When dealing with poor people and their need for quick cash, many pay day loan and car dealers manipulate the interest rates to get the most out of the customer. A good example of this are pawn shops, which buy things from people for ridiculously low prices, and reap huge profits from these items. Case in point, gold-buying pawn shops pay 10% for the gold they buy from people, but get almost 100% of the value of the gold immediately.
Because of our current economic situation and how it has affected the average American, I do believe that the government should step in and place greater restrictions on predatory lending practices that take advantage of people's desperation.
Restrictions should be placed on such establishments for lack of a better idea. I would say that promoting better education would solve the problem of people being taken advantage of, but currently it seems that our government isn't concerned whatsoever with better education. So, with that in mind, higher restrictions should be enacted to protect less intelligent citizens from being ripped off.
Times are tough out there financially for all Americans. There is emphasis and pressure for some to keep up with the Jones'. Many people, because of lack of restrictions, happen to fall into these traps of fast cash and high interest, and they are then allowed to go above their means.
There can be a middle ground between regulations on financial service providers so onerous that they will not have a viable path to profitability and a laissez-faire approach so callous that it stands blithely aside as low-income borrowers living paycheck to paycheck are drowned in debt as interest rates on their loans surge exponentially. It is one thing to say that lenders who offer money to high-risk borrowers should be able to charge higher interest rates than they do on other consumers; it is quite another to maintain that they should have no restrictions on their behavior. They have been making a killing and a lot of vulnerable people have been hurt. Just as was true elsewhere in the finance industry, an absence of effective regulation has led to terrible consequences.
There is no reason the government needs to get involved in these sorts of lending activities. When someone chooses to accept one of these services, it is on them. People need to take more responsibility for their actions. If you are taking a loan, or accepting an interest rate at an absurd rate, you need to consider how much you need that money and if it is worth it to you. It is a business, and the lender is out there to make money. They don't care where it comes from. If someone decides to support that business, well, then that's that.
The government should definitely do something about the usury rates that these pay day lenders and car dealers charge to those who can least afford it. With the amount of money charged on these types of loans, it is impossible for the working poor to ever have a chance to improve their situation. Many times, they are forced to borrow money for these high rates because of illness or other immediate needs. If our government wants to help these people to climb out of poverty they should regulate the amount of interest charged so that the rate will be more reasonable.
I understand that it is a good thing for the working poor to have access to cash or credit but, there is something to be said for having an ethical standard in lending set for these agencies which have demonstrated a lack of one.
To charge what sometimes amounts to 900% interest is not ethical. If it takes government regulation to make this not occur, then by all means government regulation is justified. If the industries do not regulate themselves and lack morality and compassion then they deserve to be regulated. The consumer deserves to be protected from bad lenders. They should not be kicked more when they are already hurting because of their financial difficulties. We regulate morality all of the time... This is one of the times when it is well deserved.
There are a lot of shady people out there who make money off the poor. This often looks like lenders giving high interest loans to the poor. My problem with this is two fold: First of all, on a working poor salary, how can you dig your way out of high interest loans and credit cards? I have seen first hand that this is extremely difficult. Also there are some members of the working poor who might not be educated enough to understand what they are getting into. I believe this is unfair and the government should step in to help the working poor, just as much as they help the wealthy.
I believe that companies which charge unreasonably high interest rates to the working poor should be restricted, as these types of arrangements only make an individuals situation worse. In most cases, the loan is not designed to be paid off, as monthly payments are paid towards the "interest" and not the "principal" loan amount.
Everyone should have the right to borrow money without interference from the federal government. People who choose to pay high interest rates to pay-day, car-loan and other lenders do so because they are bad or unknown credit risks. These risks are being borne by these companies, which are entitled to be rewarded for taking that risk. It is up to the borrower to decide if the interest is too high, not the government.
The reason businesses up the fees and interest for the poor is because they are a bad risk. These companies are in the business to make money not give assistance to the dysfunctional of society. The higher rates encourage people to pay bills on time to up their credit score and holds them responsible for how they conduct their lives. It is like raising children, there are boundaries in society that make everything function better. Respect the boundaries!
High fees and interest rates are needed when loans are given to less trustworthy people. If those people feel like they are getting a bad rate, they need to go about improving their credit score. I do not think it is the government's job to make this process any easier for people who can't afford a loan.
Many people, especially the poor, are plagued by companies that offer them cash, loans or credit, but with high fees and interest rates attached. This practice, however, should not be regulated by the Federal government. Rather, it is a state matter and a condition that must be remedied by the individual states, and at its citizens behest. Like insurance, these financial institutions, such as they are, should be better controlled to reflect the economy of that locality.
More restrictions usually means more paperwork for the lender/seller, and more enforcement for the state agencies. So the lender/seller will have to charge more for their services, to cover that extra employee who manages the additional paperwork, and taxes will go up to pay for the extra state officers needed to inspect that additional paperwork. Not to mention new lenders would be less likely to enter the market, leading to less choice for the people who need these services. It sounds like a nice goal, to help the poor, but the actual consequences would not be helpful.