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He also has a bridge he'd like to sell you.
December 5, 2005 4:39 PM   Subscribe

Need cash right away? Your local car title lender will be happy to lend you a couple of grand. But you'd better be able to pay it back in a month, or you'll lose your car--or get trapped in a spiral of debt. This is a business model based on preying on the working poor. Imagine my surprise when I saw the latest commercial for title loan company LoanMax, featuring their new spokesman.
posted by EarBucket (86 comments total)

 
color me disgusted
posted by sourbrew at 4:44 PM on December 5, 2005


You're surprised? Seriously?
posted by mr_crash_davis at 4:47 PM on December 5, 2005


Holy shit, that's desperation lending. Did they finally realize that people who own houses aren't generally stupid enough to refinance their mortgages so they can go to Cancun?

Al Sharpton's just trying to get as much coin as he can before he dies because he thinks he can buy his way out of hell. Someone should strip him of his pathetic little Reverend title.

Are they gonna offer special rates for Katrina victims? Bleh.
posted by fenriq at 4:51 PM on December 5, 2005


"A Calgary lawyer has launched a class-action lawsuit against a payday loan company, alleging that the industry gives loans with interest rates and fees that equate to 15,000 per cent a year."
posted by Rothko at 4:52 PM on December 5, 2005


You're surprised? Seriously?

Well, honestly, while I've never been a big fan of the Reverend Al, I think this is kind of shocking. Sharpton's built his career around being outraged by racial injustice, real or perceived. Now he's shilling for a company whose entire business model is predicated on screwing poor people, largely minorities. (They have another commercial that runs here that features a black couple who've taken out a loan so they can go on vacation. The guy is literally dancing and singing, he's so proud that he's just pawned his car.) I guess I thought that even Al Sharpton would have a little more shame than this.
posted by EarBucket at 4:55 PM on December 5, 2005


Nope.
posted by hackly_fracture at 4:57 PM on December 5, 2005


Another Left-of-Center shamist exposed. Again. And to think this dickhead is taken seriously. It boggles the mind.
posted by ParisParamus at 5:01 PM on December 5, 2005


Another Left-of-Center shamist exposed.

Oh, come now. Embarrassing religious leaders are a bi-partisan source of entertainment.
posted by EarBucket at 5:13 PM on December 5, 2005


OK, this is pathetic. On the other hand, I think there's an excellent chance his manager just said: "look at the camera and read this, then we'll pick up your check and we'll have the steamed mussles for lunch." So he did.

What's pathetic isn't that a man who claims to be spiritual is hawking loans that will end up as auto repos, it's that society has sunk so low that most people won't even bat an eye at the ad, or question it. It is, after all, how we got such a bumbler in the white house. What, are people asleep? Think about it...
posted by TheStorm at 5:15 PM on December 5, 2005


EarBucket, true, but this guy take the cake, primarily because he is taken seriously by other politicians and the media.
posted by ParisParamus at 5:16 PM on December 5, 2005


I always knew these "Get CA$H Fast" offers were a scam, but 372% APR!?!!

Jeebus, way to profit on the pain of others there Al.

Mmm, smell that...? Hypocrisy.
posted by triptychrecords at 5:20 PM on December 5, 2005


Al, Al, Al:

Whoever loves money never has enough
(Ecclesiastes 5:10)
posted by scheptech at 5:21 PM on December 5, 2005


In other news, Sharpton is negotiating a deal with CBS to star in a sitcom called "Al In the Family."

I never understood why fairly marketable people lend their name to shady companies. William Shatner filmed a series of local advertisements for personal injury law firms ("Let's settle this one...."). Every career is subject to its ups and downs, and Shatner failed to realize that his commercial would still be airing when his star rose again with a new TV show.

This is a real scuzzy move on Al's part. He probably never really thought about the moral implications of what he was doing, and now finds himself on the defensive. Moral of the story: Reputation lasts longer than money.
posted by Saucy Intruder at 5:25 PM on December 5, 2005


In 2004 I was at the first Democratic primary debate in Columbia, SC. Columbia is a college town, so cheap pitchers of beer are all over the place. Needless to say by the time I showed up I had not only missed the debate, but could also barely stand from an afternoon of drinking. Despite being stinking drunk the security people ushered me into the room where the more sober members of the press were engaged in a post-debate feeding frenzy / free for all with the candidates. They were all there... Kerry, Edwards... and the rest. Anyway, I was trying to get a shot of Kerry, but I was having trouble fitting him into my viewfinder (he's a tall dude) and in backing up I bumped hard into someone - I spun around and found myself looking down at it was Sharpton (he's a short dude.) He must of got a whiff of my beer-breath because he wrinkled up his nose and gave me a who-the-hell-are-you/whats-you're-problem look before stomping off.

