What Businesses Charge

I had an interesting revelation when I was a teen and working in the stock room at my local JC Penney. When inventory arrived, I was to put the price tags on the items. The sheet that I was given to derive the prices from also had the store’s own cost for those items. The markup was always 100%. If you’re paying $20 for an item, the store paid $10 for it. Sounds fairly reasonable? Or should we tell JC Penney how much they should be able to mark up its items? We don’t. We simply let the market dictate whether JC Penney sells that item for $20 or it stays on the shelf.
So why exactly do we want to do the same thing with payday lending? Certain legislators in the state don’t like the amount of markup on short term loans that businesses give to people. They want to cap how much the business can charge for these transactions.
It’s also interesting that explanations for the proposed bills are always using these drastic annual percentage rates, numbers like 260%. But how does it work for real? I asked Jamie Fulmer, the Senior VP of Public Affairs at Advance America what it would cost me to borrow $1,000 and pay it back in full a week later. He replied that the maximum I can borrow in Rhode Island is $450 and the interest on that loan, whether it was paid back in a week or two weeks would be a flat $45. I don’t think it’s be unreasonable to call that a 10% markup. Keeping in mind that this is intended to be a payday loan, which means it bridges someone over until their next payday. This isn’t intended to be some long-term mortgage kind of thing.
Over on Twitter, the Providence Journal’s Phil Marcelo filled me in on a couple questions I had like what are the lenders’ reported profit margins. Using this source, one payday lender, Advance America had a 10.4% profit margin, less than companies like Mattel, Hershey’s, IHOP and Tempurpedic. I don’t see anyone trying to curb the costs of candy bars or pancakes.
I think we all know what would happen if you drastically cut the amount of profit that a business can make when they’re already not exactly operating at a ridiculously high margin. They’ll go out of business. Gee, isn’t that a great idea. Let’s chase businesses out of Rhode Island. We have too many of those already.
My next question was if people do depend on these types of loans and the legal, aboveboard, taxpaying businesses are chased away, what will people do for their monetary needs? Marcelo said the responses he’s gotten have included that new non-profits will provide small loans at lower rates or people will simply have to cut back on their expenses. If there are non-profits willing to jump into this business at a lower rate, where are they? They’d single-handedly put companies like Advance America out of business, legally. Why don’t we see these starting up? We know the answer. At a lower rate, you lose money. Oh, I firmly believe that if the lenders are chased away by business regulations the void will be filled, there’s no doubts there. However, it’ll be filled by those who will charge a whole lot more. Some online lenders have been known to charge as much as 1,000% on the loans. Who knows what the guy down on the corner or at the local bar would charge. And I don’t quite think he’d simply repo your car or put a lien on your house if you missed the payment.
Why are we trying to protect people from themselves? Do we really want and need more anti-business regulations in Rhode Island? Apparently some members of our General Assembly think we do.

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Dan
Dan
8 years ago

Progressives view companies that don’t sell any physical good or service as fundamentally evil. They view the proper role of government as to provide for people and insulate them from risk, so these are not valid business models in their view.

Sammy in Arizona
Sammy in Arizona
8 years ago

If the state forces the payday lenders out of business, the folks who borrow from them would have to budget their money better or work more hours. .
Although that might require some personal responsibility, so it is obviously off the table

Dan
Dan
8 years ago

Sammy the Troll is off his meds today, posting incoherencies in every thread.
I think you have cause and effect a little confused, Sammy. People go to Pay Day lenders after they get in financial trouble. The pay day lenders don’t cause them to get in financial trouble in the first place. And if the state is forcing you to do or not do something, that’s not “personal responsibility” by definition.

David c
David c
8 years ago

The alternatives I’ve seen require the loan recipient to make payments monthly over a year or two and to receive “credit counseling”. I think the attractiveness of payday loans is the retail fee aspect and that most of those people will not take the alternative.
For once Sammy has a point. It may be better for many of these folks to forego this debt, to skip instant gratification. Other people may really need the money now.
The fact that these alternatives apparently can’t exist until payday loans are banned tell us about their attractiveness.

jgardner
jgardner
8 years ago

All you have to know is that if a payday loan business could make money charging less for their services (thereby capturing a greater share of the market), they’d already be doing it.

Dan
Dan
8 years ago

Taking advantage of poor people who don’t know any better – isn’t that what the state lottery is? Don’t get me wrong, I’m all for replacing mandatory taxation with voluntary forms.

Warrington Faust
Warrington Faust
8 years ago

Aren’t the “legitimate banks” doing the same thing with “overdraft protection”. Any honest banker will tell you that it is a “small loan” business, for which they charge a $35.00 fee. They know that most of the “overdrafts” are people writing themselves a loan.
Back when Fleet Bank was still in business, I remember an officer telling me that they had over 5,000 “empty envelope deposits” a day in Boston alone. Fleet gave you an “instant credit” of $100.00 whenever you made an ATM deposit. People would deposit “empty envelopes” and enter a deposit amount in the ATM. They would then darw the $100.00 cash from the falsified deposit. I don’t recall that there was a penalty fee attached to this, provided that you made a real deposit within a few days.

