I don't think the people taking out these loans are that worried about the rate- they want to be able to eat this week, or remain in their apartments.

@tailstoo: Agreed 100%

Hey, I know as well as anyone that this is a MAJOR rip-off and if you asked me a month ago I would have said that anyone who takes out a payday loan is an idiot. Now - in the past three weeks I've faced several unexpected emergencies that set me back several thousand dollars. My savings is wiped out for the time being and I'm not really sure how I'm going to pay my mortgage next week - I am now a candidate for a payday loan. I probably won't do it, but I definitely have a newfound understanding why these places exist.

It makes me very sad - and almost kind of sick - that a lender would take such terrible advantage of a borrower who is in this desperate a situation. As tailstoo said before me, "they want to be able to eat this week, or remain in their apartments."

I would rather skip paying a bill for a month and take the fees rather than take a loan at that crazy of a rate. Now i know people will say 'what about your credit?' To that i say; if i am in a position financially that would make me consider taking a loan like that, i dont care about credit. i care about making it to the next day and taking care of my family. So to some point i get people doing these loans, but only in the extreme 'pay the bills or feed my family' situations. Shame on check-into-cash and store like it though preying on the weak.

@tailstoo: But the study had some really interesting results. When the economists showed people the APR rate, it didn't sway them too much because it was most likely that the people didn't have access to other forms of credit anyway, and weren't likely to factor the APR into their decision. But if they showed the people applying for loans the numbers on how long it would take for them to repay the loan, with interest ($250 interest on a $300 loan), they wake up really quickly and a good chunk of them walk away. It proves (somewhat) that education in its simplest form (i.e. "this is how much it really costs you") works to sway people from these types of loans.

They are for people who are so desperate that its either that, or knock over a bank. The last person I knew who took out one of those loans had to get emergency dental work for her kids, abcessed tooth. The kid was in agony and ER's do not pull teeth.

@MostlyHarmless: While I agree with you, payday lenders are literally the lender of last resort. Most of these people have no ability to get a credit card and are living paycheck to paycheck. A bank doesn't want to lend to them, so if this person needs cash, where else do they go?

Its a sad statement mostly because people don't know how to handle money anymore.

That being said, payday lenders' margins are about what a normal banks are... even charging the equivalent of 400% interest. I can only imagine the write-offs they have to do.

Its sad... but there is obviously a need for this type of lending. This article LITERALLY shows that even when presented with what this loan is going to cost them, they still choose to take it out. Who are we then to ban payday lending?

What we should do is educate the people using it... or make the payday lenders send their borrowers through a money-management class, free of charge, after they get their first loan. And maybe, if they actually go, they get all fees knocked off when repaying, only interest... oh, I like that idea.

@KreativeHitman13: often it's not "get charged for missing a bill" but rather "get evicted / disconnected / not eat if you don't have the cash". The choices are often much starker than what we would be used to.

@Tux the Penguin: I like that last idea, but realistically, payday lenders being the slimejobs they are, probably know that they would lose a prey if they wised up to money handling. Given the kind of business they run, I imagine they would think of responsible money handling as being a bad thing.

What would be nice to have is some sort of a social organization/ Non Profit that provides such loans at lower rates, AND provides the classes you mentioned. They would be okay with taking a hit from time to time, but they could probably raise funds from donors too.

It is a sad thing that people do not carry more personal responsibility, and the societal structure we have often exploits people who find themselves in a bad place, either because of their irresponsible behavior, or because of things they did not have control over.

@Tux the Penguin: I don't think they should be run out of business, but I do think they need there should be a cap on interest rates and fees. I also really like your idea of money management classes, but that means more regulations and government and any additional regulations and government are bad no matter what. /snark You're also forcing payday lenders to educate their clients so that they don't need them anymore (which I think is good), but many capitalism-at-all-costs types would say that that's bad.

I also think they to do a better job disclosing their fees and APR's. I realize that they did this here, but I think it should be mandatory for all payday lenders to describe it both in terms of APR and "this is how much you need to pay back" language. If these people still want to borrow the money, then that's their problem.

Think about the number of regulations an actual bank has to follow. A few more won't put payday lenders out of business and may actually serve to legitimize them a bit.

@shoegazer: I don't know about that... I have been privvy to some people talking about taking these loans and it was more the missing bill stuff than eviction; sometimes for groceries for about 5 days though.

This is why I love credit unions, espcially the one I belong to. I've fortunately never needed to do so, but they offer small loans to help people make it to the next paycheck and then encourage the member to pay it off. We have members here who are now rolling in money who are that way because they didn't get into debt up to their neck when they were first starting off at the their job and needed an advance so they could have, you know, Christmas for their family.

I can speak from personal experience as I've been in this level of the socioeconimic schema earlier in my life.

The level of desperation and depression that kicks in is severe, and it becomes a vicous cycle.

After 4 years subsisting like this I finally got a chance at a career (not just another minimum wage job).

12 years later and I still remember the sheer joy I took in writing checks [b]knowing[/b] that those checks would clear AND I would be able to eat.

Many people don't get my chance.

