Author: admin

  • Opinion on capping rates at 36%

    The Progress Illinois blog wrote a very thorough article on the current landscape of the sub-sub prime lending in Illinois. Below is the comment I left on their site.

    Here is the biggest problem in the industry. The people that pay have to pay for the people that don’t pay. There’s always two sides to a story. Here is the other side: the people that pay back a loan are paying for the people that don’t pay back their loan. Probably close to half the people that take out a payday loan, don’t make a single scheduled payment.

    If everyone paid back their loan, you could make the interest rate 7% and everyone could still make money.

    By capping the rate at 36%, you’re just locking people out of the system. If people think that locking these people out of the system is the best interest of everyone, then they can cap the rates. But, why stop there, let’s look at a few other examples like credit cards and mortgages. How about only people with 700 or greater credit scores should be able to have credit cards and/or get a mortgage in this country. Then we wouldn’t have the mortgage crisis and fewer people would be filing bankruptcy.

    By capping the interest rates for the payday loan product, you’re just forcing these people to go on a “financial diet”. The big pink elephant in the room is that if you cap the rates at 36%, what percentage of the people can borrow money at 36%. My guess would be around 10% and they would get a huge lecture from the lender, first.

    If they made a public record of credit scores and the people that use payday loans, they would realize that this customer can’t be lent to for under 36%.

    My opinion is that if you’re using credit to pay for an expense, it doesn’t matter if you’re paying 5% or 500%, it’s not a good financial move. Paying 5% interest for an expense is silly and paying 500% interest is just stupid. You’re telling me that we need a law, in this country, for people to understand this concept? The consumer groups will say, they don’t know what their doing because they’re desperate. We are talking about adults that have the right to vote, right?

    If you cap the rates at 36%, most of the lenders will close their doors and people will go to the internet and get a loan from an offshore company where they don’t even pay federal or state taxes. The people in the middle class and the consumer activist groups will sit down and think they made the world a better place, while the lower middle class will get doors slammed in their face by banks, friends and families because they needed $300 yesterday. Maybe this is a good thing.

    The worst thing you can do is let people off the hook. Regulate the industry and when people come to you and say, I can’t pay this loan back, don’t tell them it’s not their fault because it is. If they didn’t take out the loan, they wouldn’t be in this mess. They’ll ask their friends opinion about their car, their shoes and their new haircut; but when they walk into a payday loan store, they don’t ask anyone’s opinion because they know they’re wrong and no one is holding a gun to their head. So, tell them that it is their fault and that they’re harming themselves and that they shouldn’t borrow money to pay their bills. Finally, tell them not to take out another loan. What ever happened to personal responsibility?

    What the consumer groups and people that care should focus on is how to move the people who do pay and are responsible “up the credit elevator” so that they can get a loan for double digits, instead of triple digits. In the end, this will do more to help people then locking them out of the system. If you cap the rates at 36% this group of borrowers will never move “up the credit elevator.”

    As far as the term “unconscionable”, the sad reality is that this is relative. To the lower, working middle class, these rates are their reality. That’s what free markets is about. There is a wide spectrum. The people that want payday loans to go away, typically don’t use the product. They’re just using their own moral superiority to make these judgements for the people that use it

    Anyone, regardless of interest rate probably wishes they didn’t get the loan after they spent the money and can’t pay it back.

  • Politicians being politicians

    This whole rate cap issue has become a great tool for politicians to hang their hat on. Did anyone tell them that the people who are happiest about this, do not use payday loans or do not want to pay them back.

    Ask people who use the product point blank. Would it bother you, if they took the payday loan option away? I bet most would say, yes.

    Here is what I read here:
    “State Rep. Tyrone Yates (D-Cincinnati) would appreciate some measure of credit for the 28% interest rate cap imposed by the new payday lending bill, HB 545. He points out in a press release that it is closer to his proposed 25% rate cap than to the 36% limit sought by others. “My colleagues have joined me in offering strong reform for this predatory industry,” said Rep. Yates in a press release that characterizes the new bill as drawing upon his own. “We have come together, Democrats and Republicans, agencies and non-profit groups, legislative and executive branches to do the responsible thing for Ohio’s consumers and pass a bill that will be a model for the nation.”

    These politicians are just trying to score points. They’re not getting into the real issue. There is a huge credit gap beyond 36%

  • Financial service centers in convenience stores

    My dad owned a honky tonk bar in the ’80s. They would cash checks by the thousands. They didn’t charge a lot, but they expected you to drink a few beers while you waited. They took their own sweet time.

    This article titled Profit$ You Can Bank On talks about moving financial services into convenience stores. Today, Walmart offers many of these services including: check cashing, wire transfer, bill pay, money orders, credit cards, investment services and many more.

    The point is that if you have foot traffic, you have an opportunity. Another reason why you find a bank branch in pretty much every supermarket. People that eat, need banking services too.

    I don’t know if payday lending will get into these locations. It’s a lot easier to guess if a check is going to bounce today than it is in two weeks. It’s also not transactional, like check cashing. It’s a future obligation, which requires more attention.

  • No means Yes

    It took 5 hours, but the Ohio Ballot board was finally able to make both sides happy. In the upcoming election, the PDL industry looks to overturn the referendum that will cap interest rates at 28%. If enough voters vote “No” the cap goes away.

