Before writing this blog I need to disclose two issues. While working in the financial sector I wrote a book (unpublished) titled, “Everyone Wants Your Money.” In the book, I tear apart Pay Day Loan, Check Cashing, and Rent-to-Own businesses. Today I manage a store for one of the larger Pay Day Loan services.
Selling retirement fund investment tools I found the best investment for most people to be a whole life insurance policy written through a mutual company. Yet, mutual fund sales people constantly recommend buying term insurance with the suggestion of taking those savings and reinvesting in one of their financial tools. Stock brokers suggest buying stock instead of physical gold. Bankers sell CD’s and money market certificates maintaining it’s safer than stocks. Insurance agents sell annuities and variable life products.
Working on commissions that sometimes exceed returns each sells against the other. Investment media touts “top picks” portrayed by its advertisers (conflict of interest?) . Panels of investment “gurus” fail to agree on any one speculation or group of stocks.
Certainly these people all made nice commissions selling their product, but as history has shown at least three times now over the past decade, bear markets have reduced investor savings by 33% or more per occurance. We saw this with the crash of dot com tech stocks in the late 90’s, 911, and most recently with the home mortgage bubble bust. I question how anyone can look at a respected Wall Street business’s performance of a $33,000 loss on every $100,000 invested and suggest that Pay Day Loan stores create victims.
Everyone knows about the home mortgage business, including Freddy Mac and Fanny May, but what about their practices before the crash? A $150,000 loan would cost about $750 a month at 6% interest. This would yield about $120,000 profit to lenders over the 30 year term of the agreement. By my calculation, that’s almost 100% interest on a fully collateralized loan that requires credit checks, evidence of income, closing costs, and the clearing up of credit blemishes before the loan is issued.
How can a bank justify a $30 charge on a $1 bounced check? Where’s the public outcry for credit cards that charge as much as 34% on unpaid balances that can include unpaid interest charges? What about schools that get second semester loan money even though the student doesn’t attend? There is an endless list of “acceptable” charges people pay that get no attention from “concerned” individuals.
Many times we see an overdraft fee that causes additional checks to bounce and incur similar fees. If someone took out a $100 loan from a Pay Day lender to cover the first bounced check and paid a $35 fee to the Pay Day store for doing so, they would be ahead financially. Only it is the bank that wouldn’t make the extra money on funds they never paid out to begin with.
In the past two months, I have had a college professor, business owners, nurses, and even a federal attorney as customers. Most people live pay check to pay check until something unfortunate happens in their lives. The car breaks down, an unexpected medical expense pops up, a direct deposit or paycheck is held up, hours are cut, and a litany of other things that happen suddenly can have negative effects on many people.
A broken down car can mean missed work and lost pay. Fewer hours can mean utilities get turned off. Bad credit due to unpaid bills can mean lost opportunity to people searching for jobs. Overdue bills can lead to garnished wages.
It has been my experience that Pay Day loan stores serve a huge public need. Many of my customers couldn’t qualify for an uncollateralized credit card and if they did, it would be a card that charged extremely high interest. I have yet to find any bank that would lend someone with a lower credit score a quick $500 at any rate.
If Pay Day lending was predatory, Pay Day lenders wouldn’t put a cap on the amount of money a person could borrow and would charge “unreasonable” interest rates. So what is a reasonable interest rate on uncollateralized, high risk, short term loan? In a competitive market place the market will dictate this.
Of all the anti-Pay Day people scheming to shut down some people’s primary resource for quick cash, how many have proposed an alternative? It’s so easy to wake up in a nice warm home where finances are not an immediate issue, get into a reliable car and drive to a secure job. The need for Pay Day loan services is very real and for most people there is no alternative.
I came into this job with deep reservations. I am not paid the big money I earned in the financial sector, I’m far from it, but at least I can sleep at night. It is important to me that my customers are served with the highest possible customer service, in a nonjudgmental atmosphere, with open and clear communications about the product they are buying into and their options. I respect and admire the company I work for as we share the same concerns.
Do some people sign agreements without understanding the consequences? Absolutely! But that happens in every business. The latest trend in adjustable rate mortgages and rising interest rates is a great example. Or maybe it’s the family who bought into the low face value high premium universal life policy that a salesman sold to win a company contest.
Taxes rise. The value of a dollar deflates. Credit tightens. Home values decrease. Inflation looms. Unemployment rates increase. Insurance based on credit scores increase premiums. Investments once considered simple and safe offer unbelievably low returns. Businesses close. Bankruptcies continue in record numbers. Divorce rates tear apart families. Medical costs continue to soar. The price of fuel sees huge price swings. Somewhere along the way, government employees, bankers, financial advisers, lawyers, doctors, and many others will still see nice returns for their time and investment. Yet, no one besides Pay Day loan stores is being called out for “predatory” practices.
