That is the title of the Daily Press editorial today. The cause of the misery? Pay day lending.
The state legislators who are so willing to do the bidding of a predatory business should check the latest evidence. The numbers for 2006 are in, and what they reveal is that the amount of misery and destruction wrought by payday lenders is growing.
The General Assembly had opportunities to bring these lenders in line with other consumer lending rules in Virginia and failed to do so. With all 140 seats up for re-election this fall, we need to make sure that the voters are aware of the voting records of those who continue to support such practices.
VIVIAN J. PAIGE | All Politics is Local 
The most troubling part of that editorial was the comments it received. My favorite: “It is very clear the payday industry is very popular with customers or it would (sic) be growing.”
This just in by way of the same logic: Virginians must really love chemotherapy or we wouldn’t keep having cancer.
If the average lendee is taking out eight loans at more than 360% annual interest rates, that’s a symptom of a disease: chronic financial over-extension. We certainly need to find a way to treat this disease because it takes its toll on the economy of the Commonwealth at large, and a good first step would be to stop the snake-oil vendors who promise easy answers with high-interest payday loans from preying on those over-burdened with debt.
This issue continues to grow. Payday loans get people into more trouble, and we’re seeing some of the same with subprime lending. I hear arguments that these are for people who would otherwise not be able to afford them, but in the end they are in more trouble. It’s called usury. And it takes many faces these days. It’s time the government, be it state or federal (though I’m sure it’ll be a state-by-state decision) step up.
Yes, we must have the government protect us from our own stupidity!!
Mrs. Mouse,
Bear in mind that sometimes the government’s job is to protect everyone else from your stupidity (“your” used here generally speaking). For instance, while it might be personally stupid on your part to not wear a seatbelt while driving on the freeway, it impacts all of us when you go flying through your windshield and end up having major surgery performed at the ER. The public must defray the costs of any medical fees which you cannot personally cover and which are not covered by your insurer (who, incidentally, will not happily be forthcoming with a lot of money when it is revealed to them that you weren’t wearing your seatbelt). That can add up to a lot of money from medicare or from other responsible healthcare consumers in the same healthcare system.
It’s cheaper for all of us if you wear your seatbelt, so there are laws.
Likewise, it’s bad for the economy to have thousands of people who keep spending themselves further and further into debt. Credit companies, banks, ultility companies and many businesses will recoup the money they lose from people who default on their debt by charging everyone else higher rates, and while there will always be people who make poor financial decisions, allowing those people to compound their mistakes with more mistakes will ultimately mean that responsible consumers will pay more to leverage and spend their own money wisely. If enough people default, it slows the economy noticably as the buying power of your money is sapped more and more by banks and creditors–which is why people are so concerned by subprime lending.
The fact that these payday lenders are freely selling false hope to desperate people in economic trouble only compounds the dispicable nature of this industry, which is bad for all of us.
Your first example, anonymous, is a very bad one indeed. If the government did not take it upon itself to pay the medical bills of indigents (where does the Constitution grant that power to the federal government?) then there would be no need for the seatbelt laws.
Your second point is better. In fact, we have several Cabinet Secretaries going to China to complain about the trade defecit, when it is our own willingness to go into debt that allows us to purchase more than we make. That excess has to come from other countries.
There is a problem, though. These payday lenders lend people the money to pay the utility bills. If not for those lenders, they might default on their utilities. As it is, they are more likely to default on the payday loans. It is that high default rate that require high interest rates. Has anyone actually looked at the profits these places make? I doubt it’s all that high.
People are concerned with the subprime lending because many people are likely to default on their homes. The housing market will crash, and the banks that hold these houses will not be able to recoup the loans. Of course, that’s not the banks’ money in the loans, it is the depositors’ money. When the banks aren’t getting payments on the loans, they will not be able to pay the interest to their depositors, or to return the deposits, and they will default. That is the problem with subprime lending.
AEM – I suspect the profits are high; otherwise, the number of pay day lenders would decrease instead of increasing. I don’t disagree that the higher interest rates are tied to the higher default rate; however, the rates should be in line with the other consumer loans.
(Of course, the annualized rate of interest on tax refund anticipation loans are in the same ballpark as those of pay day lenders but I don’t see folks complaining too much about that. Perhaps it is because we have the ability to shut down pay day lenders and we don’t have that ability on the RAL lenders.)