Anyway, I always felt bad about that encounter until now.
posted by wfrgms at 5:26 PM on December 5, 2005


Paris are you serious?! Al Sharpton isn't taken seriously by practically anyone. He's never even come close to winning an election, and his hair is permed. Enough said.
posted by matkline at 5:32 PM on December 5, 2005


So what's the %APR outrage cutoff? Mine must be set too low, because I feel just as much vitriol towards credit card usurers lenders.
posted by Civil_Disobedient at 5:33 PM on December 5, 2005


Mr Cash from January 2003.
posted by four panels at 5:37 PM on December 5, 2005


There are more payday stores in America today than there are McDonald’s.
posted by jaronson at 5:41 PM on December 5, 2005


370% That's what you'd normaly get with a check-cashing place, with no collateral. Fucked up.
posted by delmoi at 5:44 PM on December 5, 2005


matkline: Sharpton did participate in at least one presidential primary debate in 2004 (albeit with the other 43 candidates at the time). Most people think little of him, but a lot of people (and the media) do take him seriously, especially people who are likely to be victimized by these sharks.

Back to the main story: here's the one that really shocked me: -- "Georgia permits title lenders to keep all the proceeds earned from selling a repossessed car." Insane.
posted by brain_drain at 5:48 PM on December 5, 2005


That Al Sharpton is involved with one of these organizations is disgusting. I never put a lot of stock in Mr. Sharpton, but I never thought he would be capable of something so exploitive. He needs to apologize.
posted by I Foody at 5:48 PM on December 5, 2005


After Tawana, no one ever took Rev. Al seriously. The most surprising thing about the man was his showing in the presidential debates. He actually had something to say. Too bad he couldn't actually believe his Bible and focus his tremendous energy and talent on doing the Lord's work and just helping people rather than devoting so much effort to helping Rev. Al. Well, I guess the talent is mostly in being the showman, P.T. Sharpton, and it can be used for good to raise social awareness, but it comes from an intense need for self promotion. As much issue as I may take with some of his actions, he has been a net positive, a huge net positive, for NYC. Sometimes the fact that you can laugh at him actually helps, as while people are laughing at him in public, they are realizing his important social message in private. Give this one up Al, and atone, and then get back to helping raise awareness of important social and race issues in NYC.
posted by caddis at 5:51 PM on December 5, 2005


"Sharpton comes across as a hapless stooge of the worst elements of the GOP." - Black Commentator, on Sharpton's 2004 Presidential campaign.

As criticism goes, Reverend Al is a target-rich environment, and quite deservingly. Few public figures manage to blend hypocrisy, spurious accusations, corruption, and demagoguery so adroitly, and still get public financing of their campaigns.

And, I thought he'd make a helluva Press Secretary in a Kerry administration. Judging by the silver-tongued lies enamating from that podium for White Houses both Republican and Democratic, it seems Al's got all the "necessary" qualifications. (Ok, I'm kidding. But the entertainment value would be off the charts, you gotta admit.)
posted by edverb at 5:52 PM on December 5, 2005


He probably never really thought about the moral implications of what he was doing

Like a lawyer never thinking about the legal implications or a doctor never considering the health implications or an accountant never thinking about the tax implications... ?
posted by scheptech at 5:54 PM on December 5, 2005


"Paris are you serious?! Al Sharpton isn't taken seriously by practically anyone. He's never even come close to winning an election, and his hair is permed. Enough said.
posted by matkline at 8:32 PM EST on December 5 [!]
"

Well, he got to speak at the DNC last summer...that's reason enough to burn my Democrat card....
posted by ParisParamus at 5:57 PM on December 5, 2005


ok, two summers ago...
posted by ParisParamus at 5:57 PM on December 5, 2005


When beer brewery owning, America's Cup winning, knockabout millionaire Alan Bond was released from jail, he got involved in the same type of scam business.

