With its quaint downtown and tree-lined streets, the unpretentious city of Cleveland, Tenn., in the foothills of the Great Smoky Mountains seems an unlikely epicenter for a $50-billion-a-year financial industry.
But this is where W. Allan Jones founded Check Into Cash, the granddaddy of modern payday lenders, which cater to millions of financially strapped working people with short-term loans — at annualized interest rates of 459%.
“It’s the craziest business,” said Jones, 55, a genial homegrown tycoon who founded his privately held company in 1993. “Consumers love us, but consumer groups hate us.”
[i] More in middle class using payday lenders [/i]
Yikes! Payday lenders are better than loan sharks (no sandbags, no ice picks*) but I can’t say much else for them.
*If you got behind on paying the loan shark, you might get hit over the head with a sandbag on a dark street. If the loan shark gave up hope that you’d repay him, you might get an icepick in the gut—in an era before antibiotics.
Irenaeus, not true. It is true that these loans, like any loan product, should be used properly. For many of the borrowers who use them, unlike most of the critics (who, by and large, do not), they are useful and valuable. Moreover, there are independent, academic studies (such as one by members of the staff of the NY Fed) that have shown that, where such loans are not available, there is a higher incidence of foreclosure, bankruptcy and similar problems. It is too simple for those who don’t rely on these products to criticize them, when the critics have failed or neglected to come up with a viable alternative.
Dallasite: There is no excuse for a 459% interest rate.
Irenaeus: The APR calculation in skewed because of the short term of the loans. The typical payday loan has a term of 7-14 days. Most of the interest figured into the rates is in the form of fees to cover the costs involved in issuing the loan, principally paying the salaries of the employees who work for the lender and similar costs of doing business. The APR is calculated on an annual basis. If one gets a loan for $200, and pays a fee of $10 to get the loan, then that fee is calculated as part of the interest amount. An APR limit of 36% would allow a fee of about $1 or $1.50, and would not cover the costs of doing business.
If you are going to criticize this industry on the basis of the fees, then you should include any busines that charges a fee for a late payment. For example, utilities charges to restore power that has been disconnected, if you applied an APR calculation to that, would have similar or higher rates. In Texas, the utilities charge $65 to come to your house and reconnect your power, if you’ve been disconnected because you didn’t have the money to pay your electric bill. If you had the same $200 electric bill, you have the choice of paying the $10 to borrow money to cover it, or paying the utility $65 to come out to your house and turn your power back on.
The people who use the products find them very useful. The critics of this industry, some of whom are in competitive businesses, have yet to come up with a competititve alternative.
A well accomplished person, that is how Dr. Sanjay Gupta is known to all. He has accomplished a lot in his profession. He had served as the chief medical correspondent for CNN for almost a decade, he has published acclaimed research highlighting new surgical techniques for incredibly sensitive operations, and he even participated in surgery on head trauma victims on the front lines in Iraq while he was covering a US Marines medical unit. Dr. Gupta has an impressive background of education and research accomplishments. He received a Bachelor of Engineering (B.E.) degree in Mechanical Engineering from the University of Roorkee, today known as Indian Institute of Technology, in 1988. He received a Gold Medal for both securing the first rank in his B.E. class and for the best Engineering Design Project. A year later, he received a Master of Technology (M. Tech.) in Production Engineering from the Indian Institute of Technology, Delhi. In 1994, Dr. Gupta received a Ph.D. in Mechanical Engineering from the University of Maryland at College Park. The man has won many honors and awards for his research accomplishments, which includes a Presidential Early Career Award for Scientists and Engineers (PECASE) in 2001. Add up the fact that he is becoming the nation’s Surgeon General. Dr. Sanjay Gupta will never be in need of a payday loan. For the rest of us, be thankful we have payday loans to help during times of unexpected financial setbacks.