The Leftwing Conspiracy blog scanned a cute pamphlet that a payday lender is distributing to try to drum up sympathy now that there’s a rate cap on loans given out to military personnel. Boohoo!
From the brochure:
At 36% APR, the total fee charged on a $100, two-week advance would be $1.38. We cannot cover the cost of originating the a loan, let alone meet employee payroll and benefits and other fixed business expenses, at this rate.
It’s the hard-knock life, eh?
Don’t Cry For The Loan Sharks [Leftwing Conspiracy] (Thanks, Hank!)
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My sister’s husband is on active duty in 1st air-cav. He’s an E6 and though he makes less in salary than I do. He and my sister live quite comfortably off his salary and housing allowance alone. My sister has NOT ONCE called me or my dad or my mom to bail her out of a financial jam. (though I’d help her without hesitation.) And they’ve never gotten a payday loan. They have three cars that are all paid for. A ’96 Mustang, ’01 Ranger, and a ’06 Chrysler 300.
Only three sitations are happening with these folks, either they have more kids than they can afford (and if you ask me, the decision to procreate is not to be taken lightly); they are buying tons of crap they don’t need and can’t afford; or the missus is just really really bad at handling money.
I can’t pretend to know all the intimate details a military family goes through, but my sister and her husband certainly aren’t facing any of the hardships these others are. Heck, my sister’s been able to afford trips to Europe and South Korea. Then again, they don’t teach personal finance in High School.
I’ve been in for ten years now (<–that’s an Arabic Mountain Dew) and the pay issue isn’t as bad as it once was. But when you combine a young kid, first time away from home, probably a killer car payment with matching insurance payment, he is going to run out of beer money at some point. Add to that the ‘I want it now’ attitude and the market obliges.
You get pay for housing if you’re living off base (based on prices in the area), a fixed food allowance if you aren’t eating in the mess/chow halls, and other allowances depending on station/duty (cost of living allowance, hazardous fire pay, flight pay…). No, it’s not a lot but it’s enough.
[www.usatoday.com]
Found this on it. These stores prey on the lower class and these people often end up in a WORSE position after getting sucked into these short-term loans.
Other lenders can lend at 7-8% because they have physical collateral to secure the loan, and as a percentage of the total loan amount and life, origination costs are not as high as that of a loan that has a two-week life. 36% APR over two-weeks sounds bad when observed in annual terms without extrapolating fixed costs, but the fixed costs associated with originating the loan become less in APR terms as the loan’s life increases. Like they said, it’s $1.38 on a $100 loan.
Laws like this are stupid. Restricting rates that lenders can charge will just make it harder for consumers to get loans. How can that possibly be a good thing?
czarandy: They’re called usury laws. They’re used to make lending practices illegal that were ordinarily considered simply unethical.
What I think most people fail to realize is that these products are extremely high risk for the lender, which is part of the reason why the fees are as high as they are. Taking into account the cost of originating the loan, plus the risk associated with this product, at 36% apr they probably barely break even. It’s about maximizing profitability while balancing risk and reward. Reward being their profits.
If you don’t like the fees associated with payday loans then stop living paycheck to paycheck and don’t use the service.
I have been told that the mafia’s loan shark gives better rates than the payday folks. However all this just points out our insane notion that we gain something by using credit for augmenting our lifestyle. In the good old days there were usury laws and government regulation that came because of our expirience with the great depresion. Remember if one doesn’t know history one is doomed to repeating it.
@ckaught78: “If you don’t like the fees associated with payday loans then stop living paycheck to paycheck and don’t use the service.”
Why didn’t anyone ever think of that?
@dgcaste: It’s great that the government is offering some kind of program to those in the Military – however, the fact that so many military personnel are having to resort to PayDay Loans shows that, obviously, these programs offered aren’t enough. I mean, why would anyone get a crazy PayDay Loan if they could get a low/no interest loan, or even free money? Let the government fix their own loan program before they start going after others.
