"Don't spend money that you don't have"

This can be seen by a very simple example. An employed man runs short of funds on the day before his payday. He needs $100 for medicine for his child. He comes to you and says, "Sir, I have an emergency and if you will please lend me $100 today I will pay you back $101 tomorrow after I get paid. I can't borrow from a bank or credit card company because I didn't pay back prior loans and have bad credit."

Now, are you going to take the time to review this man's loan application, check his references, pay for a Teletrack search to see if he has other loans outstanding, and risk losing $100 lending to someone with bad credit - for just $1.00 in profit? No greedy payday lender would do that. But if one felt sorry for the man and did, he would be accused by people like the ones at Consumerist.com of being a payday loan shark - because that's a 365% APR.

Can't you see how ridiculous that is? Consumer protection should be about curbing deceptive advertising, not telling merchants and service providers who have not been subsidized by the government how much they can charge for their product or service. That's authoritarianism.

If you want to help the small percentage of payday loan borrowers who get themselves into a debt trap by their own foolish misuse of payday loans then lobby the government to provide no-profit loans to people with emergencies. But don't try and show off how moral you are by criticizing payday lenders and trampling on the free market. That is what is stopping new people from entering the payday loan business, which would in turn bring prices down somewhat. But short-term loans cannot be profitably made at a low APR, simply because of the fixed costs involved in making a loan. The above example shows that very clearly but people who are trying to build their reputations by criticizing payday lenders won't acknowledge it. They are just looking for people to criticize so they can see themselves, and be seen by others, as the moral ones. Such people are much more harmful to society than payday lenders.

Way too many people go paycheck to paycheck and then have an emergency. These people should be able to walk into their regular bank, who sees them all the time and their accounts and get a temporary loans. Most (I will admit, not all, but most) would pay the loan back, but we're not charging them an arm and leg in interest which makes it even harder for these people to pay it back and get out of debt.

Just a thought...

"Record net income of $2.24 billion, up 11 percent from prior year's $2.02 billion, up 12 percent (annualized) from fourth quarter 2006"

https://www.wellsfargo.com/press/earnings20070417?year=2007

They have super high expense.

I don't honestly know how much latitude WF has in deciding to make a business loan, but I suspect it's quite a bit more than for individuals.

I'm finding it ironic, though, to say the least, that my bank has a 50 page PDF on their web site
titled "One Team, Pulling Together for Communities" that trumpets their commitment as follows: "Communities: as the premier financial services company in each of our markets. We'll promote the economic advancement of everyone in our communities including those not yet economically self-sufficient,who have yet to
share fully in the prosperity of our extraordinary
country," but sees no contradiction in enabling predatory lending.

Ironic and . . . disappointing.

Again, thanks for the discussion.
Reference to the above document:
https://www.wellsfargo.com/downloads/pdf/invest_relations/wf2006corporate_citizenship.pdf

Wells-Fargo does know. And they are choosing to sell.

But do they have a choice? Banks are regulated, and usually required to base their lending decisions on defensible economic standards, not on morality

I'll grant you that it's nonsense for a company required to be amoral to market itself as a good citizen.

Wells-Fargo has a right to make business decisions how they want as long as they don't break the law, discriminate, etc. Wells-Fargo also has a right to market themselves to me as being "good for my community." Wells-Fargo chooses to be complicit in predatory lending, an enabler if you will. That is their decision. As I said above , my decision is whether to do business with them as a banking services consumer.

My role as a citizen, is to attempt to outlaw predatory lending (ah, for the good old days of usury laws.)

In any event, your baseball bat salesman probably doesn't know who is using his bats to beat their wives. Wells-Fargo does know. And they are choosing to sell.

Maybe a better analogy would be: If you neighbor is beating his wife, should you hand him a baseball bat?

No, the appropriate analogy there would be: if someone is selling baseball bats to the public, should they be required to refuse to sell bats to wife-beaters?

Maybe a better analogy would be: If you neighbor is beating his wife, should you hand him a baseball bat?

