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In Defense of Payday Lending
Friday, September 25th, 2009Stellar piece of contrarian journalism by my colleague Katherine Mangu-Ward.
37 Responses to “In Defense of Payday Lending”
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Off topic, sorry. Just found this on Fark. Brave, brave cop forced to shoot dog at a school in front of the kids because the dog ‘nipped’ at him.
How dangerous a dog? The kids ride him like a horse.
http://www.nbcdfw.com/news/local-beat/Arlington-Cops-Shoot-Bozothe-Dog-61383247.html
The classic defense, “The poor have so few options already, taking away the only option they have will not improve matters,” was developed by the Foundation for Economic Education in their April 2008 edition of The Freeman.
http://www.thefreemanonline.org/featured/banning-payday-loans-deprives-low-income-people-of-options/
I scanned the Reason article for any mention in vain. Oh well.
I think using a payday lender is self-destructive.
But I’m not about to forbid someone to do something “for their own good.”
Ah, good ol’ “predatory” lending…
I remember when they first started using the word “predator” to describe people who eat — oops, I mean sexually abuse — children. After all, merely saying someone has sexually abused a child apparently doesn’t conjure up a sufficiently horrifying image to evoke a powerful enough rage to suit the sex abuse hysteria crowd.
Since then, almost every human interaction which can remotely be characterized as being unfair (or at least unpopular) by those who don’t engage in it, has been labeled as predatory.
I’m of the opinion that the act actually eating another creature needs a new term, one that hasn’t been so corrupted with misuse affiliated with perversion. We owe it to the honored creatures of the wild to whom predation is a way of life.
I look forward to Reason’s next great missive, “The Local Loan Shark – Unfairly Maligned?”
We hear all sorts of stories about “predatory lending” and how it victimizes the poor.
What about “predatory banking”? Are you aware there’s almost no such thing as a bounced check or declined debit card transaction these days? “Overdraft protection” is too profitable! Banks are more than happy to cover the overdraft while charging fees of $19-36 per occurrence.
They’ve even started stacking transactions, to start with the day’s largest amount first instead of in the order they are received. That way, the car payment and electric bill will put the account into overdraft, so that a half-dozen OD fees can then be charged for the other transactions.
These OD charges, for people living paycheck-to-paycheck, usually amount to “loans” for one or two days until the next check hits. Calculating the APR is shocking: it can be several thousand percent, depending on the size of the transaction.
Is it any wonder that banks have been the biggest supporters of outlawing payday lending?
I dunno, I think it’s kind of silly to try and justify payday loans on the grounds that they are, under the covers, serving some grand and useful purpose to society’s poor. The fees on those loans are ungodly and there are very few situations that I can even conceive of to justify paying such a fee. Maybe a one-time emergency medical situation.
That being said, i don’t think something has to be useful to be allowed to exist. As best I can tell, there’s no fraud or coercion involved, so I don’t see the big deal.
I think in 99.9% of cases it’s really stupid to take a payday loan, but I think people should have the right to do stupid things.
From #1:
“I feel really horrible, but you know, I understand why they shot the dog,” she said. “I mean, they had no choice; there were children outside.”
There are never choices when children are around. Yes, when there are people around, especially children, let’s SHOOT THINGS. WTF?
I’ll go ya one better. I don’t think even if something is harmful that outlawing it is automatically justified. The key is whether it’s coercive.
@Dave Krueger
This came from a dictionary that was printed in 1990;
pred⋅a⋅to⋅ry
1 a : of, pertaining to, or characterized by plunder, pillage, robbery, or exploitation: predatory tactics. b : showing a disposition to injure or exploit others for ones own gain
2 : preying upon other organisms for food
I think you are being far too generous to refer to Ms. Mangu-Ward’s article as “stellar.” The only real support to her contention that doing away with payday lending would truly be bad for the impoverished are references to the 2008 Federal Reserve Bank of New York study, the results of with are presented with suspiciously vague adjectives such as “more” and “at a higher rate”, assuming we accept the rate fixing in Georgia to have any causation at all.
Wow, so Senior Editors at Reason Magazine possess such poor money managing skills that they need to get payday loans?
Or… did she just get the loan in order to be able to say she did in the article. That’s what I’m going with.
I love the total bullshit in the article:
“…85 percent said they had savings accounts and 35 percent had credit cards with credit available.”