Russ
Russ
8 years ago

Great points. And if usury is OK, why don’t we legalize serfdom too? Consider that if legitinmate businesses don’t don’t exploit the peasants, someone even less scrupulous will. Now, that’s business friendly!

Russ
Russ
8 years ago

“If there are non-profits willing to jump into this business at a lower rate, where are they?”
I realize you answered your own question with your own assumption about the industry, but here’s one…
http://www.capitalgoodfund.org
Started by a Brown grad btw…
http://www.capitalgoodfund.org/aboutus/thestaff

Dan
Dan
8 years ago

Russ – There’s a fine line between protecting people from others and protecting people from themselves. We small-government types generally feel that the state should be involved in the former and not so much the latter, which seems to be the case with pay day loans.

Russ
Russ
8 years ago

Exactly, if the peasants don’t like tilling the manor’s fields qu’ils mangent de la brioche someplace else. If this keeps up, I may just have to have my footmen pack up my riding carriage and move out.

Dan
Dan
8 years ago

Russ – It’s sometimes hard to tell if you’re being intentionally idiotic. If you honestly think a pay day loan storefront is of the same thing as feudal lordship and serfdom, then you’re too far gone to have a reasonable discussion.

Russ
Russ
8 years ago

Let me spell if out. If the arguments above justify exploitation via usury, wouldn’t they also justify exploitation via serfdom? Isn’t banning serfdom similarly “protecting people from themselves?” And surely the aristocracy believed the serfs would be worse off if the ruling class were “chased away?”
I say, it’s a question of where you drawn the line, not if you draw the line. If Patrick thinks there is no line, then let him be honest about it.

Russ
Russ
8 years ago

Hehe, and I’ll admit the comparison is silly if you will!
en.wikipedia.org/wiki/The_Road_to_Serfdom

Dan
Dan
8 years ago

Serfdom is not a free choice somebody makes. It is the direct result of an oppressive system of top-down governance that coerces individuals into becoming serfs. Presenting it as a voluntary transaction is what I’m calling idiotic because that ignores the fundamentally coercive context in which serfdom occurs.
Nobody is being forced to use a pay day lender. They don’t have to walk through the door. They don’t have to agree to the terms. They don’t have to sign a bunch of papers and take on all kinds of legal obligations. Call pay day lending “usury” if you want – a term that carries specific legal implications that aren’t present here – but it’s not at all the same as feudal serfdom and the comparison itself is so ludicrous that it’s destructive to the conversation.
The Road to Serfdom dealt with much larger and more significant government interventions, such as socializatized services and central economic planning. Hayek described just that – a road to serfdom – meaning it was a gradual path that we should avoid. He did not, as dishonest progressives like to paint, claim that things like socialized retirement and health care would result directly in serfdom.

Russ
Russ
8 years ago

See www9.georgetown.edu/faculty/gg58/BondedLab.PDF

Abstract
Among the oldest and most pervasive economic institutions are bonded labor and serfdom. While seemingly exploitative, both bonded labor and serfdom are often not imposed on the laborers but voluntarily chosen. It is generally the lack of suitable alternatives which makes workers opt for a life in servitude. This paper shows that the existence of these voluntary forms of servitude itself may restrain the laborers’ opportunities so that they are left with no better alternative than bondage. Under these circumstances, government interventions banning servile institutions, by promoting the development of alternative options for the laborers, have the potential to substantially improve the condition of a large class of laborers.

Dan
Dan
8 years ago

That’s nice, Russ. I can find some college professors who agree with me too. I thought you had outgrown your blockquote phase, but I see that is not the case.

Russ
Russ
8 years ago

What’s most interesting for me about that are the comments that “it is generally the lack of suitable alternatives which makes workers opt for a life in servitude” and that the “existence of these voluntary forms of servitude itself may restrain the laborers’ opportunities so that they are left with no better alternative.”
Isn’t that the situation Patrick describes when he questions, “where are they [the alternatives at lower rates]?”

David S
David S
8 years ago

A big minimum wage increase would render this argument on this thread moot. How interesting is it that Justin immediately addresses that issue. HAHA Your masters demand it!

Dan
Dan
8 years ago

David – You truly think mandating a certain wage will mean no more poor people; no more irresponsible financial decisions? That is incredibly naive.

ANTHONY
ANTHONY
8 years ago

“Progressives view companies that don’t sell any physical good or service as fundamentally evil.”
Dan…they hate Exxon. Last I checked progressives (and liberals…..ooh what a bad word) don’t like any companies that make a profit…Unless…they are “do no harm” companies like Fakebook and Giggle who hide millions in profits overseas and are in Husseins back pocket.
Snow “job czar” Immelt and GE hide millions overseas while they send hundreds of jobs there.
“Let me spell if out. If the arguments above justify exploitation via usury, wouldn’t they also justify exploitation via serfdom?”
Russ why don’t you do some more obnoxious quoting about the “Higher Education” industry. Colleges and Universities over charging their innocent victims and preparing them only for student loan payments into their 40’s. Now there’s a racket that needs sunlight. Bet you don’t touch your holy grail.
Mama govt. wants to cherry pick her favorites because she knows best whats good for the masses. In any case the private sector is once again the target.

