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January 15, 2010 01:05 AM UTC

Payday Loans Bad for the State. Therefore, They Aren't Good for Residents

  • 65 Comments
  • by: TheBell

(I hate spammers and payday lenders – promoted by Danny the Red (hair))

It was good to hear House Minority Leader Mike May say that payday loans are not the recipe for financial security.

Yesterday, he said that the state “cannot continue to use payday-loan-like policies” in trying to fix the state’s budget mess. We hope he shows the same concern for thousands of hard-working Coloradans who face their own financial crisis because of predatory payday loans.

After all, thousands of Colorado residents are punished by payday lending every year. Many borrowers take out one loan and plan to pay it off quickly, but then find they can’t. They end up with multiple loans and get caught in a cycle of debt.  

We’d like Rep. May to remember that payday lenders started operating in Colorado in 2000 after they were granted a special exemption — a loophole that allows them to exceed the state’s usury limit. Now they charge as much as 520 percent on loans.

If the Great Recession has taught us one thing, it is that people ought to be protected from loan products that are harmful. It hurts them, it hurts the rest of us and it hurts the economy.

As long as payday lenders can use their loophole to operate above the state’s usury limit, it’s an unfair and predatory market.

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65 thoughts on “Payday Loans Bad for the State. Therefore, They Aren’t Good for Residents”

  1. I saw that in Rep. May’s comments and thought just about the exact same thing.

    I say “just about” because you didn’t say anything about the special place in hell or sharp, pointy objects.

    1. great.

      Heroin addicts ruining your community? Meth heads run amok?  No problem- just don’t use heroin or meth.

      Drunk drivers killing pedestrians and kids? No problem, just don’t drive drunk,

      Gecko -you fucking beauty!  If we had only thought of something like this  before…. something simple, easy to remember, east to spell.

      I got it :  JUST SAY NO.

      It’s perfect  for almost everything.

      – schools are underfunded and failing: just don’t go

      – taxes are too high: just don’t pay ’em

      – your mortgage payment just jumped an obscene amount, don’t pay it.

      – you don’t want that toxic dump in your back yard, just don’t produce any toxic waste.

      1. Why make things difficult. If you don’t use those rip off establishments, they will fade away.

        Or should we coddle idiots that are too stupid to know when they are dealing with loan sharks? Most people with an friggin ounce of sense will go to a bank when they need to borrow money. Anybody that uses these places is either a dumbass, mentally off, or both.

        Whose problem is that?

          1. I agree with Gecko on this.  Is the gov really responsible for protecting somebody who doesn’t have a shred of common sense?  This is about choice, not about deception.  You make a choice to walk into a place like that.  You know what you’re getting.  You take the same risks with food.  The gov doesn’t have to protect everybody from their own dumb mistakes.  

            1. Maybe due to lack of education – but they cannot balance a checkbook. I know one woman who had 2 checking accounts, she switched each month to the other so that by the end of a month of no use, she could just take the bank’s balance on that account.

              And she was a college grad.

              No we shouldn’t protect against everything. But we should stop clearly exploitative businesses that prey on people who are desperate or lacking education on a topic.

              1. cell phone companies and airlines are clearly exploitative businesses that prey on people lacking education on a topic.  I rarely agree with the conservatives who bloviate about the nanny state, but on this one I agree with them completely.  Yea, it sucks to be poor.  It sucks to have to use a pawn shop or a payday loan shop.  It’s not the gov’s job to make anybody not poor.

                2. But it is the gov’t’s role to make the market function.

                  fen-fen was pretty stoopid and it was killing people – or just casing heart damage.  Should the go’v t have just rolled it’s eys at stupid consumers and let it go?    No.

                  When the function of the free market is unavoidably distorted or distortable in a way that damages the economy gov’t interventions appropriate and necessary.

                  And by damage I mean the market clearing price gives us way too much of something we don’t want or way too little of something we do want (need).

                  I love the airlines as an example.

                  Imagine the safety record of airlines with no federal oversight.  Oh, wait – we don’t have to imagine that, we can go look it up.  Without the FAA, safety and operating standards and publicly funded airports there would be no commercial aviation in the US.  Imagine even the better informed about aviation consumer shopping for an airline without the FAA examiners and records?  We’d all take the train or drive.

                  1. Prosecute fraud.  If the payday lenders are committing fraud, go after them.  But don’t protect people against themselves.  The government doesn’t have the right to protect people from their own behavior.  Get the hell out my bedroom, let me marry who I want, and let me use a loan shark if I want to.  

                    1. create a difficult t understand life insurance policy, so difficult it’s almost impossible to understand that the only thing that is covered is death while at work from non employer related cause.

                      I used to sell that policy. In plain English- no one would ever buy it.

