The Wall Street Journal recently reported something that I just had to share; banks and Indian reservations are now hookin’ up to do payday loans. Some of them are charging 300% for the loan! Now let me give you some background. Payday loan companies have been charging outrageous rates to customers for years. Now granted, I think it’s absolutely stupid to get loans, and getting one on a paycheck is even worse. So it could be said that if you are dumb enough to take out a loan with a high interest rate, you deserve what you get. The problem is, that doesn’t take into account desperation. And really, that’s why payday loans exist: desperation!
What payday loan companies don’t consider…or care about, is how they take someone who is already in a bad situation and compound it greatly by charging them an insane interest rate. All in the name of the mighty dollar. Now, if you know me, you know I’m a capitalist. All throughout the Bible, God tells us to work our tails off and to build wealth. Never does He say that if you just sit around and pray for it, He will give it to you. Instead, He says that the diligent prosper.
But taking advantage of someone to the tune of 300% is absolutely ridiculous. I seriously don’t understand how someone can go home at night and sleep when doing that each day. The crazy thing is they don’t seem to have a problem with it. In fact, one of the chiefs was asked about how much money the tribes are making off the loans: “We don’t want to brag, ” said Bill Follis, a former loan office at a bank who has been the Modoc chief since 1974, “But it’s good.”
The good news is that some states are doing their best to get rid of these companies. Seventeen states have either banned payday loans or put a cap on the amount that can be charged. Because of this, the amount of payday loans are down 24%. The bad news is that Indian reservations have their own sovereignty; therefore, they don’t have to abide by the state laws.
Here are three ways to avoid the “need” of a payday loan:
- Get an emergency fund – As fast as you can, get $1000 set aside that is only to be used for emergencies. Pay minimum payments on all of your bills and stop investing completely for now.
- Live on a budget – You have to start by spending every dollar on paper on purpose before the month begins. Also, for thirty days, collect a receipt on everything you purchase, even if it’s a pack of gum. At the end of thirty days, categorize the receipts and lay them out on a table. You will be blown away when you see where you actually spend money.
- Stop spending money – You have to realize that the only way to get out of crisis, is to quit putting yourself there. It is vital to live on less than you make. That way you can use what is left over to accelerate getting out of debt.
The important thing to remember is that when you have an emergency fund, a budget, and a debt elimination plan, then a crisis becomes just an inconvenience.
What are your thoughts on the tribes and banks doing this kind of business?
You know, I saw the commercials for Western Sky, where the guy says, “It’s not cheap, but it’s a lot less than a payday loan.” I was wondering why a native American was hocking this kind of stuff.
I never made the connection to the sovereignty immunity until reading your post. Thanks for the eye opening commentary.