Monday, July 19, 2010

Lender Piranhas

The US seems to be flooded with vampire lenders preying on the poor and unlucky. To me, it's rather clear that usury laws need beefed up. Here's the WSJ story that sparked my thinking on this matter.

WSJ: "Several states are putting curbs on loans backed by car titles—short-term, high-interest debt that critics say too often results in consumers losing their vehicle when they can't keep up with the payments. Auto-title lending, where the owner of a car hands over its title as collateral, will become illegal in Wisconsin later this year. Virginia will impose new regulations Oct. 1, structuring the loans to keep consumers from falling into a cycle of debt. Illinois last year capped car-title loans at $4,000 and slapped numerous restrictions on the industry.

"Many states have banned auto-title loans historically by capping the interest rates that can be charged at relatively low levels or through other restrictive laws. The new batch of states cracking down on the lenders—which often charge triple-digit interest rates—comes as more cash-strapped borrowers turn to the industry amid economic hard times." [my emphasis]

Did you notice that - TRIPLE DIGIT INTEREST RATES ?

The WSJ story describes a guy who borrowed $1,500 and ended up paying about $8,000 total to get his car back after falling behind.

Apparently the recent restrictions on payday loans - another form of vampire lending - caused the bloodsuckers to more to less regulated car title loans. Even the new Virginia law seems ridiculously flimsy: "The Virginia law will institute a tiered cap on interest rates for loans, up to 264% a year. " 264%/year !!! That's ridiculous ! That rate is comparable o loans shark rates where the "vig" was canonically 3% a week, for about 150% a year.

The financial industry seems littered with vampires at all levels from Wall Street to the back alleys off Main Street. Congress might think that the new Consumer Financial Protection Bureau will help. I wonder ...

My solution is to simply bring back usury laws and cap loan fees. Frankly, I'd limit lending at 24% a year (with inflation adjustment) and fees at no more than 10% of the loan amount (no new fees on refinancings, and late payment fees at fixed $ amounts like $10 to cover administration). That's enough for any true "lender". Anyone else is a Dracula and should be equity and take equity risks.

The penalty - any usurious loans becomes void and the lender loses 100% of principal.


After Krypto's timely sales Thursday, we wait to either re-buy lower or sell more higher.

Word of the Day

"Carious" - adjective [$10]
Carious means (of bones or teeth) decayed.
Sentence: Dental fillings do repair carious teeth, but they don't last forever. As one ages, one finds that either new fillings need installed or one needs a crown on the tooth. Today I enter dental purgatory to start to have two crowns installed. Ugh....


maverick said...

Bman....are you buying any bonds these days?

Bunkerman said...

Not lately, the rates are too low. I'll buy A rated municipals/tax exempts yielding over 5% (will take a bit under for MA bonds), but I do look at them for potential problems. No CA, IL, MI, FL, NV, NY or AZ. No bonds in hurricane target zones.

Bunkerman said...

stock sales went to cash.
TIPs yields are too low, would sell some on a rally

Frosty said...

Bunky did you corner the afgan market sir.

Bunkerman said...

lol, almost. One of my aunts used to buy them for gifts from a nice old lady in a little village near my hometown. - Have many, many more.

Bunkerman said...

off to dentist :((((

Frosty said...

indeed Bunky...a piranha needs a fit set of choppers sir.

Frosty said...

wool afgan fringe makes a fine dental floss for those with big toofffer gappaaasss...more on that later.

Bunkerman said...

back .. not as bad as I expected. NoOw I wait three weeks, then again.