A Life on the New Planatation Thread: PayDay Lending

[NobleSavage]

So how does this work? A person has no credit or bad credit, but can get a payday lone. What encouragement is there for them to pay it back?

The usual: harassment, credit checks as part of getting a job, judgments, etc... same things that happen if you don't pay back your bank loans.

And in Wisconsin and New Jersey: possible jail time.

So debtors prison back in some states?

 

[Nice Squirrel]

The usual: harassment, credit checks as part of getting a job, judgments, etc... same things that happen if you don't pay back your bank loans.

And in Wisconsin and New Jersey: possible jail time.

So debtors prison back in some states?

Technically never ended, there is a high bar of proof which states that the debts were taken out with no intention of ever paying it back. Really hard to prove.

- - - Updated - - -

The person taking out that $60k car loan almost certainly has reserves, a blip in life isn't going to put them in a position where they can't pay the bill.

Not necessarily. Just because someone has a high income doesn't mean they have a lot of savings. They could just as easily as a low income person choose to use up their income on their expenses. That they could gain savings by not spending their paycheck like that, buying a $30k car for example, is true. But one cannot make a judgment on whether someone is a "responsible consumer" based simply on their income level. We've seen plenty of movie stars, athletes, and musicians go broke eventually because they don't know how to handle their money.

But have we ever seen a poor person grow incredibly wealthy on household income management alone? After all, the stop smoking plan only will give you so many dollars.

 

[AthenaAwakened]

uh
Hello
Over here
The new debtors prison

http://www.dailyfinance.com/2012/08/30/debtors-prison-is-back-and-just-as-cruel-as-ever/

First, explains St. Louis Post-Dispatch, the creditor gets a judgment in civil court that a debtor hasn't paid a sum that he owes. Then, the debtor is summoned to court for an "examination": a review of their financial assets.

If the debtor fails to show up for the examination -- as often happens in such cases -- the creditor can ask for a "body attachment" -- essentially, a warrant for the debtor's arrest. At that point, the police can haul the debtor in and jail them until there's a court hearing, or until they pay the bond. No coincidence, the bond is usually set at the amount of the original debt. As the Dispatch notes:


"Debtors are sometimes summoned to court repeatedly, increasing chances that they'll miss a date and be arrested. Critics note that judges often set the debtor's release bond at the amount of the debt and turn the bond money over to the creditor -- essentially turning publicly financed police and court employees into private debt collectors for predatory lenders."

Standing Up for Those Who Can't Pay

The practice -- in addition to putting an additional squeeze on poor people -- turns courts and police into enforcers for private creditors, from payday lenders to health care providers. The situation prompted Illinois legislators in July to pass a bill "to protect vulnerable consumers from being hauled to jail over unpaid debts," in the words of state Attorney General Lisa Madigan. The Debtors' Rights Act of 2012 requires two "pay or appear" court notices to be sent to debtors before an arrest can be made, and also prevents creditors from calling for multiple examinations unless the debtor's financial state has significantly changed.




Many of the victims, Madigan noted at the time, were living on funds that are legally protected from being used for outstanding debt judgments, such as Social Security, unemployment insurance or veterans' benefits. In one case she cited, an Illinois court brought a "pay or appear" order against a mentally disabled man living on legally protected disability benefits of $690 a month. The man told the court of his circumstances but was still ordered to pay $100 a month or appear in court once a month for a three-year period.

"It is outrageous to think in this day and age that creditors are manipulating the courts, even threatening jail time, to extract whatever they could from people who could least afford to pay," Madigan said. "This law corrects that gross oversight and puts a stop to throwing people in jail for being poor while still allowing fair debt collection when people have the means to pay their debts."

Illinois notwithstanding, the modern-day debtors' prison probably isn't going away anytime soon given the current economic climate: More than a third of U.S. states allow borrowers who can't or won't pay their debts to be jailed.

