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11/13/2007 08:03 PM ID: 66472 Permalink   

700% Interest Rates - Only Fair


Leo Sorensen the head of Loans 'Til Payday, claimed while appearing before Manitoba's Public Utilities Board that "he has every right to charge borrowers interest rates of more than 700 per cent".

Sorensen believes that businesses should be allowed to charge what they want, and that the payday loan industry should not be subjected to government regulation. Sorensen refers to the impending regulation of the industry as "a socialist approach".

Sorensen freely admitted that his 30 stores across western Canada routinely charge what works out to 720% annual interest on loans. He indicated that even at this rate, his company can barely cover its costs.

    WebReporter: Zpravodajec Show Calling Card      
ASSESS this news: BLOCK this news. Reason:
Cover his costs of his fleet of Ferraris?
  by: vant   11/13/2007 08:09 PM     
  This is usury!  
In Canada, section 347 of the Criminal Code makes it a criminal offence to charge more than 60% interest per annum. Why they don't charge (sic) any of them, will never understand! The Federal government has been playing with this one for at least the last year and half, but it certainly isn't one their top priorities.
  by: Zpravodajec     11/13/2007 08:15 PM     
  Simpsons Ref on this one:  
Mr. Burns: I'm not in this for any personal gain, heavens no! By the way, are you acquainted with our state's stringent usury laws?

Homer: Us-ury?

Mr. Burns: Oh, silly me! I must have just made up a word that doesn't exist.
  by: slavefortheman     11/13/2007 08:18 PM     
  Predatory loans.  
While credit cards, banks, even stores are all subject to a 30% interest rate limit in Canada (correct me if I have the rate cap wrong) these payday loan places get around this by charging user fees. The promise and advertise to help out the poor working man by helping them out of a tight spot. But to people at the edge, using these places turns into a downward spiral and is financially addicting, use it once to get by, then you have to keep using them to continue to get by. Only difference between these guys and a loanshark, is the broken bones. Good for Manitoba for actually addressing this issue.
  by: Trent Steel   11/13/2007 08:22 PM     
  @ Zpravodajec  
Use his rate, my rate was wrong.
  by: Trent Steel   11/13/2007 08:24 PM     
If this industry can "barely cover its costs" at 700%+ annual interest, then perhaps it shouldn't exist in the first place.
  by: bane39   11/13/2007 08:54 PM     
  If that's Socialism  
then sign me up, comrade. And while they're at it,
throw Mr. Sorensen in the GULAG.
  by: Mister crank     11/13/2007 09:23 PM     
  I think it's fair...  
only because you know up front what you are getting in to. These places have big signs that say basically, you borrow 300, you pay back 340 in two weeks. Or you borrow 100, you pay back 120.

You know exactly what you are getting in to when you do this, and if you can't handle the fees, then don't do it. Cut back on how much you spend, or ask a friend for a loan.

Personally, I think these places are bad (as Trent said) they create a downward spiral, but I don't think they should be regulated for it. I think the Gap is expensive and the clothes are shotty, so I don't go there, but I wouldn't want to see the Gap regulated in price or quality... I can go to target and get it cheaper, and it will hold up better.

As they say "Caveat emptor".
  by: tellgar     11/13/2007 10:01 PM     
  And if you don't pay  
I break'a your legs!
  by: yourown   11/13/2007 10:10 PM     
  If He Needs Money  
I will lone it to him at 2000%. He already agread that any rate is not exhorbitant.
Damned thieves Rob the people that can least afford it. Payday loans should be illegal.
  by: ichi     11/13/2007 10:34 PM     
  These things are rip offs...  
I don't agree with some of their tactics.....
But when someone needs money for their rent earlier than the paycheck is coming, it can be very helpful.
This is nice so people don't have to ask friends and family for money, which can easily ruin relationships.

Now im not so sure if you guys understand the interest rate completely.
His 720% is not what you think
you have to first divide it by 12 for months.
which comes to 60%
still seems a lot right?
Well then you need to divide by 30 for days.
which comes out to 2%

This is because 700% is APR , annual percentage rate.

Well since most loans are only for 14-7 days its going to vary ....and including how much they ask for.

Now you have to figure out sometimes people only want $100-200 because they are short on money and only need $100-200 to pay off rent.
That would come out to $14 for $100 for 7 days and $30 on $200 for 7 days.
You have to figure people don't always need the full 14 days or 7 days....because they need to pay something off now when their paycheck is coming in a few days.

I'm in no way saying that its not a lot.....but its not as bad as some people are making it out to be.

