September 1, 2004

3:04 PM

Wow. All of the sudden my small town has been innundated with "cash advance","check into cash" type businesses. There are, at last count 9 new openings here. What is this all about? What are the terms of these places for borrowing money? Any other towns seeing such a boom?
posted by BrodieShadeTree to (23 comments total)

Unfortunately, these are for minimum wage workers so far into dept, paycheck to paycheck is not enough. Through usury they exploit dept ridden Americans. Coming soon to a town near you.
posted by four panels at 3:10 PM on September 1, 2004

They're basically usurers who prey on people who live from paycheck to paycheck. Generally a sign that your town is not going in the right direction (this is happening in my town too, and I am not happy about it).
posted by PinkStainlessTail at 3:11 PM on September 1, 2004

wow, 20% short term loans. unreal. I had no idea. A sign the town is headed in a wrong direction, indeed.
posted by BrodieShadeTree at 3:30 PM on September 1, 2004

There are a few of these places in my (English) town. I've never been in one, but I thought they just cashed cheques?
posted by reklaw at 3:37 PM on September 1, 2004

In my experience they also signify a shift in the labor base to illegal immigrants who don't have the right paperwork/identification for opening a bank account.
posted by bcwinters at 3:50 PM on September 1, 2004

wow, 20% short term loans.

20% over two weeks. That's an annual rate of 520%, if you calculate it in a relatively straightforward way. These places are evil with a capital "E." One modus operandi (operandus?) is to accept a post-dated check for X+20%, and then pay out X in cash. When the date rolls around, they [attempt to] cash the check.

Avoid, avoid, avoid.
posted by spacewrench at 3:50 PM on September 1, 2004

Its not that I want to use one. No way. I'd much rather borrow money at 2.9%. If at all. But again, its just that they seeem SUDDENLY to be in every strip mall. Its like a plague or somthing. Anyhow, at 520% annual I see these shops then as one more way to drive the death-nail into the lower middle class.
posted by BrodieShadeTree at 4:16 PM on September 1, 2004

Perhaps in your area, a law has recently changed that makes it easier or more attractive to open such businesses. I'm not aware of any recent trends in my area, but then again, most of the downscale places around here have been inundated with check cashing/payday loan/usury places for the better part of a decade.
posted by majick at 4:24 PM on September 1, 2004

There is a phrase for this: Predatory Lending. Other phrases: usurers, loan sharks. Always with us, like the poor, but now with retail fronts.

If it isn't already, this is going to become a public policy problem and really needs to be fought on that level.
posted by weston at 5:05 PM on September 1, 2004

Big time predatory, opportunistic bastards who catch people in a cycle of debt and keep them there, hooked for 25% or more. We have a large Mexican migrant worker population where I live (for the nurseries, who already do not pay overtime due to their labor being classified as farm or agricultural.) Great people, the kind who say hello or talk to you though they don't know you. The local check-to-cash places are proliferating like fungus in moist slimy shade, and at least one is advertising for bilingual help, Spanish/English.
posted by Shane at 5:15 PM on September 1, 2004

(The Mexicans are great people, that is. The check-to-cash people have a new circle of Hell reserved for them.)
posted by Shane at 5:17 PM on September 1, 2004

I don't see why it's a public policy problem. The interest is high enough that nobody will use such a lender except as a last resort. These places expect large portions of their clientele to rip them off, and I imagine their expectations are often met. They set their prices according to this business model.

Ban them and people who are poor credit risks can't get loans at all, even in an emergency, which I'd think would be even worse.
posted by kindall at 5:21 PM on September 1, 2004

Just to add a little (useless) tidbit - they're big money-makers. One of my commercial loan customers owned a check cashing store in a tiny logging town in the PNW and netted $1.5 mil per year as his personal salary. Career change anyone??
posted by cyniczny at 5:21 PM on September 1, 2004

The interest is high enough that nobody will use such a lender except as a last only resort.

The only resort some people have.
posted by Shane at 5:41 PM on September 1, 2004

I believe the correct term is the "payday loan industry". The Pitch, the local alternative newspaper in Kansas City, did a rather large article about it entitled "King of Pain".

It details the cycle of debt they try to trap people in so they can never payback the original amount. Even if it will always be with us, doesn't mean we shouldn't try to get rid of it. There are definitely people who need money but have terrible credit and there needs to be something there for them. How? I don't know but legal loansharking definitely isn't it.
posted by geoff. at 6:21 PM on September 1, 2004

I agree with kindall in principle, and it's good that there are people who will lend to the very poor and the very bad risk. But some people are not financially literate enough to understand just how bad the deal they're being offered is, until it's too late. In fact, that very lack of financial knowledge may well be why they're ready for a "last resort" in the first place. The efficiency of the market rather breaks down when the purchasers are at such a large disadvantage of knowledge compared to the sellers, and I have no trouble believing that the premium charged is out of proportion to the risk incurred by the lender.

