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Why aren't there honest payday loan organizations? - Input Junkie

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April 23rd, 2014
12:11 pm

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Why aren't there honest payday loan organizations?
Description of loan scams-- not just extremely high interest, but extorting money from people who either repaid loans, or who only applied for loans.

I've been wondering for a while why there aren't decent check-cashing and payday loan companies-- charging higher than average interest, but not outrageously so, and making the terms clear. This should especially be the case for check-cashing companies, because it seems like they're unlikely to lose money on the checks they cash.

This seems like something a non-profit or a not-for-profit could get into even if there are no for-profit corporations who want to do it (and why not?), and be a really valuable service.

What am I missing?

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From:drplokta
Date:April 23rd, 2014 05:17 pm (UTC)
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You're missing the default rates. In the UK, one payday loan company has stats (from memory) of something like an average loan period of two weeks with a default rate of 15%. Based on those stats, you have to charge an annual interest rate of about 7,000% merely in order to cover the cost of the defaults.
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From:nancylebov
Date:April 23rd, 2014 05:56 pm (UTC)
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That would apply to loans, though there's a chicken and egg problem-- part of why people are running on fumes is that many of them are paying high interest from previous loans-- but check-cashing shouldn't have the high default rate.
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From:ice_hesitant
Date:April 23rd, 2014 09:06 pm (UTC)
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Cheques can be forged. That's why they're usually held for a week before being deposited in an entry-level bank account. Eliminating the wait eliminates the anti-forgery safeguard, which means that the cheque forgers are likelier to target cheque-cashing services rather than traditional banks.
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From:fidelioscabinet
Date:April 24th, 2014 03:23 am (UTC)
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Slightly irrelevant but of historical interest: in late-medieval and Renaissance Italy, the church ran a low-fee pawn service to undercut the moneylenders & protect the interests of the poor.
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From:siderea
Date:April 24th, 2014 03:33 am (UTC)
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!! Cool! Where, Florence? That seems like a particularly Florentine idea.
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From:fidelioscabinet
Date:April 24th, 2014 03:33 am (UTC)
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There's an article at Wikipedia about this, with a good-looking list of references; look for Mount of Piety. I'd link but on a tablet it's a right pain.
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From:pcornelius
Date:April 25th, 2014 05:27 am (UTC)
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The same exists in Brazil, or did as late as 1932, but for some reason under the name of "Casa de Misericordia" (House of Mercy) rather than the classical Mons Pietatis. In that year, the C. de M. in Sao Paulo cast gold into bars in support of the revolt against Getulio Vargas.
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