The Shaft: How Some Companies Prey on the Poor
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Our country’s history is rife with examples of unscrupulous individuals and financial institutions that have preyed on the unfortunate. Con artists seemed practically as common as bankers in the industrial age (some even consider them to be one and the same thing). From Charles Ponzi, so infamous he had a “Get Rich Quick” scheme named after him, to the former chairman of NASDAQ, Bernie Maddof who plead guilty in March 2009, to 11 federal crimes built on Ponzi’s example, those in a position to offer loans do so in a manner guaranteed to get the maximum amount back. Here’s a look at a few schemes (not all strictly illegal but certainly of questionable ethics) that deliberately prey on people who are poor and unsophisticated about money.
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72 Comments so far
leave a commentWhile I agree this are despicable practices, no ones puts a gun to anyone’s head and makes them enter into the agreement. I understand that sometimes people need money and appear to have no other option, but borrowing from a friend/family member or being sure to pay off the debt before letting it build are things that every person can do to prevent the vicious cycle from ever beginning.
The “no one put a gun to their head” defense is a flawed argument. Just because you aren’t coerced into an action by force doesn’t in any way diminish the predatory nature of the crime. A con artist is as much a criminal as a mugger.
why yes.. personal responsibility. but its ok to be a loan shark as long as its through a legal corporation?!!
Dave has it mostly right, while these institutions are to be avoided they do serve a purpose for those who have fallen into bad economic times. If you insult them you’re really insulting and condescending to their consumers, saying that they are too dumb to be able to make their own economic decisions. Perhaps we should put their finances in the hands of people more responsible and educated like, perhaps, the bankers, or our government (sarcasm alert for the unaware).
Ah yes, if people aren’t good at money, illiterate or uneducated, non-English speaking or have poor reasoning skills, it’s okay to prey on them? I totally agree that people SHOULD be educated and responsible for their money, but there’s NO way to ensure or enforce that, therefore the only thing that can be targeted are the individuals that decide (also of their own accord) to prey on those individuals.
Oh, and they might not be putting a gun to anybody’s head but money woes are a leading cause of marital dissolution as well as suicide and a litany of societal issues such as violence, drug use and sexual assault.
but the part that you are forgetting about is that while they might not have a gun to their heads, these contracts are deceitfully made to look easier than they are. small print preys on those that wouldn’t understand it if they read it.
Hey, Dave Johansen?
Your white privilege is showing.
Not everyone has rich (or even middle class) family and friends who you can borrow money from. Here’s a few flaws with your argument:
1. All your friends and family are poor and they’re going to ask you for money
2. You still haven’t paid uncle jack back the $50 you borrowed from him last month. Or the $100 from your mother the month before. Or the … you get the idea. No one will lend to you anymore.
3. Your family surely loves you, but can’t support you and are tired of loans always being paid out.
4. You can’t maintain a secure network due to a transient lifestyle. Not everyone gets a home over their heads. Or they’ve burned out their family and friends. Those people you see on the street are not new homeless, they’ve only exhausted their resources and have no one else to turn to.
5. No home address and no ID, no bank will give you anything, no family will give you anything and you have no friends.
I agree with Dave about these people having a gun held to their heads. On the other hand these practices can be a good thing. I have had personal experience and when my friends and family couldnt afford to lend me money I was able to go and get the money I needed. I will say that it is a cycle that once you start its hard to stop because obviously you need the money but you have the obligation to pay back your loan.
@Dave, your argument really doesn’t work in reality.
The truth is that most people going to payday loans don’t have friends or family from which they can borrow the money (hence the need for payday loans). Or they’ve exhausted that line of credit.
“…being sure to pay off the debt before letting it build are things that every person can do…”
That’s simply untrue, if you didn’t have the $200 this Friday, why are you necessarily going to have it next Friday? And what it “more shit” happens?
What if your boss’s pay check bounces on the due date and you have to take another $60 hit? What if you’re in a car accident the on pay-day and you can’t pick up your check or make it to the loans store in time.
What if you’re a pedestrian and you’re hit by an uninsured driver on your way to the grocery store? Your job at Sonic isn’t going to pay you disability or your healthcare. The government won’t provide you with any cash for safety and that debt is just going to accumulate. $60 is a lot of money when you make $10 / hour. And $60 is just the start of your problem when the hospital bill arrives.
What if you are living debt-free and just making ends meet, but then your apartment burns to the ground? Even with tenancy insurance, you still need cash until the insurance kicks in. You’ll need a place to stay, some food and a change of clothes. And you’ll still need to go to work the next day or you won’t get paid. What if you’re on prescription drugs and they went up in flames, where does that cash come from?
(and BTW, I’m not making this stuff up, I have several “fire” stories and a couple of “bounced paycheck” stories)
It’s not just these small instutions that are doing it. People seem to be completely unware that the interest rates that the major banks and credit card companies are charging today where considered loan sharking 20 years ago. What we’ve done is legalized loan sharking.
Dumb people in tight spots will always continue to make dumb choices. But loan sharking should be outlawed period. You shouldn’t be able to get someone and than raise the rate to 30% APR.
Here in VA we tried to actually outlaw the payday loan places, but it didn’t work.
No not a gun,just hunger or homelessness.Do you understand what ‘deceptive’ means? They don’t know what they are getting into. Libertarian assho.
