09 February 2008

do-gooders do bad

an interesting payday lending statistic from the March issue of Reason:
Industry critics charge that the $15 fee that payday lenders charge for a two-week $100 loan is exorbitant, amounting to 391 percent annually if the loan is rolled over for a year, accruing $15 every two weeks. The Community Financial Services Association of America, an industry group, did the math on the rates incurred with other options, and finds that a $100 bounced check garners a $54 fee, which comes out to an annual percentage rate of 1,409 [percent], and a $37 late fee on a $100 credit card balance amounts to an annual percentage rate of 965 percent.
so, should uncle sam kill payday lending to save poor people from cheaper credit? or should he instead force lenders to provide credit to those same folks, even when it may be a bad idea?


  1. Uncle Sam should keep his damn nose out of people's private business, even if they're causing harm to themselves. Payday advances are hardly compulsory.

  2. still, i wouldn't mind some kind of "truth in labeling" requirements for lenders. maybe even a simple table similar to food labels that shows the APR and other stuff in an easy-to-find-and-understand manner.

  3. If they advertise $100 loans for a $15 fee per 2 weeks, how much more cut-and-dried do they have to get? If the consumer can't do basic math, then no amount of truth-in-lending will save them from bad decisions.

    Sadly, I'm highly polarized on this one. Either legislate against that sort of lending, period (which goes against every Libertarian fiber of my being); or give people the freedom to destroy themselves financially because they can't do simple math.

  4. This is an article that says everything that I want to say about this topic. I use these payday loans and I am out of debt because of them. They are a great service and people need to learn to take responsibility for themselves.

    Payday lenders are the perfect target for politicians that want to seem compassionate. After all, a $15 fee on a two-week $100 loan amounts to an APR of 390% if the loan is rolled over for a year (accruing $15 every two weeks). What could be more evil than charging poor people 390% interest, right?

    A recent study by the Federal Reserve Bank of New York suggests otherwise. As reported in the March issue of Reason Magazine, the study found that the citizens of two states where payday lending is banned "bounced more checks, complained more about lenders and debt collectors, and filed for Chapter 7 bankruptcy more often"1. Comparing payday lending to other options, the Community Financial Services Association of America noted that a $100 bounced check garners a $54 fee (equivalent to 1409% APR) and a $100 credit card balance can garner a $37 late fee (equivalent to 965% APR). As the study's authors write, "Forcing households to replace costly credit with even costlier credit is bound to make them worse off".

  5. You so-called consumer advocates and do-gooders are telling me I am too dumb to make a $30 financial decision. Yes, it is about $30 (fee) for a $200 payday loan. You do-gooders are telling the world that I’m a victim. You do-gooders are telling the world that I’m uneducated. Well, I’ve had enough. I have thrown in the towel with you ignorant people. I’m no longer a democrat (nor a republican either). I’m absolutely not voting the party line anymore. I make $50k per year, own my own house (well, me and the bank), I have a high school education and some college, and own my own car. And, yes, I have a bank account, too. And, YES, I DO PAYDAY LOANS ON OCCASION. I’m no idiot. I only get payday loans to avoid bouncing checks BECAUSE IT IS CHEAPER and because I don’t manage my money as well as I should! But, let me tell you something else. I pay a whole lot more than $30 per month in taxes. I pay property taxes and income taxes, but our schools are terrible. I pay sales tax and gas tax so that my government can send money to countries I can’t even name. I pay telephone tax, utility tax, and fuel tax, and my government still can’t balance their checkbook. I balance my checkbook, and on occasion it takes a payday loan to do it. Of course, if you don’t have to balance your checkbook, you wouldn’t understand!!!!! If you all want to put the hurt on the payday loan industry, why not work on spending tax money wisely and lower and/or eliminate some of the taxes I pay. Then, I wouldn’t need a payday loan. It’s $30! Please get out of my life all of you do-gooders and politicians.