Game of Loans? Game of Lies more likely…

Posted: March 30, 2015 in Uncategorized

In the media last night, WAtoday.com.au published an article by Gerard Brody and Fiona Guthrie, consumer advocates, about the so-called “payday” lending industry.  This article is full of lies.

The article can be found here: http://www.watoday.com.au/comment/protections-from-payday-lenders-for-lowincome-australians-are-overdue-20150329-1m9mli.html

Consumer advocates are on a campaign to damage lenders through deceit and misrepresentation of circumstances.  Here’s the answer to their lies:

CLAIM: legislated fee cap hides effective interest rates of up to 240 per cent a year

RESPONSE:

  • ‘Effective interest rate’ is not recognised under the law.
  • ‘Effective interest rate’ is not a generally understood term, and generally does not incorporate one-time charges such as front-end fees. The comment above appears to have included these fees.
  • Effective interest rates are used when interest is compounded more often than once a year. Small Amount Credit Contracts (SACCs) don’t charge interest and cannot compound – making effective interest rates incompatible with SACCs.
  • The maximum amount which can be charged on a SACC in a year, without default, is 68% of the amount the borrower receives (excluding enforcement expenses).
  • The maximum amount which can be charged on a SACC, ever, is 100% of the amount the borrower receives (excluding enforcement expenses).

CLAIM: payday lending traps many in a cycle of repeat borrowing

RESPONSE:

  • The law contains mechanisms to expressly limit the number of payday loans a person can get.
  • The presumption makes any more than two payday loans in any 90 day period automatically unsuitable unless the lender can prove otherwise.
  • Some lenders appear to be failing to properly determine this aspect – however ASIC is either failing to properly police or has not sufficiently delineated what is required. Lenders who are complying with the requirement are losing business to lenders who are not complying.
  • Lenders are required by law to make an assessment of whether a loan is suitable for an applicant – including that an applicant can repay the law without substantial hardship.
  • Lenders who do not properly make an assessment should be excluded from the industry. This is not a failing of the industry, but of the regulator.
  • Some applicants are lying to lenders to obtain loans, purposely misrepresenting their financial situation to obtain more credit and lenders are unable to determine otherwise.
  • Some applicants are apparently obtaining loans without honest intention of repayment.

CLAIM: “Payday lenders’ traditional modus operandi has been to target low-income Australians

RESPONSE:

  • High income Australians are unlikely to need small amounts of credit.
  • Low-income earners are often excluded from larger (and therefore ‘cheaper’) products because of their situation.
  • Neither of these situations is the fault of lenders.
  • All businesses market their products to the customers who are most likely to need them.

CLAIM: “This new marketing push has coincided with the rise of online lending.

RESPONSE:

  • Online lending has risen due to larger overseas operators coming into the market and the inability of smaller lenders to wear the cost of operating storefronts.
  • Overseas operators, mostly larger public companies, already have online structures and capital reserves to easily transition to the Australian market.
  • The cap on loans has made it uneconomical to operate from storefronts – lenders are unable to pay rent, wages and outgoings and turn a profit. That is – unless those costs can be defrayed by an already existing physical business such as Cash Converters.
  • Many businesses are transitioning to the internet, particularly retail sellers trying to compete or take advantage of the likes of Ebay.  Pretending this is something novel to the lending industry is misleading.

CLAIM: “Lenders are now selling convenience as much as credit

RESPONSE:

  • Lenders have always marketed themselves as lenders of convenience, not just now.
  • For many years, small amount credit providers have traded on their ability to provide small amounts of credit quickly in answer to emergency needs, and to do so personably.

CLAIM: “recent analysis from ASIC, which found that payday lenders were falling short in meeting obligations designed to stop borrowers falling into debt spirals

RESPONSE:

  • The methodology of ASIC’s report is seriously called into question by industry.
  • The contracts looked at were from one month after the implementation of large scale reforms on industry, with little lead in time and on the back of tumultuous change over the preceding few years.
  • ASIC reportedly targeted particular types of lending files by reference to their likelihood to be at risk of failing the very issues the report concentrated on. The result was seriously skewed, yet ASIC holds them up as representative of the whole industry.
  • Despite identifying suspect practices, ASIC did not identify the lenders and has apparently taken no action despite having the information for nearly two years.

CLAIM: “Repayment levels may be high because lenders set up direct debits repayments so that they withdraw money from the borrower’s account on their payday. This means that the lender gets paid before the borrower has had a chance to spend their money on groceries or other day-to-day living expenses. Lenders have created a system where they get first dibs on a borrower’s income.