 

[Loren Pechtel]

The reality of a lot of payday loans:

Some years ago I was preparing to reformat a computer. As usual there was some stuff stored on it despite everyone having space on the server and instructions to store everything there. I was moving what I saw to the server and accidentally opened one document instead of dragging it--up pops a budget. Both of them had payday loans--and also a substantial amount in the budget category "entertainment". (I didn't realize I had opened it, when the screen popped up I had to look at it a bit before I figured out what had happened.)

Yes, you previously dragged out this story of you snooping through someone else's private financial documents when you had no authorization to do so. What does this one alleged incident of your bad behavior prove? You snooping through one person's records is not valid evidence for "a lot of payday loans".

What part of "accident" do you not understand?

Have you never opened a file you meant to move???

With Windows set to single click to open it's a *VERY* easy mistake to make.

 

[Loren Pechtel]

uh
Hello
Over here
The new debtors prison

http://www.dailyfinance.com/2012/08/30/debtors-prison-is-back-and-just-as-cruel-as-ever/

Mostly, though, it's because they blew off the notices.

A debtors examination is a perfectly reasonable thing--you don't get to just say "I can't pay", you need to prove it.

While there are abuses I note the article doesn't give numbers, just highlights a few.

 

[AthenaAwakened]

uh
Hello
Over here
The new debtors prison

Mostly, though, it's because they blew off the notices.

A debtors examination is a perfectly reasonable thing--you don't get to just say "I can't pay", you need to prove it.

While there are abuses I note the article doesn't give numbers, just highlights a few.

[star trek computer voice]Nothing is wrong with the system

The system in fine

The system is always fine

it was fine one hundred years ago.

It will be fine one hundred years form now

There is nothing wrong

The system is fine.[/star trek computer voice]

 

[Bronzeage]

uh
Hello
Over here
The new debtors prison

has-ever/

I notice the article points out "debt collectors in Missouri, Illinois, Alabama...".

In the state of Louisiana, it is not legal to seize a person's property, just because they borrowed your money to buy the property. It is illegal to repossess a car. The lender can negotiate a voluntary surrender of the vehicle, but a repo man cannot take the car without permission. It's considered an act of auto theft. The lender's only recourse is to go to court, and obtain a judgment. The Sheriff then seizes the car and puts it up for auction. The debt is paid with the proceeds and if there is a surplus, it goes back to the owner of the car.

Several years ago, there were plenty of "post dated check" lenders. These places all shut down when the District Attorney announced his office would not prosecute bad checks unless they were written for goods or services.

Even so, the state agency which oversees payday lenders has little power. If someone complains, the agency sends a letter and requests information. This results in an immediate refund of any illegal fees, so that particular case is in order when the report is issued. There have been over 8000 complaints, according to a recent news report, but not a single fine or penalty was issued.

There is another side to this story. There was a time when I had a nice 3 bedroom house in the suburbs. It was a nice life. The woman to whom I was married at the time handled most of the household finances. Every Friday, she deposited both our paychecks. One Friday, she opened her purse to prepare the deposit slips and discovered last week's checks were still in her wallet. She had done everything except actually hand them over to the bank. This was the week the house note and the car insurance were due. It resulted in an overdraft of several hundred dollars. This was no problem, because as a respectable middle class suburbanite, I had overdraft protection. Each $100 increment cost me $27. When the dust settled and all the bills and fees were paid, I figure out the total cost and realized I would have been better off if I had taken a payday loan to cover the checks.

 

[NobleSavage]

uh
Hello
Over here
The new debtors prison

Just did a little research and came across this: http://www.npr.org/2014/05/21/313118629/supreme-court-ruling-not-enough-to-prevent-debtors-prisons

 

[AthenaAwakened]

uh
Hello
Over here
The new debtors prison

Just did a little research and came across this: http://www.npr.org/2014/05/21/313118629/supreme-court-ruling-not-enough-to-prevent-debtors-prisons

good looking out
And very interesting reading.
Thanks

 

[lpetrich]

Question:

Why is it that when financial institutions rip off rich investors or other financial institutions, everyone on the right screams and cries about the crimes committed and people actually go to jail, but when financial institutions rip off middle class or poor people, it's the victims' fault they got scammed? What is so different about the aristocracy that they get to operate under a completely different set of rules and expectations from conservatives and libertarians?

