easy money
January 14, 2003 2:08 PM   Subscribe

Quick returns dilute tax credit.
Many lower income people, families fall prey to these businesses. Another example are the Payday Loans, courtesy your friend, Mr. Cash.
posted by four panels (24 comments total)
 
Legalize gambling and loan sharking proves how far our society as evolved. Mr. Cash wants over $111 to borrow $400 for 21 days. Rough calculations put this at 482% annualized rate. Caveat Emptor
posted by MaddCutty at 2:29 PM on January 14, 2003


To say nothing of the fact that if you are getting a refund at all, you have in fact given the government an interest-free loan for an entire year. So many people, though, count on a "refund" each spring as an infusion of cash to their finances that it's become futile to keep telling people that.

Adjust your withholdings, people! You shouldn't be getting any refund - you should be taking home more of your pay during the year!

*crickets*

See what I mean?
posted by yhbc at 2:42 PM on January 14, 2003


Sometimes, the best of planning goes screwy. I went through a bad period, when I wasn't making very much money, my student loans were defaulting, and the wife and I had just bought a home because that was cheaper than renting in our town. I went to the legal loan-sharks/payday-advance people to avoid bouncing a check before the end of the month. I entered a cycle where I was borrowing from them every month to stave off the bills from the month before.

I have since worked pretty hard, and improved my situation. I was able to squeeze the pennies real hard, and combined with help from significant raises, was able to break the cycle of borrowing. To this day, I think of the paycheck advance people first when I start to get edgy about money. Then I shudder with terror at what using them would get me in to. Borrowing on your future to offer comfort to your present is so simple to do in these places. Its an addiction that's hard to break.
posted by Wulfgar! at 2:57 PM on January 14, 2003


why do you all hate america so much?
posted by quonsar at 3:15 PM on January 14, 2003


You can add Cash Converters and PayDay Advance to your list of blood-sucking scumbags, proving the the US does not have exclusive access to people who prey on the weak.

Bloodsucking is a growth industry, apparently.
posted by dg at 6:28 PM on January 14, 2003


Free-market. People are free to choose. 'Nuff said.
posted by davidmsc at 6:29 PM on January 14, 2003


People are free to choose.

Choose what? Poverty or poverty with stuff and little future. Care to clarify your stance? (this comes with the knowledge that you live in a state with the 4th highest property values and the 47th level of earnings. Are you really dense enough that you haven't seen what's happening around you?) 'Nuff said, my ass.
posted by Wulfgar! at 6:52 PM on January 14, 2003


p.s. davidmsc, I'd love to get together sometime, as the sole representatives of Mt. Mefi. Maybe we could meet at a restaurant in Last Chance gulch, or pull off a camping excursion in Monarch. Whether we disagree or not (and I tend to think we agree more than not), the mountain west folk deserve to have a get together too.
posted by Wulfgar! at 7:07 PM on January 14, 2003


I wonder if they have people who break kneecaps as well?
posted by Eekacat at 7:18 PM on January 14, 2003


I wonder if they have people who break kneecaps as well?

Nah. Just ruin your credit rating.

At least with screwed kneecaps you can apply for disability. With screwed credit, you're just... screwed.
posted by gramcracker at 7:27 PM on January 14, 2003


Disclaimer: I have recently begun work for a tax service that offers Refund Anticipation Loans, just like the big guys such as H&R Block.

I would certainly agree that these do not represent the wisest of financial choices. But they do serve a legitimate need, and the high interest rates are necessary because these loans do have a high rate of default. Don't think that the banks are greedily rubbing their hands in currency; they're just making costs on this business. The high interest merely offsets the people who don't pay back. Naturally, as a liberal, I defend the right of society to regulate and cap those rates. But currency exchanges and risky credit businesses do serve markets that are largely abandoned by corporate financial institutions, and it would be well to consider that eliminating them might actually make life more difficult for people who depend on them.

My company uses a major national bank as its credit provider, with rates in a much more reasonable range (at best, around 107% APR). This may be exploitative, but I don't think it's nearly as bad as gambling, which actually offers a negative return for most people, thinly disguised as entertainment. As with anything, it does pay to shop around, and you'll find there are reasonable and unreasonable rates.

As yhbc points out, most people get refunds, but shouldn't; it's usually fairly easy to determine in advance what your taxes will be and adjust your withholding accordingly. Actually, though, not everyone is giving the government a loan; the Earned Income Credit is bigger than ever, and many people's "refunds" are in fact a negative tax -- a direct payment from the government. If you know you'll qualify -- basically, a working poor family -- it is possible to apply for the Advance Earned Income Credit, which is basically negative withholding -- money paid to you incrementally in advance of the federal credit you'll eventually receive. But taxpayers may not wish their employer to know they're getting the EIC. Finally, if your income is at all variable, it is far safer to loan the USA some of your cash now rather than pay the penalty for failing to have enough withheld or paid in estimated taxes.

