Denmark passes law against 'greedy' payday loans
thelocal.dk/20191220/denmark-passes-law-again...
thelocal.dkPosted Dec 20, 2019, 10:45 AM UTC
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thelocal.dkWhat's a payday loan?
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A loan meant to cover your expenses until your next payday. So short term, low amounts. Say you blow your tire. Getting a new one cost 100€, without a new tire you wont be able to get to your job on time, so you'll lose your job which will be very bad. You don't have the 100 € cause you're poor. So you get a payday loan for 100€, 14 days later when you get the next paycheck you pay 130€ to the loan company. A steep fee, but one that saved you from a very sticky situation. This is the good case for payday loans.
In reality a lot of people get payday loans for things that aren't critical, but which are felt as critical. Then when it's time to pay the loan, they can't and end up in a bad debt cycle. The above example is for 720 Annual cost in percent, which means 60€ a month in fees and interest. Some loans went up the whole way to over 800. If 100€ was hard to pay, then 60 a month isn't easy. People can end up paying many times what they originally orrowed.
Here is a youtube link that goes more into the details and how it can screw people over https://youtu.be/PDylgzybWAw
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It's a loan shark company that gives your pay a few days/weeks in advance and then charges you (a lot) for it. It preys on those who have trouble paying their bills etc.
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The flip side of that is that the reason that the rates are so high is because that group of people who need small amounts of money without collateral or much checking for short periods of time also tend to not repay loans at a pretty high rate. That is, nobody is going to lend their money to these people at legally-acceptable rates.
In practice, Denmark is saying "no loans for these people". Which may be the right call, but just saying...
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They just banned them if they had over 35 APR. That is still very high. In practice, that's still a lot of room for these companies to have a profit margin.
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yeah, i wanna know that too.
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those things you sometimes get in the mail about "very fast loans". astea
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Good.
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Excellent.
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but it works so well in the states /s
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Congratulations to Denmark for finally almost catching up to US regulations on payday lenders.
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I know there is a lot of support for this but I can’t. As long as the terms are crystal clear then I don’t see why we should be preventing two adults from entering into an agreement - even if we don’t think the terms are fair. Shouldn’t that be up to them to decide?
I think the reason this sits so badly with me is that we’re effectively saying some people can’t be trusted with their own money. Okay, if that’s the case then be honest and explicit about it. Take their money away and control their lives for them. If we’re not saying that then leave them be.
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By that logic, people should be allowed to sell themselves into slavery. Out of cash and can't feed your family? Sell yourself to slavery and your family gets money Terms are crystal clear and both are consenting. Except one is under duress because they can't feed their family.
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You mean entering into a contract to trade one's labor and skills to acquire currency that eventually is used to buy goods and services? Yes, ban it.
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The difference with slavery and financial contracts (like jobs) is that one isn't free to change their mind with slavery. They are physically imprisoned. That seems to be the line we draw in society for what we consider immoral. We still allow people to sign unbalanced financial agreements, like buying houses for inflated prices, or employment agreements where remuneration is below market rates, or even buying lottery tickets where the odds of winning are effectively zero. We might disagree with these decisions, but we still allow people to make silly decision with their money.
As for duress, I have a job because if I don't I can't feed my family. Financial stress is not considered a form of illegal duress under any common law system for obvious reasons. This is why most OECD states provide safety nets.
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I think what it's saying is that some people are easily manipulated and struggle to comprehend the long term effects of their actions so let's make sure companies don't exploit that.
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I'm reading it the same way, and if so, then there are a million other ways for these people to spend their money unwisely. Are we going to ban alcohol, gambling, and cigarettes next? Surely it would be more effectively to just ban these specific people from spending their money unwisely, rather than punishing everyone who use these services and products responsibly?
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No, but all of the things you mentioned are already pretty tightly regulated and this what the bill aims to do. Regulate loans, not ban them. Who exactly are getting punished for not getting predatory payday loans? An APR of 35 is still pretty damn high. You wouldn't happen to be in the business now would you?
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I'm all for regulation. We all need to understand what we're eating, drinking, and signing. The ramifications of their decision should be super clear. If you understood how and why payday loans work, then you would understand that this is an effective ban. A lender providing a €300 loan until the next month makes exactly €8.75 with 35% APR. That's just not worth it for a high risk profile. People with poor credit are not getting short term loans with low interest rates, as this law requires. They will now not be getting any loans. I understand that you feel this is a good result for them, but I do not.
I'm not in the business and have never used the service. I have known someone who was able to fix their car using similar services, where they might have lost their job. It was certainly worth it for them, and now this law means they won't have that option again.
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Ha, I used to think like this.
Then I grew up and realized it's not their fault some people lack the financial wit to budget and stay away from predatory lenders.
The society is not a better place if these type of laws don't exist.
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Fair, and I tend to agree. So if we all agree that some people cannot be trusted with money, what is the next logical step? Ban everything which they might misuse?
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Your "all or nothing" point of view is not rational. A balance has to be struck and this is what democracy is all about.
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Drinking kills people. Tens of millions across the globe every year. Some people can’t be trusted with their money and they buy alcohol and abuse it. It is undoubtedly worse than payday loans. If your argument is one of scale and balance, then explain to me why alcohol isn’t banned.
Payday loans were targeted because it’s an easy political victory. Few voters have ever had to use the service, and misinformation is rife. It’s easy to tyrannise a minority, but because many people drink, it’s much harder to ban alcohol. This has nothing to do with actual harm and social balance, and everything in to do with politics.
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Additionally the law also increases funding for better schooling of personal economics. Frankly, this is about time. Payday lenders are exploiting the vulnerable.
to be fair, those people are so easy to exploit because others also exploit them and underpay them
don't get me wrong, this law is a good thing, but it won't fix the root cause
Education is a big factor, so hopefully it will help deal with the root cause, which is either Unemployment or lack of basic arithmetic
Education can't fix a systematic issue
What exactly do you mean by systematic issue.
There are many examples where educating the public can lead to systematic changes in the way people act, work and live.