Paid Out: Washington State Makes Life Harder For The Poor
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My True/Slant colleague Hilary Shenfield had a charming post yesterday, describing the many new laws taking effect across the country today. Indeed, this has become a sickening New Year’s Day ritual of mine: tallying up the latest lurches of the ever-enchroaching Nanny State. (Trust me, this “game” only makes the hangover worse.) As usual, the raft of new regulations range from the merely annoying to the truly Californian – which is to say, the even more annoying. But only Washington State has enacted a law which will, in effect, penalize poverty:
SEATTLE (AP) — After a new law imposing stricter regulations on the payday lending industry takes effect today, Ken Weaver is not optimistic his two check-cashing stores in eastern Washington will remain open.
The new law limits the size of a payday loan to 30 percent of a person’s monthly income, or $700, whichever is less. It also bars people from having multiple loans from different lenders, limits the number of loans a person can take out to eight per 12 months, and sets up a database to track the number of loans taken out by people.
Katherine Mangu-Ward wrote a tour-de-force of a feature story in October 2009’s Reason Magazine describing how many people have come to rely on payday loans to make rent or utility payments. Indeed, in many cases, payday loans are the only method that the working poor have to stave off eviction or cancelled electricity. Yet Washington State has now ensured that those same people will no longer be able to appeal to pay day loan shops when they are in a tough spot.
Olympia’s move is a classic case of imposing a temporary (and harmful) “solution” rather than examining the deeper root causes. Why have so many Americans become reliant on payday loans? It is undeniable that the fact that so many working people rely on payday loans is indicative of something deeply wrong with the way American society is structured. Simply put: there should be no reason that the gainfully employed have to borrow at high interest rates merely to make rent. Crushing payroll taxes, anemic wage growth, and the growth of the “service industry” are all culprits here: not payday loans. Rather than cut taxes for the poor, for example, the state of Washington has instead decided to act the part of Jesus in the Temple, and overturn the tables of the payday loaners. As a result, more people will fail to make utility and rental payments.
This is not a happy new year for Washington State’s working poor. They will pay dearly for this new regulation.
via Payday loan law takes effect in Washington state | Oregon Business News – OregonLive.com.
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I agree that there’s definitely larger issues here than payday loans, but don’t you think there is some merit in using the (albeit largely political solution) of reducing payday lending in the short term? It’s a gigantic culprit when it comes to lower income people going broke, although I’ll admit I haven’t researched the effects of these sort of laws on the people they’re supposedly intended to help.
While I admire you intension of helping the poor, I feel a few pertaining facts should be brought up as well.
The cons of payday loans clearly outweigh the pros of payday loans. The average users of payday loans are the most at risk for defaulting. The fees and interest percentage on these loans is astronomical(Wikipedia:payday loans). Payday lenders have been known to ignore usury limits and charge higher amounts than they are entitled to by law.
No matter what, you lose when you use payday loans. You never gain any money by using them, you only give, therefore, the longer you use payday loans the farther you will be behind.
Of course what do I know, I’m from Washington.
Yes, and while Epstein is hand-wringing about the greater philosophical issues such as why do poor people need “pay-day” loans, the sleazy loan sharks who feed off such people have been getting rich.
One wonders why Epstein is so concerned about these loan sharks?
Meanwhile, if Epstein ever figures out why desperate poor people need money and why there are always sleazeball predators to take advantage of them, perhaps he can drop us a line.
Kudos to Washington State for a good move.
Jason, are you denying that the Payday Loan Industry engages in predatory lending practices? Are you claiming that 700% interest rates are not usurious? Are you denying that, for a huge number of the people who “take advantage” of payday loans, those loans function as a debt trap? Just curious.
Well I read the Reason article and would hardly call it a tour de force. One, I don’t see how the cleanliness or cheerfulness of a store affects the predatory nature of the business?
The quote in the article “We do not find that loan renewals or loans from frequent borrowers are more profitable than other loans per se, although they certainly contribute to a store’s loan volume,” really makes no sense because the same study also states that “In other words, a store’s profitability depends on its number of loans but not its number of customers…that inducing a store’s existing customers to borrow again would be the most effective way of increasing loan volume.” meaning of course that the stores make money off of repeat customers and does not give actual numbers as to how many loans are repeat loans…the author of the Reason story should have done a better job or reporting what the study found rather than pick and choose what jibed with her point of view (but that is another argument).