Dave let’s say your Grandmother has insufficient funds from her social security to cover her heating bill. She’s been doing a great job with her finances so far, but Golly Gee suddenly the winter is colder than she had calculated. What a dummy she was. Good grief I am thinking with the use of your logic, she should have asked you for a few hundred dollars extra just to cover her heat which btw is 72° rather than your 69°. You don’t don’t mind lending her money to be more comfortable than you do you?
Uoh you tell her to keep her heat reasonable or not get a nickel, so where does she go? Right. Geezus what a heartless guy my Grandson is, and when I was chilled to the bone too.
We are wondering who you work for now Dave.
This is Gospel people. Avoid all of these traps.
I agree that these are common traps that people fall into however if they were regulated out of existence like some people want, there would be nowhere for some people to turn. For instance, what if you will lose your job over that $200 it takes to fix your car that you need NOW. If you don’t have rich parents or generous freinds and public transportation can’t work for your situation (some jobs require you to drive) then which is worse, paying all those fees on a payday loan or losing your job?
Similarly, my brother once had a job that required him to move every 6-9 months for awhile. Rent a center worked out fine for him. He didn’t borrow any money to rent the stuff and when he left town he didn’t have to pay any moving costs or get rid of a bunch of IKEA furniture only to buy it again.
Same thing with the credit card. If you have no credit card, it is hard to make a hotel reservation, buy a plane ticket or buy something on the internet that isn’t a paypal vendor. The secured card option needs to be available for some people who can’t get a credit card any other way. What are banks supposed to do, front somebody the cash who has a demonstrated bad payment record?
All these things ought to be last resort. When people use them as a matter of habit, they are being taken. What needs to happen is that people start reading the things they sign and do cost comparisons with the options out there, which means getting educated about them. Generally there are better options than these unless your circumstances are extreme.
Yeah, Dave, You’re right borrow from your friends and family. They all have spare cash laying around.
Drive past the suburbs until you see every other store front is a Fast Loan, or money for your car title, or blah blah, step out and experience life.
Thanks for playing.
Next
I personally believe that this type of thing is morally wrong, but where do we draw the line for legislation against this? The poster claims (and I agree) 30% is bad. What about 20%? Is that evil too? 15%? 10%? Where is the line drawn? And do we really draw it with a law? What unintended consequences will that law have?
I agree with a previous poster. No one is putting a gun to anyone’s head to take out one of these loans. But when you pass a law you are putting a gun against a lenders head, telling them not to lend above whatever arbitrary rate is set as the legislated morality.
Its a fine poster and I hope people get some good out of it, but we should carefully think through legislation for such practices.
While borrowing from a family member or a friend is a better option, and paying off the debt before it starts an unbreakable cycle makes sense, this demonstrates the nature of poverty. People in poverty do not have a support system that they can rely on, because most people they know are poor and without connections, and one calamity is generally followed by another calamity–or, they live in such margins, that they don’t have enough to pay back the loan when it comes due.
It’s simple to recommend the avoidance of payday lending, but you have to understand why people get caught in the trap of payday lending, rent to own, and bad credit cards.
“Credit Card debt is obscenely profitable”
-Harvard law professor and author of several books on consumer debt, Elizabeth Warren
Nobody is usually forced into the agreements, but often people are isolated, and not given all the information necessary for them to make an informed decision. False hope is given, and smiling salesman make hurting people swoon with the promise of cash seconds away.
The best businesses allow both parties to gain from the transaction. When all the information is made public, these are clearly a win-lose.
Wow… those credit card scams are amazing! I feel sorry for people that get suckered into those
Smilin’ Dave has not yet hit the wall, so everything is a rational, clear choice to him. Just wait till he is involved in an injury or sickness preventing a steady income.
Then he can preach about how easy it is to avoid the cyclic disposal of debt.
These are not the only situations the article is discussing… so Dave has a perfectly valid response for some of them. Noone, and I do mean No Single Living Person ‘needs’ a new mattress so badly they must have it or perish. People who buy things they cannot afford end up paying more for the opportunity to do that. Deciding to get the mattress despite not being able to afford it is the problem here, and will continue to be the problem if legislation tries to correct for it…
You cannot legislate responsibility. People will choose to live within their means, or they will not, and this has nothing whatsoever to do with what their ‘means’ actually is. If it is illegal to rent a mattress, and a person wanting what they cannot afford will acquire it through other means, even less responsibly than renting.
Actually, there are people who require certain sorts of pressure-relieving mattresses that are medically necessary to “not perish”. Just so you know….
I don’t understand why people complain about companies charging super high risk borrowers super high interest rates. People act like these companies are just pocking the huge interest payments and getting rich off the backs of the poor. In reality, the super high interest rates are there to make up for the super high default rates. At the end of the day, these companies need to charge such high interest rates or they won’t make their money back.
Say what you will about lenders, but I don’t think even the most liberal among us would say they are in the charity business. They need to cover their costs and then some to stay solvent. So there are two options for lenders– they can lend to risky borrowers at very high rates to cover their risk, or they can not lend to risky borrowers at all.
Which is worse?
