I just noticed a new payday political blog at Payday Pundit.
It’s called PaydayPolitics.org.
Here is a taste of some of the good stuff:
“The only people that benefit from unreasonably restrictive regulation of payday loan companies are criminals like “loan sharks” who would see their own share of the market grow.” Lance Weber
“Loans to people with bad credit records are inherently risky. The solution to interest rates that are “too high” is more competition, not more regulation.” Michael Munger
Arkansas payday lenders operated under a check cashing law since 1999. Last year, the Arkansas Supreme Court overturned it’s original ruling putting 275 lenders more of less out of business. A few are still around offering check cashing and phone cards.
In this AP article in Forbes, the last of the Arkansas lenders has closed.
Could the lenders have worked w/ the legislature? It’s all academic now.
If you’re curious about the last year in Arkansas, PDL Industry was following the store. Here is the archive.
Allegedly, there are phony debt collectors trying to get money out of consumers.
The Better Business Bureau thinks it’s a data breach. I’m not saying that this is not going on, but can they confirm that victims do not have any payday loans currently outstanding. Regardless of the validity of this claim, the collection tactics are totally out of bounds:
“…accuse the victim of defaulting on a payday loan and claim they are being sued. The phony debt collector threatens that, if the victim doesn’t pay as much as $1,000 immediately via wire or by providing bank account or credit card numbers, he or she will be arrested and extradited to California within the hour to stand trial. The scammers often have the victim’s Social Security, old bank account numbers or driver’s license numbers as well as home addresses, employer information and even the names of personal friends and professional references.”
Payday loan leads, more than any other lead, are being resold. What’s the solution? I don’t know.
A major misconception of the payday loan industry is that it’s not regulated. Consumer groups want to undermine payday lenders, so they really don’t mention this to their readers.
In Colorado, the regulatory body, refunded around $1.8M to borrowers.
Basically, how it works is that if a lender makes an error, they reimburse the borrower. This is how it should work. Don’t get me wrong, I don’t like frivolous rules, but if someone deserved a rebate and did not get it, they should.
This should be handled by your payday loan software. If it’s not, you should find a new system.
Credit Unions are getting into the payday loan business. Not all PALs are a cheaper alternative to payday loans.
Actually, it’s against the law for federally chartered credit unions to charge more than 18% on loans. Credit Unions may brag about their 18% interest rate, but they still charge other fees that put the APR into the triple digits to make these loan profitable. USAToday brings some light to this in an article titled “Some short-term credit union loan rates may be high.”
One Credit Union in California reponded this way to an inquiry about their 275% APR. Kinecta spokeswoman Laura Oberhelman said
“the credit union’s loan is competitively priced and in compliance with federal regulations governing such loans. In many cases, a short-term loan is less costly than paying overdraft fees on a checking account or re-establishing service with a utilities provider.”
Of course, the news rarely tells you that. They also don’t make a stink when banks, like Fifth Third, get into the payday lending business.
So we have payday lenders, credit unions and banks all saying the same thing: You can’t make money at 36%!
Recently, I had a customer that got into the payday loan business through a payday loan franchise. He opened a second store and decided that the franchise, outside of sounding like a good idea, really was not.
First, a payday loan franchise should give you a brand advantage over other lenders. Unless you can get a recognizible brand (Advance America, Check n Go, Check Into Cash, The Cash Store, a few more), why would you buy a franchise?
The payday loan industry is not like the fast food industry. Every loan, customer or location are not the same.
So is it worth it to buy a payday loan franchise? I don’t think so.
I can’t say no, without making a suggestion. So, what should you do if you want to get into the business? There is no black or white answer, but you want to work with people or organizations with a reputation.
Personally, I think you would gain more “doing it”. What I mean by this is going to work at a payday loan operation. Now, you should not deceive them. Find a mid size operator outside of your demographic and make a deal with them. You may have to sign a non-compete within 10 miles of a list of locations (current locations).
Work for free. Committ six months to working part or full time. The operator will save a few bucks and you will get the invaluable experience you need. There is no substitute for doing it. Besides, if you have good character, you may get an investor or make a friend in the process.
From my experience, serving the payday loan industry, is that the best business people make the most money. This starts with management. So, before I would pay a payday loan consultant $20k, I would get a business and management consultant.
My name is Nick Sparagis and I’m one of the owners at IntroXL.com. We offer payday loan software.
Payday Alternative Loans or PALs are a buzz word in the credit union industry.
Some credit unions are advertising a 0% APR on their PALs, but charging a 20% documentation fee.
“The 20% fee does not accurately reflect the costs of processing applications so the fee should be considered a finance charge under Reg Z and be included in calculating the APR. This would raise the APR above the 18% ceiling,” the agency wrote.
If this proves anything, it’s that you can’t make money below 36%. Read more at Credit Union Times.
If you’re an Internet lender in Wisconsin, you better keep your head on a swivel.
Although Arrowhead Investments admits to no wrong doing, they settled the class action law suit. The agreed to forgive all the debt and pay back $180k.
“The Justice Department said approximately 1,300 consumers could receive relief. The settlement covers Wisconsin consumers who received a loan from Arrowhead Investments between Dec. 1, 2001, and Dec. 21, 2007, and who paid more than their principal loan amount to Arrowhead. They will receive a cash payment.
Arrowhead will also close all outstanding loans with a zero balance, totaling more than $432,000 in loan, cost and fee forgiveness, and also agreed to no longer solicit loans to Wisconsin consumers for five years, among other settlement provisions.”
You can read the full article in BizJournals.
It’s not new for Credit Unions to try and offer a PAL (Payday Alternative Loan), but beware.
For example, this article in the Channel 11 News says:
Another pro is you build credit with this program. “If someone is using a payday lender they’re not necessarily able to build credit with it even if they always pay it on time. It’s not a positive reflection or any reflection on your credit report,” Natasha explains.
If it can help your credit score, it can also hurt it. Payday loans can not hurt your credit score. That’s a very big deal for many borrowers. Also, being able to ding someone score is a great collection tool. I don’t mention that in the article.
The Little Loan Shop has a big problem (badabing). They’re filing for bankruptcy protection claiming that it owes more than $100M to 1,300 investors.
Many investors are accusing the principal, Doris Nelson, of running a ponzi scheme.
The deal is just a mess. How do you turn $100M into $2.7M in accounts receivable?
I feel for the investors, but when someone guarntees you a return of 55% per year, run like hell.
You can read more about this story in the Spokesman review.