Whatever philosophical complaints you have about the check cashing business, CashNetUSA was a well run, professional business with great technology.
I interviewed at CashNetUSA last year. It was the second most-appealing job I've ever been offered (I interviewed for my current job, the most appealing, at the same time so I didn't end up working there). They had a great tech team, extremely smart and experienced guys. They employed 400 people (mostly call-center reps) and paid well (not sure how they're doing post-bust). They sponsored and hosted meetings for the Chicago Lisp User Group when we were active.
Site in RoR, they programmed their own call center using Asterisk, self-managed Linux infrastructure, quants generating real-time risk assessments for customers to determine individualized rates, etc.
I received a call from a recruiter last summer. It was about flying to Chicago to interview with Cash America. They needed a director of IT and had a lot of RoR stuff on hand.
I politely made myself unavailable.
Maybe its because I spent a decade, the 90s, building financial apps at large banks and insurance companies. Like so many other IT guys, I know I had a hand in building some of the machinery that has destroyed America and those that trusted it.
But even if you had never worked on the inside of Wall St. firms, you should be able to spot a crack dealer when you see one (what do you think those call center reps were doing?). I don't care if they are using Linux and pay well. There is a reasons usury laws exist. The same reasons drug laws exist...usury and drugs both eat at the bottom of society and destroy it.
I'm going to have to completely disagree. Sure these loans are pretty bad, but if you need cash at a moments notice and have no other options it can be better than not having it. As for drug laws, you are very misinformed -- I don't want to get into a long debate, but US drug policy is horrible and in fact harms the bottom of society.
Sure these loans are pretty bad, but if you need cash at a moments notice and have no other options it can be better than not having it
People who use these services frequently get dependent on them, and not out of necessity. That's a big part of why credit and loan industries have been growing so much for the past decade; people want fast cash once or twice and get stuck in the cycle.
Until recently a company in the debt collection industry I'm very familiar with was giving advances on paychecks to certain employees. The practice was recently stopped when the head of HR left and the result was basically analogous forcing people to get off a drug. It's not like they didn't have income, they just got locked into a cycle of dependency. The kicker: most of the employees in this company who were hooked on the paycheck advances are collectors themselves, dealing all day with other people dependent on debt.
I wished the article explained a little better why his business was not shady. From the article, it doesn't sound much different from the paycheck cashing places...
Maybe his new real estate business is more respectable but it was made possible by his previous business.
Can anyone explain why we should look up to him? I understand that there might be a need for "payday loans" but it still looks like exploitation.
Payday loans may have a high interest rate, but if the cost of a payday loan is less than the alternatives, then it seems ethical to me. For instance, say a payday loan for $200 costs $30. That's translates into a high interest rate, but it's worth it to you if it helps you avoid a $50 late fee on another bill that's due before your next payday. The trick to running a payday business ethically seems to be fee transparency and not charging excessive fees such that borrowers must borrow an ever-increasing amount. This article about a payday company in LA talks about these issues: http://www.nytimes.com/2008/11/09/magazine/09nix-t.html
I would argue that a cost of a payday loan is always less than the alternative (as long as the borrower knows what it is upfront - and if they don't it's fraud).
If there were some lower cost alternative, the borrower wouldn't take the payday loan. They would use the alternative.
Hence, if you are providing a product (without lying), I think you are doing the world a service. And the magnitude of the goodness you are doing is measured by your profit.
Wow. I understand that fits really nicely in your world model that unifies economics and morality, but that's not how the world works at all.
Borrowers are not always rational or informed. Most people go into debt because they spend beyond their means, not because they're leveraging short term capital. Payday lending is illegal in some states and a felony in Georgia. This guy made $70 million off poor people, pushing a large number of them further into debt, and you're calling that the measurement of his goodness?
You have a very arrogant world view. You are assuming you know what's better for a borrower (call him B) than he does himself. You or the government don't have all the facts surronding B's situation, only B does.
B is the only one who is qualified to make decisions that only affect him. How can you possibly think that taking options away from B is a good idea? Options that you or I may think are stupid shouldn't be taken away from B, just because we don't see how they are useful to him.
I think that payday lending shouldn't be illegal - as long as an action doesn't involve any non-consenting parties (theft, violence, fraud, etc), it should be legal (in my view).
