expense it the Advance America financial statements is pretty high. That tells me something.

                I also like your point about labeling and it’s worth thinking about. One of the problems I run into is that there is a subset of customer that do use the loans as advertised. Even if it is a small number (15% or so), that’s not insignficant.

                Great comments. I gotta run a half marathon tomorrow or I’d write a lot more on this. Good night.Report

              • Avatar Fnord in reply to Dave says:

                We could go back and forth for hours on defaults if only because of the controversial nature of them.

                Note that data Shazbot linked to has more or less convinced me on the matter of defaults: that they’re sufficiently high that it looks like there is a problem here.Report

      • Avatar Dave in reply to Roger says:

        Roger, in other words, my entire explanation and analysis of predatory lending doesn’t convince you?

        You are as much addressing him as me. If this is the case, I ought to jump into this as well, something I would have to do later.Report

        • Avatar Roger in reply to Dave says:

          I read your conclusion as being that we (which includes the poor) are better off not prohibiting this practice. That excessive interference would, sadly, make the poor worse off. If you want to do a public service announcement on the dangers of pay day loans, I am in agreement.

          Let me know if I misread you though.

          Again, I would be convinced that this is a net harm if you can show me that informed poor people regret having the freedom to engage in this practice. I am OK with prohibiting crack sales and payday loans if they are utility traps.

          .Report

          • Avatar Dave in reply to Roger says:

            We’re close enough. I’d say that I’m uncertain as to whether or not people would be better off.Report

            • Avatar Pierre Corneille in reply to Dave says:

              As I noted in my other comments here, I believe that prohibiting payday lending would be worse than permitting it.

              But I notice in some of the commentary in this thread–not from anyone in particular and not in so many words and not so hyperbolically–the suggestion that if payday lending is prohibited, the borrowers will simply all just go to loan sharks. Undoubtedly some would, but some also might just make other choices that from a financial point of view are less bad than payday lending.

              All I’m saying is that it’s not a simple one-for-one. And I still oppose banning payday lending.Report

      • Avatar Dave in reply to Roger says:

        In other words the people that you most want to prohibit getting loans are the ones most in need and who will thus benefit the most.

        Roger,

        Are they most in need of loans or are they most in need of cash? This is a big difference because I see a loan as having two components: 1) the cash infusion; and 2) the obligation to repay. The former is a benefit and the latter a cost, and the critics of payday loans argue that the costs exceed the benefits.

        You’ve asked to be convinced about this. I don’t know if I can do that since I’ve only scratched the surface. However, I did consult The Center for Responsible Lending when I did my research. If you were looking for example where people have been harmed, I would recommend that you start there. Where that takes your thinking is entirely up to you.Report

        • Avatar Patrick in reply to Dave says:

          Well, there’s also the “it makes them better off” is sort of dependent upon what I pointed out, below.

          If you’re getting shafted, and somebody comes along offering to shaft you, but less, you’re better off than you were before. You’ll be downright excited to take that deal.

          But absent the original shafting, maybe not so much 🙂Report

        • Avatar Roger in reply to Dave says:

          I actually have an open mind on this. I think it really is possible the world would be better off without payday lending and crack, and the reasons are the same for both.

          I too would start with labeling…” anyone taking out a payday loan is a total frickin’ idiot. If you take out this ridiculous loan you will probably roll it over multiple times and end up owing more than you borrow. Don’t be an idiot. Sign here if you are still going to be an idiot.”

          “I the undersigned, am indeed an idiot, but choose to take out the loan anyways.”

          Ok, maybe someone else can work out the exact language..Report

  18. Avatar Patrick says:

    Typically, people take out payday loans because they have other debt that they’re servicing, and the penalty for non-remission of payment is sufficient that they’re willing to pay the vigorish to the payday loan place.

    They’re carrying a huge balance on a high interest rate credit card, and they’re short the minimum payment. Failing to meet the minimum payment means they get hit with a penalty, which is usually in excess of the the short term loan charge. That’s why they take the short term loan charge in the first place.

