The Payday Loan Public Option: As Bad As It Sounds
by Lawrence MeyersThe Virginia State Credit Union is mining for gold and it’s finding it. Thanks to former Virginia Governor Tim Kaine, state employees are being duped into a credit product designed to take more money from their paychecks than the payday loans it was designed to replace. Not only that, this spider catches its flies via unfair competition.
Welcome to The c, or “Virginia PDL Public Option”. It’s as bad an idea as has ever come into the credit space, short of the credit default swap. Naturally, it is the invention of Government.
I’ll jump over all the usual falsehoods that Mr. Kaine presents and cut to the chase.
What’s so bad about this program? Let’s take the unfair competition part first. I don’t have any problem with the government entering the consumer credit business, just as I have no problem with a fair public option for health care, as long as the playing field is level. Therein lies the rub.
The PDL Public Option provides loans up to $500, at a 24.99% APR, with a six-month term, and a limit of 2 loans annually. It requires membership in the Virginia Credit Union (VACU), which administers the program. The VACU also requires direct deposit of the borrower’s paycheck.
So we have traditional PDL businesses with their associated overhead of $9000/month and average default rate of 7% (which requires them to charge $15 – $20 per hundred borrowed just to make a profit) and have no guarantee whatsoever of repayment on one side. On the other, we have a public option in which the lender receives free advertising from the state government; is not required to make a profit (because credit unions are non-profit), and can therefore charge borrowers 95% less than traditional PDLs; allows borrowers to repay loans over a period 13 times longer than traditional PDLs; all the while enjoying a negligible default rate (because of paycheck direct deposit).
Sound fair? Not to me. Why should the government be permitted to act as a source of free advertising for a credit union, especially when the competition is unfair?
The PDL industry repeatedly reminds the media and policymakers that they welcome fair competition in the marketplace. Many products already exist. If the flesh-eating consumer activists and grandstanding politicians are so hot to get rid of payday loans, why not just create an alternative product to compete fairly in the marketplace? The reason is obvious. [No, it’s not because they’d make money and feel so guilty about it that they have to start an organization to fight themselves].
There are no other viable alternative products. If there were, they’d be available because of the efficiency of the free market.
No, instead, they choose to spend enormous time and effort to kill the product using unfair competition via a government-sponsored public option, while trying to get the traditional version banned by legislators.
When we dig deeper, though, the problems with the public option become even grander. The most significant concern I have is that this is nothing more than an attempt to shanghai unwitting state employees into a credit union they know nothing about. Normally when shopping for banking services, a consumer wants to compare a list of all the fees associated with their account. By enticing them with the PDL public option, they get sucked into VACU’s clutches without ever being offered a comprehensive list of fees.
And make no mistake – it’s the fees that VACU is salivating over. The biggest fees, of course, are for NSF checks and overdraft protection. These are the cash cows for CU’s and banks, although a host of other fees exist, as well.
Thus, over time, the fees paid to VACU will significantly dwarf those paid to PDLs over the same period.
The most insidious part of this whole operation is that the vaunted Mr. Kaine is offering it to state employees! While he decries payday lenders with the usual assortment of pejorative terms, he frames the PDL Public Option as a better alternative. Oh sure, it’s fine for those first two loans. But the average consumer needs several loans each year just to make ends meet, and they won’t get them from VACU! Instead, they’ll be paying VACU for the privilege of having an account and still have to use their local payday lender, while being required to take a financial education quiz and wait days (instead of minutes) to get their loan approved. It’s nothing more than a state-sponsored marketing ploy, and yet the media calls payday lenders the bad guys in the credit world.
Where is the criticism from the media about this plan? The attacks on DNC Chairman Tim Kaine for this move? Silence, as per usual from the “objective” media.
Make no mistake, government always makes things worse for consumers. We’ve already seen 58 million people have their credit card accounts closed or credit lines chopped because of the CARD Act. We saw consumers in North Carolina, Georgia, and Oregon fair much worse after government banned payday loans in those states. Now we have government directly endorsing and advertising on behalf of a competitor that will do exactly the opposite of what the program intends.
When will government learn this lesson? And when can we, as consumers, be trusted by government to handle our own affairs without their interference?v
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61 Comments
Aren't there laws against things like this??? Thisis just way too much government intrusion into our everyday lives!!
Great article. I live in Virginia, and it is hard to imagine a Governor who caters more to the elite and cares less about working people than Tim Kaine. His eagerness to squeeze money from state employees– who have not seen raises for some time– is just one more example of his indifference to the public welfare.