@John Stracke: "If a company comes to a bank and asks for a loan, the only appropriate question for the bank to ask is, "can they pay it back?". "

Except that's not what Payday Lenders ask. Payday lenders, even more so than credit card lenders, do not want their customers to repay the loans in full in a timely manner.

I know that. But look again: I wasn't talking about when people come to the payday lenders; I was talking about when payday lenders come to the banks. I'm saying that, in that situation, it would be wrong for the banks to examine their customers' morals. Yes, the banks are making money from companies which prey on the poor; but that's the nature of money. Should a grocery store be expected to refuse to sell food to drug dealers?

Result part 2: But not money for medical bills or emergencies.

Step 3: End up in a payday loan place anyway.

Except that's not what Payday Lenders ask. Payday lenders, even more so than credit card lenders, do not want their customers to repay the loans in full in a timely manner.

That's the underlying issue with "predatory lending": the underlying business assumption isn't the same as a traditional loan; its closer to perpetual debt.

The Payday Lenders & credit card banks aren't interested in "can they pay back what they borrow", they want to know "how long can we make them pay us money, regardless of how much or how little they borrow".

Traditional lenders are concerned with a borrower's ability to pay off the principle over time. Predatory lenders are only concerned with the borrower's ability to pay off interest over time. That difference in criteria is the ethical principle that the whole discussion revolves around.

Seems like a bank could probably make money addressing the same problem that is "solved" by predatory lenders in local communities. And maybe build a future customer base, as well.

But, I'm not a banker, and I could be wrong about that. I am, however, a bank consumer. Wells-Fargo may find that they have one less consumer . . . particularly since my Wells-Fargo branch is about one and one-half blocks from a Payday Loan business on the list above.

So, Wells-Fargo, is constantly telling me how much they *care,* sponsoring community events, doing little charity drives, being oh-so-happy. I guess maybe they should put up or shut up.

But that's just me.

It's not as if the banks have invested in these companies.

But stopping fraud on your account would deny them the pleasure of trying to put you in jail for money you didn't spend!

Wrong. Just because you have a normal checking account doesn't mean you are on the brink of poverty with your crappy minimum wage Walmart job, hit a financial skid (car repair, etc.) and then find that the only way to get money fast when you live paycheck to paycheck is to go to these sharks.

What is the relationship between #1. and the rest? How would a "normal bank account", whatever that is, eliminate the need for a payday loan?

Step 2: Have some fucking common sense.

Result: You actually have money for groceries and 40's.

Step 2:Open chains of high interest payday loan companies

Step 3: Profit! Big Time!

Sounds like a surefire way to make oodles of cash.

I'd like them to call, yes. Deny me, if possible. I don't ever go to Vegas.

Would it even matter?

nweaver: from what I have read on the places, the default rate is enormous. This is why they have to charge high rates in the first place.

I suppose the way to get rid of the payday loan places is to make sure everyone pays of all their bills on time, thus keeping their credit risk low.

Any possible solutions for that?

They're trapped I tell you

What is suprising is that the payday lenders still need it...

At $70M/year profit, rolling that money back into the business and reducing the credit demands by $70M a year, assuming a 10% interest line of credit, would result in $7M/year additional profit until the end of time.

The other thing that is suprising is just how LOW the profit figures are, given the revenue figures... These places must be very inefficient and have a huge default rate to boot.

Frankly, if Wal*Mart takes over this business, it would probably be better for all involved, at least Wal*Mart is efficiently evil and passes the cost savings on to their customers.

Did they think they payday lenders were printing their money in the back room?

Seriously now...

(DISCLAIMER: I hate payday lenders like the rest of everybody else. But I'm not sure that this is a big huge surprise that they get their money from... *gasp* banks!)

Do you want Wells to call and counsel you when it sees that you're taking a cash advance on your credit card in Vegas?

The major record labels did this with rap music for years. Not that there's anything wrong with rap.