Recession watch: My first payday loan
Filed under: Borrowing, Recession
This post is part of a series about real-life signs we're in a recession. For years, I've lived by a couple rules. For instance, I never eat yellow snow, and I never step foot inside one of those payday lending establishments.
Well, at least my yellow snow rule is still intact.
Like many Americans, I've never had a high opinion of payday lending loan establishments, but earlier this year, utterly broke, I finally broke down. My reasoning was that I'd rather take out a few hundred dollars from a payday loan place than ask my parents for money, something that really loses its appeal after the age of, say, 25, let alone when you're 38. And the last thing I wanted to do was to try to play a cat-and-mouse game with my bank called, "Write a check to the store and hope it's not cashed for awhile."
So I confess. Earlier this year, for the first time in my life, I went to a payday loan place. But I only did it once. Well, twice.
OK, four times.I don't know if this a sign that I'm part of this unofficial recession or not. After all, as a freelance writer, not getting paid is nothing new. Even during the best of times, some publications seem to make paying the writer for their work their last priority. What I do know is that as lousy as the payday lending industry's reputation is and as distasteful as their interest rates are, I was glad to have the option of going to a payday lending store when I needed one (if you need to do it, here's how).
That, however, may not be the case much longer. Payday lending establishments are being put under the microscope by a lot of state governments lately, and there's a lot of talk of trying to regulate them out of existence.
Once upon a time, I would have said, "Good riddance, get rid of them, all of them." I have a relative who has a history of going to these payday loan places, and he put me down as a reference without warning me first, and so when he was late (repeatedly), guess who was called? There's no question in my mind that payday loan stores can be to debt-riddled people what the tar pits were to dinosaurs.
And yet -- I'm finding myself rethinking all of this and wondering if perhaps the credit card industry and banking industry should be examined more thoroughly first, since those are generally the first places where Americans tend to get into financial trouble. After all, a lot of people use payday loan stores, and it's likely happening now more than ever. Nationwide, in fact, Americans pay about $5 billion a year to borrow more than $40 billion from payday lenders. So if payday lenders are run out of town, what will happen to people who feel like these places are their last options?
Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).
Reader Comments (Page 1 of 1)
4-30-2008 @ 11:11AM
Bruce Watson said...
Interesting perspective. I always thought that payday loan places were the scum of the earth; then again, I've had a few credit card companies that could give the Corleones a run for their money.
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5-12-2008 @ 10:15PM
Phil said...
It's the same amount of money available...it's just a matter of WHEN it is used. If one would SAVE rather than spend everything, none of these places would be necessary. It is ONLY because we want everything yesterday that we get to the point where we are willing to give away 10% of our total check amount to get money two weeks early.
I always told my kids when they went off to college, "your papers have to be turned in done well whether they are late are not, and will require the same amount of work no matter when they are turned in, only you will get a lower grade simply because you didn't plan your time well." If it's the same amount of money available, might as well time SPENDING and try SAVING for a rainy day in times of trouble, and don't live from hand to mouth.
There really is no such thing as not enough money...only too much spending. (I have friends in India who make $3.00 a DAY, and do just fine, because they sleep on dirt under a straw roof.)
5-08-2008 @ 6:19AM
me said...
In reply to your last sentence: the same thing that happened before payday lenders were around. You find another way. They're not a necessity.
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5-08-2008 @ 1:28PM
mmcginty said...
Typical elitist attitude.
People have the ability to choose the alternative that suits them best. They know the terms in advance; they can pawn, beg or borrow. Nothing is free
5-08-2008 @ 9:40AM
Wendy Mapp said...
I do not like payday or title loan companies because they prey on people's misfortunates. I have witnessed friends get in over their heads because they chose these lenders. Generally speaking, Americans spend too much and save too little. I believe in living within a monthly budget; sometimes you have to do without. Take care of the needs first; shelter, food, utilities and maybe you can treat yourself to the $1 menu at Wendy's. Speaking from experience, there's nothing funny when your money is not right.
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5-08-2008 @ 11:45AM
Sarah said...
I manage a payday loan store. I just can't believe how naive some people are when it comes to payday lenders. Payday lenders do not "prey on peoples' misfortunes", the consumer looks to the payday lender for help, not the other way around. You said it yourself, "Americans spend too much and save too little". If Americans would just budget for that check that they wrote to that Payday lender they would only need the loan temporary. Nowadays it seems more and more Americans need people to babysit them, the loans are payday ADVANCES not PAYCHECKS!
5-08-2008 @ 10:19AM
Fernando said...
A big problem with us as Americans, is that no knows how to live within their means. This fact is the cause of most of our credit problems. I make this statement out of a hard lesson learned. I made it a habit to support my lifestyle with credit cards. I use to carry a balance on every card I had. I would make my monthly payments on time, but that was so I could keep charging. The coup de degra came when a friend informed me, that I could keep paying each credit card with a credit card. This was great, because I constantly had a credit card with an empty balance. Eventually, it all caught up with me when I lost my job (and this was during the economic boom). I filed bankruptcy and learned a hard lesson. LIVE WITHIN MY MEANS!! I start paying for things in cash, because I didn't have a credit card. this forced me to prioritized. Things have been fine ever since.
