Capitalist Pigs
Unfettered capitalism at work
KUER Interview
Here is the study Usury Law and the Christian Right: Faith Based Political Power and the Geography of the American Payday Loan Regulation
NPR affiliate KUER has a great interview with Utah law professor Christopher Peterson coauthor of the study. (tip to ME) This is a mandatory listen. Listen or be banned from OGM :) A note for the right-wing apologists: Personal responsibility is a two way street. It applys both to the lenders and borrowers. The playing field is however not equal, and it is the role of government to level that field.
Payday lending prospers in conservative Christian areas - Salt Lake Tribune:“The Bible contains numerous passages condemning usury, an abusive lending practice older than money itself.Yet, the "payday" lending industry, which charges interest rates often double those of organized crime loan-sharking syndicates, is more prevalent in Utah and other states where conservative Christians hold political sway, according to a study co-authored by a University of Utah law professor.
"A generation ago, populist Christian leaders were among the most aggressive opponents of usurious lending. But today, many Christian leaders take large campaign contributions from the credit industry and no longer support the biblical injunction against usury in public life," says Chris Peterson, whose research will be published in Catholic University Law Review.
The industry has boomed since anti-usury laws were relaxed around the nation in the early 1980s. Today there are more than 24,000 payday outlets, a fivefold increase since 1995.
In a typical payday lending transaction today, borrowers write a check for $60 above the amount of a $300 loan, postdating it two weeks out. If borrowers fail to get money into their accounts to cover the checks, they can be hit with fees and interest that drive up the cost of the loan to as mush as $800, industry critics say. Expressed as an annual rate, interest is typically 450 percent, which industry representatives justify because these loans are risky.”
Comments
manditory NPR link; discussion with Co-Author of the study
Correlation doesn't imply causality though - is there any study about why, or is it just pointing out the correlation and letting it seem like they're implying causation?
Certainly it implies causation it doesn't prove it. It is evidence, though not conclusive. I haven't read the article yet but have posted a link.
The best factoid from the interview was the information that Interest rate caps were in use before money was invented, back in the days of bartering in silver and Grain, we knew that a 33% cap was pretty important.
He doesn't claim causation.
Just wanted to share the payday lending industry's response to the "study" being discussed.
NEWS FLASH: Payday Lending Industry Apparently Targets Everyone Research Demonstrates Payday Lending Customers Can’t be Labeled
WASHINGTON, DC – Payday lenders called a new study that claims to have “conclusive proof that conservative Christian Americans are a prime demographic target of the payday lending industry” preposterous.
This study, “Usury Law and the Christian Right,” comes on the heels of prior allegations that payday lenders locate in communities with high populations of military, women, Hispanics, the elderly, African Americans, recent immigrants, young people, Native Americans, social security recipients, veterans, the poor and households with a median annual income of $48,000. A recent BusinessWeek article said payday lenders are now targeting more affluent neighborhoods.
Analysts estimate that 19 million U.S. households used a payday loan in 2006.
“Our industry has been accused of ‘targeting’ the military, minorities, women, immigrants, the elderly, the poor, the middle-class and now conservative Christians,” said Darrin Andersen, president of the Community Financial Services Association of America. “Who’s left? This is preposterous.”
“The only common denominator is that our customers are people with steady sources of income and bank accounts who sometimes have unexpected or unbudgeted expenses that require cash between paychecks. Our customers are reasonable people who appreciate having an lower cost option that allows them to avoid bouncing checks or accruing late or overdraft protection fees,” Andersen added.
“While critics of the industry assign labels to our customers in an attempt to further their political agendas, the fact is that we provide services to a broad cross section of Americans because there is a broad demand for the financial service we provide,” said Andersen. “Our customers represent a broad demographic segment and cannot be grouped based on race, sex or religion.”
Andersen said the recent report by Christopher Peterson and Steven Graves, which purports to show that payday advance businesses target Christians, was little more than, “advocacy masquerading as scholarship,” and questioned what accusations the industry might face next from opponents of consumer choice in financial services.
The report’s methodology, logic and conclusions were also called into question. Rather than empirically identifying people of faith, it constructs a ‘Christian Power Index,’ compares the number of payday advance locations with coffee shops and fast food restaurants, relies on ‘Bible Belt’ stereotypes and fails to account for the popularity of payday advances in states that do not fit the authors’ preconceived conclusion, including California, Ohio, Montana and elsewhere.