Personally, I think it’s the lesser evil to have credit available to risky borrowers at super high interest rates because the lenders have more to lose, as it should be, because the lenders have the money. Worst case scenario is someone with already bad credit defaults on yet another debt and gets another creditor in line to collect money that’s not there. It’s not like we have debtor’s prison, and it’s not like people with something to lose (good credit) use any of these services.
No one puts a gun to their head? try being laid of work, with a family to feed; need to come up with that 200$ pretty quick. Sometimes the best they can do is just figure to take the hit now in the hopes that it gets better soon.
It rarely does. Once you are trapped into this system it is very easy to go into further debt.
Some other things? many lower income neighborhoods don’t have grocery stores – mini marts + cost; can’t afford a car?; more time spent getting to and from work; working a low income job? sure support a family on 10$ an hour.
If you have no support structure you can have no one to turn to when you get into these situations. Single mother parents are especially at risk; often homelessness will result; also including no healthcare coverage, also upping costs for sickness or ER visits.
Our country is a pyramid scheme. godamn.
“The Shaft: How Some Companies Prey on the STUPID”
Fixed it for ya…
DITTO lol stupid people actually think they are going to use furniture on a weekly basis.
America is a great country where anyone with an idea to make money can do it. I’m actually GLAD that there is a service like this who will lend money when you can get credit anywhere else. Yes it costs more, but at least its available. I honestly don’t see this as morally wrong because they aren’t really lying to the customer. After all, you pay your fee up front when you get the money, so its quite clear what is going on. These payday loan places and rent to own places always give you the fine print and its up to the customer to read it. Luckily we DO have laws to protect us when we enter into some contractual agreements. They will give us the money but its never free and its quite clear how much this all costs. When i was really young, I thought I wanted to buy a stereo with those huge speakers. So I went to a rent to own thinking, hey a few bucks a week and i’ll have my stereo, i don’t have to wait. They showed me the fine print and I saw the 20+% interest rate on that. So I asked the sales guy, “by the time i’m finished paying, it will have cost me like 20% more?” he said yes. (actually probably 40% more) Thats when I left the store and never went back.
@Dave: The problem is that the health of our economy is partially based on the credit health of the populace. When people with either little common sense, poor financial education or both fall for these, it will indirectly hurt the economy as a whole. So yes, no one’s putting a gun to anyone’s head, but considering the intelligence level of the average consumer and the shady business & advertising practices of companies that offer these types of things, do you want to leave the health of our economy up to the will of the stupids?
Well Dave, it’s not always so easy. The thing is that when your poor, your friends and family are usually poor as well. If your short 200 dollars because of car troubles or such and you have bills coming due, your friends and family usually have bills due at the same time and have less excess cash to lend.
I have to assume you have never seen anyone fall into these traps. It scales as well to most income levels. Best example would be the housing crisis. A lot of people got loans they shouldn’t have, and for whatever reason didn’t realize the danger. These people couldn’t turn to their friends, family and neighbors for help and support when the bubble collapsed because they were also stuck in the same trap.
then consider that if you are among the wealthy you’re often comped and get large freebies. somebody has to pay for that. guess who. pyramid schemes are the basis of our economy, government needs to hide these piles because it’s their own motis operandi.
johnny carson liked to pay by check because people often framed them instead of depositing, only to lose the autograph and bragging rights.
Agreed, no one put a gun to the head of the ruling classes here and told them to gorge on greed and abundance until the world around them was sucked dry of life. I understand that sometimes people want more wealth than they deserve, but putting a stop to such empires is something every one can do from letting the vicious cycle of fascist feudalism from ever beginning.
What if you have no money, no friends, and no family?
get a better job?
Dave – as correct as you are for many situations, the devil is still in the details. There are plenty of people out there that simply have no one they can borrow from – if you’re that poor, it’s not at all uncommon that your friends and family may very well be equally poor and unable to assist you. This isn’t even considering the hundreds of thousands of people that come out of the foster care system with no support structure.
ok look, I grew up poor. I mean, we had a house and a car and food, but I couldnt join any clubs or cheerleading because we didnt have the money for the uniforms. I didn’t have an allowance. I went to public school, got good grades, enrolled in work study, saved my money, flew myself to europe, earned two college scholarships, continued to live at home, worked a job to buy a car, drove to other jobs, continued with school, got good grades, paid for the GRE, enrolled in grad school, earned a Ph.D. and now I make 55K a year, own my own house and a car (bought it new), a gaming computer, internet, satelite TV, an expensive dog (sheesh) etc. etc. I really had no help from my family or any boyfriend (heck i supported more than got supported). Hey, it was hard, but not THAT hard.
Juanita, thank you for posting something in relation to actually WORKING HARD for the things you have in life and the results that come from that. There is no doubt that right now our economy is in some dire straights, however, this excuses no one from doing what only our country truely allows and that is freedom of DECISION MAKING (choice).