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5-08-2008 @ 12:22PM
Patrick said...
Sometimes it feels that government regulation is just another way of telling the public that it cannot be responsible enough to be held accountable for its own actions.
Last time I checked, you have to actually make a decision to physically enter a payday loan store. There are notices that tell you the annualized interest rate, clear rules and regulations (including repayment terms), and even a contract for the borrower to sign. Yet somehow the payday loan store is to blame.
All the claims of "preying on the weak" or "usurious rates" seem to overlook one salient fact - the borrower initiates the transaction, and enters into the agreement with eyes wide open.
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5-08-2008 @ 1:14PM
Jin said...
If you would just set aside a EMERGENCY fund,( that is actually saving a little money up to pay for things that might happen) You would NEVER have to borrow money and pay ridiculous interest and fees because you would have the money to cover it. We should all do this instead of splurging and spending everything we have when things are good There will always be some unexpected thing in the future so why don't we just plan for it and we would be in a better financial position instead of freaking out and going in debt to pay for things.
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5-08-2008 @ 2:01PM
aclark said...
Payday loans are a very competitive option for someone choosing short term credit, particularly when comparing the payday loan against overdraft protection, bounced check fees or late fees. Offering more options to consumers with fully disclosed terms puts the consumer in more control of their finances. Recent studies have found that consumers are better off having payday loans as one of their options.
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5-08-2008 @ 5:01PM
cashcorral2 said...
I manage a Payday loan company, and you are so right, if the client is late we are calling everyone on their Refrences. It embarrasses the client into coming in because the refrences get tired of the phone calls and tell the client to take care of it. Sure we have a higher intrest rate but for some that actually just borrow before their payday and pay it back on PAYDAY, it works out great! This is not a signature loan and I always make sure that my New Clients know that before they sighn their John Henry on the contract. People do over extend their selves and thats when it leads to bad problems. Think of it like this, How many Americans use their Overdraft Protection at the bank??? Lots in fact Millions this day and age and they are paying $30.00 to the bank on this charge of just a site off of their funds in the bank,,,The banks get rich off of everyone that uses this option. Well Just had to stress that because we are no worse than the example I just gave you!!
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5-09-2008 @ 12:28PM
J said...
If there were no payday loan places people would go back to using Pawn Shops.
I think Pawn Shops are a much better, more honest, and safe way to get cash.
If you can't pay for your TV or watch by the end of the month that's all you're going to lose, you're not going to spiral into out of control debt.
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5-12-2008 @ 10:23PM
fred said...
this is not a good altenative at all. many people could be helped by short term personal loan or other sources.the story is almost sympathetic to these vipers and fails to tell just how high the rates of intest are and how you are draw deeper into the tar pit .this is a real problem near military bases and they have taken steps to prevent their people from being victimized.
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5-13-2008 @ 12:04AM
freddy said...
well they DO prey on the weak & uninformed . many of these people could obtain funds else where at lower rates.not all situations are predictable. disasters , personal & other wise DO happen & they see or are convinced this will be a quick fix.these shops did not comply until there were regulations forcing them to disclose the very fine print which they lobbied like H*** with regulatory agencies against it..just like car dealers, they feel a desperate need to rip of the bloke who goes in ( or close to)the door. its like a venus fly trap.ohh, they say, we couldnt be in business if we did that . well, thats exactly why & how they are in business.
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5-24-2008 @ 6:38PM
TJohnson said...
I don't blame the payday loans, they are not forcing you to get a loan, they provide a service for people who cannot otherwise get money, thier rates are higher because they take a higher risk. That is like someone known for not paying, asking you to borrow money, you would probaly say no, these places say yes and for them saying yes to you, you pay a higher rate. Don't buy what you don't need and most of these people would not need a payday loan.
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7-05-2008 @ 2:50PM
David said...
I am amazed at some of the naivety in these conversations. This is the good old USA founded on choice NOT regulation. Remember that we have freedom of religion in this country BECAUSE our forefathers where repressed and told who they could and could not pray to?
What is the difference between choice of prayer and choice of financial responsibility?
I have never used payday loans but I do listen to those that actually STUDY before they comment:
According to a January 2007 staff study paper from the Federal Reserve of New York (you know the people that regulate our US Economy?) Payday Loans are not predatory and are in fact welfare improving. It also showed that there is no deviation when considering less educated households and households with uncertain income in relation to payment timeliness when compared to educated households of consistent income.
That said I go back to my first point; we as a whole have no right to limit another individuals choices- weather it be the god they pray to or the type of organization they borrow money from. Especially just because WE don’t like something. What's good for the goose is not always good for the gander.
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