The reason given as to why the rates need to be so high on these loans is the credit risk involved. But if as the author says, “nine out of ten repay on time” where is the increased risk? Why does the industry insist that they need to keep the rates so high to cover losses? Hmmm….
While the borrowers may not be spending the loan on “discretionary items” that does not mean that they did not spend their paycheck on these items and now have no money to pay their bills…. Chinese food after paying your loan? Think about it, why not try and save. How many people taking payday loans have cell phones and cable tv?
I have a hard time seeing Hollywood movies show us that all homeless and poor people are good souls that are just down on their luck……. Lets face it, vast majorities of poor people are poor for a reason, weather it be drugs, mental illness or just plain stupidity, people can be their own worst enemy. Many people from my experience and from what the article says are just plain stupid, refusing to go to credit counseling to get cheaper loans.
From an ethical standpoint, I think the industry needs to be better regulated and the new laws do not go far enough. I doubt it actually hurts poor people to have them live within their means…… same goes for all people. I understand that people do not like the government making these decisions for poor people but government makes all sorts of decisions for people and always will.
Of course I could be wrong, WTF do I know.
Loan sharking is good for poor people? Whadareyou, nuts?
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Let’s not go there. Payday and car title loans are intrinsically evil to the point where they have been banned near Army bases because they impoverish their customers and impede Armed Forces objectives. They are used not out of need most times but out of ignorance: credit unions, emergency loans (for military) and other solutions including bankruptcy — even pawn shops — are less likely to destroy marriages, careers and lives.
[...] original post here: Washington State makes life harder for the poor January 3rd, 2010 in [...]
You can bet the lamb munching grass on the side of the hill needs a big ass nanny to protect it when the wolf comes.
Why do you defend these predatory thugs? Most of them are financed by Chase, JP Morgan, et al. Go watch Maxed Out for another view of the irresponsible thieving of these payday loan scumbags.
You’re defending them? WTF? Because of some pop culture demonization of “nanny state,” whatever the hell that means, and some unreal vision of a world without government?
Crazy. Here’s Chomsky on the demonization of government:
“Dismantling of big government” sounds like a nice phrase. What does it mean? Does it mean that corporations go out of existence, because there will no longer be any guarantee of limited liability?
Does it mean that all health, safety, workers rights, etc., go out the window because they were instituted by public pressures implemented through government, the only component of the governing system that is at least to some extent accountable to the public (corporations are unaccountable, apart from generally weak regulatory apparatus)?
Does it mean that the economy should collapse, because basic R&D is typically publicly funded — like what we’re now using, computers and the internet?
Should we eliminate roads, schools, public transportation, environmental regulation,….?
Does it mean that we should be ruled by private tyrannies with no accountability to the general public, while all democratic forms are tossed out the window?
Quite a few questions arise.”
Kudos to Washington State for fighting back, if only a little.
Payday loans are given at blatantly usurious rates, which only feed a continuing cycle of poverty. It’s hard for me to get up in arms over the rights of these companies to screw people. That said, I would have regulated the interest rates they were allowed to charge, not the size of the loan, and it would probably be even harder on these companies.
You say it’s important to cut the tax rate for the poor. Well I’ll tell you, I’m poor, and quite frankly my taxes are pretty damn low. I pay a couple hundred a month in taxes, and I’ll expect to get back at least a few hundred at tax time. Saving $50 a month in taxes isn’t going to help anyone. Besides which, payroll taxes are hardly ‘crushing’ in a country with the lowest tax rate of any industrialized nation. What we need is more jobs for higher pay (not less than $15/hr). If you could reasonably pay your rent, feed your family, and pay for health care working most any job in America, and if everyone could FIND a job, we’d all be better off. Frankly, increasing food stamp benefits and eligibility would do a lot more than cutting taxes, though 1/8 of America is already in the program.
How do we pay for it? Tax the rich and put a muzzle on the greed of wall street, of course. They owe it to a nation that has provided them such prosperity, and they have shown no willingness to donate that money to charity voluntarily (by percentage of income, the middle class donates vastly more than the wealthy).
WHAT IF THESE LAWS WERE NOT PASSED; who would cry or agree to it all….
http://cliveshome.blogspot.com
let them increase their laws, for we not care…
http://cliveshome.blogspot.com
The cycle of living from Pay-Day loan to Pay-Day loan has got to be broken somehow. These folks that run these operations are not your friends. Good job Washington State.
Defending fringe banking as friends of the working poor?
“Epstein’s Smudge Tool,” you should call it. I’m pretty sure Occam had nothing to do with, obfuscation as a path to truth.