Saver101:

I'm sorry, but I feel so strongly that what we have been witnessing across our nation isn't just about stupid, gluttonous consumers.

Of course it isn't, and I don't think anyone said that it was. Poor money choices has a lot to do with where anyone is, financially speaking, but businesses prey on those people. There are situations where it looks as if there is no way out, but I know from experience working with people that those with determination and willingness to do whatever is necessary, can learn and find ways out of desperate situations. 

That doesn't mean businesses aren't to blame, though.  

We in the U.S. live in a capitalistic society. That means anyone is free to offer a product or service that is within legal limits. As noted on another thread, banks are in the business of making money by renting out money at the highest rate they can get someone to pay. But as the amount of a given loan increases, so does the bank's risk. That means they want to only lend to credit-worthy borrowers.

The payday lenders, the car-title lenders, the check-cashing lenders, they all offer a service to people who have no credit history or a bad credit history and the banks won't take on the risk of lending to these people because they are a higher risk of loss to the bank. So other lenders meet the wants/needs of this high-risk group of borrowers by charging higher interest rates because the risk of default on the loan is proportionally higher, or for loan amounts that are so small that larger lenders don't want to bother with. Think about it - it takes the same amount of employee time to keep track of a $500 loan as it does to keep track of a $50,000 loan. So the small lender charges a higher interest rate to cover that employee time and the higher risk of default. And I'd wager that the default rates on those high-risk loans are very high, thus increasing the lender's risk and time required to collect on a legitimate debt to them.

No one forced these people to pay those higher interest rates. No one held a gun to their heads and "made them an offer they could not refuse". A free public education is offered to every child in the country (The quality may vary but that's another topic.) and all of this household budgeting stuff is grade-school arithmetic.

If someone won't take the time do the simple addition and total up their payments on rent-to-own furniture, or add up the payments on a car-title loan or a payday loan and figure out what it's really costing them, well sorry, I don't have any sympathy for them. It's just another form of Stupid Tax.

A couple of years ago I had a job interview with the company Check into Cash after the interview she offered me the job. I explained to her I could not morally rip off the poorest people in our society and how could she live with that being a minority herself.

I agree with you Walt. They are covering their risk.

I would of agreed with you a couple of years ago, but my Daughter was left penniless when her husband died 2 yrs ago and left her with 2 children under 4 .

No money a whopping 250 in the bank , no credit, no job she was a stay at home mom, he was only 21 and  so was she. People get into situations where they have to use companies that someone with no credit can get a loan, that still does not give them the right to rip them off. Someone one young like that does not understand interest rates etc. My daughter was lucky she had her parents to help her out until she got on her feet. So many do not!!!

Walt34:

That means they want to only lend to credit-worthy borrowers.

I agree with mostly everything that you said, except for this statement. I think that it was true until the last decade, when something changed so that loans were being given to just about anyone regardless of income and ability to pay. The banks may have at one time carried good loans made to credit worthy borrowers until final payment; now they get rid of them, sold off to who knows who. The bank does not have to maintain that loan or or tie up funds for long term; by selling it to an investor or other group the bank gets back money to loan again. The banks financial statements remain healthy; they have more assets than liabilities. By selling off loan papers the banks give up responsibility for when that loan fails to be repaid.

Wasn't it about giving loans to people who couldn't afford it what caused this mortgage debacle?

Edey

gabbiecat:

I would of agreed with you a couple of years ago, but my Daughter was left penniless when her husband died 2 yrs ago and left her with 2 children under 4 .

No money a whopping 250 in the bank , no credit, no job she was a stay at home mom, he was only 21 and  so was she. People get into situations where they have to use companies that someone with no credit can get a loan, that still does not give them the right to rip them off. Someone one young like that does not understand interest rates etc. My daughter was lucky she had her parents to help her out until she got on her feet. So many do not!!!

 

Things like that do happen - when I was in my early 20s I dated a young woman left in a similar situation. She was 20 when her husband was killed in a motorcycle accident and left her with a 6-month-old boy. She had family to fall back on and lived with her parents, as did my older sister, divorced with a 2-year-old who also moved back in with my mother. Her ex-husband was 22 and going on 5, if you get my drift. He still hasn't grown up.

I realize that not everyone is so fortunate as to have family to fall back on. That's where social services comes in to help, but not take over someone's life or make decisions for them. One 30-year-old woman I met on a case at work told me she wanted "someone who could control her life".

Sorry honey, only you can do that.

It's about personal responsibility, accountability, and the maturity to understand the ramifications of what one is doing. And when I was 20 I did know that 12% interest was then the going rate for a car loan, that 24% was grossly overpriced, and that renting furniture was a fool's game (unless for a party or other short-term use) and that using credit cards was digging a hole that would be very difficult to get out of.

When I was 17 my father (very much against my mother's wishes) co-signed a loan for me to buy a $300 motorcycle, which I made all the payments on, in full and on time for a year, with money from an after-school job. And I did add up all the payments and figured the true cost of the loan.

So if I could do that at age 17, I have a hard time understanding why much older people, with more life experiences than I had then, have such a hard time doing basic household budgeting. It's subtracting expenses for the basics - food, clothing, shelter - from income. What's left over is discretionary spending. If there are more expenses than income there are only two ways out - increase income or reduce spending.

Why, oh why, is this so hard for so many people?

Brandy:

They are covering their risk.

I guess this is where I'm not so certain that is what is happening with the kinds of lenders we're discussing.  When a company bases their business model on the expectation that people will fail to make their payments then that isn't covering their risks.  I believe that is exploitation.  And in my opinion exploitation should be prosecuted and regulations put in place so that it doesn't happen again.  But I don't see that happening. 

Saver101:

I guess this is where I'm not so certain that is what is happening with the kinds of lenders we're discussing.

Keep in mind all businesses have a goal of making money. These types of businesses are making their money by making loans or renting things to people who can not get credit elsewhere.

There must be a large number of people who have no or bad credit and desperate enough to use this companies if there are so many in business. Then one has to ask...just why are there so many people with no credit/bad credit needing or wanting those services.

It is a risky business as many low income and poor credit consumers are defaulting. I wouldn't say that justifies how much they are charging but I guess we are back to the fact they want to make money.

Brandy:

I think these are really good points you are making.  And I'm having a hard time articulating a response other to present a simplistic analogy in that just like businesses, thieves want to make money too.  At what point does a business transaction become a crime?

My other thought is that although people can do things to minimize becoming a victim of a theft or assault, but when they do, we typical don't (or shouldn't) blame the victim.  So then keeping with that analogy, people can and should do things to minimize being ripped off.  But when they are, how far do we go with holding them responsible vs. the person or company that ripped them off?