Let's hope incoming Governor Bob McDonnell will govern in accordance with the limited, responsible government principles he campaigned on.
Ok, this is OFF topic – but this guy has TRAGIC HAIR..not just bad – clown parade. asshat bad hair.
Oh, and he's a DemoncratSS too. Enough said!
If those state employees actually PRODUCED something, there might be a story here… but since they are just sucking at the government tit, who are we to judge their "honor amoung thieves"?
For those of you who actually love to produce, check this out: http://www.mymoneyfish.com/u/fishing4dollars
yes bad hair indeed…
as long as we're off topic, James- been driving a CTS-V (or Vettillac, as we like to call it) with 400 ponies and 6speed yet looking all the while a garden variety CTS. OK, a little more muscular…
sweet…
Government slight of hand and bait and switch. Classic!
That's not slight of hand, it's in your face big brother. Give us bread and circuses. Roll eyes emoticon.
Not to mention usurious (illegal) when you calculate the unfair competition SGA expenses that are NOT charged as part of the business model under the government program. I think Cowboy understands and most of you ex bankers will as well.
"And when can we, as consumers, be trusted by government to handle our own affairs without their interference?"
The human race collectively should be looking in the mirror. We are flawed. But does it have to be fatal?
It's not just that the MSM has lost its function as journalists (no matter how many Societies they create for themselves) but they also stoke the behavior that gets people into trouble. The "You have to have this" culture is almost chronic.
Dave,
with all due respect, I do savvy this: " By enticing them with the PDL public option, they get sucked into VACU’s clutches without ever being offered a comprehensive list of fees."
It is slight of hand. It is deceptive and predatory.
Just because I talk slow, doesn't mean I am slow………..
Just a matter of time before the Government got into the loan sharking business.
I wonder who they will send to break your legs if you dont pay?
When will government learn this lesson? And when can we, as consumers, be trusted by government to handle our own affairs without their interference?
Uh? ……………….that'd be like………………… maybe……………. never.
State employees are welcome to work elsewhere if they aren't happy with their raises.
Most of them can't handle the "unfair" private world though so they remain as a tax feeder in a government position and complain until they retire.
SEIU thugs or ACORN thugs. Take your pick.
Where there is money there is government schemeing to take it.
Kaine only worked part time as governor. The Department of Naturally Crazy (DNC) was his primary job. He did a job on Va as he was walking out the door, like taking a billion dollars out of the highway funds. Funds which come from gas tax for highways. If you want to find a democrat criminal equal to the Chicago democrat mob just look at democrats in Va. They may even be worse in Va.
Add to the comment. Hundreds of Va highway department workers are 'getting the shaft' or pink slips this week.
Reminds me of Kim Yong Il. Maybe Mao?
Good column but where you went wrong is with this statement:
"I don’t have any problem with the government entering the consumer credit business, just as I have no problem with a fair public option for health care, as long as the playing field is level."
It is not the function of government to be in either of those businesses. They will ALWAYS rig the game in their favor if they do become involved so the best way forward is to get them OUT of anything the private sector should be doing. Even if the initial legislation is based on a "level playing field", liberals will eventually get control and rig the game. They have to because no government entity can truly compete with the private sector on a "level playing field". Their involvement also opens up the taxpayer to potential losses when they mismanage the programs which they ALWAYS DO.
A couple of comments and a question. . .credit unions offering payday loans is nothing new. Many have offered these for years to their membership, as an alternative to seeing members lose the shirts off their backs to pawnshop-type payday lenders. Also, (could be wrong here) I highly doubt that the Virginia State Credit Union is a government entity. As Mr. Meyers himself points out, credit unions are not-for-profits. They are owned by their members, not by the government (and not by stockholders as are most banks). Credit unions are regulated by the NCUA as FDIC regulates banks, but that is the extent of government involvement. In the case of Virginia State Credit Union, its members happen to be state employees, in the same way that (i.e.) ABC Airline Credit Union’s members are employees of ABC Airline. So my question–where in all of this does the state of Virginia gain anything?
nice…very nice…very stealth!
LOL! Very Mao of him…you think he took a pix into the barber?
unfortunately with 8" of the lovely white stuff about to fall it reluctantly heads back to the stall… oh, well.
Figured you'd appreciate it anyway!
Not only will the Big Daddy Government now give you Sec. 8 housing, health care, and food stamps. They will also loan you money at 25%. God what a Country.
