Wednesday, April 04, 2007

Live now, pay later / payday lenders

here in germany "payday" shops are not allowed and you can find this type of lending only in the "underworld". i think you get there after your credit card is maxed out. and with offers like this one it is probably only a matter of time until you have to visist the next "loan shark"

dieser art der "kreditshops" sind bei uns wohl höchstens in der unterwelt zu finden. denke das dort wohl viele landen die ihre diversen kreditkarten überrissen haben. und das kommt bei dem aggressiven marketing wohl immer öfter vor. also oft nur ne frage der zeit bis der nächste kredithai aufgesucht werden muß.
An overlooked player in the subprime credit business

SHORT of money? Need an instant loan? Since the early 1990s your best bet—at least in 37 states and the District of Columbia—has been to go to the low-rent end of town and find a garishly appointed loan-shop. There you can borrow money in small amounts, generally not much more than $500, against your post-dated pay-cheque. The catch is that you will be charged around $15 interest for every $100 you borrow—and that is per month.

For many people, there is no alternative. Banks refuse to make small loans because there is no money in it, and completely unregulated lending, via the internet or loan sharks, is too alarming.

The Centre for Responsible Lending, a consumer group, says that many borrowers routinely roll over their loans. This quickly ensnares them in triple-digit debt traps. A typical borrower may end up paying $793 for a $325 loan. The centre estimates that payday loans cost Americans $4.2 billion a year in interest and fees.

The industry thrives, in large part, because it operates mostly outside state usury laws that prohibit excessive interest rates. Its spokesmen say lenders need such exemptions to make a profit on their basic service, small loans. Lenders say that their returns would amount to pennies on the dollar if interest rates were capped. In fact, they say, such restrictions would put them out of business.

And that is exactly what many of their opponents would like to see—particularly when it comes to loans made to the families of soldiers. In one of the last acts of the Republican Congress, payday lenders were restricted to interest rates of 36% on loans to military personnel and their spouses. The Pentagon is worried that uniformed personnel, especially those serving in Iraq, have been losing their security clearances because of excessive debt at home. This, among other things, was leading to the costly reassignment of highly trained troops, such as communications experts, to mundane low-skill jobs.

At least 11 states have restrictions similar to those adopted by the federal government. This has virtually closed them to lenders, who this year launched an aggressive lobbying and advertising campaign to get the restrictions lifted (and, more important, to improve their dodgy image). In Virginia the industry even wrote its own bill, describing it as a “reform” measure, but then withdrew it when Tim Kaine, the governor, promised to rewrite it to include a tough clamp-down on high-interest instant loans.....

Robert Frank, an economist at Cornell University, wrote recently in the New York Times that the industry—not unlike the subprime mortgage sector—is a beneficiary of the sweeping deregulation of the financial-services industry that has made credit more accessible. Its adverse consequences, he says, were “completely predictable”. Once poor people get in over their heads, they will borrow themselves into bankruptcy if the law permits; and “if we are unhappy about that, the only recourse is to change the rules.”

>but they are not is an excellent column from greenberg

>aber das betrifft anscheinend nicht mehr nur die armen........

The economy -- from the eyes of a CPA / Here's what's really going on behind closed doors in affluent America

>that is excactly what could have been said about the subprime mortgage sector......

>das ist genau das was zum subprime hypothekensektor gesagt werden kann.......

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Blogger T.Banker said...

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8:12 PM  
Anonymous Anonymous said...

I know that these payday loans get a bad reputation because of their interest rates. I've had to use it before and never really had a problem with them what so ever. I think it's for the many people who don't really weigh the consequences and jump right into it with out even thinking twice about it.

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