6 ms·

Payday loans may have a high interest rate, but if the cost of a payday loan is less than the alternatives, then it seems ethical to me. For instance, say a pay

by BobbyH 18y ago

Payday loans may have a high interest rate, but if the cost of a payday loan is less than the alternatives, then it seems ethical to me. For instance, say a payday loan for $200 costs $30. That's translates into a high interest rate, but it's worth it to you if it helps you avoid a $50 late fee on another bill that's due before your next payday. The trick to running a payday business ethically seems to be fee transparency and not charging excessive fees such that borrowers must borrow an ever-increasing amount. This article about a payday company in LA talks about these issues: http://www.nytimes.com/2008/11/09/magazine/09nix-t.html http://www.nytimes.com/2008/11/09/magazine/09nix-t.html

smanek 18y ago
I would argue that a cost of a payday loan is always less than the alternative (as long as the borrower knows what it is upfront - and if they don't it's fraud). If there were some lower cost alternative, the borrower wouldn't take the payday loan. They would use the alternative. Hence, if you are providing a product (without lying), I think you are doing the world a service. And the magnitude of the goodness you are doing is measured by your profit.
- alienasia 18y ago
  Wow. I understand that fits really nicely in your world model that unifies economics and morality, but that's not how the world works at all. Borrowers are not always rational or informed. Most people go into debt because they spend beyond their means, not because they're leveraging short term capital. Payday lending is illegal in some states and a felony in Georgia. This guy made $70 million off poor people, pushing a large number of them further into debt, and you're calling that the measurement of his goodness?
  - chops 18y ago
    He didn't force anyone to do anything - his customers voluntarily chose to deal with his business. He offered a service that was in demand and was paid a fee for it.
    - ahoyhere 18y ago
      The same could be said of crack dealers, you know. And hitmen. Just beacuse it's a voluntary service doesn't make it good, honourable, etc., etc.
  - smanek 18y ago
    You have a very arrogant world view. You are assuming you know what's better for a borrower (call him B) than he does himself. You or the government don't have all the facts surronding B's situation, only B does. B is the only one who is qualified to make decisions that only affect him. How can you possibly think that taking options away from B is a good idea? Options that you or I may think are stupid shouldn't be taken away from B, just because we don't see how they are useful to him. I think that payday lending shouldn't be illegal - as long as an action doesn't involve any non-consenting parties (theft, violence, fraud, etc), it should be legal (in my view).
    - DougBTX 18y ago
      On a very slight tangent: Do you think that the truthfulness of advertising should be regulated? And then back on topic: Is there a significant moral difference between outright lies in advertising, and specifically marketing to a certain percentage of the market who you expect to miss-understand a technically truthful advert?
      - Dilpil 18y ago
        Even more tangential thought: Like many issues, the real problem is the education system. Perhaps if inner city public schools were more like schools and less like prisons we would not have significant parts of the population lacking rudimentary critical thinking skills, and we would not have to worry about entire segments of the financial system existing solely to exploit them.
    - nfg 18y ago
      > B is the only one who is qualified to make decisions that only affect him. How can you possibly think that taking options away from B is a good idea? Options that you or I may think are stupid shouldn't be taken away from B, just because we don't see how they are useful to him. Ok, so for example you support B's right to sell himself into slavery if he feel that that is the correct course of action?
    - rsheridan6 18y ago
      >You have a very arrogant world view. You are assuming you know what's better for a borrower (call him B) than he does himself. We're talking about the kinds of dumbasses who take out payday loans. Arrogant or not, he probably does know what's better for the borrower than the borrower does himself.
nostrademons 18y ago
There's a big negative externality with payday loans - or really, any sort of consumer credit - that I wish more people were aware of... As more people use credit for everyday purchases, fiscally responsible people get priced out of the market. The additional cash on hand drives prices up, because there's always some idiot who's willing to pay more now with a credit card or payday loan than he can afford to pay back later. He crowds out prudent buyers who only purchase goods if they have cash on hand. Eventually, it becomes rational for everyone to pay with money they don't have, because otherwise they're simply priced out of the market and have to do without. An example might make this more concrete. Say that there is a limited supply of some highly-demanded good - say, cupcakes. In economic equilibrium, the price of a cupcake may be $2, and there is enough supply for 25% of the population to have one. This being a functioning market, the cupcakes go to the people who most deserve to have them, "deserve" being a function both of means (how much money they have to spend, a proxy for how much they've contributed back to the economy) and of desires (what fraction they're willing to part with to get that cupcake). Now say that one person discovers a payday loan shop. He suddenly has much more cash on hand, because he can get a full advance halfway through the pay period. So he gets a cupcake even though he couldn't normally have afforded one, and then has to pay back more in the future. This is still legit though: maybe he just really wanted that cupcake, and is willing to take the future hit to income to have it now. Imagine now that 25% of the population has discovered the magic of pre-approved credit offers, and suddenly have lots of cash on hand. They bid up the price of cupcakes to $10, and suddenly these profligate folks get all the cupcakes. The fiscally responsible folks who make a decent income but refuse to go into debt have been completely priced out of the market, so their only choices are to join the debtors, or do without. So the number of debtors grows even more, people start needing to take on debt just to survive, and folks have no intention nor ability of ever paying this back. This is happening in several areas of our economy right now. There are a limited number of houses. They go to the highest bidder. Therefore, if some idiot pays 0% down on an interest-only options-ARM, he can get more cash on a given income/savings level, and outbid the prudent folks who insist on paying 20% down. This is why it has been essentially impossible to buy a house lately (well, up to 2008) if you have any intention of not being foreclosed upon. There are a limited number of spots in colleges. There is also massive financial aid available. When families take out loans to send their students to college, they can pay higher prices. Colleges raise their tuition to compensate. It then becomes impossible for people to attend college without taking out loans. (Except for certain elite schools that give outright grants for everyone on financial aid.) There is a limited amount of food. When large numbers of lower-income people have more immediate cash, thanks to payday loans, grocers can raise their prices accordingly. Other people in the neighborhood are faced with the choice of either taking out loans themselves or going hungry. I've read a few economic histories that suggest that these debt-inflation cycles hit countries every 80-200 years, and that the end result is necessarily that the money supply spirals out of control. People need to borrow to live, and yet the borrowing fuels further increases in the cost of living. They almost always end in war, which serves as a giant reset button by bankrupting everybody equally. ;-) WW2 was fueled by the debt spiral of Weimar Germany, where they physically couldn't repay their WW1 reparations. The American Revolution was fueled by the Stamp Act ("No taxation without representation"), which was to cover rising indebtness of British war debts. The French revolution was caused the bankruptcy of the French royals.
lakeeffect 18y ago
What bill has a 50 late charge? Most payday loan people customers dont have a banking account let alone a mortgage or something else. They are excessively high loans. Do they help change the overall economic disposition of the customer? No, customers are usually repeat business either weekly or biweekly.

