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Wednesday, July 28, 2010

Thoughts after reading Broke, USA

One of my 'favorite' topics in business math: Payday lending.

Quick question: How many Payday lending stores are there within a 3 miles radius around DVC?
Answer: 9
Quick, what are you thinking?

Payday lending is a relatively new industry, started in the 1980s. Before that, if somebody needed a bit of quick cash for a short time until the next paycheck, one had to go to a local pawn shop. There, the pawn broker determined the price they could get when selling the item in their store, divide that by 3, and that was the dollar amount the customer could borrow. For example, if I were to take my mom's gold watch to the pawn broker and they determine that they can sell it for $300, then I can borrow $100.

If I then can pay the $100 (plus a fee!) back within an agreed-upon time, I get the watch back.
If I can't, then the watch gets sold by the pawn broker.

Bottom line: the pawn shop makes money whether I pay back the loan or not. But I digress - I really wanted to talk about payday loans.

No gold watch needed. In its place is a higher fee. Let's say I borrow the same $100, let's say for one week, since I just need to get a couple of tires for the car, and I have no cash or other resources to borrow from. No family, friends, credit card, etc., that could help tide me over. At the payday loan store, I would get the $100, cash, and agree to pay $115 back in a week.


It's good that it's there, since I had nowhere else to go, and I needed my car to go to work.
There is just one problem. In this scenario, the annual percentage rate of this loan comes to 391%. (Yes, we calculate that in class. But you can try if you want to check it out yourself.)

See the problem? This is called usury (Merriam-Webster: "an unconscionable or exorbitant rate or amount of interest; specifically : interest in excess of a legal rate charged to a borrower for the use of money.")

Before I forget: Most payday loan customers are repeat customers. This means that they either don't pay the original loan off, but rather take out a second loan to cover the first loan... you get the idea. Or that they use more than one payday loan company to take out loans. Or that they use payday loans on a somewhat regular basis. All to the tune of 391% APR.

Don't get me wrong: That there is a business that makes it possible for the 'un-banked' to get a short-term loan is a good thing.

That the business model is based on interest rates that would make the Mafia blush is a bad thing.

As Alan Greenspan said, "Of concern are abusive lending practices that target specific neighborhoods or vulnerable segments of the population and can result in unaffordable payments..." (March 2000)

Finally, in 2010, the financial reform package and its Consumer Financial Protection Agency to investigate abuse, was passed.

I love teaching business math. Experiencing the Aha! moments when the business world around them starts making more sense to students is the most rewarding feeling. Plus, an educated consumer is an empowered consumer.

Teaching is about empowering learners.

Saturday, July 24, 2010

Community college summer school class - thoughts after a 3-week session

Can there be too much of a good thing?

I finished teaching a three week summer class that squeezed a full semester into 4.5 hours a day, Monday through Thursday. That was, to say the least, intense.

I don't mean to say that I was surprised by the amount of work it took to prepare the daily session, or the time I spent on assessments. I am a professional - I knew all about that. No, what was so intense was the human connection part.

A class of just about 30 students and one instructor together for 4.5 hours each day. We started at 7.50 am, so we basically woke up together. Plus, it was an introduction to business class, by its nature a completely new topic to most. Just the new vocabulary was practically like learning a new language. The way this class dealt with these stressors: We drew closer.

We shared about ourselves, we shared food together, we shared silly outdoor activities together, we had heated discussions with assigned side-taking - and then we switched sides. We shared what we did on the days off, and we shared what we did after class, we shared what it was like to take the tests, and we shared about reading the textbook in reading journals.

And on the last day, we said thank-yous to our fellow learners. We took a group photo. And we slowly, almost hesitantly, left the classroom.