A Seriously Savvy, Experienced Payday Loan Lender Answers Direct Questions About the “Business of Lending Money to the Masses!”
[Jer Trihouse: To be clear, this is not my work! I just discovered this Q & A on an old Thread. Also, you’ll quickly figure out that this payday loan lender has navigated ALL the hoops, challenges and costs of securing a state license. So… like any of us who use the state licensing model, WE HATE TRIBAL LENDERS.]
YOU WANT TO READ THIS!
Whether you’re a lender, a collector a borrower, a scrubber, a loan management software company, a state licensed or tribal lender… YOU WILL LEARN FROM THIS! [Lender Resources]
Question: Do you have trouble sleeping at night?
Payday Lender: Not even slightly!
Q: OK, what are some ways I, as a loan holder, can avoid getting super screwed by the exorbitant interest rate?
Payday Lender: Pay the whole goddamn thing off NOW and never take another loan out from me.
Q: My plan, but sometimes you’re in a hard place, and these guys are the only option. But I totally agree.
Payday Lender: Is it online/tribal? Do they show their lending license? If its tribal, stop paying. Then send a letter saying you will only pay 20% interest.
Default on the first payment then renegotiate is the easiest. Work with unlicensed vendors(tribal or foreign). Not state. They have no teeth with claims because they aren’t obeying the state laws so collecting is hard for tribes if not impossible.
Q: What percentage of your customers are one time (or at least, super rarely) customers compared to the every week sort of customer?
Payday Lender: About half are habitual repeaters.
Q: That’s actually far better than I feared, but still far too many people trapped in that cycle. Any insight into why? Do the people lack skills? Does your area lack jobs? Is there some common theme, like medical bills or bail money that’s very common?
Payday Lender: It’s lower than the industry average because my business model doesn’t actively pursue reloans. We can’t take more than 2 loans out on a person per year. I have seen everything from my car broke down and I just need this to get me to work; to, repeat offenders who make $80K a year (verified). I really don’t know of commonality I think there’s just a wide range of reasons.
I do have an idea how to fix it. Force contracts to carry an amortization schedule with a minimum number of payments. Say, 10 equal payments for example. Each payment reduces principal (NO INTEREST ONLY). This prevents them from HAVING to take a loan out every two weeks to cover bills. Don’t allow more than 2 loans per household per year, industry wide not just per lender. They will jump from lender to lender otherwise. This should be used as emergency money not a check cashing service.
Look, I make enough money following the rules and playing nice I don’t have to ream them too.
Q: Why is money the most important thing to you?
Payday Lender: Its not but its close. Money means freedom: freedom to live how I want.
Q: And you feel it’s acceptable to use others to get what you want, even if that means that their quality of life is diminished?
Payday Lender: I also feel like this is insulting to my customers. Shit happens and if it happens to someone with awful credit what are they supposed to do? So yeah I profit from that. Does it bother me? no.
I don’t advertise, my customers come to me, no ones forcing them to take a loan. And unlike other paydays I amoritize rather than taking the full amount and forcing them to renew. Instead of 1 huge payment at the end of the pay cycle forcing them to take a new loan. I take small payments for several weeks so if its truly just a bad luck thing. They arent locked into a never ending cycle.
So no I have no qualms about what I do or how I do it.
Whats the alternative? No one comes to me thinking its a wise life decision.
Q:I’ll just be leaving this here… Youtube
I’d like to hear OP’s take on John Oliver’s report (see above link) on pay day loans. Do you think it is accurate?
You sound like a rare breed indeed. Kudos for not trying to milk every dime out of ppl that you could.
Payday Lender: I love John Oliver. I have HBO and watch every episode. This episode made me think a bit about everything else I see though. He paints with such broad strokes it misses the nuance, like the show News Room, I think that nuance is truly where the difference lay.
The interest rates suck, but that’s not the issue. They have to because of the default rate is so high.
If I knew I was going to get my money back I could charge 20% like a credit card. But 25% of the time we lose not just the principal but the entire cost of servicing the loan ( to contrast bank loans have less than a 0.25% default rate). So, that means that the other 75% of payers have to make up that massive loss.