@TakingItSeriously: bah!
knowing

@MostlyHarmless: What is worse:

A lender who charges a high interest rate

no one (person unable to get $$, kids starve because parent can no longer buy food this week)

I took one of these payday loans once. I had to, otherwise Jimmy the Monk was gonna take my thumbs.

What is worse:

1. A payday loan place making 400% interest rate loans

or

2. No one (person unable to get money, possible kids starve because parent can't get $$ for food, possible kicked out of house because they can't pay the rent, possible lose their electricity because they can't pay that bill... but that is not a big deal because they can't pay the rent either)

Even though I don't think I would ever use one of those places, it is needed because the alternative is worse. (The lesser of 2 evils)

I'm a little confused. What does the APR matter on a short-term loan? I don't get why we're focusing on the annual rate for a loan that can't, by contract, remain active for an entire year.

Here in Wisconsin the loans are presented to borrowers as $22 per $100. One can refinance a loan three times which would drag it out to an 8 week loan at the very most. So, what am I missing here? Why even calculate an annual rate for an < 8 week loan?

400% APR sounds so much worse than $22 on the $100. Neither sound good.

I think people are well aware of the cost of the loan, even if they don't understand it in percentage terms or as an annualized interest rate.

I was watching Suze Orman's show a while back, and she had a caller who went and got a $250 payday loan every two weeks. She'd have to pay a $50 fee plus interest. She'd use the money to go shopping for clothes and other non-necessities, because she was depressed that she had no money. In essence she had a single $250 loan that she never paid back, but she ended up paying thousands in fees and interest.

She made about $30k/year and had a $50k loan on an SUV (the SUV was worth far less than that).

You can't legislate the stupid out of people.

One might say that consumers who take out 400% APR loans would be acting "stupidly".

30 years ago I worked at Household Finance and I couldn't understand how people could take loans out at rates between 18 and 25%. But they did. And most of these folks had really good jobs including one guy who was a VP at Citibank. His reasoning was...we were quicker. In and out in 30 minutes while if he had to go to Citibank the same loan would take a week.

@coan_net: You assume its an either/or proposition. The lender can charge a high (but no longer obscene) interest rate, and the borrower can buy food and may actually have a chance of breaking out of the cycle.

@coan_net: That sentence did not parse, really...

I am assuming you are asking if it is worse to have the kids starve or is it worse to have someone who charges 400% interest rate.

Obviously you would not want the kids to starve, and that explains why there are these many loans made, but I am just saying it does not have to be that way.

Also it is not always necessarily the parents fault. In economic times like this, bad things happen to good and responsible people too.

I am just hoping that there was a more humane solution to an already very difficult situation. I's a soft spot, for some reason.

Maybe if they created a law stating that companies had to pay you every week rather than hold my money for an extra week. More people would have available cash and would be less tempted by pay day loans.

@AllanG54:

Probably makes sense if you pay it off in a month or 2. Whereas getting a loan from a bank might take days.

@coan_net: Those aren't the only alternatives. We could actually start trying to address income inequality and poverty in a serious way in this country, too. I'm not against people making more money than others (even much more), but it's gotten a bit out of control when huge numbers of people aren't making enough to even owe taxes while the top 1% rakes it in hand over fist.

@johnva: And the world can join hands and sing and war will be a thing of the past, only peace and love and.....

.... yea, all things that sounds good, but how to do it and get it done? Something that probable won't happen.

@coan_net: sad but definitely true.

I know a few people who have dug themselves into unbelievable debt just trying to barely scrape by.

@MostlyHarmless: And in reality, I would love to see a better solution also - a business that will not charge as much interest

but the reality is, if something better was practical for a business to do & still make money - chance are someone would already be doing it. Most likely they have tried and failed (because charge less interest will not cover the people who don't pay back anything - leading you to loan to less people - leading to the business closing.)

Maybe illegal loan sharks will become popular again - don't pay and lose a knee cap. yea, that is a better solution.

@AllanG54: I took one of those loans a few years back because my lease was up and I wanted to move but was hard up for money for the deposit on a new apartment. Got the deposit from my old place back a few weeks later and paid the loan off. I would assume interest rates don't matter much to those folks if they know they're going to pay it off quickly.

Most of these people are on public assistance of some sort..the working poor.They have zero money management skills,they live for today,and wait for a gov.handout.Sad,but true..

There is no gravity..the world sucks..

@HillSA23: each individual loan may be short term but people are doing it over and over. read the article.

@coan_net: Your assumption is that businesses only want "profit" and not "obscene profit", also that there is a level playing field, and also that everyone involved is actually a decent person who would rather not rip someone off. Reasonable expectations, to be honest, but unfortunately not the case.

That's why I said earlier, the ideal solution would be a Non Profit that does something because it would be the right thing to do.

Of course, such an effort would involve better off people donating a small percent of their hard earned money to feed someone who - well who the F cares why that person needs to choose between feeding his kids and getting ripped off, he is clearly poorer than me/my parents, naturally he is a loser who is too lazy to work. Hunger is a motivating factor, frankly, it would to the kids a lot of good if they went without food for a weekend.

