I see the HN crowd as rather monotonic, and thanks to stories like yours, it shows me wrong, and that’s for the best.
My escape was doubling my pay, then paying off my debt, then refusing to take on any further debt, ever. Currently closing on a house, paid with cash. Never again debt.
No: being really broke can cause a lot of anxiety that can lead to irrational behavior.
But often a person has to choose between homelessness and crime and picks the latter as a rational choice, given the alternative.
So please don't assume poor = "crazy" = criminal, it's a bit unkind.
It's implied here:
"I think being really broke greatly hinders your ability to think rationally."
...by putting that sentence out alone without clarifying the context.
> psychological pathways
> unfairly reify
Are you feeling ok?
I never said "poor = 'crazy' = criminal". I don't think poor people are inherently crazy, though I suppose that being mentally ill could conceivably hinder your ability to make a decent income, if we're being pedantic. I feel like you're assuming I said something that I didn't; I really don't think I was being "unkind". In fact, I was trying to have a pretty sympathetic perspective on this. If that was not clear then that's a failing on my end and I apologize.
Yes, you could make an argument is the "more rational" decision is to commit a crime, I read Les Miserables, but keep in mind that my comment was in direct response to someone asking why unemployment led to violent crime, and I specifically did not exclude myself from any category.
You are literally accusing the writer of implying things which rely upon a context of your own making, not theirs.
I would consider someone that has their rationality stripped (or "greatly hindered") to be irrational. I think "irrational" is a bit more passive than "crazy", but I would personally read those as mostly synonymous.
I wonder why we interpret the same sentence so differently - we may be reading between the lines in very different ways - like the "blue&black / gold&white" dress.
That's what the following paragraph is about, trying to explain that this could happen to anyone.
Are you thinking that I understood your statement to mean that being broke would permanently turn you into a loony? Maybe I generally consider "crazy" to be a temporary state or state of mind that anyone can get into or out of, and you generally consider "crazy" to be a permanent fixture of personality, dividing society into hard lines of people that are either "crazy" or "not-crazy"?
Whereas "crazy" suggests an absence of sanity.
Rational vs irrational. Sanity vs insanity. These are not interchangeable ideas.
A lot of comments here seem to think that it has something to do with morals, but from living in poor places, what I gather is that people have no other options when they’re backed into a corner.
If you’re unemployed and you need money for rent and food, what the he’ll are you going to do? Survival mode kicks in, and you’ll do anything to make the next day/week. This could include steeling (to consume or sell) and mugging people (actual money, but probably less of a problem in the near future with everyone using digital payments). Now throw into the mix drugs to numb to pain of living an abysmal life... which are astronomically expensive, so most of the time your only option is to steel and mug more.
They aren't scams, but they are only useful for a very narrow band of people in a very narrow band of circumstances. For the vast majority of people that want one of those loans, they are better off not getting it. It's entirely possible to get the loan and use it as intended, it's just the most the people that need it aren't in a position to do so, and the lenders go out of their way to make it real easy to just roll the loan over into a new ones that kicks the problem down the road to the next payday after this one.[1]
1: It's a dark pattern. "You borrowed $400 the other week and you owe use $500 today? How about we fund a new loan for $400 before your payment, roll that into your current payment, and all you have to do is pay the $100 difference this payday, and you can just pay it all next payday when it's more convenient?" Now, the lender has an installment plan for 700-1500% APR as long as they can get the client to keep doing that (but the client does have to choose to do it every time).
At least, that's how it was a decade or so ago. I think it got even more regulated since then, and they can't charge 25% interest per payday anymore (you can likely thank the NY AG if so).
If I recall, the military had a heavy hand in that. When the payday loan industry has cut into military readiness to the point the generals are talking to Congress about it, it's gone a bit too far.
edit (add ref): https://www.govinfo.gov/content/pkg/CHRG-109shrg50303/html/C...
You mean that it's possible for some people to use it in a personally beneficial way.
That is true without any need to get into intent. I think it's unambiguous that the predatory application is the actual intended usage-- since their business model doesn't make sense without it, they have a massive default rate that only gets paid for with the windfall customers that stay on the treadmill for a long time.