Lend someone 1000 dollars and it costs you 100 to service, so you are out $1100. You have to make $1200 to really make it worth it. So if you lose $1100, 25% of the time, how much do you need to make on the other 75% of the time just to break even. How much is that in interest to the other loans? Do the math…it sucks. And yes 25% is the industry average default on first time payments [FTPD] NOT the total default, that’s even higher.
I do think there’s severe problems with the industry, and that predatory renewals needs to be addressed (see my other comments above). The interest rates aren’t really the problem though… 500% is calculated on 2 weeks drawn out for 52 (so its really 20 to 25% a payment). If you can find me someone who can collect for 52 weeks I will show you the next Bill Gates; it just doesn’t happen.
So here’s the fix. Set a max to 200% APR, then force it carry it for 10 payments and no more than 2 loans a year, that way they have the opportunity to get out of debt, and you can still make some money.
I also think that this is a necessary service. Our customers don’t want to go bankrupt. They want to pay their debts, but that intention doesn’t matter to banks or lenders, so they can’t get a loan anywhere else. I have actually had customers in tears thanking me because they have no other options. The problem is there’s really no regulations on the industry. I can setup with a tribe and basically write my own law. So, some of my compatriots use that so they don’t have to obey state laws; this means they can do dumbass shit like auto fund renewed loans based on some bs contract no one read.
So I have limits, I draw the line, I know the difference between really fucking someone, and just covering my risk.
I am open to alternatives too. If not this what do we have, loan sharks?
Look, you don’t pay me I send you an angry letter; not break your legs.
Here’s a challenge. Tell me a better model. Vet it with financials. I wanna see spread sheets, planning, a well thought out idea. You tell me that and I will not only fund it, implement it with my call centers, staff, but I will even pay for the lobbyist. Hell, if its good enough I would hire you and get you a share of the profits.
Q: So whats the alternative? Illegal loan sharking?
Payday Lender: If you push it out then the loan sharks will come back. Remember prior to the 90s how the mob was pretty powerful in places like Vegas Chicago NY KC Boston(pretty much every major city)? Now they aren’t…
I am all for fixing the regs getting rid of tribal/foreign and repeat loans. Say a cooling off period before they can re-lend.
But It also used to be that you knew your banker. And if you needed $500 to fix your truck to get to work you would walk in and say “Hey Bob I need 500 can I pay you back over the next few months?” The regulatory environment and consolidation of banks broke that. So now where are you to go?
And don’t get me wrong the big banks needed those regs I am all for it.
I’ve seen it multiple times, and again its a very narrow view, and the problem is then everyone’s assumptions are based on that kind of narrow view. For example, who said I have a location? I used to, but stores are like a big “Rob Me” sign, I am online only now, and lend to residents in the state of Nevada and California where I am licensed to operate by the state. You have to go looking to find me, I don’t advertise.
Unlike the guys Oliver is talking about which makes it seem like everyone operates that way.
Here’s the difference between state and tribal.
Because of that state license, I have to follow lending rules in that state, like maximum interest rates, no more than 2 loans per person per year etc. I get audited every quarter to make sure I am doing this correctly (by both states). I pay taxes. I have to keep a bond with the state to make sure if I break these rules I can refund my customers. I can’t auto re-loan. I have to follow state collection guidelines. It goes on.
But on the flip side, I have protections which allow me to file actions against those who don’t repay me.
Tribal/Foreign based lenders don’t have to do any of this. They pay a fee to a tribe then write their own rules. And Oliver is talking about us as if its the whole industry when in reality its about half.
Q: This should be the most visible comment. it explains everything I was wanting to know about this from your side of it. Maybe I am missing something that makes you out to be a horrible person with a horrible industry (which I had previously believed) but you are running a business
Payday Lender: Thank you, I am sending this thread to the friend who put me up to this. She thought I was really going to get reamed. (which in fairness some have but nothing too harsh)
Q: Shit man, people are giving you hell and the credit card companies are cool? You’re filling a void in the marketplace.