    So if you’re carrying a $2,000 balance on a credit card at 29% interest with a late payment fee of $50 and a minimum payment of $120, and you’ve got $20 your options are:

    (a) hit the payday loan place and borrow $100, paying it back in two weeks at $128, and saving the $50 hit on your late payment fee, for a net win (to you) of $22, or

    (b) not hitting the payday loan place and making no payment or less than the minimum payment on your credit card, and taking a $50 hit tacked onto your credit card balance at 29% APR.

    I don’t think payday loan places are the problem, here. Getting rid of them does, in fact, make things worse for the consumer.

    I think the problem is a little higher up in the food chain. It’s (in my opinion) unconscionable that we let banks maintain cash-on-hand of $N, and loan out (for $12.4 million < N < $79.5 million) 33 times N, borrowing that 33 times from the Fed window at 2.5% 33 times N at 27% APR when you're getting it from the Fed at 2.5% is basically an enormous transfer of money from the government to the private sector that seems well out of bounds of their actual servicing costs. Fix that problem, payday loan places won't be able to charge $28 interest on a two week loan of $100, because the payment penalty on the CC will be lower.Report

    • Avatar Dave in reply to Patrick says:

      Patrick,

      Good point. Another interesting aspect of this end of the finance business was introduced to me via either Felix Salmon or Rortybomb sometime back in 2009. They made the argument that credit card costs to higher-risk customers are not tied to the actual risk they represent. They saw it is as the banks using these customers in order to generate the high fees in order to help subsidize the low costs and low rates for the “better” customers.

      Reading your response made me think of that. I’d have to chase down those old posts.Report

      • Avatar Patrick in reply to Dave says:

        Given the difficulty in actually filing for bankruptcy after the last couple decades of reform, it would not surprise me that the charge rate on the under-employed is outside of their actual risk level.Report

  19. Avatar Jim Heffman says:

    I think it might be useful to take a step back and look at the payday lender’s customers.

    There is Miss Jane the single mother in Houston, whose son just got hit in the mouth with a baseball and needs emergency dental surgery.

    Then there is Private Joe the artillery loader at Fort Dix, who just spent all his money at the strip club (again) and needs to make a payment so his wife’s car won’t get repossessed.

    Obviously both Jane and Joe need money right away. But does the typical customer of a payday lender look more like Jane, or more like Joe? And when we think about Joe’s problem, do we think about it the same way we think about Jane’s?Report

    • Avatar Dave in reply to Jim Heffman says:

      Jim,

      If I’m evaluating both individuals from the perspective that I think all lenders should follow, I would see two people with such high credit risk that I would not want to lend to either of them. I’ll obviously have more sympathy for Miss Jane, but sympathy doesn’t preserve my bank’s capital. If neither have the money to make the payments they need to make, what kind of confidence should I have that they will have the money or be in a position to pay me back when the loan is due? I guess I would make a terrible payday lender.

      You raise a good question though. I don’t have that answer. Most customer profiles are general in nature and focus more on general demographic information.Report

      • Avatar Jim Heffman in reply to Dave says:

        And, well, that’s part of the issue. People would be more likely to use Jane as an example of “we need to stop payday loan sharks!” than they would Joe, but who is more likely to be showing up at a payday loan place? And is the solution really to stop them getting payday loans? In the specific examples I used, maybe the solution for Jane is to make it so she doesn’t need to take out a loan to pay for emergency dental surgery.

        But that doesn’t actually address the Usurious Bloodsucker Problem. And so we’re back to Jaybird’s favorite theme of “are we trying to turn a matter of taste into a matter of morality which results in legislation?”Report

        • Avatar Kimmi in reply to Jim Heffman says:

          Jane and 2/3rds of the rest of America, you mean?
          After all, only one third of Americans have a grand in their banks right now.

          We make the mistake of not understanding…

          (also, I’m not seeing a “single mom from Houston” as being a bad credit risk, apriori. Am I missing something about Houston?)Report

        • Avatar Dave in reply to Jim Heffman says:

          Jim,

          You’re right. When payday lending critics put a face on the problem, Jane will be the one they use. Who wouldn’t take that approach?

