There are certain subjects that I shouldn’t have to know about or cover in this blog. I doubt that anyone reading this will ever or has ever been victimized by this blight, but perhaps the day may come when you can help another avoid the trap of payday loans.
Personally, I think payday loans and title loans should be illegal. You see the neon signs on the wrong side of town offering check cashing services, money orders, and loans to the poor, the ignorant, and the desperate, essentially banking services for those without banks. The people operating these businesses claim that they are providing assistance to a community in need of access to basic financial services. They are sucking blood from the poor and from their impoverished communities. The Bible explicitly states that the people who run such businesses are in the Lord’s gun sights.
Proverbs 22: 22, 23
Do not exploit the poor because they are poor and do not crush the needy in court.
For the Lord will take up their case and will exact life for life.
A typical charge for a two week payday loan is $15 per $100 loaned. That works out to an annual percentage rate of 3,686%! Credit cards that charge 23% are generally considered usurious.
The people that are placing themselves under such horrific burdens are generally using the money to cover normal everyday living expenses. They don’t know any better and they do not believe they have any alternatives. However, if they didn’t understand the concepts of budgeting or saving for a rainy day, they will learn the discipline of saving their money, but for the benefit of a predatory lender. Fortunately, in this country there are limits to what these people can do to collect from their victims. In some countries, like India, these kinds of loans can lead to a lifetime of legal slavery.
Title loans are a step up from payday loans. They require that the victim own clear title to a car. Using the vehicle as collateral rather than granting an unsecured loan, the title loan company then offers a loan that can range from $100 for two weeks up to 50% of the Kelly Blue Book value of the car. Interest rates on these loans can range from 36% APR to 400% APR depending on the jurisdiction. Frequently they require a balloon payment at the end of the loan. If the debtor can not make the final payment, no problem, the store front loan company will cheerfully continue to bleed their victim. Really, I don’t think they want the car. They want a debt slave. However, sometimes the victim also loses their car.
Public schools should be teaching the basics of financial literacy. Children, no matter the socio-economic class of their parents, should understand the basics of saving for a goal and the concept of an emergency fund. If you ever have an opportunity to steer someone away from this kind of victimization, go ahead; light a candle in the darkness. If payday loan companies can not be outlawed, they should at least be tightly controlled by state and Federal regulation.
Oh, by the way, just because you have access to the mainstream banking system doesn’t mean that you can not become a victim of predatory lending practices. Check out these numbers from Wikipedia!
$100 bounced check with $54 NSF/merchant fees = 1,409% APR
$100 credit card balance with a $37 late fee = 965% APR
$100 utility bill with $46 late/reconnect fees = 1,203% APR
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