Class action!

April 27, 2005 7:54 AM

Who here hasn't been a bit short before payday? Jacob Ayrton of Calgary took out a payday loan of $500. Two weeks later he owed Payroll Loan Canada $606.32 (a $95 "brokerage fee" and 59% interest for a whopping 15,000% per annum charge.) Yesterday, an Alberta judge certified a class-action suit against so-called payday lenders with Mr. Ayrton as lead complainant. "These companies really exploit people who are vulnerable," said his lawyer. A fast-growing franchise opportunity for investors, payday loan operations are facing increased scrutiny in Canada and the U.S. (NC, NV, IL.)
posted by docgonzo (43 comments total)

I guess Jacob should have read the small print....
posted by HuronBob at 8:21 AM on April 27, 2005

A part of me wants to say it is the person's fault for agreeing to such a bad loan, but in this situation I have to side with the people against payday loans. I once watched a show where they were helping people with debt problems. The financial guru who was helping out actually went to a couple of payday loan places to try and take out a loan and to try and actually find out about the APR and all the fees etc. Even an expert had a hard time 1)getting them to show him the actual agreement, and then 2)understanding the language and terms. I think virtually all of these places are pretty predatory and wrong.
posted by bove at 8:22 AM on April 27, 2005

Hadith - Sahih Bukhari, 2.468, Narrated Samura bin Jundab, r.a.
He speaks of in a dream related to the Prophet (SAW) that there is a river of blood and a man was in it, and another man was standing at its bank with stones in front of him,facing the man standing in the river. Whenever the man in the river wanted to come out , the other one threw a stone in his mouth and caused him to retreat back into his original position. The Prophet peace and blessings be upon him was told that these people in this river of blood were people who dealt in Riba (usury).

The Noble Qur'an - Al-Baqarah 275-281
276. Allâh will destroy Ribâ (usury) and will give increase for Sadaqât (deeds of charity, alms, etc.).

posted by matteo at 8:24 AM on April 27, 2005

A post from 2003:

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 at 2:08 PM PST (24 comments total)
posted by four panels at 8:30 AM on April 27, 2005

I get payday loans every once in a while, it's convenient and I don't mind paying the fee.

At the place I go to, you have to write out a check for the amount + the fee (for a $450 loan it's a $500 check) so you know exactly how much you're paying.

They're convenient when you're in a tight spot, but you definetly don't want to end up with 'rolling' loans where you get a new one every week.
posted by delmoi at 8:30 AM on April 27, 2005

the most disgusting part is a lot of these places set up shop right next to our military bases, where you have a bunch of green recruits learning how to support themselves on their own for the first time.

Like the bastards who send 5,000 limit pre-approved cards to incoming college freshman, but without mommy and daddy to bail them out
posted by slapshot57 at 8:32 AM on April 27, 2005

Also, they have a big poster with the APRs on the wall. It's like 500%. for the smaller (like $100) but goes down to about 350% if you're taking out, say, 500.
posted by delmoi at 8:33 AM on April 27, 2005

I'm a reasonably free-market kind of guy, but when the bulk of your business model consists of preying on the desperate and underinformed, I just can't endorse it.
posted by uncleozzy at 8:35 AM on April 27, 2005

And I thought things were looking up.
posted by sninky-chan at 8:35 AM on April 27, 2005

The only thing I can say for these places is that they make money - people should be fully cognizant that nothing comes for free, not even a payday loan.

I disagree with yet another class action over something that the person in question should have been aware of. You know that it's gonna cost you, why are you suddenly so surprised when you realize how much? The loans are very high-risk, and there's a huge convenience fee involved too.

I do see both sides, however. People who are down on their luck should maybe consider other options first - like the pawn shop. At least there, you can't end up getting your checking account overdrawn.
posted by leffler at 8:49 AM on April 27, 2005

These places are a scourge. If you can't tell by looking which neighborhoods in a city (re: NYC where I live) are lower and middle working-class, all you have to do is look for a payday loan service or two. Like ticks on a dog, these places pop up to prey upon the uninformed and working-class. Day after day after day, I see people lined up in these places, clearly living paycheck to paycheck rolling one loan into another and getting deeper in debt every cycle. It's no wonder most have such desperate looks on their faces. It's a nasty sinkhole and one everyone should try to avoid.

Basically, it's legal loansharking.