          I see genuine harm being done so it’s not necessarily a morality play, but in the absence of anything else, I have a reluctance to do anything.Report

          • Avatar Jim Heffman in reply to Dave says:

            Well, they put Jane’s face on it, but Joe’s going to be hurt by it as well. If he doesn’t get a payday loan he and his wife lose their car.

            I think my position is clear, but just to state it flat out: The issue is whether we want to help people who have problems, or punish payday lenders for being awful people. Because doing the former doesn’t require the latter, and doing the latter won’t necessarily accomplish the former.Report

    • Avatar Zane in reply to Jim Heffman says:

      Jim, I’m not sure it really matters which is the predominant kind of customer. Except perhaps in one way. Miss Jane wouldn’t need that money for emergency dental surgery if the USA had good comprehensive health coverage for all. There’s a fixable structural problem in her case.

      Exploitation is exploitation, I think. It doesn’t matter why the person needs or wants the money. If we start to apportion “appropriateness of need” to people’s decision to borrow, we run into the problem of how to make such decisions.Report

      • Avatar Jim Heffman in reply to Zane says:

        “Miss Jane wouldn’t need that money for emergency dental surgery if the USA had good comprehensive health coverage for all. There’s a fixable structural problem in her case.”

        My point here is to ask whether we are interested in identifying and solving a problem, or whether we’re interested in “payday loans are icky, we gotta stop the icky”. Because comprehensive health coverage for Jane solves a problem but doesn’t stop the icky.Report

      • Avatar Roger in reply to Zane says:

        Exploitation is indeed exploitation, but you are avoiding the definition of the term. By exploitation do you mean “voluntary interactions under terms you disagree with?”

        They aren’t terms that either party living with it disagrees with. They aren’t terms I disagree with. Why is your opinion so critical, considering the fact that you are unable to persuade me, the lender or the customer of the virtue of your opinion?

        What you call exploitation, I call intolerance. Christians want to save gays from the effects of their actions. Liberals want to save the poor from getting loans. I want both sides to rise up to the level of actually convincing the rest of us of the value of your prohibitions. Good luck.Report

        • Avatar Kimmi in reply to Roger says:

          I’m actually just advocating for free loan societies.
          Why not let the free market fix everything?
          😉Report

        • Avatar Zane in reply to Roger says:

          I’m a little confused by your response here, Roger. I’ve not actually advocated a solution, right? I’m working through what contributes to what I view is a problem.Report

          • Avatar Roger in reply to Zane says:

            Cool. So you are fine with not interfering with payday loans? Then we agree.Report

            • Avatar Zane in reply to Roger says:

              I’m not certain of a solution, though I do think payday lending is pretty awful.

              But I’m interested in your statement that we agree. You agree that payday lending is exploitative of borrowers? But you argue that because it’s voluntary, no matter the costs to borrowers or the overall economy*, we must do nothing?

              *The potential negative impact of payday lending on the poor as a group and on the overall economy is an interesting issue all by itself, and one I’ve not really looked at too closely. I suppose one could argue that it takes money from those who clearly don’t know how to spend it and moves it to those who will put it to good use. I probably would not argue that, though.Report

              • Avatar Kimmi in reply to Zane says:

                It’s pooling the money into lending. Finance, as a general sector, is there to provide lubrication for other bits of the economy. If you put more money into Cars, you create more of a market for cars, and people make better cars. With finance, it has lately seemed that the idea is “make more efficient ways of bilking more and more people.”Report

              • Avatar Roger in reply to Zane says:

                I agree it is exploitative as long as the definition of exploitative is “actions which Zane disagrees with but is unable to convince me or any of the parties involved in the affair”.

                My definition of exploitation is — oversimplifying — an action which harms another. So, if you can show it does harm the poor, I will agree that they would be better without it.Report

              • Avatar Zane in reply to Roger says:

                Certainly people agree to contracts that they believe to be exploitative. They do so because they perceive no better alternatives.