He's still a hero to some.
posted by uncanny hengeman at 6:02 PM on December 5, 2005


Rev. al needs to read his Bible a little harder:

25 " If you lend money to any of My people who are poor among you, you shall not be like a moneylender to him; you shall not charge him interest.
26 "If you ever take your neighbor's garment as a pledge, you shall return it to him before the sun goes down.
27 "For that is his only covering, it is his garment for his skin. What will he sleep in? And it will be that when he cries to Me, I will hear, for I am gracious. (Exodus 22:25-27)
----------------

35 ' If one of your brethren becomes poor, and falls into poverty among you, then you shall help him, like a stranger or a sojourner, that he may live with you.
36 'Take no usury or interest from him; but fear your God, that your brother may live with you.
37 'You shall not lend him your money for usury, nor lend him your food at a profit. (Leviticus 25:35-37)


More

posted by caddis at 6:05 PM on December 5, 2005


"Al", sorry my good man.
posted by caddis at 6:06 PM on December 5, 2005


ParisParamus expresses contempt for Sharpton (rightly). However, he doesn't express contempt for the owners of companies which lend money at high rates of interest. After all, they're just good capitalists, maximizing return on their shareholders' investments. Nothing wrong with that, is there, PP?
posted by cleardawn at 6:31 PM on December 5, 2005


Gary Coleman's shilling for a similar outfit.
posted by postmodernmillie at 6:34 PM on December 5, 2005


Wow. The things a MeFi reader sees when he doesn't have a decent high-power rifle and some spare time....
posted by alumshubby at 6:35 PM on December 5, 2005


I guess these places should be outlawed as they do really just put a drain on the lower class. But I really don't feel sorry for anyone who goes to them. We still have this thing called adulthood in America, where we let people make there own decisions about how they want to spend their assets. If someone really needs the money that bad, then who am I to tell them they can't have it? They will find themselves in inescapable debt somehow, with or without payday loan companies. They wouldn't be resorting to the payday advance company if they had stellar credit. They have already trashed it once or twice, and now they are back in the hole again.

Isn't half the industry in America about reallocating resources form the have nots to the already haves? Digital cable, for example, provides a essentially worthless service to people and extracts a premium to the owner of service provider capital. Payday loan companies simply put the premium on the idea of cold, hard cash.
posted by gagglezoomer at 6:38 PM on December 5, 2005


"ParisParamus expresses contempt for Sharpton (rightly). However, he doesn't express contempt for the owners of companies which lend money at high rates of interest. After all, they're just good capitalists, maximizing return on their shareholders' investments. Nothing wrong with that, is there, PP?
posted by cleardawn at 9:31 PM EST on December 5 [!]

Cleardawn, I have contempt for Sharpton, and the company that paid him. They're all despicable humans.
posted by ParisParamus at 6:39 PM on December 5, 2005


And to think this dickhead is taken seriously. It boggles the mind.
posted by ParisParamus


And you are to be taken with even MORE seriousness as you had said 'if there are no WMD in Iraq I'll lead the effort to impeach Bush'. Why, just the other day, I got a pro impeachment direct mailing. Good work PP!
posted by rough ashlar at 6:45 PM on December 5, 2005


Cleardawn, I have contempt for Sharpton, and the company that paid him. They're all despicable humans.

And how about the politicians who have failed to adequately regulate lenders, so that they can continue to legally charge this kind of usurious rate of interest? Do you condemn those people as well, PP?

Or do you support that kind of unregulated free market in financial services, while simultaneously being outraged by the Reverend Al's willingness to take advantage of such a system?
posted by PeterMcDermott at 6:50 PM on December 5, 2005


I guess these places should be outlawed as they do really just put a drain on the lower class. But I really don't feel sorry for anyone who goes to them. We still have this thing called adulthood in America, where we let people make there own decisions about how they want to spend their assets.

I am pretty libertarian, and despise the nanny state. I hate the state's desire to protect us from ourselves. However, I do like the state's desire to protect us from each other, and that includes protecting the poor and often unsophisticated citizens from usurers, grifters, and other assorted dross.
posted by caddis at 6:50 PM on December 5, 2005


but at least we know the values of the people that own this company. The difference is that a reverand is supposed to espouse certain values, and his actions in this case are certainly hypocritical. That being said, there should be more contept toward Al, since hes actually probably trusted to a certain degree within his community.
posted by Kifer85 at 6:51 PM on December 5, 2005


you guys sure love to pile onto paris for things he hasn't even said. Jeez!
posted by caddis at 6:51 PM on December 5, 2005