Bullshit! No one with legit means would be taking out a payday loan. Either these people are lying or the amount in reserve is not sufficient, rendering the quote intentionally deceitful.
Another gem:
“A 2009 study from the Center for American Progress found that people taking out payday loans were overwhelmingly doing so to purchase necessities or cope with emergencies, not to engage in discretionary spending.”
Of course not. They already blew whatever cash they had on the discretionary spending, hence the need for a predatory loan for the necessities/emergency. Next paycheck, they’ll have to pay the loan back before getting to spend on discretionary spending, or face possible criminal action (it’s illegal to knowingly bounce a check).
Net result? A reduction in discretionary spending caused by poor financial skills.
They have a saying in Texas, “If you find yourself in a hole, the smartest thing to do is to stop digging.”
Funny how you never hear the term “predatory law enforcement.”
Well that certainly was … “contrarian.” Question: do these types of lenders operate in Canada? Sweden? Japan? Germany? If not, how ever do the poor in those countries get by?
I love Radley, and I understand he must be under some subtle encouragement to cross-post with Reason, but juxtaposing this Chicago-school panglossian creditor-puffery with the important and compelling information he offers on outrageous police misconduct really dilutes this blog’s core message.
There is no connection between Obamacare and anti-usury laws on one hand and police violence or the excesses of the drug war on the other, even at the highest level of abstraction.
I am dismayed to see a lot of good and righteous indignation about illegitimate government violence being folded in with decidedly marginal concerns about low-end financial regulation.
It’s fairly simple:
** If you’ve dealt with these companies, either yourself or through your clients, you realize that they are exploitative scum, legal (and sometimes operating illegally) loan sharks without the heavies.
** If you haven’t dealt with them because you had to you can write smug little papers about how useful they are.
It’s not an either/or thing with the banks. It’s feasible to think both are thieving scum, but just operating on different target groups.
American banking and financial services are about as close to unregulated as one can get in a modern western economy. The result of this deregulation is psychotic greed and an economic meltdown and spreading catastrophe on a macro scale and huge amounts of micro-thievery like the rigged OD charges where none should exist. Jesse James didn’t die, he just works on the other side of the fucking counter now, for real money.
The payday loan industry could be largely neutered (in Canada anyways) with some minor regulatory tweaks. For example, forcing banks to credit the account when the funds clear rather than an arbitrary 3, 5 or 7 business days later. I’ve been poor and I know damned well that the poor don’t have that kind of time to wait and if the money is there then the shouldn’t have to.
Ugh KMW is the worst. I don’t think I’ve ever read anything by her that wasn’t a snide and lazy defense of the status quo.
Whether or not payday loans are good or bad for people seems, to me, beside the point.
Should or shouldn’t individuals be allowed to make poor financial decisions? Is it a different question than whether or not individuals should be allowed to kill themselves with alcohol or tobacco?
Shorter Katherine Mangu-Ward: Rumplestiltskin isn’t so bad, after all… he’s providing a service. That bitch needed to spin straw into gold NOW goddammit!!
Look, it’s one thing to say that they shouldn’t be outlawed, it’s quite another to paint these cretins in a good light. People who take advantage of the needy are pure filth. And to defend them is … well … distasteful.
And… WTF???
The payday lending industry was essentially created from scratch over the past two decades. Back in the early 1990s, supermarkets and dedicated check-cashing outfits would convert pay stubs into dollar bills, and the odd mom-and-pop shop might make a loan to a trusted customer against an upcoming paycheck.
Yes… who can forget the innocence of yesteryear, when local grocers owned by friendly mom-and-pops, graciously loaned their customers some cash until payday… with 15% interest, of course… and lets not forget the extra fees.
Yes, the good old days.
/raspberry
Danny @ 5:37 PM
The issue is not whether it is good protest the wrong done by the police and bad to protest the wrong done by Payday Lenders.
The issue is whether people should be allowed to make their own choices, for good or ill. The WOD supporters would say that they have to prohibit drugs “for the good of the (potential) abusers”; the anti-usury law supporters want to shut down or regulate the Payday lenders “for the good of the poor.”
I think anybody who uses crack, cocaine, heroin, meth and most of the other “recreational” drugs is a damn fool. I think anybody who uses a Payday lender is a damn fool.
But I am not going to try to save them from themselves. I believe that every individual has a right to make his own choices and the obligation to accept the consequences of those choices.
