This twenty-first-century sharecropping is called payday lending

[jeffrey]

On a whitewashed church pew in Johnson City, I sat alone as James Eaton stood over me delivering a sermon. It was a Monday, and this was Eaton’s office. One of the inventors of payday lending—the business of making small, short-term loans from retail locations at steep rates—Eaton operates out of a converted service station, with a tarp sign in red and white: here’s where it all started. east tennes see’s first, oldest & finest. He had suggested we conduct our interview in his reception area, on the pew he brought up years ago from his wife’s childhood church in Alabama. I balanced my coffee cup perilously on the green-felt pew pad as I listened to him enumerate his own good works—his donations to a Bible college, his support for a rural congregation of evangelical Harley-Davidson enthusiasts. Eaton’s homily was heartfelt, if meandering and peppered with such biblical malapropisms as Jesus having “healed those leopards.” As he preached, customers kept trudging in past us to the counter, where they wrote postdated bad checks and walked away with twenties at several hundred percent interest, all transacted above a vast American flag dangling from the countertop...

Usury country: Welcome to the birthplace of payday lending—By Daniel Brook (Harper's Magazine)

[wraddylan]

Its really.

[Stuartthomas]

sounds terrible...don't put your personal feelings into it..

[rob62521]

It's a vicious circle for these folks who can't go to a bank or use a bank.

We have a local food pantry that is currently offering no interest loans to folks who need a helping hand to try and help people who would otherwise have to use one of these places.

[ferriwinkle]

Another bad thing that adds more to this vicious cycle is Title loans. I know people who get a title loan to pay bills, then will get a payday loan to pay off the title loan--back and forth, all the while paying hundreds or thousand percent interest rates. A guy that works with my wife said he got a payday loan (1 week loan) and had to write a $365 check to get $300--he then said "that's only 22% interest, my credit card is more than that". Let's see, 22% X 52 weeks = 1144% APR. I don't what crappy rate he has on his credit card, but I will assume it is under a thousand percent APR.

[disneysteve]

A guy that works with my wife said he got a payday loan (1 week loan) and had to write a $365 check to get $300--he then said "that's only 22% interest, my credit card is more than that". Let's see, 22% X 52 weeks = 1144% APR. I don't what crappy rate he has on his credit card, but I will assume it is under a thousand percent APR.

That's the problem. People who take payday loans don't understand that interest rates are stated in annual terms. It doesn't matter if you are borrowing for a week or a year. And the payday lenders capitalize on this ignorance in their marketing. They push the fact that the fee is "only" $20 to borrow $100. Nowhere do they spell out that the $20 per $100 fee works out to an interest rate of well over 1,000% even though it sounds like it is only 20%.

[Stuartthomas]

reply

my point is that If lenders were unable to charge these rates, the concern would be that they simply wouldn’t lend to those who need it at all, and would force those in need of a short-term loan into the hands of criminals.

[disneysteve]

my point is that If lenders were unable to charge these rates, the concern would be that they simply wouldn’t lend to those who need it at all, and would force those in need of a short-term loan into the hands of criminals.

You make it sound like payday lenders are providing some great public service. Nobody needs to borrow money at 1,000% interest and above. That is nothing more than legal loan sharking. It is predatory lending at its worst. You'll never find a payday lender in a decent, middle class neighborhood. You can only find them in poor areas where people are struggling to get by. So rather than helping these people, the payday lenders charge them exorbitant interest rates and trap them in an endless cycle of debt.

Before usury laws were changed, there were no payday lenders, check cashing stores, etc. I don't believe getting rid of them would make people turn to crime. Perhaps it would make them pay a little more attention to how they are spending their limited incomes and they would stop spending more than they have and living in debt as a result.

[rob62521]

I agree with you DisneySteve. These "lenders" are only providing a service because they are making big bucks off the folks who can least afford it. Before these lenders came about, we used to have currency exchanges where you cashed your paycheck for a small fee. We also had lay-a-way plans where you paid a little on a plan and got the item when it was paid for. These "lenders" are taking advantage of people who don't read the small print or don't understand what a rip off it really is.