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“Pay Day” Loans Exacerbate Housing Crisis
- Text size
Nick Carey
Reuters
March 24, 2008
CLEVELAND (Reuters) – As hundreds of thousands of American home owners fall behind on their mortgage payments, more people are turning to short-term loans with sky-high interest rates just to get by.
While hard figures are hard to come by, evidence from nonprofit credit and mortgage counselors suggests that the number of people using these so-called “pay day loans” is growing as the U.S. housing crisis deepens, a negative sign for economic recovery.
“We’re hearing from around the country that many folks are buried deep in pay day loan debts as well as struggling with their mortgage payments,” said Uriah King, a policy associate at the Center for Responsible Lending (CRL).
A pay day loan is typically for a few hundred dollars, with a term of two weeks, and an interest rate as high as 800 percent. The average borrower ends up paying back $793 for a $325 loan, according to the Center.
The Center also estimates pay day lenders issued more than $28 billion in loans in 2005, the latest available figures.
In the Union Miles district of Cleveland, which has been hit hard by the housing crisis, all the conventional banks have been replaced by pay day lenders with brightly painted signs offering instant cash for a week or two to poor families.
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“When distressed home owners come to us it usually takes a while before we find out if they have pay day loans because they don’t mention it at first,” said Lindsey Sacher, community relations coordinator at nonprofit East Side Organizing Project on a recent tour of the district. “But by the time they come to us for help, they have nothing left.”
“If the Fed had not stepped in, we would have had pandemonium,” said James Melcher, president of the New York hedge fund Balestra Capital.
“There was the risk of a total meltdown at the beginning of last week. I don’t think most people have any idea how bad this chain could have been, and I am still not sure the Fed can maintain the solvency of the US banking system.”
All through early March the frontline players had watched in horror as Bear Stearns came under assault and then shrivelled into nothing as its $17bn reserve cushion vanished.
Melcher was already prepared – true to form for a man who made a fabulous return last year betting on the collapse of US mortgage securities. He is now turning his sights on Eastern Europe, the next shoe to drop.
“We’ve been worried for a long time there would be nobody to pay on the other side of our contracts, so we took profits early and got out of everything. The Greenspan policies that led to this have been the most irresponsible episode the world has ever seen,” he said.
Fed chairman Ben Bernanke has moved with breathtaking speed to contain the crisis. Last Sunday night, he resorted to the “nuclear option”, invoking a Depression-era clause – Article 13 (3) of the Federal Reserve Act – to be used in “unusual and exigent circumstances”.
| WATCH ALEX JONES’ ENDGAME ONLINE NOW in its entirety. View more High quality trailers at www.endgamethemovie.com |
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March 24th, 2008 at 6:42 am
How the hell are those payday loans legal?
March 24th, 2008 at 6:58 am
LOL they cant be.
March 24th, 2008 at 7:00 am
Nick Carey is obviously blowing smoke up Bernanke’s ass. The banks are still deeply involved in predatory lending practices and, as long as the illegal FED keeps printing money, they’ll keep lending it.
Debt banking and taxation are the vehicles for 21st century slavery.
Don’t file a 1040.
March 24th, 2008 at 7:15 am
I received a payday loan once, out of desperation, but I was smart enough to pay it back almost instantaneously and ever since that day I have not been back to one of those places. Honestly, I’d rather deal with the Cosa Nostra than these payday loan people…they are the epitome of predatory lending. You owe them more than the principal before the ink dries on your signature, it seems. You’re better off having your fingers cut off and your legs broken, trust me.
March 24th, 2008 at 7:42 am
later, when everything collapses. All the houses owned by the banks will be give to the FED as payment for all this s---.
The FED will own America.
March 24th, 2008 at 8:04 am
Looks like Federal reserve will end up owning over 9 million homes, looks to me that Fed will print as much money as required to buy all the faulting mortgages from the failing banks, banks will be bailed out with Money that Fed printed out of thin air and Fed will own all the homes. Looks to me a good deal for the owners of the Feds.
March 24th, 2008 at 8:18 am
The Federal Reserve will own all defaulted homes and when the US Government cannot pay its bills the Federal Reserve (Zionist Corporation) will take ALL FEDERALLY HELD LAND/FEDERAL PARKS ETC. as compensation….
They have already declared their intentions in this website — “. The national debt (to the Zionist Bankers/Federal Reserve Corporation) will be foreclosed, probably by paying off creditors with government land holdings, thus averting economic disaster. ” — http://www.noahide.com
“The central bank is an institution of the most deadly hostility existing against the principles and form of our Constitution. I am an enemy to all banks discounting bills or notes for anything but coin. If the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.” – Thomas Jefferson.
