
Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending - daegloe
https://www.npr.org/2019/03/07/700740998/move-to-pull-consumer-protection-rule-heightens-debate-over-payday-lending
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sctb
Previous discussion:
[https://news.ycombinator.com/item?id=19100050](https://news.ycombinator.com/item?id=19100050).

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afpx
I'm generally not a fan of regulation. But lately, I've been changing my
opinion on that. I don't see how we can all play in the economy game without
having a set of unambiguous rules and referees to enforce them.

Regulations do add overhead, sure, but how else can we prevent companies from
acting in ways that are detrimental to society? Capital finds the shortest
path to profits, and without rules, it becomes a quick race to the bottom. For
example, payday loans. I would love to make 20+% return on capital. Who
wouldn't? And, acting purely as a business-owner, I'm would be required to use
every trick, no matter how shady, in order to win. Why? Because I know my
competitors will.

Unfortunately, as history repeatedly shows, tricking people is usually the
quickest way to make profit. Regulations are necessary, but there should also
be continuous effort to decrease the overhead costs without sacrificing the
intent.

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1123581321
What do you think about the idea that if someone is charging 20% on a loan and
making easy money, you can offer the same service for 15% and take their
business?* That is a race to the bottom, but it seems like it would be good
for the customer.

* This is essentially what credit unions do with signature loans.

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mikeash
Can you really? Do payday loan customers typically comparison shop?

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robert_foss
To further reinforce this point, find me a payday lender that up-front lists
their Annual Percentage Rate.

They really don't which makes comparisons impossible or very hard work.

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mikeash
Sure, but everyone who needs their car repaired today so they don’t get fired
tomorrow definitely takes the time to survey all of their local payday
lenders, then sits down with a calculator and carefully works out how much
each one will ultimately cost them before choosing the cheapest one.

(Hopefully obvious sarcasm is obvious, but one can never tell.)

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seibelj
There's demand for these sorts of loans, so if you outlaw them the demand
doesn't go away - it moves to the blackmarket. The classic "loan shark", or
local guy with cash that will have his goon break your legs if you don't pay
it back.

That's fine, we can outlaw and drive it underground, just as we tried with
alcohol, and just as we do now with various drugs. Sometimes society would
rather pretend demand for some products doesn't exist.

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SegFaultx64
There are far less exploitative options out there for providing this service
though. See emerging fintech offerings like:
[https://www.earnin.com/](https://www.earnin.com/),
[https://www.dave.com/](https://www.dave.com/). There is also a concept called
earned wage access that helps solve this issue and there are a few emerging
players in that space as well.

"The invisible hand" isn't perfect and sometimes regulation helps push people
towards better options. We don't let anyone provide medical services and
assume the market will sort it out, so there is at least a _potential_
argument that the same should be true for financial services.

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scatters
> earned wage access

Sounds like debt bondage.

~~~
SegFaultx64
The way it actually works is that people get payed before their paycheck if
they need it at zero interest. When executed correctly there is no debt the
money they took is just deducted from their paycheck.

This is how payday advances worked for most people before the age of complex
payroll systems. You used to be able to ask your boss to get payed early for
the time you had already worked. Now that is really hard because "the system
isn't set up like that"

You can find out more by googling it.

Payday loans are much more akin to debt bondage, in that they are _often_ the
start of a debt cycle that is extremely difficult to break.

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dragonwriter
> Now that is really hard because "the system isn't set up like that"

No, it's really hard because systems (technology secondarily, primarily policy
and administrative controls) are set up to prevent the discretion that
practice relied on because it was a giant and frequently exploited opportunity
for embezzlement, favoritism, and unlawful discrimination (including _quid pro
quo_ sexual harassment) by line and middle managers.

It's not just an incidentally unsupported function.