> B is the only one who is qualified to make decisions that only affect him. How can you possibly think that taking options away from B is a good idea? Options that you or I may think are stupid shouldn't be taken away from B, just because we don't see how they are useful to him.
Ok, so for example you support B's right to sell himself into slavery if he feel that that is the correct course of action?
>You have a very arrogant world view. You are assuming you know what's better for a borrower (call him B) than he does himself.
We're talking about the kinds of dumbasses who take out payday loans. Arrogant or not, he probably does know what's better for the borrower than the borrower does himself.
On a very slight tangent: Do you think that the truthfulness of advertising should be regulated?
And then back on topic: Is there a significant moral difference between outright lies in advertising, and specifically marketing to a certain percentage of the market who you expect to miss-understand a technically truthful advert?
Like many issues, the real problem is the education system.
Perhaps if inner city public schools were more like schools and less like prisons we would not have significant parts of the population lacking rudimentary critical thinking skills, and we would not have to worry about entire segments of the financial system existing solely to exploit them.
He didn't force anyone to do anything - his customers voluntarily chose to deal with his business. He offered a service that was in demand and was paid a fee for it.
There's a big negative externality with payday loans - or really, any sort of consumer credit - that I wish more people were aware of...
As more people use credit for everyday purchases, fiscally responsible people get priced out of the market. The additional cash on hand drives prices up, because there's always some idiot who's willing to pay more now with a credit card or payday loan than he can afford to pay back later. He crowds out prudent buyers who only purchase goods if they have cash on hand. Eventually, it becomes rational for everyone to pay with money they don't have, because otherwise they're simply priced out of the market and have to do without.
An example might make this more concrete. Say that there is a limited supply of some highly-demanded good - say, cupcakes. In economic equilibrium, the price of a cupcake may be $2, and there is enough supply for 25% of the population to have one. This being a functioning market, the cupcakes go to the people who most deserve to have them, "deserve" being a function both of means (how much money they have to spend, a proxy for how much they've contributed back to the economy) and of desires (what fraction they're willing to part with to get that cupcake).
Now say that one person discovers a payday loan shop. He suddenly has much more cash on hand, because he can get a full advance halfway through the pay period. So he gets a cupcake even though he couldn't normally have afforded one, and then has to pay back more in the future. This is still legit though: maybe he just really wanted that cupcake, and is willing to take the future hit to income to have it now.
Imagine now that 25% of the population has discovered the magic of pre-approved credit offers, and suddenly have lots of cash on hand. They bid up the price of cupcakes to $10, and suddenly these profligate folks get all the cupcakes. The fiscally responsible folks who make a decent income but refuse to go into debt have been completely priced out of the market, so their only choices are to join the debtors, or do without. So the number of debtors grows even more, people start needing to take on debt just to survive, and folks have no intention nor ability of ever paying this back.
This is happening in several areas of our economy right now.
There are a limited number of houses. They go to the highest bidder. Therefore, if some idiot pays 0% down on an interest-only options-ARM, he can get more cash on a given income/savings level, and outbid the prudent folks who insist on paying 20% down. This is why it has been essentially impossible to buy a house lately (well, up to 2008) if you have any intention of not being foreclosed upon.
There are a limited number of spots in colleges. There is also massive financial aid available. When families take out loans to send their students to college, they can pay higher prices. Colleges raise their tuition to compensate. It then becomes impossible for people to attend college without taking out loans. (Except for certain elite schools that give outright grants for everyone on financial aid.)
There is a limited amount of food. When large numbers of lower-income people have more immediate cash, thanks to payday loans, grocers can raise their prices accordingly. Other people in the neighborhood are faced with the choice of either taking out loans themselves or going hungry.
I've read a few economic histories that suggest that these debt-inflation cycles hit countries every 80-200 years, and that the end result is necessarily that the money supply spirals out of control. People need to borrow to live, and yet the borrowing fuels further increases in the cost of living. They almost always end in war, which serves as a giant reset button by bankrupting everybody equally. ;-) WW2 was fueled by the debt spiral of Weimar Germany, where they physically couldn't repay their WW1 reparations. The American Revolution was fueled by the Stamp Act ("No taxation without representation"), which was to cover rising indebtness of British war debts. The French revolution was caused the bankruptcy of the French royals.