RESPONSE: .

  • Direct debit repayments are not a guarantee of payment. They are easily stopped and notoriously hard to reinstate
  • Lenders do not get to dictate the timing or order of the draws – this is up to the consumer’s bank. They do not get ‘first dibs’.
  • The consumer’s bank can decline a direct debit without reason.
  • Some banks are arbitrarily limiting the number of direct debit draws that may take place.
  • Lenders can only request a direct debit on the day a consumer’s income is deposited if the consumer agrees to this.
  • Lenders are getting many repayment dishonours.
  • Lenders are required by law to turn off direct debit where dishonours occur and the consumer is uncontactable. Many consumers appear to be evading contact with lenders, thereby escaping making any repayments on their loans.

CLAIM: “Lenders will also continue sandbagging against more effective consumer protections by suggesting the industry simply cannot afford to charge less than it currently does, that lenders will be forced to shut their doors. But their annual reports tell a different story. Money3 reported a before-tax profit of $11 million in the 2013-14 financial year, up 120 per cent from $5 million in the previous financial year, and Cash Converters’ 2014 annual report boasted an increase in personal loan interest of $29.6 million. Payday lenders are making money as quickly as their customers are losing it.

RESPONSE:

  • Lenders are not making huge profits. In fact, profits are meagre to non-existent.
  • Cash Converters and Money3 are two of the largest lenders in the market, and are publicly listed companies. Looking at their financials as indicative is the same as telling the corner store they’re making too much money by looking at the financial report of Coles and Woolworths.
  • Both Money3 and Cash Converters have revenue streams outside the small amount lending industry.
  • Public companies make the bulk of their money through turnover and lower cost of production. They do this by buying power and larger capital reserves.  Small business is unable to compete on the same level.
  • No one outside the industry itself has any idea of the level of profitability of lenders – that includes ASIC and the federal government.
  • Only one independent study of profitability has ever apparently been undertaken in Australia. It was commissioned in Western Australia years ago, but the results never saw the light of day and WA declined to provide it to Federal Treasury.

Addressing Society’s imbalances

Posted: May 25, 2012 in Uncategorized

This is a fundamentally important message that everyone simply must read.  Don’t read the first sentence and dismiss it out of hand.  Read it all.  The importance of the message will become apparent:

Ugly men need more sex – they simply don’t have enough and the odds are stacked against them to improve on the situation.  In basic terms, it’s not a true ‘need’.  It is possible to make your way through life with little or no sex, but the world we live in places a certain degree of importance on it.  It’s considered by many a mark of success.  And while sex is not the only way to happiness, it’s no secret that having more sex can make you more at ease in your life.

So, how do we overcome this?  How do we ensure that ugly men, those who have the least amount of sex, can improve their situation?

Beautiful women should be helping ugly men out.  It’s no secret that beautiful women have much more sex than ugly men, purely for the fact that they are beautiful women.  And because they are beautiful women, they can easily get more sex – much more easily than ugly men.  Why should beautiful women have all the sex?

It’s not ugly men’s fault that they don’t get enough sex.  They can improve their situation, but the extent to which sex is available to beautiful women will almost always be beyond the capacity of ugly men.  That’s simply not fair, and it’s not good for the community.  Everyone should be afforded the same opportunities in life.  Ensuring that ugly men get more sex is one way of addressing the imbalance between beautiful women and ugly men.  And it’s only natural to require beautiful women to give up some of their sex to ugly men to address this imbalance. 

Having too much sex in the hands of the few beautiful women is just plain unfair, and it needs to stop.  Sex must be more equally distributed so that ugly men are not going without.  It’s unconscionable that this is still happening in our society.  We must do something to redress this fundamentally unfair imbalance.  Beautiful women should be forced, by whatever means, to give up more of their sex to ugly men.  It is the only fair thing.  And if they won’t do it voluntarily, it should be taken from them.

———–

Okay, now that you’ve read that, it’s quite preposterous.  You couldn’t advance that argument and be taken seriously.  If you didn’t get called sexist and misogynistic, you’d get laughed at.  But, what if we took certain words above and changed them?  What if we changed “ugly men” to “poor people”, “beautiful women” to “rich people”, and “sex” to “money”?  Why, we’d get what is set out below. 

Oh, and it would be called Socialism… 

———–

Poor people need more money – they simply don’t have enough and the odds are stacked against them to improve on the situation.  In basic terms, it’s not a true ‘need’.  It is possible to make your way through life with little or no money, but the world we live in places a certain degree of importance on it.  It’s considered by many a mark of success.  And while money is not the only way to happiness, it’s no secret that having more money can make you more at ease in your life.