Credit cards are bad, but these places are worse. They don't care if you have good, bad, or any credit at all.
posted by mrbarrett.com at 8:52 AM on April 27, 2005

I'm glad to hear that someone is trying to stop these predators. They seem to flourish in the same neighborhoods as the equally predatory rent-to-own stores.

Has anyone heard of any credit unions or possibly even banks trying to take business away from these places? It seems like a Credit Union could provide a payday loan with much lower fees and interest rate. They could even allow people to pay lower interest/fees if they take a money management or credit rebuilding class.
posted by J-Garr at 8:55 AM on April 27, 2005

J-Garr: if you have good credit you can get an unsecured loan from a bank or credit union at a high interest rate. At my CU, it's 11%-18% depending on how good your credit is. But you have to have some credit.

I'd imagine the people who have payday loans do not have credit good enough to get a credit card, and there is probably a high rate of default, which is how the loansharks justify their usurious interest rates.
posted by grouse at 9:02 AM on April 27, 2005

I agree these places are predatory, but if people are signing agreements of their own free will, shouldn't they be allowed to do that?

I could get behind some regulations to ensure that people know precisely what they are getting themselves into, but if people want this service I see no reason why they should be denied that.
posted by Bulgaroktonos at 9:03 AM on April 27, 2005

Oh, I should have added to the post: The lawyer's contention is that these operations are breaking the Criminal Code's prohibition on usury through charging 'brokerage fees.' Under the CC you can't charge interest of more than 60% annum. You'll note the stated interest of most payday places (in Canada) is the very coincidental 59%...
posted by docgonzo at 9:07 AM on April 27, 2005

It seems like a Credit Union could provide a payday loan with much lower fees and interest rate.

The rate is what the market will bear - any lower and it's a losing proposition, apparently.

The only thing worse than lending money to someone for a big charge is the borrower not taking self-responsibility. Even worse is creating a new layer of bureaucracy when existing laws will do (if they hid or lied about the rate, then that's fraud, right?)
posted by iwearredsocks at 9:13 AM on April 27, 2005

Should have previewed . . .if the lawyer is right and they are breaking the law, more power to the plaintiff.
posted by iwearredsocks at 9:15 AM on April 27, 2005

"There where thou sayest that usury offends / Goodness divine, and disengage the knot."

"Philosophy," he said, "to him who heeds it, / Noteth, not only in one place alone, / After what manner Nature takes her course / From Intellect Divine, and from its art;

And if thy Physics carefully thou notest, / After not many pages shalt thou find, / That this your art as far as possible / Follows, as the disciple doth the master; So that your art is, as it were, God's grandchild.

From these two, if thou bringest to thy mind / Genesis at the beginning, it behoves / Mankind to gain their life and to advance;

And since the usurer takes another way, / Nature herself and in her follower / Disdains he, for elsewhere he puts his hope.
posted by Civil_Disobedient at 9:16 AM on April 27, 2005

I get payday loans every once in a while, it's convenient and I don't mind paying the fee.

And every time someone sues them for being expected to pay what they agreed to pay, your rates go up (or a store closes because it can't afford to stay in business). This doesn't necessarily mean that the suit should be denied, I'm just pointing out a fact.
posted by gd779 at 9:17 AM on April 27, 2005

That sort of interest is literally criminal in Canada. He has every right to have that loan paid for by the house, considering that interest rate breaks the law several times over.

For the lazy, the maximum interest rate allowed by law is:

"criminal rate" means an effective annual rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds sixty per cent on the credit advanced under an agreement or arrangement;
posted by shepd at 9:20 AM on April 27, 2005

All the "don't exploit vulnerable people" thoughts are interesting...

Folks, every sale of any item is based on the same principal.. "I want/need it, you have it, I'll pay you for it if you'll sell it to me." It is all a matter of degree, and that becomes supply and demand!

But, I guess it comes down to the difference between want and need.

Case 1..Joe goes to the 500% apr place for a loan to buy medicine that will keep him alive. The bank wouldn't loan it to him, his friends don't have it, he doesn't have any family. But the 500% apr loan shark lends him the money... Who's the bad guy?

Case 2..Joe goes to the 500% apr place for a loan to buy liquor. the bank wouldn't loan it to him, his friends don't have any money and he doesn't have any family. But the 500% apr loan shark lends him the money.... Who's the bad guy.

It's not black and white.

