LJWorld.com weblogs Notes from John
23rd Street and Wall Street
http://worldonline.media.clients.ellingtoncms.com/img/blogs/entry_img/2008/Dec/17/first_loan.jpgWall Street has a credit crisis for large banks and Lawrence has a credit crisis for people with a lot less income. While Wall Street has the US Treasury as a cheap or no cost source of credit, Lawrence has plenty of sources of high cost credit.The street with the traffic and fast food restaurants is also a busy financial center. I counted 15 functioning offices of financial institutions on 23rd Street. Two other offices were vacant. One was a mortgage broker out west an apparent victim of the current housing market. A sign on the building at Naismith announces that the KU Credit Union is coming soon. Hasn’t that been there a long time? Surprisingly 6 of these 15 (all east of Iowa) are businesses that make payday loans among other things. The cost of a payday loans is equivalent to an annual interest rate of 391.07%. That figure comes via the rates and returns page at www.checkngo.com and is pretty standard for the industry. It amazes me that there is enough business to keep all of these companies going. I do know about not making enough money to cover expenses and running short at the end of the month. I have been there and done that. The surprise is the number of people in Lawrence who are apparently in this difficult situation. If there weren’t enough people using these places, there wouldn’t be 6 of them on the same street.There is a bit of competition among these folks. I saw a women standing near the curb out front of one of these offices with a sign saying ‘First Loan Free.” What a deal. This sign acknowledges that for many people there is a need for more than one of these loans. It kind of seems like an invitation to get hooked.Paying $15 to borrow $100 for two weeks may seem reasonable when one is desperate. However, it is not only a high rate of interest but doing this more than once really adds up. Imagine if you only received 85% of your pay each month? Have your paycheck direct deposited in my bank account and I will give you back $85 for every $100 deposited. I like that deal.Another company offers a $25 refund if you refer a friend. Friends don’t let friends borrow at these rates. I know. If I had a friend who was desperate and I didn’t have the money either, I would probably refer a friend. When I was young and had little money I occasionally overdrew my checking account at the end of the month. The check that I wrote got to the bank before my paycheck did. That was another era. My bank was a small local business where I knew people and they would call and I would assure them that my paycheck would get there in a day or two. I was embarrassed but there was no hassle and no fees. That would never happen today. I just checked US Bank (with 2 outlets on 23rd Street) overdraft fees. They charge $8.00 per day for an overdraft. That makes $15 per hundred sound like a good deal. Perhaps the move away from locally owned banks is part of the problem.These payday loan companies seem to exploit people in desperate financial circumstances. But what is a single mom with 2 kids to do when it gets to the end of the month and there is little food in the house?Before you or a friend sign up for a payday loan, call Housing and Credit Counseling (749-4224). They are our local (Lawrence and Topeka) non-profit that can help you reduce and eventually eliminate your need for these high cost loans.If anyone wants to start a non-profit that would make these kinds of loans at low cost, I will be one of the first to donate a little capital to get started. The Journal World article on pawn shops cited an interest rate of 120% per year. That is less than a third of the payday loan outfits and should be enough to keep a low cost non-profit in business.