Let me guess: we need to have a double standard so that we can be more free, right? Or do we need to have a double standard in order to avoid communism? Oh, I got it! It's because holding the aristocracy accountable in the same way we hold commoners accountable would count as persecuting rich people! That must be it!

Seriously.

The arguments I'm reading in this thread remind me entirely too much of the arguments used to blame the victims of the predatory lending practices leading up to the mortgage crisis.

I find it extraordinarily interesting that the poorest among us, usually the least educated, are all supposed to automatically understand the legal and financial terms of documents they are not even given the opportunity to read before signing - without benefit of teams of lawyers to go through those documents with a fine-tooth comb.

Very good points.

Many people suffer the thefts of their cars because they had forgotten to take the cars' keys with them. The thieves find it easy to enter the cars, start them, and drive off. Does the carelessness of the cars' owners mean that they deserve for their cars to be stolen? Does it excuse the thieves? If you were the defense lawyer of someone caught stealing cars, would you offer the defense that the cars' owners effectively gave away their cars because of their carelessness?

Or are only rich people not at fault when their cars are stolen, while for poor people, it is their fault and the thieves are therefore blameless?

 

[RavenSky]

Yes, you previously dragged out this story of you snooping through someone else's private financial documents when you had no authorization to do so. What does this one alleged incident of your bad behavior prove? You snooping through one person's records is not valid evidence for "a lot of payday loans".

What part of "accident" do you not understand?

Have you never opened a file you meant to move???

With Windows set to single click to open it's a *VERY* easy mistake to make.

The fact that you know so many details about this person's financial history means you did a lot more than just accidentally open it. After it was opened, you clearly snooped to know so many specific details. If you don't want this pointed out to you every time you bring this up as some sort of ancedotal support for your worldview, I suggest you stop bringing it up.

 

[Metaphor]

Every Friday, she deposited both our paychecks.

My wage was deposited electronically in my bank account for all the jobs I've ever held.

Post-dated checks? I haven't used or seen a check in 15 years.

What percentage of people in America are paid by check, and how come Americans like living like it's the 1970s???

 

[Bronzeage]

Every Friday, she deposited both our paychecks.

My wage was deposited electronically in my bank account for all the jobs I've ever held.

Post-dated checks? I haven't used or seen a check in 15 years.

What percentage of people in America are paid by check, and how come Americans like living like it's the 1970s???

This was actually in the 1980's. Another time we were overdrawn was when the ATM where I deposited my check malfunctioned and the deposit envelope was stuck in the works. This time the bank swallowed the charges.

These days, I use checks for business expenses such as utility and rent payments. Although they won't be around much longer, a canceled paper check is the most powerful evidence a bill was really paid. It will be a shame when they are gone.

 

[Loren Pechtel]

These days, I use checks for business expenses such as utility and rent payments. Although they won't be around much longer, a canceled paper check is the most powerful evidence a bill was really paid. It will be a shame when they are gone.

Yup. I had a dispute with the IRS many years ago. They lost about $3000. It took getting a physical copy from the bank and sending it to the IRS to prove to them that they had the money all along. (All I can figure is somebody credited the money to the wrong account.)

Electronic payments should leave enough of an electron trail to prove matters unless everyone screws up but I've never had to prove payment in such a situation so I don't know how well it works.

 

[Jason Harvestdancer]

It should be noted that these are short term loans, and saying they have an annual interest rate of 400% is comparable to, oh, say, for example, that $20 Uber ride to the airport would cost over $3000 if you rode from Los Angeles to New York. $3000 to go across country? The airlines charge less than that and get you there faster! That proves how corrupt and greedy Uber is.