                The fact that people are willing to borrow from payday lenders is not necessarily evidence that they think payday lending is a good deal.Report

              • Avatar Jim Heffman in reply to Zane says:

                That’s an important thing to remember. Market-based solutions give the optimum result, but that doesn’t mean it’s a result that everyone likes, or would have chosen on their own.Report

        • Avatar Zane in reply to Roger says:

          I see that I failed to answer your request to explain why I think that payday lending as currently practiced is exploitative. I take a pretty neo-classical view on this issue. I’d argue that exploitation is occurring because one side of this economic dyad (the payday lender) has an immense advantage in bargaining power over the other (the borrower). This advantage results from the three things I’ve mentioned elsewhere–duress and the asymmetries of information and interest.Report

          • Avatar Roger in reply to Zane says:

            The bargaining power argument is unconvincing. It basically comes down to you stepping in and vetoing any voluntary agreement that you disagree with. The asymmetry in power between me and Toyota is every bit as large as that between a pay day lender and a poor person. It just comes across as a rationalization of why you get to intolerably over ride what poor people get to decide.

            Furthermore, in a competitive market, power imbalance is pretty much irrelevant. The reason is because it is a fallacy to view there being a competition between the poor and the lender. It is cooperation. It is a voluntary exchange. A win win.

            The competition occurs between lenders for the poor person’s business. In an openly competitive market, their is no reason to expect continued asymmetry between lenders as they compete for our business.

            If you can prove duress or consistent regret, then you will get me to agree.Report

            • Avatar Zane in reply to Roger says:

              Roger, I think we’re using two different definitions of exploitation in part because you see no evidence that payday lending is problematic, while I already see it as problematic (partly because I buy into the FDIC’s 3 elements of predatory lending Dave posted in the OP).

              I’m using a neo-classical economic definition of exploitation because I’m casting about for a solution to what I see as a problem–looking at these structural or process issues lets me think about ways of ameliorating the problem short of banning payday lending. If duress is an issue (and I argue the duress of poverty, not coercion on the part of payday lenders), then one tack would be to reduce the burden of poverty. If asymmetry of information is a problem, then we could investigate how to make the process more transparent to consumers. If asymmetry of interests is a problem (for example, if it is not feasible to better educate consumers), then we could look into structural issues in the market that prevent lenders and borrowers from having more aligned interests. And of course if there is fraud or collusion, that must be dealt with.

              I don’t call for payday lending to be banned in part because of the black market/loan shark problem mentioned by someone earlier. (Though at least loan sharks lend money based upon the ability of the borrower to repay.)

              Because you remain unconvinced that payday lending is harmful, you’ve ended up using what I think of as a more classically marxist definition of exploitation: if the poor are hurt by payday lending, then payday lending is theft and can be shut down. I wondered why you kept writing as if I was arguing for shutting down payday lending altogether, maybe this definitional issue is part of it?

              This doesn’t answer your call for more evidence. Honestly, the published literature on the negative effects of payday lending is pretty thick, and has to be read pretty closely as it is strongly influenced by industry advocates and consumer advocacy organizations. What of it I’ve read convinces me that payday lending is a net negative for most of those who partake, but there’s no way I could spend the days it would take to do a thorough reading and provide a summary.Report

            • Roger,

              It seems to me that you and Zane are disagreeing about how to define “exploitation.” That’s all well and good, but I think it’s a stretch to assume–as your comments seem to assume–that Zane is thereby proposing banning payday lending.

              I perhaps haven’t read all Zane’s comments on this thread, but he doesn’t seem to be arguing for banning payday lending. He might be arguing for more regulation, although I seem to recall him writing that he didn’t know what the solution ought to be.

              I personally think it’s possible to hold the following views simultaneously: 1) people as a general rule treat others like sh*t; 2) even when they don’t, they often end up hurting others or taking advantage of them in some way; 3) there’s little we can do to correct 1) or 2) without making things worse, so we might as well be cautious before trying the correction.Report

  20. Avatar Thablackguy says:

    Why are you deleting my comments?Report

    • Avatar Dave in reply to Thablackguy says:

      As far as i know, no one has deleted any comments. This is he first comment from you that I’ve seen. If you had posted , I would have received notifications. I haven’t received any.