This is why it has been essentially impossible to buy a house lately (well, up to 2008) if you have any intention of not being foreclosed upon.
It would seem that the market has a way of righting itself over time. The people who would take out loans and drive the prices up eventually run out of credit (it's a financial capacitor, not a perpetual money source), and then they not only have to compete on the higher priced market they created -- they have the burden of the additional interest, as well. They then can not even buy as much as before and are relatively disadvantaged in the market -- pushing prices back down, perhaps even below the origin. This is more or less playing out in the housing market right now -- home prices : income ratios are returning to their post-WW2 origin.
As far as the other points, I feel there are too many counfounding issues (particularly with the warring nations example) to really comment on.
I doubt that actually happens with food. Over the course of a year, the person taking payday loans has less total money to spend on food, because he's paying interest. That's much more relevant than the extra food money he might have over the course of a week.
I'd kinda like to see actual data either way. It's possible that he just rolls over the payday loans into larger loans, perpetually increasing the debt overhang. From the anecdotal news stories, this seems to be quite common.
I'm fairly certain this happens with credit cards: plenty of people max out one credit card to pay off another. And wasn't there another poster in this thread who suggested people were taking out payday loans to pay off late fees on bills? That's basically just letting your debt compound.
The additional debt load is effectively an increase in the money supply, which we know causes inflation. So yeah, I dunno if there's a direct connection, but it seems plausible.
> Total U.S. credit card debt reached almost $800 billion in November 2007
In contrast, the US GDP is about $14 trillion, so credit cards probably have some inflationary effect (GDP isn't the right statistic, what's needed is some measure of the total money supply, but I'm not sure how that's done.)
I don't believe that this cupcake market example proces that payday loans introduces a negative externality.
An externality only occurs if cupcakes introduced a harm or benefit to third parties that was not factored into the cupcake price. For instance, cupcakes might cause pollution (e.g. discarded cupcake wrappers) which would cause a negative externality because there's no "cupcake tax" to fund pollution cleanup. Conversely, cupcakes might cause an increase in the number of happy people in the world, which would be a positive externality.
To successfully conclude that payday loans introduce a negative externality, we need to point to a specific harm to third parties beyond higher or lower prices. For instance, one might assert that payday loan customers who rely on payday loans are more likely to resort to drug use or crime, which then harms society. However, that isn't the argument presented here.
Also, in your other examples, there are repeated mentions to a fixed supply ("a limited number of houses", "a limited number of spots in colleges", "a limited amount of food".) Economic theory would suggest that higher prices would result in higher supply. For instance, when the price of cupcakes go up from $2, bakers will respond by producing more cupcakes and the supply of cupcakes will increase. This will lower the price of cupcakes from $10 to (say) $3. Granted, $3 is higher than $2, but that's just the market equilibrium price when payday-loan users are allowed to have inter-temporal credit.
What bill has a 50 late charge?
Most payday loan people customers dont have a banking account let alone a mortgage or something else.
They are excessively high loans.
Do they help change the overall economic disposition of the customer? No, customers are usually repeat business either weekly or biweekly.
He has a very high net worth to age ratio?
You make a good point I hadn't properly considered.
This is so against the current mindset of how purpose comes way before profit is even considered but this guy is apparently very good at making money. It's contrarian to the start up culture Google inflicted on all of us, but smart business is effective business. He is doing well even when times are very tough, he targeted potential growth and effectively switched from one business front to another.
I've never heard of this guy before today, but I'd venture to defend an honest loan agency.
Simply, loans are only profitable for lenders if they get back more money than they lend out. As a lender there are two ways you can recover the money you lend -- you get your money back in the negotiated payments or you can accept a security (the lien on a car or house) and repossess/foreclose on it if the terms for repayment are not made. Because there's some chance that the security would be insufficient to cover the debt (house is trashed or loses value, or car is neglected/destroyed), the difference is made up in interest, calculated by the probability of failure (represented by credit score) and the financial exposure if failure occurs (this fed into the feedback cycle where banks were basically giving money away, assuming houses were always going to appreciate). Any remaining delta is operational expense (salary for the lady behind the counter, rent for the buildings) or profit for the lender (presumably where the "exploitation" is).