@farmerjoe: no, its that we have every thing needed provided, so our whole paycheck is petty cash. then when we need to pay something (like lats months loan) we dont have any money.
/me 4 yrs Marines, now 1.5 yrs in the Army
@joeblevins:
36% is a “lower rate”?
That’s ridiculous.
@myotheralt:
That makes absolutely no sense. What are you trying to say?
@czarandy:
It doesn’t make it more difficult for them to get loans – it ensures that they aren’t taken advantage of.
Paying back these loans is typically impossible, since the people getting the loans can never afford to pay it back, as they needed the money to pay for something that their normal paycheck would not cover – then the next paycheck can’t be used for the loan, because that was why the first loan had to be taken out. No money.
@Half of the other people:
You are, frankly, an idiot if you think that no one ever has circumstances in life that cause them to need these things. A large number of military personnel, for example, take out these loans. They aren’t buying anything fancy – they’re trying to feed children on the paltry sum that the military pays them.
@TheUncleBob: people don’t resort to these loans because for the government to lend you money you basically have to prove that it’s not for a brand new HDTV or car stereo, which is what a lot of people use them for.
@lerg: I sincerely agree with your point of view. the real free market is, by definition, set by the buyer and seller without coercion and misleading promises. however, the real free market leads to monopolies, unfair business practices, extortion, bottlenecking and price-gouging of essential goods such as baby formula and nintendo wiis, amongst other things. people will pay $100 for a can of baby formula if they have to, therefore, the market is established.
I consider the free market to be unfeasible and great in a textbook. but the sinister nature of the cunning and cannibalizing businessman is to take advantage of people for his own good, regardless of the consequences. I’d rather a niche market such as payday loans fail and atlas get shrugged a little bit than people (stupid people, of course) default on their payments and ruin their future. there’s a market for drugs that the government has made fail. the real solution to the problem, of course, is making people economically smart, but we all know that’s never going to happen.
I’d be happy to see our dream economical edifice thrive on what we think to be an essential facet of our capitalist government and way of life, but there’s too many douchebags around and we need uncle sam to stomp down on them.
@RvLeshrac: read the above posts where it explains how 36%, over the course of a year, in the scope of a payday loan ($700-$1500 usually), is really not that much.
the risk of the lender is near zero when dealing with the military because all they have to do is call up the guy’s CO (commanding officer) and the wages will be immediately garnished. but to be setting up all those advertisements that say “PAYDAY LOANS!! E-1 AND ABOVE APPROVED!!” cost money and it’s no longer a competitive and feasible option to out-maneuver the other 100 payday lenders outside of Norfolk Naval Base in Virginia.
@Alvis: A lot of places won’t hire spouses because they think they will pick up and leave because of the military. Also you can’t build seniority and end up working at crap jobs in the mall.
@Tux the Penguin: The only lenders who can afford to lend at that rate do credit checks, and refuse to offer those magical 7-10% loans to people with bad credit. Payday lenders will loan to anyone, period. The high interest rates merely offset the 20-40% write-offs caused by lending to un-credit-worthy scum that banks won’t touch.
There was never that huge of a market for payday loans. All the lender needed was a couple to survive. Now that the interest is capped they don’t have the volume and it’s really just a waste of time.
In my experience with the military (have a boyfriend that was in), the problem is that these enlisted guys (18-early 20s) marry young and have lots of kids and a wife that doesn’t work. The vast majority of the wives on his base didn’t work. I don’t buy the excuses people put forth above. If you need the money, get a job. Two years is longer than a lot of professional people stay at their jobs, so that is no excuse (@Katharine & @XIANZOMBY). Or stop having more kids until you have more money.
Keep in mind they also get great health insurance, housing is paid for, and they can shop cheap at the commissary/PX. Also, as someone said above, education is paid for, and you get a solid retirement. That’s a lot more than a low-income civilian gets.
That being said, I still think these payday loan outfits are evil.
@RvLeshrac: “Paying back these loans is typically impossible,”
Umm. Don’t borrow money you can’t pay back. That’s a pretty basic concept.
