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Perhaps the problem is that because rates are so high, and people who need them so desperate, it is a no-brainer why the profit margins are low. Perhaps a bett

Perhaps the problem is that because rates are so high, and people who need them so desperate, it is a no-brainer why the profit margins are low. Perhaps a better alternative would be a general credit line available to all Americans managed by the CFPB. The credit limit would be rather small, in the low hundreds, but would be higher for citizens with better credit scores. Why subsidize loans to this degree? Because there are many, many people that are so poor, payday loans can be their only option, burrowing them into crippling debt, which makes them scarcer consumers (less tax from commerce), economically precarious (more likely to require welfare of some kind), and societally corrosive (what happens when the children of severely indebted parents grow up? Another generation of poverty, most likely). By all means, let payday lenders do their thing, but they need competiton. Before homeownership policies of the mid 20th century, you would have to be rich to afford a house (when a 50% down payment was normal). Now it's an expectation of middle class life. Competiton is a good thing, and so is letting the government compete.

SilasX 11y ago
>Perhaps a better alternative would be a general credit line available to all Americans managed by the CFPB. The credit limit would be rather small, in the low hundreds, but would be higher for citizens with better credit scores. Because people who exhaust their existing credit as if it were free money won't exhaust this? The Vimes problem [1] is well known and yet no one can come up with a systematic way to break the cycle and create a virtuous upward cycle by making the kind of small cheap loan you're describing. [1] The oft repeated meme that not being able to afford some long-term-cheaper option because you can't front the cash, thus making you even poorer.
Karunamon 11y ago
Perhaps a better alternative would be a general credit line available to all Americans managed by the CFPB. The credit limit would be rather small, in the low hundreds, but would be higher for citizens with better credit scores. This solves nothing - the people who are generally signing up for payday loans almost certainly don't have great credit. (If they did, they'd be a lot more likely to be able to get a real loan or put the short term needs on a card) And as I put my anecdata hat on: There's plenty of competition among payday lenders. I live in what barely qualifies for a city, and there are at least 10 different outfits within about 5 minutes drive, some standalone, some pawn shops.
- rm_-rf_slash 11y ago
  The people who need credit the most obviously don't have any. Insisting that the only alternative to missing payments is with obscene-interest loans is like a doctor giving you the option of dying or sticking you with leeches.
  - Karunamon 11y ago
    I'm still of the opinion that using APR's to describe a loan held for ~a week is about as useful as the weatherman giving you the forecast in degrees kelvin: technically correct, but completely worthless. "Get $300, pay it back plus $30 a week later" is much more relatable. And isn't a bad deal, when you need cash now. Think medical, car impound, etc. "Missing a payment" isn't even a thing you can have happen on most classes of payday loan. You have to provide a pay stub, and a post-dated check, and the money just gets taken out on the day of. Regarding leeches: http://www.livescience.com/203-maggots-leeches-medicine.html http://www.livescience.com/203-maggots-leeches-medicine.html - when the options are lose a foot or put a couple of sanitary bugs on it, I'll pick the leeches every time :)
    - dragonwriter 11y ago
      > You have to provide a pay stub, and a post-dated check, and the money just gets taken out on the day of. That doesn't prevent missing payments; if it did, the risk profile on payday loans would be much different than it is and the costs would be much lower, in line with other, lower-risk, loans that exist in the market. There are several reasons why it is possible to miss the expected payment even with the paystub + postdated check approach. (1) There's no guarantee that the next paycheck will be the same size as the previous one, particularly with the population (largely not salaried, often without paid leave available, and often with little job security) that needs payday loans. (2) There's no guarantee that someone else won't reach into the account and take money before the payday lender gets it (including the bank itself, which absolutely will beat anyone presenting a check if there are fees, etc., due.) (3) Its possible to cash/deposit paychecks other places than the account on which the postdated check is drawn, and people might do so if they have another unexpected expense, and decide paying that is more important than paying the loan.
maxerickson 11y ago
How much of increase in home ownership is due to building costs coming down? Not necessarily in recent decades, but in the first half of the previous century. I look at government insurance and interest subsidies on 30 year mortgages and am really skeptical that it puts any downward pressure on housing prices.
dragonwriter 11y ago
> Perhaps a better alternative would be a general credit line available to all Americans managed by the CFPB. The credit limit would be rather small, in the low hundreds, but would be higher for citizens with better credit scores. I don't think that helps much; if payday loans are really low-margin, CFPB won't be able to offer better effective rates -- unless you are proposing that this is positive-cost taxpayer subsidized line of credit.
rayiner 11y ago
> By all means, let payday lenders do their thing, but they need competition. The studies referred to by fennecfoxen show that payday lending is extremely competitive: http://fee.org/articles/busting-the-myths-of-payday-lending http://fee.org/articles/busting-the-myths-of-payday-lending. That's why the margins are so thin. You're not talking about government "competing" in this space. You're asking for the government to subsidize payday loans either directly or across borrowers with different credit ratings (like the government does with student loans).
- SilasX 11y ago
  Some people further want the Bernie Sanders plan of having post offices do banking (including such short term loans), so the lines can be choked with people trying to figure out banking while you just want to pick up your package.
  - deciplex 11y ago
    This is just cowardly defeatism, a trend all too common these days in American public policy. Too many ideas which are provably sound as borne out by their implementation by other nations (cf universal health care for another example), waved away as "impossible" (or at least, impossible in America) by much of the electorate. Too many Americans like yourself are too quick to grasp for any excuse they can which will allow them to perceive a real weakness (shitty health care is the big one, but also failing institutions generally) as an imagined strength. You can fool yourself for a very long time, but you don't solve any real problems that way.
MisterBastahrd 11y ago
.... have you EVER been to a poor neighborhood? There's a payday loan company around every other corner. If they lack ANYTHING, competition is at the bottom of the list. We have laws that specifically prohibit banks from being that damned usurious. We need the same against private lenders.

