Some people make good use of these, as timely sources of money when there's not a lot of other options (not everyone has credit or saving or friends and family that can help). At the same time, it is extremely predatory, and the lenders are constantly trying to maximize the money they can get from people (such as rolling a new loan into the payment of the original, meaning only the interest is functionally required on the due date, and they get to skirt the laws of the loan required to be short term).
It's one of those catch-22 situations where doing away with the market entirely hurts those you're trying to protect, but it's hard to regulate effectively because the benefit is it's quick and short, meaning too many hurdles might be the same effectively as doing away with them completely.
No, it's private ownership and trade of stuff. That seems nitpicky, until you contrast it with other economic systems, in which case trade is strictly regulated, and it becomes obvious that's a large part of it.
> the generations of economic nuance we have developed
You mean the nuance that takes us further from a pure capitalistic and free market system into a hybrid system where there are regulations and communal (government) efforts to counteract the portions of capitalism and free markets that are not palatable for a modern society because they fail to lead to outcomes we want?
There are reasons why the poor of today are better off of the poor of a century ago, and many of those reasons are not much in line with capitalism and the free market, while others are. Minimum wage, regulations on predatory practices, etc account for a lot of that, while advancements in technology and medicine much of the rest.
Without regulations, which are a restriction on private trade, we'd still be dealing with the things Upton Sinclair chronicled so long ago (whether embellished or not).
That's a very narrow definition of capitalism. It's not just 'stuff' that is privately held, it is also the means to generate profit and a very large chunk of the available capital. The effects of that go way beyond just 'stuff', and can make it next to impossible for someone born at the bottom of the stack to work their way up. Of course, some inevitably succeed at this and they are held up with great fanfare to prove that 'the system works' but on average, if you are born at the bottom your life will likely continue to at that level of society without much chance of upward mobility because the system is stacked against you.
And payday loans at exorbitant rates are a mechanism that keeps people down.
Perhaps the most realistic definition.
You could also restate it as "most people don't have lots of money"
Regardless of how much you yourself actually have at the time.
I think it's good to look at "capital" as "other people's money" (OPM).
Of course if you have enough of your own you might not really need any of OPM if you don't want to get involved.
OTOH in that case you might be one lending out some of your own "underutilized" money to others who are "interested" in OPM of some sort.
The repayment includes the interest intended to compensate for the risk & delay in repayment, so it simply means more of OPM is coming back than yours that went out.
If none of this OPM was changing hands there would still be the same amount of capital.
But the capital-ism where the system is structured so financial rewards of labor are subjugated to the financial rewards of capital itself according to its magnitude would not be as much of an actual thing.
And it's this feature that can be exploited by greed in the most disadvantageous way compared to less OPM-oriented financial foundations. Regardless of the mathematically enhanced returns to the most shrewd capitalists, the greed itself subtracts from what actually could have been overall.
As the magnitude of the money that most people don't have a lot of, becomes less significant compared to the some people who have lots of money, the unlevel playing field tends to tilt toward the vertical as a function of greed.
[0] https://www.cambridge.org/core/journals/perspectives-on-poli...
"Communist" China is a lot better if you're rich. So is "socialist" Europe. So is "capitalist" America.
The -isms have never really mattered.
The golden rule truly is "whoever has the gold makes the rules".
So who in their right mind would provide such a service if there was no path to a profit? /headscratch
In the UK, the consumer finance regulator the FCA did an in depth analysis of subprime lending and concluded that "fair" maximum charges were interest rates of 0.8% per day and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.
source?
>and concluded that "fair" maximum charges were interest rates of 0.8% per day
"fair" in this case being what? The interest rate being enough to offset defaults? Or enough to offset defaults + overhead + profit?
>and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.
I find this baffling. 0.8% per day compounded for a year is 18.3%, but they say that total costs can be equal to the principal? That means the effective APR can be up to 100% (if borrowing for a year), more than 5x the "fair" APR from before. Speaking of which, why isn't the length of the loan factored in? Surely a 1 week loan should have a lower "total cost" than a one year loan?
From this post:
Martin Wheatley, the FCA's chief executive officer, said:
'I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.
'For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.'
Playing the devil's advocate here...loans with interest rates higher than 36% are generally reserved for subprime lending - payday loans being the most prominent. As long as we live in a society (talking US here) where minimum wages don't keep up with inflation and benefits, then these products in some sense need to exist to satisfy that subprime group. Otherwise it's literally impossible to create a profit on payday loans if these rates are much lower.
Note - I don't know what the "right APR" is to make them profitable, but I certainly can fathom why there might be a 1000% interest rate on a 7 day loan of $100 so someone can get their car out of the pound so they can drive to work. The administrative overhead to lend $100 and only make pennies is simply not worth it.
Also, yes gigantic interest rates ruin lives...more importantly predatory sales practices to get people to buy them. But maybe we should focus on why so many Americans get to that in the first place (looking at your healthcare) - thats a much easier market creation.