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Poll: Do Payday Loans Serve A Need Or Exploit The Poor?

Critics say check-cashing stores make "payday loans" at exorbitant interest rates. The industry wants to boost its lending limit. Critics want tougher regulation. Your views?

On the 1st and 15th of every month, people line up inside the check cashing stores at the south end of San Leandro along East 14th Street.

The stores serve people who don't have bank accounts.

Some people simply pay a fee to cash paychecks.

Others take cash advances of up to $300 at interest rates that can become astronomical if the borrower fails to repay promptly.

A decade ago a San Francisco Chronicle article likened the so-called payday loan industry to "legalized loan-sharking."

Last month, the San Jose Mercury reported that payday lenders are trying to boost their lending limit from $300 to $500 and making campaign contributions to further their legislation.

Outside a check cashing store near Bay Fair Center, Charlotte Whitaker said she paid a $20 fee to cash her $840 Social Security disability check because she didn't have a bank account.

"But I never borrow money because I know I couldn't pay it back," she said.

Another woman, who identified herself as Val, said she had borrowed and gladly paid the interest.

"When you need it, it's a blessing," she said, adding, "Banks ain't gonna give it to you."

What do you think about payday lenders? Tell us in the comments and vote in the poll.

David November 15, 2011 at 09:35 PM
Tougher regulation=going to neighborhood loan shark instead. A barebones checking account at the local credit union is a $5/month fee. Ms. Whitaker could arrange with SSI to direct deposit her check. Done.
Tim November 15, 2011 at 10:29 PM
Why the hell don't these people have bank accounts? Even illegal aliens can open bank accounts. I know Bank of (Latin) America is more than happy to open checking accounts for them. Open a checking account and you wont have to pay that check cashing fee
Leah Hall November 15, 2011 at 10:52 PM
Ahh, loan shark tycoons and Ayn Rand wannabes. Well, anyway, here's some positive community news from our northern neighbor's Asian Health Services: "A new grant from Kaiser could help more Oakland residents manage chronic illnesses" -- Oakland North reports - http://bit.ly/vPEBlY
Marga Lacabe November 15, 2011 at 10:57 PM
Some times banks can cost more than check cashing places. $20 to cash an $800 check is excessive, but 1) she gets the money right away (and she may need it for food or something urgent) and 2) she doesn't have to worry about overdrafting her account (with the fees that that involves) and all the other tricks banks use to take more of your money. It can also be difficult for people with bad credit to get a bank account. Now, if you only want to cash the check and not get a loan (and I suspect most customers do get them), it's definitely cheaper to do it at Walmart, which only charges $3-$6 to cash checks. You can get to Walmart by bus from the SL BART station, but that costs $2.35 to $4.20 and not everyone lives close to BART.
Surlene Grant November 16, 2011 at 12:09 AM
Because bank policies often to open a bank account you have to have a minimum balance or pay a montly fee. Example: Cash / deposit say a $400 check which might be your top income for the month. Each time you write a check or take deposit could be $5/ occurence. Or, you have to maintain a balance for a no-fee account of like $500.
Surlene Grant November 16, 2011 at 12:12 AM
Somewhere here in my office I have the exact number but there are only something like 5 states...maybe it 7, that allow payday type financial institutions.All the others in the entire United States have banned them... don't you think there must be a reason why...
Craig Williams November 16, 2011 at 12:14 AM
I just finished reading Broke USA by Gary Rivilin former Contra Costa Times writer, a very good book which talked a lot about pay day lenders. The pay day lenders are big business. Their interest rates equate to as much as 400 interest or higher. There are more pay day lenders than Mc Donalds and Burger King combined. This is an area where the government could do a better job than the banks or the pay day lenders. In Germany they have a special consumer bank. The pay day lenders also call people on the phone monthly to suggest you take out another loan which banks don't do. If you're late on a loan they might call you 3 or 4 times a day.The also frequently call the people who co signed for you as well as your employer. Some small towns ruined by de industrialization have them on every corner.One company in Dayton Ohio has 22 stores . Nationally the North Carolina based Center for Responsible Lending has done a lot of good work on the issue. They also have an Oakland office which might make for a good article by Tom.
