California's lax usury laws means out-of-state loan sharks are charging desperate Californians 183% APRs


#1

Originally published at: https://boingboing.net/2018/01/24/elevatecredit-loanme-checkngo.html


#2

As I said in another thread, this is amateur-hour usury compared to the UK:

Despite the changes, Wonga is still able to charge a representative APR of 1,509%, while QuickQuid’s site was promoting an APR of 1,212%.


#3

but not “installment loans” of $2,500 to $5,000 and that means that out-of-state lenders are able to target desperate Californians; they’re getting seven-year loans of $5,000 that cost $42,000 to repay.

One thing late-stage capitalism never tires of churning out variations on is ways of separating people in dire financial straits from what little money they have left.

One might ask how the humans who serve these slow AIs sleep at night. The answer is “like babies”, as sociopaths and banal corporate cogs always do.


#4

If you get a terminal illness diagnosis, this should be your first stop.


#5

It’s that fundamental problem of supply and demand in moneylending.

The people who need your commodity (in this case money) the most and will therefore theoretically (and in practice) be prepared to agree to pay a lot for it, don’t have a lot of the thing you want them to pay for your commodity with (in this case also money).

The people who have lots of money, don’t need your money so will only take it if you lend it at reasonable rates.

There’s a reason most religions frown (at least theoretically) on lending money at interest. It inherently requires the exploitation of the less fortunate.


#6

Any state which desires to drastically reduce the interest rates which can be charged by payday, car title, and other small loan lenders is welcome to do so as far as I am concerned.

Just don’t be surprised when Vito and Nunzio, who are regulated by exactly no one, step in to meet the demand.


#7

That’s a useful way of looking at it, especially since it brings up the underlying issue of trust (the basis of ancient and traditonal non-interest loans). That issue, specifically trust on the part of a lender that an unbanked debtor will pay off a short-term loan in order to bridge a temporary (less than a month or a week) cash flow problem, is critical when discussing the kind of loans that the legalised loanshark industry typically makes.

There are plenty of institutions that have, do, and can extend this kind of trust along with a low- or no-interest loan to an unbanked person: trade unions, community organisations, charitable foundations, microloan companies, etc. The goal of these institutions specifically exclude charging usurious interest or ensnaring the borrower in an endless cycle of debt. The best of them usually offer financial counseling as well.

The longer term solution to elimating the bottom-feeding industry is getting the unbanked banked. That will require regulatory changes to the commercial banking industry which also preys on those low-income people it allows in (e.g. minimum balance fees and overdraft insurance and super-high interest credit cards), allowing for Post Office and city-run banks (like Public Bank LA), and also broadening the eligibility requirement to join credit unions.

Unfortunately, all of the above is hobbled in the U.S. by a system driven at best by a profound lack of imagination and historical and economic knowledge by adherents of the neoliberal consensus (including many establishment Dems) and at worst the jungle mentality of “free” market extremists (AKA the modern GOP) that embraces these predators as the “only” if not the best alternative. In between are corrupt Dems like Debbie Wasserman-Schultz implying that the payday loan industry that gave her donations was the only option for unbanked poor people who needed loans.


#8

except that banks at this point can pretty much print as much money in the form of credit as they want. there is no “limited supply.”

they’re supposed to have have certain reserves, and the theory is that the markets will encourage them not to overextend - but, the housing crisis put the lie to that.

as long as a lender can package up, and sell off their loans as a commodity the lender is off the hook.

if they balance it right, selling it as if the loan had 10% interest rates, even tho they have 90% rates and assuming an x% payoff and default rate - the investors can still make money; and, no money is “lost” in the monetary system.

if they get it wrong, so long as they get it badly wrong, then maybe the govt steps in to protect the monetary system. but, again: what do the lenders care? they already sold the loan.


#9

As I said - supply and demand. Poor people want/need loans. There are plenty of people who will happily charge more than the market can (not will) bear to fill that need.

Whether there is any moral difference between say Wonga and your local association of olive oil importers is a question everyone has to answer for themselves.


#10

I don’t know anything about how the US runs these sorts of institutions but I would have thought the US is a prime place for these kind of cooperative banks, credit unions, etc.

I mean there’s the whole rugged self-reliance, don’t rely on the government, neighbours working together rhetoric around - bake sales and all kinds of fundraisers for stuff that most of Europe would expect to be paid for out of their taxes.

I’d have thought this kind of thing would be huge:

https://en.wikipedia.org/wiki/Volksbanken_und_Raiffeisenbanken

Are they not?


#11

Well, there still is a limited supply in the sense at least that your hypothetical poor person can’t simply pick up more money whenever they need it.

There may be plenty about and there may well be an unlimited amount in general but as far as the individual poor person is concerned - they don’t have as much as they need and they can only get it from someone else.

Theoretically, the fact that the other person has loads and so do lots of other people should mean that the price of a loan comes down and this is in fact what happens.

Loans for people who don’t need the money are dirt cheap at present. The availability of supply has meant that people who would otherwise not have got a loan at all are now being offered loans - at huge interest rates, yes but with tighter supply of money, they wouldn’t be getting (legitimate) loans at all.