It's very rational to choose crime over starvation or exposure, especially when our legal framework (US) is morally bankrupt. Why not turn to crime when crime really isn't such a bad thing compared to the other shit going on.
It is easier to think long term while feeling secure but not thinking long term can lead to becoming insecure. Not trying to make any moral or blame judgements here - just pondering origins of problems and solutions.
I think my lack of impulse control came as a direct cause of me being broke. I had previously never seriously considered any kind of payday loan because I knew they were multi-thousand-percent levels of interest, but that part of my brain wasn't the one thinking. When faced with a really tough situation, I think it's common for your "survivalist" side to kick in.
I never actually did get the payday loan because I was able to (begrudgingly) get a loan from my stepfather-in-law for the back rent, and I very luckily landed a decent-paying job shortly afterwards.
I was absolutely one of the lucky ones. It's not hard at all for me to envision a universe where I was stuck in an endless cycle of debt, and honestly I still have nightmares about that time occasionally. Not fun.
For all the criticisms of UBI, I think it would be a net win simply because it eliminates the significant time wasted in maintaining welfare entitlement.
I’ll support UBI when it stops being a libertarian wet dream to eliminate all other social spending and becomes a supplementary cause that lets us re-examine social spending when we can see how it shifts if everyone has “basic needs” covered.
I don't support any UBI policy that leaves anyone economically worse off compared to existing welfare. In fact I would expect people to be reliably better off after you factor in secondary benefits such as a reduced time burden upon individuals (time can be a scarce resource when you're poor) and increased ability to prioritise your own needs. The last thing poor people need is fewer resources.
I also don't support any UBI policy that attempts to supplant programs which address disability as opposed to straight poverty.
In my mind the essential benefits of UBI are:
• Less fraud. It's much harder to game a system when everyone automatically qualifies for it.
• Less stigma. It's much harder to be ashamed by reliance on a system when everyone automatically qualifies for it.
• Less disincentive to earn more. Most welfare programs cut out out after you exceed a particular income threshold, so many people have an incentive to keep their income low. (Or to lie about income.)
• Less complexity. It shifts the burden of economic rebalancing away from welfare programs (written by politicians and administered by gate-keeping bureaucrats) and towards a system that already exists: progressive income tax. While everyone qualifies for UBI, high earners are progressively, functionally disqualified by having the UBI clawed back in higher marginal income tax rates.
• Increased mobility and increased incentive to migrate to areas with lower cost of living.
I was responding to:
> For all the criticisms of UBI, I think it would be a net win simply because it eliminates the significant time wasted in maintaining welfare entitlement.
The exact wording of the libertarian wet dream I was recognizing. I wasn’t labeling UBI, I was labeling an identifiable expression.
And I called out where this particular attitude would have starved me and apparently HN would prefer I starved.
If I wasn’t unclear and wasn’t misunderstood, you’ll have to explain to me how this has anything to do with libertarianism.
Is it because libertarian UBI might not be so generous? That it's motivated by saving taxpayer money rather than resolving poverty? On that I would agree. That's not the point of UBI.
Is it because libertarian UBI would be an excuse to eliminate more poverty welfare programs than liberal UBI? Because I personally see eliminating welfare programs to be a good thing so long as the UBI isn't intentionally less generous than what it replaces.
Or is it because libertarian UBI would mean Governments no longer forcing welfare dollars to be spent in a "responsible" way? Most of the criticisms I've heard seem to work on the principle that poor people don't know how to look after themselves or spend money wisely. So we need Government to force them to spend X amount on food with programs like SNAP, or spend X amount on shelter with housing subsidies. On this point I'd side VERY strongly with the libertarians. We have far too much paternalism in Government.
Close but for me it’s less about protecting similarly redistributive programs and more about protecting services best provided by government that nonetheless cost money and require the government to be empowered to administer them effectively.
Because they're not, the idea that they are is paternalistic bullshit from the kind of people who get their news from John Oliver.
Debt can be dangerous, and payday loans are commensurately more so due to their high rates. But debt is a _tool_, and just like middle- and upper-income folks can use it to prevent disaster or rationally extend themselves, lower-income people can too. Not having access to credit isn't a _good_ thing per se.