Eekacat, of course not: it's much more effective, today, to merely ruin someone's credit rating. These days, it can even prevent you from getting a decent job. But consider that the availability of legal risky credit will tend to eliminate the market for illegal risky credit.

In point of fact, though, the practice of a reputable bank such as I mentioned above is to decline the instant Refund Anticipation Loan in favor of a more-or-less guaranteed loan held until the IRS examines and pre-approves the return, which can be as little as a week.
posted by dhartung at 8:04 PM on January 14, 2003


Yet another way in which being poor is much more expensive than being wealthy. For all davidmsc's talk of free-market, that's not taking into account that a lot of what we take for granted as capitalists is in fact regulated. Minimum wages, maximum work weeks, paid overtime, etc. Because without those regulations, left to it's own, the free-market can be pretty brutal, squeezing those with little choice. Agreed, people should know better, but many (like Wulfgar) are in a bind; that doesn't mean it's okay to financially rape them. Your level of flippancy betrays someone who's always had a safety net, financially (not that there's anything wrong with that - so have most of us, I'd imagine).
posted by jonson at 8:59 PM on January 14, 2003


dhartung: Disclaimer: I have recently begun work for a tax service that offers Refund Anticipation Loans, just like the big guys such as H&R Block....Don't think that the banks are greedily rubbing their hands in currency; they're just making costs on this business....My company uses a major national bank as its credit provider, with rates in a much more reasonable range (at best, around 107% APR). This may be exploitative, but I don't think it's nearly as bad as gambling....

Hmmm....OK...."just making costs" in one paragraph...."107% APR" and "exploitative" the next.

Now....no doubt bank and loan marketing types require the ability to talk out of both sides of their mouths, but I assume that's not what you meant to do, right?

But "just making costs" -- is that more bankerspeak for "raping consumers?" (I do so hate to misunderstand the latest financial and business terminology). If not, perhaps we could hear you explain how H&R Block's 68 million dollars in net profits on those loans "just covers" their costs.

But you're so right that "107% APR" financing is not as bad as gambling. And lemmeesee...it's not quite as bad as extortion either....or armed robbery....or that scene I love in "Goodfellas" where Robert DeNiro wraps a phone cord around the slimy toupee business owner's neck, and grunts "PAY ME MY FUCKING MONEY!" over and over while he strangles the guy.

dhartung: But currency exchanges and risky credit businesses do serve markets that are largely abandoned by corporate financial institutions, and it would be well to consider that eliminating them might actually make life more difficult for people who depend on them.

Serve. Serve. Goddamn, we are on to something here! That's exactly the justification gangsta Ray Liotta uses (also in "Goodfellas"...I tell ya, I love that movie...such a slice of Americana) about the crazy antics of those Sicilian pals o' his: "We wiseguys provided a service to people who couldn't turn to anyone else."

And in the case of RALs, what a "service" it is -- Tax Preparers Peddle High Priced Tax Refund Loans, Millions Skimmed from the Working Poor and US Treasury (A report of the National Consumer Law Center): "Refund anticipation loans (RALs) are part of the fringe financial industry which includes pawns, car title pawns, payday loans, and rent-to-own transactions. RALs provide quick credit to vulnerable consumers at a steep price, including the potential risk of ruined credit ratings and debt collection harassment. RALs target low- to moderate-income consumers with few resources and great financial needs. Consumers often are mislead into thinking of RALs as quick refunds, not understanding that they are loans....Refund anticipation loans are usurious short term loans...loans cost from 67% to 774% APR...target vulenerable low-to moderate-income consumers who can least afford their triple-digit interest rates....Banks are used to evade state usuury and small loan rate caps...For many years, some commercial tax preparers have been accused of misleading consumers about the loan transactions and of receiving kickbacks from banks."

Yeah....you know....service: "'All consumer advocates consider these refund anticipation loans to be predatory,' said Edmund Mierzwinski, consumer director of the U.S. Public Interest Research Group....In order to circumvent state laws prohibiting high interest lending, the loans are made through Household Bank of Delaware, one of the few states that have no ceiling on interest rates. Block and Household split the profits."

dhartung: Naturally, as a liberal, I defend...

~head explodes~
posted by fold_and_mutilate at 11:22 PM on January 14, 2003


H&R Block's 68 million dollars in net profits
If the company were to not make sufficient profits, the management would be blasted in the press and around the water coolers as incompetent, but when they do what they are paid to do, they get branded as "exploiting the little guy". No wonder they have given up trying to please everyone and now stick to making their employers (shareholders) happy - who can blame them?