So, how do we overcome this?  How do we ensure that poor people, those who have the least amount of money, can improve their situation?

Rich people should be helping poor people out.  It’s no secret that rich people have much more money than poor people, purely for the fact that they are rich.  And because they are rich, they can easily get more money – much more easily than poor people.  Why should rich people have all the money?

It’s not poor people’s fault that they don’t get enough money.  They can improve their situation, but the extent to which money is available to the rich will almost always be beyond the capacity of the poor.  That’s simply not fair, and it’s not good for the community.  Everyone should be afforded the same opportunities in life.  Ensuring that poor people get more money is one way of addressing the imbalance between rich and poor.  And it’s only natural to require rich people to give up some of their money to poor people to address this imbalance. 

Having too much money in the hands of the few rich people is just plain unfair, and it needs to stop.  Money must be more equally distributed so that poor people are not going without.  It’s unconscionable that this is still happening in our society.  We must do something to redress this fundamentally unfair imbalance.  Rich people should be forced, by whatever means, to give up more of their money to poor people.  It is the only fair thing.  And if they won’t do it voluntarily, it should be taken from them.


In a move that shocks no one, the Gillard government is again attempting to remove the private health care rebate.  It’s not shocking because they’ve been talking about it for a long time and it fits in nicely with the Labor agenda – as it’s means tested.  Surprise, surprise.  You can guarantee that two of Labor’s favourite words are “means” and “tested” because that way they can ensure that they can give people lots of nice things, except if you are considered wealthy – in which case… you get nothing.

Australia currently has a government rebate on the cost of private health cover.  We have public health care, Medicare, which is paid from a levy (read: tax) on income.  Private health cover isn’t “compulsory” except that if you earn over a certain amount, and don’t have private health cover, then you pay a Medicare surcharge.  I’ll show you the figures later.  If you do have private health cover, then you pay the normal Medicare levy plus your private health cover costs.  The government rebates 30% of private health costs as an incentive to take it out.  This was brought in to encourage higher income earners to go the private route and free up public health care for lower income workers.

In a Courier-Mail article on 10 February (“Gillard Government set to slash private health cover rebate”), the Federal Health Minister Tanya Plibersek is attributed as saying that “the very poor should not be subsidising health care for the very rich” and quoted as saying “I don’t want a situation where the people who sit on this front bench or that front bench have their private health insurance subsidised by the people who clean this chamber at night.”

And there you have the insult, and the injury.  If it’s not immediately clear why, you can be forgiven because it’s not that clear.  I’ll explain why below but, first, allow me to share a Twitter conversation I had with a consumer advocate about the issue.  It’s reproduced here, in entirety and without editing apart from the removal of names to protect the guilty party:

“Him: Private health rebates should be means tested – and here’s why [link]

Me: What a load of crap, just like making the price of Medicare discriminatory via the surcharge. Big sticks all round.

Him: whoa how could we redistribute wealth to ensure efficient and accessible services

Me: Thinking wealth redistribution’s a desirable way is part of the problem. It just penalises achievement and is a disincentive.

Him: “what has destroyed previous civilizations is a tendency towards unequal distribution of wealth and power” henry George

Me: What will destroy me – undervaluing my effort by subrogating the reward to those who have done less. You can quote me on that.

Him: as if it’s just about effort

 Me: Philosophical, not literal. Why try harder when you’re subjected to robbery in the form of diminishing returns?

Him: behavioral research shows we don’t just respond to monetary rewards but also driven by fairness and extrinsic motivators

Me: Agree. Kicks in when forced pay more for the same care as someone who gets it for free. Very motivating to my fairness reflex.”

There’s a pervading sentiment that the existence of the private health care rebate is the poor subsidising the rich, which is all very unfair and how dare they?  Well, in typical fashion, they’re feeding us all a half truth and using that as ammunition to get their desired political outcome.

Frankly, it’s bullshit and stinks ten times as much.

The truth is, the rich are subsidising the poor in health care – just as in every other facet of society that I can think of off the top of my head on a Sunday morning.

Check the numbers.  Basically, Medicare is levied at 1.5% of your taxable income.  The more you earn, the more you pay – for the same level of cover and benefit.  Oh, actually, no it’s not.  If you qualify for a health care or pension card because of low income you get more benefit out of it by cheaper medication.  But, I digress.