                      Wasn’t fraud either – at least not in the states it was allowed.

                    2. and I still believe that if somebody is dumb enough to buy something they don’t understand, it’s not the government’s problem.  If the seller is intentionally hiding (not hiding in plain sight, really actually hiding) something deleterious to the buyer, that’s fraud.  But if the seller is hiding something in fine print that’s fully available to the buyer, then caveat emptor.  The buyer has a choice to not buy the sham life insurance.  Just like they have a choice to not send money after Nigerian spam.  

                    3. is fraud.

                      For anothe blog (and for fee) I once subscribed to a bunch of on-line biz plans and services. Scam, stupid, rip, scam.

                      But I don’t see the need for gov’t to intervene because, like you, if it is what is says it is, no fraud. And ltimately no harm.

                      I’m not sure I’d go so far as to call Payday lenders fraud- but it isn’t what is.

            2. Say I create a life insurance agency, which you can tell is a life insurance agency cause it say so right onth e door.

              And I write policies for the community. Cheap, practical life insurance. So cheap why wouldn’t  you buy it?

              But the policies are 24 pages long and refuse to pay for all kinds of reasons. That’s why I can sell it so cheap.

              After a generation of deaths in the neighborhood, I’m outta business. No problem, I change location and start over.

              Hence was born the FTC. And insurance became a regulated product.  Because, while yes, the free market might have worked, it mostly didn’t.  (Economists, even the free market is all, Ayn Randy ones, say something about “perfect information, freely available and understandable)

    2. Someone i know is disabled. She had worked and paid into social security for years, and it took her five years of hearings and doctors’ visits to get qualified for social security benefits. During that five years her credit was utterly destroyed because she had no income, and significant medical bills.

      Then she got a settlement — considerably more than ten thousand dollars for the years she should have been getting benefits. I took her to a credit union where she wanted to open an account so she could begin paying the many bills she’d accrued over five years. They checked her credit, and then they refused her an account (even with all of that money to deposit). Same story with the banks.

      Guess who were the only ones that would help her? A payday loan company, with their exorbitant rates and outrageous fees.

      She had absolutely no choice but to let them gouge her. She once mentioned that they automatically charged fifteen dollars every time she used the credit card they issued.

      The working poor and those down on their luck don’t have the options that someone like Gecko takes for granted. Indeed, laws and corporate policies often work to keep them from ever raising themselves up.

      In the first place, it never should have taken her so long to qualify for social security. But that was during the Bush administration, and some of the denials that were ultimately overturned were probably based upon ideology rather than merit.

      But i think the payday loan companies, the banks and credit unions are also at fault for refusing to consider her unique circumstances, or for taking advantage of same.

      And guess what? Many of the payday loan companies are subsidiary organizations of the big banks. The banks don’t lose anything by turning down potentially good customers; they know they can get their pound of flesh from their front organizations.

    3. They spammed us.  🙂

      Gecko, I appreciate what you’re trying to say here. You say that it should be a market-driven solution to a market-driven problem. There’s something to be said for that–boycotts have been successful in the past.

      Unfortunately, the only times that boycotts usually work are when the interested parties are organized politically well enough to stage a widespread boycott of a specific product or service.

      On the other hand, handling the problem legislatively can also be effective. Putting regulations in to protect consumers can actually save the industry from itself. There are lots of people with jobs who rely on the fact that payday loans are available.

      Instead of the feast that currently exists, or the famine that would exist if people boycotted payday lenders, people who need to use them would be able to without having to go broke after months and months of being in the payday lending cycle.

    5. I’ve read up on the payday advance industry and i’ve come to the conclusion that there are a lot of misconceptions. Before everyone starts throwing around here say we should attempt to get to the facts. The fact of the matter is that the industry is already being regulated in many respects. Consumers can only get a limited number of loans per year therefore the cyclical argument is null. Furthermore, payday advances should not be associated with an APR, they offer two-week loans and should not be associated with an APR which stands for “ANNUAL percentage rate”.

      Also, the spamming comes from online payday loan companies who aren’t regulated and are direct competitors of Colorado payday advance stores. Not the same thing…

      Finally, similar to an ATM fee, it’s never fun having to pay a fee to get money. The fact of the matter is that banks won’t give out loans to poor folks due to the high risk of not getting paid back. The fee is offset by all of the folks not paying their bills. Ask yourself, would you be willing to lend someone $400 with a terrible credit rating? Doughnuts to dollars you wouldn’t… If you advocate against these payday stores, then you better have a solution for all of the folks who can’t get a loan during an emergency.  

          1. I’ll give you credit, you tried posting on other threads to make yourself look like a real poster. You guys are getting more creative!

            We’re still going to make your lives a living hell during the session. But please, by all means, keep spamming and shilling. Surely it will make things better.