Whenever people have actually bothered to look into the use of payday loans instead of pearl-clutching about how the poor don't know what's good for them, they've found that much of the clientele is making rational decisions. As bad as a high-interest loan sounds to privileged sensibilities, the alternative is often worse. It's just more diffuse and thus easier to ignore.
https://en.wikipedia.org/wiki/Scott_Tucker_(businessman)
Likewise, just because I post one extreme example of payday loan businesses being a fraud doesn't invalidate the entire industry. As a whole though, I feel the industry is quite scummy and often scammy.
I alluded to empirical evidence of their usefulness. Here's a study from the FDIC[1]. It's dated, but there are structural conclusions about the way payday loans work and why their rates are so high.
I don't see the relevance of specific payday lenders being shut down for fraud. Individual cases of fraud should be cracked down upon, and its widespread prevalence in an industry suggests that regulation is potentially a good idea. But neither of these automatically negate the usefulness of a service, just as the bad behavior of the banking industry doesn't make a bank account useless.
> Likewise, just because I post one extreme example of payday loan businesses being a fraud doesn't invalidate the entire industry.
Yes, this is my point. The comment I responded to and that I quoted from said:
> I debated reaching out to one of those payday loan places, despite the fact that I knew they were scams
The point of my comment is that they can be useful, and the GP's shame at considering an option he "knew" was a scam is unwarranted and down to midwit elites who are quick to fuck the poor over in the name of paternalistic, performative virtue, but never bother to understand them as agents making decisions that are sometimes unintuitively rational.
[1] https://www.fdic.gov/bank/analytical/cfr/2005/wp2005/2005-09...
That's not using debt as a 'tool', that is weaponizing it against those can't fend for themselves.
That's not a comment on the fairness of the rate charged. But if there is a sufficient amount of competition among lenders, and they were effectively regulated and monitored, we could expect their rates are enough to allow them to make a reasonable profit in spite of the risk of default.
[0] https://thehill.com/regulation/237538-borrowers-default-on-n...
European Union is not a country and every member state has their own rules regulating this, there isn't one payday lenders rulebook across the entire EU.
As for what you said - it's true, except that it boils down to a checkbox on the form "are you able to make repayments on this loan?" and that's about it, that takes care of the legal side of things.
Consider someone who got a flat tire and it needs to be replaced before the person can go to work. The cost of replacing a tire can be $100-$200. The cost of waiting could cost their job.
They could apply for a credit card with 18% interest and a bunch of fees - and the card MIGHT be delivered the next day. OR they can go to a pay day lender and borrow $100 NOW and get to their job this afternoon.
The tire replacement "should" have cost $100 - now it costs $121, and they keep their job.
You might imagine a similar situation for: your fridge broke and you NEED to keep your food fresh, your heater/AC broke, someone broke your front door trying to rob you.
Life SUCKS if you are poor.
Actual story: I met someone who was returning home on a bus, but was kicked off after having a seizure. She and her bf couldn't afford a new bus ticket to get home (to LA). They were stuck in Houston for at least a week, it is possible they missed work and were fired and missed rent and were evicted. If that was you, how much would you be willing to pay for $500 now? I didn't know them long enough to know if they were telling the truth, but I wish I had given them money.
I'm not asking why the customer doesn't just go to a bank instead.
I'm asking what's stopping you or me from opening a competing payday loan service that charges "only" $110 instead of $121.
It seems to me that this should be a highly competitive industry, the only barriers to entry being some capital, a storefront in a cheap part of town, and a little physical security? What am I missing?
Background: I work at a bank, we specialize in Credit Cards - but I'm in the car finance division. Some of what I have here is an educated guess.
Pay day lenders IS highly competitive. In certain geographies, there are LOTS of lenders. There are some very real barriers to entry:
You have to be credited with certain financial regulators (CFPB and OCC are the 2 I know of) to lend money - and these regulators come with various stipulations (e.g., keep $ in reserve, don't be racist, lend to people who can pay you back, etc)
Many "real" banks avoid this market because the regulators "punish" us - our Credit Card division would be held to a higher standard because we also had pay day loans. Fun fact: during the Obama administration, we also had Mortgages, because regulators "went easy" on the rest of the company. When Trump became president, regulators stopped caring and we sold our mortgages.
