Frugal Friday: Should We Sue PayDay Loan Lenders?

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food stamps

Happy Friday everyone! It’s hard to believe that we’re at the end of another week. This has not been a fun week in the Frugal Rules home as one of the little Frugal Rules shared a lovely cold with Mom and Dad which took both of us out. I hate summertime colds, but am thankful to be on the mend now.

I read an article this week on the NY Times website that struck a chord with me and thought I’d dive into it a bit. The article discusses the state of New York suing a PayDay Loan company – Western Sky Financial for violating state law by offering short term, or PayDay Loans to individuals and violating the state’s interest rate cap they impose in order to protect against usury. As an aside, Western Sky is affiliated with a native American tribe which claims it’s not subject to local state laws. I fully believe that what we have done to native Americans in the past is horrendous and that discussion is not really the purpose of this post. That said, what this PayDay Loan Lender is doing is offering loans with rates exceeding 300% in some cases and nearly 90% at a minimum. Ouch! How many branches does Western Sky Financial have in New York…zero! As a way to get around interest rate caps imposed by a number of states, Western Financial is one of many online PayDay loan companies that do what they can in order to evade state laws and offer loans with crazy interest rates to those who may be in need. In the case of Western Sky, they’re based in South Dakota, but shuttle off their applications to California for processing. In short, they’re playing a shell game in order to try and keep their noses clean. They’re not the only PayDay Loan Lenders that do this as the article stated that many of these outfits are shifting operations off shore in order to try and evade local laws.

I’ll not get into the debate of whether or not you should ever get a PayDay Loan. That said, the point is really to highlight what some will do in order to push horrible products like PayDay Loans. They play shell games, market heavily to those who might be more predisposed to being in need and make it virtually impossible to climb out of the vicious cycle it can create. Thankfully, I’ve never taken a PayDay Loan; my vice was treating credit cards like free money. However, I’ve read many stories about how terrible they can be if you ever do go down that route. With that in mind, what efforts do we as consumers need to take in order to stop giving these online PayDay Loan companies additional business? The easy answer would be to not borrow from them, though I know that’s easier said than done. While I do think that suing on a state level can be effective, in fact several states have been successful with that – there is a larger issue here and that’s good ol’ financial literacy. These companies often prey on those who have need or simply do not appreciate what the cycle of taking out a PayDay Loan will start. The best way I see to attack the lack of knowledge is through education. Education should focus on managing money wisely, watching spending and expenses and planning for the future as opposed to only living in the present. Regardless of whether this happens in the home or at school, it’s a lesson that needs to be taught sooner rather than later. This, in conjunction with legal challenges, and simply not giving business to these outfits or the banks they work with is the best way to attack the vileness that is PayDay Loans.

There were some great blog posts this week, which always makes it hard to narrow it down to my favorites. If you’ve not had the time to read some of them, then I highly recommend them. If that doesn’t suit your fancy, then maybe some free money will?! You still have a few days to win part of $900 in cash and the iPad mini/cash giveaway just started. If you’ve not signed up for either, what are you waiting for?!

Lastly, a shameless plug, if I could ask you for your vote in the 4th annual Plutus awards that would be much appreciated. You can choose any category, of course, but would greatly appreciate your vote for Best New Personal Finance Blog or Best Frugality-Focused Personal Finance Blog that would be great! 🙂


Blog Post of the Week

The Danger of Making Money Your Top Priority on Young Adult Money

I loved this post by my blogging friend DC. I think why I enjoyed it so much was because I could relate to it so well. Who doesn’t enjoy making more money? I know I do, but at what expense will you do that? As DC pointed out, more money is a means and not an end. While having that extra money is nice, there are many other things which are so much more important, such as time with those you love or enjoying hobbies. There is a fine balance to have, but at the end of the day I’ll likely choose the experiences with those around me and happiness as opposed to making more money.

Other Blog Posts That Ruled

8 Advantages and Pitfalls of Being a Perfectionist: My Not so Secret Confessions on Untemplater

You’re Cheap if You Decorate Rooms Frugally on Canadian Budget Binder

A Love Letter to Millennials, From the Stock Market on Economag

What’s a Working Parent to do? on Debt RoundUp

5 Essential Financial Planning Steps for Your 30s and 40s on The Chicago Financial Planner

Overcoming Obstacles: I Have No Time on One Smart Dollar

Odd Search Terms

I need to become rich…Start robbing banks!

What does a Canadian have to do when they have an accident abroad…Beats me!

How to get Rick…Start looking for him!

I love shooting off fireworks…I used to as well, but I like my vision better!

Should you buy clothes at Wal-Mart?…Not even if they’re giving them away!

Is it unhygienic to floss on the couch?…No, not at all!

What happens if you throw a large amount of money on a penny stock?…It would be more fun to watch it go down the drain and would achieve the same result!