And....It's laws that prevent us from making stupid decisions that defeat the whole purpose of natural selection... We wouldn't be in the mess we're in now if we just let old Darwin handle this stuff instead of the legislature!
posted by HuronBob at 9:58 AM on April 27, 2005

I disagree with those who say that credit card companies are "bad" and that payday loan companies are "bad". In of themselves, they are not bad ideas. Keep in mind that there are two components at play here: poor business practices on the part of these loan organizations (ie, no clear disclosures of costs/fees, etc.), and, poor financial management on the part of those people taking out the loans.

It is the individual's responsibility to manage their own money. At least, be somewhat intelligent about spending and distinguishing between needs and wants. However, it is also the responsibility of these credit companies to be open, honest and clear about the costs of doing business with them.

Quite frankly, here is where the role of government comes into play: if you kids (credit organizations) cannot be honest and truthful and open about your fees, we're going to impose laws that require you to do so...and perhaps even worse (rate caps, etc.).

Again - don't blame the companies entirely. There ain't no such thing as a free lunch.
posted by tgrundke at 9:59 AM on April 27, 2005

okay, so somebody clear this up for me: it's illegal usury for the mob to lend you money at 75% interest. but it's legal for a 'payday loans' operation to lend it at 59% interest plus all sorts of 'brokerage fees'?

so is the only difference between these joints and getting a loan from the Hells or Satan's Choice or something that payday loan places pay taxes and biker gangs don't?
posted by optimuscrime at 10:14 AM on April 27, 2005

these places pop up to prey upon the uninformed and working-class

...And undocumented aliens who avoid banks and the information those institutions require. Payday loan patrons are also often targets for violent crime as they exit with a pocketful of cash.
posted by Morrigan at 10:17 AM on April 27, 2005

The problem with these places is that they are deceptive, more than anything else. They say they are charging a 59% rate, but it is really more like 15,000% APR.
posted by grouse at 10:26 AM on April 27, 2005

We wouldn't be in the mess we're in now if we just let old Darwin handle this stuff instead of the legislature!

The geneticist in me has to point out that Darwin's never more abused than when his laws are put to the service of understanding human behaviour.
posted by docgonzo at 10:32 AM on April 27, 2005

In the states of California and Washington, there are caps on the interest rates that usurers payday loan houses can charge. Not so in Oregon, and as a result they're thicker than flies on shit. It really doesn't bode well for the health of the overall economy, IMHO. However, I suspect Oregon may be setting a trap by waiting until the loan businesses are thoroughly entrenched before slashing the maximum annual rates they can charge. I might be wrong, but I think it would be funny.
posted by mullingitover at 10:35 AM on April 27, 2005

What to do if you're short on cash and the rent is due? Assuming that you've already exhausted family, credit cards, and home equity (if either even exist):

Option 1 - Payday loan. Pay out the nose, but leave with fingers and thumbs intact.

Option 2 - Loan from "Vinny" who hangs around the docks. Pay about the same, but risk having fingers and thumbs broken if not repaid on time.

Option 3 - Get evicted, move family onto street.

Seems like 1 has some benefits over 2. In an ideal world people wouldn't get to the point of having to make these choices, but that's simply not reality.
posted by thedevildancedlightly at 10:50 AM on April 27, 2005

I don't know where you guys are from, but loan sharks don't charge that kind of interest. And they don't break anything that will keep you from working. If push comes to shove I'd side with (insert stereotypical Italian name here) before I'd go to a payday loan place.
The benefit in dealing with the underground economy is that those folks can't take your car or house, etc. LEGALLY.
Loan sharks prey mostly on degenerate gamblers and drug dealers who's legs they can get away with breaking.
A regular working stiff might get slapped around, and he'd be paying thru the nose for a long time, but they wouldn't destroy his life the way one of these places would.
posted by Smedleyman at 11:05 AM on April 27, 2005

I suspect there is a great deal of crossover business between payday loan places, those check cashing places that charge obscene fees, and same day/next day tax refund loans.
posted by Kellydamnit at 11:17 AM on April 27, 2005

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

Homer: [slowly] Usury?

Burns: Oh, silly me! I must've just made up a word that doesn't exist.
posted by gompa at 11:31 AM on April 27, 2005

I thought we dealt with this crap in the 30's?
posted by HTuttle at 11:43 AM on April 27, 2005

Islam is not the only religion that prohibits usury, but it is the one that has maintained its position against it. While there are biblical verses prohibiting usury, Christians seem to have no problem taking out interest loans today.
posted by b_thinky at 12:08 PM on April 27, 2005

Htuttle: I thought we dealt with this crap in the 30's?