All of this being said, if you, right NOW had a lemonade stand lending money to people, you could probably get away with it.
On that note, there is a really interesting shift in the market:
Financial Services As A Service. Imagine: Bank of Small-Town-Maine is a legitimate bank. They know how to stay solvent, they are registered with the right regulators, etc. I approach them and say "let me use your Certifications, I'll use my money, my marketing, I'll buy Identification Services and Credit services - I'll lend money to people and we split the profit".
ACE Cash Express is doing something like this RIGHT NOW - and there are MANY other people doing it, too.
And on the point, financing your home appliances is a popular thing (but please, pay up front!)
> That's not using debt as a 'tool', that is weaponizing it against those can't fend for themselves.
Are you familiar with the concept of a poverty trap? We're not talking about people whose financial decisions consist of figuring out how to distribute their securities tax-efficiently across their accounts. There are lots of people for whom there are _very_ few degrees of financial freedom, where not being able to pay for car repairs can mean losing your job which can mean getting evicted, and where a precarious but livable existence can become a financial nightmare trap with a single stroke of bad luck and bad timing.
What's the discount rate on a loan for someone in that position? Why are you so confident that, a million miles away from your situation, you can make that decision better for them than they can for themselves? If someone is underbanked (like 22% of Americans), why are you so sure that a time-sensitive $300 emergency expense isn't worth $360, if they're confident they can pay it back (eg, when they get their paycheck)? If you're actually interested in the well-being of those who feel the need to avail themselves of tools like this, the New Yorker wrote an article about it half a decade ago[1]. There are a million other resources and even studies describing the demand side of the story, but it's a lot easier to just pat oneself on the back about how these poor illiterate people are being saved from themselves and then ignore the people whose weakened access to credit further immiserates them.
> I'm sorry but in Ontario, prior to January 1, 2017, the charge was $21 per $100 advanced, an effective interest rate of 14,299% (not a typo)
There are an impressive amount of things wrong with this short sentence and its implications.
1) This is the maximum allowable rate. It's completely consistent for someone to believe that the worst-possible payday lenders are on-net exploitative without claiming the entire industry is a scam.
2) The parent comment I disagreed with did not say "I was going to a pre-Jan-1-2017 Ontario payday lender, which I know is a scam". He said it of payday loans in general, a belief that's widely held in my social circles for the John-Oliver-related reasons I mentioned before.
3) Nothing in my comment said I was opposed to regulation, up to and including capping rates. Most people (poor or not) are pretty terrible at math, and desperation absolutely can push people further towards irrational decisions. Legally capping rates is a decision that, at a given rate, more people are falling prey to their innumeracy than are availing themselves of a costly but necessary emergency life-raft. There's nothing wrong with this legislative judgment call, but starting and ending your analysis at "look how high this number is!!!!" is just cosplaying compassion.
4) Again, the assumption that just waving your hands in the air and saying a number has any connection to the reality of poverty traps and the incredibly steep discount rates they impose upon people. Removing options from people isn't saving them from their misery, it's just displacing their misery into a million diffuse other problems that you don't have to think about.
[1] https://www.newyorker.com/business/currency/what-good-are-pa...
Even if we accept that payday lending has a place, I think most payday lenders benefit from this equation and certainly contribute to the poverty trap: even if most of the debtors end up getting (likely minimum wage) jobs, they now have the added burden of repaying the onerous rates that they agreed to while under extreme duress. And that duress is the thing that seems to be missing in your calculus.
The problem with payday loans is not the theoretical application of debt theory but the rational risk taking of people with no other (perceived) options: under almost all circumstances, it is better to be starving next week than it is to be starving today.
Reminds me of an anecdote from poor African countries. Farmers would buy fertilizer months before they needed it, even though it is logically better for them to save that money and only buy the fertilizer when they needed it (assuming the price of the fertilizer was constant). But they knew if they had the money the would be tempted to spend it in the meantime, so they bought it early to avoid the temptation.
Payday loans can encourage people to take out a loan and spend money even in cases where it would be better for them to find an alternative.