Paycheck loans are not securitized, in that there's no asset the lender can recover if the paycheck draw doesn't clear -- this means it's down to interest. Paycheck loan shops (AFAIK) don't check your credit, and their very existence (withdraw repayment on payday) assumes that the customer has bad spending habits (otherwise the customer could get more favorable terms from credit cards) -- high probability of failure to pay * high exposure = high interest rate.
But how high is too high? I honestly don't understand the modern notion of usury. It looks like any other business exchange to me: if you need the service and nobody will provide it for less, the prevailing rate is that high, even if it feels like a screw. If it truly is a screw there are generally other businesses who want to get in on it and capture some of the profits. To the extent that this guy was profitable, it was down to either a lack of competition (this can be a bit of a tautology, but he did have competitors, including the one that eventually bought his business), reduced cost structure (yes -- online only), or better actuarial discipline (perhaps marketing to people likely to pay -- unsure in this case).
The article doesn't talk about how much money he made from the operation of the business itself, rather it was focused on the $70m proceeds from the sale of the business. They seem like two different sources of income to me: if the valuation was way off he exploited Cash America instead of his customers.
In summary, I feel that it's not exploitative: while paycheck loan houses have high interest rates and often a poor clientele, they serve an underserved market (as evidenced by the popularity and profitability), and are often a loan of last resort for certain people. They don't operate any other businesses that eventually coerce you into using their loan services. They're certainly a better choice than the criminal "loan shark" element that some people suggest they replace.
"It looks like any other business exchange to me: if you need the service and nobody will provide it for less, the prevailing rate is that high, even if it feels like a screw."
The argument is to save people from their own poor judgment.
Not too long ago, I would have opposed this philosophy. Now, I'm not so sure. We allowed people to trust their own judgment, particularly people in the finance industry, and they obliterated our entire financial system. On a smaller scale, consumers did similar things with credit card debt and houses they could not afford. Neither side (consumers or the finance industry) could have caused all this damage without the willing consent of the other.
So, the argument that we need to sometimes constrain the choices people have in order to save them from themselves, and ultimately to save people making good choices from the consequences of people making poor ones, seems more reasonable now.
"I honestly don't understand the modern notion of usury. It looks like any other business exchange to me"
Usury laws date back thousands of years. Its hardly a modern notion. They exist because its well understood that all forms of high interest add to wealth distribution problems. Which in turn causes all sort of other problems in society.
He was an angel investor for a start-up founded by two friends of mine. A very decent guy, with high moral and ethical standards. There can always be an exception to the rule - even in the cash loan business.
I'm sure you will find some crack dealers that are real sweethearts as well.
No one involved in any form of usury has high moral standards. The cash loan business only exists because state politician were paid off to build loopholes around existing state usury laws. Who do you think pays off these politicians to create such a loophole? Someone that doesn't make money off the industry? I seriously doubt it.
These "poor people" can't get regular bank accounts, so they have no way to cash paychecks. They have no access to traditional credit. The payday loan industry is competitive, so if it could be done cheaper, someone will do it. If it can't be done cheaper, those entrants will fail (too much risk). If poor people with no or bad credit history find another way to get credit, the payday loan industry will dry up. It's business. Live with it.
The company in question does not cash checks; it makes high-interest, short-term loans. A valid checking account is actually a requirement to receive such a loan.
I agree that payday lending probably can't be done that much cheaper. Competition does tend to keep profits low for most businesses. However, if the only loans which can profitably be made in a given market are extortionate, then I don't think that loans should be made in that market.
It's business, sure, and I do live with the fact that the world is full of businesses which profit by taking advantage of others, but I don't have to respect the kind of person who starts such a business.
So you'd rather see someone get fired, because they don't have the cash for some repairs to the car? Sure the price of the loan may be high, but in general these are risky loans and can be used when a person is in a tight spot.
So you'd rather see someone get fired, because they don't have the cash for some repairs to the car? Sure the price of the loan may be high, but in general these are risky loans and can be used when a person is in a tight spot.
That's not usually what it is. People use it once or twice and get addicted.
I'm not saying these services shouldn't exist (I'm personally heavily invested in the collections industry), but the parts of the credit/loan industry that target these markets are very analogous to drug dealing because they primarily profit off of people stuck in the cycle. Also importantly, the companies have all the power, they have the law on their side and can navigate the court system.
