Gary Coleman Pitches Outrageous 99.25% APR Loans

I think C-list is very generous.

I get a “work at home for 175 dollars/day.” Woohoo!!!!

They’re running my credit card numbers now to see if I’m eligible.

I also want to thank you for the sponsor links in the side bar. The other day I found a home equity loan for people with bad credit with only two mouse clicks.

My husband and I saw this ad the other day, and paused it to read that fine print. We had the same question – how can they sleep at night? It was the same with a home loan commercial – the fine print said something to the effect that after the first year, your monthly payment could go up exponentially. It’s sad that these companies prey on the less fortunate like this.

What’s happened to the usury laws that used to be in effect? I think a few states still have them, but not many.

The main thing is that due to our federalist system, we have this disconnect in banking where some stuff is regulated at the federal level and some at the state. Sorry to inject politics in here, but what’s good for the goose is good for the gander and you’d think Oregon’s law would be good for the rest of the US (Except the full service pump. Ridiculous that you have to pay all that extra so someone can pump your gas for you.)

I wonder if Gary Coleman borrowed money from these guys, couldn’t pay it back, then they decided, hey, do some commercials for us and we will take the debt off the books.

Since People are not taught how to managed money in high schoool, They fall for these outrageous loans. Where is our Federal Govt protecting us from these sharks?
This is the same mentality that wants less govt. The Banks made $50 billions, that’s right $50 billions in late fee and high interest credit cards.

Ashwini Says:
July 10th, 2007 at 5:12 am
I think C-list is very generous.

Ha ha! That’s exactly what I was thinking! Kathy Griffin considers herself D-list, so Gary might be or G- or H-?

Too funny, but wow, you really just can get much lower than this.

I’m glad someone else caught this. I couldn’t believe my eyes when I saw the outrageous interest rate. I also love those commercials that say “bring us your car title and we’ll give you cash.” And the commercial looks like they’re giving cash to people so they can go out to dinner or buy a new outfit. What’s even worse, these commercials are all over the place when you’re watching the court tv shows like Peoples Court and Judge Mathis. You dont see these commercials on, say, NBC or ABC.

i find it a bit interesting that paying about 2.5 times the loan amount is bad in this case but okay for a 30-year fixed-rate mortgage.

Ryan: If someone truly had a medical emergency, or some other type of emergency, I believe it would be immoral for a company like CashCall to take advantage of the person. But if the clients are really using these loans to go out to eat, buy new clothes, or go on a vacation, I really don’t see anything wrong with taking advantage of others’ stupidity. There is a difference between ignorance and stupidity. I think the majority (though certainly not all) of the customers of CashCall and other similar establishments are not ignorant about handling money; they are stupid, as is evidenced by the purchases they make with these loans.

Someone mentioned Casey Serin. Would anyone here really call him ignorant? I would honestly classify him as acting stupidly and foolishly. You say that the first ten payments will pay off the principal; the final 32 payments are “profit”. But how many people with the lowest credit ratings will even make these ten payments? How many paymetns did Casey Serin make on his loans? I believe he made fewer than 10 on most of his loans. His lenders lost hundreds of thousands of dollars.

I think that considering Casey Serin helps put this into perspective. Let me ask you, if you were to loan Casey $5000, what rate would you want to loan it at in order to ensure at least a nominal profit? It is not unreasonable, I would think, to loan it at “usurious” rates of at least 50% APR in order to ensure you don’t lose it. These are unsecured loans. You cannot go and reclaim the property if the client doesn’t pay. Now, let’s say you did loan Casey $5000, and he stopped making payments. Would you just shrug it off as “the cost of doing business”? Or would you call him up, trying to get him to repay you? Would you use every legal means necessary to recover your money?

Though payday lenders might share a small portion of the blame, I believe at least 90% of the blame should be placed on the people that frequent these places. Learn to live within your means; build a sufficient emergency fund. And you will never need to be a customer of a payday lender who “is just trying to rip you off.”

i find it a bit interesting that paying about 2.5 times the loan amount is bad in this case but okay for a 30-year fixed-rate mortgage.

–Over time inflation eats away at a fixed rate mortgage, plus these loans are short-term. You’re completely missing the component of time here. The dollar I pay with in 6 months is worth far more than the dollar I pay in 30 years.

“How can the people who own CashCall sleep at night?”

On the finest silk sheets, their pillows stuffed with shredded 100 dollar bills, while their dedicated manservant gently fans them with fans built of feathers from specially raised caviar-fed albino California Condors, only 2 of which exist in the world, and Brittany Spears herself sits in the corner and gently sings a lullaby.

Just out of curiosity, why do you ask?

I like how creamcitian put it with the home loan example. I think we could all have done without them showing you what you will pay with interest over your 30 year home loan. What kind of legal standing do these cash call places have?

Honestly, there’s nothing that bothers me more that do-gooders who want to save everyone from themselves. Don’t you realize just how arrogant you sound? “It’s outrageous! No one should be allowed to charge 99% interest rate! There aughta be a law to prevent that.” The implication is that people who get these loans are too stupid to know better.

