No one is arguing that these sorts of services aren't needed-- clearly they are. But there is no reason to permit such exorbitant interest rates. The owners of these chains are in it for the money, but when it comes to lending money, banks and credit card companies are limited by law to a certain ceiling on the interest they charge. It seems to me that imposing a ceiling of 36%-- roughly twice the average cost of money through regulated institutions-- would provide ample incentive for providing the service. And if not? Too bad. We pass laws in the interest of protecting the public-- and many of those laws are to protect people from themselves. Imposing a more than generous ceiling on interest charged might very well result in more and easier credit of this type. It's not hard to imagine a place combining packaging and mailing services with on-line-auction services and paycheck loans. After all, someone has to be at the counter all day-- this would simply allow the storefront to make more money with the same overhead cost.

Make no mistake, I still think 36% is incredibly high, but for those people living from paycheck to paycheck, and who hit a speedbump (which takes out their muffler), it seems like a much more reasonable rate than 400%.

And if not? Too bad

Too bad for the borrowers, you mean. You do realize that if payday lenders won't make any money at some regulated rate, they'll close down? And where does the borrower then go? He can't go to the bank, or he'd have gone there first. He can't live without the money (at least in his mind) or else he wouldn't be there in the first place. What's left? Real loan sharks. Of the "if you don't pay, I'll break your leg" variety. Great job of protecting the consumer. At least Qwik-E-Loan only goes after your paychecks.

a) I take issue with your belief that we should pass paternalistic laws protecting people from themselves. As free adult citizen, I'll thank you to mind your own business.

but that's not really the point I want to make; the point I want to make is a business one:

If the risk, default, and loss-severity rates on these very short-term loans did NOT justify 400% APRs, i.e. if the probability-adjusted return on these loans weren't very close to the pay advance shop's own borrowing costs, then you would see a flood of entrants to the market that would drive down these same borrowing costs.

For example, if you're so incenced about the "usurious" rates being charged, and you think this business is so lucrative, why don't you start your own pay advance shop and charge only 100% APR? You would be providing relief to the allegedly benighted child-like borrowers and making a killing.

I understand the barriers to entry are low.

Maybe I'm a little jaded, but it seems that such "paternalistic laws protecting people from themselves" is already fast becoming the norm. Trans-fat, tobacco, seat belt laws, and so forth all are designed from the premise that the government knows best. We cannot dare to permit our citizens the freedom of choice guaranteed in the Constitution. After all, such freedom is Unconstitutional...

would lend to this demographic for that.

Would you lend some guy who nets out $600 every two weeks $100 in order to make $1.38? That is what 36% interest rate on $100 comes to after two weeks.

I live in Ohio, where they passed an interest rate cap. The payday loan places all cried and screamed and said the exact same things. A year after it passed, guess what? They're all still in business and opening new stores. It's just a BS line to try to maximize profits on the backs of those who can least afford it. It's easy to create a business model that steals from the poor.

So if you don't think we should pass paternalistic laws, should we allow the Mafia to openly use loan sharks? After all, the borrowers are adults?

When the chargeoff rate is around 50% you have no choice but to charge $15 to $20 per hundred. Then of the 50% that chargeoff hopefully, 50 to 60% of that amount is recoverable at some point. You take into account overhead, personnel expense, and operating expense you are not making a deluge of profits. The fees being charged are necessary to make this a profitable industry. The question should be are these loans actually helping the people taking out the loans. I believe in the long run for a very high percentage these loans do more harm than good. The customer that forgot about a bill needing paid, and to avoid the late fee would rather take out a payday advance is a small percentage of the customers. The vast majority are taking a short-term loan for a long-term financial issue. Either kill these loans across the country because the public is getting more harm than good, or leave the industry alone because the fees for these extremely high risk customers are the only way make the business profitable. A 36% APR would be asking these companies to voluntarily give away money.

I live in Ohio, where they passed an interest rate cap.

do you wear plaid?

Jeffrmarks:

So if you don't think we should pass paternalistic laws, should we allow the Mafia to openly use loan sharks? After all, the borrowers are adults?

Anyone duly licensed should be allowed to operate their business.

Jeffrmarks wrote : I live in Ohio, where they passed an interest rate cap. The payday loan places all cried and screamed and said the exact same things. A year after it passed, guess what? They're all still in business and opening new stores.

This is what I expected to hear. Just as the restaurant ownersrs all whined and said they'd go out of business when they couldn't allow smoking inside, and just as bar owners whined the same thing when they were added to the law, people seem to believe them but they are invariably wrong. Every bar, every restaurant in my town that was here pre-ban is still here post-ban. Jeffmarks merely confirms that the legal sharks are making more money than they need to to stay in business. And the businesses as they operate now do damage to society as a whole. Cut the maximum effective interest rate to 36% and everyone wins, except the sharks, and they will still be making money enough to stay in business.

Cut the maximum effective interest rate to 36% and everyone wins, except the sharks, and they will still be making money enough to stay in business.

why don't you open a business? go ahead. there is all this easy money to be made and a smart guy such as yourself should be able to make a bundle.

just kidding! you ain't smart at all and would lose your ass if it wasn't attached to you legs.

I'll Point you to what I said earlier, which I can't get any of you bleeding hearts to answer:

"Would you lend some guy who nets out $600 every two weeks $100 in order to make $1.38? That is what 36% interest rate on $100 comes to after two weeks."

So, either open up your own payday lending place making those loans or STFU.

I'd be bitter too, Irv, saddled with your name, but you managed to make two grammatical mistakes in just one sentence, hardly a record, but perhaps a good indicator as to which of us is smarter...

I'd be bitter too, Irv, saddled with your name, but you managed to make two grammatical mistakes in just one sentence, hardly a record, but perhaps a good indicator as to which of us is smarter...

bleeding heart libtard debating tactic #3. can't argue about what the opponent says so they quibble about how they say it.

HH33: no and no. I don't want to open up a payday lending place and I have no reason nor intention of listening to some math-challenged nitwit. If a lending place were to capitalize at $600K (cost of money=$30K or so) and lend it out only 50% of the year at 36%, the shop would take in about $80K. Considering that such shops also have other services producing income, bankruptcy would not be likely in their future. There are still more than 1500 payday lenders in Ohio, and they've just had the last loophole that let them charge interest rates of more than 600% closed. Let's check back in a year and see which way the wind has blown-- if there are no payday loan joints in Ohio, then you're right and I'm wrong. If there is still a payday check cashing sector of the economy in Ohio, I get to stick out my tongue at you. In the meantime, I'll be practicing.Speaking in terms of percentages, I see the chance of the payday lending industry vanishing completely in Ohio over the next 12 months as 0%.