        2. I’m a huge fan of Bell Policy, but their talking points aren’t the be-all end-all on this issue. You should try looking at the issue from all sides

      2. The fact of the matter is that banks won’t give out loans to poor folks due to the high risk of not getting paid back. The fee is offset by all of the folks not paying their bills.

        This is pure bullshit.

        Payday loans are not significantly riskier to the lender than credit cards.  From Consumer’s Union:

        The industry claims its extremely high fees are necessary on account of the risk being taken and its high loss ratio. In fact, in Colorado, one of the few places in the country that collects actual data from the industry, payday lenders charge-off only 3% of the loans made from 1996-1997, while their loans had an average APR of 485.26%.(5)  Conversely, California banks charged off 2.7% of credit card debt in those same years, while having an APR of 15 – 22%.(6) Thus, the payday loan industry’s claim of risk and loss simply does not stand up to close scrutiny and do not justify the high rates charged.

        Source: http://www.consumersunion.org/…

        1. You’re citing info from 1996. Do you even remember what you were doing 14 years ago? Probably in middle-school. Things have changed since then: Russia elected Yeltsin, Unabomb suspect Ted Kaczynski arrested, Newt etc, etc…

            1. The payday loan industry in part justifies the high finance charges and triple-digit interest rates associated with payday loans based on the “huge” risks incurred with such loans; one industry paper pegs these risks “typically at least seven to 10 times greater than banks are willing to accept.”(87) However, payday lenders’ loss rate experience, as reported to the Administrator by the lenders themselves, refutes this claim.

              Specifically, for the years 1996 through 2004, payday lenders report an average charge-off rate, or loss experience, of 3.34% of their total loan volume.(88) This loss rate compares favorably to commercial banks’ charge-off rates on consumer loans, as reported by the Federal Reserve Board. For the same period, the charge-off rate for all consumer loans made at commercial banks was 2.69%; for credit cards, it was 5.15%.(89)

              http://law.du.edu/images/uploa…

              1. Tell me this, do you know why banks choose not to loan money to the payday advance demographic? I’ll give you a hint, it has something to do with risk…

                You’re truly quixotic, I know you have good intentions here but the folks that you think you’re helping here are the ones who depend on these payday advances. This is definitely not a straight forward issue, but the fact of the matter is that these folks need these payday advances because they aren’t getting it from anyone else. If you want to make change, provide some solutions other than telling people what they can and cannot do financially.  

                1. It has to do with the fact that banks can get money from the TARP at zero percent interest, then invest it back in government securities at three percent.

                  Banks aren’t loaning anything to anybody.  They don’t need to.  They can use free money from the taxpayers to suck the taxpayers off for even more money.

                  Have you tried to get a commercial loan lately?  A mortgage?  It has nothing to do with risk.

                  1. You offer up irrelevant, 14 year old data as evidence of your position and then you say that a frozen credit market which started two years ago is why risk is not a pertinent issue. NUTS. Based on your reasoning, in 2001 when rates were rock bottom, banks must have been giving out loans to the payday advance demographic. Ludicrous.

                    The current economic turmoil has nothing to do with this issue. If anything you are making the point that many folks with bad credit had little to no options before the crisis and now with the credit markets frozen it’s even harder to get loans from banks. Sounds like you’re saying consumers need more options??

  3. knows full well that there are many people who have no place to turn, no options, children in want, actual hunger involved, a hundred reasons why they turn to these loan sharks–because there are no other options!!!!

    But the little gecko must feel superior, must meet his need to pass judgement, and gets an added bonus by the raising the hackles of the folks here who are mature and caring and . .

    oh, dear, liberal.

    Have fun, little gecko, at the expense of both human misery and excessive human greed.

    2. use tax policy to minimize private micro finance payday check cashing joints, basically tax and regulate their asses to death.  While this occurs track data on people who need micro finance options, thereby justifying the need to start up new government program focused on micro finance.

      1. is bad for people, and the economy.  Money lenders should be regulated, period.  Actually, I believe there are laws by which pawn brokers must abide.  Horrible, right.  Let us cry for the poor pawn brokers.  And monolithic banksters who are the back operators for payday lenders in our poorest communities.

        Guess you’d be glad to see the government get out of the business of checking restaurants to make sure you aren’t eating a little rat shit in your hamburger?

        2. they wouldn’t exist.  They’re serving a purpose and the rates reflect the risk.  Why do you hate poor people so much that you want to take away their only opportunity to borrow money?

          1. Got some data to support that assertion? What’s the default rate on payday loans?

            What’s the overall rate of return? How does that compare to other lenders?

            I don’t really know squat about payday lending, but the fact that they it’s targeted at the poorest and least educated among us ought to raise flags that it’s subject to abuse. So why is it not possible to curb the abuse without driving the industry out of existence? Other lenders live with regulation. Why can’t payday lenders?