This post,”How Some Companies Prey on the Poor,” sheds light on the extra money involved with doing business with these types of companies. But once again I have to defer to the point at which an individual gets involved with a high interest company… choice! What most people commenting fail to comprehend is who is actully “the poor” addressed here. Their so called target market (the poor),who are preyed upon, have a wide range of incomes. If we focus on the poor as in material than fine we can talk all day on that issue, however, the “poor” here are really those who have more debt and less cash. America is full of poor people earning 100k a year using credit cards, payday loans, and rent-to-own. I say that to prove that income does not necessarily deem you rich. Again, chosing to do business with those companes comes down to choice. Most of the threads on this page are shooting venom at “Dave” for his advice to seek the help of family/friends first. There is no error in that advice and the choice that an individual makes outside that area of help is in fact…yes a CHOICE! Why do I keep bringing up choice? Simply because after reading to many of these posts than I needed to, I realized that most here are blaming the companies, personal situations, and everything outside sphere of control for their financial outcome. I neither defend or accuse the companies practicing this type of business because they opperate only to facilitate ones decision to purchase or borrow outside their means. Please remember we all have the responsibility to manage our money wisely. We can all live with in our means at any level of earning capacity. It is your responcibility to educate yourself on finances. So if you find yourself down and out right now remember dump debt and save cash. As for these companies, let them continue as it is their right to do business in a free capitalist environment.
Small correction… there are no overlimit fees on Secured or Unsecured Credit Cards as of February 26, 2010.
Credit card/revolving credit is more of a trap for the financially ignorant consumer than rent to own. Rent to own has advantages for that person over credit. They know how much to pay each month to own the item in a finite term – $100 a month for 24 months. Done. The credit card only asks for small minimum payment. That $2400 hundred dollars could bloom to $10,000 and take 10 years or more. Those people benefit from the discipline of a set payment amount and term. And unlike the article says, they are not “locked-in” – in a rental or lease transaction you can return your item after a short minimum lease period. And some rent to own companies will allow you to retain your equity in an item forever. You can pick up where you left off when you can afford the payment again. Try doing that with a credit card.
It is easy to criticize pay-day lenders whose interest rates regularly reach into the high triple digits. But those institutions fill the ever increasing gap brought on by declining wages. A far greater scandal are the usury rates for “no-contract loans” forced upon the poor. These occur when one someone overdrafts their checking account, often accidentally and for a minor purchase. (It has been pointed out that the non-chronological draft structures employed by financial institutions is merely a means of facilitating overdrafts amongst its poorest clients. I am unaware of any investigations by the government into this matter. More information would be appreciated.) Subsequent fees are levied against the borrower without notice for additional charges and for retaining a negative balance. A person can then end up with coffee that was paid for by a loan with quadruple interest rates. This purchase could have been denied at point-of-sale, but the banks find it more convenient to rob the poor.
I think most everyone has missed the point. It’s not the “business” that’s being target as a scam here, it’s the ridiculous interest that comes with “borrowing” this way that isn’t explained or told to the people using the service. Would you APPLY for a credit card that had an APR of 20% or more? Unlikely; but for someone that doesn’t have any credit history, they probably WON’T get an option for a lower rate. At one time, there was a cap on what credit card companies could charge (usually 18%).
And, as for one bank at least, I know that they are now sending out letters for people to “opt-in” for overdraft protection, and the associated charges.
Hmmm… so if you aren’t smart enough to know how much is in your bank account, and then you spend money you don’t have, it’s the bank’s fault for charging you a “convenience” fee? What happened to personal responsibility? If you mess up and overdraft your account (we all have), just accept the consequences! If you continue to do it over and over again, it might just be a personal problem, eh?
ahh capitalism at its finest.scum! but offcourse when it comes to corporate failure the government is always there to bail them out. Banks and corporations are the ultimate welfare queens!!
The lesson from all this?
1) Don’t be poor.
2) Don’t loose your job.
3) Don’t live in a neighborhood where the FDIC has shut down a commercial bank.
4) Don’t work in a job where you don’t have a credit union anymore.
5) Keep 2 months of emergency money in a savings account.
6) Have a free checking account and do your banking online.
7) Don’t live in a box, really this is your biggest mistake.
None of these are scams. They’re simply ways for the desperate and destitute to gain access to money in excess of what they currently have. Suppose all these were outlawed. The person who might have used a payday loan probably defaults on a payment, making things worse. The person who needed a credit card now has none and has difficulty building even a meager credit history. The person who might have carefully used rent-to-own now doesn’t have a bed at all. How is this a better world?
The payday loan has a steep interest rate — but if you use it strictly in anticipation of that next check, and if you consider the postdated check to not be part of your income for the next month (i.e. you never let the loan accumulate), and you begin to take steps toward not needing such a double-edged sword again, it may be a perfectly reasonable bridge to health. The credit card options, strictly speaking, only cost as much as their fees (a reasonable hedge against defaults). Pay off in full each month — and don’t pay late — and they may be a worthwhile plan until you can get a better card or are no longer in such dire straits. The point is not to have a fully functional credit card, at that point — it’s to get a little flexibility and to demonstrate to that “company in Delaware” that you should be allowed to have a more mainstream card with no annual fee and possibly lower interest rates. The rent-to-own option may make sense if you need the extra money *right now* for something (perhaps, say, nice clothes for job-hunting), where the opportunity cost of paying in full is particularly high, taking a long view of things. (Elaborating the example, a job might make enough to comfortably purchase the bed in a few months, during which time you could fake it if you were in a pinch. In contrast, buying the bed outright might significantly prolong the job search if you didn’t have clothing to be presentable, and suddenly the bed’s true outright cost includes several months of salary.)
The real lessons: If you’re going to use any of these options, it better be *really* justified, and if you do, use it for as little time as possible until you can use financial tools available to more credit-worthy people. It takes two to tango: know what you’re getting into when you sign up for any financial tool, and use all financial tools carefully.