Surlene Grant November 16, 2011 at 12:24 AM
This issue is very near and dear to my heart. When I was on the City Council I attempted to get additional pay-day type services banned from SL. We did get a moratorium for a while, I am guessing it has probably expired by now. Why, because talk about corporate profilt. They can charge as high as 30% for the "loan". All this is, is a system to make money on the backs of people with limited means and resources. At the very least, I wanted a payday facility to in turn teach adults financial literacy or something. So that people don't get trapped in the cycle. For the moratorium, I/we were able to show a disproportionate amount of such establishments on the south side (my former district) of town. There are no companies were trying to find a site downtown, next to the banks. Why were they all congregating around E. 14th / Hesparian / Halcyon and Lewelling. So that is how we were able to address that. At the time had one that wanted to move right next door to another. In LA area, there is (was-- it's been a few years now since I had all the data) a requirement that such facilities had to have a tie to a financial literacy training program. Why is it such a problem? - because it contributes to a cycle that people can't get out of. If people could get out of it, maybe it would be a "fair" market practice but the payday folks "bank" (pun intended) on need, not strength.
David November 16, 2011 at 01:03 AM
Gee, Surlene, maybe my math is rusty, but $5/month is better than $20 per check cashed.
David November 16, 2011 at 01:05 AM
You're wrong, Surlene. Payday lending is legal in 37 states. There's also a difference between a "payday loan" and a fee to cash a check. A payday loan is a loan against your next paycheck. A check cashing fee is simply that, a fee to cash a check you have in hand.
David November 16, 2011 at 01:08 AM
You can't outlaw poor decision-making, as much as you try. When you really need cash, you can go to a payday lender, or you can go to the neighborhood loan shark, or pawn shop, or car title loan shop. Of those, the payday lender is actually the most reasonable.
Leah Hall November 16, 2011 at 01:22 AM
Ultimately, it is to everyone's advantage that elected leaders demand fair lending practices in our community and shed light on abusive ones. Thank for your work and service in this area, (former) Councilmember Grant.
Tom Abate (Editor) November 16, 2011 at 07:09 AM
As David says you can't pass laws against bad decision making but there can be laws against usury. I believe there is precedent in the Bible which, even if you don't believe is divinely inspired, is a couple of thousand years old. For goodness gracious, the code of Hammurabi regulates interest rates. I think San Leandro and California should be at least as progressive as the Hebrews and the Babylonians.
David November 16, 2011 at 01:26 PM
First off, loans and interest rates are already regulated. California forbids a "payday loan" of greater than $300 and interest higher than 15%/week. The fee for insufficient funds on a payday loan can't exceed $15. Technically it's also illegal to allow a payday loan to be "rolled over" to pay another, although that's hard to prove. Now, let's think about this. I loan $300, expected to be repaid $45 in one week. The check bounces, and the person doesn't repay the loan I made. How much money is the lender out? $300 plus his bounced check fee, so probably ~$325, never mind processing fees, labor etc. What is the default rate that will make the lender go out of business? Why it's only about 14%, or ~1 out of 7 loans defaulting. Considering 5+% of "prime" mortgages nationwide are in a state of default, and considering the credit risk taken by the lender with these loans, it seems the interest rate, while high, is perhaps even a bit low for the lender's risk involved. You want a rip-off artist? Check out car title loans in this state. There is no limit on interest charged on amounts greater than $2500 (if I recall correctly, the limit might have changed recently). Perhaps you should consult with me if you want to learn how truly poor people access cash. As I wrote above, the payday lenders, while perhaps unsavory to people in your economic stratum, are worlds better than loan sharks, car title lenders and pawn shops.
Craig Williams November 16, 2011 at 03:39 PM