In many states they can keep the car and they don't have to auction it and return the difference in proceeds. This means that once you are late they literally aren't interested in getting you to pay them back -- they want your car. It's unbelievably profitable when they're earning 370% interest worst-case, and best-case for them, they take your car and make 15x or more on their investment if you car has any value.
posted by cameldrv at 6:55 PM on December 5, 2005


which states?
posted by caddis at 6:57 PM on December 5, 2005


Digital cable, for example, provides a essentially worthless service to people and extracts a premium to the owner of service provider capital. -gagglezoomer

Care to explain that one? I'm honestly interested. [/derail]

Oh Al Sharpton? You mean the guy from that Adam Sandler movie? Obviously he has only the highest of standards for what he puts his name on. (Yeah, I'm disgusted by the whole business too)
posted by es_de_bah at 6:58 PM on December 5, 2005


I'm not going to continue with this deposition. Go find yourself another boogey man.
posted by ParisParamus at 6:59 PM on December 5, 2005


As an advocate of personal responsibility I am torn. Clearly we should not be in the business of making financial decisions for anyone, rich or poor, when it comes to their after-tax disposable income or assets. On the other hand, I don't think that anyone who goes to these places is well-educated on how much in interest they'll be paying or the consequences if they miss a single payment. Additionally, making poor people even poorer and taking away what is likely their only means of transportation has far-reaching effects on all of us. This industry needs tighter regulation; that much is clear.

Oh, and Shapton is a piece of shit fake-ass Christian who should be run out of town for his despicable endorsement as well as the other bullshit he's pulled.
posted by Optimus Chyme at 7:00 PM on December 5, 2005


uh guys i genuinely dislike pp and this is pretty dumb
posted by Optimus Chyme at 7:01 PM on December 5, 2005


Here in Canada the comedy network is carrying ads for Money Mart payday loans... looks like this isn't just a US thing.

Actually I know that payday loans have been common in Japanese society for a few years already, but advertising for them on television is somewhat of a new thing.
posted by clevershark at 7:07 PM on December 5, 2005


paris, you have to keep promises you make on the internet!
posted by es_de_bah at 7:07 PM on December 5, 2005


Care to explain this one. I'm Honestly interested.

Alright. So if I am in the business of provided hot air balloon rides for $1000 an hour, is my business illegal? Once it is over, really have nothing to show for it, and I have made an enormous profit. Now suppose I have a friend next to my hot air balloon business that give you a ticket to my hot air baloon and a thousand bucks, in exchange for a $2000 car. Is this illegal?

This is essentially what the payday advance company is doing. Except the "ticket" they are giving you is having cash two weeks earlier than you would normally be entitled to it. Or, alternatively, however long it would take you to sell your car. However, we don't hold the hot air baloon scheme responsible, but we do the pay day advance company. I guess my digital cable example is really just a bit too 'dense.' Basically, digital cable or hot air balloons, these schemes are just ways of getting people to trade their capital (things that can make money for you in the future) for services (things that evaporate upon use).
posted by gagglezoomer at 7:08 PM on December 5, 2005


um, not the payday loans thing. i understand why that's bullshit. i meant the digital cable bit. and i still don't see how the two are analogous.
posted by es_de_bah at 7:11 PM on December 5, 2005


So if I am in the business of provided hot air balloon rides for $1000 an hour, is my business illegal? Once it is over, really have nothing to show for it, and I have made an enormous profit.

That's not a very good example. In theory someone who gets a return plane ticket ends up back in the same place so he "really has nothing to show for it", by your logic...
posted by clevershark at 7:11 PM on December 5, 2005


A more apropos example would be to say "you can either have $2000 in two weeks of $1500 now," so that you pay $500 for the benefit of having your money immediately.
posted by clevershark at 7:15 PM on December 5, 2005


I suppose with digital cable you may learn something that you can use to make a return on investment. So i guess my example is flawed.

What I am getting at is that Payday loan companies are analogous to any service provider that gives you something that you cannot, in return, use to improve your situation through capital return.

You can stick me for 'over-monetizing' the situation if you want, but those are the terms I am dealing with since that is how the argument against is framed.
posted by gagglezoomer at 7:16 PM on December 5, 2005



A more apropos example would be to say "you can either have $2000 in two weeks of $1500 now," so that you pay $500 for the benefit of having your money immediately.

Doesn't seem to be any shortage of people who will agree to that... at least assuming they can perform basic math function, such as adding, subtracting and multiplying.
posted by gagglezoomer at 7:17 PM on December 5, 2005


But I really don't feel sorry for anyone who goes to them. We still have this thing called adulthood in America, where we let people make there own decisions about how they want to spend their assets.