These "poor people" can't get regular bank accounts so they have no way to cash paychecks
They don't go to a payday loan to cash a check. They go there to get a LOAN. It's a cash-advance so they can pay some bill out of desperation, like their rent or something like that.
Here is what bothers me about this. How can you not get a regular bank account? Doesn't Bank of America just require an address, plus a deposit? What else is needed? I think it's more fair to say that they don't trust banks, rather than can't get regular bank accounts.
You can be denied an account. There's a company called ChexSystems that maintains a "bad customer" database and basically tells banks not to give you an account if you've ever bounced a check or had some other mishap.
Doesn't Bank of America just require an address, plus a deposit?
You can get a bad checking account with high monthly fees, check writing fees, ATM fees, etc. I'm pretty sure you have to submit to a credit check or have additional deposits to get a free account.
While these bad checking accounts are probably less expensive overall, it's more difficult to judge the costs, especially for financially unsophisticated customers. One big fat fee from the payday lenders probably seems smaller than N smaller fees where N is unpredictable.
While you and I may be financially educated and well versed, many people are not. The only reason credit card companies make money is because there are people who don't understand how credit card companies work and make only minimum payments.
Not to mention there are cultural and demographical biases against banks and credit cards. When I was in China I knew many people who did not trust banks. They either did not want how much banks/government to really know how much money they had or weren't sure their interests would be looked after if something were to happen.
really? Your sure about that? You try it. Put yourself in a life where you have no bank account, no or bad credit, and try to take the check you just received from "low income job x" and try to find a retail branch of the bank it was written against. If you're real lucky, there is a retail branch near you. When you go in, you will be presented with process barriers the bank uses to keep you from cashing the check. Are these barriers legal? Doesn't matter. You still will be sent out the door without your money...and then you go back to the loan sharks.
"Are these barriers legal? Doesn't matter. You still will be sent out the door without your money...and then you go back to the loan sharks."
Wait, you're now arguing that the "loan sharks" are useful and helpful, after denigrating them elsethread?
In any case, I agree that you can cash a check at the bank it is drawn on, and that it can be difficult. Because my newly opened account had an eight day clearing time, I needed to cash my checks and trot over to my bank to deposit cash quite a bit last year (small employer had no direct deposit). It was comical what lengths they went to to try to avoid giving me cash.
"Are you a customer with us? [No.] Oh, I'm sorry." (But I didn't go away).
"Oh, you'll need two IDs." (Okay, here you go).
"Oh, we don't have that much money on hand." (It wasn't very much, especially for a bank).
"Oh, I'll have to get my manager." (in a vaguely threatening-maybe-you-should-just-leave manner).
"If you open an account with us, we can cash this." (But of course they could even if I didn't).
"We can't give out that much cash. Can you come back tomorrow?" (No).
"I guess we could do a cashier's check for half of that [said doubtfully]. Would you like to open an account with the remainder?"
Etc. The first few times, I was polite and firm, and eventually they recognized me when I came in and I didn't get any hassle. But lots of people wouldn't know that "We can't" doesn't mean they can't.
"Wait, you're now arguing that the "loan sharks" are useful and helpful, after denigrating them elsethread?"
They are only useful and helpful in the absence of forcing banks to act like decent members of society. Fix that problem (which is very easy if you focus on corruption between corporations and elected officials) and you remove the need for the loan sharks.
It is sad a state of affairs that someone can receive a check and cannot cash it at no cost (not just put it into another account). There is no basis for requiring credit to receive money from an account that clearly has the funds. Between the banks and now payday companies, this state will persist until we get state politicians that aren't corrupt.
Note: this goes for most states, not just the lovely one Chicago is in.
> when he ran a business whose entire model is to rip off poor people.
I don't have any good data to back this up, but my guess is that Bank of America, Wells Fargo, etc., rip off way more poor people than this company.
$2 atm fees, $35 overdraft fees, monthly fees unless you have high minimum balances, all the "0%" interest credit cards you can handle (until bankruptcy), and my personal favorite---"keep the change", a debit card card that deposits the change into a savings account to help you save more! What they don't mention is that the savings account pays significantly less interest than the inflation rate and that the average consumer spends over 10% more when using a card than cash holding all else equal. You get to "keep the change" while bank of America keeps the 2% merchant fees on debit card transactions...