People who qualify for payday loans need to have a source of income and a bank account. They make an informed decision and are making a choice. It is better to pay $30 on a $200 loan to fix your car? Or is it better to call in sick until you can find a way to get your car out of the shop? The reality is, it is better to have choices. BTW, no one mentions the cost of providing the service by the lenders? If it was so easy the banks would do it. Banks won’t consider a loan under $1,000 and you have to have a credit score near 700 to qualify for more money than you need to borrow. As always, when you borrow money, you need to have a plan to pay it back. Every lender no matter who it is will work with you on a payment plan.
Okay, let me get this straight. I am trying to understand how a secured credit card is not a fraud. When I first came to this country as a college student and had no credit history, I was offered an unsecured credit card to build my credit that I promptly refused.
Firstly, according to the basics of economics, interest is charged when loaning money for several reasons: to mitigate against the risk of default, and because money (ie investment) can be used to make more money.
In a secured credit card, both of these motives don’t apply because the bank assumes no risk of default (because they have your initial deposit), and the opportunity cost of lending the customer money instead of investing it elsewhere is invalid since the customer made an interest free loan to the bank with the initial deposit.
Basically, an unsecured loan is like a checking account because you make an initial deposit and then you make purchases from your initial deposit and make additional deposits when your checking balance gets low.
Except that the bank is charging you exorbitant interest rates and fees for the basic service of inserting your name into the privately managed bureaucracy that is the credit system.
Now I have nothing against private enterprises trying to make a profit. In fact I work for (and get paid quite well) by a private company. I just feel that there should be an alternative means for people who wish to build (or fix) their credit history record without being shafted by the financial industry. This is because an individual’s credit history is being used to determine larger aspects of one’s life (including getting a job, renting a car or apartment, getting a cellphone etc)
Now I know all the free-market ideologues out there will cringe at this, but I think there should be a non-profit government-run secured credit card program. This program should provide an interest-free fee-free way for people to build back their credit.
Its main mission will be to report the credit behaviors (good or bad) of its customers to the credit bureaus. There would no risk of taxpayers money because of the initial deposits and the government would probably make a profit by investing the balance. Even the financial institutions can make a cut of the profit because of the transaction fees there acrue when the customers use the secured cards (since most portals ie Visa, Mastercard etc are controlled by the private sector).
For anyone who argues that government would be unfairly competing against private enterprises, I would like that person to explain why the government unfairly competes against private enterprises with the police, fire or justice departments. There are perfectly good security corporations (Blackwater comes to mind) perfectly willing to privatize the industry of public security for the highest profit. The crux of my argument is that an individual has the right to DEMONSTRATE his/her credit-worthiness without having to submit to the predatory terms and policies of the “free-market”. Having excellent credit-worthiness is a privilege, but the ability to demonstrate your credit-worthiness and achieve excellent credit-worthiness should be a right.
“I think there should be a non-profit government-run secured credit card program”.
Because the government’s done such a good job running MediCare, Medicaid, the Dept of Energy, the Dept of Agriculture, etc, right?
I work at Rent-A-Center and agree with a lot of the comments posted here. Our customers depend on us as a resource to help them make a better life for themselves, regardless of whether they fit into a particular credit profile. Renting with small weekly payments can be an affordable option for people who don’t have large amounts of cash or available credit. If their fridge breaks down, for instance, they can have a refrigerator delivered for $16 a week – if they scout around and find a used refrigerator from a garage sale 3 weeks later, they can return the rented fridge with no obligation (and in fact, we’ll pick it up, no extra charge). And as far as paying the minimum payment amount until the end of an agreement, I think only about 5% of our customers do that. Most of our customers that acquire ownership of their merchandise use the 90 days Same as Cash or other early payout options. It costs customers far less if they pay off earlier, rather than later. Like the person who commented that if these things were outlawed that it might make life much harder on the people who need resources and options when they’re in a pinch… Bingo! I agree 100%. I think the more options people have, the better. Life’s tough enough as it is.
if these things were outlawed that it might make life much harder on the people who need resources and options when they’re in a pinch…
OK, so you’re not Dave here making incendiary comments and I can appreciate that. If you see my comments above, I can definitely appreciate the need for these types of services (except maybe the secured credit card).
I think the problem with the services provided are the extreme measures to which companies have gone to secure their assets and debt.
- Locking someone in to a $2,000 contract for a $500 bed is wholly unnecessary.
- Having people secure $500 credit cards for $569 is equally absurd. So not only does the CC company get 1 to 2% of everything charged on the card, they also get interest accruals and they put none of their own money at risk.
- The “unsecured card” basically does the same thing by forcing you to first pay off the fees to access the credit you were promised.
- The pay-day loans are not only secured against your job, they also charge ridiculous “interest rates” in the form of fees and they lack any form of consumer protection.
I totally agree with you. But why are there no controls imposed?
prohibition? it didn’t work for liquor.
Because its not the governments job to run business.
People of a variety of income levels and professions may use the services of payday lender. I understand that military personnel are common customer of payday loans stores. I’ve included a small excerpt from a study conducted by the University of Florida at the end of this post. I think we all respect the sacrifice and struggles of our military and their families.