by BobbyH 18y ago

smanek 18y ago

I would argue that a cost of a payday loan is always less than the alternative (as long as the borrower knows what it is upfront - and if they don't it's fraud). If there were some lower cost alternative, the borrower wouldn't take the payday loan. They would use the alternative. Hence, if you are providing a product (without lying), I think you are doing the world a service. And the magnitude of the goodness you are doing is measured by your profit.

alienasia 18y ago
Wow. I understand that fits really nicely in your world model that unifies economics and morality, but that's not how the world works at all. Borrowers are not always rational or informed. Most people go into debt because they spend beyond their means, not because they're leveraging short term capital. Payday lending is illegal in some states and a felony in Georgia. This guy made $70 million off poor people, pushing a large number of them further into debt, and you're calling that the measurement of his goodness?
- chops 18y ago
  He didn't force anyone to do anything - his customers voluntarily chose to deal with his business. He offered a service that was in demand and was paid a fee for it.
  - ahoyhere 18y ago
    The same could be said of crack dealers, you know. And hitmen. Just beacuse it's a voluntary service doesn't make it good, honourable, etc., etc.
- smanek 18y ago
  You have a very arrogant world view. You are assuming you know what's better for a borrower (call him B) than he does himself. You or the government don't have all the facts surronding B's situation, only B does. B is the only one who is qualified to make decisions that only affect him. How can you possibly think that taking options away from B is a good idea? Options that you or I may think are stupid shouldn't be taken away from B, just because we don't see how they are useful to him. I think that payday lending shouldn't be illegal - as long as an action doesn't involve any non-consenting parties (theft, violence, fraud, etc), it should be legal (in my view).
  - DougBTX 18y ago
    On a very slight tangent: Do you think that the truthfulness of advertising should be regulated? And then back on topic: Is there a significant moral difference between outright lies in advertising, and specifically marketing to a certain percentage of the market who you expect to miss-understand a technically truthful advert?
    - Dilpil 18y ago
      Even more tangential thought: Like many issues, the real problem is the education system. Perhaps if inner city public schools were more like schools and less like prisons we would not have significant parts of the population lacking rudimentary critical thinking skills, and we would not have to worry about entire segments of the financial system existing solely to exploit them.
  - nfg 18y ago
    > B is the only one who is qualified to make decisions that only affect him. How can you possibly think that taking options away from B is a good idea? Options that you or I may think are stupid shouldn't be taken away from B, just because we don't see how they are useful to him. Ok, so for example you support B's right to sell himself into slavery if he feel that that is the correct course of action?
  - rsheridan6 18y ago
    >You have a very arrogant world view. You are assuming you know what's better for a borrower (call him B) than he does himself. We're talking about the kinds of dumbasses who take out payday loans. Arrogant or not, he probably does know what's better for the borrower than the borrower does himself.