      I’m not sure what the problem could be.Report

      • Avatar BlaiseP in reply to Dave says:

        Akismet might be having some issues. I’ve found several of my own comments in Spam. I suspect it’s Akismet’s heuristics: it really wakes up when comments have multiple links, especially when it’s detected other flamers using those URLs.

        I do a fair bit of AI. Akismet does catch an awful lot of spam for us and usually does a very good job of catching it. We’re kinda pushing it: first we generate LOTS of comments here and catch LOTS of spam. But Bayesian tools such as Akismet can get brittle — in this case, grumpy. Like Devo said “Too much paranoias.” The larger the dataset for a Bayesian system, the grumpier it gets.Report

        • Avatar Will Truman in reply to BlaiseP says:

          He’s using a proxy server. I’m 95% sure that’s why some of his comments got flagged. A friend of mine comments using proxy servers and I have to rescue about a third of his comments. He basically emails me when a comment didn’t go through and I have to rescue it. Sometimes it doesn’t even go to the spambox, in which case he tries retyping it, or sends it to me and I put it up.Report

    • Hey,

      Some got caught up in the spam filter, though I don’t know why. I’ve freed them (well, I didn’t free the one asking where the others went – apparently the spam filter was feeling particularly defensive).

      Sorry about that.Report

    • I don’t know exactly what the problem might be (and other than being a commenter, I don’t have any affiliation with this site). But I’ve heard that sometimes if you use certain words, they get flagged as spam, or if you link to other sites, especially if you link to more than one, then those also get spammed. Finally, there was a commenter here quite a while ago who went by the name of a famous philosopher, and if someone uses then name of that philosopher, he/she sometimes gets spammed.

      I have no idea if those apply to you, or how frequently authors get updated about posts. I will say that I have written some comment that somehow got lost in cyberland. I’ve also noticed that a few times I’ll write a comment that says something short but meaningless like “I agree” and those sometimes don’t get posted. I assume that’s because the site guards against substance-less responses, and I’m particularly concerned about those not posting.

      Again, I don’t know if any of this applies to the comments you wrote that didn’t get posted.Report

    • Reading your comment at April 18, 12:55 pm suggests to me a couple reasons why a spam filter might have flagged it. First, there’s the frequent (2 times) use of the “s-word.” Second, there’s some minor ungrammaticalisms (not sure that ‘s a word)–declining to use apostrophes to denote “don’t” and “they’re”–and perhaps those signal to the spam filter that someone is writing something akin to a poorly worded email scam.

      I’m not saying this is right–or even insisting that it’s true–and it’s probably not fair (especially if you’re commenting from a mobile device that might make it harder to use apostrophes, for example), and I also notice other comments, at least on other threads, that make the same “errors” I noticed in your comment. But maybe that’s a clue to why it’s been spammed. I also wonder if there’s a snowball effect, and someone whose comments get marked as spam a couple of time are flagged so that more of their comments are marked that way more often.

      Now, I’m computer illiterate, and I realize this post/thread is not about the mechanics of spamming. But those are my two cents.Report

  21. Avatar Burt Likko says:

    Dave, I’ve been meaning to get around to writing a post on this for some time now, and I’m well impressed with your tackling of the subject. I think you hit the nuance just right.

    In what I have seen, the actual interest rates charged by payday lenders are similar to those charged by pawnshops. Few people seem to have a problem with pawnshops when they function as represented; the usual criticism of pawnshops is that they are too conveniently used as fences for stolen property. My question to you (and the group) is: does the presence of physical collateral on the shockingly-high-interest, typically three-figure, theoretically-intended-to-be-short-term loan render the transaction somehow more palatable, and if so, is that a principled distinction?

    Full disclosure: I have some pawnshops as clients, although I intend to offer no moral apology for their similarity to payday lenders by way of my question. I am not my clients.Report

    • I don’t have a firm grasp on how pawn shops work, but I do think physical collateral does make a difference for me, at least in my knee-jerk reaction to the practice. Perhaps it’s because I consider losing “things” I already own in payment of a debt–by not being able to repay the debt–to be a much lesser evil than incurring new and increasing numbers of obligations.