Everyone’s situation is different. Some people are guilty of abusing the convenience of payday loans and snowballing their debt. Other people really just need to be able to float a couple of dollars to the next payday. Yes, people should be very cautious about using ANY product or services with high interest rates or fees attached whether its buying a car with a 19% interest rate, a house with PMI, or a payday loan. Tip: Spend less to pay down your bills. Then spend less to start saving. Get a second job or a hustle hobby to make extra money. There are hustle jobs out there, if you’re willing to do them. Clean houses, throw newspapers, park cars, stock merchandise at Walmart or whose ever hiring, babysit, wash cars, start a pick-up/ drop-off laundry service, I can go on and on. Some people feel that these jobs are beneath them, okay, then go to the payday loan store for your ‘extra’ emergency money.
The truth is, if you have to borrow $200 or accept anything with a high interest rate then you need to take some action to get better control of your finances. One way to save money is to just say ‘no’. No, I can’t afford to do or buy this because I don’t have enough rainy day money saved.You don’t have to say no or huslte forever, just until you’ve paid down your bills and have established your own rainy day fund. When your friend Dave asks to borrow $200, then you may have to tell ‘no’ and give him suggestions to establish his own rainy day fund.
Military families targeted for high-interest loans, UF professor says
“Military personnel make good targets for the payday loan industry, Peterson said. Junior enlisted personnel are often in their late teens and early 20s, and have low salaries and little experience managing money. Many are also married and have families. Payroll errors are not infrequent in the military, and young families often find themselves struggling on a fraction of a normal paycheck while waiting for those errors to be cleared up.
Because the military frowns on nonpayment of debt — delinquent soldiers can face demotion, loss of security clearances, and even discharge — lenders can be confident they will be repaid.”
But these are decisions people make on their own. Why not just fix the real problem, consumers who do not think or care about what they sign. Why shift the blame to the company. These are UNSECURED loans (Credit cards), which means that if the borrower doesnt repay the debt, they loose 100% of the money loaned out. If your at 30% APR, that probably means that for every 4-5 borrowers in the same category as you, 1-2 may default, which means the rest of the borrowers have to make up for this loss and still return a profit.
As for late fees piling up, its not so much meant to harm the consumer, but rather to allow for a greater write off once the borrower defaults and the debt is sold for pennies. People need to learn to budget. You should not “Come up short” and have to borrow against your “Paycheck”. This is ridicules. Where is the savings to act as a cushion. Where is the budgeting to prevent overspending? Really? The consumer WANTS a loan, no one TOLD HIM he had to get one. And honestly, if he was turned down, I bet you their would be a lawsuit for discrimination..
People need to think about what they are doing. Just the other day, I was sitting in BofA where a customer was meeting with a Investment Banker. The banker was trying to convince the man to keep his retirement money in relatively safe investments. The man, who was 40-50, would have none of this and kept demanding that his money be “put on the table” and wanted “more risk”. The banker tried and tried to convince him that at this point in his life he needed stability rather than risk his investments and put his retirement in jeopardy. Now, in 10 months, when his portfolio drops 20-50% for some reason, who is going to be blamed? Its going to be the banker because he didnt do enough to stop the man from demanding a stupid request.
Same thing with payday loans and credit card loans. Sure, some companies abuse, loose payments play games, but the person is ultimately responsible for signing the paper. He must abide by the rules he agreed to. If he is poor, tight on money, then he should do his best to set aside a emergency fund knowing that the probability of tough times will come and be satisfied with the safety that such a decision brings. Rather, our society rewards not making such a decision and becomes upset when they are not provided a way out.
Are their exceptions to this statement.. Of course, and these are the ones we hear about.. But for the majority, it could have been prevented, it could have been planned for, and its going to hurt (as it should). And hopefully, due to headache and financial pain, they will plan for the next time they are “short on rent”
You cannot protect people from themselves only offer them the means to help themselves.
apparently dave has a rich family who bails him out of every situation and has never had to fend for himself. you ever been sick and laid up in the hospital? your insurance doesn’t cover everything? you’re about to lose your home because your disability insurance doesn’t cover everything and you find your savings dwindling to nothing? come down to the real world dave before your balloon bursts.
It’s the financially illiterate’s fault they’re dumb!
Shame on them, for being born to poor parents, and attending useless high schools staffed by morons while working to support their delinquent families! Why didn’t they go to college!? Now all they can do is pack away as much of their minimum wage as possible under their bed, and then wait patiently for money to trickle down on them.
The “Activate Bootstraps!” argument is disgustingly disingenuous, and it’s obvious who in this group has some grasp of the meaning of poverty and who doesn’t. Payday advance shops aren’t praying on the poor white trash who overstretched themselves on too many credit cards in an effort to enter the middle class, they prey on the people who pull out a stack of 20′s when they buy groceries, because they’ve never seen the inside of a bank, and neither has anyone they know.
Payday loans were outlawed in North Carolina but the only thing that a consumer has to do is to go across the line to another state and get the same services including giving a lender the title to a vehicle. Too, unless it has changed, getting payday loans via the internet is still an option that far too many people take advantage of and get into trouble.
Unfortunately, it seems as if desperate times call for desperate measures.