If your poor, the big banks don't care about you at all. They'd rather take all you have then kick you to the curb. Now if you have money, the banks are great. But I wouldn't attack this business because even if may be an expensive deal, at least they care about the low income market.
That's ridiculous. You don't blame rape, you blame the rapist. That doesn't make any sense and you know it. Just because other people do something wrong doesn't mean it's fine for you to do it.
Rape is illegal and horrible. Payday loans are very bad but they can be a hand in desperate situations. Then again, the fact that payday loans are legal doesn't mean that they are ethical. I get that. But we don't know what his firm's policies were, if any measures were taken to prevent payday loan abuse, etc.
I find the debate about payday loans much more interesting than the debate of whether or not he should feel guilty for profiting. I don't know the regulations involved with payday loans but I assume they are very strict (and they should be stricter).
You said, "take issue with payday loans not him." Then you said "we don't know what his firm's policies were, if any measures were taken to prevent payday loan abuse, etc." This is exactly the opposite sentiment: that we should take issue with him if his specific practices were predatory, but not with payday loans in general.
Regulation on paydays loans is by design not strict. Most states passed special laws to work around existing usury laws to enable companies like these to exist.
Its up to the payday company to figure out how to be profitable...and most are.
But he ran a payday loan business. If you agree with me that this is an immoral business model, then how can you see the person who knowingly runs such a business as anything but immoral?
This dust-up over payday loans seems to me to be largely the same issue as low-wage garment work overseas.
You might think "Boy, I hope I never get into a financial situation where taking out a payday loan is my best option!" And I'd agree with you 100%.
When you extend that thinking to "Boy, if I were ever in such a dire situation, I wish that someone would take my best option [which we just agreed above was a payday loan] completely off the table such that I'd have to choose some even worse option than that!" is where you've departed from what I consider rational, logical thinking.
If a payday loan is the best option for some overall disadvantaged consumers, why would one want to outlaw their best option, leaving them even more disadvantaged?
That's a nice theory, but it's totally ignoring the reality of payday loan companies. There's a fair few of them in the UK too and they are all, with no exception that I'm aware of, basically usury shops. They pressure their customers into taking up new high-interest loans when their old ones run out, by sending out hapless representatives to talk them into it (note: the reps are themselves pressured into using every trick in the book to try and make a sale, with all the company bullying and brainwashing techniques you can imagine.. I consider them victims too). They'll send out those reps when holidays approach too... "Wouldn't you like £200 cash right now so you can buy your kids a Christmas present?"..
All in all, they're really the bottom of the barrel in terms of business ethics. Worse than crooks. I find it hard to believe that a payday loan company could be competitive without using all the shady tactics in the book, unless they did something radically different. There's no indication in the article that this one did something different, so it's fair to assume that this payday loan company was much like all the others.
If someone walked up to me and said "Wouldn't you like $292 cash right now so you can buy your kids a Christmas present?", I'd say "No". A lot of other people would say "Yes", though.
I have some distant acquaintances that are horrible with money. In the last year they have been behind on their car and mortgage payments, the woman has been steadily employed but the man doesn't work any more than he absolutely has to. That said, on payday they buy PS2/PS3s and games, and are at the pawn shop on a monthly basis hocking them again (this cycle has happened 2-3x that I'm aware of, and I hear things third-hand). It's cultural for them to not trust banks, so they "keep" cash. These people place no value whatsoever on their credit score, and they seem totally unconcerned about using the tools at their disposal, despite the financial implications.
The husband went out of town a while back with a shady family member "to work". The shady family member had been in recent trouble (kept within the neighborhood -- they don't call the police) for home burglary and assault/robbery. There wasn't any hard evidence but there was the unstated concern that the "work" might not have been on the up-and-up.
Is it wrong to offer a paycheck loan service to people like this? There's certainly no way to draw causation here, but there's non-zero correlation. For people that choose to live this way how is it even ethically wrong? It's what they want and they're not concerned about the downside (living a little tighter next week), and they'd blow right past the boarded up paycheck loan shop to get to the neighborhood loan shark if that was the next best option.
Personally I'm of the mind that safe, legal, regulated access to loans for people who otherwise could not get them are a valuable service. Even if they're as unpleasant as needle programs for druggies.