Was the critical factors for success for your aunt and uncle to be in a situation to retire, and have so many homes and a comfortable retirement?…Huh?!



What are your thoughts? Is it good for a state to sue a PayDay Loan company and should it stop there? Do you have anything fun planned for the weekend?



Photo courtesy of: Guigo.EU

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I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. I'm also a freelance writer, and regularly contribute to GoBankingRates, Investopedia, Lending Tree and more.

Latest posts by John Schmoll (see all)


  • In the context of the news story I believe it was right for the State of NY to sue the debt collectors – there is a state ursury law capping the interest rate that may be charged in NY and Western Sky has broken that law by lending above that rate to NY residents. I guess the real question comes down to where the loan was physically made – if Western Sky operate their business from outside NY and offer a loan to a NY resident, where was the loan taken out?

    • John says:

      I completely agree, especially in context of the story. That is a great question as to where the loan was taken out. The article really did not get into that – other than they’re based in South Dakota, processed in California and somehow disbursed. It seems as they’re working with numerous banks, though I imagine it’d be tough to tell for sure.

  • Hey John,
    I like how you said you would rather choose the happiness around you over money when you mentioned DC’s post. Too often people too much emphasis on money and forget that when we focus on one thing too much we forget about everything else. That’s when things can fall apart. Balance. Have a great weekend, glad to hear you are on the mend. Cheers mate… CBB

  • I agree something needs to be done with those crazy rules that companies are so easily able to get around. I also think we as consumers need to pay more attention and be more educated as well. From working in the banking industry I can tell you that a lot of people just don’t care about the rates as long as they get what they want. I have a lady get denied a loan because of her credit and income do debt ratio. She went and found a place that would approve her and got a rate 4 times what we were offering.

    As for money I really enjoy having it and the things it allows my family to afford. Mainly freedom, travel and things we need mixed with things we want. But at some point you have to ask how much to you need and is more worth the hassle of not spending time or killing yourself to get it. For me its family and family time first.

    • John says:

      I saw the same thing during my brief banking career Thomas. Many people just want or “need” the money and do not think about the true cost of it.

      I am of the same thinking in regards to money vs. time with family. I’d much rather have the second.

  • I read that story as well and laughed a little. I have seen those ads here and always caught how much you would be paying. I am sure NY will win the suit but I wish it didn’t have to happen in the first place.

    Glad you are feeling a little better from the cold. I hate the summer bugs as well. Thank you for mentioning Matt’s post. I appreciate it. Have a great weekend.

    • John says:

      We’ve not seen many of the ads, but I’ve seen plenty of them online and it just makes me shake my head. I agree that NY should be able to win and wish they did not have to deal with it in the first place.

  • I definitely think it’s more an education issue than anything. Suing PayDay lenders won’t solve anything long-term. But yeah, easier said than done for people to not take them out, especially if they are desperate for cash to pay bills and whatnot.

    Hope you have a great weekend!

    • John says:

      I would tend to agree DC. I think the lawsuits can help, though it’ll be a combination of things to attack the root of the problem. At the end of the day, people are going to take them and that is the big issue we have to deal with.

  • The payday loan industry sucks and there are really no good answers. I wish that people would just realize how much more money they are paying in the long run. If they knew and understood, hopefully they would stay far far away from payday loans.

  • I certainly missed this story this week, but thanks for bringing to my attention! And like all the other PF bloggers who commented, education is key in situations like these.

    Glad you’re feeling better and thanks for including my economag post in the round up!

  • Good post. I think Western Sky playing up their Native American affiliation is akin to the countless stories of firms here in Chicago and elsewhere abusing the rules favoring minority firms in securing city contracts. I’m not against these rules when used legitimately but it sounds like Blue Sky is abusing the rules in a similar fashion to charge what otherwise would be illegal rates of interest.

    Thanks for including my post on your list.

    • John says:

      Thanks Roger! Yea, the article said that there is apparently a growing number of PD companies that are aligning themselves with native American groups solely because of the sovereign nation argument. It’s really sad to see.

  • jim says:

    Oh hell yes they should sue ’em/ school ’em. That will not only “teach” them a lesson, the publicity will educate others. If they aren’t sued, they have no incentive to comply with the law.

  • Matt Becker says:

    I think that some combination of financial literacy and regulation is best here. Ideally people can be smart enough to avoid these things, but I do think there’s a place for government to step in and protect people from themselves. I don’t know what the line is, but 300% interest is absurd.

    • John says:

      In this case I could not agree more Matt. I think a combination is best, with a big focus on education. The sad thing is that I’ve seen considerably higher rates than the 300% interest.