For simplicity sake, all calculations are for a single person with no dependants (it gets complicated otherwise).  At 1.5% of your taxable income we get the following:

–          Taxable income of $70,000 (average Australia income, apparently, and it will do for illustration purposes) means a Medicare levy of $1,050 per annum.

–          Taxable income of $150,000 means a Medicare levy of $2,250 per annum.

–          Taxable income of $300,000 means a Medicare levy of $4,500 per annum.

As you can see, the more you earn the more you pay.  Once again; for the same level of cover and benefit.  We already have a situation of the rich subsidising the poor.  This is especially the case with welfare recipients who pay nothing (or close enough to) for Medicare.

Let me now say that I have no issue with the 1.5% levy.  It’s inherently unfair to the individual, but is good for society (generally) as a whole.  I’m not arguing for this to be revised or scrapped.  There’re bigger injustices to fry at the moment.

From here on in is where the real issues arise.  If you earn above $77,000 per annum you have a choice.  You first option is get private health care cover out of your own pocket.  You’re still covered by Medicare and still pay the levy.  Private health doesn’t cover most things that Medicare covers (it’s largely useless for the cost unless you fit certain narrow circumstances).  At the moment, you’ll get a 30% rebate on the private health insurance premium.  The second option is to not get private health cover.  In that case, you’ll pay the Medicare levy plus a surcharge of an extra 1% of your taxable income – with no extra benefit.

Here’s what happens with the surcharge factored in and no private health cover:

–          Taxable income of $70,000 (average Australia income, apparently, and it will do for illustration purposes) means a Medicare levy of $1,050 per annum.  No surcharge.

–          Taxable income of $150,000 means a Medicare levy of $2,250 per annum plus a surcharge of $1,500 for a total Medicare levy of $3,750.

–          Taxable income of $300,000 means a Medicare levy of $4,500 per annum plus a surcharge of $3,000 for a total Medicare levy of $7,500.

Ouch.  You can now see that the choice isn’t really a choice at all.  Even at $77,001, when the surcharge kicks in, the surcharge of $770 makes it worth getting some low level of private health cover in the hope of finding some benefit from it as opposed to being taxed that further $770 for nothing.  At an income of $300,000 which is, admittedly, the thin end of the wedge you’d be throwing away $3,000 if you didn’t get private health.  You couldn’t even claim it was a donation for the tax break.

The argument about the rebate becomes sort of secondary.  There’s no real choice in the matter.  Above average income earners are all but mandated into obtaining private health care cover.  Even then, they are paying more for the public health system.  In my case, I have private health and would incur the surcharge if I did not.  The amount I receive in the rebate is far less than the amount I pay in the base Medicare levy over and above the amount paid by the average Australian.

The net result is that as a higher income earner I am subsidising the health care of the lower income earner.  I pay more money to public health for the same level of cover as everyone else, even after allowing for the rebate.  That’s not a whinge, it’s just a fact.

I’m not begrudging the amount of Medicare levy I pay.  I’m annoyed that I’m forced to get private health care, but mostly because it’s largely useless to me and expensive for the small benefit I can eke out of it.  To be honest, if it wasn’t for the threat of the surcharge I’d be infinitely better off self-insuring.  What I’m really pissed off at is the lies and antagonism perpetrated by idiots such as the Federal Health Minister.  It’s just an attempt to bleed money from the wealthy to prop up the poor.

It would be one thing to do that honestly (and my feelings on that subject have already been made in previous posts).  It’s another thing to misrepresent that the “poor” are paying for the “rich”.  That’s an outright lie.


One of the Federal Senate committees looking into the proposed amendments to the National Credit Code released its report today.  Amongst other things, it has been looking at the proposed capping of returns for short term loans.

Regardless of anything else in the report, I have one thing I want to share with everyone:

“5.235   The committee acknowledges that fees should reflect the cost of lending. However, the committee does not consider that it is best practice to impose a fee ceiling that is calculated using an APR.  This method distorts the actual cost to the borrower, and the cost to the lender, and is therefore not the appropriate regulatory tool.”

Well, it was a long time coming but someone is finally getting the message I, and others in the know, have been putting out there for years until we’re blue in the face: APR is wrong.

What lies are you going to peddle now, cap proponents?


The anti-payday mob (specifically Consumer Action Law Centre – “CALC”) have started up a new website the support the federal interest rate cap bill going through parliament at the moment.  It’s the latest attempt in a long line of attempts to convince everyone that payday lenders are devil spawn and the worst thing since unsliced bread.  The tragedy of this doesn’t lie in their one-eyed fanaticism; it’s that a lot of people are swallowing what they’re shovelling.

