This does raise an interesting question; how do you reconcile the conversion power of highly targeted advertising with the realities of running massive nationwide or global campaigns?
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.
Buy "Four Steps to the Epiphany" by Steve Blank and "A Good Hard Kick in the Ass" by Rob Adams. Before you do anything else, read them both cover to cover.
A platitude about platitudes: they don't apply universally. If I find myself in a management position where this situation occurs, I would not be so hasty to fire. There's more legwork involved to make a prudent choice in this situation than Seth lets on to. I'm just sayin'...
