<$Wednesday, August 15, 2007$>
Payday Loan Problems: Who's Responsible?
| Note: the following is a sponsored post. I have a nephew who got himself into a load of trouble--not to mention a load of debt--a few years ago by becoming dependent on advanced check cashing places. I heard a lot at the time from various family members demonizing the entire payday loan industry and painting my nephew as a victim of predators--but let's face it: he wasn't desperately trying to make ends meet. He was using it as a means to finance a lifestyle beyond his means, and doing so completely irresponsibly. I suppose an argument could be made that dumb, irresponsible kids are exactly what this industry relies on, but it could also be argued that my nephew needed a good kick in the pants to learn the lesson that borrowing money comes with consequences and is not something to be done lightly. Mumble-teen years ago, when I was a poor college student, I had a few days to go until payday when I ran out of groceries. Payday loan shops weren't nearly as prevalent then as they are now, but they existed. I found one, signed for a small loan, bought my groceries, and paid back the loan as soon as I got paid a few days later. I paid it back quickly enough to avoid interest (I'm sure the lenders just loved that), and everything worked out just fine. There was nothing in my experience to turn me off of taking out payday loans in the future--although so far, I haven't, because I just haven't had a need for it. Like credit cards, the payday loan industry has a bad reputation and tends to be characterized as predators out to take advantage of the poor; but also like credit cards, payday loans are something that, if used responsibly, can be beneficial to the borrower. My nephew and I represent two opposite extremes. I knew about the high interest rate going in, but I knew I'd be able to pay the loan back quickly enough to keep it from being an issue. My nephew knew about the high interest rate on his loans, too; he just didn't care. I know there is a broad middle ground containing people who don't understand the rates, or who are so desperate for funds that they can't afford to care. I know there are a lot of people out there whose financial lives have been tripped up by payday loans. So where does personal responsibility end and industry responsibility begin? Not too long ago, Lazy Man wrote an article about payday loans in which he looked at them from a lender/investor standpoint and pointed out that with the high loan default rate, these companies really have no choice but to charge really high interest in order to compensate for the money they lose and stay in business. I don't have the statistics, but I do know that my husband used to work for the customer service branch of a major bank, and he was continually astounded at the number of calls he received from customers who requested stop-payment on checks they had written to cover the amount of their payday loans. For all that we hear about people getting taken advantage of by this industry, there are also plenty of people who take criminal advantage of this industry. It's a vicious circle, with their illegal actions driving up the rates and ultimately doing harm to innocents who want to pay back their loans but get trapped by either ignorance or bad choices. It's not a perfect system. Would the world be better off without the payday loan industry? Possibly; but I know I was glad that it was there at a time that I had no other recourse. Labels: disclosure, loans, money management, PPP |