That's an interesting view. Thanks for posting it.
I would agree with this, if it wasn't for the aforementioned shady tactics...
Taking your needle program analogy, it would be extremely unethical if the needle program was paid for by the dealers and they used that opportunity to sell you more drugs, chat with you to find out if you're thinking of quitting, and offer you some free heroin if you are.
Similarly, short-term loan shops often employ strong-arm tactics to ensure they do receive payment. I.e., if you don't pay back, they'll send a couple of burly men to stand in your doorway until you do (as far as I know there's no evidence of them actually using violence, but the message is fairly clear).
So, to me, it seems payday loan shops are closer to the mafia/drug dealer side of things than to the needle program side.
I understand that to mean "increase regulation of payday loan companies" rather than "outlaw payday loan companies", on the grounds that unregulated outlaws are still a worse option.
However, regulating these companies to death puts you right back at the start again...
So why is a payday loan your best option? Because the power company will turn off your electricity if you don't pay today. So you go get a loan which is payable in a week for high interest+fees, and you then go pay the power company.
Did you really need an entire industry that charges high interest to solve that problem?
If such companies did not exist, what would happen? Electricity would get cut off right? Then what? It would happen to enough people in your community and together they would go to their local leaders and find solutions. Solutions that would not involve the creation of payday companies.
Apply this set set of thinking to other scenarios: car payment (car gets repo'd if you don't pay today), your out of weed (gotta get high man), need to pay the babysitter so I can go to my minimum pay job. Try being poor for a while, its quite stressful.
Every problem you can think of, by providing high interest loans to briefly avoid it, only causes these problems to get worse.
I would rather not rely on "local leaders" (aka government) to do anything that private enterprise stands ready and willing to do.
I'm sure people do use payday loans to go score weed to be happy and temporarily reduce the stress of their situation. IMO, they are better off for having that choice than not, and it's not my place or yours to force them to choose in way that we think is "more wise."
If you're asking government to act as your agent to put limits on behavior for your own benefit, that seems rational.
If you're asking government to act as your agent to put limits on behavior for my benefit, why not mind your own affairs and let me mind mine?
I don't claim that all commerce is allowed.
I do claim that government ideally gets its power from the people's consent, rather than the other way around.
That's fine - I wouldn't move either if I was lucky enough to have a family. But for people who put their company above all else (not recommended, having done so), it's an irrational decision to stay if you want funding. Everyone here bemoans the terrible funding environment. We can't even get a YC ripoff here.
I know for certain there is money in Chicago... It's not meant for software startups, but you can find healthy sized Angel investors / investor funds there that are interested in fishing.
I'm watching The Merchant of Venice right now, then I pop over here and read an article about a 28 year old Jew from Chicago who made millions of dollars lending people money at an extortionate rate. I'm not saying there's anything wrong with that; I'd do it myself had I but the wherewithal. I just found it funny. Like, you know his friends have to mention it to him occasionally, rib-jab style. Heh.
The most salient adjective that you can think of is "Jew" ?
WT* ?
I'm not someone who sees racism and anti-Semitism under every rock and leaf... but, seriously, WT* ?
I, for one, enjoy Hacker News more when commenters use phrases like "28 year old entrepreneur" and "40 year old physicist" and enjoy it less when the phrases are "28 year old Jew" and "40 year old Black".
One of the main characters in The Merchant of Venice is Shylock, the Jewish moneylender. That's where Goldstein's Jewishness comes in. PostOnce was just noting the coincidence of having read this article after some Shakespeare. It's not remotely anti-Semitic; calm down.
"Whenever the private sector introduces an innovation that makes the poor better off than they would have been without it, or that offers benefits or terms that no one else is prepared to offer them, someone—in the name of helping the poor—will call for curbing or abolishing it."
Where's your proof that it makes the poor better off?
There's lots of research, on the other hand, that because the interest rates are so high, people fall very easily into an endless cycle of debt, using Pay Day Loan B to pay off Pay Day Loan A.
If you read the whole article, this would be clear:
Mr. Goldstein had spent a summer during college at the Chicago Board of Trade interning with David Shorr, one of his mother's patients. Mr. Shorr left the trading floor in 2003 because of an injury and was looking for a new venture. He hit on the payday loan business — "You borrow money at one rate and you lend it out at a higher rate," Mr. Shorr says — and e-mailed Mr. Goldstein to get his thoughts. "Al sent me an e-mail back with bullet points, action items, and I realized my first action item had to be to get him," Mr. Shorr says.
