Wednesday, May 23, 2012

Loan sharks and credit saviours

Today I picked up the local free newspaper to read on my transit ride.  The back page had an interesting smattering of ads on it that read as follows from left to right:

Debt Consolidation
Bad Credit Welcome
Credit Approved

Credit Problems?
Reduce Your Debts
Consolidate all your debts into one small monthly payment

Need a loan?
Bankrupt?  Proposal?  Bruised Credit?

Debt Relief
Are you drowning in debts?
$500 Loan and more
No credit refused

What I love is that the payday loan companies are advertising directly beside the debt relief people.  Want to get yourself into debt trouble?  We can help!  Want to get back out of debt?  We can help!  Badly in debt and want us to lend you money at outrageous rates?  We can help!  Sometimes the debt relief ads in fact are from payday loan places that use debt relief as the leader to get people with bad credit to take a look and then try to sell them on even more overpriced debt.

We have loansharking laws in Canada that in theory prevent these kinds of abuses where companies exist only to prey off of those with poor financial skills, no self control, or innumeracy.  In theory.  In practice the laws simply don't work.  They stop credit card companies from charging interest rates as high as they want but they don't stop mostly legal loan sharks from stacking on penalties, administration fees, and other costs to push the real cost of a loan to hundreds or thousands of percent over a year.

The fact that these companies not only exist but can afford massive amounts of advertising to draw in their suckers tells us that our current laws are failing and we need to get them updated and given real teeth.  This isn't a matter of freedom but rather a matter of people victimizing others and providing nothing in return.  Nobody has a better life because payday loan places exist and we all are worse off when we provide desperate people more rope to hang themselves with.  You can't completely prevent real criminals from loaning people money and demanding ridiculous returns on it but you can get semi legitimate thieves like this out of business and we should do so.

1 comment:

  1. Right on! I spent lots of time teaching a class this year about 'payday loans'. When we calculated the effective interest per year the students all thought that they had done it wrong.

    "450%???... That can't be right. A credit card is only 20%!"

    I had to assure them that - yes, it is as big of a rip off and debt trap as it seems.