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Tom Au, CFA
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s.
My book:
A Modern Approach to Graham and Dodd Investing
  • We Don't Need "Payday" Lenders 7 comments
    Jul 7, 2009 7:51 PM

    Now and again, you run into something in which you say, "if this isn't against the law, it ought to be." One of these is payday lenders.

    The problem with payday lenders, and other banks, is a 1978 Supreme Court decision that says that lenders are regulated by the state in which they are incorporated, not the state in which they are doing business. So there are a handful of "easy" states that will allow THEIR lenders to run roughshod over everyone else.

    Payday lenders often lend money between now and "payday" on the strength of post-dated checks, which would be illegal. So it is possible for the states to at least outlaw specific practices. Sometimes other, more legal forms of collateral are used. But these are very short term loans, made to people who are literally living from paycheck to paycheck. The effective annual interest rates are typically in the TRIPLE digiits.

    Payday lenders aren't that great investments, either. Some of them are doing well, but many of them are in trouble. That's because they are in a certifiably stupid business: lending money at high rates (and with a high cost of capital) to people that are stupid enough to borrow (at those high rates) and solvent enough to repay. ("Stupid" and "solvent" don't go well together.) And in order to protect THEMSELVES from bankruptcy, they may have to resort to using "mob" tactics.

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Comments (7)
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  • Larry Meyers
    , contributor
    Comments (575) | Send Message
     
    The same old criticism of payday lenders that shows this anonymous blogger doesn't know what he's talking about.

     

    Anyone interested in understanding how payday loans REALLY work is welcome to contact me at pdlcapital@earthlink.net
    8 Jul 2009, 12:24 PM Reply Like
  • Payday Lender
    , contributor
    Comments (7) | Send Message
     
    Regulating payday lenders only hurts the consumer. It drives payday lenders out of business and allows other loans industries to take advantage of consumers by raising their prices. All regulation does is provide the consumer with fewer and more expensive loan options.

     

    The rates are comparably low to other loan industries. Under CFSA's best practices, we ensure our member companies hold themselves to a higher standard of responsible service and will help our customers make better financial decisions.
    9 Jul 2009, 08:10 AM Reply Like
  • Brad Thomas
    , contributor
    Comments (9603) | Send Message
     
    WRONG ! Payday Lenders are predatory lenders. There will not be any States left to conduct business...not interested in looking at your web site...just look at the number of safe harbour States remaining and anyone can see the writing on the wall (without going to your web site)

     

    On Jul 08 12:24 PM Larry Meyers wrote:

     

    > The same old criticism of payday lenders that shows this anonymous
    > blogger doesn't know what he's talking about.
    >
    > Anyone interested in understanding how payday loans REALLY work is
    > welcome to contact me at pdlcapital@earthlink.net
    10 Jul 2009, 09:04 PM Reply Like
  • Larry Meyers
    , contributor
    Comments (575) | Send Message
     
    I welcome your definition of "predatory" and argumentation as to why they fulfill that defintion.
    14 Jul 2009, 01:37 AM Reply Like
  • Brad Thomas
    , contributor
    Comments (9603) | Send Message
     
    I suppose that most States are establishing the definition. As evidenced by the number of States that are mandating payday lenders close down, there seems to be a common consensus that payday lenders are "predatory"..... I guess that good things don't last forever.

     

    On Jul 14 01:37 AM Larry Meyers wrote:

     

    > I welcome your definition of "predatory" and argumentation as to
    > why they fulfill that defintion.
    16 Jul 2009, 10:03 PM Reply Like
  • Larry Meyers
    , contributor
    Comments (575) | Send Message
     
    Rhino, you made a fallacious statement. Since states are banning the product, therefore the consensus is that the product is "predatory". This couldn't be further from the truth.

     

    There are loads of facts about payday loans out there, but as someone whose comments have been negative towards the product, I imagine there's very little point in sharing with you the mountains of evidence.

     

    Nevertheless:
    www.bloggernews.net/12...
    www.bloggernews.net/12...
    www.bloggernews.net/12...
    www.bloggernews.net/12...

     

    And most of all, the NY Fed study that shows PDLs do not fit the definition of "predatory"

     

    papers.ssrn.com/sol3/p...
    21 Jul 2009, 02:00 AM Reply Like
  • DrBenway
    , contributor
    Comments (300) | Send Message
     
    The article argument makes little sense. They payday lenders lend at "predatory" rates, yet their business is not very profitable because of the very high default rates by the borrowers. You can't just have it both ways: either the rates are fair or the profits are obscene.

     

    Could it be that the so-called "predatory" triple-digit rates are just a fair market price of a unsecured loan to someone with a very high probability of default? If you ban payday lenders, who do you replace them with? Tony Soprano where your pledge your legs as a collateral?
    22 Jul 2009, 12:31 PM Reply Like
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