Should these be legal? Jesus Christ would say absolutely not (remember his interaction with the money changers in the temple?), but that isn't exactly the basis of modern legislation. Usury laws in the US differ from state to state. Federally, RICO prohibits interest rates of more than double the state limit. I don't know what the average maximum allowed interest rate is.

Payday loan companies serve the sub sub prime market, people who have nothing to do with the banking system, for a variety of reasons. One of those reasons is obviously that a client has poor credit, and can't get a loan through other means. Others are lack of understanding of the banking system, paranoia of the government and paper trails, etc.

These payday loan companies charge between 200 and 500 % interest. Banks won't touch these customers. Seemingly, this has more to do with the fear of a public perception that they're exploiting poor people, than with risk, which is mitigated by sub prime rates, etc.

As George W Bush trashes the economy, outsourcing jobs, driving down the value of the dollar and up the price of gas, more Americans are working poor, and more are being forced to resort to payday loans.

Here's a quote I find particularly interesting - because this is a broad, American issue, not a Democrat issue.

But as a conservative, I do have morals and I do have a conscience. I am also a big proponent of free enterprise and I support the laws of supply and demand. But I don’t advocate exploiting poor people, especially since they many of them are unaware of how our financial system really works and the numerous options still available.

Unless we are in economic environment of hyper inflation, it is unconscionable for an organization to be charging 100 to 500 percent interest for these kinds of loans.

We should also eliminate gambling and the lottery to protect our citizens from themselves. Nothing exploit our working poor like our state run lotteries.

Actually I'd say protecting them from legalized loan sharks is a bit more accurate, but you've never been interested in the truthfulness of anything you've said in the past, so why start now?

These payday loan companies charge between 200 and 500 % interest

Good lord !
Is this serious ?

Here, in Switzerland, anything with more than 16% interest is illegal, and loan companies have to inspect the financial situation of each person applying for a loan before authorizing it.

If they declare that the loan is over the capacity of the person, the loan is declined. I don't know how they determine the capacity of the person though.

I personally always avoided anything looked like credit to me (except for my car, I'm leasing it.) but with interest of 200%, how can someone get out of it !?

Originally Posted by tripy

Here, in Switzerland, anything with more than 16% interest is illegal

In 1987, home mortgages were hitting 16% with credit cards at a much much higher rate.

I believe the 200-600% rate Newbie is referring to is based on the idea that the payday loan would last for a year. Reality is, they charge a service fee which is a percentage of the paycheck in exchange for advancing the money early. On a corporate level, a similar product is offered called factoring. Companies will give you money in exchange for your invoices at a 10% service fee. If you invoice every two weeks, you would be looking at 260% "interest" on the loan. Many companies use this product when starting out because they need capital, and as their business grows they find it difficult to break away from since they are always playing catch up.

Nevertheless, nobody is forcing these people to pay those rates to get their payday early, just like nobody is forcing the companies to use the factoring products, just like nobody is forcing you to go to vegas and put your life savings on black or red. And yet people do. All we need is some more legislation and tax payer dollars to save people from their own idiocy. Sorry if I sound like a libertarian here.

Okay, I did not catched that this was exclusively related to payday money.
I understand it better, thanks.

On a such short time span, I can understand the interests are going that high.

I think payday loans should definitely be illegal. Sure, it gives people who can't afford to pay their electric bill on time the ability to keep the lights on, but in the long run, they probably would have been better off living without the electricity for a few days.

A girl I know got into a mess with these things once. She first borrowed $300. She would pay it off on payday, but would have to borrow more again just to pay her bills. At one point, she was borrowing from 3 different payday loan companies just to pay the interest. It was the whole, "borrow from Peter to pay Paul" thing (is that how the saying goes??)

She tried to file bankruptcy, but couldn't. She finally found a state program that freezes the interest on these kinds of loans and lets you make monthly payments until it is paid off.

Payday loans are evil!

That's when I think that a social security net should exists.
Anyone here (and I did when I was 20) in a situation where he cannot pay his bills can ask for help.

Advisors will help them to put up a budget, get arrangement with the companies he own money.
If the people cannot buy food, pay electricity or his flat rent, the services will loan him the money to do so, and he will be able to pay back with no interest that money.
The IRS payment are stopped too during that procedure, meaning that he won't have to pay at that moment, but he will when his situation get better.

I seriously think that it's a good thing.
Peoples are not simply receiving money freely, but they are helped when they need it.
And as they have to repay back, it's not too easy.