OK.
Financial planners help middle income Americans lose their nest egg. Seniors with no time horizon are left with a pittance of their planned income. Mortgage lenders scored big during the housing boom, but now kick families out of the homes which are put into foreclosure. But it’s Pay Day stores that are compared to loan sharks and mafia figures.
Even the “race card” isn’t sacred here. Every business that performs due diligence and market surveys goes where they can best serve their customers. I guess some writers consider location to be a racial issue. My guess is they would place a Pay Day loan store in affluent white suburbs where the need for quick loans is relatively non existent to balance our presence in more densely populated areas. Poor disadvantaged minorities are forced to patronize quick loan stores because banks and credit institutions don’t want them. Interesting that suburban zip codes get a higher quantity of banking, mortgage, and credit card offers than urban zip codes do, but I guess it’s not about race when it come to other businesses.
Never mind that right now in my hometown, 50% of all African American males of working age are unemployed. Let’s not bother with silly economic fixes…let’s blame the evil Pay Day loan industry.
I’d love it if government set profit margins on every business. Maybe then, college book stores couldn’t charge $150 for a new text, buy it back at the end of the semester for $15 and resell it used for $135. Maybe auto dealers would have to offer more for trade-in vehicles. The list is almost endless.
Why is it acceptable for people to buy, flip, and make money on a foreclosed property? Why does the bankruptcy or divorce attorney get a pass? What about the contractor rebuilding homes after a catastrophic event? Morticians, claims adjusters, doctors, foster parents, mechanics, debt consolidators, bartenders, and a slew of other professions profit from the results of other people’s losses. Yet, the Pay Day loan store is evil.
In my store, about 10% of our customers feel stuck. Their economic conditions may have changed due to cut hours, illness, unemployment, incarceration, unpaid mandatory vacation time, financial needs of other family members or friends, and a myriad of other reasons.
Does the other 90% love to pay on their loan? Probably not. However, I do enjoy when customers thank me for being here for them when they needed the money. There is no doubt in my mind that Pay Day loans stores play an incredibly important roll in the lives of many families.
While many well intentioned do-gooders want to compare quick loan stores to illegal loan sharks, they need to know that without Pay Day loan stores many of our customers only option would be the loan shark.
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Before writing this blog I need to disclose two issues. While working in the financial sector I wrote a book (unpublished) titled, “Everyone Wants Your Money.” In the book, I tear apart Pay Day Loan, Check Cashing, and Rent-to-Own businesses. Today I manage a store for one of the larger Pay Day Loan services.
Selling retirement fund investment tools I found the best investment for most people to be a whole life insurance policy written through a mutual company. Yet, mutual fund sales people constantly recommend buying term insurance with the suggestion of taking those savings and reinvesting in one of their financial tools. Stock brokers suggest buying stock instead of physical gold. Bankers sell CD’s and money market certificates maintaining it’s safer than stocks. Insurance agents sell annuities and variable life products.
Working on commissions that sometimes exceed returns each sells against the other. Investment media touts “top picks” portrayed by its advertisers (conflict of interest?) . Panels of investment “gurus” fail to agree on any one speculation or group of stocks.
Certainly these people all made nice commissions selling their product, but as history has shown at least three times now over the past decade, bear markets have reduced investor savings by 33% or more per occurance. We saw this with the crash of dot com tech stocks in the late 90’s, 911, and most recently with the home mortgage bubble bust. I question how anyone can look at a respected Wall Street business’s performance of a $33,000 loss on every $100,000 invested and suggest that Pay Day Loan stores create victims.
Everyone knows about the home mortgage business, including Freddy Mac and Fanny May, but what about their practices before the crash? A $150,000 loan would cost about $750 a month at 6% interest. This would yield about $120,000 profit to lenders over the 30 year term of the agreement. By my calculation, that’s almost 100% interest on a fully collateralized loan that requires credit checks, evidence of income, closing costs, and the clearing up of credit blemishes before the loan is issued.
How can a bank justify a $30 charge on a $1 bounced check? Where’s the public outcry for credit cards that charge as much as 34% on unpaid balances that can include unpaid interest charges? What about schools that get second semester loan money even though the student doesn’t attend? There is an endless list of “acceptable” charges people pay that get no attention from “concerned” individuals.
Many times we see an overdraft fee that causes additional checks to bounce and incur similar fees. If someone took out a $100 loan from a Pay Day lender to cover the first bounced check and paid a $35 fee to the Pay Day store for doing so, they would be ahead financially. Only it is the bank that wouldn’t make the extra money on funds they never paid out to begin with.