But hey… by now (if you’ve read through my posts) you’ll know I have a particular, and recurrent, view on this matter.  So, instead of droning on about that, allow me to present an answer to their latest rhetoric.  On the website is an article entitled “Nine myths about payday lending” (http://debttrap.org.au/research/nine-myths-about-payday-lending/).  Here’s the truth behind their waffle:

 “Myth 1: Payday loans are an essential and necessary feature of the consumer credit landscape”

Of course this isn’t true in the strict sense.  Just as it’s a myth that professional healthcare, a system of government, good nutrition and adequate shelter are essential and necessary for you to live your life.  Your life may be rather short and unpleasant without these things, but you will still live it.  It’s a question of semantics.

Perhaps the correct statement regarding their “myth” should be:

Payday loans are the only viable product meeting the perceived need for short term credit in the market and are therefore necessary and essential, on the acceptance of the existence of that need, unless the need ceases to exist or something else takes their place to an acceptable level. 

Yes, I know, it’s a lot more long winded and less sexy, but it’s also correct.  So let’s look at it that way.

People have a social need for money.  By social need, I mean that the rules, constraints and norms of society make it a necessity that we have money.  Let’s just call it a ‘need’.  So, accordingly, people need money.  Why do people need money?  You shouldn’t need me to answer that.   How do they fill that need?  In a myriad of ways: work, welfare, gambling, charity and so on…. oh, and credit.

Now, say you need $500 because your car registration is due tomorrow, and you don’t have it.   You’ve got several options:

–           Option 1 is to not pay it and wait until you can.  This isn’t practical because not only do you have to get the kids to school but it will take time and money to re-register the car on top of the original cost (roadworthy checks and so on).

–          Option 2 is to borrow it from friends or family.  What if they don’t have it or won’t give it to you?  What if they do, but it leaves them short for something else?

–          Option 3 is to get a credit card, if you haven’t already maxed your ones out.  That takes 4-6 weeks, so that’s not an option.

–          Option 4 is to apply for a loan from a bank.  Banks don’t do loans that small, and would take a week at the absolute minimum even if they did.

–          Option 5 is to go a charity or not for profit organisation.  If you pass their criteria for lending (many will only lend to people with a healthcare card, for example, or will only lend for certain purposes) and they have enough money (show me a charitable organisation that has ‘enough’ money), the decision is often made by a committee – which can take a couple of weeks.

–          Option 6 is to go to a payday lender and have the money in your account the same day or overnight.

The only viable options in this scenario are 2 and 6.  Friends and family are not considered ‘consumer credit’.  Accordingly, payday lenders are the only ones who can practically fill the need – they’re ‘needed’.

 “Myth 2: Payday loans help get borrowers out of hardship”

CALC waxes lyrical here about the ‘cost’ of payday lending (yes, I realise I’m using the apostrophes a lot, but there’s a lot of conceptual phrasing in this area).  They talk about the monetary cost of payday loans causing hardship, and therefore claiming the above statement to be a myth.  What CALC ignores here is that there are two sides to every coin.

Barring exceptional cases in credit, every consumer loan comes into being to fill an already existing purpose.  In other words: you don’t take out a loan and then go looking for a reason to have it.  Since there is a pre-existing need, and that often involves a basic living expense, then going without the means to satisfy that need would constitute a hardship.  This need existed before the payday lender came on the scene – they didn’t create it.

By the provision of credit, the payday lender is extending the borrower an opportunity to overcome the hardship they would endure if they could not meet that need.  Used irresponsibly, the loan may add to their hardship.  Used responsibly, it can help them remedy it.  How it is ultimately used is in the control of the borrower.

“Myth 3: If you prohibit payday loans, there will be an explosion in illegal lending”

There are two main reasons why this isn’t a myth:

(a)    Removing payday lending does nothing about reducing the need for money; and

(b)   It all depends on what you define as illegal.

The first one is easy and simple.  Payday lending doesn’t create the need; it services it.  I don’t need to pay my car registration because payday loans exist.  If you get rid of them, my bills won’t suddenly disappear.  The need for money is so generic and universal that there is no way you could logically mount an argument that the supply of payday loans created the need for them.

The second reason is a tad more complicated.  If there’s a want or need in society which can’t be filled ‘legally’, then you can bet there’s a good chance it will be filled ‘illegally’.  Just look at what happened with Prohibition in the United States last century, or people with terminal illnesses who endorse euthanasia, or even gay marriage proponents who will go to a jurisdiction that allows their union despite it not being recognised in their home jurisdiction.  Don’t even get the various sides started on the question of the treatment of marijuana.