Sadly, too many peoples here are not using that facility, because they don't like the idea of being assisted.

http://www.cashcall.com/

The capitalist in me says go for it.. After all, there's one born every minute..
And then you add trying to "protect" people from themselves instead of expecting them to take responsibility for their actions, and I have a hard time finding fault with this business model.. Especially when there are other services out there designed to help..

But, where do you draw the line at "too much" profit for the amount of risk taken?? Do you include the buy here pay here car dealers that sell $4k cars for $8k?? Or do you say nope, bad business model you can't do that anymore.. And if you do that, what about the lottery or local casinos?? Do you run a credit report on everyone before they are allowed to play so that they can demonstrate an ability to manage their money??

From reading the above posts I would have to come down against these transactions.

Here in the UK another scheme which I find completely irresponsible is selling household goods on credit with the promise that there will be no credit check before entering into the agreement. This obviously encourages those with a poor credit history to get into even more trouble.

Taking an over view the present financial problems have been mainly caused by poor credit vetting, resulting in loans being made to those who were obviously unable to keep up the payments.

Should we eliminate buying stocks and options on margin? How about puts with unlimited downside potential? After all the treasurer of Orange County California managed to bankrupt the county, one of California's wealthiest counties, by playing derivatives with taxpayer money. Maybe we should eliminate all high risk investments whatsoever to protect people from themselves.

I'm just playing devils advocate here because, in truth, the sophisticated/qualified investor regulations setup by the SEC are there to prevent poor people from making themselves poorer(which isnt good for anyone). It just seems that the minute you put these types of rules in place, you get the class warfare people screaming about the opportunities afforded the rich that the poor people never have a chance to participate in.

Originally Posted by Feydakin

The capitalist in me says go for it.. After all, there's one born every minute..

Well, sure, but the capitalist also says there should be a free and unregulated market in murder. Hit men fill this market niche, and I think even the capitalist in you would agree it's for the best that evil Big Government has regulated that market out of existence - to the best of its ability. Capitalism is a tool for improving our lives, we aren't slaves to it.

Originally Posted by Feydakin

And then you add trying to "protect" people from themselves

That's an amazingly narrow way to look at this. I know you aren't saying you want poor people spending so much of their money on the payday loan industry that they have none left to buy from yours?

Not unlike murder for hire, monopoly power, and other forms of regulation, there are very legitimate reasons to ask this question. People are being exploited, which clearly doesn't bother the two representatives of the conservative movement in this thread. And the larger economy is supporting a parasitic industry (several, actually, but the others belong to other threads) which is nullifying part of the whole system's potential. I think that was the exact reason Bush Jr bailed out Bear Stearns.

Originally Posted by Learning Newbie

That's an amazingly narrow way to look at this. I know you aren't saying you want poor people spending so much of their money on the payday loan industry that they have none left to buy from yours?

Ahh, and there you have it. Government sponsored wealth redistribution at its finest. Now we just need to see which lobbyists have the most money so we can decide which businesses should have lower profits by means of legislation so that others can profit. Seems that Michelle Obama got herself a pay raise the minute her husband took office thanks to him guaranteeing a few earmarks for it. I'm sure it was all done under the guise of the betterment of some poor underprivledged group or other.

Mind you, again, I am for some regulation (not a libertarian). But that kind of reasoning for regulation tries to appeal to capitalist greed by means of marxist muscle.

Originally Posted by Learning Newbie

Well, sure, but the capitalist also says there should be a free and unregulated market in murder. Hit men fill this market niche, and I think even the capitalist in you would agree it's for the best that evil Big Government has regulated that market out of existence - to the best of its ability. Capitalism is a tool for improving our lives, we aren't slaves to it.

I find it interesting that you equate this to murder..

Not unlike murder for hire, monopoly power, and other forms of regulation, there are very legitimate reasons to ask this question. People are being exploited, which clearly doesn't bother the two representatives of the conservative movement in this thread.

There you go again.. Just because I chose to argue one side of a topic over another does not automatically mean that I believe it.. It's actually possible to discuss a topic logically from various points if you are willing to be open to other ideas.. I said that the pure capitalist in me thinks this is fine, fortunately nothing in life is 100% pure and there are checks in place to keep things balanced..

And the larger economy is supporting a parasitic industry (several, actually, but the others belong to other threads) which is nullifying part of the whole system's potential. I think that was the exact reason Bush Jr bailed out Bear Stearns.

I don't think that there should be bailouts for "anyone" and would love to see the return of debtors prison and indentured servitude to repay debts.. At all levels, from Enron / Bears and Stern all the way down to my sister that has filed bankruptcy 3 times now.. With no threat of punishment for being foolish there is no incentive to be smart with your money..