I'm with you all the way -- so long as the adults involved are informed consenting adults.

I strongly doubt that those who are using these loansharking services are particularly well-informed.
posted by five fresh fish at 7:22 PM on December 5, 2005


Doesn't seem to be any shortage of people who will agree to that...

Indeed, or otherwise Money Mart and LoanMax wouldn't be able to peddle their financial smut on TV.

Money Mart cashes checks too (as their other ads mention), and "they charge only 3%", which strangely enough is clarified as being "2.99% plus a transaction fee" in the small print, which just *has* to add up to more than 3%. I find it just sad to see exploitation advertised on TV like that.
posted by clevershark at 7:23 PM on December 5, 2005


Alright. So if I am in the business of provided hot air balloon rides for $1000 an hour, is my business illegal? Once it is over, really have nothing to show for it, and I have made an enormous profit. Now suppose I have a friend next to my hot air balloon business that give you a ticket to my hot air baloon and a thousand bucks, in exchange for a $2000 car. Is this illegal?

It is if the city's flooded and the only way out of town is your balloon, then yeah, its certainly immoral.

And more so it's incredibly hypocritical that the professes Shepard for the underclass is leading them into the gaping maw of the underclass.

I've used payday loans before, believe it or not, they provide a useful service if you're broke and have bad credit, but I have (in practical terms) $800 a month in disposable income, and the maximum allowable loan amount is $500.

If it were up to me, I would replace the payday loan system with a government cash-advance system. The government would verify your employment and ability to pay, then pre-withdraw payments from your paycheck the same way they do taxes, child support, etc to insure that they got it. People would also need to meet with a (state employ) worker in order to help them better manage their finances.
posted by delmoi at 7:26 PM on December 5, 2005


By the way, a truly 'fair' interest rate is simply the (1/probability you'll get your money back) + inflation rate + fair profit – recovery cost). In order to justify a 350+% interest rate, you need to figure these companies never collect on over 2/3rds of their target market. If they own the car titles, I can't see how that's possible.
posted by delmoi at 7:32 PM on December 5, 2005


Just for clarifiction, this isn't the same as a payday loan, namely a check casher. I played the check casher's game more than a few times in college, and it wasn't as evil as this "triple digit rate" in the article.

It's really simple, actually. You want 100 bucks, but you don't get paid for another week. So you write the check casher's place a check for 120 bucks, and they give you 100 in cash and hold onto your check for a week. Once you get paid a week later, you deposit your paycheck, they cash your check, and you're out 20 bucks. 20% interest ain't great, but for quick cash it was worth the hassle (for me).
posted by zardoz at 7:38 PM on December 5, 2005


This kind of shit should be illegal. Everywhere. There needs to be some basic, minimum standards decency in the marketplace. If only because no judge, attorney, or law enforcement official should have to enforce such a thing.
posted by ParisParamus at 7:40 PM on December 5, 2005


20% interest ain't great...

You realize that's 20% over only a week, right? Interest rates are generally quoted in terms of an annual percentage rate (APR). Projecting that rate over a year gives an APR of over 1000%.

No, it ain't great.
posted by mr_roboto at 8:05 PM on December 5, 2005


So you write the check casher's place a check for 120 bucks, and they give you 100 in cash and hold onto your check for a week.

Doesn't this add up to a 1040% interest rate?
posted by clevershark at 8:06 PM on December 5, 2005


Great minds think alike!
posted by mr_roboto at 8:07 PM on December 5, 2005


to defend the 'evil-doers' there are at least some justifications for their enormous interest rates:

1) default rates on these types of schemes must be incredibly high. For the payday loans, how many of those checks bounce? For the car loans, how many times do is the already gone or unlocateable.

2) transaction costs. These are two to four week loans. Do you think your mortgage rate would be as low as it is if the bank had to process new lendees every month?

3) advertising. It costs money to pay Al Sharpton and run those late night and early afternoon TV ads.

4) security. Most of these places are in the ghett-O and are a cash business.
posted by gagglezoomer at 8:17 PM on December 5, 2005


here's a question for everyone ... why is it in the last 10 years these places have sprung up like weeds?

and long ago, didn't this used to be called loansharking?
posted by pyramid termite at 8:31 PM on December 5, 2005


gagglezoomer, devil's advocate is one thing. But this is indefensible. They are preying on people that, for whatever reason, have no other choice and when they can't pay up, they lose their car.

