How much should society control bad financial behavior?

[disneysteve]

I think it's going to be hard to legislate that a business educate it's customers in why its product is not in the customer's best interest.

Well when you put it that way...

I do think, as I said earlier, that lenders of all types should be required to have a simple, easy to understand statement of the costs involved without a bunch of legalese and fine print. This is what you are borrowing. This is a list of fees you will pay. This is what it will cost if you pay on time. This is what it will cost if you don't.

[Goldy1]

They say folks get in vicious cycles where they keep taking out more payday loans to keep paying off the one from the prior week.

Credit cards can be evil, and it does nto take a genius to know you shoul dnot buy what you can't pay off at the end of the month. You really do not even need to know the concept of an interest rate to follow this rule b/c even if there was no interest you still should have the money to pay for it. I knew this as a college liberal arts freshman with no finance education yet.

The problem is people do not care. They have low self esteem and need stuff to build themselves up.

I admi tin college, I used to spand every cent every week from my p/t paycheck on my few bills and then would spend the rest on anything, but I NEVER got in ANY debt.
I kind of understood the concept;I could relax more, work less, and have less clothes and no Spring break or I could work all the time so I could shop more at the mall and have less time to study.

I am glad I stayed otu of debt b/c my college education which I completed never got me a good job so I need finance skills (not that getting married to combine incomes hurt)

Sometimes I Think I am too frugal (never ever cheap)but not really and later I will have more to splurge b/c I won't have a house note.

[Ima saver]

It is true, when you try and talk to someone about money, budgeting, debt, etc., their eyes just glaze over and they don't listen. The majority of people do NOT want to learn anything about finances. I have been told many times that I talk about money too much, so I have just about given up trying to teach people how to budget. They don't want to learn. This is why I enjoy this forum so much. It is the only place I can talk about money without getting jumped on.

[Snave]

[QUOTE=disneysteve;196851]I'm not suggesting we do away with payday lenders. I'm suggesting that we regulate the fees and interest they can charge. Perhaps 20% is reasonable. 300% is not.

QUOTE]

DS, I agree with you on one hand that these %'s are outrageous , but look at the %'s you are suggesting. $100 at 20% for two weeks would require the person to come back and pay you $100.77. No one is going to open their doors and except that risk. That is why you see $10-15 for loaning $100 for only a few weeks.

[disneysteve]

DS, I agree with you on one hand that these %'s are outrageous , but look at the %'s you are suggesting. $100 at 20% for two weeks would require the person to come back and pay you $100.77. No one is going to open their doors and except that risk. That is why you see $10-15 for loaning $100 for only a few weeks.

I see your point, but that doesn't justify a 200% or 300% rate. Perhaps a compromise. Charge a flat rate of 10% of the loan amount upfront followed by a 20% interest rate if not repaid by the required date.

[jIM_Ohio]

I see your point, but that doesn't justify a 200% or 300% rate. Perhaps a compromise. Charge a flat rate of 10% of the loan amount upfront followed by a 20% interest rate if not repaid by the required date.

The issue is loans like this have a high default rate. So charging 20% interest is not enough for the business to stay in business. So the laws of economics suggest the price needs to be higher (higher interest rate) to allow the business to turn a profit.

Same way heart surgeons need to charge more because not everyone needs open heart surgery. They need to charge more than a radiologist because they need a higher income per transaction to stay in business.

Same way that Porsche dealers charge more for a Porsche than a Cavalier, Mustang or car of similar size. Fewer transactions, so they need a higher price point to stay in business.

[disneysteve]

The issue is loans like this have a high default rate. So charging 20% interest is not enough for the business to stay in business. So the laws of economics suggest the price needs to be higher (higher interest rate) to allow the business to turn a profit.

If I'm not mistaken, payday lending, tax refund loans and similar products really didn't come to be until after usury laws were repealed. We managed to live quite fine for decades without these businesses existing. I'm not quite sure why we need to have them now. I think they just encourage people to live beyond their means and represent nothing more than legal loansharks. They are practically designed to get people into financial trouble.

[SnoopyCool]

Good question. You do that by going back to the lending practices of the past. Rather than just looking at your FICO score and annual income, lenders should be required to collect more data before lending money. Potential borrowers should have to show evidence that they have the means to repay the money they are looking to borrow. There could be a standard worksheet that details not only your income but also your expenses. Sure, someone earning 100K might be able to afford a 300K mortgage, but not if they also have 2 car loans, 25K in CC debt, a kid about to start college and next to nothing in savings. Lenders should have to start looking at the big picture.

Why did the lending practices of the past change to what we have now?

[disneysteve]

Why did the lending practices of the past change to what we have now?

Because of government deregulation.

[Investing First Steps]

While the question of whether we should discourage people from making bad financial decisions is a difficult one, I will easily agree that I don't think that it serves any particular economic benefit. I think the argument that the economy can do just fine without loans being made to people who cannot hope to repay them is quite accurate.

The only corollary to that point is the question of how you effectively limit "bad" loans without preventing people from making loans that could be good. So while I'd say that it almost never is in the "greater economic good" for people to take out usurious loans, I can see business needs for immediately liquidity that require very high interest rates. To some degree usury may be like art...you know it when you see it, but you can't easily define it.

[disneysteve]

The only corollary to that point is the question of how you effectively limit "bad" loans without preventing people from making loans that could be good. So while I'd say that it almost never is in the "greater economic good" for people to take out usurious loans, I can see business needs for immediately liquidity that require very high interest rates. To some degree usury may be like art...you know it when you see it, but you can't easily define it.

Good post. I think it keeps coming back to what I've said. To borrow money, you need to be able to prove to the lender that you have the means to repay the loan.

In recent years, many loans were made to people who couldn't possibly afford them. "Oh, you'll just refinance before the ARM resets or before the principal payments start." That shouldn't have happened. Borrowers should have had to show they could afford both the initial payment AND the adjusted payment that would happen later. Making a loan knowing that the borrower wouldn't be able to afford the payments in a few years is wrong. That kind of stuff should be illegal.

If a business needs money, show the lender your books. Show where the money is going to come from to repay the loan. If you can do that, you get the money. If not, you don't.

[Snave]

I see your point, but that doesn't justify a 200% or 300% rate. Perhaps a compromise. Charge a flat rate of 10% of the loan amount upfront followed by a 20% interest rate if not repaid by the required date.

I was thinking the same type of plan. I think the fee needs to be in there to cover their liabilities, but after that, they need to come up with something that is more reasonable.

[irmanator]

oh and the young girls at work think its a great deal to get the tx refund before christmas and they think who cares the fee comes out of the refund and it is mostly eic credit so it is free money....... I just want to slap them ...

[disneysteve]

oh and the young girls at work think its a great deal to get the tx refund before christmas and they think who cares the fee comes out of the refund and it is mostly eic credit so it is free money....... I just want to slap them ...

How can they get their refund before Christmas? Don't you have to be filing your return to get a refund loan? You can't file your return in December.

[jIM_Ohio]

How can they get their refund before Christmas? Don't you have to be filing your return to get a refund loan? You can't file your return in December.

HR Block is offering RAL- refund anticipation loan- to get refund now- I do not know the RAL terms.