SilasX 11y ago

>Perhaps a better alternative would be a general credit line available to all Americans managed by the CFPB. The credit limit would be rather small, in the low hundreds, but would be higher for citizens with better credit scores. Because people who exhaust their existing credit as if it were free money won't exhaust this? The Vimes problem [1] is well known and yet no one can come up with a systematic way to break the cycle and create a virtuous upward cycle by making the kind of small cheap loan you're describing. [1] The oft repeated meme that not being able to afford some long-term-cheaper option because you can't front the cash, thus making you even poorer.

Karunamon 11y ago

Perhaps a better alternative would be a general credit line available to all Americans managed by the CFPB. The credit limit would be rather small, in the low hundreds, but would be higher for citizens with better credit scores. This solves nothing - the people who are generally signing up for payday loans almost certainly don't have great credit. (If they did, they'd be a lot more likely to be able to get a real loan or put the short term needs on a card) And as I put my anecdata hat on: There's plenty of competition among payday lenders. I live in what barely qualifies for a city, and there are at least 10 different outfits within about 5 minutes drive, some standalone, some pawn shops.

rm_-rf_slash 11y ago
The people who need credit the most obviously don't have any. Insisting that the only alternative to missing payments is with obscene-interest loans is like a doctor giving you the option of dying or sticking you with leeches.
- Karunamon 11y ago
  I'm still of the opinion that using APR's to describe a loan held for ~a week is about as useful as the weatherman giving you the forecast in degrees kelvin: technically correct, but completely worthless. "Get $300, pay it back plus $30 a week later" is much more relatable. And isn't a bad deal, when you need cash now. Think medical, car impound, etc. "Missing a payment" isn't even a thing you can have happen on most classes of payday loan. You have to provide a pay stub, and a post-dated check, and the money just gets taken out on the day of. Regarding leeches: http://www.livescience.com/203-maggots-leeches-medicine.html http://www.livescience.com/203-maggots-leeches-medicine.html - when the options are lose a foot or put a couple of sanitary bugs on it, I'll pick the leeches every time :)
  - dragonwriter 11y ago
    > You have to provide a pay stub, and a post-dated check, and the money just gets taken out on the day of. That doesn't prevent missing payments; if it did, the risk profile on payday loans would be much different than it is and the costs would be much lower, in line with other, lower-risk, loans that exist in the market. There are several reasons why it is possible to miss the expected payment even with the paystub + postdated check approach. (1) There's no guarantee that the next paycheck will be the same size as the previous one, particularly with the population (largely not salaried, often without paid leave available, and often with little job security) that needs payday loans. (2) There's no guarantee that someone else won't reach into the account and take money before the payday lender gets it (including the bank itself, which absolutely will beat anyone presenting a check if there are fees, etc., due.) (3) Its possible to cash/deposit paychecks other places than the account on which the postdated check is drawn, and people might do so if they have another unexpected expense, and decide paying that is more important than paying the loan.

maxerickson 11y ago

How much of increase in home ownership is due to building costs coming down? Not necessarily in recent decades, but in the first half of the previous century. I look at government insurance and interest subsidies on 30 year mortgages and am really skeptical that it puts any downward pressure on housing prices.

dragonwriter 11y ago

> Perhaps a better alternative would be a general credit line available to all Americans managed by the CFPB. The credit limit would be rather small, in the low hundreds, but would be higher for citizens with better credit scores. I don't think that helps much; if payday loans are really low-margin, CFPB won't be able to offer better effective rates -- unless you are proposing that this is positive-cost taxpayer subsidized line of credit.

rayiner 11y ago

> By all means, let payday lenders do their thing, but they need competition. The studies referred to by fennecfoxen show that payday lending is extremely competitive: http://fee.org/articles/busting-the-myths-of-payday-lending http://fee.org/articles/busting-the-myths-of-payday-lending. That's why the margins are so thin. You're not talking about government "competing" in this space. You're asking for the government to subsidize payday loans either directly or across borrowers with different credit ratings (like the government does with student loans).

SilasX 11y ago
Some people further want the Bernie Sanders plan of having post offices do banking (including such short term loans), so the lines can be choked with people trying to figure out banking while you just want to pick up your package.
- deciplex 11y ago
  This is just cowardly defeatism, a trend all too common these days in American public policy. Too many ideas which are provably sound as borne out by their implementation by other nations (cf universal health care for another example), waved away as "impossible" (or at least, impossible in America) by much of the electorate. Too many Americans like yourself are too quick to grasp for any excuse they can which will allow them to perceive a real weakness (shitty health care is the big one, but also failing institutions generally) as an imagined strength. You can fool yourself for a very long time, but you don't solve any real problems that way.

MisterBastahrd 11y ago

.... have you EVER been to a poor neighborhood? There's a payday loan company around every other corner. If they lack ANYTHING, competition is at the bottom of the list. We have laws that specifically prohibit banks from being that damned usurious. We need the same against private lenders.