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> Payday lenders do not charge refinancing/rollover fees, as with mortgages, and the interest doesn’t compound (unless of course she takes out a new loan to pay

> Payday lenders do not charge refinancing/rollover fees, as with mortgages, and the interest doesn’t compound (unless of course she takes out a new loan to pay interest on the first loan) Yes, they absolutely do charge refinancing and rollover fees. They don't call them that, of course, so they can skirt state consumer protection regulations, but that's what they are. And oh yes, they get their users to take out new loans to pay off the interests on the first loans. That's actually their entire business model. You know what proportion of payday lender's business comes from this exact thing? 76%! (http://www.responsiblelending.org/payday-lending/research-analysis/finalpaydaymayday_defaults.pdf http://www.responsiblelending.org/payday-lending/research-an...) Their business model is wholly and fundamentally based on the inability of non-creditworthy people to keep their obligations. If their customers paid back everything on time, they would go out of business instantly. That is what I call unethical. At best.

tadfisher 11y ago
> Their business model is wholly and fundamentally based on the inability of non-creditworthy people to keep their obligations. If their customers paid back everything on time, they would go out of business instantly. That is what I call unethical. At best. The exact same criticism can be leveled at the credit card industry. Or any business based on unsecured credit, really. Payday lending just takes a well-entrenched business model to its extremes.
- SyneRyder 11y ago
  Would that actually be true for credit cards? With the sheer volume of global electronic card transactions nowadays (168 Billion transactions in 2013 [1]) it seems they'd be multi-billion-dollar businesses just on card transaction processing fees alone. On top of that, many cards charge an annual fee as well. Seems they could survive even if everyone paid their card off every month. [1] http://www.nilsonreport.com/publication_special_feature_article.php http://www.nilsonreport.com/publication_special_feature_arti...
  - PhantomGremlin 11y ago
    Seems they could survive even if everyone paid their card off every month. They could survive, but they wouldn't like it. They call people who pay off every month "deadbeats". You can't make this stuff up!!! http://www.creditcards.com/glossary/term-deadbeat.php http://www.creditcards.com/glossary/term-deadbeat.php
  - URSpider94 11y ago
    Nope, because of fraud expenses, new customer acquisition and customer rewards, the fees from transactions alone aren't nearly enough to make them profitable. Discover is right now giving me 10% cash back on Apple Pay purchases made in person ... :)
- aggieben 11y ago
  There's a category difference. I don't have a citation, but I would guess that credit card companies make a substantial proportion of their revenues from merchant fees. Also, they do turn down people. Not everyone can get a credit card.

tadfisher 11y ago

> Their business model is wholly and fundamentally based on the inability of non-creditworthy people to keep their obligations. If their customers paid back everything on time, they would go out of business instantly. That is what I call unethical. At best. The exact same criticism can be leveled at the credit card industry. Or any business based on unsecured credit, really. Payday lending just takes a well-entrenched business model to its extremes.

SyneRyder 11y ago
Would that actually be true for credit cards? With the sheer volume of global electronic card transactions nowadays (168 Billion transactions in 2013 [1]) it seems they'd be multi-billion-dollar businesses just on card transaction processing fees alone. On top of that, many cards charge an annual fee as well. Seems they could survive even if everyone paid their card off every month. [1] http://www.nilsonreport.com/publication_special_feature_article.php http://www.nilsonreport.com/publication_special_feature_arti...
- PhantomGremlin 11y ago
  Seems they could survive even if everyone paid their card off every month. They could survive, but they wouldn't like it. They call people who pay off every month "deadbeats". You can't make this stuff up!!! http://www.creditcards.com/glossary/term-deadbeat.php http://www.creditcards.com/glossary/term-deadbeat.php
- URSpider94 11y ago
  Nope, because of fraud expenses, new customer acquisition and customer rewards, the fees from transactions alone aren't nearly enough to make them profitable. Discover is right now giving me 10% cash back on Apple Pay purchases made in person ... :)
aggieben 11y ago
There's a category difference. I don't have a citation, but I would guess that credit card companies make a substantial proportion of their revenues from merchant fees. Also, they do turn down people. Not everyone can get a credit card.