But, let's say that we do away with the whole Payday loan industry, where to you propose that the people using the system as it sits get their money to pay their bills?? You plan on writing them a check??

And for the record, I don't want people to buy from me if they can't afford to comfortably..

Originally Posted by Feydakin

I find it interesting that you equate this to murder..

You shouldn't. I'm not "equating" it, at least not in the "these are morally equal" sense. I'm saying that if we had a 100 % open market, there would be a legal, unregulated market in murder. And that we all support the government in prohibiting this.

That's an example we can all agree on, that proves the concept, and that's the only way I'm suggesting these are comparable.

Originally Posted by Feydakin

But, let's say that we do away with the whole Payday loan industry, where to you propose that the people using the system as it sits get their money to pay their bills?? You plan on writing them a check??

It's no surprise my checks will bounce. Do you agree that the proliferation of payday loan services have more or less cornered the market, and if they vanished tomorrow, that would leave a vacuum? That seems to be a rephrasing of your question. If there's a market, it will be filled if possible. Credit Unions already deal with high risk customers, for example.

Originally Posted by Feydakin

And for the record, I don't want people to buy from me if they can't afford to comfortably..

That's very admirable of you. I mean that.

You do get my point, though, that the entire economy is supported by a single pot, and one industry pulling an exorbitant amount (as defined, say, by usury laws) out of that pot, has effects on the rest of the economy?

Originally Posted by Feydakin

But, let's say that we do away with the whole Payday loan industry, where to you propose that the people using the system as it sits get their money to pay their bills?? You plan on writing them a check??

How about the same places I did when I was young, foolish and desperately needed money to keep my utilities on. I borrowed from anyone I could, mostly relatives; I worked 2 and 3 jobs anywhere from 18-36 hours straight. I didn't gamble my money, I had kids before I could support them. Not on purpose, but I still had them, it was still my choice and my husband and I paid the price for that. We went through years of borrowing from everyone in our lives and working multiple jobs at a time in order to put food in the kids bellies and keep the utilities on. There were even a few times when the utilities went off for a day or two. I was smart enough to know that if I started on the path of borrowing from payday loan services it would be a never ending game of catch up, which I was already playing. Now that my kids are nearly grown I can actually pay my bills with some sort of regularity. I'm sure if money from those loans from relatives and extra paychecks came from payday loan companies instead I would still be just as deep in the whole.

But not everyone has the same understanding of payday loan services. There are a lot of really young people that have know clue how to get themselves out of a hole once they are in it.

But, let's say that we do away with the whole Payday loan industry, where to you propose that the people using the system as it sits get their money to pay their bills?? You plan on writing them a check??

It can sound very naive, but just one word come to my mind: empathy.
Peoples desperately needing this money are in need of help, not a check.

This industry (for a foreigner like me, who don't have anything looking similar for comparison) look like one of the worst exploiting one I can imagine.
Making money on the back of people in a financial sink hole is as revolting than making money on disaster or accidents victims.

I've heard a very interesting interview this week, on the radio.
It was on the theme of natural catastrophes and peoples of Japan where interviewed.
One of the question that was asked to the "man of the street", in Kobe was "do you think than the USA are ready for a second Cathrina".
Most of the answers was "not really".
And when they where asked why, their answer where "the american peoples".

When Kobe was devastated by it's earthquake, in 1995, (5'200 death, 30'000 injured and 300'000 homeless) peoples have disciplined themselves and organized their neighborhood to rationalize and distribute food, water and first aid to everyone. Even the shops asked the peoples to not take too much, to let everyone have the vital "groceries", like water and food.

There where no riot, no theft.
Even the local mafia distributed food and medicament through the city.

Like in Louisiana, the government took a long time to answer to the seism.
But before they did, the population of Japan organized itself to help the citizen of Kobe, without the government supervision.
Transporters loaded their trucks with supply, volunteer converged on the area, and the citizen help was running days before the government started to do the same.

In the absence of prompt and effective response by governmental authorities, non-governmental organizations such as the infamous yakuza--relying on their nationwide network and clear lines of authority--were able to transport relief supplies (water, food, toiletries, diapers, etc.) to the Kobe area and distribute them to local residents with considerable aplomb and efficiency. Similarly, companies such as Daiei and Seven-Eleven Japan appeared more able than the government to respond quickly and effectively to the victims' needs.