Such places ought to be heavily regulated, I believe.
posted by i_am_joe's_spleen at 6:56 PM on September 1, 2004

A sister store to these cash advance places are the luxury rental stores. They rent expensive electronics, leather furniture, and other luxury items out to people at a weekly rate. Notice any of those popping up?
posted by ODiV at 7:26 PM on September 1, 2004

Those check cashing places are often shady, too. I was a juror in an insurance fraud trial a while back, and the guys were faking auto accidents and cashing the checks at a check cashing place. They went to the same check cashing place with dozens of checks in different names and the cashiers never complained.
posted by kirkaracha at 8:27 PM on September 1, 2004

But some people are not financially literate enough to understand just how bad the deal they're being offered is, until it's too late.

Oh come on. It doesn't take a genius to realize that 20% interest on a two-week loan is an incredibly lousy deal.

The Pitch article lays it out pretty clearly in the eighth paragraph:

Mallory told the Pitch ... she once borrowed $100 so she could gamble at the casinos. ... "I only take out money if I really, really want to do something."

I'm sorry, that's just moronic. There's only so much you can do to protect people from themselves. Nobody is forcing these people to take out these loans and, being regulated, these places have to be up-front about the charges involved. It's not even a fool-me-twice situation. If you get fooled even once, it's because you fooled yourself.

(I have no doubt that some of those places are fronts for criminal activity, but that's a separate issue.)
posted by kindall at 8:35 PM on September 1, 2004

Do you have any casinos nearby? Gambling tends to attract these places.

I remember when I moved to NYC 11 years ago: I couldn't set up a bank account to save my life. I had to get a letter from an employer and all kinds of crap. Then, when I got my first paycheck, they wouldn't cash it for me, even though it was drawn on their bank. They would only cash it if I had an equal amount of money in my account. Otherwise, they said I had to deposit it and then only $100 would be available after the first few days, and the full amount five to ten days after deposit.

I couldn't wait that long. I had no money: none. Zero, zilch, nada. When my Subway tokens were gone, I wouldn't even be able to get to work.

So I had to go to the check-cashing place. It pained me to give them their percentage, but it was my only option. I can see how a lot of people who live paycheck to paycheck, or off the grid, might have to make this tough choice.
posted by Mo Nickels at 8:43 PM on September 1, 2004

Believe it or not, kindall, a lot of people do not know that 20% is whole fifth of the total. Some people can't even visualise "a fifth part". Compound interest is rocket science. You have to remember that half the population is below average... so you may be right, it is moronic. But there are plenty of morons out there on the left of the bell curve, including people who are quite bright in other areas of their lives.

Also, if you read the article geoff posted, regulation is light, poorly implemented and poorly enforced in a lot of jurisdictions.

On a slightly different note, three other observations.

1, here in New Zealand it takes 3 working days to clear a cheque, or 1 if you're prepared to pay a flat $15 fee. There's an upside to having a more integrated banking system!

2, I'm seeing a lot of shady loan places springing up here in the last year. The big home-equity driven consumer boom has peaked, and I think a lot of people have maxed out their credit cards and can't/won't tighten their belts. The advent of loan sharks isn't necessarily a sign of poverty in the community (although it's probably an early warning of poverty to come).

3, dunno if this is true in the US, but here the loan shark ads are strikingly cynical in the ethnic composition of the smiling loan recipients. It's very clear that the targets are Polynesian, who here tend to be recent immigrants, less well educated, have big families, and generally poorer than the rest of us.
posted by i_am_joe's_spleen at 9:06 PM on September 1, 2004

Legal Loan Sharking or Essential Service? Reason takes the contrarian view. Of course, one could also have an article about crack dealers entitled "Drug Peddling or Essential Service?"
posted by samuelad at 9:41 PM on September 1, 2004

regulation is light, poorly implemented and poorly enforced in a lot of jurisdictions.

I'm all for fixing that. Full disclosure should be enforced.

As for this being rocket science, I'm sorry, but "20% is a fifth" is grade-school math. There is no excuse for an adult not knowing it, considering education is free in this country through grade 12 and compulsory through age 16.

I'm sure there exist people who would never be able to do even math this basic, but at that level of retardation, payday loans are the least of your problems.

Compound interest can be complicated, you do need a bit of math to know how it works, but you only need it if you want to know exactly how bad a given rate is, and in any case you don't actually need to understand the formula to use it. You sure don't need it to recognize 20% for two weeks as a spectacularly bad deal. It'd be a terrible deal even with simple interest.

As I said, at some point, people are responsible for themselves. You can't cover the world in Sorbothane™.
posted by kindall at 11:12 PM on September 1, 2004