Ugh!

No one said we should feel sympathy for Cash Call – only that we shouldn’t condemn them for satisfying the niche they’re serving. It’s called business, and, for the most part, should not be viewed positively or negatively.

Tim said is pretty good in his post. If we are outlawed from loaning money to bad credit risks at a high enough rate to be profitable, then money will not be lent to those with below average credit. That means that new band that is starting next door, would never make it big because no one wanted to give them the startup money at 10% (or whatever rate the high priests of virtue find morally acceptable).

So in your world, i guess it’s OK if poor people don’t buy cars, or get medical care, or travel accross the country to go to their Mother’s funeral. Heck, they’re better off not spending all that money on the interest. Those stupid poor people just don’t know what’s best for them, like you guys do. Thank God they have you to look out for them, right?

Well, I said it bothered me…end rant.

I posted this math on LazyMan’s blog before.

Let’s say annual default rate for payday borrowers is 40%. You invest $1000 so you expect to lose about $400 right of the bat. So in order to just break even, the borrowers on the $600 that pay you back will have to pay 66% interest ($1000 / 600).

Now of course, break-even is losing money when you can get 5% in CDs or money markets or online banks. Now the math becomes $1050 / $600 = 75%.

But wait, how are you going to run a business with no rent, no employees, no expenses? Who’s going to service the loans? And if you’re going to go into a risk business, you have to be matching long-term stock returns or otherwise you might as well buy some mutual funds. So now the math becomes: ($1M + 10%) / ($600K – $50K) = 100%.

If borrowers paid back their loans, companies would lower their rates to compete for business. As is, 99.25% appears to give market returns if you are willing to put $1M of your money into starting a payday company although at a much higher risk from economy downturns. At only 10%, I’d much rather put my money into index funds.

My initial response is to feel disgust and outrage at Cash Call. That disgust never fully goes away, but where is the concept of personal responsibility and choice? It’s insulting to those that get these loans to say that they all are ignorant of the terms. Perhaps some are, and I would more be of the mind to support public advocacy groups that seek to educate citizens about finances than to condemn and seek to ban companies like these.

I have felt the same mixed emotions regarding the sub-prime mortgage market and the number of home-owners currently in trouble. Why did they accept the loan in the first place? If that was the only way they could afford a house, why didn’t they continue to rent? I could probably never work for a company like Cash Call, because I wouldn’t be able to sleep at night. But my husband works for a credit card company, and I’m sure Dave Ramsey wonders how he can sleep at night. His ire for the four major credit card companies is open for all to hear. I guess we all have different standards of what might keep us up at night.

One more thing, the “fine print” that lists the 99.25% APR on the screen is hardly small. How can you claim that people wouldn’t know what they were getting themselves into?

The people who take out these loans often do so with no intention of paying them back. NO intention. Ditto for many of the ‘baby credit cards’.

I worked with a large group of transient employees for several years and would often hear about how many credit cards they had gotten recently and the wild nights these cards had paid for.

Through the week, the more prudent would sell cigarettes to the others because the others could not afford a full pack … but would find 50 cents ($10.00 / pack) for a smoke after lunch and another 50 cents for one while waiting for the bus ride home.

Temper your criticism with caution … these are very risky loans.

People living in poverty, working one or two jobs for low wages, are the target market for payday lenders. The social justice organizations in my state are always working to increase regulation for this type of business, because they prey upon people with no emergency fund or credit cards.

Want to stop payday lending? Work towards having people earn a living wage. Work towards providing universal health insurance coverage. Read Barbara Ehrenreich’s book “Nickel and Dimed” if you’re convinced that the problem is “poor money management.”

There are many things out of your control. You can’t control the economy, you can’t control prices, you can’t control eventual failure of machines & devices. But you are in control of the management of your money. You can wait for government and society to fixed all the wrongs that surround you. Or you can do your best to control your destiny.

Here’s a study that shows even the ultra poor in this world earning $1/day or less still somehow find ways to spend 25% of their income on non-necessities.

http://www.economist.com/finance/displaystory.cfm?story_id=9080048

Jill — great comments in both your posts. I agree completely.

MossySF — excellent article from the Economist. Thanks for posting. Very interesting survey findings…

Gary Coleman needs to get a job like most Americans.

Wow. That’s hilarious.

Dave: there’s a difference between living wage and average wage. Living wage advocates want a minimum wage of around $14/hr, which is what they believe to be the minimum that someone can comfortably live.

There are plenty of flaws in this argument, but that it is not an “average” wage is not one of them. One of the flaws is that such a “living wage” would raise prices. For example, already labor costs are by far the largest expense for fast food restaurants. If we doubled labor costs, McDonalds would have to nearly double the cost of their food. Could you imagine paying $12 for a value meal?

The largest flaw is that it is not the government’s responsibility to interfere in business. Supply and demand economics will determine the proper price for labor. Practically speaking, if you’re not making enough, don’t complain to the government. Go find a new job.