Which, as was mentioned above, has long ranging effects not only on them but on their family, their town and the rest of us. Stopping the predation of slick-as-shit scum like Sharpton and his ilk isn't just good for the people they are screwing, its good for all of us really.

pyramid termite, that's an interesting question. I often ask myself how places like Ditech can exist for very long. I would guess that the average amount of debt being carried by people has risen pretty dramatically over the last ten or fifteen years. And that's the problem, once you get behind, its all but impossible to get back out ahead.
posted by fenriq at 8:38 PM on December 5, 2005


delmoi: Advance America, probably the largest and most sophisticated payday lender, made $83mm in net income on $3.8 billion of payday loans in 2004 (2.2% yield). Their return on average assets was about 15.5%, return on equity was in the low 40s (but the more relevant number would be in the high 20s, based on their post-IPO capital structure). The average duration of an advance was about 15 days. Charge-offs have ranged from 1.5 - 3.0% of total loan volume (sub-prime auto is 5-7%, sub-prime mortgage is 4-6%, according to JMP Securities). Store operating margins were about 29%. These results all seem attractive, but they are in the same ballpark as most consumer financial companies I've looked at. (I'm getting most of this stuff from their 10-k)

Anyway, my point is that this business is very profitable but not much more profitable than other more respectable financial services. The reason APRs are so high is that the duration of the loans are so short - it doesn't make sense for anybody to tie up capital that way without earning a very high rate. It is also difficult to fund these business with debt; Advance America has a debt/equity ratio of about 15%, which is very, very low for a financial services company. This business is less profitable than Microsoft (to pick a random, insanely profitable company).

Advance America is the biggest company of its kind, so I don't know how representative it is of the industry. They have stores in almost every state (though not in Utah - I wonder if they take thos Bible quotes seriously there?). I'd bet they face more regulatory scrutiny than most, but I've also heard they have some bad-ass lobbyists.
posted by mullacc at 8:58 PM on December 5, 2005


Usury is usury, whether it's "fast mortgages", payday loans or car title loans (which I read about in an old noir novel and thought were over with). This is exploitation, preying on the desperate and often illiterate poor. Having anything to do with such crap is at least bad form for any real "progressive".

I wonder if dog feces has anything to do with this Sharpton stunt.
posted by davy at 9:00 PM on December 5, 2005



1) default rates on these types of schemes must be incredibly high.


what's your basis for this assertion? according to this FAQ, in North Carolina in 2000, only 6% of payday checks were returned as insufficient funds.

2) transaction costs. These are two to four week loans. Do you think your mortgage rate would be as low as it is if the bank had to process new lendees every month?


uh........ what? you must know that in addition to usurious interest rates, entities like this charge insane fees on the basis of administrative expenses/transaction costs.


3) advertising. It costs money to pay Al Sharpton and run those late night and early afternoon TV ads.


not so much that they're not one of the most profitable sectors of the economy, earning 34% net profit on average. mullacc's numbers are interesting, since they're taken from the company's own financials, but i'd again refer you to the FAQ linked in this comment.

4) security. Most of these places are in the ghett-O and are a cash business.

i'll give you the benefit of the doubt and assume you're slow, not racist. could there be another reason why these places are in "the ghett-O", perhaps? like that's where all the fucking poor people are?

honestly, ignorance about the crime of usury boils my blood. i'm not one to cite the bible on much anything, but there's a reason why Christ went ballistic on the moneylenders in the temple. these are the kind of people that made mr. turn-the-other-cheek violent!
posted by Hat Maui at 9:04 PM on December 5, 2005


Hat Maui: I can't tell how that 34% return on investment (not net profit) is calculated. I'd need some more transparency before that particular number got me angry. But, yes, you're right that this business does not experience obscene levels of defaults. Advance America only provides for a loss reserve equal to about 12% of the fees it expects to earn (not of total loan amount). The cost of this business come from the "hands-on" nature of its operations (including collections). But this is a circular situation - the customers are less likely to default because the lenders are so aggresive and the loans are secured. If the amount of effort spent on borrowers with 800 FICO scores was spent on these borrowers and loans were unsecured, the default stats would be much different.

I've looked at some private payday/sub-prime lenders based in usury-friendly places like South Carolina and those businesses are absolutely disgusting. I'd bet LoanMax is more like those lenders than it is like Advance America. Actually, if the whole industry were like Advance America, there'd be a lot less indignation about the whole thing.
posted by mullacc at 9:20 PM on December 5, 2005


“I don't understand why it’s wrong for the little guy with no credit not to be able to get money.”

