Usury

[KeithE]

[Mrs Haruo]

Brother, let me shake your hand. I used to work as a receptionist at Army Relief/Army Emergency Services and at a non-profit Credit Counseling Service. In the few years I worked for these agencies, I certainly got an education. My parents were well educated and had frugal spending habits honed by life as it was BEFORE Social Security kicked in, when if you didn't save for a rainy day or have family or a church to look out for you, people quite regularly dropped in the streets just like overworked draft animals. They could see a sharp operator and a cheat a mile away.
So many of these young soldiers and their child brides got taken in by "Easy Payments" that drive up the price of furniture and appliances to triple the cost and more by using cash, and the gleam of brand new everything when you are starting out with a suitcase of not much can be sooo tempting. Payday Loan operations were declared "OFF LIMITS" to soldiers, but when they were out in the field for weeks or months at a time and the paychecks didn't come out on time for some reason, spouses get taken in and run up horrible bills.

[Sandy]

I've learned, through more than thirty years in church related vocational ministry, that there is no line which defines morality when it comes to money. It's pretty simple for me, my general philosophy toward credit has been to simply say "NO!" when interest rates on a loan or credit card exceed what I consider to be fair and reasonable. With interest rates set by the Fed as low as they are, credit that costs 7% is doubling the profit of the lender. Event throwing in the "costs" that amounts to a substantial and fair profit margin, more than in most other businesses except insurance and health care. So what percentage constitutes "usury"? Most conservatives won't draw a line, measuring success by how much money you can suck at a time without choking on it.

And you can't argue that "just saying no" is a workable solution. Ever try to rent a car without a major credit card? Most won't let you use a debit card, and if you do, they charge off a huge deposit. No one takes cash. Why? Because they are renting you a valuable object and they want to make sure you bring it back? Hogwash. Car rental companies get a commission from credit card companies for every vehicle they rent to a customer who uses their card. Ever try to buy furniture and pay cash? I was flatly told in a very prominent and well known Houston furniture store several years ago that the discount prices on the furniture I wanted to buy only applied if I bought them on in-store credit, at 8.5% interest. The regular price was 25% more. I walked.

The whole credit and loan business is a racket, with commissions paid for goading people into higher interest rate cards and notes. And they're making the money off of yours that is deposited in their institution, for which they are paying about 2% or less. It's legalized robbery.

[ET]

We also have (short-term loans).

The problem with this issue is that the math is so distorted. You get some article stating "450%" interest or something like that? Really? By that process, who would consider it something akin to "usury" to be charged rent at the rate of $3600/month or $43800/year for a living space of maybe 350 sq ft. That's what we were charged at a Comfort Suites in Louisville this past weekend -- the equivalent of $43,800 a year for a hotel room.

Sandy in his post above says that an interest rate of 7% is "doubling the profit of the lender". So let's do the math. Being that this market deals almost exclusively in small loans, we'll deal with a loan of $500. Now if Sandy gets to cap the interest rate at 7%, that means that the lender will make approximately $1.34 on such a loan if the loan term is 2 weeks (without getting to complicated with daily and monthly compounding, a 7% rate on $500 yields $35 a YEAR in interest.)

If we have ONLY one employee working ONLY a 40 hour week, that means in order to cover the minimum wage of $7.25 an hour, the lender must make approximately 430 $500 loans in a two week period to cover ONLY the cost of the minimum wage. That means that the employee must average cranking out just over 5 loans per hour, every hour for two weeks to cover ONLY the cost of the employee. ASSUMING a ZERO default rate and assuming that the lender borrows the money from the Fed at 0%, that means that the pay-day lender charging 7% "only" needs 430 loans every two weeks to pay his one employee. Then after paying the employee, there's store rental, equipment costs, something for the owner to make a living or to make it worthwhile to bother with the business, etc., etc.

If we cap the interest at 25%, those figures change to $4.80 in interest every two weeks and generating 121 loans every two weeks.

So, if we ban such operations, it still remains that there is a segment of the population that will still need the services that are provided. Since there are no solutions, only trade-offs in economics then:

1) Will banks be sued for discrimination because those needing the money exceed the risk associated with lower interest rates and/or because they refuse to engage in short-term lending?
2) Will banks be required to make such loans, and then find it necessary to raise their service charges or other fees or interest because of taking on larger risks. Interest rates are nothing but a reflection of risk in the banking industry. The higher the risk, the higher the interest rate.
3) Will the people go to some dark corner of a bar and arrange to get the money from the dude in the sunglasses with an understanding that his goon with the baseball bat will show up to collect if a payment is missed?
4) Is it better to pay $45 charge to get an advance on your $300 ("460%" interest!!!) check to keep the utilities on, or is it better to go without power for a few days?
5) What will fill the void if such operations are abolished, and will it be better or worse than these operations now, however distasteful we may find them?
6) Will we find it agreeable for banks to severely limit access to credit so that lower, government-imposed interest rates that reflect actual risk can be charge?

