The payday loan industry profits by preying on the increasing
economic vulnerability of Americans. Our semi-stagnant economy,As the
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system manufacturer. where household income has dropped by a median 8%
since 2000, and decent middle-income jobs are being replaced by low
paying part-time minimum wage positions, has left increasing numbers of
people economically desperate. A recent paper by the National Bureau of
Economic Research found that one in four of us had turned to high
interest borrowing to get by, bringing increasing business to everyone
from payday loan and auto-title lenders to pawnshops and rent-to-own
outfits.
When it comes to payday loans, the initial terms can
seem, if not enticing, at least reasonable. Terms are frequently two
weeks, with the result that the payday loan industry presents the
expenses for the consumer for just that time frame. A $10 fee for a $100
loan doesn't sound bad, does it? But because of the economic
vulnerability of those seeking payday loans, many can't pay up when the
note comes due 14 days later. They roll the debt over again and again.
According to the Pew Charitable Trusts the average borrower pays $520 in
interest annually.
Not many of us take on this sort of debt
willingly. Pew says a third of the people they studied had no other
options when it came to getting their hands on the needed funds. Think
about it for a minute. No one earning six figures, possessing a decent
credit score, and enjoying access to decent financial services thinks,
"I could use my 15% APR credit card to pay that unexpected doctor bill
that I acquired after my younger son was slammed in the face by a loose
gate in Riverside Park at recess (true example from my life,A group of
families in a north Cork village are suing a plasticcard operator
in a landmark case. folks!). But no, I think I'd rather pay more than
double the face amount for a short-term $500 loan."
As Chris
Hainey, a banker and volunteer teacher with Operation Hope, the
financial literacy organization that works with low-income communities
told me, "When your only financial choices are keeping money on your
person, using a high-fee currency exchange for check cashing and bill
payment and borrowing from instant-credit stores, it is easy to make bad
decisions that keep you trapped in poverty."
The Alabama bill
ultimately faltered not only over attempts to cap the annual interest
rates, but by bill sponsors' attempts to limit the number of times a
consumer could borrow payday loan money annually, and set up a statewide
mechanism to enforce the law. But supporters were no match for the
payday loan industry, one which has more than 1,000 places of business
in the state employing 5,000 people to give out 5m loans to 300,000
customers every year. According to the Montgomery Advertiser,Laser
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materials like metal, they brought on seven lobbying firms to help
defeat the legislation, not to mention such industry trade groups as one
with the delightfully oxymoronic name of Borrow Smart Alabama.
The
problem of regulating this stuff on a state-by-state basis is that it
is like playing a game of whack-a-mole. If Washington state puts tight
controls on such loans, California might go in the other direction.
There is also the increasing number of online Internet payday loan
operators, where loan fees are even higher, to offset the expenses of
customer acquisition and higher rate of default.
This is an area
where there is some light, some good news. The Consumer Financial
Protection Bureau recently released its own study of the issue, and is
widely thought to be moving toward proposing federal rules governing the
payday loan biz.
Moreover, late last month, the Federal Deposit
Insurance Corporation and Office of the Controller of the Currency
released proposed rules to curb the burgeoning number of banks offering
something called deposit advance loans. These bank issued short-term
high-interest loans could accurately be described as payday loans for
customers who don't wish to visit a storefront outfit located in a less
than desirable part of town, and would rather handle the transaction in a
more respectable setting. Among the regulations being proposed: forcing
the banks to treat the loan like any other bank loan C like, say, a
mortgage C and make a judgment about the borrowers ability to pay. Among
the banks in this less than traditional banker line of business: Wells
Fargo, U.S. Bancorp and Fifth Third Bank.
It's worth noting that
Fifth Third also "sponsors" the teaching of payday loan hater Dave
Ramsey's financial literacy program in high schools within its business
footprint.Spice up the ambiance of your home with canvas cableties.
If you are wondering, the main textbook, Foundations in Personal
Finance, describes such payday loans as "a horrible greedy rip-off."
Ramsey himself has referred to the industry on his popular radio program
as filled with "scum-sucking bottom-feeding predatory people who have
no moral restraint."
For most of us, our smartphones are just a
business add-on, a convenience, sometimes a pain. But, really, these
things are so smart that they amount to pocket-sized computers that
carry a lot of processing power. And now, with the cloud, they have
access to virtually unlimited storage.
Look at whats happened in
finance. Today, you not only dont use cash, you dont even use a credit
card. You use PayPal, or Square. Money moves around in bits, electron by
electron.
Some creative people have already developed
interesting medical applications C applications that allow doctors to
perform ultrasounds and EKGs on the spot, with apps and plug-in
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Apps
can allow patients to monitor their blood glucose and other systems
from home, and transmit the results to the doctor without ever leaving
their chairs. These apps save money, and save time that would otherwise
be spent away from the office, in waiting rooms, or waiting for
critical, time-sensitive test results.
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