Payday loans were created with the intention to assist people in times of financial need, for the short-term, with the promise to be repaid by the next working paycheck. In addition, payday loan companies such as Cash Connection even helped struggling people who didn’t use banks as a way to increase access to their services, in effort to convince nearly every type of person that they could benefit by pulling out a short term loan. This was a beneficial, ethical approach because during 1995 to 2003, banking overdraft fees nearly doubled and banks refused to serve individuals who sought payday loans, making payday loan companies the optimal choice for short term financial services. Nonetheless, the concept of assisting people in times of need and financial struggle at their convenience is an ethical approach with good intentions.
On top of providing credit to thousands of desperate consumers, the payday loan industry contributed heavily to the US economy in various regions. Thanks to the payday loan industry, over $10billion GDP was contributed to the economy, supporting 155,000 people with working jobs, while employing over 75,000 payday loan employees at 24,000 retail locations. In 2007 alone, the payday lending industry produced about $44 billion in credit to American consumers, generating $6.4 billion in labor impact and another whopping $2.6 billion in state, federal, and local taxes, amounting to approximately $37,700 produced per store employee. In this massive industry, companies weren’t considered industry players until they had over 51 branch locations, of which only three companies existed.
Problems and Inefficiency
Although payday loans were viewed as a blessing to many people in need of money at the last minutes and...
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...o have more established positions that can offer better rates that payday loan companies, it may be beneficial to try to merge into a new industry that is not as competitive nor demanding. Perhaps entering the long term loan industry may be a better option, because more money will be on the line and the money will be actually loaned for a specific reason rather than just for “avoiding late charges on bills” or “unexpected expenses” which was the primary use for payday loans. In such a competitive industry, businesses will do anything they can in their power to give themselves an upper hand over competitors which usually leads to unethical practices. If the payday loan industry evolved into a longer term loan industry, with the actual intentions to help people overcome great financial obstacles, they will have a more reputable name and surely practice more ethically.
Predatory lending usually occurs when financial institutions take unfair advantage of consumer’s financial needs by extending credit with terms that compensate them over and beyond the credit risk. Predatory lending comes in different forms, but always involve the consumer paying high interest rates and exorbitant fees. Some predatory lending practices include:
Through the use of statistics, expert testimony, appeals to emotions, and a few comparisons, Scurlock tries to convey his message saying that because the lending industry’s main concern is maximizing profits, they have made it impossible to not have a credit card and avoid being taken advantage of. He accomplishes his goal of clearly relaying his argument to the audience with the high amount of credible support he provides.
As a native of Texas, Lendol Calder graduated Phi Beta Kappa from the University of Texas at Austin in 1980 and went on to earn his Ph.D. from the University of Chicago in 1993. Calder is currently a Professor of History and African-American Studies at Augustana College and is presently working on an analysis of the thrift ethos in American history and culture with a team of scholars organized by the Templeton Foundation and the Institute for the Advanced Study of American Culture at the University of Virginia. He is a scholar of the history of American consumerism and this interest led him to study the progression of consumer credit in America when little else had been published on the topic. Calder draws from some of his own experience with consumer credit in the form of a department store credit card he and his wife obtained early in their marriage to purchase what he says was “a suite of furniture costing twice as much money as we could have scraped from our bank account.” (p.5) Most of his presumptions, however, were discarded in his explorations of the “peaks and valleys of consumer credit” (p.16) due to the fact that most common sense beliefs about the history of credit are in actuality a myth. In Calder’s Acknowledgments, he gives thanks to his parents for coming to his aid and saving him “from having to do some unwanted personal research into the subject of debt.” (p.xiii)
Ehrenreich, B. (2001). Nickle and dimed: on (not) getting by in america. New York, NY: Owl Books Henry Holt and Company, LLC.
The first major point that Gretchen Morgenson makes in her article “The Debt Trap” is how lenders have found ways to make a bigger profit from borrowers in the recent years. Shes states that for example, “the rates that credit card companies charge borrowers rose from 17.7 percent in 2005, to 19.1 last year”. That difference added to billions of dollars charged annually. She stated that overall, these lenders increased “junk fees by fifty percent in recent years”. In the capitalistic society that we live in, these lending companies are doing everything they can to make as much of a profit as they can. If this means shoving Americans into the ground in the profit, they do not seem to feel bad about it one bit. This has created a problem with
Throughout the course of the semester, we as a class were assigned to read the book Nickel & Dimed: On (Not) Getting By In America by Barbara Ehrenreich. The book was written to look at the low-wage workforce and how the people who make up this society, live their lives. Ehrenreich does first hand investigations by working in some of these minimal wage jobs across the country. While conducting these investigations to help get the full understanding of these lifestyles, Ehrenreich had to accept the lowest costing place to live, as well as the highest paying job she could find. Ehrenreich also had self proclaimed limitations for herself, that she often broke throughout the text. I found it interesting that Ehrenreich limited herself by setting boundaries like never going hungry, not being homeless, no use of her personal credit card. Although these boundaries are logical and reasonable from an investigators side, I feel that these limitations she set for herself hindered the real experience of these jobs and lifestyles she is trying to g...