They used to call rates like that Usury. I lost my job last year and I have tapped out all my resources. I have defaulted on almost all my credit cards. I was making a decent living and was still trying to clean out a mess from college. I tried to get everything under control with automatic bill pay and consolidations. But the rates rocketed to 30% and the bank was charging $200+ in overdraft fees when all those bills came in but the rent check was processed before the paycheck.
want to know the key? live inside your means. pay cash. tell the CC companies goodbye.
it isn’t only the poor. How many people were suckered into 5 year ARMs and other mortgages before the bubble? it seems our whole economy is based upon people buying things they don’t need and can’t afford. My 36″ tube TV works great, and so does my 97 BMW that I luckily paid off the month before I lost my job. It will be a long time before I need to buy a car. I hope
we should all learn from this: DON’T GIVE MONEY TO THE POOR BECAUSE THEY’LL JUST WASTE IT
next thing you know, people will stop paying their mortgages and the economy will crash
Right?
RIIIIIIGHT!?!
Dave? Tyler?!? Jeff!?! Jaws?!?!!!!
shit…
What is really interesting here is that all of these people claiming poverty, victims of these evil companies and an uncaring society, are somehow able to afford monthly internet charges – whether that be via their home phone company, cable/satellite company, or cell phone company – all of which have monthly charges of $50 to $100+.
Didn’t you know that the internet is a must-have (not a luxury). Same with 50+ inch TVs and those big spinner rims I HAVE to have on my brand new Escalade! It’s my right to have everything the rappers on MTV have without worrying about paying for it!
I guess you’ve never heard of the public library system, and the internet access that many branches of it now provide. For free. To anyone who holds a library card which costs… oh yeah, that’s free, too. Of course, it’s only available in really big cities like Douglas, Georgia. What? You’ve never heard of the huge metropolis of Douglas? I wonder if that’s because the 2000 census placed the entire population at 10,639.
So yeah, no one who’s actually poor can access the internet. Ever.
It is a disservice to not use APR “interest” in your examples. Every major interest rate is given on an annual basis, why aren’t you. For example, that would be a 782.16% APR on the initial payday lending period, etc.
This is an interesting topic because, while I don’t see benefit in making this kind of practice illegal I do think guidelines that protect people should be put in place. This is not just an issue when it comes to “Payday Loans”. Credit Card companies have entire strategies based on marketing to college students, and while many have been given the educational tools to avoid being sucked in, there are just as many who have grown up without those tools. I was one of these. I think it should be illegal that at 19 years old while going to school full time and working a minimum wage job ($6.25/hr – at the time) with no collateral, I had a $45,000 credit limit (on one card). At the time I had only had a card for about a year and a half. This kind of unsecured debt is not only foolish to the borrower (who will be trapped for years if not the rest of their life), but is also the reason we experienced the economic crisis that we did in the first place. On top of that, the government has done nothing to prevent these kind of things from happening. Quite the opposite actually, the government passed laws that required banks to loan to high risk borrowers who were interested in home ownership. So, despite my belief in personal responsibility (which I still adhere to vehemently), I also think there needs to be a fresh take on legislation that protects the public, the banks themselves, and the economy as a whole!
Wow, some people are so apathertic to the prolatariat of society. I’m sure while no one “puts a gun to their heads” that situations in life are not always ones that can be controlled by planning. Many people use those services because thay have been forced into a corner. I’m sure that this information is not known by all but is appreciated.
I think one of the biggest rip-offs are advances on tax refunds, but what if the person really needs i.e. they can’t expect a paycheck until June but in the meantime they may lose their house? It’s one thing to advise people against doing something stupid under normal circumstances, but even using a payday loan may be brilliant under certain circumstances. Credit is never as good of a deal as cash, but I’m not going to call for limiting the only credit available to certain people just because it’s not as good of a deal as I can get.
Past do-gooder policy making is what is forcing many unemployed persons to pay twice as much on credit cards right now because people “protecting” the poor decided it would be better to force them out of their credit card debt with higher minimum payback amounts. Wouldn’t their emergency cash be better spent on rent rather than making them “debt free” in five years? Yet, we decided five years ago to determine how they should spend their money through federal legislation. Sure, something may bad deal under normal circumstances, but you never know when you or your neighbor might be having an abnormal circumstance.
The examples above only include places that directly take advantage of “poor” people. You have a choice to use them or not.
But, what the way insurance companies jack your rates if your credit score goes down?
We have to have insurance for our homes and cars – it’s a requirement.
And, it doesn’t matter why or for how long your scored has been low – they use it as proof that you are unworthy and should pay more than others.
The increase in costs to the “poor” alone will keep “poor” people poor!
Something needs to be done during bad economic times to protect those of us who have lost our jobs and our good credit rating!
Whatever happened to taking care of our citizens – the hungry, tired, etc? Isn’t that part of our country’s founding principles?
Makes me furious the way we are treated by companies that know we need their services and have no choice in the matter!!
To those saying we have a “choice” in these scams, consider this:
Someone with bad credit is screwed, regardless of high income or not.
At age 18, I applied for a GAP credit card, where one pair of $50 dollar jeans were charged on it, but I handed over my debit card first and thought it was being charged to that. Plus, I was young and ignorant.
