Sure, it's payday, but for whom?
Saturday, October 11, 2008
Say that you commissioned a survey of your customers and found a large portion to be profound, incurable idiots. Would you keep this news to yourself or spread it around? Keep it to yourself, right? Obviously. That is, unless you are the Canadian Payday Loan Association (CPLA). Then you would proudly inform the media. It may be the most astounding press release we have seen.
These are "highlights" of a survey of 401 payday loan customers in Alberta:
-All but 15% have access to other credit options, such as a line of credit, credit card or overdraft.
-Two-thirds "understand the costs and terms of their payday loan" as well as those of their mortgage, credit cards and/or bank loans. They understand these costs and terms "clearly."
-"Customers ... expect to pay an average of $31.31 for a $100 loan for two weeks."
Correct us if we are mistaken, but by our figuring, $31 on a two-week loan of $100 works out to an annual rate of 800%.
In the typical payday loan customer, then, we find a person who, instead of taking his credit card to an automated banking machine and withdrawing a cash advance (payday loans average around $450, a sum most bank machines can dispense) at an annual rate of around 20%, he will make a "deliberate" decision to take out a payday loan.
"Educated and informed" about the costs of his credit options, he will choose to pay $140 for two weeks use of $450, when he could borrow the money just as easily for less than $5 (including bank machine fees).
We are working on the spiel we will use tonight outside the payday loan shop: "Sure, you could go to the convenience store across the street and get the same pack of cigarettes for 10 bucks. You know you could. We know you know. That is why we are offering you this factory-sealed package of cigarettes for $150.
"Wait. We see a lovely lady waiting for you in your truck. Big night? We are going to do something we normally never do. We are offering you two complete packages for $400."
Source : http://www.financialpost.com
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