Recs

0

Dueling Fools: Payday Loans Bull Rebuttal

Rick laid out some emotionally compelling arguments against payday loans. One of them posits that payday lenders (PDLs) are immoral because poor or uneducated people use them. Not only is that false -- since the fastest-growing segment in PDL usage is the $50,000-$75,000 income earner, and 55% of PDL users have had some college education -- but the logic is faulty.

Using Rick's logic, if you don't know enough to use the Internet to find the best price on a product, and instead buy it at the retail price at a bricks-and-mortar store, the retailer is immoral, and the consumer should be educated about Motley Fool Rule Breakers pick Overstock.com (Nasdaq: OSTK  ) .

Rick calls PDLs "predatory" and its customers "victims." This is unfair, because the transaction is not unilateral, like a thief stealing from a bank. The customer has come into the store of his own free will. You aren't a "victim" when the fees are disclosed and you make a choice to use the product. Using Rick's logic, a company that sells liquor to alcoholics is predatory, as well as tobacco companies that sell cigarettes to smokers. Does that mean McDonald's (NYSE: MCD  ) "preys" on the obese? Of course not. This is just targeted advertising. The consumer can choose whether or not to use a product or service.

Rick also makes the error of translating fees into APRs. Say I take out a $100 loan from a PDL, and it costs me $40 to do so. The APR on that loan is 390%! But look at fees at other merchants. Suppose I bounce a $100 check. I get hit with a minimum NSF fee of $25 by my bank. The APR is 650%! Suppose I pay my $100 credit card balance late? The company charges me a $28 fee for doing that, making the APR 728%!

But do consumer groups get up in arms about ATM and NSF fees? No. Anti-PDL ideology makes people inclined to view fees inappropriately as APRs because the product is called a "loan."

PDL fees are not out of whack with reality. The better your credit, the better your loan terms. Unfair? That's capitalism. Without that system, we'd have economic chaos and bankrupt banks.

Finally, Rick points out that consumer education will destroy payday lenders in the long haul. Consumer education will never destroy PDLs, because a demand will always exist for the product. The majority of consumers already are educated. Even if they weren't, nobody serves the underbanked community because it isn't profitable.

You can take that to the bank.

You're not done. This is just one part of a four-part Duel! Don't miss Rick Munarriz's bearish take, Lawrence's bullish argument, or Rick's rebuttal. When you're done, you're still not done. You can vote and let us know who you think won this Duel.

Fool contributor Lawrence Meyers thinks people should take responsibility for their own actions and not endorse victimhood. That means that, although he owns none of the stocks mentioned in his side of the Duel, your investment decisions are your own. The Motley Fool is investors writing for investors.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 496591, ~/Articles/ArticleHandler.aspx, 10/31/2014 9:09:59 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 17,195.42 221.11 0.00%
S&P 500 1,994.65 12.35 0.00%
NASD 4,566.14 16.91 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/30/2014 4:00 PM
MCD $93.38 Up +0.65 +0.00%
McDonald's CAPS Rating: ***
OSTK $23.12 Down +0.00 +0.00%
Overstock.com CAPS Rating: *

Advertisement