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With the 12-Point Platform, this won't happen: Payday loan ripoffs

[I've sworn off reacting to the news on a daily basis, because it keeps me reactive, and that's a distraction from the 12 Point Platform, which is what I really want to work on, am working on, and is a book-length effort. However, the "theory of everything" posts to back up each point take a lot of work, as chapters in books do, and the consequent absence of posting doesn't keep the hot air balloon at the altitude I prefer, i.e., not crashing into the ground. So, I'll try to react to the news at least once daily, but framing the post so that it advances the 12 Points. New editorial formula! --lambert]

Payday loans are grossly usorious. MLive:

Using names like Check 'n Go, Cash Advance and Payday Loans, there are companies throughout Detroit and beyond that specialize in immediate, high-cost, shot-term loans with interest rates often reaching 30 percent or more.*

"Michigan is one of 35 states across the country that authorizes payday lending in some form," Michigan United said in a statement Monday. "While some states and cities have worked to put a stop to predatory lending, federal laws still largely allow payday lenders to prey on vulnerable communities and benefit from borrowers' financial hardship - with annual interest rates that routinely reach 400 percent or more."

Michigan United says the industry thrives on the poor, entraps them in a "cycle of debt."....

A Google search for of payday loan centers yields nearly 70 such businesses located in Detroit, some operating 24 hours a day. Their loans are accessible online with automatic bank deposits. In-person cash loans are available at on-site locations.

Most require proof of a steady income and establishment of a bank account before loan approval

So you can imagine the problems the precariat has, let alone the System D people, or the millions without a bank account in the first place. And lest it be though the "new economy" and "big data" haven't notices, check this out from the New York Times:

The typical payday loan, Mr. Merrill explains, is for a few hundred dollars for two weeks, and rolls over 10 times on average, or 22 weeks. In a traditional payday loan, all the fees are paid upfront with the principal paid at the end, in a “balloon” payment.

With ZestCash loans, borrowers are paying down principal with every payment, which reduces the cost. It also charges lower fees. In a traditional payday loan, Mr. Merrill said, a person would typically pay $1,500 to borrow $500 for 22 weeks. Using ZestCash, he says, a borrower generally pays $920 to borrow $500 for 22 weeks — still hefty fees, but far less than a standard payday loan.

But the object should not be to make the fees less hefty, but to put these userers out of business entirely and, even more importantly, serve everyone That's what:

#8: Post Office Bank

would do, at least in the Post Office Inspector General's vision for a Post Office Bank, as summarized by David Dayen:

The report suggests three types of potential products. First, it proposes a “Postal Card” that could make in-store purchases, access cash at ATMs, pay bills online, or transfer money internationally. Customers with paper checks could cash them at the post office or deposit them through their cell phones, loading them onto their Postal Card. Second, the USPS could offer an interest-bearing savings account, again through the Postal Card, encouraging savings from communities with little in the way of a personal safety net. Finally, the Postal Service could offer small-dollar loans, effectively an alternative to costly payday lending. The fees on all these services would be drastically lower than anything in the marketplace today.

More on this topic shortly.

NOTE * The story hook is actually a protest:

Michigan United, an activist organization, is asking government officials to create rules limiting "payday lenders' ability to prey on vulnerable consumers" and plan a protest in Detroit Tuesday.

Protesters plan to dress in hazmat suits armed with caution tape to make their point.

Clever, but the demand is too moderate. Why regulate payday lenders? Why not just get rid of them entirely?

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nippersdad's picture
Submitted by nippersdad on

I read that the average fee for, say, a bounced check is thirty five dollars, and the overage is usually only a couple of dollars. The average repayment is within a day or so, so the effective interest rate is in the thousands of percent.

Great work if you can get it.

Submitted by lambert on

And then they keep trying, and each separate bounce is a separate charge...