For over 1,700 years, the Jews have been bewailing their sad fate in that they have been exiled from their homeland, as they call Palestine. But gentlemen, did the world give it to them in fee simple, they would at once find some reason for not returning. Why? Because they are vampires, and vampires do not live on vampires. They cannot live only among themselves. They must subsist on Christians and other people not of their race……If you do not exclude them (the Jews), in less than 200 years our descendants will be working in the fields to furnish them substance, while they will be in the counting houses rubbing their hands. I warn you, gentlemen, if you do not exclude Jews for all time, your children will curse you in your graves. ———- BENJAMIN FRANKLIN
March 24th, 2008 at 8:36 am
I am a Canadian, free to speak without fear, free to worship in my own
way, free to stand for what I think right, free to oppose what I believe wrong,
or free to choose those who shall govern my country. This heritage of freedom I
pledge to uphold for myself and all mankind.
- John Diefenbaker (From the Canadian Bill of Rights, July 1, 1960.)
We shall be Canadians first, foremost, and always, and our policies
will be decided in Canada and not dictated by any other country.
- John G. Diefenbaker
A Canadian is merely an unarmed American with health care.
- John Wing
Canada is a nation of people who came from somewhere else.
- Microsoft Encarta
Canada is the linchpin of the English-speaking world.
- Sir Winston Churchill
The US is our trading partner, our neighbour, our ally and our
friend… and sometimes we’d like to give them such a smack!
- Rick Mercer
The letter “Z” comes from the Greek letter zeta and should be
pronounced “zed” not “zee” (Americans pronounce it “zee” to make the alphabet
song rhyme).
90% of Canadians live within 160km of the United States border.
Approx. 89% of Canada is not habitable, because the climate is too
extreme.
March 24th, 2008 at 8:37 am
oh and “f@#% you” pay day loans.
March 24th, 2008 at 10:28 am
All these payday loan people have a license to do business in your city and state. Who gave them permission to plunder the people?
March 24th, 2008 at 10:29 am
http://www.libertyforlife.com htttp://www.projectcamelot.org both are interesting. Payday loans the final capitulation of a working man. It is all by design, it could never be a accident, nor could it have been done by people who did not know what would happen. The Elite have used our money, and labor to make safe places for themselves. This, the endgame, is only for us. We stand by as man after man falls, and think we will not get hit either. We are doomed unless we take action soon. The more people we can, and the faster we can WAKE THEM UP the better chance we all have. We have to form up with the people of the world to say we want to be left alone. When someone points, and says there is the enemy, we must turn our gaze to the pointer, and say NO.
March 24th, 2008 at 11:04 am
I am going to payday right now to make a max withdrawal. I will then go to Academy and buy pump action shotguns and all the shells on the shelf. The when payday, the bank, or the FED come to collect, well…….
March 24th, 2008 at 12:49 pm
Like #12’s solution to the Pay Day loan thing. Wonder if this is Alan Greenscam’s newest line of work-scamming those most unable to fight back, with loan sharking techniques. Kind of like what he did to the rest of the country via the real estate bubble.
March 24th, 2008 at 2:43 pm
I was wondering why all this was added to this news story, when it doesn’t appear in the article on the sources website. I expect more journalistic integrity from this website than rewrites of other peoples stories and attributing it to the original author. That is fraud.
The following section is the text I’m referring to.
““If the Fed had not stepped in, we would have had pandemonium,” said James Melcher, president of the New York hedge fund Balestra Capital.
“There was the risk of a total meltdown at the beginning of last week. I don’t think most people have any idea how bad this chain could have been, and I am still not sure the Fed can maintain the solvency of the US banking system.”
All through early March the frontline players had watched in horror as Bear Stearns came under assault and then shrivelled into nothing as its $17bn reserve cushion vanished.
Melcher was already prepared – true to form for a man who made a fabulous return last year betting on the collapse of US mortgage securities. He is now turning his sights on Eastern Europe, the next shoe to drop.
“We’ve been worried for a long time there would be nobody to pay on the other side of our contracts, so we took profits early and got out of everything. The Greenspan policies that led to this have been the most irresponsible episode the world has ever seen,” he said.
Fed chairman Ben Bernanke has moved with breathtaking speed to contain the crisis. Last Sunday night, he resorted to the “nuclear option”, invoking a Depression-era clause – Article 13 (3) of the Federal Reserve Act – to be used in “unusual and exigent circumstances”.”
March 24th, 2008 at 3:20 pm
“legalized” loansharking in blatant violation of Sherman anti-trust act
what could be wrong with that?