Andersen said that research shows payday advance customers to be middle-income, educated, working families, more than half earning between $25,000 and $50,000 annually, 58 percent having attended college, and one in five having a bachelor's degree. He added that payday advance customers are not the “un-banked”, as 100% have a checking account at a credit union or bank, but turn to payday lenders for low dollar short-term credit needs.
If there is no law capping payday loan interest rates or regulating the practices of payday loaners, then the absence of such laws and regulations is caused by the inaction of the state legislatures. When you have the job of proposing and passing legislation, causation is proven by your inaction.
Speaking of Payday loans, Obama's policy:
Cap Outlandish Interest Rates on Payday Loans and Improve Disclosure
Speaking of Payday loans, Hillary's policy:
I think 30% is better than the 36% Obama supports.
link
I'm sorry, but that's hogwash. Particularly in a representative democracy where there are an infinite number of issues and a finite number of resources.
Representatives can only address an issue when they are made aware of the fact that it is a problem. And this type of extreme hyperbole really illustrates why activism is such a destructive and counter-productive pastime.
I've seen many ads for payday loan centers. I live in Los Angeles. One can hardly call LA a 'hotbed of Christian activity'. More than anything these nonsensical allegations remind me of the 90's 'black power' claims that liquor and cigarette companies were 'targeting blacks'. It's called business: supply and demand. Companies focus supply (and advertising) on an area where there is demand.
I will certainly agree that the whole concept of the 'payday loan' is sleazy. I've had a good laugh reading the fine print (which everyone should do) on these agreements - I've seen some ads that mention a +99% interest rate on the loans, while a soothing voice-over says "We'll lend you the money because we trust you." And while I still firmly believe it generally takes a fool to be fooled, I would support legislation to curb such lending practices.
But let's keep the rhetoric in check. How can you continue to be amazed at the fact that a capitalist society is full of people trying to make money?
So, Both candidates have solid policies on Payday loans, only differing on what percentage rate is considered too high? Wierd, I thought Obama only had speeches and Hillary was running on the dynasty inevitibility? Our Candidates have platforms? gasp
Our Candidates have platforms? gasp
lol!
Only Hillary Clinton has a platform, dontcha know?! lol
And any comment appearing after this, I did not say!
I'm not at all amazed. Labeling this as 'capitalism' is meaningless, however. A dealer selling crack cocaine to 14-year olds can offer up the same blasé slogan.
Hogwash - to borrow a phrase. This excuse for inaction would be marginally convincing only if this kind of predatory lending practice was some kind of brand-new issue - not one that can be dated to antiquity.
I'm glad that we agree on the need for legislation to curb such practices, anyway.
and you expect people to know what you're talking about on this thread. have another beer, dear. (sorry, it rhymes)
Please consider that putting a cap on high-interest loans will make it less profitable for a Payday Loan shop to run its business, and therefore there will be less of them, and consequently less short-term financing available to the 19 million people who currently own such a loan. Someone who could have paid a medical bill with such a loan would have to find other more expensive means of doing it.
We should deploy troops to Americans' wallets immediately! Personal transactions are not like other rights: stuff like borrowing money can actually work against an individual's self-interest. We will not allow it! Effective immediately, I propose that interest rates be capped at libor + 1%, and that we ban the purchase of HDDVD players, because, come on, that is a total waste of $200 as well.
Oh, by the way, at the interest rates your canidates are discussing, one would pay under $304 for a 2-week $300 loan. Now I don't know much about business, but I'm not sure that that would even pay for the bullet-proof glass. You would think another operator would have moved in and charged less interest (competition!), but perhaps he is not enamored with $3.50 return on someone with CCC- credit.
lol... Let's toast to some more love and have another group hug!
Today has been wasted by thinking about this shit, so why not just enjoy?
You consider it meaningless to give it a factual label?
The essence of capitalism is private corporations working to achieve wealth. The essence of business is the buyer/seller relationship. And the essence of the buyer/seller relationship is providing goods and services for a charge that both parties deem reasonable.
What you are advocating is interjecting a third party to decide if one party has taken unfair advantage of another. While I can understand doing this in some cases (namely, if either party complains such a thing has happened), doing it in all circumstances or even in all circumstances of a certain business arrangement is pure nanny-state argumentation.