~~~
SegFaultx64
Yep, absolutely. However there are ways to bring that into "the system" and
regulate and monitor it just like other payroll functions. There is no reason
that payday advances couldn't be done without those negative externalities if
they we setup and structured correctly, rather than just your boss slipping
you cash.

~~~
dragonwriter
> However there are ways to bring that into "the system" and regulate and
> monitor it just like other payroll functions.

Sure, but it's not free to the employer (aside from making cash flow timing
less predictable, regulating and monitoring are not free) and the contribution
to the bottom line is dubious (it may even be negative: the employees for whom
such a benefit would be most attractive may not be the employees a business
most wants), so the business case for doing it rather than leaving employees
to existing credit mechanisms is weak.

OTOH, there seems an obvious social benefit to having either this or same-day
pay (which is also not free compared to _status quo_ alternatives) as a norm,
so that's maybe a role for government rules (either mandates or incentives.)

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tjansen
Adding regulation without forbidding payday loans sounds to me like the worst
thing you can do. In emergency situations, it can be perfectly rational to
take out such a loan, despite high interests and fees. On the other hand, if
you take a payday loan for an unneeded expenditure, you will have even less
money in the long term. So either you get rid of the regulation, in order to
lower the fees. Or you forbid payday loans outright, to prevent people from
hurting themselves (while ignoring the needs of those who are in an emergency
situation). I don't think there is any real middle ground. Everybody loses
when you do something that increases fees without actually helping those who
are affected by this.

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mikeash
Why would removing regulation reduce fees, and why would adding regulation
increase them?

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leetcrew
complying with regulations costs money. obviously if you are exploiting people
in a way that becomes illegal, you have to stop doing that profitable thing.
this is probably not bad. however, even if your business is already compliant
with the new regulations, you still still have to pay someone to understand
the new rules and confirm that you are not breaking them. as regulations grow
in number and complexity, you have to spend more money just to know whether
you are complying with them.

removing regulations may not reduce fees, but adding new ones will almost
certainly increase them, since they necessarily increase the overhead for the
business.

~~~
mikeash
I understand how regulations increase costs. But increased costs can be
recovered from in increased prices, decreased profits, or increased volume. I
don’t see why it necessarily must be the first one, especially when these
regulations often put a cap on fees.

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cletus
To those arguing against regulation and pointing out there's a demand for
these loans, you're missing the point.

These products are designed to be deliberately deceptive. They exist to prey
on the desperate and uninformed.

I honestly don't know the point of the Obama-era rule referenced in this
article. To me this is simpler:

\- "Fees" that scale with the loan size aren't fees. They're interest and
should be legally treated as such. This would subject the loans to state usury
laws.

\- Providers should disclose what the annual interest rate is for the loan the
borrower is intending to take out.

\- Payday loans should be prohibited from being mortgage loans. This is an
esoteric point but in some states to get around state laws on payday loans,
they're treated as mortgage loans. This also adds the problem that someone
could lose their house from payday loans.

\- Come to think of it, primary residences should be excluded from being taken
to repay payday loans.

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CompelTechnic
The profit margin on payday loans is not nearly as good as one would think. I
know that there are concerns about allowing people to fall into traps, but the
statistics on profit margin make me think that these companies are not
predatory. The high interest rate on these loans doesn't go into heaps of
profit so much as it reflects the true costs to offer this type of loan.

In some ideal libertarian-ish world, these payday loan shops would still be
allowed to exist, but nobody would use them, because they would recognize them
as a bad deal. This is not the world we live in.

I'll just link to the google results regarding profit margin, because my first
result was from adamsmith.org, and I'm at least trying to present my evidence
neutrally.

[https://www.google.com/search?q=profit+margin+on+payday+loan...](https://www.google.com/search?q=profit+margin+on+payday+loans&rlz=1C1NHXL_enUS715US715&oq=profit+margin+on+payday+loans&aqs=chrome..69i57j0.6796j0j7&sourceid=chrome&ie=UTF-8)

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wazoox
In civilised countries, usury is strictly forbidden. Period. [eyes rolling].

