Category: national

  • What is Predatory Lending

    Predatory lending is a vague term. I think this is a very good assessment and opinion by J. R. Clark Ph.D., University of Tennessee Chattanooga. He thinks:

    “Predatory loans, on the other hand, are loans obtained by the lender through deception or fraud, and do not enhance the welfare of borrowers. It is a disservice to the public to confuse loans which are truly predatory with those that are simply expensive.”

    He further writes that capping interest rates or that usury ceilings hurt low-income families most and that it just locks out the bottom of the credit pool or the poorest and worst off people. Here is the full article.

    I don’t think anyone expects people to “like” payday lending, but it’s an option. If there was a better option out there, people would be using it.

  • 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.

  • 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.

  • NPR gives a clear and unbiased view of the payday loan industry

    This audio clip is very straight forward. There are a few points I would like to make:

    1. You can’t fight demand.
    2. People need more options and not less.
    3. The industry does not want to get borrowers in a cycle of debt. They’re open to regulation.

  • PDL industry growing, but more expensive

    The industry is growing, but it’s becoming more expensive to operate. QC Holdings increases revenue, but defending payday loans cuts into earnings. QC is still growing and making money, but is the profit squeeze a trend or just a blip?

    The industry has become more proactive in the legislation and espcially in PR and public opinion initiatives.

    There are definately some large corporations in the PDL industry. If you would like to learn more about QC Holding, this is a great place to start.

  • The Deep Pockets of the Payday Loan Industry

    The Arizona Republic wrote an article titled “Where the money comes from“. According to this article, payday lenders contributed $8.7m to campaign finance for the first half of 2008. The next largest donor was The Realtors Issues Mobilization Fund, which contributed a measely $1.4m.

    The alleged goal of the payday loan industry is eliminating a scheduled 2010 deadline at which time it will discontinue operations unless it receives some kind of state extension. They are also looking to impose new consumer protections.

    This doesn’t sound unreasonable. I think it’s a good idea because the industry expiring because of inaction does not seem fair.

    The general public needs to realize that short-term capital is in high demand. The PDL industry wants to work with the state government and regulate this industry.

    Getting rid of the industry, just gives people fewer options. If better alternatives were available, you would be hearing about them.

  • Payday Lending Has An Image Problem

    We attended the CFSA meeting in Las Vegas this past year. One of the initiatives was the ability to put together statistical reports that support the availability of payday loans.

    I found this article because I subsribed to the PaydayLoanIndustry.com newsletter.

    Donald Rieck just put out an article, “Predatory Reporting? On Payday Lending“. It’s basically saying that in states where payday lending was eliminated, over draft fees have shot up and filled the income gap left by payday lending. Someone is still making money out there at triple digit APRs and consumers have less choices now.

    In a report issued by Moebs Services, they estimate overdraft protection fees can account for up to 60% of net operating income for a credit union.

    I think the point is that if you’re going to allow over draft fees, why not give the consumer a choice to get a cash advance from a payday lender if they choose. The reality is that overdraft fees are forced on the consumer and a payday loan is a choice. Let’s be adults about this.

  • Illinois Senator Dick Durbin is Wants a 36% Cap

    If the government capped mortage rates at 5%, how many people would own a house?

    I think you can call it politicians being politicians. It sounds very noble to try and help people. Dick Durbin wants to cap rates at 36%. I would prefer if he would just say, we’re trying to close the industry down.

    The problem with this argument is that people hear 500% interest and are shocked. Would you take a $2,000 taxi to NY from Chicago or would you buy a $200 plane ticket.

    Think about it, would you give $300 to a person with a credit score in the 400’s and only make $4.14. It costs atleast $12/hour for just one employee, not to mention rent, utilities, advertisment, liscensing and everyone needs a manager. The loan itself would take 20 minutes to process. They can’t break even operating in their current state.

    In the end, the politicians are just going to make consumers less able to make a decision for themselves, which ultimately leads to increased financial illiteracy. Instead of making consumers smarter, more experienced; we just make the lenders unprofitable.

    If they shut down the industry, the world will go on. I would like to see the government offer $300 at 36% to anyone who needs it. If they shut down the industry, they should step up to the plate and fight the demand for short-term money.