The next part, and this gets a little tricky, is that illegal lending is already happening in the states with caps.  At least, illegal in the eyes of people like CALC.  They, and their ilk, want all the ‘loopholes’ closed that various lenders are using to get around the cap.  While perhaps not technically illegal in the black letter of the law, these practices are viewed by consumer advocates in that manner.  Or, rather, they are positing that the lenders are breaching the law and want them prosecuted.  Hmmm… doesn’t that mean that they consider them to be illegally lending?  Doesn’t this very situation show that the “illegal” lending is already here?

Hey CALC, if you can provide evidence of commercial payday lenders currently operating profitably in New South Wales or Queensland without ‘exploiting a loophole’ then I’ll donate $1,000 to a charitable cause of your choice.  No strings attached.  I double dog dare you.

“Myth 4: If you prohibit payday loans there will be an explosion in defaults and indebtedness”

If payday loans are used for everyday expenses, it logically follows that an absence of payday loans will lead to those everyday expenses not being paid unless the money can be found somewhere else (and if that’s the case then why didn’t that happen in the first place?)

The indebtedness exists before the consumer ever walks into a payday lender.  If financial accommodation cannot be obtained then there will be default.  CALC and their kind have been handing up case studies which they say are indicative of the typical payday loan; people who are in a precarious financial state and turn to a payday lender because they’re behind in their rent or their bills or they can’t pay their car registration.  Let me make this very clear:

These people are in debt before they ever walk in the door, and cannot afford their everyday expenses before they ever touch a payday lender.

Payday loans are an opportunity to defer that debt, for a cost, and apportion it over time, instead of having to pay the debt in a lump sum.

There is currently nothing to take up the slack.  Even consumer advocates admit this because they’re campaigning for more money for NILS and LILS, welfare reform and trying to push the banks to make money available.  They know you can’t just take the lenders away and leave it at that.  This ‘myth’ is no myth.

“Myth 5: If you prohibit payday loans there will be an explosion in demand for social welfare”

CALC’s argument here is that “whether or not a consumer can access payday lending will not affect their eligibility for social welfare, or the likelihood that they will access it.”  No argument from me.  But…  that’s not what the “myth” says.  It doesn’t say “eligibility” or “likelihood they will access”; it says “demand”.  Nice way to try arguing at cross-purposes.

Demand doesn’t go away if you remove payday lending.  You take the lender away and the demand stays – because the bills stay.  And consumers will want something to fill the hole.  You further take the commercial sector out of the equation, and then you’re left with the public and charitable sectors.

It’s not rocket science to see that the demand will go to these areas.  Do the public and charitable sectors constitute social welfare?  You betcha.

“Myth 6: It’s not financially viable to lend small amounts, which is why interest rates have to be high”

CALC reference a report by the National Australia Bank on the viability of smaller loans.  You can find that report, entitled “Do you really want the hurt me?” here: http://www.nab.com.au/wps/wcm/connect/nab/nab/home/about_us/7/4/3/6 .  At page 40, there are some juicy bits, such as:

The upfront administrative costs associated with providing a loan mean that you can not lend below an APR of 48% for a loan portfolio of less than $5 million and an average loan size of $2,900 or less.

Let me be very clear here.  Forget whether or not any payday lender has a $5 million portfolio (which none but the largest would even begin to approach) but understand that the average payday loan is in the order of $300.  Their own reference acknowledges that it’s impossible for payday lenders to operate under their cap.  And the upfront administrative costs are largely because of all the consumer protection initiatives and regulations that lenders have to comply with.  These all take time and money.

I’d say that’s a pretty convincing argument why it’s not financially viable to lend under 48% (which they say is high, but tolerable).  The further interesting point is that, despite numerous opportunities to do so, no consumer advocate will give a dollar figure for what they consider a reasonable return on a small loan.  There’s a reason for that; they can’t.  Not without it being turned into a huge APR .

All that aside, rates don’t have to be high.  They just have to stop being expressed in a stupid, nonsense format like APR.

“Myth 7: It’s the amount to be repaid that’s important, not the interest rates”

For a thoroughly riveting read on just what the hell APR is, go here: https://senseandlogic.wordpress.com/2010/09/23/whats-this-apr-thing/

APR has no business being applied to payday lending.  It’s misrepresentative and prejudicial.  But consumer advocates like CALC always slavishly trot APR out.