Of course if you miss payments you are seriously screwed with these companies.
If you need payday loans, you need to take a look at your spending habit and regulate it.

But further on this.... you have to think he is giving out a lot of money (because there are a lot of people who do this) and it may be costing him to have so much in and out everyday. He has to pay people to keep track of all the finances, pay people to work the desk, and sometimes he may not get his money because people just declare bankruptcy or just don't bother paying back.

So in reality he may not be making that much.....there are several other costs i didn't include of coruse....
  by: sp00ky187   11/13/2007 10:37 PM     
My thoughts exactly. If you can't afford your business even at that insane rate, you should just close down your business.
  by: SunDown   11/14/2007 04:41 AM     
Ok lets break it down, lets say you work in a real crap hole and only make $100 a week, you go for one of these payday loan dealies at 720%, you've just been hit with a $60/month interest, pending you do not pay down the balance.

Now, you paid $60 to access $100, therefore you only made $40.

Canada's LAW (funny word that) states, no interest rate may go beyond 60% PER ANNUM (per year, per every 12 months consectutively, however you want to say it) meaning this practice is *gasp* ILLEGAL!

Now, I don't mean to be aggressive or an ass towards you, but lets put it in realistic figures, lets rule taxes right out of this, you bring home $52000 a year ($1000/wk * 52 weeks).

Now, you require a payday loan, you give them the cheque rights in 5 days or so, and you gain $1000, paid $600 for that $1000, so now you are left with $400, pending you pay it off and don't have bills out the wazoo, if you carry this balance the interest compounds. If you have a $200 balance left over, you're hit at another 60% of that, which works out to $320 owing. They say 19.5% CC interest is hard to get out of, a treadmill if you will, how in the hell can you beat out 720% after it takes a month affect.

People are not very good with money on a whole and cannot be subjected to this kind of finanical slaughter. Its illegal for a reason, look at whats happening in America lately with the banks foreclosing on people whom cannot repay mortgages and debts, we in Canada took strides to make sure its not in our backyard.

I'm done now, please flame or rebuttal :D!
  by: hl2k   11/14/2007 04:52 AM     
  oh yes I forgot, the costs uncoverable  
Lets break this down, in 30 stores lets say he employs 10 people each, 300 people, minimum wage is NOT $10/hr but lets make it $10/hr, so given at anytime, one hour is worth $3000 for labour, and a month is worth ($3000*40*52)/12 = $520000/mth

Electricity per hour for 30 stores lets use BC's rate of 7.28 cents per kwh, if they consume 10000kwh per month that would be $728/mth*30 = 21840/mth

we'll add an extra 10000/mth for paper, and 10000/mth for misc, so a total of 541840/mth

to cover that, with just loans at 60% per month ($600000) he'd have to do 1 million dollars worth of loans, easy in my opinion, thats 1 million over 30 stores, thats $33333.33 loans for each store for one month, thats 34 * $1000/wk loans.

I've known people that do this, they don't do it JUST once, they usually do it until the end of the year, cuz theres always Christmas, when these people really sink the teeth in, and also offer "oh don't worry about the interest this month". Which means you get another 60% tacked on what you didn't pay.
  by: hl2k   11/14/2007 05:11 AM     
  May not be fair, so go some where else. and @hl2k  
The whole premise of a payday loan is that you need the money several days ahead of your payday. Why you don't just use a credit card is beyond me. But they need to charge a fee for their services, and trying to charge a rate that sounds sane is what he says will ruin his buisness, because the whole idea is you pay back the loan so quickly (once payday rolls around) that you only have a couple days of interest. If you charge 15% odd percent instead (creidt card rates, though a bit low) and get two weeks of interest, thats... what? Maybe $6 on a $1000 loan.

If people wanted loans at lower rates, they have them in every shape, size and color, and on neat little squares of plastic too. You can get cash advances on most credit cards, or get a small bank loan against a piece of collateral. If you have no collateral, can't get a bank loan, and can't get a credit card, you're probably already so far up a creek that getting a payday loan isn't going to be any worse.

@hl2k: Thats some impressive math works, by the way
  by: brinlong     11/14/2007 06:19 AM     
It's a lot easier than that even - you're counting those loans as NEW loans, not existing loans still being paid back.

Consider that the average person on one of these loans is not really ever going to be able to pay it back if they don't straight away, that continuation factors in and the revenue sky rockets.

  by: lauriesman     11/14/2007 06:29 AM     
I don't know why you are using 60% , 60% is only for the WHOLE month....that is the monthy rate. It really is 2% per day....
Usually people pay it off within one or two weeks because that is when they get paid, and usually pay it off before then because they don't ask for paydays exactly on the same day they just got their paycheck.