As for crack dealers: a lot of people will argue with you that selling drugs is a perfectly reasonable business that should be decriminalized. Not really interested in having this debate. But your throwing in the 14-year-old is just dishonest. You cannot make a payday loan to a person who is legally incapable of entering a contract, so let's just leave 'the children' out of this.
You can generalize any specific complaint to an age-old concern. But we're talking about a very specific issue that has become prevalent only recently, thus it is only reasonable to expect that the government (which is naturally a slow process) would be slow to respond, or not fully aware of the problem.
If you consider what these agencies are doing to be predatory you should by all means let your representative know that. But stop pretending that this is some grand scheme or that everything has to be dropped to handle this one issue. That's the activist brainwashing talking. Activism is the biggest threat to a working democracy of any form.
Greg is right, $3.45 isn't much return for the amount of risk the loan houses are taking. But let's consider rollover rates.
The average rollover rate for payday loans in Iowa is 12.5 per borrower per year. Making the very conservative assumptions that 1) a capped interest rate of 30% per annum won't effect the rollover rate and 2) there is a 0% chance of default, we can calculate the revenue of a payday loan.
Each period, if the payer can contribute $25 towards the payment of his debt, after 12.5 periods (or 151 days) he will have paid about $50 dollars in interest on his original loan.
19 million loans per year among 24000 stores, that is 791 loans per store. That is an annual revenue of $39,550.
I think if these interest rate caps were instituted next year, the people who post on this website will come back asking for Payday Loan Stores to be subsidized.
I Don't think it implies causality. I think the correlation exists because we are seeing two scams with the same victims.
Do we have to keep fighting Norm? Hillary's campaign is dead. Obama will pull ahead in Ohio and Texas in the next week. Only reason the media keeps saying, "don't count out the clintons" is that they want to make her death a slow death.
In a few months we will all be watching McCain ads featuiring Hillary and Bill saying that Obama is not qualified to be president.
The Clintons and Bush will share the same positive name recognition numbers.
It's a lovely future.
Would you like to tell us what your definition of activism is, Calligraph? Because that statement comes across as insane. That is, if you take activism to be what I thought it was, which is something like attempts to effect political or social (or possibly other kinds of) change through action. Seems pretty fundamental to democracy...
I mean, obviously actions shouldn't be violent, but...
And even if you do define it in such a way that it's somehow undemocratic, the biggest threat? Gimme a break.
These communities need some sort of financial red light district for "texture".
Actually, I wish that when Terry (an articulate caller) voiced what she claimed was one-sided commentary coming from the guest, that they'd made it more of a discussion. Sometimes the format of these shows keeps too-wide of a gap between guest and the rotation of callers (cattle) and they miss out on delivering a more rounded and substantive show.
I kept wondering what the guest's motives were. Saying he was just "reporting the facts" was not convincing because he kept returning to the history of usury in the judeo-christian context. Was he trying to uncover hypocrisy or was he trying to get these "religious communities" to come back to their roots? --which would define him as a Moses, bringing the loyal flock back to their heritage. Somehow, I really doubt it was the latter.
If making a profit requires exploitation, I fail to see the point of this argument. Surely you will not be in a better position to pay your medical bills if you owe $800 interest on a $300 loan (I take that figure from the broadcast, about the average amount of debt amassed per borrow per average loan).
On the more general discussion, most of the arguments against capping rates, or against protests to predatory lending, it appears to me, rest on a mongrel conflation. The claim is not that business or so-called "capitalism" is bad tout court; it is that predatory, unregulated, exploitative, or otherwise unethical business practices is bad business. It is simply empty to defend "capitalism" in general in response to the arguments put forward objecting to predatory lending.
Calligraph pretends to object to this while tacitly endorsing a distinction between legitimate and illegitimate business practices when he says things like:
Here you are claiming that the comparison with crack dealers is "dishonest" because even if drugs and their sale were decriminalized, it would be unethical, you imply, to sell them to underage users. I take it Tim reached for this analogy precisely because it is paradigm of an unethical business practice. And that is why--as I read him although feel free to correct me, Tim--he said it is "meaningless" to simply pretend people are here objecting to "capitalism." So long as you acknowledge there is such a distinction between legitimate and illegitimate business practices, Calligraph, you have not rebutted Tim's argument, nor will merely insisting that not all business is bad help, because that is not at all what is at issue.