So it must be right for the little guy with no credit not to be able to get money? Or do you want to try that again, Al?
posted by weapons-grade pandemonium at 10:10 PM on December 5, 2005


Also see.
posted by Opposite George at 10:45 PM on December 5, 2005


And this [www.military.com]

Every military town I've visited teems with paycheck advance and similar businesses.
posted by Opposite George at 10:59 PM on December 5, 2005


thanks for the links, OG. i live in a military town as well and they're a fucking blight on the landscape. there are more loan centers than circle k's, and in tucson, that's really saying something.

here's an interesting study from portland, OR: Preying on Portlanders

but a more complete picture of these practices can be found in this November 2005 study from the consumer federation (google cache to avoid .pdf): Driven into Debt
posted by Hat Maui at 11:49 PM on December 5, 2005


mullacc: it's amazing that these lenders are actually justifiable in a rational business sense. I picture a bunch of MBAs sitting around reading someone's one-off thesis and talking themselves into it. "Sure, we'd have to make a 1000 APR. They don't know that, though. Let's see if it works."

just because it's possible (or profitable) to do doesn't mean it should be done.

I'm pretty goddamn poor--poor enough to have considered a title lender, but I'm lucky enough to know better. So many aren't so lucky.
posted by carsonb at 12:05 AM on December 6, 2005


Why hasn't anyone brought up how the 'religion of terror' Islam says that loyal followers arn't in the money lending business? (by extension money taking)

Or how its funny that 'for a nation founded on Christian values' to allow such companies to legally exist seems to oppose the actions of Jesus who went about tossing money changers out of the temple.

Guess the new temple of the mall is powerful. More powerful than Jesus. Now, let Al take his newly gotten money to the Temple so he can be dressed in all the finest threads. Then, preach of the evils of poverty.
posted by rough ashlar at 1:26 AM on December 6, 2005


long ago, didn't this used to be called loansharking

At the risk of being overly literal, long ago it was called usury. "Loan shark" is fairly recent term.
posted by moonbiter at 1:42 AM on December 6, 2005


I'm with you all the way -- so long as the adults involved are informed consenting adults.

I strongly doubt that those who are using these loansharking services are particularly well-informed.


Wow how freaking condescending!!!

Before I graduated college, I worked two a-little-above-minimum-wage jobs, carried a full load of classes, and cared for my 2 kids with no help from anyone. I made just a little too much to get any assistance (i.e. food stamps), but not quite enough to cover my bills.

Sometimes when I had an emergency...like the brakes went out on the car, I got sick and couldn't go to work, etc, I would pawn my car.

Believe it or not, I knew they were screwing me. I also knew if I didn't get the brakes fixed, I couldn't work. But if I paid to get the brakes fixed, I couldn't pay the bills. I would use the loan to get through the rough patch and move on.

Now the people that work in the loan places go for the hard sell...they always want to loan you more money esp if you paid the last loan off on time. That is where people get into trouble...they believe the nice guy that helped them out of a crisis when he tells them they deserve should take a loan just to treat himself.

How different is that than credit card companies giving you a higher limit when your card is maxed out? Or all the ads for refinancing your house just to get money take a vacation?

There are two economies...one for people who have enough money and one for the poor. These types of enterprises are just another cog in the poor person's economy.
posted by gminks at 3:33 AM on December 6, 2005


Screwing over the little guy is much of the point of religion, just like buisness.
posted by jeffburdges at 3:51 AM on December 6, 2005


jeffburdges, "screwing" is a bit of an understatement...

-----
So a few months ago I found myself thinking about payday loans. It seems these loans are marketed to financially naive people who have bad credit. But I manage my money fairly well and I have good credit. Why isn't anyone trying to sell me a Payday Platinum Loan? Afterall, I can't buy blow (or pay rent) with my credit card.

My only option appeared to be a credit card cash advance. But my credit card has really nasty terms for cash advances. They tack on an extra 10% interest, a 3% finance charge, and cap my advance at 20% of my credit limit.