In the past two months, I have had a college professor, business owners, nurses, and even a federal attorney as customers. Most people live pay check to pay check until something unfortunate happens in their lives. The car breaks down, an unexpected medical expense pops up, a direct deposit or paycheck is held up, hours are cut, and a litany of other things that happen suddenly can have negative effects on many people.
A broken down car can mean missed work and lost pay. Fewer hours can mean utilities get turned off. Bad credit due to unpaid bills can mean lost opportunity to people searching for jobs. Overdue bills can lead to garnished wages.
It has been my experience that Pay Day loan stores serve a huge public need. Many of my customers couldn’t qualify for an uncollateralized credit card and if they did, it would be a card that charged extremely high interest. I have yet to find any bank that would lend someone with a lower credit score a quick $500 at any rate.
If Pay Day lending was predatory, Pay Day lenders wouldn’t put a cap on the amount of money a person could borrow and would charge “unreasonable” interest rates. So what is a reasonable interest rate on uncollateralized, high risk, short term loan? In a competitive market place the market will dictate this.
Of all the anti-Pay Day people scheming to shut down some people’s primary resource for quick cash, how many have proposed an alternative? It’s so easy to wake up in a nice warm home where finances are not an immediate issue, get into a reliable car and drive to a secure job. The need for Pay Day loan services is very real and for most people there is no alternative.
I came into this job with deep reservations. I am not paid the big money I earned in the financial sector, I’m far from it, but at least I can sleep at night. It is important to me that my customers are served with the highest possible customer service, in a nonjudgmental atmosphere, with open and clear communications about the product they are buying into and their options. I respect and admire the company I work for as we share the same concerns.
Do some people sign agreements without understanding the consequences? Absolutely! But that happens in every business. The latest trend in adjustable rate mortgages and rising interest rates is a great example. Or maybe it’s the family who bought into the low face value high premium universal life policy that a salesman sold to win a company contest.
Taxes rise. The value of a dollar deflates. Credit tightens. Home values decrease. Inflation looms. Unemployment rates increase. Insurance based on credit scores increase premiums. Investments once considered simple and safe offer unbelievably low returns. Businesses close. Bankruptcies continue in record numbers. Divorce rates tear apart families. Medical costs continue to soar. The price of fuel sees huge price swings. Somewhere along the way, government employees, bankers, financial advisers, lawyers, doctors, and many others will still see nice returns for their time and investment. Yet, no one besides Pay Day loan stores is being called out for “predatory” practices.
OK.
Financial planners help middle income Americans lose their nest egg. Seniors with no time horizon are left with a pittance of their planned income. Mortgage lenders scored big during the housing boom, but now kick families out of the homes which are put into foreclosure. But it’s Pay Day stores that are compared to loan sharks and mafia figures.
Even the “race card” isn’t sacred here. Every business that performs due diligence and market surveys goes where they can best serve their customers. I guess some writers consider location to be a racial issue. My guess is they would place a Pay Day loan store in affluent white suburbs where the need for quick loans is relatively non existent to balance our presence in more densely populated areas. Poor disadvantaged minorities are forced to patronize quick loan stores because banks and credit institutions don’t want them. Interesting that suburban zip codes get a higher quantity of banking, mortgage, and credit card offers than urban zip codes do, but I guess it’s not about race when it come to other businesses.
Never mind that right now in my hometown, 50% of all African American males of working age are unemployed. Let’s not bother with silly economic fixes…let’s blame the evil Pay Day loan industry.
I’d love it if government set profit margins on every business. Maybe then, college book stores couldn’t charge $150 for a new text, buy it back at the end of the semester for $15 and resell it used for $135. Maybe auto dealers would have to offer more for trade-in vehicles. The list is almost endless.
Why is it acceptable for people to buy, flip, and make money on a foreclosed property? Why does the bankruptcy or divorce attorney get a pass? What about the contractor rebuilding homes after a catastrophic event? Morticians, claims adjusters, doctors, foster parents, mechanics, debt consolidators, bartenders, and a slew of other professions profit from the results of other people’s losses. Yet, the Pay Day loan store is evil.
In my store, about 10% of our customers feel stuck. Their economic conditions may have changed due to cut hours, illness, unemployment, incarceration, unpaid mandatory vacation time, financial needs of other family members or friends, and a myriad of other reasons.
Does the other 90% love to pay on their loan? Probably not. However, I do enjoy when customers thank me for being here for them when they needed the money. There is no doubt in my mind that Pay Day loans stores play an incredibly important roll in the lives of many families.
While many well intentioned do-gooders want to compare quick loan stores to illegal loan sharks, they need to know that without Pay Day loan stores many of our customers only option would be the loan shark.