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Unfortunately I do not believe there is any law that you could pass that would stand up to judicial scrutiny that would ever solve this problem. Desperation has

Unfortunately I do not believe there is any law that you could pass that would stand up to judicial scrutiny that would ever solve this problem. Desperation has a way of overcoming all logic and reason. That said.. you could always tax the snot out of them. If the lender had to pay a 55% tax on any money they loan out... but that would probably kill all sorts of other good loan markets, like cars and retail.

arethuza 8y ago
Interesting, because for a lot of history laws against usury were actually pretty common: https://en.wikipedia.org/wiki/Usury https://en.wikipedia.org/wiki/Usury
- Simulacra 8y ago
  I don't disagree, but I'm sitting here trying to think through the legal arguments for and against, and it seems like it would stand under contract law. One person is loaning another person money. So long as both understand the details of the contract, it's legal. Which brings me back to my earlier comment that even if the lender was required to show just how truly awful the loan was to the borrower, desperation will still overcome all logic and reason. Which then brings in the thorny issue of what is government's role in this, to protect the consumer, or to protect the consumer from their own fully informed yet bad decisions?
  - ticviking 8y ago
    The strongest argument against Usury is that it creates an unlimited claim on the future labor of the borrower making it into a kind of forced servitude. We rightly don't allow people to sell themselves into slavery, why then do we permit this kind of unlimited liability?
    - leetcrew 8y ago
      > The strongest argument against Usury is that it creates an unlimited claim on the future labor of the borrower making it into a kind of forced servitude. payday loans are a pretty distasteful business but you are exaggerating quite a bit. unsecured personal loans like this are almost always dischargeable in bankruptcy, unless the judge can be convinced that the borrower never intended to pay them back.
      - ticviking 8y ago
        Bankruptcy is how we sever that claim, and requires a legal process. If we as a society didn't have a bankruptcy process what would the consequence of this kind of lending be?
        leetcrew 8y ago
        obviously society would be a lot more oppressive to debtors if bankruptcy didn't exist. maybe I interpreted your use of "claim" more strongly than you intended, but I am mainly replying to the sentiment in this thread that payday loans create an unbreakable cycle of enslavement / indentured servitude. they are abusive loans for sure, but they're not that bad. if you already have no assets and terrible credit, you don't have much to lose by filing for chapter 7 and it will be pretty difficult for the lender to avoid having the debt discharged.
        ticviking 8y ago
        Totally fair, I was also thinking of this kind of claim in "An-capistan" without a state enforcing bankruptcy as an option. The imagined regulatory environment is critical to how we think about his kind of thing. I do think you underestimate how accessible bankruptcy is for most people who are served by payday lenders.The folks I know who are forced into that market aren't well educated, and may not even know where to begin. I find that they view bankruptcy as a way "fat cats like Trump get out of the debts while working stiffs have to pay" As a tool it's really only available to middle and upper-middle class Americans.
  - jerf 8y ago
    "So long as both understand the details of the contract, it's legal." That is not a correct description of contract law. There are numerous other conditions that can invalidate a contract, and "usurious lending" would not particularly stand out if it was added to the list. You already can't outright sign a contract that sells yourself into slavery; it wouldn't be that big a change to prevent signing yourself into indentured servitude, even partial indentured servitude.
  - arethuza 8y ago
    Governments already do a lot to protect people from themselves - the changes to Fixed-Odds Betting Terminals here in the UK being an example: https://www.bbc.co.uk/news/business-44148285 https://www.bbc.co.uk/news/business-44148285 I'd also love to know what percentage of people getting payday loans really understand how compound interest works and how it will impact them (for reasons of poor education, stress etc.).
astura 8y ago
? Payday loans are only legal in 38 states. 12 states have already figured it out.
- Simulacra 8y ago
  Not that they're illegal in the other states, but upon closer inspection its states that still have small loan rate caps or usury laws. Further it's not that the payday loans themselves are illegal, it's that exorbitantly high interest rates on those loans are illegal. Big difference.
ticviking 8y ago
There's some relatively simple solutions out there to prevent usury. The issue is they aren't all that profitable. Essentially you have to ban compounding interest on loans without collateral, and restructure all loans with collateral as "rent on shares of the collateral" Then an "interest only payment" is renting your collateral back, and your normal payment would be buying back a share, plus paying the rent on the rest. Islamic Banking has instantiated similar things(though I'm not familiar with all the details) and I've seen several different Christian groups propose similar things.
c2h5oh 8y ago
Many countries set a maximum interest rate, including any additional fees. Ie Poland sets the limit at triple of the central bank default interest rate (3x 7% /year). Canada caps it higher, at 60%
elliekelly 8y ago
Judicial scrutiny? Nonsense. Of course they could regulate it. They regulate payday loans now they just don't regulate them effectively. Arguably by design. The financial services industry in the United States is one of the most highly regulated industries in the world and both the Federal and State governments have well-established and sweeping authority to address the problem posed by payday loans. They choose not to because their PAC donors are the payday lenders not the borrowers.