Given the non-options of usurious payday loans and somewhat obscene credit card terms, I resigned myself to keeping $1000 in my checking account. Not so much for emergencies; just for the unexpected. But I don't want to keep a grand in my account. My credit union, though friendly and helpful, pays a generous interest rate of 2e-3 APY. If I could keep that money in a less liquid account it could earn over 4%. That's one free cell phone bill per year! (pre-tax, anyway)

Still feeling a bit discontent, I kept an eye out for a better solution. And I sure found one. Looking back, it seems obvious that I'd find the answer on Wall Street. As I mentioned earlier, the coke man doesn't have a merchant account, so it stands to reason that the market-maker type-A finance jocks have another system worked out. Yes they do.

It turns out I can just overdraw my brokerage account. This is equivalent to taking a margin loan on my already-purchased securities. This was quite a revelation. I had always thought of margin as simply a means to make leveraged trades. I hadn't really considered its utility outside of trading. And since a margin account can be opened with just $2000, this neat trick is decidedly middle-class.

So how does margin compare to payday loans and cash advances? Well, suppose you need $150 for 14 days. In California, Advance America will charge $26.25 (456% APR). My credit card will charge $6.17 (107% APR). And a margin loan will cost $0.50 (8.69% APR).
posted by ryanrs at 4:07 AM on December 6, 2005


Back to Sharpton, let's not forget this gem of history.
posted by allen.spaulding at 4:38 AM on December 6, 2005


This seems like a very poorly considered choice. And, as PP points out, we should all be glad that this buffoon couldn't drag us into an unwinnable war based on lies and hearsay.
posted by OmieWise at 5:48 AM on December 6, 2005


Land of the free
But the skin I'm in identifies me
So the people around me
Energize me
Callin' all aboard this train ride
Talkin' 'bout raw hardcore
Leavin' frauds on the outside
But the bad thing is anyone can ride the train
And the reason
For that is 'cause we look the same
Lookin' all around at my so called friend
Light skin to the brown
The black
Here we go again
Homey over there knows Keith an
But he be thiefin'
I don't trust him
Rather bust 'em
Up out goes his hand and I cough
He once stole from me
Yeah I wanna cut it off
The black thing is a ride I call the nighttrain
It rides the good and the bad
We call the monkey trained
Trained to attack the black it's true
'Cause some of them look just like you
Stayin' on the scene
Sittin' on the train
See all the faces
Look about the same
There go the sellout who's takin' a ride like Cargo
'Cause he deal
The keys from Key Largo
Runnin' Nat narcotic
By George he got it
Takin' makin' the G erotic
And the fiends they scheme
So he can put 'em down
But his method is wreck 'em
Put 'em in tha ground
Got tha nerve as hell
To yell brother man
He ain't black man
Known to murder his own
Traitor on the phone
Ridin' the train
Self-hater trained
To sell pain
posted by Smedleyman at 7:21 AM on December 6, 2005


So once Al figures out that these ads shoot his already limping reputation in the foot, he'll just stop showing up for the filming processes and the companies will be forced to hire Stephen Colbert to again play Al Sharpton.
posted by robocop is bleeding at 7:56 AM on December 6, 2005


Unbelievably insidious, this stuff. When these cases go to collection in small claims (and sometimes the next tier up, if the outstanding debt exceeds small claim jurisdictional limits), the lenders justify their exorbitant rates as simply the unintended consequences of "short-term loans." However, at least in Montana, no mechanism exists for the interest to stop accruing while the lender dawdles and watches the interest compound. In the court in which I work, I have determined that the lenders' claims are not collectible in that their actions are commercially unreasonable under the Uniform Commercial Code. They now routinely move to disqualify the judge for whom I work for other judges who haven't studied the issue. Worse, most of these operations are now owned by the same banks who will not loan money from their primary institutions to those they see as credit risks. Evil stuff.
posted by bigskyguy at 9:39 AM on December 6, 2005


ryanrs, Very cool idea! I will be sharing that tip with those members of my family who occasionally carry credt card debt over to the next month. Ironically, they all already have brokerage accounts, AFAIK.
posted by jeffburdges at 10:31 AM on December 6, 2005


This kind of shit should be illegal. Everywhere. There needs to be some basic, minimum standards decency in the marketplace. If only because no judge, attorney, or law enforcement official should have to enforce such a thing.
posted by ParisParamus at 4:40 AM CET on December 6 [!]


I'm delighted to find that I agree with ParisParamus!

So, now we've all accepted that the free market requires regulation by the state in order to protect the defenceless poor from the greedy rich, the next step is to consider how the same moral values apply to international trade... a question for another thread, perhaps.
posted by cleardawn at 10:58 AM on December 6, 2005


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