      However, I don’t know how I’d feel if it were a possession to which I assign a lot of sentimental (or even utilitarian) value, and I have never been in the position of having to pawn something off. (Also, as I said, perhaps I don’t fully grasp how pawn shops operate.)Report

    • Avatar Kimmi in reply to Burt Likko says:

      Principled or not, it’s a psychological distinction of note, in that people’s behavior is materially different when they have something they can touch and feel on the line (like cash), as opposed to the abstractness of a credit card.

      The presence of collateral does change behavior, so we ought to evaluate it differently.

      (I may be odd in this, but I generally expect pawnshops to be used to get rid of merchandise — even if not stolen. Is this not something that happens to them on an ordinary basis?)Report

    • Avatar Zane in reply to Burt Likko says:

      Pawnshops *feel* different than payday lenders to me, just as rent-to-own homes feel different than subprime mortgages. This probably has to do with the relative consequence of failure to uphold the contract by the borrower.

      For a pawnshop, if you don’t pay back with interest, you lose your collateral. But presumably the pawnshop owner has lent an amount based upon that risk (and the value of the collateral), and you are free to borrow again with different collateral, correct? With a payday lender, you face increased fees and interest as the loan rolls over, and you will not be able to borrow from the same lender as you go deeper into debt.Report

    • Avatar Jim Heffman in reply to Burt Likko says:

      I guess the question is, what happens when you don’t pay back the pawnshop loan and they take ownership of the property? Do you still have to pay the interest?

      Because my perception is that if pawnshops and payday loans were equivalent, the pawnshop would be able to come out to your house and take more stuff if you didn’t pay them back.Report

      • That’s my perception, too. And I also wonder if, for example, when you don’t pay back the loan and the shop takes ownership of the property, whether that affects your credit history.Report

        • Avatar Kimmi in reply to Pierre Corneille says:

          Probably less than having an overdue library book.Report

        • Avatar Zane in reply to Pierre Corneille says:

          My understanding is that if you fail to pay back the pawnshop, they receive ownership of your collateral and can then sell it. No credit agency is informed, and you are free to take out another loan from the same pawnshop if you have collateral.

          The idea is that the risk to the pawnshop owner is completely mitigated by the collateral, so failure to repay does not make you a bad customer.

          I think this is correct, but I certainly defer to others’ expertise.Report

          • Avatar Burt Likko in reply to Zane says:

            With some relatively light notice requirements this is roughly correct. So if payday loans had interest caps on them would we feel better about them?Report

            • Avatar Kimmi in reply to Burt Likko says:

              I’d feel better if we said “you’re addicted” and sent folks off to counseling/jobtraining, if they get too deep in debt.Report

            • Avatar Zane in reply to Burt Likko says:

              I’m not sure interest caps are the only problem. In Ohio, where a referendum was passed to put interest rate caps on payday loans, lenders just shifted from charging interest to charging fees. The outcome looked the same to most. I believe a later referendum was passed to try to eliminate the workaround, but I still see lots of payday lending stores around.Report

            • Instead of interest rate caps, what about limiting the recourse available to pay day loan services? I’m not sure how this would even work, but perhaps limiting the degree to which failure to pay back actually harms the consumer’s credit rating? Or perhaps permitting the payday lender to recoup only, say, principal plus a certain percentage over that? Maybe the latter would be essentially the same thing as an interest-rate cap.Report

            • Avatar Dave in reply to Burt Likko says:

              Actually, I think interest rate caps would put all of them out of business. It’s not a high margin business so unless there was a way to substantially reduce costs, it would put the businesses in the red.Report

    • Avatar Kolohe in reply to Burt Likko says:

      fwiw, title loan places (where you give the title to your car in exchange for a loan) were the primary targets with Soldiers & Sailor’s Relief Act legislation (the put caps on most loans to servicemembers, and limits on how people could collect debt from a servicemember) a few years ago.Report

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