@TheUncleBob: These loans are easy to pay back with reasonable interest. Lenders take advantage of the young age of the customers and don’t disclose what the payments actually amount to be.
@dgcaste: “Doing your homework”.
I think the usual rate is $15 per $100 borrowed in a traditional payday loan. If annualaized that is 365% apr. My bank charges $39 if I bounce a check for $.01.
Which one is the loan shark?
I think those of you spouting ‘the wife should get a job’ line need to stop and think for a minute. Two things:
First, at a lot of posts getting a job is easier said than done for military spouses. Some posts are in areas that have strong non-military economies. Others are in places like Minot, North Dakota or Pine Bluff, Arkansas where there’s not quite as much opportunity, to put it lightly.
Second, even if you have just one child you need to earn a pretty decent wage to offset day care costs. If you work full-time and earn $10/hr and have a child in day care your net income is going to be around $2-$3/hour. Why pay someone else to raise your kids for the privilege of taking home $100/week? I don’t know about you, but the last time I worked for $3/hour was in about 1982.
@JiminyChristmas: In your scenario, that’s an extra $400 a month that the wife could contribute, which could mean the difference between paying the bills or having to get a payday loan. If you can’t do that, then stop your crying, or stop having kids until you can afford your expenses.
And your point about how some bases are in bumf*ck, thus there are no jobs: (1) not all bases are, and most aren’t so that doesn’t excuse the leeching wives, and (2) so what – if you have the drive, skills, and need, you can find a job. Most bases have programs to help spouses get jobs on- or off-base.
The base that my boyfriend was at was in a major metro area and had plenty of jobs nearby. So why did the vast majority of the wives not work? Why did so many 20-year-old enlisted guys have 2 kids with one on the way, and wives that didn’t work? It’s just a part of the military culture.
Payday loans lead to a vicious cycle where the money that you would have used to tide you through to the next paycheck instead has to be used to pay off the loan you took out last paycheck thus making it necessary for you to take out yet another loan.
However I can tell you that most military folks can get by without them. There are a certain percentage though that get caught up in them.
BTW as a Navy Vet I can tell you that the scuttlebutt about Navy Relief was always that it was a worthless organization. I don’t have any personal experience with it but have heard that it put high barriers to loans and such for things like car breakdowns and such. Now how they dealt with bigger crisis I couldn’t say but for the ‘everyday’ emergency don’t even bother with Navy Relief was what I always heard.
@m4ximusprim3:
But some don’t have to pay state taxes depending on their state of residence. And pay when you are in a combat zone is tax free!! Where’re my combat boots? I’m ready to go back in.
Honestly, these places loved privates because (1) they were generally 18 or older, (2) pretty stupid with their money — especially back in the day when they could legally drink, (3) would fill out an auto withdrawal form so they could get paid without hassle and (4) they could complain to the chain of command if Private Snuffy didn’t make payments. Good flippin’ ridance.
You know what? Good for the military. Hell they were even NICE to these shady lending places. They are just forcing them to submit to LAWS (which these places always get around forever…). Jesus Christ if you can’t make money at 35% or can’t accept your profit being this low then die….
I’m against check cashing places, but sometimes I know people depend on them… Because it allows them to always float one paycheck worth .. Very sad when things are that tight.
@swalve: Military folks are excellent risks — their employer is extremely stable, and it’s easy to garnish their wages — so the “they couldn’t get another loan” argument just doesn’t fly.
@Alvis:
The military pays monthly, which can be tough for people to manage. If you’re an enlisted man making $25,000-35,000/yr, it’s tough to get by on $1,800/mo pretax, especially for a family on one income.
And about the tax thing — state taxes are based on where you enter the service from. So if you’re from high-tax California or NY, you get to pay.
This will really discourage the payday loan market and finally I am afraid can even lead to its removal. These are short term loans and really needs some thinking before putting a ban or before putting a restriction on the interest rate.