We can all stand on our soap-box and proclaim our moral indignation for such operations, but what will be the trade-offs of our abolition movement and, will we be willing to accept the consequences (such as someone having to live without power for a few days or a week or a rise in loan sharks with rather disagreeable "collection policies")? Or will we just turn around in a few years with another round of indignation when the "fix" didn't fix anything and the issue just morphed into another objectionable form and now we need another round of government "fixin'"?

[Ed Pettibone]

Ed: ET, I see you rant about the cost of you motel room as mixing apples and bananas in the discussion of usury. BTW, did you use the free Wi Fi or the well equiped exercise room and how about the free breakfast. what about the laundry? At $119.00 for one night I would say it was somewhat high for a Comfort Inn but if it was 2 nights it would be a steal. While we are here How much of that was Tax. And you have to consider that if you contracted for that room for a year you would get a substantial discount. I get a free night every forth night at Red Roof, where ever.

Red Roofs have a wide range of attractiveness but we generally find them quite suitable. We did have one in Ill last year that I would not return to. But a few years back I almost felt guilty about using my free forth night at a very luxurious one in the southern part of South Carolina. well above the three where we had stayed in the other part of our trip. In addition to the amenities mentioned above that one had a great swimming pool with Palm Trees and all. Plus a great buffet breakfast was included .

[Sandy]

Predictably, ET's contribution to the discussion completely avoids any hint of morality, and runs through all of the straw man bugaboos that he can come up with. The example is an apples and oranges comparison. The issue is really relatively simple, and involves determining the level of exploitation that is involved with loaning money. That's really the bottom line, whether it is a matter of deliberately hidden and vague policies in the "fine print" of a credit contract, or whether it is a desperate need for immediate cash. And I think it is also a matter of how much deception and dishonesty is involved. It's tilting the rules away from equal protection.

[KeithE]

[KeithE]

[William Thornton]

[William Thornton]

[Sandy]

[William Thornton]

[KeithE]

[ET]

[Sandy]

[ET]

[ET]

[Sandy]

[ET]

You know, Sandy, I'm not sure what good it does to discuss things here. I most certainly do NOT remove the moral aspect to this discussion. However, if I take a different position - or even just ask a question as in this situation - it is often characterized as defending greed or oppressing the poor, displaying a lack of morality on my part or I'm accused of setting Christian principles aside to argue my position. Nor do I think I am out of line in stating that you and Keith -- and certainly the general American political left - normally lay claim to a higher moral plane than we "evil" conservatives. One of your regular tactics is to dismiss William and I as betraying our Christian beliefs because we don't agree with your positions. We are just supposed to accept them because you say they are more "moral" and we should not concern ourselves with whether or not they accomplish the goal you say they will.

You can rant and rave about this pay-day lending situation all you want, but whatever solution you propose will have consequences. Your "answer" to me raising that FACT is to say that it is a "straw man" argument. What good is your "morality" if you don't give a about the impact of your "reforms" on someone and are not willing to discuss whether your "solution" - whatever that may be - to the pay-day lending situation will make people better or worse off?

Will the borrowers no longer have access to money and have to go without food or power until their next paycheck? Will they have to go see Bubba and his goons in the dark corner of the bar because legal pay-day lenders are no longer available? Are you going to lend them money? Do you have data on a business model for such a business that proves it can survive charging 7%?

Is going without food or power a more moral solution than the current one? Is getting beat up by Bubba's goons a more moral solution than the current one if legal pay-day lenders are abolished? Since there are no solutions, only trade-offs, it rests on you to make the argument that whatever solution you propose is a more "moral" solution than the current situation.

[William Thornton]

Perhaps my mod/lib friends would name an interest rate above which they would label as usurious, immoral, and Unchrisrian.

[Dave Roberts]

I would take a shot at 5% above the prevailing new car loan rate for bank or credit union financing.

[KeithE]

[Sandy]

[Mrs Haruo]

Meanwhile do any of your churches do active education programs in practical living skills to help your youth not to get taken in by predatory lending?. A lot of people get into financial trouble because they were never taught wise practices in the first place. Recently widowed folks often need a refresher course too.

[William Thornton]

As a pastor, Mrs. Haruo, I did all I knew to do in regard to financial education, both personally and with church programs.