Ever since the Republicans/Christian Conservatives gained power, I've been saying the exact same thing, over and over and over again.
posted by Freen at 12:47 PM on April 27, 2005

Christians seem to have no problem taking out interest loans today.

I don't think it's ever been considered immoral to borrow money at interest, but I'm guessing the reason that no one offers interest-free loans is because you lose money if you do that, thanks to constantly increasing prices.
posted by oaf at 1:06 PM on April 27, 2005

IMO, the people who operate payday loan centres are the scummiest scum on earth and we'd be well off to take 'em all out back and put a bullet through their head.

There is no need to fuck over the poor at every opportunity, and that is all these people are doing. They prey on desperate people who are ill-informed, poorly educated, and are up against the wall.

A lot can be told by the way a society treats its most disadvantaged.

We can do better.
posted by five fresh fish at 1:21 PM on April 27, 2005

And....It's laws that prevent us from making stupid decisions that defeat the whole purpose of natural selection... We wouldn't be in the mess we're in now if we just let old Darwin handle this stuff instead of the legislature!

What is more an expression of natural selection than murder?

Also rape; assuming the target is not murdered afterward.
posted by prak at 1:24 PM on April 27, 2005

I don't think it's ever been considered immoral to borrow money at interest

You appear to have not read the link provided in the very post you are responding to:

"Usury (in the original sense of any interest) is scriptually and doctrinally forbidden in many religions. Judaism forbids a Jew to lend at interest to another Jew. It's forbidden in Islam. The most recent Catholic teaching on usury is by Pope Benedict XIV in his Vix Pervenit from 1745 which strictly forbids the practice, though given the modern day Catholic Church's investments in the banking industry, the prohibition has to be regarded as a dead letter."

http://en.wikipedia.org/wiki/Usury
posted by prak at 1:28 PM on April 27, 2005

Civilization: the practice of not letting people make societally destructive decisions on a grand scale, and encouraging people to make good decisions by creating congruent incentives.
posted by Freen at 1:58 PM on April 27, 2005

I'm not really sure that payday lenders capitalize on the most disadvantaged -- at the gross level, "most irresponsible" is more like it. You generally can't qualify for a pay-day without a steady income and a bank account into which it is direct-deposited.
posted by MattD at 2:05 PM on April 27, 2005

Has anyone heard of any credit unions or possibly even banks trying to take business away from these places?

Take away? Hell NO. Why settle for a lousy single-digit or double-digit rate of return when there's this ripe opportunity to go for triples and quadruples? Several banks' response has been to opt out of low-income lending programs while helping loan sharks payday lenders to operate in states where such rates are otherwise outlawed.

[Payday lenders'] astronomical yields have tempted several conventional banks -- which have long cited profitability concerns as the reason they shun low-income communities -- to forge lucrative alliances with payday-loan outlets. Most of these partnerships are expressly designed to circumvent state usury laws. Nineteen states ban payday lending and 21 (plus the District of Columbia) have enacted APR ceilings. But a federal banking loophole permits nationally chartered banks to "export" interest rates from their home states. A payday lender in a regulated state, acting as the "agent" of a bank in a deregulated state, can charge almost any fee it desires...

"If you can't do it legally, you fancy two-step around [the law] by hooking up with a lender in a state that doesn't put any limit on APRs," says Kathleen Keest, of the Iowa Attorney General's Consumer Protection Division (who notes that her state's legal APR is already 391 percent). "It's a race to the bottom." [Mother Jones, 2001; emphasis added]

posted by nakedcodemonkey at 2:56 PM on April 27, 2005

TDDL: false dichotomy. (trichotomy? i'll settle with "dilemma")
posted by mek at 4:01 AM on April 28, 2005

I'd imagine the people who have payday loans do not have credit good enough to get a credit card, and there is probably a high rate of default, which is how the loansharks justify their usurious interest rates

If they're really doing payday loans, then they're only lending to people who are soon to get paychecks, and the default rates probably aren't that high.

I agree that people should repay what they agree to repay. My problem with the situation is that if all the free-market types are right, there should be competition among the payday loan companies, and that competition should drive the rates down to something reasonable. If that isn't happening, then either the law of supply and demand is wrong (unlikely), or something (collusion, perhaps?) stops that competition from happening.

If Canada has laws against this sort of company, then good for Canada. If there aren't laws, then perhaps a nonprofit organization that offers such loans at reasonable rates is a better response than a class-action suit.
posted by anapestic at 10:07 AM on April 28, 2005