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Let’s Go Buy Some Money

I note that the pay-day loan places are now changing their names to sound much more friendly, and most of them are using names that would portray them as a “Money Store“, and I guess there is a ring of truth in that description since you are going to there to buy money.

Are you going to get money on a discount? No, that won’t happen. Will there be a “sale on money” and you’ll get it for cheaper, maybe, sometimes, but you are still buying money there, but not at a very good rate.

How Much Money Am I Buying?

If you ask the Pay Day Loan Association (and according to this 2006 CBC posting), typically you are buying about $300 now and you’ll pay it back in about 10 days or so, once your pay shows up. At the end of those 10 days or so, you can expect to pay about $363 dollars (maybe less, possibly even more, but I haven’t stepped into one of these establishments so I couldn’t say for sure). Remember even with the new Payday Loans Act in Ontario, you can still be charged $21 service charge for each $100 you borrow (so if you borrow $300 you could get hit with a $63 fee). That doesn’t seem to bad, does it?

You have bought $300 now, for about $365 in 10 days, but maybe you needed that money to pay your rent, so it does have some value I suppose. You have now paid somewhere more than 500% interest annually (not compounded) to buy this money for a short-term loan (but wait that’s 21% only, no, you paid it back in 10 days, 1/36th of a year, if you look at that over the whole year that’s a lot more). I am sure other financial bloggers could give you the exact tally, suffice it to say it is astronomical over the year.

Yes, but it really only cost $63 so that isn’t that much, is it? Think about that statement, you just borrowed $300 because you didn’t have enough money before your pay arrived, and now you have started your next pay period $63 in the hole, what are the chances you get another pay-day loan soon? I would say pretty high, but that is only my opinion.

Have a look at the Capping Borrowing Costs report from February 2009, it is quite enlightening what is still allowed in this modern day usury program. My comment about getting another loan quickly is actually not as flippant as I thought, and I quote:

The Canadian payday lending industry depends heavily on repeat business.  For every loan to a new customer, payday lenders make 15 loans to repeat customers on average across the country.5  As a result, even the largest stores have fewer than 1,500 different customers in a year, with a typical number of customers ranging from 200 to 500.  A consumer survey6 indicates that almost half of Toronto’s payday loan borrowers have taken out six or more payday loans in the last 12 months.

So once you are in this financial trap, it is not easy to extricate yourself.

Admittedly the loan company is taking on quite a risk, but they are paid very handsomely for that risk, and given the number of storefront pay day loan “stores” opening in my area, it must pay well enough.

I realize it is easy for me to comment on how this isn’t something you should ever use, as a financial service, but I do realize sometimes folks end up in dire financial predicaments, but this should not even be your last choice, because as the report points out, once you start using this service, it is a lot harder to stop using this service.

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Top 10 Bad Financial Lists

Yes, I am in one of those moods today, so for those who are lovers of Top 10 lists (no disrespect to David Letterman), here is another great top 10 bad financial lists of my own thinking, and please note the number of entries as well.

Top 10 Bad Financial Lists Ever

Yes, this is a list of lists about Personal Finance that I hope I never actually read. If any of these lists please point them out to me, I’d dearly love to read them.

10. Top 10 Stock Tips from Barbers

Now this is not a slight to barbers (even Wealthy Barbers (amazon book link)), I like barbers in general (although whoever thought up Justin Bieber’s hair thing should have his license revoked), however, if you are looking for stock picking advice from your Gardener, Barber, or your trash collector, you may be looking in the wrong place. I am skeptical of every stock tip I receive in my life, and you should be as well.

9. Top 10 Stocks Rated by their CEO’s Bonus Levels

This list might actually be interesting to read, the real list might be by how little bonus their CEO receives, or should it be by their how much their CEO gets? Either one, is not likely to be published by anyone.

8. Top 10 Reasons Why You Shouldn’t Pay Taxes

Note to anybody from the CRA or the IRS, I am not espousing not paying your Income Tax, this is a humorous list remember? If I didn’t pay taxes I would pretty much double my income, and that should be reason number 1 (if this list existed).

7. Top 10 Credit Cards Based on their Look

If you are getting a Credit Card solely because Kim Kardashian is on it, you really need to rethink why you have a credit card. It might be kind of cool to have a Led Zeppelin Credit Card, if it hard the graphic from their first album on it (the Hindenburg in flames), very topical in terms of personal debt.

6. My Top 10 Favorite Bank Service Charges

I don’t know who could write this list, a favorite bank service charge is like your favorite cold sore, how could anyone really like this? I’d sooner see a list of my top 10 favorite paper cuts!

5. Top 10 Reasons Whole Life is Better than Term Life Insurance

I’m almost positive this list exists somewhere, and at the end of it is a link to where you can buy whole life insurance.

4. Top 10 Pick 7 Lottery Pick Number Sets

This list isn’t as stupid as you think. All sets of numbers should have the same chances of winning, but on the top of the list should be 1,2,3,4,5,6,7 it has the same chance of winning as all others. If you pay to get one of these lists, invest in the person selling the list (they are an entrepreneur).

3. Debt and the Top 10 Reasons You Shouldn’t Pay it Down

On the top of this list, you might as well replace the Gordon Geko statement, “… Greed is good…” with the dumb ass statement, “… Debt is Good…”, no it is not!

Remember I have already got a list about the Top 10 Excuses For Being In Debt. It’s a good list too!

2.3 Top 10 Places to Blow Found Money

This list would be hard to keep to only 10, but if you find money, you should not be looking for a list of places where you might simply spend it, without thinking. Some guesses of places on this list: Strip Club or Bar, Car Dealership,  A Three Card Monty Table and/or Casino, etc.,

2.2 Top 10 Fashion Accessories that will Appreciate in Value

Instead of buying GIC’s or Index funds, this list outlines the Fashion Accessories that you can then use to retire on.