I thought you just typed slow.
Probably has a chinese barber and just told him "the usual."
Hey Now, Cowboy… not a thing slow about you. Country girl myself, raised on the Mason-Dixon Line, many beloved family members from South and West. Atlanta, San Antonio, Cheyenne, all with that sweet sound. A couple of years, as a little girl, lived near NYC, and took all kinds of abuse. They said I talked funny. Made fun of me unmerciful. Ha! Noo Yawkas tellin me I talk funny. Fast forward, I lived in Philadelphia where they talk funny. Yup, they laughed at me for the way I talked. My Northern company bought up a company from Chaalotte, big site in Richmond. Like home. As they said, talkin slow didn't make them slow. Just really good cover. I always got the scoop on a job down South. Yankees never could figure out why. Who's slow?
[...] the original post: » The Payday Loan Public Option: As Bad As It Sounds – Big Government tags: authorized, credit-forever, get-something, her-mistakes, mistakes, most-damaging, [...]
Hillary?
"Law Enforcement": enables this swill. Screw the Law! Screw the Constitution! The filth will bow and scrape before their Masters and then do whatever they're told. Just like the fine German police under the Nazis. I curse the bastards every day for what they've done to this country.
[...] post: » The Payday Loan Public Option: As Bad As It Sounds – Big Government tags: are-not, credit-product, kaine, payday, salary, spider, take-more, virginia-governor, [...]
Maybe even Buba himself…..from what I read the Clintons are very good at strong arm.
Deplorable, just like almost everything out of all forms of govt. lately.
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I don't think that Mr. Meyers is inferring that Virginia benefits per se from the insistance of having an account at this particular credit union other than a guarantee that they can ACH the loan owed to them. However there is something that I refer to as "crony capitalism" whereby the credit union benefits directly from a government program. The bigger question is, should the government usurp private industry by "competing unfairly" with said industry? This program becomes a microcosm of government picking, in effect, winners and losers.
[...] from: » The Payday Loan Public Option: As Bad As It Sounds – Big Government tags: credit-product, paychecks, payday, spider, state-employees, take-more, [...]
Credit default swaps (cds) are not bad. They are just a form of insurance, or optionality, like stock options. And they represent the freedom of two parties to enter a contract to exchange cash flows and take on risk—that is free enterprise. BUT when the regulating bank body does nothing to keep the leverage of the underwriting broker dealers & banks in check then ANYTHING can be bad. And when the losses from the inevitable collapse are taken on by the public, the lesson is never learned. So don't blame the product, blame the those using it and those whose duty it is to regulate. And if cds were abolished our whole financial system would crash. So get some first hand knowledge before you bad mouth cds. Otherwise nice article and no qualms with the subsequent content from your cds comment.
Well that's great NEWS about the investing of money to market that is going to clash. Nice decision tacking by the Governor of the state. I have read this story two days before at elisthawaii.com directory and very happy to see it. nice initiative by the way..
[...] here: » The Payday Loan Public Option: As Bad As It Sounds – Big Government Posted in [...]
No disrespect meant to you Cowboy. That doe remind me of that great scene in "A walk in the Clouds"……
"Just because I speak with an accent doesn't mean I think with one". One of the best quotes of all time. Cheers.
Vito Corleone?
Why yes there are "laws" prohibiting this but YOU obviously don't realize Congress is "above the law" so they need not bother following them.
"laws" are just for serf's like us!!
And don't you forget it!
[...] the rest here: » The Payday Loan Public Option: As Bad As It Sounds – Big Government tags: find-out, get-information, nothing-more, process, shanghai-unwitting, should-operate, [...]
Exhibit one that the government can't compete without stacking the deck. PDL companies have to deal with payroll and other operating expenses and defaults that are in the 7-17% range, all the while dealing with political grandstanding and state regulation. The state of Virginia forces it's PDL customers to have an account at a state credit union(with the attending NSF fees that can be earned) AND more importantly has control of their "customers" paychecks. Now that's a "risk" (with taxpayer money) that ANY red blooded American would love to take.
[...] here to see the original:? » The Payday Loan Public Option: As Bad As It Sounds – Big Government Post Date:January 7, 2010, Category:Uncategorized Author: admin, . [...]
WHAT DID YOU EXPECT FROM AN OBAMA CRONY? THANK GOD WE IN VIRGINIA ARE RID OF THIS libRETARD! ISN'T IT INTERESTING THAT HE IS NOW THE DNC CHAIRMAN? ANOTHER HARVARD LIBERAL LOON!
