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I left a comment for Curtis Arnold in his article titled, “Why Capping Credit Card Rates at 16% is Bad for Consumers“.

I’ll make my point first. Everyone in the financial industry should acknowledge the reality that no one knows the 100% best way. We can agree that the market will give us a better indication of what can and can not be done, rather than some politician.

He makes this hypocritical comment:

“Why not focus on payday lending, pawn loans, title loans or tax rebate anticipation loans? Some payday loans charge annual rates as high as 400%. That’s right, four hundred percent! Makes a 30% credit card look like a saint, huh?”

Here’s the comment I left:

“Curtis, you contradict yourself. You do not want rate caps on credit cards, but you do want the government to go after payday and pawn lenders.

Besides, many people who do not qualify for credit cards, use payday loans. If you’re for more credit available to more people, then you should not take a shot at these loan products.”

Gambler Loses $127 million in Vegas. Terrance Watanabe inherited over a $100M fortune from a company his father started importing party favors. Makes me wonder if I’m in the wrong business.

After selling the company, Watanabe, took up a new hobby; gambling.

The tragedy in all this is that he may wind up going to jail. In Nevada, you can go to jail if you borrow money from a casino and do not pay them back.

Progress Illinois hates payday loans. They put a new article out there about Rep.l Gutierrez.

“Illinois Rep. Luis Gutierrez, a longtime foe of the payday industry, is considering offering a payday-specific amendment to CFPA legislation when it reaches the House floor that would cap interest rates on payday loans at 48 percent — and also force lenders to provide a 90-day fee-free repayment plan if a borrower couldn’t meet the original terms.

“We think it’s important that we give the clearest, most specific guidelines and instructions to our new consumer protection agency as possible. And we think that if there is an actor in the nonbanking financial institutions arena … it is the payday lenders. Some of the most egregious violations in the consumer section occur under their watch,” Gutierrez said. “

Do they think that an additional 12% annual interest (48% minus 36%) is going make payday lenders profitable? That’s rediculous. The payday industry can have a default rate of 20%. How do you cover these loans charging 48%?

Critics of payday lending make the mistake of not looking at the big picture when it comes to credit. Instead of looking at the lending ecosystem, they get caught up in sensationalizing the APRs.

The cost of credit has to do w/ the credit worthiness of the individual and the to some degree the amount being borrowed and the term of the loan.

The biggest mistake they make is not understanding what lending options exist out there. Let’s see what the cheapest forms of credit are, up to the most expensive. We’ll order them from least expensive to most expensive and let’s just stick to unsecured.

Here’s the point, all these products are connected. They make up the unsecured credit ecosystem. If you get rid of one, it will affect the other. It’s not the product that’s good or bad, rather it’s how you use that product. This is also known as personal responsibility.

Capping rates or commoditization of the payday product is the worst thing legislators can do. This just makes things less competitive in the long run and leaves borrowers worse off.

Most people’s solution to the payday loan issue is that each person has an idea of what is “fair”. At the end of the day, fair or foul does not matter. I can’t say it better than Ayn Rand does in Atlas Shrugged, “In a capitalist society, all human relationships are voluntary. Men are free to cooperate or not, to deal with one another or not, as their own individual judgments, convictions and interests dictate.”

Please feel free to suggest any improvements to this post. It’s definitely a work in progress.

If you have a question about the industry, we can try and answer it.

Just leave your question in the the comments section of this post.

A 40-year-old “self-made multimillionaire” with more than 50 “retail financial outlets” that will help you walk on burning coals.

I secretly love this “mind over matter” stuff.

Here is an excerpt from the Dallas News article titled, Can a walk on hot coals lead you to enlightenment?

“How many of you were raised with the concept that ‘money is the root of all evil?’ ” he asks with a voice that could have inspired Ian Fleming “My belief system says that’s absurd.” Horton fills us in on his mobile-home childhood with a dad on the run from the IRS. Starting a check-cashing business as a teenager, he went on to make some major money with a payday loan company and attended seven Tony Robbins seminars. Throwing in a quote from Donald Trump, he promises we can achieve Black Card status, too, and we need only work 15 minutes a day for $1 million a month. He does. I see dollar signs in everyone’s eyes.

This is a PDL forum. Does anyone know Charles?

If you get a chance, read Lawrence Myers blog post titled Payday Loans: Calling out Josh Kalven.

Besides the fact that Josh Kalven doesn’t know what he’s talking about, Lawrence basically gives the borrowers’ options. I think these are excellent (excerpt from his blog) and worth sharing:

Options are limited, and payday loans (and installment loans) are neither the most nor least expensive.

A) Borrow from friend/relative/employer?Cost: Zero???Risk: Complication of important relationship, embarrassment
B) Credit Card Cash Advance ???Cost: About $1 per hundred every two weeks???Risk: Fail to pay; credit rating is damaged
C) Pawn something???Cost: $9.50 per hundred every two weeks???Risk: Fail to pay, you lose the personal item.
D) Payday/Installment Loan???Cost: Averages $16 per hundred every two weeks???Risk: A collection agent tries to recover what’s owed; no damage to credit rating; no personal item at risk; no personal relationship at stake. ???Myth: “Cycle of Debt” – 94% of loans are paid back on time — that statistic is available in every single SEC filing of all public companies.
E) Online Payday Loan??Cost: $25 – 30 per hundred borrowed every two weeks??Risk: Same as regular payday loan, but industry is unregulated and identity theft is easier.
F) Bounce a check???Cost: Averages $45 per hundred borrowed???Risk: As soon as you bounce one check, you risk creating a domino effect, causing other checks to bounce and running those fees even higher.

Consumer groups and fanatical religious groups have made payday lenders look like the bad guy in a movie. I’m going to clue people into something. It’s capitalism. Payday lenders are filling a demand that no one else wants to fill.

Banks and credit unions are getting into the mix, but only because payday lenders created the industry, first.

The 20th Century pretty much saw an end to illeteracy in the United States. Today, we focus on financial literacy. Consumer groups and others are a huge detriment to financial literacy. They keep people poor by not allowing them to make decisions and then learn from those decisions.

Taking the moral high ground feels good, but it’s not making people any smarter. People need to be able to make basic financial decisions. We all learn this the hard way, whether it’s credit cards, over paying for your home or taking out too many payday loans.

The inspiration for this post comes from a post by Lawrence Myers titled “Usury Law and the Chritian Right.” A Critique. It’s long, but debunks most of the stereotypes people have about payday lending.

Don’t navigate away. This is still the PDL Industry Blog.

I figured out that people like reading from left to right and not center to right. No one really liked the orange either. Anyway, thanks for reading.