On Norm's "two-way" street point, I agree. I would add, however, that regulation is perhaps not enough: we should have high school courses on basic personal finance, I think, that explain things like how interest rates work, and the problems that can arise from borrowing money (including student loans). For those against preditory lending: what do you think of this education suggestion?(A course in basic logic, as Susan Jacoby's remarks have led me to believe, might also help).
Not like I don't enjoy engaging with many of the people on here, and their many interesting insights--very much including you JoAnn--but I am just about plain ol' group-hugged out. Let's get back to dialogue that often borders on often vehement disagreement (sans personal attack, of course).
I will take a beer. Don't own a TV but I am breathless for the webcast of the debate tonight!
I agree. Generally speaking, many people in the middle class go through life without having to pay too much attention to where their money goes: their parents make sure they are well provided for until they finish their education and get a steady job with decent wages, ensuring a middle-class income of their own.
An incredible amount of money gets pumped into certain areas of the US economy from people's "disposable income", and people make all sorts of incredibly stupid purchases. Things would be a lot different if people knew how to invest their excess capital instead of blow it on expensive entertainment (eg. gambling), big screen TV's, extra vacations, etc. People wait until their kids are growing up before even thinking about investments, and usually they think their house is the only one they need to worry about.
The concept of saving up money (and not spending it on something stupid in 6 months) seems to escape some people, and it's very easy to get jerked around (or just ignored) by your bank if you don't know how things work, when to be conservative and when to be agressive. Also, people seem to think finance is something only people with millions of dollars need to worry about.
It's no surprise the problem of your average middle-class person having no financial knowledge has remained unaddressed. Because if anyone did notice, there would be certain interests who would rather the problem remained unaddressed... if you get my meaning.
I'm not saying there's some sort of conspiracy, mind. Just: good luck sneaking the legislation past certain lobbyists.
I couldn't really follow Adam's points--as soon as I see italicized words, my mind clamps up--but I tend to favor the simple math over the crack dealer anecdotes. Unfortunately, it doesn't look like that aspect is being engaged, so I'll just address the education suggestion: I love financial education as much as the next guy, but I fear that the folks borrowing $300 from a guy behind 2-inch glass and not paying it back on time are among those less likely to take notes in "Borrowing 101: Konvexity for Kids!" class.
Many high schools offer something like an accounting course. The implied (but not explicitly stated) suggestion was that a course in personal finance be mandatory. As many students heading to college will take out large student loans, it is important to understand how these things work (particularly issues about loan consolidation, interest rates, loan renumeration, etc). And for the non-college about, I would say, it is even more important.
Foreign phrases, such as "tout court", are typically italicized. That is probably what is giving you the headache.
"I fear that the folks borrowing $300 from a guy behind 2-inch glass and not paying it back on time are among those less likely to take notes in "Borrowing 101: Konvexity for Kids!" class."
Well said Grag!
I'd be alright with limiting interest rates and capping fees for unsecured loans. I'm surprised more states haven't done this themselves.
I'm not sure many credit cards are any better than payday loan lenders. If you stack up the interest rates, late fees, and over-the-limit fees many credit cards charge, they are in the same territory as the pay-day loan guys in my opinion.
Norm - I just came across this article - written by someone who "refuse to buy the Obama hype", so she went off to do some research on the activity of both Clinton and Obama. By the end, she was an Obama supporter. Check out a full comparison of what they've actually managed to get done:
http://www.dailykos.com/storyonly/2008/2/20/201332/807/36/458633
Now I expect a link to this on your next post :)
every month i get a stack of offers for credit cards. i don't take 'em. and i don't have any. if i run out of money, i'm out of money. i try to plan my groceries and beers accordingly. i don't, as such, spend much time worrying about those who insist on lending and borrowing. not to be insensitive, especially to those with families to house and cloth and feed, but why is everyone spending money they don't have? what's the hurry? you don't need 90% of the stuff that our mad commercial society says you need. plant some vegetables.
You know, if wages had kept up with inflation over the past 40 years there wouldn't be a need for payday loan stores, or even credit cards.
I can't repeat this argument enough on this website.