Nevertheless, it is hard to imagine how anyone could justify interest rates of 107%. That is not extortion, it is downright robbery, in my opinion. If they need to charge such high rates just to cover defaults, they should revise their lending policies, not rob from Peter to pay Paul.
posted by dg at 12:30 AM on January 15, 2003


Are you acquainted with our state's stringent usury laws?

[slowly] Usury?

Oh, silly me! I must've just made up a word that doesn't exist.

Nevertheless, it is hard to imagine how anyone could justify interest rates of 107%

Er...yeah. WWJD?
posted by backOfYourMind at 4:13 AM on January 15, 2003


Er ... yeah. WWTPD?
What Would the Prophet (PBUH) Do?
Oops, that's an evildoer thought. Profit and Capitalism Good! Freedom to Fail Good! You Chose to Be In Your Current Economic Situation, It Has Nothing To Do With Enron or Massive Layoffs Which We No Longer Track, And Don't Forget It!
posted by sheauga at 4:49 AM on January 15, 2003


Um, sheauga, just for the record - I'm not actually in favour of 'Pay Day Advance' and their ilk.

Read my comment again carefully...and maybe watch a few episodes of The Simpsons
posted by backOfYourMind at 5:18 AM on January 15, 2003


I have seen the light: the people who use these services are obviously too stupid to make their own decisions. They need the benefit of my superior wisdom. We need to fund a new bureaucracy which will make sure that they only make their choices the way I would make them. I AM THE ANOINTED ONE! ZMT FOR KING!
posted by ZenMasterThis at 5:42 AM on January 15, 2003


dhartung said:
I don't think it's nearly as bad as gambling, which actually offers a negative return for most people, thinly disguised as entertainment.

Gambling isn't "thinly disguised" as entertainment, it is entertainment. Perhaps you don't enjoy it, but that doesn't mean that the occasional jaunt to the casinos isn't fun for me and millions of others, despite the awareness of a sometimes formidable house edge.
posted by mosch at 7:31 AM on January 15, 2003


For all davidmsc's talk of free-market, that's not taking into account that a lot of what we take for granted as capitalists is in fact regulated. Minimum wages, maximum work weeks, paid overtime, etc.

You take these things for granted? Where the hell do you live? I've worked for far below minimum wage. Work weeks? What's a work week? I've worked twenty days straight now and again. Paid overtime? *tries to hold back laughter* You've never worked for a non-profit, have you? Regulations don't and won't force fairness.

I'm sick and tired of guilty rich people telling me what to do with my money. Reason had a couple of articles [1, 2] on payday lending earlier this year; the second article points out that studies in NY and LA found that with a low income it's cheaper not to use a bank (in my own experience I've found that the fees banks charge someone with as little money as myself to maintain an account are far in excess of what I pay at storefront check-cashers). I have been cheated by banks and overcharged by banks and lied to by banks and refused service because of my lifestyle by banks, and they can have my money when they pry it from my cold dead fingers.
posted by IshmaelGraves at 8:12 AM on January 15, 2003


I'm sick and tired of guilty rich people telling me what to do with my money.

But it's ok for everyone to tell the rich people what to do with their money. Ok, now I get it.
posted by piper28 at 12:20 PM on January 15, 2003


But it's ok for everyone to tell the rich people what to do with their money.

Umm ... no, it's not. Where exactly did I imply any such thing? Let the rich people do what they want and let me do what I want and we'll all be happy. If it won't strain your your preconceptions too badly, I'd like to point out that I am against the income tax for the rich and the poor and I don't believe in (forced) redistribution of wealth.
posted by IshmaelGraves at 1:16 PM on January 15, 2003


fold_and_mutilate: Try again. I'm through responding to your excessively personal fulminations. And despite your attempts to impose ideological litmus tests, I remain a liberal. Deal.
posted by dhartung at 10:18 PM on January 15, 2003


It's personal? I'd say it's just an expression of frustration. Ripping off a part of the support that's willingly extended to someone having a hard time, and kicking people who are down are two things certain to bring out grouchy responses like mine. Both Islam and Buddhism say it's important to extend charity without expecting something in return, and if you get into Judaism and want to do mitzvahs for people, there's a ladder of all the different ways to give and help others. When the "individual responsibility" and "financial independence" emphasis in WASP culture is no longer balanced with the old-fashioned ideals of Christian compassion, it's not a good thing. It's sad that the healthy libertarian impulse for freedom from government interference can also lead to leaving the world wide open for the loan sharks and predators of the world who seek to take advantage of those who can't defend themselves.
posted by sheauga at 9:35 AM on January 21, 2003


« Older Starship Exeter   |   Sh4k3sp34r3!@#!@ Newer »


This thread has been archived and is closed to new comments