PAYDAY LOANS IN THE LAND OF THE PLENTY

PAYDAY LOANS IN THE LAND OF THE PLENTY

(Bob Drichsus, Jessica Silver-Greenberg)

(John Sandman, Credit.com, Gareth Marples)

(Michelle Hodson, Mother Jones, Frazer Chronicle)

 

Okay so you’re a bit short on Wednesday, and payday is still four days away, where oh where can I come up with $300 bucks to make the car payment on Friday? If you’re like hundreds of thousands of Americans, you simply get in that old rust bucket that’s costing you $300 dollars a month, get’s lousy gas mileage, and needs a quart of oil every other day, and drop by your friendly pay-day loan store and put your name on the dotted line!

 

Hey it’s just that easy, like in the boom period during the middle of the first decade of the 21^st century, when loan companies would send checks up $5000, and all you had to do was take the check to your bank, sign it, and magically your savings or checking account was five grand to the good. Oh yes, there was one little problem with cashing the check…..you had to pay the money back in equal installments usually for two, three or four years, depending on the size of the check.

 

Where those checks a scam, well actually yes and no, it really depended on what you were going to use the new found fortune on. Fixing a leaky roof, dropping and rebuilt transmission into that $300 dollar a month car were reasons to borrow money, but probably from a bank or credit union…..not however a pay-day loan store.

 

If you borrowed the money with little or no idea of where to spend the money, because you really didn’t have a specific need…..these types of people will spend years paying off a simple small loan at outlandish interest rates.   

 

You see the interest rates at that these reputable lending stores can run as high as 700%, and the interest rates change by the hour, or by the day. These places (pay-day loan stores) actually prey on the low income, unemployed or under-educated types, and soon discover that once you’re in, it’s usually for the long term.

 

THOSE WHO USE THE PAY-DAY STORES

According to a Pew Charitable Trust study, “Most Payday loan borrowers are white, female, and between 25 and 44 years of age. The study also found that there were other characteristics linking the most frequent users; those without a four-year college degree; home renters; African Americans; those earning below $40,000 annually; and those who are either separated or divorced.

 

Of course there are other studies, other opinions and other conclusions, but I found the Pew data to make the most sense. Anybody with half a brain has to know that borrowing money from one of these institutions actually can lead to more debt, therefore college educated individuals will take a wide path around these places when there is a need for cash.

 

Home renters can usually be bundled into a select group that is either starting out in life, or is unable to scrounge up the necessary funds to put a down-payment to buy a house, or can be divorced or separated therefore money is tight, and yes, sadly many who use the Payday loan system to put their hands on some ready cash are black.

 

 

 

The end result of a Payday loan in many cases is that the low-to-middle income people with few assets are least able to secure a normal loan through a bank, or a credit union in the lower interest rate forms of credit, borrow money at from these Payday stores at escalated rates of interest that can be as high as 3686%.

 

At the very best, borrowing money from a Payday store is only a stop-gap, short term solution to a bigger problem that many in the United States suffer today. That problem is the inability of the American worker to receive a living wage for his labor.

 

A person’s labor, or expertise is a commodity, it’s a service or an effort that the worker sells to an employer, the issue is really a two way street that both parties need to understand. I’ve been preaching this simple fact for a long time, and as yet, I am still a loan voice in the wilderness.

 

AS SIMPLE AS A.B.C.

The basic loan process involves a lender providing a short-term unsecured loan to be repaid at the borrower’s next payday. The only real background check, or credit check, is whether the borrower can show proof of employment, usually two or three pay stubs would be necessary.

 

Without exception individual Payday companies and franchises have their own underwriting criteria, and even that criteria can sometimes be altered to better serve an individual client. Payday loaners carry a substantial risk, as the net default rate is 6%, and according to one source, defaulted loans cost the lending companies around a quarter of their annual revenue.

 

Where the simplicity in this process ends and the aggressive collection practices take over can be a maze of double speak, threats, overwhelming badgering with phone calls, and a never-ending trail of letters. A common practice is for the Payday store to actually retain a collection agency, and will work in concert to collect on the debt…..all the while late fees and escalating interest rates continue to add to the debt. It also is not uncommon for one of these Payday stores to sell your account to a third party.

 

Another practice of the Payday loan industry is the encourage writing a post dated check, with the promise that the calls will stop, I don’t know how the law works on these types of transactions, but I do know that writing a check without the funds in your account is check kiting, and that is illegal. Check kiting is a fraudulent process that takes advantage of check float time, the space between writing a check and the final withdrawal of cash from the account.

 

REGULATED IN 37 STATES

The question of getting a loan against your paycheck smacks of irresponsibility, sure emergencies happen to a person at times, and if there was a problem, and a person needs an amount of cash to address the problem, there really should be a place where a person could get to get some financial relief.

 

However should the only alternative be a lending industry that acts as an aggressive and predatory institution with exorbitant lending practices with regards to interest rates? 37 states have regulatory rules that govern the Payday loan types, one state, Arkansas prohibits them altogether, and 13 states have little or no restrictions.

 

Are Payday loan stores a predatory type of inducement that catch people at their most venerable, faced without the funds (in many cases) to deal with a situation that requires immediate resolution?  At times, can these lending institutions speak in circles, or simply use double-speak to get their proscribed end-result.

With very few exceptions the Payday lending stores have little positive impact on the communities that they say that they service.  Payday lenders offer a service that would be otherwise unavailable to those people who get loans.

 

However whenever a borrower extends or rolls over an account it’s where a higher percentage of interest comes into play, and for some, paying off the principle is virtually impossible to pay. This is where the Paydayers really clean up.

 

I have no solution, I have no suggestions, and no nuggets or pearls of knowledge to impart, just the realization that man…..in his insatiable thirst for the bottom line will do anything to get there.

 

HAVE A NICE DAY!