      • Rather than having a cap on interest rates, I wonder if NY could introduce legislation declaring any loans over the maximum are unconscionable and no interest at all would be payable? Surely the loan providers would stop loaning to NY residents quite quickly if they lost their profit margin…

  • Payday loan are such a horrible option because they’re just crazy expensive. Unfortunately, some peple have no other option or just don’t understand how much interest they will pay back on these types of loans!

    • John says:

      I agree Monica. They’re bad on so many levels. I think I’d rather peddle crack as opposed to taking a PD loan if we truly needed the money. 😉

  • Payday loan companies pray on people that have run out of options. It’s sad. Thanks a lot for mentioning my article.

  • I was not aware of a Native American tribe that operates PayDay Loans, but I’m not surprised. Some of the smaller tribes especially are very financially savvy about making money. The Ute Mountain Ute Tribe is the larges employer in our county I believe, and they run a casino, have a huge construction company, a farm that gets tons of subsidies because of it’s Native American affiliation, and oil and gas endeavors. They rake in the money, but unfortunately, the powers that be don’t always use it in ways that benefit the tribal members, which is very sad, as many of them need lots of help. Sure they dole out checks, but giving someone money without any education or having to do anything to get that money just continues the cycle. I know that was not your question, but I think it’s sad to prey on those who need help the most. It may not be illegal, but you’d think a population that has been so mistreated would not stoop to those levels. I guess the almighty dollar always wins.

    • John says:

      I don’t believe it’s the actual tribe that is operating (though I could be wrong) the loans, but a company that is aligning with the tribe so they can benefit from the sovereign nation benefits. I agree that giving out money with no education can and does continue to further the cycle in most cases. It’s sad indeed.

  • No Waste says:

    I have to be honest, when first reading through the search terms, I saw:

    floss on the crotch

    Yes, that might be unhygienic.

  • I would tend to agree–the way to kill off payday lenders is to educate consumers and dry up their customer stream. No matter that regulation or law, clever entrepreneurs will always find a work-around, so legislating them out of business is not possible.

    Have a good weekend!

    • John says:

      I agree Kurt, those who’re shifty enough will find a way around regulation. The regulation can be a stop gap, but education is the vital need.

  • Sorry to hear the Frugal Rules home was hit with the dreaded summer cold. Not that winter colds are better, but they just make more sense to me! 😀 Those Western Sky commercials are on TV all the time. What irritates me so much is they are going after the most vulnerable segment and exploiting them. If you’re running just a little short on cash, which happens to EVERYONE, don’t worry, we’ll loan you the money to tide you over. It’s no biggie. I agree education is the best solution but I also have no problem with States suing companies who are preying on their residents. I loved DC’s article too. It’s easy to caught up in acquiring money but it’s equally important to know what you want to do with that money. Have a great weekend!

    • John says:

      I know, they do tend to make more sense. 🙂

      I had never heard of this company and it just angers me that they target and prey on those who’re in “need”. I agree that I have no problem with the litigation, I just hope we can get increased/improved education to solve the longer term issue.

  • My brother, a lawyer, always tells me how it’s not smart to gamble at Native American casinos in the first place because they don’t exactly have to follow the laws and if you don’t live in a state like NY that’ll challenge abuses of power, you’re kind of screwed. Obviously, a casino can’t be successful if they get a bad reputation but be careful when gambling at smaller Native American affiliated casinos.

    And the sad thing is, most of these Native American casinos don’t benefit the people they supposedly represent– it’s usually a ruling family exploiting their Native American heritage (and some investor not even a part of the tribe).

    • John says:

      That’s a great point Tara and one that I think gets overlooked quite often. I’ve heard that about many of the ruling families which is quite sad. The article pointed out that it was actually different companies “joining” with the tribes to take advantage of their sovereign status – sad indeed.

      • I was so interested in this story that I brought up this lawsuit to my brother after reading it and he said one interesting fact: technically, if a pay day loan company lends in a state where it is illegal for them to be practicing, then the loan recipient legally is not bound to pay the usurious interest rates. They still have to pay the loan back and a reasonable interest rate (probably the interest cap of 18.9% ) but nothing more. It might be a hassle where they try to take you to collections, but the state would rule in your favor after taking it to court.

        • John says:

          That it is interesting and makes total sense after thinking about it. I agree, it would be a hassle to go through collections, but I think it makes sense that most States would rule in your favor.

  • I think payday loans are absolutely horrible and in this case yes they should be sued, but only because of the fact that the interest was ridiculous, not due to their business plan. It’s a shame that probably 99% of the people that use payday loans services don’t have a clue about how money works or they wouldn’t have gotten into that situation in the first place. If they really want to combat the payday loans then financial education is the way to go. If they want to close them down then this will just lead to those same people going to “loan sharks”. What’s worse? Paying 300% interest for a pay day loan or paying 300% interest to a loan shark, where there’s no regulation at all, and they will break your legs. I’ll take the payday loan. At least I can walk afterwards.