I have no doubt that some clothing may well appreciate in value, but if this is your retirement plan, you really need to seek professional help.

2.1 Top 10 Reasons Why Birth Control is Overrated

Why on this list of lists? Do you know how much kids cost? Using no Birth Control is a financial decision, as well. If my kids are reading this, I will personally staple on all Birth Control if I have to.

#1    Top 10 Reasons Pay Day Loans are Good

Do I really need to explain why this one is number 1? Modern day loan sharks and usury houses should be more tightly regulated, their ability to suck the life out of the poor folks who fall victim to them is tragic, if not immoral.

Did I miss any Top 10 Bad Financial lists ?

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Financial Pornography?

That was the label I put on the Pay Day Loan and Cheque cashing shops, but I think I will revise my statement, not wanting to put Pornography in a bad light (given how much of the Internet was built because of it, I don’t want to seem to be biting the hand that fed me).

Financial Head Shop

I am revising my statement saying that Pay Day Loan and Cheque Cashing places are actually the same as Head Shops (financially at least).

Head Shops are where you buy the paraphernalia and “bits and bobs” you need for your drug habit (e.g. bongs, rolling papers, Bob Marley T-Shirts, etc.,  just ask Michael Phelps he can fill you in on this).

Pay Day Loan establishments are like Financial Head Shops and use the same arguments as well. “…We don’t make our customers use our services, we are simply supplying a needed service to our customers…” (talk to a Head Shop owner, you’ll get about the same statement of business (i.e. if we didn’t do it, someone else would)).

No matter that you are charging at a rate that would make “Olaf the Loan Shark”  blush, or that once someone starts using a Pay Day Loan it is very hard (nearly impossible) to get out of the cycle (sounds like a bad habit, like say, drugs?). It is a service to take a $5 service charge off a Government cheque that any bank SHOULD cash for anyone who has sufficient identification.

Sorry folks, guess I woke up on the bad side of the financial world this week. I do like the comment yesterday about how the picture I posted looks a lot like an old time strip club (given the amount of Neon lighting used), that comment I had to chuckle at (glad to see my readers have as twisted a sense of humor as I do).

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The Most Hideous Financial Image Ever

I opened my Ottawa Citizen a few years ago and I saw this picture and I was hit by a combination of revulsion, anger, and lurid curiosity.

Revulsion and Anger

Why am I repulsed? You haven’t really read much of my posts, but I think the Cheque Cashing and Pay Day Loan industry is the worst financial service out there, and shouldn’t just be heavily regulated (which it is not) it should be shut down. Anger because the surcharges and interest rates taken by these modern-day Loan Sharks is obscene even at the Loan Shark level.

Lurid Curiosity

This is the most amazing entrepreneurial set up I can see. Whoever runs this particular business has nailed their clientage exactly and are pandering to their every whim and need.

  • Cheques cashed at a fee
  • Lottery tickets sold (and given away as incentives to good customers)
  • Cigarettes sold
  • Foreign Exchange
  • Money Transfers
  • Income Tax “Refunds Now!”
  • Payday Loans

What other services could they offer?

Modern Day Loan Sharks
Modern Day Loan Sharks (from the Ottawa Citizen)

It’s staggering that the government allows this kind of “financial pornography” to go on. I must admit I didn’t think there was places like this around my house, but I noticed a  “Modern Day Money Lender” has opened in my neighbourhood, why? I have no idea.

My guess is over the next year or two, this may be one of the growth industries along with repossession and bill collection, and that is a very sad statement about life in general.

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Banking Shenanigans (boot to the head)

Some classic financial stories from 2008.

Scotiabank takes a Boot to the Head

Thanks to their dealings with Lehman Brothers, Scotiabank is going to take a $595 million hit to their bottom line:

“Both the equity and fixed-income markets have experienced significant declines in value and extreme levels of volatility over the last several weeks, exacerbated by the Lehman bankruptcy,” stated Rick Waugh, Scotiabank president and chief executive.

I wouldn’t call that a “hit.” That is more like a boot to the head (to quote the Frantics).

If you didn’t know what I meant about the boot to the head reference, I figured I was only putting stock charts up these days. For you, I leave you this boot to the head.

“Rogue” Trader at BMO

Bank of Montreal took a boot to the head with the charging of former Lead Natural Gas Trader David Lee, who has to plead guilty to “…inflating the value of his portfolio and conspiring with others to deceive the bank…” ouch. It makes you wonder how prices of commodities are set after reading:

The U.S. Securities and Exchange Commission and the CFTC filed civil charges against Lee and several other traders he is accused of conspiring with between 2003 and 2007 to fraudulently overvalue a commodity derivatives trading portfolio at the Bank of Montreal.

Due to this, BMO had to take a 1st quarter 2007 write-down of almost C$237 million against its income. BMO seems to have taken a boot to the head as well?

Pay Day Loans Boot to the Head!

A while back, I reprised my posting Pay Day Loans No No No! But I continue to get inquiries about advertising on this site directly by Payday Loan firms. Now, I must put the disclaimer that one of my “group” advertisers has sold space on my site to a Pay Day Loan site, which I am displeased about and will attempt to remove as soon as possible.

Do not mistake my humour or frivolity at times about this subject as me being flippant or not caring, as I think this “financial service” is evil. The victims of these “services” are those who can afford to deal with them the least, and I am sure during this ‘credit crunch’ Payday Loan Companies will jack up their “fees” even more than they currently do. I would urge my readers to contact their MP’s and MPPs to have this industry more closely regulated.

Oh, and a boot to the head for all of those Pay Day Loan companies too!

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