    It’s worth noting that there is a lot more regulation on the industry besides the rate cap. Most of which is welcomed by the lenders in order to help self regulate their industry.

    The PDL industry still has to get 241,365 valid signatures before it’s officially on the ballot. I don’t know how many more they need or when the deadline is.

    You can read more about the actual process here.

  • Payday loan bill bad for consumers

    Bonnie Schoenberg wrote this story in today’s Daily Herald. I think her point is that more options are better than fewer options. You can get rid of payday lenders, but that would just benifit banks and credit card companies. The demand doesn’t go away.

    The payday issue is so polarized that people are failing to recongnize what’s going on in Illinois. Today, there is a loan that allows a cash advance that’s regulated by the state. It’s called PLRA (Payday Loan Reform Act). So there is an option for someone who wants a cash advance until their payday. The problem is that this is not enough and borrowers want more.

    The PLRA law was supported by the large national payday lenders and was able to pass through the Illinois legislature. Unfortunately, many smaller lenders didn’t think they could make money under this law and didn’t want to deal with the state auditing body and their penchant for interpreting law and fining lenders. These lenders went to 121 day installment loans because it was easier and they could compete against larger payday lenders that are much better capitalized and can handle a large downturn in fees.

    One the large lenders that supported PLRA saw that they could not compete with other lenders, they followed suit and waffled on their promise to offer only payday loans.

    Here is what the general public does not realize. There is a huge demand for money. There is a loan product out there for people that need a cash advance. The reality is that borrowers are not running to this product because it limits their ability to get a loan.

    What most people don’t understand is that a dollar today is worth more than a dollar tomorrow. How much more? It depends on who you are and what your history is of paying people back.

    The reality is that Senator Durbin in his attempt to cap rates at 36% is locking people out of the credit markets. Until a bank or credit card company decides to give these people money, they basically SOL. You don’t promote responsible borrowing by locking people out of the credit markets.

    We could eliminate a lot of things in this country that we personally do not use or like. I hate going here, but I’m going to anyway. There is another place where the government makes decisions for you. It’s called China. It’s a nice place to visit but I wouldn’t want to live there.

    I just don’t understand why people that think or know these loans are bad for them can not just say “NO” and let everyone else make their own decision?

  • FDIC Pilot Program Explores Alternatives to Payday Loans

    “Banking industry experts are calling it a significant first step in an attempt to find a less-predatory way to provide short-term credit.”

    I think this is great. The big problem is the huge credit gap in our capital markets. There is 36% and 391%. I think the banks will learn that operting under 36% without a substantial documentation fee is going to be difficult.

    You can read the full artilce in the Washington Post here.

    This is the solution, not legislation. Trust me, if you saw the deliquencies that payday lenders have, you would realize that 36% is just not realistic. There has to be a balance.

  • Ohioans for Financial Freedom Commercial

    You can view it here. I think the commercial make a point, but it’s not very ernest. Forget the commercial for a second and let’s hear what people had to say. It’s near the bottom of this link.

    I’m sick of hearing people correlate the mortgage crisis with payday loans. It’s imflamatory and doesn’t even make sense, if you knew anything about the payday loan industry. People really need to be honest about this subject. People over-paid for their homes and got easy credit. Now they want to bail these people out, although they forced housing prices up for good credit borrowers. Thanks for rewarding fiscally responsible people.

    I tell people that they should not take out a payday loan, just like I tell them to pay off their credit cards each month. How do you educate people if you pull their feet out of the fire everytime because you feel sorry for them.

    Here are the comment I liked:

    Posted by jmacleve on 08/12/08 at 8:30AM
    “I do agree with the part about choice (and what jaquick said). You don’t want to use a payday lender? Don’t. But stop telling other people how to run their lives.
    Yeah, people pay extra for these loans. But I see more money going over the counter for lottery by people who probably can’t afford it than any payday loan. Why aren’t you patronizing types lobbying to end the lottery? After all, it feeds on a lot of the same people!”

  • Ohio still in the air

    Payday lenders are trying to repeal part of HB 545, specifically, the part about the interest rate caps.

    This article provides some insight on the ballot process in Ohio. “Instead of asking voters to repeal the entire law, payday lenders are asking for only a partial repeal of House Bill 545 – the portion that eliminates the current payday interest rates.”

    Since HB 545 passed, over 550 lenders had applied for new licenses allowing them to charge 28 percent plus a one-time $15 origination fee on short-term loans. Personally, I don’t see the reward associated with this much risk. It wouldn’t even cover the loan losses.

  • Laws tough enough on needed industry

    I think Robert Reich says it best: “many self-appointed consumer activists claim to represent the customers of this lending industry and to define their access to credit. Several allege that title and payday lenders focus on poor and elderly communities — a claim based on anecdotal examples representing a small fraction of borrowers.”

    Banks do not get involved in short-term, high interest loans because of the social stigma. If these products can become competitive, it will push prices down. When prices get low enough, banks and credit unions can get into the mix and drive prices even lower. It’s economics 101: supply and demand.

  • Advance America Chairman was co-founder of Blockbuster video

    Today’s news is that chairman and co-founder, George Dean Johnson, of payday lender Advance America Cash Advance Centers has stepped down, citing “personal reasons,” the payday business said Wednesday.

    What I think is even more remarkable is that Mr. Johnson was one of the co-founders of Blockbuster video.

    Founded in 1997, Advance America considers itself the largest payday lender in the world.