BBC NEWS | Business | Are penalty charges bank robbery?:
Yes, they are, in the UK. It’s illegal there to charge more for a penalty/service fee than it actually costs the organization to perform the service. Like, you can’t charge 32 pounds to cover the cost of a bounced check when the highest number you can possibly document in terms of actual cost incurred to the bank is 4.50 pounds.
If this law were enacted in the U.S. it would destroy a huge sector of the American economy! A huge, evil sector. That would rock. So I’m thinking it won’t happen.
Why would that destroy the industry? They are not saying that you can’t charge interest, only excessive fees. Also, if you signed an agreement with a bank or a credit card company, then you’ve probably agreed to the fees in advance.
I’m not defending these companies, by the way, just wondering how you got to “destroy”.
I guess I was pretty unclear. By “industry” I didn’t mean the banking industry, I meant the business of making massive profit from disproportionate service fees on the theory that statistically, a lot of people are going to incur them from carelessness.
I don’t expect that alone could kill the banking industry, but I kind of thought of it as a sleazy industry on its own, which banks happen to participate in, but need not. :)
I guess I said “sector,” not “industry.” Close enough. :) It was hyperbole.
Ahh… Okay. Just wanted to make sure I wasn’t missing anything. With the number of foreclosures and bankruptcies we’re likely to see in the next couple of years (due to the overextension of the American consumer) I’m sure the “sector” will feel the big stick of regulation.
Depends who’s calling the shots. Didn’t recent “credit reform” make it much harder for the little guy to escape from huge mounds of debt from lending predators?
Eric, the recent changes in bankruptcy law introduced a means test as well as other provisions. If you make more than the median income in your state, it has become harder to file chapter 7 (complete bankruptcy, with most debt removed) and you will more likely be forced to file chapter 13 (reorganization bankruptcy) depending on your amount of debt. I don’t know who the “little guy” is you describe, but if he makes less than the median, he can still file chapter 7.
The regulation I was speaking of has more to do with the ability of individuals to get into debt in the first place. The number of unorthodox and poorly understood mortgage types recently underwritten, such as options ARMs, may cause many Americans to lose their homes when they are unable to pay readjusted, and likely much higher, monthly payments. I expect action will be taken by the state and federal government as the extent of this catastrophe is realized. The greed of mortgage companies and other financial institutions have put too many Americans in jeopardy.
I think Eric is talking about reform in the matter of payday loans, which are considered predatory because of the high interest and fees they charge. There’s also the matter of rolling over loans and raising these charges accordingly, and continuing to lend to people who don’t repay their loans.
At the time of that reform, I was continually pointing out when talking about it that Payday Loan companies fees are *less* predatory than regular banks because they often total less than the fee by the bank for bouncing checks. If I’m going to bounce three checks, I can get a payday loan instead for $600 and be ahead of the bank by $9. It’s less expensive, and typically when you’re getting a payday loan $9 is a significant sum toward your groceries. It’ll buy 45 meals of ramen, for example.
One of the flaws of republican government (and we are NOT a democracy in the US) is that virtually always only very wealthy people are elected as leaders. Many of these people either come from generational wealth or underrate the importance of luck in their success. Not that hard work isn’t done too, but if you have schizophrenia or even severe dyslexia then your luck will likely prevent you from being welathy. In any case, people who have actually been poor as adults understand poverty in a grimly realistic way that people with only modest wealth (say, middle class) simply do not. They don’t think about things like having only $87 dollars a month for groceries for four people, because they’ve never experienced anything like it. $9 is two lattes to a middle class person, and 45 meals to a poor one. They don’t undestand that riding the bus limits the number of hours you can work a week in all but a handful of US cities. They don’t understand not buying medicine for potentially deadly diseases because you have to pay for food and laundry. There are all kinds of hidden costs to poverty like laundromats and high rent at residential hotels because you can’t save enough for a deposit because the hotel takes virtually all your money, at least $40 per day. Or no sick leave policies that mean you lose your job if you don’t come in even once. (This one is especially popular at restaurants, think about how nice it would be if you could count on your food not being prepared by someone who is very ill around it. Bon appetit!)
Anyway, sorry about the rant, but these things frustrate me. I think if payday loan places should be limited in fees, so should regular banks. It’s only fair. And I agree with Ed Hand that motgages should be more closely regulated.
The point I was making about the recent reforms is that they would not affect the bankruptcy eligibility of those making less than the median income, which I would assume would include a significant number of those taking pay-day loans. But I understand what you mean, I think. One can talk of escape in the purely monetary sense, i.e. removing or mitigating accumulated debt through bankruptcy, as well as in the structural sense, i.e. escaping or overcoming the hand one has been dealt, so to speak.
The question I would have with regard to these “Pay Day Loans” would be this: If the regulation was put in place to remove or lower these fees and this resulted in a decrease in the amount of money available, through the attrition of those companies willing to offer these types of loans, would that be to the detriment or the benefit of the clients served?