Further, I will point out that the consequences of both bans – on drugs and, potentially, payday lenders – are worse than the problems themselves.
With the WOD, you get ruthless billionaire drug lords, massive corruption, adulterated drugs, and destabilization of the source countries.
With banning Payday lenders, you will get real, “break your legs” loan sharks.
Canada does have payday loan companies, and there is an ongoing push to regulate them, at the very least capping the amount of interest they charge.
seeker6079@15: I agree with you with regard to what Canadian banks could do to reduce the demand for payday loans (though I’m not convinced it would eliminate them; there are plenty of working people who just aren’t getting paid enough to meet their needs, at least in a city like Toronto. Some people could manage their money better, sure, but crises do come up – even if we don’t have to worry as much about medical bankruptcy).
However, it’s not as simple as forcing the banks to release holds on cheques when the funds clear, because currently, there’s no way to actually know if the funds are clear unless a) the cheque was drawn on the same bank, b) someone who knows the account that the cheque was drawn on goes to check to see that it’s cleared. The 3/5/7 day hold periods are based on the amount of time it might take a cheque to clear because there isn’t a notification system – even though most cheques do clear within one business day. The banks are also getting hit with a significant number of fraudulent cheques, so they’re going to resist any regulation like that, unless it’s accompanied by significant safeguards, with everything they’ve got.
Shorter Katherine Mangu-Ward: Rumplestiltskin isn’t so bad, after all… he’s providing a service. That bitch needed to spin straw into gold NOW goddammit!!
That’s a pretty bad analogy, since the woman in that story promised an unborn baby in return for services rendered. Also, magic was involved.
Shyte . . .
Payday lenders are nothing–I have dealt with them. They helped me out in a tough time.
The IRS?
Try the IRS for someone who will widen your anal orifice significantly. Ther are other terms less approriate for children, but more applicable.
Gummint solves nothing. Make your own deal and live with it as an honest man. You don’t have to agree, ya know . . .
End of subject.
Les, the precondition to making individual decisions is the availability of choice. If the state abandons its regulatory role then the individual has no choices: he merely faces different thieves who rob him in manners that differ only in form, not effect.
Thus making no distinction between a parent who needs their meagre paycheque cashed now or the kids don’t eat, and some hubristic shit-for-brains with too much money riding the dragon for the first time. Brilliant.
tariqata:
Odd, isn’t it, how a bank knows instantly when the money is there when it benefits the bank, and it takes seven days in an electronic economy to determine whether or not money is actually there. Just a coincidence, I’m sure.
taraqita:
Odd, too, how even if the cheque is drawn on the same bank it takes the same amount of time to clear. Just another coincidence.
Les, the precondition to making individual decisions is the availability of choice.
I agree with this. Adults without developmental disabilities have every opportunity to make a variety of choices, good and bad. That some adults made poor choices should not mean preventing them from doing so.
If the state abandons its regulatory role then the individual has no choices: he merely faces different thieves who rob him in manners that differ only in form, not effect.
What is the “regulatory role” of the state? Certainly it’s not to prevent people from making choices that we might deem irresponsible? The state has a hard enough time protecting people from actual fraud and theft (often from the state, itself) to suggest that it should strive to prevent two individuals from entering into any type of voluntary contract.
Thus making no distinction between a parent who needs their meagre paycheque cashed now or the kids don’t eat, and some hubristic shit-for-brains with too much money riding the dragon for the first time.
There are a variety of state resources for low-income parents to make sure their kids don’t starve. If you believe the state should remove the opportunity for people to make bad choices (for the children!), you then have a ready excuse for the state to interfere with the most basic choices a person can make.
Even if one doesn’t favor a ban on “payday lenders”, that doesn’t imply that one must allow such entities carte blanche in how they choose to collect their debts. From what I understand, the entities take a check as collateral; if the loan is not extended and the check bounces, the company threatens to prosecute the borrower for writing a bad check.
I would argue that such prosecution should be considered illegitimate. The lender knows at the time the check is written that there are insufficient funds to cover it. This would imply that either there is no fraud in writing the check (since no representation is made that the account has money sufficient to cover it) or else, if the check itself is considered a non-disclaimable representation of funds, that the lender actively solicited the “crime” of which it claimed to be a victim.