Dont you sheeple get it?? Capitalism and Individualism is the way of nature!! Anything that involves one person helping another out is UNNATURAL!! Do you EVER see animals doing collectivist things, like for instance, hunting in packs?? Do you ever see a herd of animals feeding and caring for the weak and the old?? Yeah, and you know why? Because they DONT! Because it is UNNATURAL! Just like clothes, and computers, and Money! Dont even get me started on the artificialness of money --- Wait... i forgot where I was going with this... Oh yes, CAPITALISM RULES! FREE MARKET FTW!! It is my RIGHT to rip off some poor schmuck if I want to. Blind pursuit of money is my constitutional right dammit. Now you are telling me it is unethical, before you know it, you'll be nailing me upside down on a cross, waterboarding me.

[The rant above is for the giggles, and definitely not aimed at coan_net.]

@TakingItSeriously: True. I remember those days.

@TakingItSeriously: Great job, mate!

@tailstoo: people don't like food banks or something?

there is no excuse in having to choose between shelter and food when one can always be obtained for free.

pride, greed and trying to keep up with the Jones' will be the death of people who use payday services.

there is always a way to get food, always.

In other words, people know exactly what they are doing, which is what PDLs have been saying all along. THEY DON"T CARE ABOUT THE APR. They care about the flat fee they pay because they recognize it as the best option for THEM.

@Dabby: Surprisingly, you get better interest rates and treatment from "criminal" loan sharks than from allegedly "legitimate" payday lenders.

@johnva: I am with you on the concept, but realistically speaking, any change of that sort (even assuming that everyone is willing) would take years, if not decades. The need to feed the kids is much more immediate.

I mentioned a possible solution in the earlier comment.

Though we certainly need to start a process to address the issues you mentioned. If only so that the next generation would have a better time.

@coan_net: No, it won't be as utopian, but people assume that anything that is diffcult or won't completely solve the problem, isn't worth doing. I see this more an more in our policies.

Every little bit counts. Remember when everyone laughed and laughed when Obama talked about keeping your tires inflated? Turns out, that could save more than drilling in ANWAR.

So, people have present some ideas to solve the immediate problem with the payday cycle (classes, non-profit banks, cap fees and interest, etc.). Johnva wants to address the underlying issues, which I'm all for. It will be tough, but not impossible. It won't ever solve the problem as there is a certain amount of free will and personal responsibility that can ever be removed from the equation without some nasty form of government.

@chilled: I bet you have the data and the stats to back that up, right?

@Cant_stop_the_rock: Amen. Like FSM, the society can only help you so much, unless you help yourselves first.

@cmdrsass: Not surprisingly, actually.

The sharks know that you know that if you dont pay the loan, they will do terrible things to you. Less write-offs. Also I bet some of them get jollies from doing terrible stuff to people, and probably hope that a couple of them would default. So they can keep the interest rates low and still get the same margin.

They also do not have paperwork and redtape - ergo less overhead.

@tailstoo: Yeah, I think it's a little weird to do the study at the point at which people are already basically saying "I'm overdue on bills, I need to put food on my family [sic], I have no other choice."

This information might have helped them a little while ago, before they got into whatever mess is pushing them to get a payday loan.

Okay, imagine this. You're behind on bills, you need to buy food, you have no money. You go to the payday loan shark to get some money. As you're about to sign whatever it is you must sign, someone comes up and says "By the way, you're selling your soul to the devil." Uhh. You still need that money, and you still need it right now.

The point is that it might be more useful to give people this information, and possibly other information about financial responsibility, BEFORE they get to the point where they need a payday loan. If they're at the loan shark already, they need the money now. They're not going to say "Oh. Well, in that case I'll starve for two weeks, let all my bills go overdue, put 15% of my next paycheck into savings and turn my life around."

@ARP: The problem is that more and more people apparently* suffer from "The Nirvana Fallacy" and "Instant Gratification Theory". They want THE perfect solution, and they want it NOW. Anything less than that is not acceptable. "Even if I save 200 bucks every month, I cant get that shiny laptop for 6 months. Meanwhile, I wont be able to buy new clothes every month for 6 months. What the whole point?"

[* I say apparently, because that might be a thought largely manufactured my the media, who wants to sensationalize everything.
Also, I would imagine most people are individually sane and sensible, but tend to lose their bearings when put in groups of more than 5.]

@B1663R: Shelter and food can always be obtained for free?

Are you aware that there's a.) a recession and b.) many cities are terrible about providing these services anyway, and private charities don't have the resources to fill the gap? Local food banks here are constantly running so low on food they have to shut down to replenish, and many homeless shelters can't operate in winter because of heating costs.

Plus, there's a huge social stigma with needing "handouts" that doesn't come along with getting a loan, even an abusively priced one like these.

@coan_net: "if something better was practical for a business to do & still make money - chance are someone would already be doing it." I wonder if that's really true. Businesses tend to try to maximize profits above all else, so it seems to me that there is a drive to charge the most the market will bear, particularly with a captive audience. And, as the article says, this particular captive audience apparently doesn't have the information needed to translate "APR" into "how long it will take me to pay this loan off".