Most pay day lenders offer other so called services. McDonalds may not make much on hamburgers but make it up on shakes and fries. With 24,000 pay day lenders nationally, these people are not in business for charity, nor does Wall Street invest in them as many of the biggest ones have gone public. Like fast foods its hard for stand alone stores to make it but if the profit margin is $18,000 after expenses per store and you have a 1000 stores, you're making a lot of money off peoples' misery and misfortune.Like I mentioned before , if you borrow from them , they have you on the phone trying to entice you into another lone and then another. Some people desperately need the financial lift ,but is that the most efficient way to do it Consumer advocates recommend fiance literacy, other countries have consumer banks with a 10 percent annual cap on interest rates.It would be interesting to find out how many of the people who own these businesses use or have family members who use pay day lenders.
Surlene Grant November 16, 2011 at 03:44 PM
David, your math is fine. The point I was trying to make is that fees on minimum balances and per transactions most impact people who are already struggling. By contrast others may be able to maintain the bank minimums and not get charged a per transaction fee, or have to use a payday establishment because they are able to maintain a checking account balance.
john smith November 16, 2011 at 04:37 PM
considering the risk invovled with people not paying back the loan to begin with and the cost of trying to collect on a $300 loan, time and labor, and or court cost if you can or decide to take legal action. For the most part most payday lendors average a 12% to 17% charge off percentage of people who will most likely skip. Now that doesn't even begin to cover employee salary or rent expenses, lights, or liscenses or anything else I have missed. For example, If I had a business with the following expenses it would take this many customer to merely wash the expenses much less make a profit. Rent $2000 average rent in TN for a building in the area I live in, lights $200-400, we will say $300 then, liscenses unsure $50-100. Salary - depending on the volume the store would handle they might need a manager $30,000 to $36,000 yrly, 1 or two CSR's (customer service representative) their average salary is $16,000 to $20,000. So minimum total business cost we are estimating $33,000 + $16,000 + $16,000 + rent for year $24,000 + insurance unsure cost + liscense $50 probably more = $89,000 nice average. Okay so lets say I have been in business for 3 years and I have a fair amount of customers about 125 that have an average loan of $350 (which is high) and the rate in TN is 15% of face value the lender charges $52.50 every two weeks. Every store will have payoffs during tax season and new loan during holidays and summers (vacations) but lets say they average 125 accounts all year...
john smith November 16, 2011 at 04:47 PM
125 customers or accounts x $52.50 (per two week charge per account) x 52 weeks in a year biweekly would make it 26 = (Revenue) is what the lender makes without expenses taken out REVENUE is ($170,625). Before you get all crazy and start posting see see!!!! Take a minute to think about the other expenses, employee insurance, district managers who average $54,000 and Regional managers who average $80,000. So we have $170,625 - $89,000 = $81,625 then subtract the other costs insurance a district manager and a regional manager, not to mention the corporate office expenses and salaries. This point was not made to give you a realistic idea of exactly how it works but to say to you there is more that goes into thinking about what needs to be charged to make a profit and cover your business expenses. Bottom line take a look at the earning reports and compare it to another industry such as banks and see whos really making usury a crime and then again usury I would presume is based on the eye of the beholder or a law of which i know nothing of due to lack of studing it. The point is do your homework before lifting a finger to point it at someone shutdown an industry that if it wasn't there I would bet my paycheck on it this past recession would have been another great depression because the citizens would not have been able to borrow small loans form the bank. Why not? They dont' want to take the risk to help those in need. The charges are mostly fair to operate a business. Ty4 urtime
Craig Williams November 16, 2011 at 04:50 PM
That's the point John. If customers are continually getting loans week after week it adds in terms of interest rates. A much sounder system for borrowers and the economy in general is to have consumer banks ,like in other developed countries.Also a big part of the time spent by staff at payday lenders goes to calling people to entice them into more borrowing which is not in the consumers interest especially if they have problems like gambling or drinking or other consumption problems, which is very wide spread.