Financial service providers can misguide or misinform their clients about their services or rights. For example, check-cashing services and tax preparers may charge high interest rates and fees for their services. Working seems to instill in former drug addicts or welfare recipients a sense of competence, pride, and hope for the future. Shipler states that “work works” when other factors and circumstances, a family with multiple wage earners, a sense of competition, job-finding skills, money management skills, and persistence, fall into place.
Etzioni explains that working jobs doesn’t teach teens good money habits. First of all, I don’t believe it is McDonald’s job to teach kids how to use their money. One of the biggest advantages to having money at that age is that they can completely mess up and it won’t affect them in a dangerous way. Having money to spend can teach kids to spend their money wisely. The first several times they see something they want they will buy and find out later when it goes on sale that they messed up. Also teens try to borrow money all the time to get what they want quick. Often times they will end up in debt, but lucky for them they’re young enough that their parents can bail them out. If they don’t have the chance to make these mistakes before they move away, the consequences could be much more
Leading up to the crisis of the housing market, borrowers got mortgages without understanding the terms. Banks were giving out loans to people the banks weren't sure could pay the money back. The closer to the crisis, the higher the frequency of illegitimate loans and mortgages. Because there were so many mortgages on houses that could not be paid back, millions of mortgages were foreclosed on, and the houses we...
Scott Gilmore's “Me, The Other Scott, And payday-loans” is an educational paper based on Gilmore's experience with financial fraud, the stresses of Payday Loans and the stigma behind people who use payday- loans. Payday-loans can be a lifesaver in a pinch, but could metaphorically kill you in the long run. Additionally, payday-loans target the financially unstable and people in less appealing urban areas because they assume they are the ones who need the loans. In my opinion, it is unfair to label someone using payday-loans as poor. Gilmore supports this point as he states, “these are respectable people with jobs facing unexpected car repair, or running too short to buy back to school supplies”. The reality is not
What at first seemed to be an economic slump turned into a brutal crisis, and all eyes looked to the Government and Federal Reserve to help the economy. With the large amount of debt the economy faced the Federal Reserve stepped in and bailed out the banks in an attempt to smooth over the financial struggles of the economy. The banks that survived took precautionary measures, making it difficult for businesses and consumers to borrow (Love, 2011). Thus leading to businesses failing and less jobs being created. The large amount of debt had also taken its toll on the job market. Between 2007 and 2009 employment dropped by 8 million workers, causing the unemployment rate to go from 4.7 percent to 10 percent (McConnell, 2012).
High workloads, high stress and low wages are the norm, (Greenhouse, 2008) which translates into a lack of work/life balance. Consequently, the largest job growth sector in America is the low wage retail and food service sector. (Draut, 2005) Chain stores are everywhere, making jobs at places like Starbucks and Best Buy plentiful. Unfortunately, these types of jobs pay little above minimum wage. This puts the debt-strapped college grad in the impossible situation of having an income, but not earning enough to cover the basics. Further still, working in food service and retail guarantees an unpredictable schedule. Some retailers will post work schedules only a few days to a week in advance, (Draut, 2005) while others will call their employees at the last minute to fill shifts, thus making it difficult to plan or have a social life. And considering that many college grads work in these industries, it is understandable how this kind of work-stress coupled with financial stress is a recipe for disaster. In addition, employees often risk losing their jobs when they need to miss work to care for sick children. (Greenhouse,
In October of 1929, the American economy took a huge hit from the stock market crash. Since so much people had invested their money and time in the banks, when the banks closed many had lost all of their money and were in the deep poverty. Because of this, one of my first actions of the New Deal was the Federal Deposit Insurance Corporation (FDIC). Every bank in the United States had to abide by this rule. This banking program I launched not only ensured the safety and protection of deposits made my users of banks, but had also restored America’s faith in banks, causing people to once again use banks which contributed in enriching the economy. Another legislation I was determined to get passed...
Countrywide’s business tactic was “Fund ‘em”. If a person does not have a job, or any assets the answer was still “Fund ‘em”. This is a practice called subprime lending which allows loan...
The lack of knowledge plays a big part in the debt young people are getting themselves into. Credit cards are often offered to young adults as soon as they get out of high school. Many take advantage of having a credit card without even thinking about the responsibilities that come with it, instead they think about the things they will be able to buy. In “Generation Debt” the author Tamara Draut says that young people are getting into debt younger than ever before. Two of the reasons that are more costly on young students that hit hard on the budget are car repairs, and travel for students who have families and friends in other states (231). From my experience I know first-hand what it was like to be offered credit cards right out of high school, and I didn’t hesitate to get any of them. I st...