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Another Sign of a Sick EconomyLarry LaBorde We have all driven by them. They have sprouted up everywhere like kudzu in the summer. I am talking about the payday loan companies that seem to be everywhere. They are in strip malls, in liquor stores, in good neighborhoods and in poor neighborhoods. Our City has a metropolitan population of almost 400,000 people. There are enough of these payday loan companies to fill up 18 pages in our local yellow page section. If you have never had an occasion to enter one of these establishments prepare to be shocked. Most loan between $25 and $300 for 2 weeks at a time. They advertise: no credit checks and your money in 15 minutes. You simply have to write them a check and they will hold it for 2 weeks. For instance, if you borrow $100 they want a check for $120 and they agree to hold it for two weeks. If you do the math you will find that the annual interest rate works out to 520%. No wonder they are everywhere! I am immediately reminded of Popeye's friend Wimpy who used to say, "I'll gladly pay you on Tuesday for a hamburger today." Wimpy would have loved these payday loan places. Spend now and pay later. I asked my Father about banking practices back in the late 1960's and early 1970's when he served on the board of a locally-owned bank. He stated that they regularly made small short term loans to all sorts of customers. Today the banks are all owned by large national banks that are not interested in small short term loans because the paperwork involved is not worth their time. Small short term loans are now usually handled by cash advances on credit cards. Even at 24% interest cash advances on credit cards are still much cheaper than the 520% charged by the payday loan companies. Why then is there an explosion in these payday loan companies? Either the people involved do not know the difference between 24% and 520% or their charge cards are maxed out. Maybe their charge cards are just so charged up that they have no hope of ever paying them off so they just pay the minimum charge. The payday loan companies offer a short deal with immediate closure and no long tail. Maybe they feel that by using the payday loan company they are not heaping more debt upon their charge card balance that they will never pay off. Either way it is the choice of a financially desperate person. I am now seeing the big brother of the payday loan company (I suppose it is also the cousin of the home mortgage company) - the car title loan company. These loan companies will loan you cash against your car as long as it has a clear title (no loan or lien). This allows people to now mine all of the equity out of their old cars. People are now mining all the equity out of their homes and their old cars. They are borrowing 110% of their home's value and paying interest-only mortgages. They are borrowing up to the maximum on their charge cards. They are even spending their next paycheck two weeks early thanks to the payday loan companies. I have not even mentioned the traditional pawn shops but they are nothing new. We seem to be in a mad rush to destroy our financial future. Perhaps it is our local riverboat gambling that has caused the explosion in these payday loan companies in my town. I fear, however, that they are more common in other cities around the country than I dare to think. Check out your local yellow pages. Better yet, stop by and visit one yourself. At 520% interest rates you have to see it to believe it. Get out of debt and save; don't speculate. Start your own personal bank. Invest in 5,000 years of history. Invest in gold and silver. Larry LaBorde 321gold Inc |
