3 ms·

The fees are not based on risk, they're based on market forces. This article[0] states the median APR on payday loans is 322%. There's no way defaults are tha

by NateDad 12y ago

The fees are not based on risk, they're based on market forces. This article[0] states the median APR on payday loans is 322%. There's no way defaults are that bad. The loan shops are just taking advantage of people who have no other choice, and don't know any better. [0] http://consumerist.com/2013/04/26/the-average-payday-loan-borrower-spends-more-than-half-the-year-in-debt-to-lender/ http://consumerist.com/2013/04/26/the-average-payday-loan-bo...

peteretep 12y ago
Market forces should correct that via competition, if true.
- jnbiche 12y ago
  Yeah, little problem there. It's almost impossible for non-incumbents to enter the sector now due to the huge regulatory compliance cost. Between the burden of Banking Secrecy Act and the challenge of regulatory capture, only very wealthy individuals and companies can enter the sector. And they have little incentive to do so, given the sector's schlep factor and poor reputation.
- deleted 12y ago
  [deleted]
twic 12y ago
This is the insight behind Wonga etc. Automate the payday loans business, put a nice website on the front end to make it friendly and convenient, use clever technology to price default risk more accurately, then undercut the incumbents while still making plenty of money. State intervention does not seem to be required to fix payday lending. Indeed, i would be apprehensive about a state enterprise taking on business which requires such sharp and tricky financial judgments to run effectively.
VLM 12y ago
Two other major reasons for payday loan places to exist are identity theft (especially of elderly) and money laundering, and neither will go away because the post office is competing. Several problems exist that haven't been discussed. One is coupling / product tying. If you screw up financially, no other bank or financial player will want to cooperate with you, universal default and all that. Bounce a check there, they won't accept a check over there. So... if you default on a post office loan, that means the P.O. will stop allowing you to send or rx mail, right? I mean, they gotta get leverage somehow. So... if the P.O. is in the loan biz and my letter carrier knows his job exists because people don't do biz with capital one, then physical spam from capital one might not make it into my mailbox, just sayin. Or even worse, old people who still pay bills physically might find that car payments to loaners other than the P.O. might often not be delivered... Another problem is consistency. Nothing sounds dumber on the internet than people all over the planet arguing with each other about which multinational cellphone provider has better or worse radio coverage in their house and by extension the entire world... or their local post office is either great or sucks. Fix that first, of be doomed to endless dumb sounding complaints on the internet. Banks are fairly consistent, at least compared to cellphone coverage or postal service. So your bread and butter main line product is going away because people are switching online both for personal-ish mail and spam. So your bright idea is to enter yet another field where virtually everything is moving online and paperless as fast as possible. Brilliant. Finally I don't see any synergy. If there was a flaming roaring demand to merge postal services with banking services, why doesn't every bank/CU have a UPS/fedex branch office? There seems to be an immense synergy between food stores and banks, its almost like there's a law locally that food stores must have a colocated bank branch. Admittedly very few freestanding bank branches sell bacon and doritos. Still I think it far more likely and realistic to see a bank selling ice cream, beer, and popsicles than a post office selling mortgages.
- jnbiche 12y ago
  >Two other major reasons for payday loan places to exist are identity theft (especially of elderly) and money laundering, and neither will go away because the post office is competing. Are you suggesting that payday loan operations are conducting or facilitating money laundering? Then please produce proof of a single payday loan operation that has been convicted or even accused of the charge in the last 10 years. I'll even make it easy for you to search last year's investigations: http://www.irs.gov/uac/Examples-of-Money-Laundering-Investigations-Fiscal-Year-2013 http://www.irs.gov/uac/Examples-of-Money-Laundering-Investig... No, payday loan operations don't need to launder money, because they are making an absolute killing ripping of the poor, and they know even the slightest hint of money laundering will strip them of their license. Only the big boys like HSBC have the political connections to engage in money laundering and keep their licenses.
- ijk 12y ago
  Historically, the US Post office did have a Postal Savings System. [1] Several other countries still have similar systems. I'm not sure that the US post office is the best place to solve this problem right now, but it's not unprecedented. In the case of the US Post office, they have a constitutional mandate to deliver the mail, so I'm doubtful they can even threaten refusal of delivery as a penalty. if the P.O. is in the loan biz and my letter carrier knows his job exists because people don't do biz with capital one, then physical spam from capital one might not make it into my mailbox, just sayin. Delay or destruction of mail is a federal crime that carries an up-to-five-year penalty. [2] [1] http://en.wikipedia.org/wiki/Postal_savings_system http://en.wikipedia.org/wiki/Postal_savings_system [2] http://law.onecle.com/uscode/18/1703.html http://law.onecle.com/uscode/18/1703.html
netcan 12y ago
Risk is one aspect. But "transaction costs" are a bigger contributor. APR is a problematic way of looking at this. These are at the extreme end of short term & small amounts. IE, a $350 loan payable in 4 weeks. For the APR to appear reasonable on a loan like that, the fee + interest on that loan would need to be <$5. Just conducting the transaction costs more than that. Like I said, I don't think there is no room for improvement, but this article' math is populist nonsense. The market is inherently tricky.

