Timmy in the Washington Post

We can’t get rid of payday loans just because we don’t like them

We, therefore, have something that is expensive to produce but also desired by many. And our absence of excess profits tells us that loans of small amounts for short periods of time are simply something expensive to do. In this sense such credit is like Aston Martin luxury vehicles. So they cost a lot. And? People want them, and they’re expensive to provide. We might well think that someone’s an idiot for purchasing one, but we don’t actually go and ban it.

Henry Ford brought cars to the masses not by banning the Aston Martins of his day but by making transport vastly cheaper through technological innovation. If we want short-term credit to the poor to follow the same route, we’re going to have to do the same: invent a new way of providing it and out-competing the current providers.

Perhaps no such technology exists, in which case we’ll be stuck with something expensive and somewhat dangerous that 10 million people want each year. It’s a bit like drinkable wine, and we should recall what happened when we tried to ban that: prohibition of the best credit we have to offer will inevitably lead to Fat Tony and his friends running amok again.

12 comments on “Timmy in the Washington Post

  1. Let’s not forget that what we’re really thalking about are loans of small amounts for short periods of time to people with bad credit. Lots of well-intentioned schemes have been hatched over the years to provide short-term credit to the poor at what middle class people would think of as reasonable interest rates, and none of them have amounted to a hill of beans.

    Part of the issue, in my opinion, is the insistence on thinking of these short-term loans in Annual Percentage Rates. APR is really not the right metric to judge the cost of a 2-week loan.

  2. APR is really not the right metric to judge the cost of a 2-week loan.

    Yes, it’s a useful metric when choosing between two potential providers for the same type of loan, but makes no sense if you’re comparing a 2-week payday loan with a 25 year mortgage.

    Just for fun, imagine you go overdrawn by £10 for a week and get a snotogram and a £25 penalty charge from the bank* – work out what the actual APR is on this ‘loan’ (hint: you’ll need a calculator capable of handling a lot of digits).

    * Although this sort of thing isn’t as common as it used to be, it still happens occasionally.

  3. “Just for fun, imagine you go overdrawn by £10 for a week and get a snotogram and a £25 penalty charge from the bank* – work out what the actual APR is on this ‘loan’ (hint: you’ll need a calculator capable of handling a lot of digits).

    * Although this sort of thing isn’t as common as it used to be, it still happens occasionally.”

    Standard practice in the US of A

  4. Tim, you haven’t deal with the US Postal Service? A supposed private service that literally cannot survive without government handout. It’s like asking DMV to also be payday lender, combining the worse of all worlds into one location. All of the slowness and inattention by the workers, and all of the predatory rates of actual payday lenders.

  5. JerryC points out the elephant in the room – “people with bad credit”

    I guess I am a payday lender. I employ tradesmen and labourers for construction and renovation and often advance them money against their pay. I do it without charge if the next pay clears it up, otherwise prime plus 10 with some security like a car tools, something. I break even at best. I do it because here in Alberta, Canada even bad labour was scarce for quite a few years and it kept them on the job.

    There is probably not one poster here, including Tim, who has dealt with these “people with bad credit” much, if at all. They are not from the same end of the bell curve as you lot, not even close. Lower IQ, lower self, anger and impulse control, multiple addictions, worse physical health, multiple mental defects and deficiencies, often immoral, thieving bastards as well.

    Faced with the choice of paying a debt after being paid on Friday or going out for smokes, beer and pizza, what do you think they do, nearly every time?

    Dealing with them for the last ten years since I started work in construction has made me more sensitive to how helpless these poor people are. I often regret the end of our more structured patriarchal culture. They nearly all need minders.

    That said, I offer no solution, I have no idea what to do, but agree with Tim that Fat Tony would be worse and with BigFire that getting the government involved as a lender would be madness.

    On that latter point, a side comment – half of my guys are or have been involved in scamming the government. Stupid they may be but they are certainly cunning enough to outwit the civil service. One guy managed to get himself $1,000.00 per month for life from workers comp because of a non-existent bad back, another goes through multiple apprenticeships and “training programs” with plenty of taxpayer grease involved every time, another made a real suicide attempt 5 years ago and has been getting cash “support” because of his “depression” ever since, et cetera, et endless cetera.

  6. ‘getting the government involved as a lender would be madness.’

    Then it will be done.

  7. There is probably not one poster here, including Tim, who has dealt with these “people with bad credit” much, if at all.

    Soldiers, sailors and their wives. The only thing that saved them was the regular income and even then it didn’t always help if they were reverted for losing their security clearance for financial risk and bounced hard down the pay scales.

  8. re: Surreptitious Evil

    It amazes me that US Military doesn’t have Dave Ramsey’s Financial Peace University as part of basic training. As there are a lot of folks in the military that doesn’t know the first thing about handling money. Hell, NBA, NFL and MLB leagues should also have that as part of rookie indoctrination. Makes everyone going through the classes a wee bit wiser about their money. Of course, US Government could also use the course, but that’s hoping for too much.

  9. Granted, on some of the bases, they do have the military version of the FPU, and some of the base commanders actually encourages their member to take the class to save themselves financial grief down the road (things like don’t buy that double wide trailer when you’re going to get shipped out in 2 years, and you are going to sell the trailer for a lost).

  10. Fred Z:
    “There is probably not one poster here, including Tim, who has dealt with these “people with bad credit” much, if at all. They are not from the same end of the bell curve as you lot, not even close. Lower IQ, lower self (esteem), anger and impulse control, multiple addictions, worse physical health, multiple mental defects and deficiencies, often immoral, thieving bastards as well.”

    Yeah you got me. Now what about those people with bad credit?

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