Payday Lender: Honestly no ones giving me too hard of a time. It’s all been super civil. I thought it would be a lot worse.
But we wont let you dig too deep of a hole… I want my money back.
So here’s the math on the credit card. $1200 charged. 3% minimum payment and 20% interest is $2310 in Total payments back.
Borrow 1200 from me and run it to term its $2800 So that’s 20% higher than a credit card. But if your credit was good enough to get a card, you wouldn’t be coming to me, so yeah I have to charge more.
Q: How much money would a person need to start a business like this? How does one get into this business?
What happens to a market that is not allowing new talent in to proliferate the business?
Payday Lender: No one said that. I said its hard. The biggest lender in the industry is about to go out of business so there’s about 1 billion up for grabs… go get it if you want it.
Q: What do you mean by this? Do you mean take out s big loan and just not pay it back because they won’t be able to collect?
Payday Lender: No I mean theres about to be a lot of room for upstarts in the industry.
But shit now that you mention that… google biggest payday lender, borrow from him, then don’t pay him back …hes tribal and unlicensed. So unless you live in a few super red states he can’t collect or submit you to a credit agency. Only borrow online. Not in a store front. Stores are licensed.
Q: Could he collect or submit to a credit angency in Mississippi?
Also. Is there anything he could do to get the money back that would have bad effects for me? Could he sue me? Is he likely to do so? Is this a common scam to pull? What am I looking at by doing this? Sorry for all the questions. I only ask because I’m in a really tight spot. And desperately need about 1600 dollars.
Payday Lender: Collections is just annoying calls and you can send a cease and desist.
The credit reporting would have be in the contract, but if its a tribal lender I doubt they do. If its tribal they are breaking state laws, so they cant go to the states attorney to file an action or lien. It also means they really can’t sue either.
If they are a state Licensed Lender in Mississippi then their website or store location would have a copy of the License on their website. If they are state licensed, then they can sue and file actions.
If its a store front its probably state licensed. Online is about 70/30 where 70 are tribal.
If you are interested in the sector look into micro financing for developing nations as well. Cheaper easier, no regs, and a lot of free flowing money from investors.
Q: Would you mind going a little bit more in depth on this? What is micro financing for developing nations?
Micro financing is a kinda cool new idea. Developing countries have no real banking or credit sector. They also have lots of entrapeneurs. The dollar goes a long way there and they dont need much.
500 or so to start a business. So you get 10 to 20 of them together. Each get 500 to 1000 and they share risk with each other. Theres already people in those countries looking for lenders and act as middle men… so lend to the businesses all at a reasonable rate for a high risk investment 20 to 40% since theres a shared risk theres a high liklihood of repayment. And its not your money its investors who can afford the loss. If you are really slick, you set it up as a charity so if the investors lose money its a tax write off so who cares?
Rinse and repeat.
From Jer: You want to know more about “micro-lending?” Start here with “Confessions of an Economic Hit Man” by John Perkins and “Banking to the Poor” by Muhammad Yunus
I’ve seen you haven’t received a lot of support here. For what it’s worth I know you fill a valuable space. People need money they don’t currently have and you provide that to them at a rate that is proportional to the risk the customer represents. Let’s be honest if they qualified for a credit card or any other option, they would use that first. I’d rather have people owe a local business man a few grand rather than owe the mob a few grand. Thanks for doing this AMA, very interesting.
How old are you?
How long have you been doing this?
How much money did you start with?
Did you take out a loan to start?
How comfortable are you living right now?
3 years ( I was a loan officer at a bank).
I had $100K of my own and another 1.5 million from investors
No, you can’t get a business loan large enough for a start up SBA just won’t allow it.
I make over 2 million a year and employ 23 people all of whom make over 40k a year + bonuses and benefits.
Q: What’s your professional background? Did you work in other financial service jobs/institutions before you opened your own shop?
Payday Lender: Banking was my background. I was a loan officer out of college.
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Note to my Reader: This originally appeared here: Thread
And no, it is not me. Apollonius01, if you’re reading this, WE WOULD LOVE TO HEAR FROM YOU! WELL DONE, BROTHER! Jer