Yeah, and a heck of a way to tank the city's credit rating, too.
This is very similar to what we do in San Francisco. Loan sharks are a big problem in blighted neighborhoods, so in the last year the city treasurer started a program called "Bank on San Francisco," in which SF partners with several major banks to offer checking accounts and financial training to people who previously didn't know how to access such services, or were considered too high-risk.
i sympathize with the grander issues of inequity that this brings up, but as someone with lots of friends who don't make much money and who use these payday loans, making it easier to borrow against your paycheck would only fuel bigger bar tabs. The key isn't a program to make it easier to spend money you don't have. They key is to help people make more money (maybe tax payday loans and use the revenue to fund scholarships, for example). And to educate people how to spend wisely (free credit counseling provided by the city or a non-profit?). That would be a better strategy than to get into the banking business.
10%? There's a reason these rates are so high and the reason is that these are high-risk loans which are often defaulted on by people with poor credit records.
You start putting eligibility requirments on these loans and you'll find that many won't pass, which is exactly why they're pay 400% interest and not using credit cards or lower interest loans.
So you start up a city program, all those with not-horrible credit that don't really need the city program flood in and take the 10% loans (instead of paying 16% on credit cards) and you still have a population of people with poor credit that need loans. And where do they turn then, illegal loansharks that charge 800% and break your fingers when you don't pay (rather than the legal ones that charge 400%).
Teaching people how to budget and overall money management would be a great use of city funds and help a lot of people who are struggling. Most people, rich or poor, don't know really know how to manage their money and think they have to be "rich" to even think about it. (Example: Who buys fancy coffee drinks? Working poor and students. Who drinks black coffee or even instant coffee? Wealthy people or people who have a plan their money. Every little bit helps.)
Even people of modest or even low-income can save money if they are taught how to manage it and stick with it.
Also, microlending has worked in other places and might be able to work here. There's one organization that does that I believe called Washington CASH: www.washingtoncash.org I wonder how that's working out.
Seeing as how credit card companies typically charge more than this to creditworthy folks, I think a realistic rate should be considerably higher than that.
The elgibility requirement would be tailored to block those who aren't truly in need. In other words, it's the poor with bad credit who would qualify ... not those who aren't in dire straits.
Nice article on Griffin, the black dude fronting for the payday loan companies.
But that's not the real story here. The reason legislation imposing caps on payday loans likely won't be heard in the state Senate--yet again--is Senator Margarita Prentice, who fronts for payday lenders and doesn't even get paid by them, unlike Griffin.
Meanwhile, she couches her support for the Sonics as being concern for jobs and working class people. But hey, she speaks Spanish to the wait staff, as the Seattle Weekly breathlessly reports, so she must be great, right?
There already are programs to teach money management to people who need it, and they are wildly oversubscribed. There's a ton of demand and no funding for it. These kinds of programs cost a lot of money to administer, and the money isn't there.
I also wonder whether the city is hard-hearted enough to get into the collection business. We already know that scofflaws who don't pay their parking tickets can basically get away free forever; how are we going to go after people who cheat this new system?
The eligibility standards you mention, Josh, are also going to be extremely difficult to navigate. Need for paycheck cashing isn't strictly in line with income; some very poor people can live without it, while others with more income but a more casual approach to their finances are absolutely dependent.
A program like this is going to work counter to any financial management training, since anything that makes it easier to rely on services to cash your checks is going to result in more people relying on services to cash their checks. It's just human nature.
I think it's an idea worth exploring, and I would support it if they can make it work, but I've seen how the city doles out services now, and I have little faith that they can keep this from becoming a boondoggle. It would probably be cheaper to just hand out $100 bills to all comers.
Meanwhile, she couches her support for the Sonics as being concern for jobs and working class people
And she actually compared it to the New Deal, specifically the WPA. Of course, everyone knows that a program that provided jobs to struggling artists, writers, and actors and offered up high quality, cutting-edge art and theatre to those who couldn't otherwise afford it is exactly the same thing as corporate welfare for multimillionaires.
Why is it that liberals (particularly drunk liberals) think that businesses would give their customers a better deal if only the government ran them? Is there a different DMV and post office for liberals? Did they see a different soviet block that I did?
If the default rate of these customers really only required a 10%/a rate to cover costs, then a competitor could enter the field and charge 300%/a instead of 400%/a and get all the customers. Their competitors would have to either give up or offer their customers a better deal. This process continues until rates are close to those actually justified by default rates.
I can only think of two ways this process wouldn't operate. (1) These customers don't care about rates. In that case a lower government rate won't attract them. (2) The current competitors are colluding to set prices. In that case, we need an anti-trust investigation, not nationalization.