The other factor is of course that increasing the supply of money doesn’t magically make everyone richer. A pig still requires the same amount of effort, energy and resources to raise and slaughter. A car still requires the same effort, energy and resources to make. You just have to exchange more tokens for each step along the way.

The main reason we haven’t had large increases in inflation (so far) are that quantitative easing was introduced to counter deflation and the ‘extra’ money hasn’t really entered the system, it is in fact mostly sitting on bank balance sheets to enable them to claim to have enough reserves to meet the various ‘shock tests’ introduced after Lehman Bros, etc.

Yup. TBH, the idea of bundling loans together and selling the bundle off as a commodity was a great idea as long as you actually tried to bundle riskier and less risk loans together in a reasonable ratio.

Once some clever dick hit on the idea of bundling all the crap loans together with a thin veneer of reasonable looking loans and selling them off as an ‘overall reasonable’ bundle? Not so much.

And as you say, the people and organisations who hugely benefitted from it haven’t really suffered the consequences in any meaningful way. But then, how do you bring them to face the consequences without hurting the rest of us?

I don’t have an answer for that.


#12

If the taxpayer is the bagholder of last resort, anything and I mean anything is a reasonable bundle.

The bailout of 2008 (supported by Bush, Romney, Trump, Obama, and both Clintons at the time) is the poison that’s been in our financial system ever since.

I love the idea. Count on our regulatory system - completely captured by existing business models who dislike competition - to nip it in the bud though.


#13

There are credit unions in the U.S. but most of them have their membership limited. Federal employees, for example, have access to what I understand are very good credit unions. Those in a trade union local might have access to one as well, but unions have been under continual attack for 35 years in the U.S. There are other examples, but the point is that not any unbanked person can stroll into a credit union in the U.S. and open an account.

Private co-op banks like Germany’s are not really a large-scale phenomenon in the U.S. The closest we’ve had (not all that close) were savings-and-loan or building-and-loan societies as they existed in the early 20th century. If you’ve ever seen the 1946 film “It’s a Wonderful Life”, the conflict between a building-and-loan (the good guys) and a private for-profit bank is a major plot point – in real life, the bankers won, and by the 1980s they were mostly for-profits run by greedpigs thanks to deregulation.

When asked, advocates of the “free” market in the U.S. will give a lot of reasons why these types of banks aren’t more widespread and available, often pointing to the “onerous” government regulations needed to open and run a bank (many of them put in place after the S&L crisis of the 1980s). The fundamental reason our Rugged Individualists aren’t interested in these kinds of banks, though, is that their charters contain a very dirty word in American Libertarian circles (I’ve blurred it to spare their sensibilities): non-profit.


#14

This is the bit I don’t get. As far as I understand it co-op banks and credit unions are generally “not-for-profit” (also spoilered in case that’s a dirty word/phrase too).

That is different from “non-profit. and means you can still make money, you’re just not relentlessly focussed on making absolutely as much money as you possibly can. Oh, wait, I see the problem - never mind.

Seriously though, I don’t understand it. Applies to the UK too - given that people don’t trust banks, pay-day lenders and banks rip them off, etc. - why do we put up with them?

Why has there not been a mass turning away of retail consumer banking customers from the main banks to new co-op institutions?

Answers on a postcard to the usual address.


#15

35 years of propaganda establishing the neoliberal consensus as the natural order of things. Combine that with regulatory capture and the aggressive consolidation of commercial banks and this is what you get in the U.S. The joke here is that you’re just as likely to see a major bank’s storefront on any given city block as you are a Starbucks (except in low-income neighbourhoods, where the bank is replaced with a payday loan outfit).


#16

But they’re not currently taxing the tea that way in the UK, are they? :wink:

also: “I learned it from watching you, alright?”


#17

tighten the laws at the source, especially payday loans.

prosecute people who commit white collar crimes with the same vigor we currently have for drug crimes.

tax the living f*** out of short term stock transactions.


#18

Oh, the (cough) olive oil importers (cough) usually have some sense of honour.

Also, wenn’s um Geld geht - Sparkasse :
https://en.wikipedia.org/wiki/German_public_bank


#19

I was thinking more about the issue of propping up banks when their own financial idiocy comes home to roost as @lolipop_jones criticised above.

I agree with him that bailing out the banks was a Bad Thing, I also have a large degree of sympathy with the argument that doing it was less of a Bad Thing than letting them collapse.

That would clearly have been bad for everyone.

We basically made one of those decisions that crop up in medicine all the time where you take a drug to counteract a big problem but the drug itself has significant adverse effects.

You just think/hope they are not as bad as the problem you’re trying to cure.


#20

Systemrelevant… It is a matter of perspective.
For example, I know a lot of people for whom the Hypo Real Estate (HRE) bank was vital. Because that’s where the architect’s pension fund (Versorgungswerk der Architektenkammer) had put most of its money. Because, hey, we’re architects, and real estate is a safe investment, right?
Oops…