nostrademons 18y ago

There's a big negative externality with payday loans - or really, any sort of consumer credit - that I wish more people were aware of... As more people use credit for everyday purchases, fiscally responsible people get priced out of the market. The additional cash on hand drives prices up, because there's always some idiot who's willing to pay more now with a credit card or payday loan than he can afford to pay back later. He crowds out prudent buyers who only purchase goods if they have cash on hand. Eventually, it becomes rational for everyone to pay with money they don't have, because otherwise they're simply priced out of the market and have to do without. An example might make this more concrete. Say that there is a limited supply of some highly-demanded good - say, cupcakes. In economic equilibrium, the price of a cupcake may be $2, and there is enough supply for 25% of the population to have one. This being a functioning market, the cupcakes go to the people who most deserve to have them, "deserve" being a function both of means (how much money they have to spend, a proxy for how much they've contributed back to the economy) and of desires (what fraction they're willing to part with to get that cupcake). Now say that one person discovers a payday loan shop. He suddenly has much more cash on hand, because he can get a full advance halfway through the pay period. So he gets a cupcake even though he couldn't normally have afforded one, and then has to pay back more in the future. This is still legit though: maybe he just really wanted that cupcake, and is willing to take the future hit to income to have it now. Imagine now that 25% of the population has discovered the magic of pre-approved credit offers, and suddenly have lots of cash on hand. They bid up the price of cupcakes to $10, and suddenly these profligate folks get all the cupcakes. The fiscally responsible folks who make a decent income but refuse to go into debt have been completely priced out of the market, so their only choices are to join the debtors, or do without. So the number of debtors grows even more, people start needing to take on debt just to survive, and folks have no intention nor ability of ever paying this back. This is happening in several areas of our economy right now. There are a limited number of houses. They go to the highest bidder. Therefore, if some idiot pays 0% down on an interest-only options-ARM, he can get more cash on a given income/savings level, and outbid the prudent folks who insist on paying 20% down. This is why it has been essentially impossible to buy a house lately (well, up to 2008) if you have any intention of not being foreclosed upon. There are a limited number of spots in colleges. There is also massive financial aid available. When families take out loans to send their students to college, they can pay higher prices. Colleges raise their tuition to compensate. It then becomes impossible for people to attend college without taking out loans. (Except for certain elite schools that give outright grants for everyone on financial aid.) There is a limited amount of food. When large numbers of lower-income people have more immediate cash, thanks to payday loans, grocers can raise their prices accordingly. Other people in the neighborhood are faced with the choice of either taking out loans themselves or going hungry. I've read a few economic histories that suggest that these debt-inflation cycles hit countries every 80-200 years, and that the end result is necessarily that the money supply spirals out of control. People need to borrow to live, and yet the borrowing fuels further increases in the cost of living. They almost always end in war, which serves as a giant reset button by bankrupting everybody equally. ;-) WW2 was fueled by the debt spiral of Weimar Germany, where they physically couldn't repay their WW1 reparations. The American Revolution was fueled by the Stamp Act ("No taxation without representation"), which was to cover rising indebtness of British war debts. The French revolution was caused the bankruptcy of the French royals.

lakeeffect 18y ago

What bill has a 50 late charge? Most payday loan people customers dont have a banking account let alone a mortgage or something else. They are excessively high loans. Do they help change the overall economic disposition of the customer? No, customers are usually repeat business either weekly or biweekly.