George Griffin has some uber sketchy history. There is a reason he isn't with city govt anymore, a reason he left Gogerty, and a reason why he is willing to have Moneytree as client.
I love how everyone who does not need a payday loan company knows why everyone else needs one. Really, do you think someone likes paying 400%, or even should? This is the poor being taken advantage of in a way that should not be allowed. So Government backs a loan, just like a student on SBA. This is not rocket science, it just helps someone other than the more fortunate like ourselves.
I don't think you need a whole new government program.
These Payday loan places fill a need. Some people just aren't all that good with their money. They don't make much. And sometimes the money runs out before the next paycheck comes in. Sure, it isn't good planning, but it isn't a federal crime. When I was young and on my first job out of high school, I had to borrow money from friends or my parents a few times to make ends meet. I was lucky enough to have friends and parents willing/able to loan me a few bucks. Not everyone is as lucky. Thus, payday loan (sharks).
The problem isn't the existence of Payday loans. The problem is the exorbitant fees they charge.
The solution isn't to shut them down and replace them with a government run program (which I can only envision as a colossal clusterfuck). Why outlaw a business model that works and serves a need, only to replace it with a government program that probably will do neither?
The solution is to more strictly regulate the already existing payday loan places.
There are already usury laws in place. The whole point of usury laws is to prevent lenders from praying on people who either don't understand the dangers of high interest, or are so desperate for the cash that they don't care. But usury laws only cover interest charged on loans (and credit cards). The payday loan places skirt around the usury laws by charging a raft of processing fees in addition to interest. They make much more money off of fees than they do off of interest. So the easy thing to do would be to broaden the usury laws to cover fees as well as just interest. Put some kind of limit on fees they can charge.
Yes, people who take out payday loans are probably a really bad credit risk, and I'm sure the default rates are much higher than loan defaults at Washington Mutual. So allowances should be made for that, and they should be allowed to charge considerably more than for conventional bank loans. But surely they can stay in business without gouging poor people for 400%. That's just fucking wrong, no matter how you look at it.
That’s right strangerdanger (#13), the poor are too stupid to be trusted to make their own decisions when it comes to borrowing and spending money. Smarter and wealthier people should decide for them not only when and how they can borrow money, but how they can spend it. This could easily be done by the state issuing ration books based on income and real assets for the purchase of luxury goods like cigarettes, beer, movie tickets, clothing, luxury foods and automobiles, or leasing mid to high cost apartments. The provision of these items to individuals without adequate rations in their book would be a criminal offense. We did this (with different eligibility criteria) to everyone’s discretionary spending during WWII. Just think, if we could outlaw poor people from spending money they don’t have on things they don’t need, then they wouldn’t even want payday loans.
Interesting that the conservatives automatically assume anyone requiring the services of these companies MUST be blowing wads of non-discretionary income on booze, hookers, and the like.
The reality, however, is that, while undoubtedly there are SOME people doing this, most are scraping to save every nickel and penny they can out of their meagre paychecks, NOT spending extra $$ they don't have on non-essentials, and STILL coming up short at the end of the month.
The REAL solution to this dilemma is quite simple: pay people a wage they can actually live on from one month to the next, without having to go into debt by "borrowing from Peter to pay Paul." Any salary that can't cover at least the basics: food, clothing, shelter, and some sort of rudimentary health care ISN'T a living wage. And that's what these people need more than anything.
Hey, MOST people blow their paychecks on non-essentials, not just poor people.
Sure many poor people scrimp and save, (I know my family did when they were getting started), but often times, not being able to make ends meet sometimes has to do with bad money skills. And it's not conservative to say so. Poor people, rich people, they both blow money on non-essentials like potato chips, lattes, electronics, brand name clothes, parties, shoes, etc. and know the price of their favorite type of car, but not how to save their money.
I agree that the minimum wage should be raised, but not for the reasons you state. Most Americans spend what they earn (or more), no matter how much they make. Even if a person makes 150,000 a year, chances are they are blowing it on boats, vacations, club dues, fundraising dinners, clothes, etc.
The point is, people are people and poor people are not angels and rich people are not villians.
Of course we need to redistribute wealth in this country, but that's a whole other discussion.
That's a rather confusing rationalization; for one thing, I fully acknowledged that SOME poor people probably DO waste their money on non-essentials. But, every item you mentioned that RICH PEOPLE also spend their money on ARE non-essentials. Sure, both groups exhibit poor financial-management skills, but those rich folks aren't making a choice between paying the rent or paying the grocery bill; they're doing both - and more - PLUS paying the yacht loan. Really, you shouldn't feel sorry for them, because frankly, they don't sit around feeling sorry for themselves.
