Sunday, December 11, 2011

Payday Loans


Thanks to Gary Rivlin's Broke, USA I am getting the specifics on "industries" that prey on our poorest citizens. It has reminded me of what anyone with attentive eyes can see: poor neighborhoods are lacking in legit banks but have an abundance of check cashers, pay-day loan storefronts, pawn shops and rent-to-own stores. Wasn't always the case, but is the current situation.

Of course, there are many ways to begin to address this.

Direct action against the companies in terms of protests, etc. might backfire because the research I've found says their customers actually like the stores. Customers like the convenient hours, open early before work, open late after work. Friday night, driving in Lynnwood, Washington I counted two open at 8:45 PM.

Customers say they like that in less than half and hour you can walk out with cash.

Customers say they like knowing what they have to pay and when it's due.

This isn't a time to rile the customers up to defend the "financial services" industry!

Well ok, that's out, what about political activism? The legislature is made up of people from the comfortable classes. They know little about payday loans or the type of binds less well-off people find themselves. They get donations and intense lobbying from the financial services sector. Besides, they have a huge state debt to work their way out of.

So, what's left? A person always has authority for themselves. It's not always active before they take out that first loan, but it can always be asserted at any time. Many people use a payday loan company once and feel so uncomfortable that they got themselves in such a bind or felt a need for fast money that they don't do it again.

That's not who the payday loan companies make their money on. As with any business, these companies make their money off repeat customers. Multiple times a year repeat customers.

The companies like that their regulars pay and pay, upwards of 545% annual rate. But customers are shielded from this harsh fact most of the time, though you can find signs with this rate posted in the lobby or on the wall of many of them. Customers think they are paying fees, not interest. Customers pay a fee to keep the loan in play, but that fee isn't applied to the principal, just stretches the due day another spell, usually 2 weeks, sometimes a month. One can keep doing this while trying to scrap together the full loan to repay. And keep doing it. The fees keep rolling in. One man began with $800 loan and paid fees regularly on Tuesday for 10 years! His account rep showed him his total fees, over $10,000! And he had a mortgage-free home. What's up with this?

I want to nudge regular users to begin thinking about their personal authority over their spending and saving.

More in later posts.