Friday, March 27, 2015

1464 Jaws

Jaws!  Not the movie, the loan sharks.  

You’re short a few bucks?  Bad credit? No credit?  No problem. Just amble down to the Moote Pointe Social Club and have a sit down with Bennie.

Before you know it, you’ll be rollin’ in dough.  And debt.  That thousand dollar loan will balloon faster than you can set tap water on fire in a fracking zone.

Oh. Wait.  Loan sharking is illegal. Maybe there’s a better way to get a few bucks to cover the light bill or pay your bookie. Sure.  Payday loans.  

These are short term low figure borrowings.  You see ads for them on TV all the time (if Rent-a-Matic hasn’t repossessed yours because you missed last week’s payment.)

A pretty sort of-Native American girl or a failed television star tells you in soothing terms you can get the money deposited in your checking account in 24 minutes or 24 hours.
You go for it.  The money is deposited.  And the fees pile up.  So what do you do?  You get a second loan to cover the first.  And a third to cover the second and before you know it you $300 debt turns into ten grand, Jaws is trying to take the money out of your checking account which is empty.  Your bank charges you for bounced checks and takes you to court and you lose again.

The Consumer Financial Protection Bureau has proposed new regs preventing some of these practices.  Eventually, most of them will be approved.

That’s not going to help people already in the system.  But at least it will curb the practice.

Maybe your state has already banned the storefront loan parlors.  But it can’t ban TV or stop you from answering digital ads (If Rent-a-Matic hasn’t repossessed the 1989 Tandy 1000 running MSDOS they sold you last year.)

The new rules -- if they’re approved intact -- will require short term lenders to assess the ability for borrowers to repay.  That didn’t exactly work out when banks were bundling bad loans and selling the bundles as good.  But maybe the pay-dayers have learned something from the misfortunes of their supposedly legitimate brothers.

According to the proposed rules, the agency found that contrary to the lender statements:

--Most can’t pay back on time.
--Most borrowers use the money to cover ordinary expenses not emergencies.

The new rules would lower the interest level to a maximum of 28%.  A final bill equivalent to 400% is not now uncommon.

You have to feel sorry for the lenders.  After all, they’re just simple business people making a living… doing well by doing good.  Far better than Bennie down at the social club.

And no kneecaps are hurt as they pick the rest of the carcass dry.

I’m Wes Richards. My opinions are my own but you’re welcome to them. ®
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© WJR 2015

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