john smith November 16, 2011 at 04:56 PM
not to consider in my formula I forgot to calculate the loss percentage of those who dont come back. 125 accounts x $350 x 13% = $5387.50 in charge offs each month sometimes less sometimes more. Thats $5387.50 x 12 = $68250 a year. So it takes the same rates the government regulates already through CFSA and a higher number of accounts to make a business stay afloat and in business than 125 customers. In my opinion I don't think the ledners are doing to much usury considering the expenses and risk they take in. But that remains to be a matter of opinion based on how much someone is willing to allow them to make in profit. Again it comes down to profit and how much do I envy them for making a business. Usury sure if they was a monopoly but its the consumers mishandling of their own funds before they get there that promotore the business not cold calls like Craig mentioned from continuing to call or harrass past customers. It helps but from my experience about 20% or more repeat based on those calls at least once but the average consumer to hold a loan is usually around 2-5 months. But the intended time for the loan was originally for only two weeks. Where is the real problem here? The business charging to much or the people spending their next $300 out of the check that was already promised to be paid back? As far as trapped is concerned.
john smith November 16, 2011 at 04:59 PM
As far as addictions or gambling the government has regulated how long a payday loan can go on with the CFSA. I wouldn't mind seeing a consumer bank or if the banks would go back to lending small loans again with in reasonable constaints to allow lending to be done (meaning don't hold such a tight reign on someone with a bad credit score).
john smith November 16, 2011 at 05:06 PM
A side note on the check cashing expenses from payday loan industry. I agree they charge a percentage of the check to cash it and for the most part is is high for Social Security checks and other types of checks but consider these payday loan companies have to pay an armored car to deliver their funds so consumers can cash the checks and again cover expenses. They are not making hand over fist profit in check cashing. I don't need to explain this one at all. Someone asked why don't people have bank accounts? I have asked that very question and here are some of their responses, 1) I don't like bank ( meaning overdraft fees, check card or atm charges or fees, or they try to steal my money because of their own mishandled money) 2) some have said they fear the economy crashing and don't trust banks to give them their money when they need it so they cash their checks and get the money right then instead and eat the fee. 3) Some just like the convience of not having to wait in line at the banks ( this i don't understand the lines are just as long if not longer at the payday lenders).
Ron November 16, 2011 at 05:30 PM
Wow, Craig! Is your recommendation based on the knowledge that the government has done so good in every other area they've involved itself in? We're so much better off when the government gets involved...is this your argument. Your thoughts and opinions are misguided.
Maria Stokes November 17, 2011 at 05:07 AM
The good news is Bank On California (including Bank On Oakland, Bank On San Francisco and Bank On American - all in the Bay Area) makes it easy for unbanked people to open an account. In the Bay Area, call 211 to find a participating bank or credit union that offers free and/or low-cost bank accounts through the Bank On program.
Maria Stokes December 01, 2011 at 04:40 PM
This just out: "Payday lenders face tough restrictions in East Palo Alto" http://tinyurl.com/7qrhphp Are these restrictions tough enough?
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Chris Gibbons July 20, 2012 at 04:24 PM
They are a good financial tool
Alan Hazlett July 20, 2012 at 04:32 PM
Payday loans have a place in todays lending arena. Many, Many people cant get a credit card or a small loan from banks so they need some money to get them through until next payday. Given the risks they take the fees they charge is ok.
Dave Vajda July 20, 2012 at 05:07 PM
Payday Loans are a great, short-term tool to handle unexpected costs. Compared to bounced-check fees and late fees for rent payments, payday loans are far cheaper and have far less hassle than trying to get a loan from the bank. (Have you tried to borrow $300 from a bank?) Bank fees on personal loans start at $125 and the minimum you can borrow is $1500 or more. Payday loans just make a lot more sense to most people.

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