The fact is: consumers do not care about the interest rate so much as how much they have to pay and for how long.  That’s how they judge the cost of a loan; not by an annualised interest rate that does nothing to inform anyone of anything.  So: an arbitrary, misrepresentative APR or an actual dollar figure?  You tell me what’s important.

“Myth 8: New Responsible lending requirements make a cap unnecessary”

CALC says both sides (borrowers and lenders) have an interest in evading the responsible lending requirements.  They’re right about the borrowers; they can and do lie, cheat and misrepresent their situation to get a loan through desperation (which they had before they turned to a payday lender, thank you very much).

However, the problem with their argument about lenders is that they’re forgetting the rather stiff penalties on lenders for breaching the rules – massive fines and potential jail time.  Yep, there’s a solid incentive to break the law if I ever saw one.  Oh, no such penalties on the borrower by the way.

But CALC says it’s the cumulative effect that causes the problem.  Funny, but the law doesn’t say anything about cumulative effect.  However, it does make the responsible lending guidelines apply all the time – and that would include during this cumulative loans thing.

On top of everything else, CALC can’t say that the responsible lending requirements aren’t working when they haven’t been in long enough to be given a chance to take effect and the government hasn’t finished tweaking them.

“Myth 9: People actively choose to use payday loans – and regulation shouldn’t interfere with their free choice”

This is where things get a little airy fairy, but it starts to touch on something that’s fundamental.  It hinges on the term “free choice”.

I’m not going to argue that payday loans are “good” or “bad”.  They’re terms that aren’t applicable, being qualitative judgments based on perceptions that may or may not apply.  Is a hammer “good”?  Is a knife “bad”?  Of course not, they’re just tools.  It’s the use to which you put them that has that value.  Payday loans are simply another tool.  CALC may be quick to demonise them (actually, “may”?…  what am I thinking?), but in reality they’re giving us all a raw deal.

Can payday loans be used badly?  Definitely: yes.  Are many people using them badly?  Well, I’m not sure of that but I will admit that it’s easy for them to be used badly.  The thing is, though, that it isn’t the payday loan’s fault that it is being used badly – that lies with the person who makes use of it.

Here is a random assortment of other things that are very easy to use badly: knives, cars, money, food, prescription drugs and airplanes.  These are all things that we accept are useful and, indeed, necessary parts of day to day life.  Each one can have disastrous consequences if used incorrectly.  And, when they are, do we blame the item or seek to do away with them?  No.

The important part of choice is to make it an informed choice.   Under the current laws, payday borrowers are spoon fed all the information they need.  If they’re not making an informed choice it’s through their ignorance or ambivalence.

We live in a “free” society.  There are rules, sure, but society doesn’t mandate too many things for us.  We’re allowed to make a determination on most things – a choice.  We can choose to do or use something that will be bad for us if we don’t use it correctly.  Sure, there’s negatives with that but that is the trade off for having the ability to make a choice.

I don’t want to live in a society that wraps me in cotton wool and spoon feeds me everything for my whole life.  That’s not living.  I take offence in being told that I can’t make a decision for myself.  Right or wrong, it should be my decision to make.

So, there you have it… in a nutshell.  Really, a lot more could be written.  I’ve tried to keep it brief rather than drown you in in-depth technical argument.  I can guarantee you that CALC and other ‘consumer advocates’ will argue against, denounce and try to pick apart my arguments. That’s what fanatics do.  Or they’ll just attempt a different argument.  They’re good at that too.

That’s the problem with being hardline; you’re close minded and just can’t admit when you’re plain wrong.

99 vs 1: or reprising the frog and the scorpion

Posted: October 26, 2011 in Uncategorized

“We are the 99%”.  It really seems to be, instead, “We are the 10% + 21% + 18% + 2% + 37% + 11%”.

There’s been a lot floating around lately about the Occupy Wall Street movement and various splinter groups (we’ve had Occupy Melbourne, Occupy Sydney and Occupy Brisbane at least), and their catch cry of “We are the 99%”.  The percentage apparently relates to a comparison to the wealthiest 1% of the population who run everything, own everything and stole everyone’s money.

The claim’s been levelled, and it appears to be sticking, that there’s no real cohesiveness behind the 99%; at least past being collectively pissed at the 1%.  Every little fragment seems to want something slightly different.  But, I’m not going to get into that here – mostly because I can’t begin to unravel the myriad of competing stances.  Instead, I want to talk about the overarching collective concept behind the movement.

People are pissed at their economic misfortune, and it’s all the fault of the excessive “greed and corruption of the 1%” (that phrase being taken from the occupywallst.org website).  The corporate CEOs, capitalist tycoons, greedy industrialists and so on have milked everybody out of their money by creating and manipulating capital and money.  Like many other things in life, it’s rarely as simple are people make it out to be.