March 24th, 2008 at 4:02 pm
I second what Concerned Reader has written. Who has added these quotes to somebody else’s article!! This does not look good at all!!
March 24th, 2008 at 5:07 pm
can you imagine loaning people 100,000 dollars for a house, knowing they could only afford a 900 dollars a month payment??? And then spiking up that payment to 1500 a month. I dont give a hoot what any of you say… thats predatory lending. Then to make matters worse, a non government private bank bails the major lenders, so that way… The banks own all the property free and clear. (This means, when someone buys the foreclosure at a discounted price, the lenders will make even more money + the bailout… (this is a total scam, and no other business on earth could operate this way without going to jail.)), and on top of that “new predatory” loans for these middle class homes will be there only option, becuase no average Joe American has any credit left… to even get a loan. Will someone please tell me Im just daydreaming???
March 24th, 2008 at 5:15 pm
never… and i mean never get a variable rate interest loan….
THIS IS THE ONLY WAY your payments can change from months to month.
lets say you get a variable rate loan starting at 7% and your monthly payment is 900 a month (starting payment)
If that rate shoots up to 15% in a year or too your screwed.
If you cannot get a FIXED rate loan at lets say at 10% or less… DO NOT. I REPEAT… do not fall for it.
Youll notice that many of the folks who are still living in their homes have fixed rate mortgage payments, and these were mostly loans from the 80’s and 90’s im thinking.
Renting is affordable… if you have two 10 to 20 dollar an hour incomes. you can still save.
March 24th, 2008 at 6:30 pm
This author is looking at the bottom of the bottom of Americans, and/or teenagers. No responsible Americans go to payday loans for a loan. Only drug adicts and drunks go there for loans cause they can’t wait until payday for a fix. I would be willing to bet that less than 2% of the customers at payday loans even own a home. I am not trying to be cruel just realistic. Anyone that has lived in a home purchased is not stupid enough to go to a payday loan. As far as the people who purchased homes on ARM’s and Subprime loans the number is pretty small as a percentage of the total of home buyer, if I recall the precentage is less than 6%. I am not for bailing them out or the banks let them fall down and pick themselfs up later they will be better off from the learning experience.
March 24th, 2008 at 6:55 pm
Hi my name is Brian Douglas, I had to use my federal income tax to pay-off my payday load this year. I told my wife were going to have be real conserative in our spending.
March 24th, 2008 at 7:49 pm
I work for a payday loan company and they get a bad rap through the main stream media. My company only charges 15%. $115.00 payback for $100.00, $230.00 payback for $200.00, etc… These loans are only meant for an unexpected bill, such as a car repair, or medical bill. They also help if some has overdrawn their bank account. Banks charge return check fees much higher than what payday loan companies charge. Banks also charge $30.00 or more per day that someone’s account is negative. Credit card companies are just as bad. A reasonable short-term loan can really help people who live paycheck to paycheck in these circumstances, and that is what they were designed for. Few banks will loan smaller increments of cash. Granted, some people do treat it as a lifestyle. Those people are stupid and self-destructive. The vast majority of people I deal with use it responsibly and sparingly, and like having the option. It is a choice and America was built on having a choice. My company doesn’t force anyone to come in to our office. We also set reasonable limits on how much some one can borrow because we want them to be able to pay the money back. We also want the person to feel that it was a worthwhile experience in case they may need it again in the future or if he or she knows someone in a similar situation. Word of mouth is the best advertiser. We would not be in business if we were not taking good care of our customers. Banks and credit card companies hate us because we are their competition. I am a good and moral man. I could not do my job if I felt I was taking advantage of fellow countrymen. Long live America, the Constitution and Freedom.
March 24th, 2008 at 8:24 pm
You would have to be freaking nuts to get a payday loan for mortgage payments. You would be better off using the credit card checks that come in the mail every week. Or just suck it up and move back in with the folks.
May 1st, 2008 at 5:17 am
Nice post. Makes since. But here is my siduation. Got a small loan to help me move, then go t another loan to help pay the other because my income was paying utilities. Then it continued. A new loan to pay the 2nd old loan, til I hit owning five companies (5 loans). I decided to stop! paying the fees, to extend the loan that I could not pay. In an effort to pay utilities, an a hope I can pay the loans before legal action. But the interest is so high. I dont think I can. I am behind on rent, car note, cant pay for child care, work 2 jobs every day. I have a BS degree, love god. I only see me owing. The rest of my life. Because soon, They will garnish, I will get fired for the number of garnishments. Loose my rent home, and the list gos on. I dont see how I will get out.