Monday, August 15, 2016

One of the ways The Man is prospering is payday loans

By Mouser the King Cat

One refrain around the 'hood that has resonated for decades is that The Man is sticking it to everybody and getting rich. So why not just ignore him? Well, that’s not easy, because in many states he offers payday loans. From The New York Times: 

People who borrow money against their paychecks are generally supposed to pay it back within two weeks, with substantial fees piled on: A customer who borrows $500 would typically owe around $575, at an annual percentage rate of 391%. But most borrowers routinely roll the loan over into a new one, becoming less likely to ever emerge from the debt. 

Mainstream banks are generally barred from this kind of lending. More than a dozen states have set their own rate caps and other rules that essentially prohibit payday loans, but the market is flourishing in at least 30 states. Some 16,000 lenders run online and storefront operations that thrive on the hefty profits.

The Consumer Financial Protection Bureau is ready to crack down, and payday lenders are scared. But so are advocates for people who borrow. Again from The Times: 

In 2004, Georgia made most short-term, high-interest loans illegal. Afterward, Georgia residents paid more bounced-check overdraft fees and became more likely to file for bankruptcy, according to a report by the Federal Reserve Bank of New York. … When short-term loans disappear, the need that drives them does not; many customers simply shift to other expensive forms of credit like pawn shops, or pay late fees on overdue bills, the study’s authors concluded.

None of these stories mention what would bring The Man down: People living within their means. So he continues to thrive, laughing at the peons struggling to pay him back.

In another development, Capital One Financial Corp. sees “opportunities for growth” in the subprime loan market. From the Washington Business Journal: 

Auto loan originations grew to $6.5 billion, up 20% from $5.4 billion during the same time last year, and up 12% over the previous quarter. … Its total auto loan portfolio jumped to $44.5 billion in the second quarter, an 11% increase from the same time last year. The company does not provide specifics on how much of the portfolio is subprime.

In the lending biz, “subprime” too often means “I’ll pay you back for a while but don’t feel exceptionally obligated because, after all, you are The Man and you’ve been sticking it to me all my life.” In other words, you may be hooked on the fast cash, but The Man is hooked on the juice he gets from lending it. None of this will end well.

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