Thursday, May 22, 2008

Any Day Pay Day, How about today - part 3 (Final)

Over most of this week, I've been posting on payday loans. Part 1 dealt with the definition and the reason these businesses exist. It looked at some of the details from the business point of view. Part 2 dealt with two states' plans to eliminate these loans. Today, I'll voice my opinion.

I have to say I learned a lot from this research and I generated some new readers. I also got the attention of some of my "old" readers, so hopefully this last post will get some attention too.

I have to start by pointing out (in case you didn't know) that I'm a conservative, who believes in the free market, capitalism, motherhood and apple pie (with ice cream preferably). The idea of restricting business (actually eliminating it) goes against my grain. Companies should be free to run their business in the way they see fit and these companies are not that profitable (9% according to a little math based on this MSN Money article.

These companies obviously fulfill a need and they actually are less expensive than bouncing a check. For example, someone close to me used his Debit Card for $5 of gas (a small spray). Since he only had about $1 in the account, the bank charged him an extra $35. That's expensive gas.

I also believe in self discipline and each person being responsible for his/her-self. If you want to do something stupid, that's fine with me. I'd really like not to hear about it, but you're welcome to shoot yourself in the foot if that's what you want. After all, Barney Fife can't be the only one with a hole in his shoe.

But even with that understanding, I can't help but believe that we'd all be better off if these businesses closed down. Christian Science Monitor says that smacks of paternalism and I agree. But as a father, I think that paternalism is required sometimes. Just like we outlaw crack cocaine, we should outlaw payday loans and their first-cousin title loans.

This will cause job loss. The folks who work in these places aren't all guilty. They just applied for and got a job (which is a good thing) as a clerk. It's not them that's loaning the money out, it's the company. And they will be punished by losing their job. But so too does the crack dealer lose his job when he goes to jail. His family suffers from his loss of income and unfortunately, the payday lending clerk's family will suffer too.

Consumer credit counseling needs to improve. The best defense is a good offense, consumers need to put money aside so they become their own payday lender in an emergency. One of my readers is involved with Junior Achievements, teaching "kids money basics and how short-sighted and addictive this bad credit behavior is." He does lots of other good stuff, so check out Neil's blog when you can (see it here).

So there it is, my opinion. Please feel free to comment on this or either of the two previous posts.


4simpsons said...

Randy, great job on a complex subject. I think breaking it up in a series was a good idea. I definitely learned some new things. You caught me a little off guard with your conclusion, so that is evidenced that you were "fair and balanced" (really). In fact, you pulled me from the other direction! I was more of a "these things are evil" guy, but you made good arguments about the competition angle. I think we both agree that there has to be a better way!

Anonymous said...

I am actually a bit flabbergasted by your conclusion. Although it's now apparant you've never needed a payday loan, bounced a check, paid a bill late. It is outrageous to think that you know what is best for the millions of Americans who use payday loans.

You should write a 4th piece on what customers should do when payday loans are yanked away as an option. I'm curious as to what you reccomend.

Anonymous said...

Randy, you did a good job....but then completely contradict yourself! What good is blogging on a topic, presenting some very compelling evidence, but then at the last second turn your mind off and get emotional?

Paternalism is needed? Look, maybe government should be there to curb abuses by putting a few reasonable protections in place....but let's not play Daddy to every individual.

Randy said...

Anonymous 1 & 2,
Thanks for your comments and sorry to blow both of you away with my conclusion. I guess that's why it's an opinion.

My personal history is that I have never taken out a payday loan. Someone very close to me has recently. There have been MANY times when I could have done so, I remember once when my balance was down to 37cents and there were times when my wife and I had to break the piggy bank to go out for dinner. We could either go out to eat or go to a movie, but not both (I think we ate peanut butter and jelly & saw the movie).

My approach to these complicated issues is to research both sides, present the facts and then provide my opinion. If I misled you in parts 1 & 2, I apologize. And yes, I admit to conflicting opinions. A conservative who asks for government. But I stand by my opinion.

A better solution is to become your own banker. By putting away $500, you can provide yourself a payday loan anytime you want. This involves some self-discipline and you have to do this BEFORE you get into trouble.

My personal experience is the question is not IF you will get into financial troubles, but WHEN you get into them.

Oh. And last answer, yes, I have bounced checks, but never knowingly. I was taught that writing a check when you know there is no money there is fraud.

Anonymous said...

Randy --
Let me rephrase. I suggest you get more specific about just how paternalistic you think government should be here, because your conclusion and opinion is just vague.

As I said, there is SOME room for government with payday loans. Government should step in -- modestly -- to curb abuses. The best piece of legislation would be one that limits the number of loans one has out.

So let me suggest you go back and be specific. Do a revision. You did all that work, and it was a very good job. Don't throw it all away to make a vague conclusion. Be specific for your readers!

Ashley Beth said...

I agree with your conclusions. I think your research was thorough and I'm glad you represented both sides. You have helped me form an opinion on this subject. I do think it might be a stretch to compare clerks with crack dealers =)

David said...

I completely agree. This is an industry that prays on the desperate. Worse, people seem to view these loans as a quick-fix and avoid dealing with their larger financial issues.

Randy said...

Anonymous said "there is SOME room for government with payday loans. Government should step in... to curb abuses."

I can't see that any curbs would work. Limiting the number of loans would still allow too many. Let me be clear. I see no value in these businesses and I see their effect as being as bad as crack dealers. Since they can't behave (charge reasonable rates, limit the uses PER YEAR, preying on the same victims again and again), they should be closed down.

Education is also important.

Ashley Beth. Thanks for the comments. Actually, I didn't compare the clerks to crack dealers, but to dealers' families. They aren't completely guilty, but not completely innocent either.

David, thanks for the comments.

Chance said...

Hey Randy,
Good post on the topic. I think payday loans are part of a larger question of to what degree the gov't should protect us from ourselves. I just did a post on the topic inspired by this one. I'm inclined to disagree, not because I'm a fan, but I think without their availability worse options would come about.

Randy said...

Thanks Chance for the honest comments.

Glad you're posting again...

John said...

The payday lending industry is in the poverty business and they invited government intervention! Payday loans are inherently predatory and trapping people in debt is part of the business plan. In Ohio, our economy is struggling enough without having these guys on every other street corner!

They are already spending millions on television ads during the Olympics to dupe voters into thinking that they need 391% interest. They're just in Ohio to protect their billions in profit made off of the backs of Ohio's workers! Let's hope Ohioans don't buy their deceptive and misleading lines!

Randy said...

Thanks John for visiting. Hopefully, you read the other two parts of this series as well. If you looked at part 1, you'll see they actually do need the outrageous rates to stay in business.

The question is, should they remain in business. I personally think no and I'm glad you agree.

Hopefully, Ohio can hold out. We're sunk in SC for this year, but maybe next year.

For the record, the person I mentioned that was close to me that had taken out one of these, has now gone back at least once and taken out a second.