 

[Bronzeage]

These days, I use checks for business expenses such as utility and rent payments. Although they won't be around much longer, a canceled paper check is the most powerful evidence a bill was really paid. It will be a shame when they are gone.

Yup. I had a dispute with the IRS many years ago. They lost about $3000. It took getting a physical copy from the bank and sending it to the IRS to prove to them that they had the money all along. (All I can figure is somebody credited the money to the wrong account.)

Electronic payments should leave enough of an electron trail to prove matters unless everyone screws up but I've never had to prove payment in such a situation so I don't know how well it works.

Electronic payment records do leave a trail, but we have to rely upon the veracity of the person who produced the record. This means the evidence is actually the person's character, not the print-out. What happens when each side produces different paper versions of the same document? It's like having a jury of illiterates. Documents mean nothing to them, and actual testimony is all they have.
These days, the only crime scene photographs which are readily accepted as evidence in court are Polaroid snapshots, because they are difficult to digitally manipulate. Otherwise, the photographer has to take the stand and swear this is the photo taken and accurately pictures the scene.

 

[Alcoholic Actuary]

It should be noted that these are short term loans, and saying they have an annual interest rate of 400% is comparable to, oh, say, for example, that $20 Uber ride to the airport would cost over $3000 if you rode from Los Angeles to New York. $3000 to go across country? The airlines charge less than that and get you there faster! That proves how corrupt and greedy Uber is.

Except the opposite. Typically the longer the term of the loan, the higher the interest rate. Asking for 14% for a 1 month loan (double the annual rate for 1/12th the duration) is like Uber trying to charge $1000 for a ride to the airport.

aa

 

[EricK]

It should be noted that these are short term loans, and saying they have an annual interest rate of 400% is comparable to, oh, say, for example, that $20 Uber ride to the airport would cost over $3000 if you rode from Los Angeles to New York. $3000 to go across country? The airlines charge less than that and get you there faster! That proves how corrupt and greedy Uber is.

Except the opposite. Typically the longer the term of the loan, the higher the interest rate. Asking for 14% for a 1 month loan (double the annual rate for 1/12th the duration) is like Uber trying to charge $1000 for a ride to the airport.

aa

Really? If eg the effective interest rate for a four week loan is greater than the effective interest rate for a two week loan, wouldn't I just take out a two week loan, then pay it back by taking out another two week loan, then pay that back after two more weeks?

 

[Togo]

Except the opposite. Typically the longer the term of the loan, the higher the interest rate. Asking for 14% for a 1 month loan (double the annual rate for 1/12th the duration) is like Uber trying to charge $1000 for a ride to the airport.

aa

Really? If eg the effective interest rate for a four week loan is greater than the effective interest rate for a two week loan, wouldn't I just take out a two week loan, then pay it back by taking out another two week loan, then pay that back after two more weeks?

Some people do exactly that. The problem is, you're taking a risk that you'll get that loan in two weeks time, and that rates won't have gone up in the meantime, or the lender have found someone else to lend the money to. If you get a 4 week loan, the lender is taking that risk.

I worked with a bank that financed itself by borrowing $500milllion every day. It was cheap, but if anything went wrong they'd have been in a fair bit of trouble.

 

[Alcoholic Actuary]

Except the opposite. Typically the longer the term of the loan, the higher the interest rate. Asking for 14% for a 1 month loan (double the annual rate for 1/12th the duration) is like Uber trying to charge $1000 for a ride to the airport.

aa

Really? If eg the effective interest rate for a four week loan is greater than the effective interest rate for a two week loan, wouldn't I just take out a two week loan, then pay it back by taking out another two week loan, then pay that back after two more weeks?

There is a liquidity premium on effective rates over a shorter term, although as Togo pointed out you open yourself up to interest rate risk. However, the liquidity premium is nothing like charging a higher actual rate for a shorter term. Why would I pay more to borrow money for 2 weeks, when I can hold onto it for 4 weeks for less? This is the analogy to payday loans (not the effective rate).

aa