Approximately 1.2 million volunteers were involved in relief efforts during the first three months following the earthquake. Retailers such as Daiei and 7-Eleven used their existing supply networks to provide necessities in affected areas, while NTT and Motorola provided free telephone service for victims. Even the Yamaguchi-gumi yakuza syndicate was involved in distributing food and supplies to needy victims.

This contrasted loudly with the images we saw of Louisiana.
True, there where just images from news network (ie, made to distillate fear and give a sensational touch) but still... Would it have happened in Japan, all the peoples answered that the toll would certainly have been lower.

Now, you can say that it's the oriental mentality. Maybe.
But I think that helping his neighbor in crisis time is not something absurd. Even if there is no advantage to gain out of it.
And by crisis I do not think of a catastrophe like Cathrina only.

Of course it's usery.. And in theory there are laws in place to limit the amount of interest that can be charged.. And the operations that are regulated by those rules simply refuse to lend money.. Don't blame them, the default rate on the payday loan services is staggering.. But there are people out there that think that they "deserve" things that they can't afford.. The sense of entitlement leads to this type of business operation..

As for murder.. I still think that it's a ridiculous argument.. We are discussing a currently legal operation, money lending, with a currently illegal operation, murder.. It just doesn't wash..

That's very admirable of you. I mean that.

You do get my point, though, that the entire economy is supported by a single pot, and one industry pulling an exorbitant amount (as defined, say, by usury laws) out of that pot, has effects on the rest of the economy?

Thanks, but I really mean it.. My business is pure luxury, and at our highest level very few people could, or should, be able to buy.. We go through it every time some kid comes in wanting to buy a 1.5ct diamond for the girl he wants to marry simply because all her friends have diamonds that large.. The problem is that most kids can't afford a diamond that large.. Or even half that large in some cases.. We could hook them on a 90 days same as cash scam, or just put it on a credit card, but that doesn't help them.. So we try to sell them something more reasonable for their real budget with the knowledge that if they want, when they are more financially secure, they can upgrade..

Do I lose sales because of this?? You bet.. Do I sleep great at night knowing I didn't stick someone with a monthly payment they can't afford?? You bet.. Do I go after them 5 years later when they can afford something bigger?? You bet..

As for the second part, I don't believe in a one pot, finite sum, economy.. So the argument makes no sense to me at all.. But, before I go after the payday loan guys I would slap a 50% tax / tariff on all "cash" sent out of the country.. Would solve of whole lot of problems real fast..

Do I lose sales because of this?? You bet.. Do I sleep great at night knowing I didn't stick someone with a monthly payment they can't afford?? You bet.. Do I go after them 5 years later when they can afford something bigger?? You bet..

It's all in your honor.
And I do think (hope) that you may have grateful customers.

I would be.

Originally Posted by Feydakin

As for murder.. I still think that it's a ridiculous argument.. We are discussing a currently legal operation, money lending, with a currently illegal operation, murder.. It just doesn't wash..

Sure. It doesn't wash if you willfully refuse to see the point. Let's try this again.

Please, explain to me why murder is illegal. It's a service, and the free market wants all goods and services to be unregulated. We accept (actually we demand) that this particular service be regulated out of existence.

Originally Posted by Feydakin

As for the second part, I don't believe in a one pot, finite sum, economy.. So the argument makes no sense to me at all.. But, before I go after the payday loan guys I would slap a 50% tax / tariff on all "cash" sent out of the country.. Would solve of whole lot of problems real fast..

Well that's just great. One the one extreme is the idea that everything is zero sum. The other extreme is that nothing is zero sum, that money grows on trees. Reality is somewhere in the middle. And what this means is that just saying "It isn't 100 % zero sum" doesn't hold any water at all. It doesn't tell us anything we don't already know, and what I'm saying isn't predicated on the economy being entirely zero sum. Sort of like if I said that payday loans should be regulated because computers require electricity.

I hope that after those 5 years pass, you get most of those customers, and I hope that many of them are intelligent enough to realize they made the right choice to wait until they can afford an attractive diamond. And, without sarcasm, the country would be a better place if more people ran their business the way you do.

On the other hand, even if you do believe money grows on trees, the truth is that if one of those people too young to afford a nice ring buys one (or, say, a car) elsewhere and is still trying to pay off their 25 % loan after 5 years, they won't be able to afford (or justify or prioritize) a quality ring later. Predatory lending is morally unconscionable, and harmful to individuals, families, communities, and the larger economy. And while they're admittedly very different from a moral level, these are the reasons why murder is illegal. Which proves that it's possible to harness the markets for our own gain, instead of letting them run rampant when they don't work in our favor.