He offered Mr. Goldstein a 75% pay cut but also the chance to build a business from scratch. Mr. Goldstein jumped.
Reread my comment. I didn't say he wasn't a founder, but Mr. Shorr's contribution is underrated in the article. He's only mentioned in that paragraph.
I constantly see mentions of boy geniuses in the popular press. He's undoubtedly bright, but it's his access to connections and money, and in particular Mr. Shorr, that made the difference between a mom and pop payday check cashing operation and growing to sell a business after two years. Readers of HN should recognize that it's not through his brilliance alone.
Fail. We don't need another subprime lender. This country has seen enough shenanigans from IndyMac, Countrywide, and the other clowns on Wall St. Entrepreneurs, find something else to create because this is a lousy way to make money and taxpayers are done with bailouts.
If you still want to do finance, see this link from HBS for ideas on how to build a nontoxic, sustainable form of it:
This guy might be the best guy in the world but payday loans are predatory lending and regardless of the situation, puts people in a worse spot than they were before.
Depending on the situation, they can charge over 1,000% interest. If payday loans were to charge 30% interest they'd still be able to cover the people that wouldn't pay.
It's a dumb saying but "don't be evil" springs to mind. Taking money off of the backs of the people that can least afford it isn't capitalism, it's greed.
Rob the poor when they need loans, then snap up all the properties in distress and rent them out with high technical proficiency. Hmmm, if you don't see the serious problems here you should be asking yourself some really tough questions about where the state of your personal ethics is.
OK, I'll bite. Tell me what's wrong with what he did.
A person needs money to feed their children and will be broke 3 days before payday. That person can either (a) not get any money at all, or (b) borrow it at a high rate of interest. What, exactly is wrong with option (b)? Don't add extra details like hidden gotchas, loopholes, what happened to a friend of your sister's etc. What is wrong with the situation exactly as I proposed it and why do you find it unethical?
Likewise, if I decide to snap up a property in distress and rent it out, why is there a (as you put it) "serious problem here?" Why is it better to just let the property rot? Again, answer to the facts instead of letting your bias add conditions I haven't specified.
I'm serious: I'm approaching this with an open mind. Tell me why I'm wrong.
It's immoral to tempt someone into harming themselves, especially when it also benefits you.
Payday loans tempt the weak with options that help in the (very) short run, but harm in the long run.
The very existence of payday loans encourages self-destructive habits among the poor. Why budget carefully when you can just get a payday loan and kick the can down the road to next month?
And since many payday loan customers get these loans every month, the loans are really just an additional monthly bill for poor people.
I used to have a girlfriend who was a recovering alcoholic.
I remember her telling me, "I couldn't pay my tuition; I had to struggle to get enough money to put gas in my car; I could barely pay my share of the rent. But I never had trouble finding money for booze!" Luckily for her she eventually figured out she needed to fix her life and did so.
There's a segment of the population who habitually make bad decisions. I've known enough of them to understand that they usually know they're making bad decisions, but they either don't care or don't have an alternative. Here's the important part:
You can't fix people
Some people will use payday loans to get themselves deeper in debt; most of them will use them as a temporary crutch to get out of a hole. Don't screw the latter over in your fervor to "help" (and I use that term loosely!) the former.
The photographer for an article like this might take 50 shots. The editors then pick one that looks the way they feel the subject ought to look.
If you look at pictures of US presidents in Japanese newspapers, they look slightly Japanese. The photos haven't been edited; the editors just select pictures that look right to them.
I interviewed at CashNetUSA last year. It was the second most-appealing job I've ever been offered (I interviewed for my current job, the most appealing, at the same time so I didn't end up working there). They had a great tech team, extremely smart and experienced guys. They employed 400 people (mostly call-center reps) and paid well (not sure how they're doing post-bust). They sponsored and hosted meetings for the Chicago Lisp User Group when we were active.
Site in RoR, they programmed their own call center using Asterisk, self-managed Linux infrastructure, quants generating real-time risk assessments for customers to determine individualized rates, etc.