That isn’t to imply that a lender should be totally without recourse in collecting its debts, but I see no reason to allow the lender to threaten “bad check” prosecution.
seeker6079: It’s not coincidental at all. As I said, there’s no notification system in place. A person can go and check – and I did on request numerous times when I was employed by a bank – but there is no way that I could have done that even for the limited number of cheques deposited at my branch drawn on the same bank. I think there should be such a system – in fact it’s ridiculous that there isn’t, and it doesn’t really benefit the banks that there isn’t, except perhaps in the minds of the top level of management (trust me when I say it’s no fun when 6 months after the fact you’re notified that a counterfeit item was accepted by one of your staffers) – but until it’s in place, simply slapping a regulatory requirement about hold periods on the banks won’t change their behaviour; they’ll simply not accept a lot of cheques that would previously have been held. More people will end up bypassing the banks for the cheque-cashing companies, which take a big cut off the top of the cheque for the “service”. The poor lose either way.
I will add, from much unfortunate experience dealing with the cheque clearing system – part of the problem is that it’s not all electronic, though significant parts of it are. The entire system needs to be overhauled and modernized. (Though personally, I’d like cheques to be modernized right out of existence. Give me electronic transfers any day.)
Exactly, supercat. A payday lender does not engage in an instantaneous discrete transaction and move along (like a store clerk or a gas station attendant), state action thus being held to a minimum.
The creditor/lender relationship is ongoing and is saturated with positive government actions towards, and limitations on, the parties — who can do what; who can “self-help”; who gets preferential treatment in government courtrooms.
Even without extensive government background rules, the relationship is ripe for disorder and breaches of the peace when the parties come to disagreements.
The government — meaning the voting public — meaning the taxpayer, is well within rights to specify terms and conditions for those who expect to rely so heavily on its background maintainence of control. This includes normative judgments about what is an acceptable use of superior bargaining power.
Anybody who is dissatisified can go set up a payday lending shop in Somalia.
Even without extensive government background rules, the relationship is ripe for disorder and breaches of the peace when the parties come to disagreements.
How is this different than marriage or even renting an apartment?
The government — meaning the voting public — meaning the taxpayer, is well within rights to specify terms and conditions for those who expect to rely so heavily on its background maintainence of control. This includes normative judgments about what is an acceptable use of superior bargaining power.
Whether or not “the government” = “the voting public” = “the taxpayer” is seriously arguable, but what do you mean by “normative judgments?”
Normative judgments are a contradiction. Judgments are subjective by definition.
nor⋅ma⋅tive –adjective – of or pertaining to a norm, esp. an assumed norm regarded as the standard of correctness in behavior, speech, writing, etc.
Marriage and residential real estate rentals are broadly regulated to uphold a variety of norms, including norms about the moral limits on the exercise of superior economic bargaining power.
Wawawah cry for the lenderbaby who can’t charge more than 24% interest. Will he take his pile of cash and go home and not play any more? If only. He’ll charge the 24%, and look for some other way to gyp somebody instead of taking up honest work.
To followup on #28, one of the problems with payday lenders is that they put the government in charge of their collections, meaning we have to pay for what should be part of their business. They also lobby heavily to make their businesses legal. For example:
http://boingboing.net/2009/04/05/congressman-whos-giv.html
Lots of lobbying.
I don’t feel that they provide a legit service, and I agree with #12 that people aren’t going to them with other options available.
The fact is, yes, sometimes someone may be “saved” by the payday loan. But when you construct this scenario where they’ve maxed out the credit cards and have no money in the bank, you’re one step away from “and their next paycheck is already tied up in a payday loan”. Then what are they going to do?
There’s a reason that loan sharking is illegal. Payday loans really are loan sharking.
It all comes down to the usual statist drivel. “Someone else may be making a decision we don’t like! Get him, boys!”
These are not the droids you’ve been looking for. Move along.
Wawawah cry for the lenderbaby who can’t charge more than 24% interest. Will he take his pile of cash and go home and not play any more? If only. He’ll charge the 24%, and look for some other way to gyp somebody instead of taking up honest work.
I don’t think anyone here is sympathizing with payday lenders. And I don’t think anyone is suggesting they shouldn’t be regulated to the extent that they don’t misrepresent what they do to those who use them.
But no one here has explained how making payday lending illegal is different than making hazardous and deadly drugs like tobacco and alcohol illegal.
The idea that a highly paid corporate propagandist has any reason to resort to a payday lender is a complete affront to “Reason.”