by NateDad 12y ago

peteretep 12y ago

Market forces should correct that via competition, if true.

jnbiche 12y ago
Yeah, little problem there. It's almost impossible for non-incumbents to enter the sector now due to the huge regulatory compliance cost. Between the burden of Banking Secrecy Act and the challenge of regulatory capture, only very wealthy individuals and companies can enter the sector. And they have little incentive to do so, given the sector's schlep factor and poor reputation.
deleted 12y ago
[deleted]

twic 12y ago

This is the insight behind Wonga etc. Automate the payday loans business, put a nice website on the front end to make it friendly and convenient, use clever technology to price default risk more accurately, then undercut the incumbents while still making plenty of money. State intervention does not seem to be required to fix payday lending. Indeed, i would be apprehensive about a state enterprise taking on business which requires such sharp and tricky financial judgments to run effectively.

VLM 12y ago

Two other major reasons for payday loan places to exist are identity theft (especially of elderly) and money laundering, and neither will go away because the post office is competing. Several problems exist that haven't been discussed. One is coupling / product tying. If you screw up financially, no other bank or financial player will want to cooperate with you, universal default and all that. Bounce a check there, they won't accept a check over there. So... if you default on a post office loan, that means the P.O. will stop allowing you to send or rx mail, right? I mean, they gotta get leverage somehow. So... if the P.O. is in the loan biz and my letter carrier knows his job exists because people don't do biz with capital one, then physical spam from capital one might not make it into my mailbox, just sayin. Or even worse, old people who still pay bills physically might find that car payments to loaners other than the P.O. might often not be delivered... Another problem is consistency. Nothing sounds dumber on the internet than people all over the planet arguing with each other about which multinational cellphone provider has better or worse radio coverage in their house and by extension the entire world... or their local post office is either great or sucks. Fix that first, of be doomed to endless dumb sounding complaints on the internet. Banks are fairly consistent, at least compared to cellphone coverage or postal service. So your bread and butter main line product is going away because people are switching online both for personal-ish mail and spam. So your bright idea is to enter yet another field where virtually everything is moving online and paperless as fast as possible. Brilliant. Finally I don't see any synergy. If there was a flaming roaring demand to merge postal services with banking services, why doesn't every bank/CU have a UPS/fedex branch office? There seems to be an immense synergy between food stores and banks, its almost like there's a law locally that food stores must have a colocated bank branch. Admittedly very few freestanding bank branches sell bacon and doritos. Still I think it far more likely and realistic to see a bank selling ice cream, beer, and popsicles than a post office selling mortgages.

jnbiche 12y ago
>Two other major reasons for payday loan places to exist are identity theft (especially of elderly) and money laundering, and neither will go away because the post office is competing. Are you suggesting that payday loan operations are conducting or facilitating money laundering? Then please produce proof of a single payday loan operation that has been convicted or even accused of the charge in the last 10 years. I'll even make it easy for you to search last year's investigations: http://www.irs.gov/uac/Examples-of-Money-Laundering-Investigations-Fiscal-Year-2013 http://www.irs.gov/uac/Examples-of-Money-Laundering-Investig... No, payday loan operations don't need to launder money, because they are making an absolute killing ripping of the poor, and they know even the slightest hint of money laundering will strip them of their license. Only the big boys like HSBC have the political connections to engage in money laundering and keep their licenses.
ijk 12y ago
Historically, the US Post office did have a Postal Savings System. [1] Several other countries still have similar systems. I'm not sure that the US post office is the best place to solve this problem right now, but it's not unprecedented. In the case of the US Post office, they have a constitutional mandate to deliver the mail, so I'm doubtful they can even threaten refusal of delivery as a penalty. if the P.O. is in the loan biz and my letter carrier knows his job exists because people don't do biz with capital one, then physical spam from capital one might not make it into my mailbox, just sayin. Delay or destruction of mail is a federal crime that carries an up-to-five-year penalty. [2] [1] http://en.wikipedia.org/wiki/Postal_savings_system http://en.wikipedia.org/wiki/Postal_savings_system [2] http://law.onecle.com/uscode/18/1703.html http://law.onecle.com/uscode/18/1703.html

netcan 12y ago

Risk is one aspect. But "transaction costs" are a bigger contributor. APR is a problematic way of looking at this. These are at the extreme end of short term & small amounts. IE, a $350 loan payable in 4 weeks. For the APR to appear reasonable on a loan like that, the fee + interest on that loan would need to be <$5. Just conducting the transaction costs more than that. Like I said, I don't think there is no room for improvement, but this article' math is populist nonsense. The market is inherently tricky.