    • John says:

      That’s a valid point JC. I’d rather walk as well. 😉 That said, I do agree that education is the key to getting at the root problem of most of this – sheer ignorance. I do take issue with their shell game of shifting things all over the place to avoid regulation, but at the end of the day many of these outfits will do the same thing.

  • “How to get Rick…Start looking for him!”

    That one made me laugh!

  • I think that PayDay Loans companies are taking advantage of poor, uneducated people. Because of this, it is my personal goal to help put them out of business where I live. As soon as I can afford it, I will have bus stop ads next to the PayDay Lenders that read something like “Having financial problems or need money fast? Go to to take a free class to help you get your finances in order.”

  • Micro says:

    90-300% that is just insane. At 300% (which I assume they compound daily just to screw the customer over more) you have at pay back triple what you took out. Even in a desperate financial situation, I find it hard to believe someone thinks that is a better solution than just being really late with whatever bill they are looking to pay off. Does anyone know if the CFPB has any plans in the works to reign in payday loans (since they now have a confirmed agency head and can actually operate)?

    • John says:

      I agree Micro. The crazy thing is I’ve seen rates even higher on quite a few online PD loan sites. That’s a good question about the CFPB. I am not certain, but it would be great if they did and – plus add in some education about it. Thanks for stopping by!

  • anna says:

    I agree that Pay Day loans are a horrible idea because it not only targets those that are desperate for them, but puts them in that dependence cycle of going to them like you stated. Education is for sure the key, but if states sue to protect people from being completely taken advantage of, then I think that’s okay, too (so unethical). Thanks for the Economag mention and I hope your family feels better soon, John!!

    • John says:

      You’re exactly right Anna. It is a vicious cycle that can be incredibly difficult to get out of. I agree that education is key and hopefully this litigation will cause them to stop it…in NY at least.

  • Derek Chamberlain with says:

    I agree with most folks here. I think there should be an interest rate cap on secured loans. For unsecured loans, I’m not so sure…

    • John says:

      I think there should be a cap on either. The issue at hand is the company violating anti-usury laws and playing a shell game to get around it. There has to be some cap, because 300% is absolutely outrageous…not that 90% is any better.

  • Alexa says:

    If you have ever watched the commercials for Western Sky. You may have noticed that at the end she says “Yes, the money is expensive.” I was always curious how expensive so I read an article a couple years ago stating 300% interest. That’s insane and they should be sued.

    • John says:

      I’ve never seen their commercials. I love that they say that at the end though…90-300% interest expensive – no NOT at all! 😉

      I agree, sue them into the 19th Century. The sad thing is that it’ll only stop them in NY and will not get at the real problem – education.

  • I think rather than suing anybody is provide proper financial education. But this has to start early in schools and families. It’s not happening and Pay day lenders are the result. This in my opinion isn’t solving the cause, but the effect and the wrong way anyway.

    • John says:

      I agree Martin that education is the key here – that would get at the root issue of complete ignorance on the part of many who take out these kind of loans. That said, I do believe in this case that litigation is needed. Western Sky is purposely playing a shell game to avoid the anti-usury laws in the State of NY and thus violating the law. As a result, I believe they should face repercussions for this, but unfortunately this will only mean they’d have to stop in NY and not anywhere else.

      They actually have some precedence to stand on as similar lawsuits have taken place in several other States and they were successful. That said, I think this is an issue that’ll likely require several different actions to take down.

  • Jaclyn says:

    Ya know, I just did a training session last week in which we discussed these predatory lenders! Several team members shared their experiences with short term loans and payday advances, etc. Horrible! Absolutely horrible!

    • John says:

      I agree Jaclyn. I’ve heard ad read of some terrible stories and how bad the cycle can be. It really is a shame that there are firms out there preying on those that might have a need and not know any better.

  • Untemplater says:

    I hope all of you feel better soon! I started coming down with something yesterday and I sure hope it doesn’t stick around to develop into anything. Being sick is the worst.

    Thanks for the mention! Hilarious cat pic by the way. One of my friends has a silly cat like that who always sticks her tongue out. Have a great week!

    • John says:

      Sorry to hear you came down with something Sydney. They’re the worst in the summer. Thankfully we’re all on the mend and back to 100%

      Not a problem on the mention, I loved the post as I could relate to it so well.

  • Interesting Payday Loan story. I am sure it was right for the State to sue them, but I don’t think it’s right for individuals to take legal actions against them. It’s a conscious decision to make to actually take out a payday loan.

  • I think it is great that the state is suing a payday loan company. Anytime a company blatantly violates state law to take advantage of residents, the state should get involved. Kudos to NY.

  • Hope you guys get better! I am in bed with the flu too, which sounds really ridiculous with 90 degrees outside… get well soon!

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