Firstly, I’m not defending the actions, the corporations or the people.  Some major, major bad mojo has been perpetrated.  There has been corruption and greed.   We’ve seen banks and companies crying poor and lining up for a handout, only to turn around and spend it in a manner completely incompatible with their previous prostration.  I firmly believe that if there’s been anything illegal gone on, those responsible should be held accountable.  But, if you think that’s the end of the story then you’ve got another thing coming.  Let’s dig deeper.

You see, it takes two to tango.  In every handout there’s more than one party; one to hold out the hand and one to fill it.  But, even then, that’s not the end of the trail.  Let’s follow it all the way back to the source.

To do this, let’s consider the aim of any commercial venture – to make a profit.  Considered more simply, it means that the purpose is to get out more than you put in.  That’s the very nature of profit.  It isn’t a zero sum game.  Why would you tie up time and money, or take a risk, if you only got back what you put in?  Sure, there are many ways to get a return but the universal undercurrent is money.  Or, as I like to put it, you can’t pay for a loaf of bread with a hug at Woolworths.

So we have these corporations and they’re basically designed to make money.  Some of them are very, very good at it.  And they get better.  They employ people who are very good at making more and more money.  And they attract investors who like this return.  And so on, ad nauseum.

Then people want to complain that they’re doing what they were designed to do and what is in their very nature.  Apparently, they’re doing it too well.  Here’s the news flash: that’s the way the natural order of things work.  Every single thing in its natural state exists to survive, thrive and propagate.  You can’t blame it for doing what it is designed to do.  If a trained attack dog gets out through an open door and bites someone, is it the dog’s fault?  Well, some city councils would seem to try to say so but that’s beside the point.  The answer is no.  The dog is only doing what it was designed to do.  You might as well blame the victim for being there to be bitten.  The same concept applies here.

You can’t blame the corporations for making excessive profits, or being greedy.  You can’t even blame them for the state the economy is in; at least not any more than you can blame anyone else.  That’s the real secret here.  What the 99% are protesting against is a situation which they had a hand in creating themselves.  Sure, they didn’t do it directly, but they created the situation that allowed it to happen.  They invested in funds under management, they borrowed money from the banks, they bought the products the corporations made.  All along the way, they turned a blind eye to anything but their own self interest.  Now they want to blame shift.

The person who put money into a retirement fund wanting a big return in the future?  Contributed to it.

The person who took out a home loan to buy a McMansion without being truthful with anyone (including themselves) about whether the could afford to repay the money?  Contributed to it.

The person who had to have the latest iPhone and bought it on their credit card?  Contributed to it.

Greedy corporations aren’t the ultimate cause of any of the dilemmas the 99% are railing against; they’re just another part of the puzzle.  Some will say the whole system is corrupt and needs to be wiped away.  I say they’re delusional.  The fundamental model isn’t flawed, the execution just sucks.  Everybody, and I mean everybody, needs to stop being so ignorant and think through what they do.  Own up and take responsibility for the fact that the little decisions you make every day have the possibility of causing big ramifications later.  Or, alternatively, stop pissing and moaning when it all falls down around your ears.

Whatever percentile you may be in, you must realise this basic truth: everything in nature has a top and a bottom.  Equality does not exist in nature except in a constant overall form of stalemate.  And you can dress up society however you like, but the natural order will always ultimately creep in.  Does that mean that we should abandon good manners and devolve into a dog eat dog world?  It does not.  But, by the same token, we shouldn’t pretend that everyone can be measured by the same criteria, subscribe to the same principles or be placed on the same level.

What the hell does all that mean, then?  Someone’s got to be at the top of the ladder.  The degree of difference between the top and the bottom is always going to be contentious regardless of the degree.  Where you sit on the rungs is up to you and is a byproduct of everything you do.  If you want to lament your position, blame the person responsible: you.

Oh, and stop giving my damn tax dollars to any idiot who holds their hand out without giving something substantial in return – whether it’s welfare or a bailout.

I’m still here…

Posted: October 26, 2011 in General Posts

….even if you’re not.

Things have been quite chaotic since my last post.  I’ve had to wade through a major court case, extensive federal auditing and senate enquiries.  “Busy” hasn’t been the word.  It’s not finished yet, but there’s a bit of breathing space for the moment.

So, here follows a new post.  Hopefully there will be more to come in short order.  If there’s not, it’s only because I’m off fighting idiocy in the real world.