            Quite honestly, this entire thread is all sound and fury. There’s not a fact to be found anywhere.

  5. In 2008, the average payday loan grew by $7 and the average APR for each loan increased to more than 318 percent. Payday lenders often justify their excessive rates by claiming that they provide high risk loans. But the facts prove otherwise. Although consumers defaulted on 10 percent of payday loans in 2008, payday lenders aggressively limited their losses through the collections process. The actual charge off rate for payday lenders in 2008 was just 4.3 percent of the amount financed, a rate comparable to the 5.5 percent average charge off rate on credit cards in 2008. It’s lower than the charge off rate for 2007.

    The data also indicate that payday loans are not a one-time only product. Many borrowers use multiple payday loans each year and more than 31 percent of all payday loans are simply renewed. In 2008, the Attorney General also reported that 36 percent of all payday loans were made the same day as loan payoffs. By combining the data it’s fair to conclude that more than two-thirds of all payday loans in Colorado are rollover or refinance type loans. This confirms a study released earlier this year by the Center for Responsible Lending that found that payday loans essentially create their own demand. It is important to note that the Colorado statistics only measure borrowers at a single location and don’t account for those that use multiple lenders. The number of repeat borrowers is actually much higher than reported.

    The most important information contained in the Attorney General report relates to use of the payment plan option. State lawmakers enacted a provision in 2007 that requires lenders to offer information about a payment plan after the borrower’s fourth consecutive loan. Last year was the first full year to measure the effect of the new law. The result was predictable. Similar to the experiences in other states with payment plans, very few borrowers use them. More than 70 percent of lenders reported using tactics such as cooling off periods, threatened loan limits and cash only repayment requirements, to discourage borrowers from using payment plans. Although nearly one-third of all payday loans made in 2008 required payment plan notice, fewer than 7 percent were converted to payment plans. Only 4.8 percent of payday loans were successfully completed through payment plan agreements.

    http://www.thebell.org/node/3487

    1. It’s amazing that what you just posted totally goes against everything the payday loan shill was shilling above.

      I guess we really do need to look at it from all sides though. I mean, who needs the factual side when you can go for the distorted/made up/shilling side?

    3. The folks that the Bell you others are trying to defend are the ones left with no other options here. Where should they turn to when they have an emergency?? Not banks…

      If you really care for these folks, maybe you should ask them what they want before you decide for them without thinking about the consequences first. And I mean the majority of payday advance customers, not the two pissed off folks that the Bell conjures up.  

      1. I think that if there were tighter regulations, it would save your industry. Right now, there are so many people who think that what you’re doing is legal usury, you can’t even come here sounding somewhat reasonable and convince people.

        Some form of tighter regulation is going to happen this year. You can lobby/spam/shill your little hearts out, but your industry is going to become more fair for consumers. Whether or not you choose to adapt is up to you.

          1. If commonsense regulations were proposed, I would agree with you. However, the proposed legislation to date have been heavy handed and would essentially eliminate a key financial tool for many Coloradans when they need it the most. How about bringing both sides to the table this session?  

            1. Nothing has been “proposed” yet unless you are a lobbyist working to kill regulation.

              You had your opportunity to negotiate 2 years ago and didn’t.  

    4. If you don’t think a 10% default rate= risky you obviously don’t know industry standards and are confused. The actual charge off rate does not include the time and effort to get that 10%  down to a respectable figure. Even 5% is high, banks will not work with this…

      1. How is someone supposed to ever be free of the loan shark’s if their debt cost equals what they borrowed every 4 months?

        Absent stealing it from people, tell me where I can get 10% losses, or rather 5%, on 300% interest.

        1. These payday advances are for 2-3 weeks, a one time fee. Everyone who pulls out a payday advance are well aware of this fact.

          Is your next initiative to do away with the $2.50-3.50 ATM charge that I pay to get my money. Sometimes all I need is $20 and I still pay this flat rate, but i know this going into it therefore it’s my responsibility to make the decision.

          One last time, do you know why banks choose to not offer loans to the payday advance demographic????? Maybe once you’ve addressed this fact we can have a real dialogue about personal finance choice issues.  

          1. Thus creating perpetual debt

            The data also indicate that payday loans are not a one-time only product. Many borrowers use multiple payday loans each year and more than 31 percent of all payday loans are simply renewed. In 2008, the Attorney General also reported that 36 percent of all payday loans were made the same day as loan payoffs. By combining the data it’s fair to conclude that more than two-thirds of all payday loans in Colorado are rollover or refinance type loans. This confirms a study released earlier this year by the Center for Responsible Lending that found that payday loans essentially create their own demand.

            http://www.thebell.org/node/3487

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