
Reframing the Debate about Payday Lending - bpolania
http://libertystreeteconomics.newyorkfed.org/2015/10/reframing-the-debate-about-payday-lending.html#.ViebXhCrTUq
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aggieben
> Payday lenders do not charge refinancing/rollover fees, as with mortgages,
> and the interest doesn’t compound (unless of course she takes out a new loan
> to pay interest on the first loan)

Yes, they absolutely do charge refinancing and rollover fees. They don't call
them that, of course, so they can skirt state consumer protection regulations,
but that's what they are. And oh yes, they get their users to take out new
loans to pay off the interests on the first loans. That's actually their
entire business model. You know what proportion of payday lender's business
comes from this exact thing? 76%! ([http://www.responsiblelending.org/payday-
lending/research-an...](http://www.responsiblelending.org/payday-
lending/research-analysis/finalpaydaymayday_defaults.pdf))

Their business model is wholly and fundamentally based on the inability of
non-creditworthy people to keep their obligations. If their customers paid
back everything on time, they would go out of business instantly. That is what
I call unethical. At best.

~~~
tadfisher
> _Their business model is wholly and fundamentally based on the inability of
> non-creditworthy people to keep their obligations. If their customers paid
> back everything on time, they would go out of business instantly. That is
> what I call unethical. At best._

The exact same criticism can be leveled at the credit card industry. Or _any_
business based on unsecured credit, really.

Payday lending just takes a well-entrenched business model to its extremes.

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SyneRyder
Would that actually be true for credit cards? With the sheer volume of global
electronic card transactions nowadays (168 Billion transactions in 2013 [1])
it seems they'd be multi-billion-dollar businesses just on card transaction
processing fees alone. On top of that, many cards charge an annual fee as
well. Seems they could survive even if everyone paid their card off every
month.

[1]
[http://www.nilsonreport.com/publication_special_feature_arti...](http://www.nilsonreport.com/publication_special_feature_article.php)

~~~
URSpider94
Nope, because of fraud expenses, new customer acquisition and customer
rewards, the fees from transactions alone aren't nearly enough to make them
profitable.

Discover is right now giving me 10% cash back on Apple Pay purchases made in
person ... :)

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URSpider94
Their point about competition is an interesting one. Usually where you find
one payday lender, you find many. If there were a lot of profit in it,
wouldn't someone arbitrage the interest rates and win all the business for
themselves?

Then again, that's a bit of a straw man argument. We don't let people buy and
sell organs, regardless of whether we could ensure that they were paid a fair
price in an efficient market. Maybe the answer is, if the true break-even
interest rate to lend to this market is 300%, then perhaps the moral answer is
to not participate.

~~~
commentzorro
_> wouldn't someone arbitrage the interest rates and win all the business for
themselves?_

Who would be taking the other side of the trade in order to allow you to
arbitrage? {Payday Lender, "You", ???}

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55555
Payday loans are a necessary evil. That is the best rate that poor people can
get, thanks to society totally failing to provide a better safety net.

While I am a huge defender of the payday loan industry, I should note that it
does deserve scrutiny: I have worked in the industry and it is a magnet for
scammers who prey on poor and uneducated people because doing so is easy and
low-risk.

Here's an example: [http://krebsonsecurity.com/2014/12/payday-loan-network-
sold-...](http://krebsonsecurity.com/2014/12/payday-loan-network-sold-info-to-
scammers/)

This details the operations of a guy who simply bought loan application
data/leads (which included bank account and routing numbers) and then
processed $30 echecks to each account with no consent or contact and without
rendering a product or service. He amassed 25 million dollars over several
years before catching any heat.

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drugsAreBad0001
If you research the names listed in the byline, 2 are businessmen, one is a
legislator, and the other is a corporate attorney.

Those people wouldn't be biased AT ALL /sarcasm

So much hand-waivy unsound logic too.

    
    
          this blog post showed that blacks and Hispanics 
          were no more likely to use payday loans than whites
          who were experiencing the same financial problems
    

Yeah, okay, the comparison should be demographic overall, meaning
black/hispanic vs white, not "white people experiencing financial problems".
Suggesting that they all have "financial problems" in common doesn't wipe away
the racial issues.