[...] » The Payday Loan Public Option: As Bad As It Sounds – Big Government Thanks to former Virginia Governor Tim Kaine, state employees are being duped into a credit product designed to take more money from their paychecks than the Payday Loans it was designed to replace. Not only that, this spider catches … [...]
MARK, SCARY, BUT SO TRUE!
MICHELLE, YES, THEY REMIND US SEVERAL TIMES EACH DAY, DON'T THEY? THEY OBVIOUSLY ARE CONFIDENT THAT WE CAN NOT DO ANYTHING ABOUT IT, AREN'T THEY? SHOULD "THEY" OR "WE" BE FRIGHTENED?
The Payday Loan Public Option: As Bad As It Sounds by Lawrence Meyers.
Yes, Great article!
Scary part is our PRESIDENT CURRENTLY IS IN THE PROCESS OF MAKING THIS LOOK LIKE SMALL POTATOES!
I find the entire concept amusing.
People use this product to dodge all sorts of collection's people. The state IS a collection entity. What this means is that they CANNOT offer the primary service that the 'other' payday guys offer.
Silly government by silly government idiots. All they will accomplish with this is to push the people that are dodging a collecter into even more shady arrangements.
Credit unions and banks charge an average of $27 in fees on an average overdraft of $36 according to a 2008 study of the impartial Federal Deposit Insurance Corp.
That's fees equivalent to $0.75 per dollar borrowed for 3-4 days (APR 1,950%) After 4 days, many banks charge an additional $8 per day. A 14-day overdraft of $100 may cost a bank or credit union customer $115 or more just in fees. And we all know what's happened to fees since the Credit Card Act and proposed banking restrictions! They've gone up, not down! BofA was charging $40 on a single overdraft!
By contrast, payday lenders charge $15-$20 in fees per $100 for 14-days.
Like the author suggests, the studies have repeatedly shown that overdrafting increases and the average family pays $300+ more in bank fees when by payday loans were no longer an option in states like Oregon, North Carolina and Georgia.
With all due respect to the Governor Kaine, who exactly is being helped when a government (i.e. tax dollar subsidized) program, targets one small percentage of the VA population and exposes them to additional overdraft fees?
This is an area that I vehemently disagree with you. Not the Government getting into the PDL business but the PDL business itself. I did the network and computers for a PDL company and they are nothing but loan sharks. I will support ALL laws to make this type of business unavailable to ANYONE!
People got by before there were PDL businesses and will again after they are gone.
I still believe that the government should stay the hell out of private business like this but I also believe that PDLs need to be completely outlawed!
Kaine is a TERRIBLE governmor. I can't wait until McDonnell steps in. He has the potential to be GREAT! …provided he lives up to his candidate persona.
URGENT: I WANT FRED THOMPSON TO RUN FOR PRESIDENT IN 2012!!!
[...] original here: » The Payday Loan Public Option: As Bad As It Sounds – Big Government Tags: credit, his-visit, muckrakers-form, open-rebellion, russia, street, the-credit, [...]
indeed! Just look at how much the Fannie Mae execs are taking down as a bonus this year- $4,000,000 of our money! But it's because they make a paultry $900,000 per year. I mean, really, who can live on that amount and still run a computer during the day….
Payday loans are not good in general, let's not forget the extremely high interest rate associated with payday loans. The interest rates starts from 390% and it can reach a maximum level of 780%. You need to repay the loan with such a high rate of interest within 14 days from when you take the loan. You also can only take out a minimal amount, with some states maximum at $500 and some $1000. If your business is in a desperate situation for cash, your better off with a business cash advance.
Payday loans are not good in general, let's not forget the extremely high interest rate associated with payday loans. The interest rates starts from 390% and it can reach a maximum level of 780%. You need to repay the loan with such a high rate of interest within 14 days from when you take the loan. You also can only take out a minimal amount, with some states maximum at $500 and some $1000. If your business is in a desperate situation for cash, your better off with a business cash advance.
Payday loans are not good in general, let's not forget the extremely high interest rate associated with payday loans. The interest rates starts from 390% and it can reach a maximum level of 780%. You need to repay the loan with such a high rate of interest within 14 days from when you take the loan. You also can only take out a minimal amount, with some states maximum at $500 and some $1000. If your business is in a desperate situation for cash, your better off with a business cash advance.
I am greatly disappointed that government is stepping in and taking this away from private business. This isn't fair in any arena.