Dan
Dan
8 years ago

ANTHONY – Ask Russ what type of corporation he works for: you’ll find the answer on any progressive Top 10 public enemies list. And he has the nerve to lecture people about usury. Lucky for him, the RIFuture crowd isn’t in control, or he’d be right out of his lucrative corporate job.

Russ
Russ
8 years ago

What a surprise! Ad hominem attacks. Ask a sinmple question…

Dan
Dan
8 years ago

Russ – I think it’s a relevant philosophical and logical question why you should be able to dictate what types of voluntary businesses other people run on moral grounds while working for a business that many find usurious and otherwise objectionable. Or why you should be able to send your children to a lily-white gated school while families with children in the public school system should have no choice of where their children are educated. We’re noticing the typical progressive pattern with you – one standard for yourself, another for everyone else. For somebody who claims to be a “libertarian,” you sure like telling others what they can and can’t do.

Russ
Russ
8 years ago

You think my business isn’t regulated on rates? lol! Clearly this is all about me personally. Oddly no one called me to testify at the State House!
Notably citizenship in a democracy is a form of voluntary association. Do I think democracies can regulate corporate practices? Absolutely.

Dan
Dan
8 years ago

“You think my business isn’t regulated on rates? lol!”
Ah, so that makes jacking up rates multiple times in a year okay. As long as it’s legal, it’s moral. For your company, of course, not for anyone else’s. Rationalize however you want, Russ. The mental acrobatics you have to go through to reconcile your personal lifestyle with progressive principles speak for themselves.
“Notably citizenship in a democracy is a form of voluntary association.”
So all of the interactions between government and its citizens are “voluntary” because the citizens choose to reside within its jurisdiction? I was born a citizen of the U.S. – being born was a choice I made? Please stop calling yourself a libertarian if you won’t even attempt to understand the basic foundations of the political philosophy.

Russ
Russ
8 years ago

*Yawn*

Dan
Dan
8 years ago

You don’t have to demonstrate your apathy in written form, Russ. It’s been obvious for years that you have little interest in maintaining philosophical consistency from one position to the next.

ANTHONY
ANTHONY
8 years ago

Remember Russ….Liberalism is a mental disease. You are lucky because the Unaffordable FlunkyCare Act will cover it….before it goes bankrupt that is.

Russ
Russ
8 years ago

“I never submitted the whole system of my opinions to the creed of any party of men whatever, in religion, in philosophy, in politics, or in anything else, where I was capable of thinking for myself. Such an addiction is the last degradation of a free and moral agent.”
–Thomas Jefferson to Francis Hopkinson, 1789.

David S
David S
8 years ago

No Dan. There will always be poverty and bad choices and bad behavior. The latter two are not exclusive to the poor. I believe a raise in the minimum wage would be a plus for the economy. The money would be spent immediately.

ANTHONY
ANTHONY
8 years ago

“I believe a raise in the minimum wage would be a plus for the economy. The money would be spent immediately. ‘
Except …… DavidS. Studies show that one of the side effects of raising min. wage is that it destroys jobs. Companies DO pass on their expenses. Why not raise min. wage to 20.hr. then if it is the cure all you believe in.
http://www.forbes.com/sites/dougbandow/2013/04/01/the-minimum-wage-typifies-much-that-is-wrong-with-washington/

Russ
Russ
8 years ago

“Why not raise min. wage to 20.hr. then if it is the cure all you believe in.”
Yes, and if 2 aspirin are good, why not take 200?

Dan
Dan
8 years ago

Except we understand the biological reasons why aspirin is good in small doses but bad in larger doses. Progressives have no legitimate rationale for raising the minimum wage to whatever feels right to them at the time, nor can they explain why a small increase would be good but a larger increase harmful. Most likely both situations are harmful to the economy but small increases are simply undetectably so.

ANTHONY
ANTHONY
8 years ago

‘Yes, and if 2 aspirin are good, why not take 200?”
Good oblique post Russ…..actually an improvement. Oh wait…another attack on the poor progressives…tsk,tsk. Russ can be sarcastic and it is wit of course. Pick up your crying towel on the way out.

Russ
Russ
8 years ago

You’re welcome to read up on the progressive case for raising the minimum wage if you like, or just continue to pretend no progressive economists have put forward an argument in support…
http://www.epi.org/issues/minimum-wage/
One argument to consider is that wage growth should keep pace with gains in productivity, that gains should be shared by all workers including those at the bottom…
http://www.cepr.net/index.php/blogs/cepr-blog/the-minimum-wage-and-economic-growth

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