arethuza 8y ago

Interesting, because for a lot of history laws against usury were actually pretty common: https://en.wikipedia.org/wiki/Usury https://en.wikipedia.org/wiki/Usury

Simulacra 8y ago
I don't disagree, but I'm sitting here trying to think through the legal arguments for and against, and it seems like it would stand under contract law. One person is loaning another person money. So long as both understand the details of the contract, it's legal. Which brings me back to my earlier comment that even if the lender was required to show just how truly awful the loan was to the borrower, desperation will still overcome all logic and reason. Which then brings in the thorny issue of what is government's role in this, to protect the consumer, or to protect the consumer from their own fully informed yet bad decisions?
- ticviking 8y ago
  The strongest argument against Usury is that it creates an unlimited claim on the future labor of the borrower making it into a kind of forced servitude. We rightly don't allow people to sell themselves into slavery, why then do we permit this kind of unlimited liability?
  - leetcrew 8y ago
    > The strongest argument against Usury is that it creates an unlimited claim on the future labor of the borrower making it into a kind of forced servitude. payday loans are a pretty distasteful business but you are exaggerating quite a bit. unsecured personal loans like this are almost always dischargeable in bankruptcy, unless the judge can be convinced that the borrower never intended to pay them back.
    - ticviking 8y ago
      Bankruptcy is how we sever that claim, and requires a legal process. If we as a society didn't have a bankruptcy process what would the consequence of this kind of lending be?
      - leetcrew 8y ago
        obviously society would be a lot more oppressive to debtors if bankruptcy didn't exist. maybe I interpreted your use of "claim" more strongly than you intended, but I am mainly replying to the sentiment in this thread that payday loans create an unbreakable cycle of enslavement / indentured servitude. they are abusive loans for sure, but they're not that bad. if you already have no assets and terrible credit, you don't have much to lose by filing for chapter 7 and it will be pretty difficult for the lender to avoid having the debt discharged.
        ticviking 8y ago
        Totally fair, I was also thinking of this kind of claim in "An-capistan" without a state enforcing bankruptcy as an option. The imagined regulatory environment is critical to how we think about his kind of thing. I do think you underestimate how accessible bankruptcy is for most people who are served by payday lenders.The folks I know who are forced into that market aren't well educated, and may not even know where to begin. I find that they view bankruptcy as a way "fat cats like Trump get out of the debts while working stiffs have to pay" As a tool it's really only available to middle and upper-middle class Americans.
- jerf 8y ago
  "So long as both understand the details of the contract, it's legal." That is not a correct description of contract law. There are numerous other conditions that can invalidate a contract, and "usurious lending" would not particularly stand out if it was added to the list. You already can't outright sign a contract that sells yourself into slavery; it wouldn't be that big a change to prevent signing yourself into indentured servitude, even partial indentured servitude.
- arethuza 8y ago
  Governments already do a lot to protect people from themselves - the changes to Fixed-Odds Betting Terminals here in the UK being an example: https://www.bbc.co.uk/news/business-44148285 https://www.bbc.co.uk/news/business-44148285 I'd also love to know what percentage of people getting payday loans really understand how compound interest works and how it will impact them (for reasons of poor education, stress etc.).

astura 8y ago

? Payday loans are only legal in 38 states. 12 states have already figured it out.

Simulacra 8y ago
Not that they're illegal in the other states, but upon closer inspection its states that still have small loan rate caps or usury laws. Further it's not that the payday loans themselves are illegal, it's that exorbitantly high interest rates on those loans are illegal. Big difference.

ticviking 8y ago

There's some relatively simple solutions out there to prevent usury. The issue is they aren't all that profitable. Essentially you have to ban compounding interest on loans without collateral, and restructure all loans with collateral as "rent on shares of the collateral" Then an "interest only payment" is renting your collateral back, and your normal payment would be buying back a share, plus paying the rent on the rest. Islamic Banking has instantiated similar things(though I'm not familiar with all the details) and I've seen several different Christian groups propose similar things.

c2h5oh 8y ago

Many countries set a maximum interest rate, including any additional fees. Ie Poland sets the limit at triple of the central bank default interest rate (3x 7% /year). Canada caps it higher, at 60%

elliekelly 8y ago

Judicial scrutiny? Nonsense. Of course they could regulate it. They regulate payday loans now they just don't regulate them effectively. Arguably by design. The financial services industry in the United States is one of the most highly regulated industries in the world and both the Federal and State governments have well-established and sweeping authority to address the problem posed by payday loans. They choose not to because their PAC donors are the payday lenders not the borrowers.