Also, a lot of these payday loans are just flat-out illegal. If you look up usury laws in the US, they typically cap interest at somewhere around ~25% per year[1], and the highest I could find was on the order of 400% per year [2]. I didn't check every state so it's possible there are some that don't have any caps, but my point is that very often these payday loans are literally breaking the law by charging absurd interest rates.
[1] https://paydayloaninfo.org/state-information/40 [2] https://paydayloaninfo.org/state-information/17
You don't even have to be that smart or read high-quality sources to find this perspective! "Payday loans never provide value" is too dumb for even Vox[1]!
The reason I'm so passionate about this topic is not just garden-variety frustration at how stupid people are. "Helping" people by controlling what they can spend their food stamps on, whom they can have sex with, or how they survive and support themselves should come with a heavy, heavy burden of rigor. History is full of elites destroying the lives of others through their malicious "compassion" and refusal to actually consider that other people live different lives with different problems. The problem with things like payday loans is that the kind of IFLScience midwits that places like HN are thick with won't bother to do the most basic of research beyond clickbaity headlines, eye-popping context-free stats, amd comedy shows that pretend to be informative. It's repulsive.
[1] https://www.vox.com/xpress/2014/8/11/5991137/john-oliver-pay...
Maybe I was being a bit hyperbolic when I said "scam" since they usually do what they advertise. Let me rephrase: they have ridiculously high interest rates that can lead to difficult-to-escape debt, and they are predatory towards desperate people, hence why you usually see them in poorer neighborhoods.
Debt is absolutely a tool and I wasn't claiming otherwise, so when I said "scam", what I really meant was "the worst possible way to leverage debt".
From your clarifications in this comment, it doesn't sound like you're the type of person I'm talking about. I don't disagree at all that loans can take advantage of people's innumeracy and desperation-driven irrationality. And I consider this a serious concern with excessively high rates. But it needs to be balanced against the bedrock principle that taking a choice away from someone usually immiserates them further, and if you believe otherwise you need a damn high level of rigor to show it.
Tarring the payday loan industry writ large as a scam doesn't stand up to that level of rigor, and there are a thousand qualitative and quantitative pieces of evidence pointing to the fact that the industry does provide value to a portion of the underbanked population.
This doesn't preclude things like capping rates, but this is an explicit recognition that, at the given rate, the cost of the innumerate being taken advantage of is higher than the cost of cutting off an emergency lifeline for people who can use it rationally.
I don't think you and I are especially in disagreement here, given your clarification of what you meant by "scam".
Not sure where you get your news/experience from ;), but I don't see how any of those arguments apply to payday loan places - in every country, city, society I've lived in, they a) were shut down for fraud and exploitation anytime anybody bothered to look & investigate b) are universally demonstrated and proven to prey upon those who can least afford it. These are not benevolent capitalists trying to help those who nobody else would help - the owners are shameless sharks exploiting and manipulating people into a vicious cycle.
(FWIW I'm not going to downvote, I actually upvoted - your perspective is interesting and must as I may disagree I'd like to hear more and maybe be educated, rather than shut the debate down; but I'd like to see some "counter-John-Oliver" studies and stats to go against the ones I think most of us have seen)
Edit: I mean heck, like with smoking, government here will try their best to talk you out of it; you can still do it, as an adult human being... but it's just a bad, bad idea
https://www.canada.ca/en/financial-consumer-agency/services/...
You are correct, not having access to credit is a bad thing. But having access to predatory credit is a WORSE thing. There's a reason we outlawed indentured slavery and "company scrip", and payday loans are a half a step up from that situation.
https://news.ycombinator.com/newsguidelines.html
* well, the guidelines do also ask not to use allcaps for emphasis, but that's minor
I never committed any violent crimes, but I know throughout most of 2016 I was really really broke (about $15,000 credit card debt, 3 months of unpaid rent, a lawsuit from my landlord for the back rent). In the process I debated reaching out to one of those payday loan places, despite the fact that I knew they were scams. My desperate brain was overriding my logical brain.
I can only assume I'm not unique in this fact; if it comes down to mugging someone or not eating for a week, I'm not 100% sure which option I would choose. I would like to think that I would never hurt someone, but since 2017 or so, I've had a pretty privileged life.