By capping the interest rate on credit cards and other high-interest loans, you are forcing the lender to accept lower return for a risk that remains constant. If the return is too low, the lender will not enter into such transactions. He will then have two choices-- sell the store or raise the interest rates for less risky loans.
Since most loans at a Payday Loan store are of the super-high risk nature, he will sell the store. (If he doesn't sell the store and wishes to remain profitable, rates will go up in other loan categories.)
What happens to the price of short-term, high-risk borrowing if a large amount of Payday Loan stores go out of business? Loans become harder to obtain because no one is willing to lend money, and, oh dear, rates go up. Do not overlook the fact that these places provide financial liquidity where there would otherwise be none.
mpkomara,
You've got a strange understanding of supply and demand.
If the lender can't make a profit on very high risk loans, he will simply stop lending to very high risk borrowers. If he decides to stay in the lending business, he will then be competing with the banks, credit unions and credit cards. He can try raising rates on lower risk loans, but he probably won't have many takers and will likely go out of business. I don't have a problem with that. Most of their storefronts are an eyesore anyway.
You seem to think there is some economic principal that will force customers to do business with uncompetitive retailers.
Changing the rules on high-risk loans will have zero effect on low risk loan rates.
My point is exactly that he will go out of business. I'm sorry if I digressed from that point.
However, if you are trying to lower the rates on high-risk loans, then you should have a problem with these "eyesores" going out of business, because they are the cheapest option around. Where do you suggest someone with bad credit get a loan alternatively?
I don't think they should get a loan at all. Clearly, if they are desperate enough to subject themselves to the terms these lenders are offering, they have a problem that a predatory loan will only make worse!
Instead of digging a deeper hole, it's time for these people to ask for help from charities, government agencies, and family members. The upside is, that by swallowing their pride and asking for help, they are more likely to get good advice on how to turn their financial life around.
What is the lowest credit rating at which you would suggest people not be allowed to get a loan?
mpkomara:
Stop making this so complicated. If we don't think people should be taking out a loan, then they shouldn't be able to get one.
And while you're at it, name me a SINGLE TIME that a governmental cap has created an unintended consequence like the one you predict. (But please don't mention rent controls; I am super sick of those from my macro class.)
What ever credit rating it is that causes them to only be eligible for a loan at 30% interest or higher.
Debtor's prison would be kinder than subjecting people to payday loan companies and some credit card companies.
syngas, don't speak of what you don't know. at least, i hope for your sake you don't know. brrrrr, i get a chill just thinking about it. where i live they actually have debtors prisons. the one i know in jerusalem is like, a 19th century turkish jail with, like, a dungeon and stuff.
i didn't think the u.s. had debtors prisons. wassup over there?
so you're pretty motivated to keep your ass out of there eh jon?
you betcha. but that doesn't mean i don't feel for those faced with it. the reasons for debt are varied as stars in the sky, and not all debtors are criminals.
i, like you, have people who claim i owe them shit all the time. not every claim is valid.
You're right Jon. I know almost nothing about debtors prison and it's probably much worse than creditors pestering you for the rest of your life.
I hope you'll agree though, that getting a payday loan just to pay your bills will only insure you won't be able to pay your bills a couple months down the road, and it's gonna be a whole lot harderer to dig your way out when the hole you've dug is that much deeper.
oops, I meant climb your way out.
yes everyone who takes such a loan is aware of the hole they are digging. are you arguing against the rights of the people to cut a deal with the devil? :)
Just recently, David Kernell, the 20 year old son of Representative Mike Kernell (D-TN) was arrested. He was arrested for, according to CNN, resetting the password and gained access to vice presidential candidate Palin's personal e-mail account. Allegedly, he read the contents, took screen shots of her E-mail directory, and got at some of her personal information. That information which has been compromised could include E-mail addresses and pictures of friends and family members, telephone numbers of family members including cell phone numbers, birthdates and more from her address book. After he turned himself in, he pled not guilty. He pled not guilty after he allegedly posted all of this to a public website. On top of all this, he also posted the password with which other people could access the account as well. David may get up to five years in prison, a $250,000 fine, and three years of supervision. Now think about this: $250,000 in $1,500 increments, the maximum amount a person can get with a payday loan comes out to 167 individual payday loans to free this turkey, before he gets made into Thanksgiving dinner by his cellmates.
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