I'm not saying that is not a lot, cause i would never pay that. But if it came down to me not having money and i was going to be evicted, damn well i would do that.

I'm not going to comment on the costs of his business, just because there isn't enough information to really argue it. You could be right he might be making a fortune and you could be wrong.

Keep this in mind, House mortgages, say you take out a loan for 30 years on $200k at 6% interest rate. If you do the full 30 years.... you pay $231k in interest, that is over twice the amount of the house.
Thats over 100% interest charged there, but its just over time, and most mortgage companies have prepayment penalties so they discourage early paying. Of course you can refinance etc, but my point is that it is over 100% interest charged.

Another thing to think about.
When you start paying your mortgage loan....
Your first payment (with the same numbers as above)
will be about $1,200.
Well guess what ? 200 goes to your house loan and 1,000 goes to interest.
Wow, thats 500% interest right there.

These loans the payday do are immediate, don't require credit checks, and are very risky.

Also i know people who use payday loans also....they are people who can't control their spending habits and end up making it necessary to use payday loans because they have no money left over for rent, gas, and food.
  by: sp00ky187   11/14/2007 06:48 AM     
  Credit card intrest...  
For a few days credit card company would charge $0.00 on your emergency purchase (assuming you dont have a previous balance carried over and dont take ca$h)

if u take cash they charge say 4% min of $2.00 on the one i looked at.
  by: zortona   11/14/2007 07:13 AM     
I just tried to type with my DIY book, whats worse I'd typed several words before I realised it was a book not a keyboard.

Any way

Spooky is right.
The cost to administer a $200 loan for a week is very high.
So the cost to borrow that mjoney will be proportionaly high as well.

I would nevere use this service, but I see no reason to shut it down, if someone is happy to borrow $100 now and pay back $110 in two weeks, and someone else is happy to lend them $100 and receive $110 back in two weeks, I dont see the problem.

Now, I disagree that they shouldnt be subject to any regulation, I dont support their wish to take children of debtors and sell them into slavery for example, but as long as everyone knows whats going on and is happy, whats it to do with us?
  by: AnsweringQuestions     11/14/2007 09:07 AM     
I used a monthly rate to do the costs of business, nothing more :)
  by: hl2k   11/14/2007 09:08 AM     
  Your missing the point on costs  
If it takes staff 25 minutes to arrange a $500 loan, do you thinik it takes 5 minutes to arrange a $100 loan, or 25 minutes?
  by: AnsweringQuestions     11/14/2007 09:13 AM     
  "He indicated that even at this rate, his company  

Maybe it's time to go into a new line of work then?
  by: Jediman3     11/14/2007 03:21 PM     
If you are doing monthly....this its misleading.
Doesn't make sense to use monthly when its daily.
Why don't you just go ahead and use yearly then?...
  by: sp00ky187   11/14/2007 05:22 PM     
oops i meant "then it's misleading" in the last post.

But to add more to this subject...

People can say this shouldn't be allowed.....but if it isn't allowed then you will be putting people out on the streets.
There are times when people get in situations and need fast cash.

Would you rather people paying a lot for borrowed cash or have people being evicted from their homes?

Sure there are repeat customers, why let those people ruin it for others?
Its their choice to have a bad spending habit and to take out these types of loans.

Of course its cheaper to use a credit card and pay it off before the month is over.
But you have to understand there are people to have ruined credit from maybe past bad marriages, stolen credit cards, and maybe they can't trust themselves with credit cards.

Besides these loan places allow you to have cash in your hand on the same day you need it, apply for a credit card you have to wait at least two weeks minumum to use it.

Like i said before its nice to have a place to borrow money keep good relations with family and friends because borrowing from them cause ruin relationships.
And of course there are people who don't have people to rely on for money.
  by: sp00ky187   11/14/2007 05:34 PM     
  Auto Title loans...  
Same thing . can you ever pay back the loan????
  by: zortona   11/15/2007 03:29 AM     
not if a Pulic(ran by gov't) org ran the service at 60%pa interst and accepted the loss of staffing cost (to be made up by taxes) because as you said it does keep people off the streets and is probably cheaper to the state then straight out welfare or housing support.

Ban these loan sharks and make the Gov't do its Job of maintaining a functional society.
  by: veya_victaous     11/17/2007 01:03 AM     
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