Friday, January 18, 2008

usury

a couple of years ago they started running those CashCall ads on television. i always found them really scary. all they said was "need cash? make the CashCall." it didn't discuss the specifics of the loans; it didn't discuss any of the terms. all it said was to call them and get cash.

thanks to increased scrutiny on the usury industry, payday loans and other nontraditional lending institutions are having to disclose more information in advertisements, and warn people of the obvious fact that they have to pay the loans back in a timely fashion. this is necessary...these places advertise on daytime television, billboards, and bus shelters, preying on people who are short on cash and desperate enough to fall for the quick fix they are selling, not realizing how expensive such a "solution" will be in the end.

now, the CashCall ads have a disclaimer telling people to make sure they can pay the monthly payments before taking out a loan. that's not the part i found remarkable. at the end of the new ad, it says in the fine print that the average APR on one of these CashCall loans is 99.25%.

O.O

*jaw drop*

at least they are disclosing that fact now. but, such a high interest rate should not be relegated to the fine print. almost 100% APR? if there weren't already so much proof that a lot of these companies are in business to steal from whoever will fall for it, this is surely it. it's disgusting.

5 comments:

HuckChuckFacts said...

The high rate charge is necessary in such a business because the default rate of these loans is just as "remarkably high" as the interest rate. That is, in order to turn a profit, the business must charge a 99% interest rate on all loans because they know probably that of the 20 loans they make in any given day only 2 or 3 will be repaid in full. Moreover, the high interest rate is a function of the fact that the loan decision is not usually made on a credit score basis because the type of people using these services almost uniformly have "remarkably" low credit.

So, yes, it is high. But isn't it justifiably high.

Huck said...

Oh and I forgot...another consideration is that these are very short term loans (usually a matter of weeks since they are considered "payday advance loans"). Therefore, the rate isn't as high as it seems. It isn't like you pay $100 in interest on your $100 dollar loan. While it will vary in terms of length and how the loan compounds, on a $100 loan they are probably only paying 20-30 bucks in interest.

nicolle said...

i understand that a lot of these loans are given out in high-risk cases to people with poor credit. i understand that the high interest rate is a function of that. but, i think the entire business model is unconscionable. they charge "loan origination fees" that are a third to a half of the loan fee...because they know they are the only place to which these people can likely turn for a loan. charging such high fees when they doubt the person can even pay back the principal isn't responsible business...it's more like a high-priced gambling game.

as for the assertion that the loans are short-term...that's what payday loans are designed to be, and that's why they haven't been marked illegal. if they're paid off quickly, you're right--they're probably not paying double the loan. however, many people don't have the money to pay them back in the first place--they get the loan to get them out of a financial bind, and paying back the loan is a bigger financial burden then they can take. it's a vicious cycle, and it's one that the companies know happens--it's an unsatisfactory explanation that the loans are intended as short-term.

huck said...

What is unconscionable is the fact that the people taking out these loans have a fucking plasma tv while I don't even have a flat-tube tv!

Riz520 said...

Hey Nicolle, thanks for the comment! I feel like the album as a whole is pretty good... "Rascal King" is probably my fav though.