One Utah

  . . . .and keep payday lenders in business.

For the obvious reason that I just borrowed twenty some odd thousand dollars this week, I am thinking about credit issues which means I’m thinking about payday lending.

Here’s the deal: Saturday I went for a test drive. On Monday, I called the salesperson and said, “I want the car. Run my credit. Here’s my social security number.” He called me back about 20, maybe 30, minutes later and said, “You’re approved. Here’s the rate. When do you want to get the car?” (BTW, I got a screamin’ deal since VW is clearing out the 2006 stock.) Monday night I filled out the paper work, left the car for some treatments to protect the top and the seats, got a loaner from the dealer and went home. Tuesday at 5:30 pm, I took delivery of my new car. Total time invested, including the test drive: about 2 hours. The ease and speed with which I was able to access credit has me thinking about credit as a system.

Our system rewards people who use credit. I known women who, at 50 years old, found themselves unable to get credit because they’d always put everything in their husband’s name; widowed or divorced, they were locked out of the credit system and, in one case, unable to open a checking account in her own name even though she’d been writing the checks for years (she eventually brought her husband’s death certificate into the bank to have her name placed on the existing checking account). Other persons may have rarely accessed credit due to financial considerations – if you make minimum wage, the idea of a home mortgage is unimaginable, a car loan unlikely, credit cards largely inaccessible. Low income workers who make more than minimum wage may still be largely locked out of credit. Immigrants, persons in the military and elderly persons also have limited access to regular avenues of credit.

Many of these households are already struggling financially - if they aren’t already on teetering on the precipice of financial ruin – and manage to hold things together in good times. Even a minor setback can be disastrous – illness, hospitalization, car repair can cost far more than the family’s resources and then some. Faced with paying a doctor to treat a sick child or paying the rent, most families will pay the doctor. Prescriptions without insurance – even generics – can easily cost $100. Purchasing even a cheap car can devastate a family’s finances. Missing work isn’t an option.

The outcome of these financial problems is desperation and despair. Desperate people make desperate choices. When someone asks, “Well why don’t people go to a bank rather than a payday lender?” they’re either not aware or not acknowledging that reality. There are other issues – payday lenders are open later than banks. If I need emergency cash at 7:30 at night, chances are I can’t go to a bank and talk to someone. I can go to a payday lender. For people facing an immediate financial crisis, the payday lender – promising easy and immediate cash – is readily accessible, a way to stave off the disaster for two weeks, and a way to meet the money need right now. The individual at the payday lender’s counter is thinking “I have to pay the doctor now. I have to buy the medicine. I have to get to work tomorrow so I have to get the car fixed tonight.” They’re not thinking, “Let me amortize this loan amount on my financial calculator.”

And that’s how the industry functions. It’s not the happy people in the TV ads – Dad at the golf course, Mom at home with the kids trying to buy a cake for little Susie’s birthday party. It’s desperate people trying to figure out a way to squeak by for another 14 days.

And that’s why people use payday lenders – not because they just can’t wait to spend their money on luxury goods, not because they’re too stupid to not pay 520% interest. Because faced with dire choices, they have gotten desperate and desperate people do desperate things.

This entry was posted Thursday, December 7th, 2006 at 1:42 pm and is filed under Economic Exploitation, Economy, Payday Lending, This Blog. You can leave a response, or trackback from your own site.