| LIFE This shocks me. "Push to cap loan interest fees at 36% may leave subprime borrowers without credit, trade groups warn."

TerryP

TerryP

Staff
I'm not disagreeing with the argument here. I'm shocked at 36%!

Several years ago I was dating the regional manager of a credit union here in town. I'd never paid attention to "payday loans" until she brought up the interest rates. I was surprised, shocked. I'm pissed off my Visa is at 16%. Discover isn't any better. But, 36%!

"Proponents believe a cap on fees and interest would help consumers, especially subprime borrowers who have less than perfect credit histories, by limiting what they pay on payday loans and other less regulated short-term credit," the trade groups said. "In reality, its impact would extend far beyond payday lenders to the broader consumer credit market to cover affordable small-dollar loans that financial institutions are being encouraged to offer, along with credit cards, personal loans, and overdraft lines of credit. ​
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"As a result, many consumers who currently rely on credit cards or personal loans would be forced to turn elsewhere for short-term financing needs, including pawn shops, or worse– loan sharks, unregulated online lenders, and the black market," the groups continued.​
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In the context of things being black and white, I'd suggest payday lenders are already a part of the black market.


Is it an anti-capitalist stance to say these rates need to be regulated?
 
State usury laws have existed for hundreds of years, and up until the late 70's each lender had to observe each state's laws on rates and fees. Then, some states (like SD and DE) removed their caps to attract credit card lenders, who later benefitted from a ruling that they only had to have operations in that state (and not be headquartered) to export those rates and fees to other states. That's why you see Citi in SD and Chase in DE.

Payday lenders charge incredibly high rates. Once fees are calculated into the APR, a short term interest rate can easily exceed 100 percent or approach 300 percent. If you borrow $500 for 30 days and agree to pay a $50 fee to do so, the annual rate you'd be paying would be over 100 percent without considering the actual interest you'd pay.

There are so many ways that finance guys take advantage of an unsuspecting public. Rule of 78's lending vs. simple interest is an example. Finance guys - furniture stores or used cars, doesn't matter - know when they've squeezed the most finance charges out of you and when the note becomes less profitable. That's when they start calling the customers to lure them in to add that dining room furniture to their debt, so the front-loaded fees start again, or trade in that old beater and roll the payoff into another car note.

Right as we were finishing the lake house, my Dad passed away and we were in a rush to get some furniture in. I went to the local Standard Furniture and bought two cheap couches for the living room. In the very short time I was there, four people came in to make their payments. I was the only one there buying furniture. The finance guy looked at me dejectedly when I said I just wanted to pay for it now. Standard, Farmers Home...and up until not too long ago GM, Chrysler and GE...when the core function of a company is overtaken by its financing arm, trouble will follow.
 
TerryP said:
@It Takes Eleven What store? YEARS ago I built the CSM for Rent-A-Center. I spent every dime of that money on 1910 Gold dimes. I got a few.
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For my purchase, it was a Standard Furniture, they're out of Bham and have a handful of stores. Farmers is out of GA and have more than that. They're all one and the same. I mention other companies, like GM and GE, whose financial services sides eclipsed their actual production side, and they lost their way. I'm not sure GE ever gets back.
 
It Takes Eleven said:
For my purchase, it was a Standard Furniture, they're out of Bham and have a handful of stores. Farmers is out of GA and have more than that. They're all one and the same. I mention other companies, like GM and GE, whose financial services sides eclipsed their actual production side, and they lost their way. I'm not sure GE ever gets back.
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When I was living in Alabama, the power company would finance washers, dryers, etc. Do they still do that? At what rate, I wonder...
 
TerryP said:
When I was living in Alabama, the power company would finance washers, dryers, etc. Do they still do that? At what rate, I wonder...
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Yeah Alabama power, Georgia power, gulf power (now fpl) all financed them. I think they offer rebates on appliances now, I don’t think they finance them any more. Not 100% sure.
 
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