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As someone that provided development and system administration support for multiple payday lenders for a few years, I will say that their adherence to the rules

As someone that provided development and system administration support for multiple payday lenders for a few years, I will say that their adherence to the rules each state enforces for payday lending companies I dealt with was often "spotty". It was a regular occurrence that they would have a state regulator visit to look at their operation, and they would all of a sudden be scrambling to make one or two accounts that they had completely dropped the ball on disappear. E.g. where they had rolled over a bi-weekly payment of $125 on a $500 loan for over 50 consecutive weeks. Let's keep in mind this is the industry that responded to legislation that you can't have the loans continue past a few periods by laving that last payment immediately preceded by another loan of the same amount, of which the amount needed to pay off the prior loan was immediately subtracted, resulting in zero difference in payments, but a new loan on the books. IIRC, for some states that required the loans be paid in full at the first opportunity, it meant a new loan was issued every pay period (that is, loan of $500, two weeks later a new loan of $500, which is used along with a $125 charge to close out the prior loan balance of $625 and issue a new $500 loan, continue as long they're unable to pay off the loan amount of $625). There is some benefit to the system though. I did see plenty of accounts where the customer paid it off in full at the first payday, which still results in a large fee, but that's acceptable for people getting same day short term loans. There's also quite a bit of defaulting on the loans, which means there's some justification for the high fees/APR. It's just where the system is abused and customers are funneled into systems used to milk them for large amounts long term where I was particularly upset by how it worked.

breatheoften 8y ago
How likely was it for people who showed a steady history of repaying the loans to suddenly start defaulting at or near the average rates? The only moral way to conduct this business is for the funnel to move people into lower risk tiers in proportion to their demonstrated/historical levels of risk - funneling every customer forever backward into the highest risk pools is systemically bad (inefficient) as well as evil.
- kbenson 8y ago
  I'm not sure any specific rates. My exposure to that info (beyond what I might think to look up myself) was mostly through what changes they requested to the system which predictably were mostly about easing the application process, extending the ACH file generation to optimize submission of the transfers to send/receive money, and to provide accurate reporting of total system money in/out. Occassionally they would want to see state specific numbers in a custom report from some SQL query, but only very, very rarely would they want to see numbers on average/max time length of loans, and only ever when a regulator would spot check. If I recall correctly, the average length of the loans was over 3 months (with a 25% interest payment due every pay period or two weeks, if paid more frequently than that). I remember looking up the data occassionally, but it was a decade ago, so I don't trust my memory enough to be definitive about specific numbers. They did start moving people into a separate collections department after a while, but I'm not sure what process they used to do that. It could be they were more on the ball about not allowing laons to go as long as I remember or knew about, but the amount of times they failed in this and needed help finding this info was notable, and yet better reporting of this info was never requested, so it could either be human error on a regular basis (fairly believable given the people they hired), or lack of importance to them, or some combination thereof.

breatheoften 8y ago

How likely was it for people who showed a steady history of repaying the loans to suddenly start defaulting at or near the average rates? The only moral way to conduct this business is for the funnel to move people into lower risk tiers in proportion to their demonstrated/historical levels of risk - funneling every customer forever backward into the highest risk pools is systemically bad (inefficient) as well as evil.

kbenson 8y ago
I'm not sure any specific rates. My exposure to that info (beyond what I might think to look up myself) was mostly through what changes they requested to the system which predictably were mostly about easing the application process, extending the ACH file generation to optimize submission of the transfers to send/receive money, and to provide accurate reporting of total system money in/out. Occassionally they would want to see state specific numbers in a custom report from some SQL query, but only very, very rarely would they want to see numbers on average/max time length of loans, and only ever when a regulator would spot check. If I recall correctly, the average length of the loans was over 3 months (with a 25% interest payment due every pay period or two weeks, if paid more frequently than that). I remember looking up the data occassionally, but it was a decade ago, so I don't trust my memory enough to be definitive about specific numbers. They did start moving people into a separate collections department after a while, but I'm not sure what process they used to do that. It could be they were more on the ball about not allowing laons to go as long as I remember or knew about, but the amount of times they failed in this and needed help finding this info was notable, and yet better reporting of this info was never requested, so it could either be human error on a regular basis (fairly believable given the people they hired), or lack of importance to them, or some combination thereof.