A few months later, I receive the first bill ever stating that I’m now 90 days past-due and owe them money. I pay it off immediately, and get a 90 day ding on my credit for the next 7 years of my life. Because of this, I’m not able to purchase a car, rent an apartment, rack up air miles (I travel internationally for work, too), or charge any major purchase (engagement ring, laptop, etc) by financing.
Secured cards take a long time to actually reflect on your credit, and are a major rip. Should we have to waste more of our hard earned money to build a magical credit number back up, just for the ability to spend money on stuff?
Suppose you are a 24 year old single person who has been responsible and has no children for society to support. Despite the fact you pay all of your bills on time you are unable to get a credit card because your income barely covers rent, utilities, etc.. You have no one to borrow from. You did save your small income tax refund for emergencies but had to use it on your old car for a repair. Suppose you make 8 or 9 dollars an hour and have no dental insurance. Your tooth starts giving you trouble and is infected. Removal of the tooth and medication will cost 350.00. The dentist says oh you need to save that tooth however that would cost 1700.00. You are thinking yeah, right. You must do something or the infection can spread causing you to become sicker and unable to work. (Not to mention you are in horrible pain) You have nothing of value to sell except your old car but you need that to get to work. Yes people need to be protected from the predatory lenders! It is not only the irresponsible borrowing from them. It is hard working people in a desperate situtaion. Besides if you lay on your butt and never do anything you can have your dental work taken care of by the government. Some people’s response is this person should go back to school .Not everyone is mentally capable of doing so.This 8 or 9 dollar an hour job is the best they can do and they are out there working hard and doing the best they can. People like this should not be allowed to be taken advantage of !
Predatory lending is a populist myth which offers an easy scapegoat for politicians and folks who have made mistakes or are otherwise feeling squeezed for credit/cash. yes, there are occasionally bad actors, however the overwhelming majority of payday loan and rent to own centers offer a way to extend credit to people who will otherwise have no chance to obtain credit. Think about this: a young gentleman with zero credit history would like to purchase a set of chrome rims for his 10-15 year old vehicle. Said young man goes to XYZ regional/national bank for a personal loan. The loan officer evaluates the risk associated with the loan. The young man does not have a substantial fixed address history (he changes apartments every 6 months to 2 years), the collateral (vehicle) is older, has unknown issues, and even in excellent condition would not cover the costs of the loan, repossession, possible attorney’s fees etc. loan denied. Young man then goes to the shop which sells the rims. Rims-R-Us happens to offer a rent to own program which the young man believes he can pay – even if it’s a struggle, it’s worth it given the alternative (existing rims).
There is a real need for these companies in their primary markets. I’d encourage anyone who says otherwise to actually study the economic systems of lower income neighborhoods. I will also encourage them to visit and spend time with people who use these services to understand the issues they grapple with.
As Christians my husband and I are struggling with this very issue…..he was out of work for over a year….finally got a job, but it is in the rent-to-own industry and just in time because his unemployment pay was ending and foreclosure was barely avoided. We are asking ourselves and God, “Should he have taken it”? We have had many discussions about the intent of this industry, is it to help or to hurt? But then you could argue that everything in our culture preys on the poor….TV ads, magazines, internet……all are telling us that we “have to” have their products and services to be happy and up to date! I don’t know, it’s a murky place this modern America.
Re: Rent-To-Own
It has just occurred to me that it is one thing to need a mattress, fridge, or washer/dryer which are all basic things we need….but jewelry, stereos, and the biggest TV? It is called “lust of the eyes”…..I’ve gone down that road many times and lived to regret it.
Poverty is so much more complex than what meets the eye. Juanita said that she grew up poor, and lived in a house with a car. To millions of poor in the US and elsewhere, that’s not poverty! Having a house and your own means of transportation can literally save your life. How quickly we forget the tragedies unveiled by Hurricane Katrina, where thousands were trapped and DIED due to not having homes on higher ground, and without a car to leave a desperate and hopeless situation.
Borrow from a friend! No one puts a gun to your head! Dave flips these comments off so cavalierly. Such a superficial and uncritical response. The gun to the head, Dave, is the fight to stay alive, to stay just one full step ahead of the wolf at the door, when you are lacking skills to move up, adequate education to succeed, and income strength to stretch the dollars to fit around just the basics. At best, people WITH these gifts are struggling today. Someone born into poverty soon comes to learn that ladders leading up and out can rarely be climbed alone, so those that can soon go off the grid and join the underground economy in one way or another, whether it’s selling pot, or trinkets at flea markets, or local jitney services. People need help, and not in the form of these corporate predators who will smile while pushing you further down into the mud. These companies were once, and should again, be outlawed. WE have the power to do this, as we did it in the past. These companies began to flourish again after the Reaganites de-regulated the financial industry. Google his famous “trickle-down theory” and read all about it. Interest rates like these used to be illegal, but they are back now because WE THE PEOPLE allowed the lobbyists to push the corporate, not the people’s agenda. We need to stop blaming the victims and start organizing to turn this criminal activity around. If you don’t want to get political — and I don’t — I think it’s a step down professionally and personally — then get off the grid and use some of the smaller community based strategies that are beginning to work here and elsewhere in the world: modestneeds.org, which gives small loans to people in dire straits. kiva.org, which does online lending for entrepreneurs. Find others. Join the microlending movement on a local basis — start your own if you’re able — and tell these vultures to go to hell. We’ll all be better off.