The subprime market is a little more complicated, with the securitization of the loans. Ultimately, the effect of subprime lending will be a tightening of the credit rules – and I happen to think that’s probably a good thing.
“The wise speak only of what they know.” –Mithrandir
You suspect the profits are high, but you do not know. There are a lot of lawn-care services around here, and seemingly more all the time. Does that mean that the profits are high, or that barriers to entry are low?
We should ask our lawmakers to get their tax returns, and see whether these companies are making outrageous profits. It may be that the situation you mentioned, that more people are getting into the business, is creating competition to drive down the interest rates.
Why should the rates “be in line with the other consumer loans”? If people could get other consumer loans loans, they would. They can’t, so they go to the payday lenders. They cannot get those other consumer loans because they are higher risks. Since they are higher risks, they are charged higher rates.
1. Usury was illegal for years, until the General Assembly decided to make it legal. The results are obvious.
2. I deal with many “indigents” who cannot pay their medical bills. I find many people who agree with the opinion expressed above (that the government should not “take it upon itself to pay the medical bills of indigents”), right up to the time that it is their mother’s or brother’s or family member’s medical bills we are talking about. Then they are storming the gates and demanding to know why the bills are so high, why the help is so hard to get, and so late, and so paltry, and what the government is going to do about it, NOW.
I was in that situation once. I had no insurance for my daughter’s birth. I made arrangements with the hospital, and paid it off over the course of several years. I did not take your money for it.
That’s commendable, Mrs. Mouse. I think your understanding of the economics of the situation is limited: you essentially had to borrow money from SOMEONE so your OBGYN was paid to perform the birth, whether that someone is other consumers, the hospital itself, or what have you. You certainly took someone’s money; however, I appreciate you taking a proactive approach and taking care of your debt. That shows character.
But what if your daughter had cancer? What if she had luekemia and needed a bone marrow transplant? What if you were without insurance and staring at a medical expense so shockingly huge that the hospital would be foolish to think you could possibly work it off in ten years? Would you take my money then?
You know what? Please do. If you ever find yourself in a situation where you need a little money from me so your daughter can live, you can have it. I can’t think of anything better to spend it on if a few dollars on my healthcare premium could help save a life, and I suspect most Americans would agree with me. One of the lessons I learned from Hurricane Katrina and the subsequent outporing of support to organizations like the Red Cross is that American generosity towards our fellow citizens in need is alive and well. Don’t abuse it, sure, but don’t discount or discredit it, either.
On the other hand, if your daughter is in a car accident you need help paying the bills immediately, the offer still stands, but if she wasn’t wearing her seatbelt, that’s close to abusing our collective generosity.
PS, Plato once wrote through the voice of Socrates that the wisest man is the one who realizes that he knows nothing, which probably makes both you and me pretty darned stupid. š
No, I did not take someone’s money, I borrowed it. Medicare and Medicaid payments are not repaid by the recipient. They are taken and not returned.
Now, in the latter case you mention, those contributions are given, not taken. There is the difference. (And, thank you.)
Plato also favored a dictatorship — the “philosopher king.”
So, the disabled, the elderly, the chroncially ill, and the dying should just get a job and pay back their Medicaid and Medicare expenditures. Not a very realistic plan. And never mind that many of these people paid taxes for years and earned the right to these benefits, particularly Medicare benefits. So much for the logic and compassion of compassionate conservatism.
VAB, you seem to have some confusion about the purpose of government, particularly the federal government, and the purpose of charities. Please read the U.S. Constitution. You will find no power granted to the federal government to do the things you mention. Those things are the purview of charities.
It is that logic and compassion that brings conservatives to donate more time and money to charities than liberals do.
Actually, I have taken four semesters of Constitutional law, Mouse, and your view is very much in a tiny and ever-dwindling minority. When you are eligible for Medicare, and have turned it down, come back and tell me about the role of charity vs. the government. When your parents need nursing home care, and you have paid for it out of your own pocket, come back and tell me about it. I won’t hold my breath.
VAB — I do not care how many semesters of Constitutional Law you have taken, I asked you to find where the Constitution grants such powers to the federal government. If you have had four semesters of Constitutional Law, that should be easy for you.
As a matter of simple prudence, I have purchased long-term-care insurance for my widowed mother, my wife, and myself.