The people we're talking about here are the ones who DON'T waste their hard-earned income on non-essential luxuries, even potato chips. They simply cannot survive on what they earn working 40 (or more) hours per week, and thus are forced to borrow against any future opportunity to get ahead, simply to stay afloat THIS MONTH.
And that's wrong, no matter how you slice it.
This, like all social problems, runs deep.
I graduated from high school in an area that had a graduation rate of only 60%. (This wasn't in Washington, BTW.) Despite the fact that kids were dropping out and lived in abject poverty, the school district still forced high schoolers to take Trigonometry and other advanced mathematics courses. These kids would have been much better served by being offered basic "living math" courses. Courses that taught them how to calculate interest, how to balance a checkbook and so forth. Instead, these kids were forced to learn concepts that they'd realistically never use in their minimum-wage jobs at the Mini-Mart or at K-Mart. And since they had no one to teach them what money management is all about (Because no one ever taught their welfare-addicted parents,) they get caught in the same miserable financial cycles. Education. That's where the solution starts.
So why should poor people with bad credit pay lower interest rates than poor people (or middle class people) who have been careful to manage their credit and are paying 12% or 16% on a credit. Brilliant message on the part of the government - take care of your credit and you'll pay, screw it up and we'll take care of you!
I prefer to think of it as "can't make enough at your 40 hour a week job to feed your family? We'll give you a teensy little break." If YOUR bank, or your auto dealer, or YOUR mortgage lender charged YOU 400% interest why, you'd call it a "national scandal", and clammor for something to be done. But when the same thing is done to poor people - feh, it's all their fault.
As others have said ad nauseum being poor isn't a crime - so why do we insist on treating ALL poor people like they're criminals? It is neither (despite what many people think) a failure of character or morality either. Most poor people don't choose to be poor, and if given an alternative most would take it in a New York minute.
I don't see any harm, either to society or to the poor themselves, in providing those that are hard-working, dilligent, but still unable to meet their most basic survival needs with some alternative to the predatory usury of people like Bassford & Griffin. That seems like the humane thing to do, IMO.
For all this talk of "poor people", most of these pay-day loans are actually going to lower-middle-class people. And there are certainly lower-middle-class people that have credit cards, mortgages, auto loans.
So yes, there are people with poor people than this. Putting the money icredit through no fault of their own (medical problems, losing their jobs), but on the whole I believe if you look at people taking out pay-day loans and compare to their neighbors, you'll find the pay-day loan people have poorer financial skills. So a program like the one proposed is essentially rewarding those with the worst financial skills and the least likely to pay the loans back.
There are a lot smarter ways to help people. Putting money into Head Start, public schools, loans for low-income kids to go to college, job training programs, helping poor working parents with day care, etc. All of these reward people for taking positive steps and will have a much higher pay-off.
I agree those are all worthy programs deserving of support. But, why does it have to be an either/or proposition?
How do you define "lower middle-class"?
According to Wikipedia, he median income for a household in King County is currently around $53K ($63K for a family of four), which means I who have a reasonably comfortable salary well below that figure could be considered "LMC"; I'm guessing a lot of other people who don't otherwise think of themselves as being in the lower income bracket would be pretty surprised to learn that they too are considered such. But, really, we're not talking about people like me - or them.
Based on the standard definition of "poor" (i.e. those lacking a liveable-wage income), as used by the U.S. Dept. of Labor, (more specifically defined as "those living in households where the total income is less than 200% of the current Absolute Poverty Rate, or about $40K per year for a four person household), roughly 9% of the county population, or 167,000 of our fellow citizens fall below the official "poverty line"; and I'll bet many of them probably don't think of themselves as "poor". State-wide, the percentage is even higher, 11%, or 700,000 below the poverty line in WA alone. And nationally, it's more like 17% or 51,000,000 people.
That's a LOT of poor people. And they're the ones I'm talking about.
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My name is Aaron and I run a website to get people out of payday loan debt. I get e-mails and phone calls from people that are so scared and in debt. I am so sick of how these payday loan companies conduct business. Some folks call and say they want to commit suicide, having a nervous break down,whats the use of going to work. I can go on and on. This has got to stop! Lets get out of payday loan debt. www.getoutofpaydayloandebt.com and get word out to the people that there is help from regulators and Attorney Generals office. These people are so far in debt and scared by the threats from payday loan companies they don't know where to turn for help. Im sick of hearing from the ones that can help them to go in the right direction say well they got themselves in the mess let them figure out how to get out. What a bunch of bull! Everyone gets in trouble and needs a hand up. This is going on across the country not just Washington state. Im going to the legislation meeting in January with some people that have been through payday debt. My phone number is 509-238-9180. Lets educate these people on the laws that our government has for them and let them know about the regulators that are more than willing to help them. Yes right now my spelling stinks because im so mad! Aaron Medres
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