Fulmer’s firm, Advance America, runs about 2,400 payday loan shops, across 29 states. All in, there are roughly 20,000 payday shops in the U.S., with total loan estimated at around $ 40 billion per year. If you were back to the early 1990s, there were fewer than 500 payday-loan stores. But the industry grew as many states relaxed their usury laws – many states, but not all. Payday lending is prohibited in 14 states, including much of the north and in Washington, D.C. Another nine states allow payday loans but only with more borrower-friendly terms. And that leaves 27 states where payday lenders can charge in the neighborhood of 400 percent interest – states ranging from California to Texas to Wisconsin to Alabama, which is what drew President Obama there.
Whatever you want to call it – wage deflation, structural unemployment, the absence of good-paying jobs – is not that a bigger problem? And, if so, what’s to be done about that? Next time on Freakonomics Radio, we will continue this conversation by looking at a strange, controversial proposal to make sure everyone’s got enough money to get by.
Wisconsin, and Wyoming.
On the other hand, this leaves about 40 percent of borrowers who were not good at predicting when they would pay the loan off. And Mann found a correlation between bad predictions and past payday loans.
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Bob DeYoung makes a very complicated argument about the use of payday loans. Instead of “trapping borrowers in a cycle of debt,” as President Obama and other critics put it, DeYoung argues that payday loans can help people avoid a cycle of debt – like the late payment of your company company charges for an unpaid bill; like the overdraft fees or bounced-check your bank fees may charge you.
Later on, the payday lenders gave Mann the data that showed how long it really took those exact customers to pay off their loans. About 60 percent of them paid off the loan within 14 days of the date they were predicted.
The payday industry, and some political allies, argue that the CFPB is trying to deny credit to people who really
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WERTH: So, what did Fusaro do when he set up a randomzed control trial where he gave a group of borrowers a traditional high-interest-rate payday loan and then gave another group of borrowers no interest rates on their loans and then he compared the Two and he found out that both groups were just as likely to roll over their loans again. And we should say, again, the research was financed by CCRF.
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The bigger problem for payday lenders is the overhead. Alex Horowitz, a research manager at the Pew Charitable Trusts, says that two-thirds of the fee payday lenders collect are spent just keeping the lights on. The average storefront serves only 500 customers a year, and employee turnover is ridiculously high. For example, QC Holdings, a public traded nationwide lender, reported that it had to replace approximately 65 percent of its branch-level employees in 2014. “The profits are not extraordinary,” Horowitz says. “What is extraordinary is the inefficiency.”
USA Today tallied the heavy-handed Trump litigation strategy back in June 2016. Over three decades, Trump fought 3,500 lawsuits-and faced 200 mechanic’s-mostly arising issues from disputes over unpaid bills. His strategy was to contest everything, and never quit: “The Trump teams financially overpower and outlast much smaller opponents, draining their resources. Some just give up the fight, or settle for less; some have ended up in bankruptcy or out of business altogether. ”
After studying the millions of payday loans, the Consumer Financial Protection Bureau found that 67 percent went to borrowers with seven or more transactions per year, and the majority of borrowers paid more in fees than the amount of their initial loan. This is why Diane Standaert, the director of state policy at the Center for Responsible Lending, says 36 percent interest-rate cap, says, “The typical borrower experience involves long-term indebtedness-that’s core to the business model.”
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If you find some of the modern economic scenario, most people have at least one horse in every race, which makes it difficult to separate advocacy and reality. So let’s go where Freakonomics Radio often goes when we want to find someone who does not have a horse in the race: to academia. Let’s ask some academic researchers if the payday-loan industry is really as nasty as it looks.
DeYOUNG: Borrowing money is like renting money. You have to use it for a few weeks. You could rent a car for two weeks, right? You get to use that car. Well, if you calculate the annual percentage rate on that car rental – that means that you divide the amount you pay on that car by the value of that automobile – you get similarly high rates. So this is not about interest. This is about short-term use of a product that’s been lent to you. This is just arithmetic.
As it happens, Tambu and I met while we were working at the Check Center, check-in casher and payday lender in a low-income neighborhood in downtown Oakland. As a part of a research project designed to better understand why an increasing number of Americans use payday lenders and check cashers, I spent two weeks in October working as a teller and collections agent, calling delinquent borrowers at Check Center. Before that, I spent four months as a teller at a casher in the South Bronx, and one month staffing the Predatory Loan Help Hotline at the Virginia Poverty Law Center.
There is no reason payday lending in its mainstream, visible form took off in the 1990s, but an important factor was deregulation. States began to roll back usury caps, and changes in federal laws helped lenders structure their loans so as to avoid the caps. By 2008, writes Jonathan Zinman, a economist at Dartmouth, payday-loan stores nationwide outnumbered McDonald’s restaurants and Starbucks coffee shops combined.
DEYOUNG: This is why price caps are a bad idea. Because if the solution was implemented as I suggest and, in fact, payday lenders lost some of their most profitable customers – because now we’re not getting that fee the 6th and 7th time from them – then the price would have to go up. And we would not let the market determine whether or not at that high price we still have the need to use the product.
DUBNER: Now, Bob, the blog post is a pop version of a meta-study, which rolls up other research on different pieces of the issue. I’m sorry that the studies that you cite in the post are not just the biased rantings of some ultra-right-wing pro-market-at-all-cost lunatics. And I realize that at least one of the primary studies was authored by yourself, so I guess I’m asking you to prove that you are not an ultra-right-wing pro-market-at-all-cost lunatic.
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Over the past few days, many have tried to disable John Bolton’s worldview, to get a sense of how he might shape the foreign policy of the Trump administration as he takes up the post of national-security adviser. His detractors have paid particular attention to his bellicose statements about North Korea, arguably the country’s most pressing security challenge, and his forceful critics of the Iran deal, which has been on the verge of unraveling for months. They’ve drawn the conclusion that Bolton has an unslakeable appetite for armed intervention that will lead the country to ruin. But although Bolton is often described as a rigid ideologist, he sees himself as a ruthless pragmatist who is more willing to use diplomatic means to advance U.S. interests. And if Bolton the pragmatist wines out, he will be well-placed to steer the Trump White House in a more coherent and constructive direction.
“I’m a working woman again,” she told me, in the common room of the old apartment where she now lives, in California’s Inland Empire. Gordon has worked a number of odd jobs throughout his life-as a house cleaner, a home health assistant, a telemarketer, a librarian, a fundraiser-but at many times in his life, he did not have a steady job that paid in Social Security. She did not receive a pension. And she definitely was not making enough money for retirement.
Diane Standaert is the director of state policy at the Center for Responsible Lending, which has offices in North Carolina, California, and Washington, D.C. The CRL calls itself a “nonprofit, non-partisan organization” with a focus on “fighting predatory lending practices.” You’ve probably figured out that the CRL is anti-payday loan. Standaert argues that payday loans are often not used how the industry markets them, as a quick solution to a short-term emergency.
First, Mann wanted to gauge borrowers’ expectations – how long they thought it would take them to pay back a payday loan. So he created a survey that was given out to borrowers in a few dozen payday loan shops across five states.
MANN: And if you went to the counter and asked for a loan, they would hand you this sheet of paper and say, “If you’ll fill out this survey for us, we’ll give you $ 15 to $ 25, “I forget what one was. And then I get the surveys sent to me and I can look at them.
DUBNER: Wowzer. That does sound pretty damning – that the head of a research group funded by payday lenders is essentially ghostwriting parts of an academic paper that happens to reach pro-payday lending conclusions. Were you able to speak with Marc Fusaro, the author of the paper?
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