Category: payday loan alternative

  • Bridging the gap between credit cards and payday loans

    This post was inspired by an article in Cheklist magazine by Richard Kelsky titled “Sea Change on the Lending Horizon.”  Richard makes the following points:

    1. Payday Lending Exists Everywhere
    2. Credit Can be Abused by the Rich and the Poor
    3. The Need Exists

    He also talks about the need for new alternative products for cash advance lenders.  I wrote about this back in 2008 in an article titled “Payday lenders are filling a huge credit gap.” This is relevant more than ever.  Today, credit card companies are slamming the door in customers’ faces.

    I don’t think payday loans will go away, but there is a need for a $500 and up product that spans 6-24 months.

  • Compete with payday lenders. Don’t put them out of business.

    Legislators look for ways to make payday loans less profitable all the time. This is bad for the borrower b/c it makes the cost of doing business higher. This cost, ultimately, gets passed on to other borrowers.

    In an article titled “Loan program helps ‘unbanked’ climb economic ladder: FDIC program aims to help low-income consumers avoid payday loans“; banks are getting into the small loan business. Consumer groups like this product b/c it helps build credit and is less expensive than a payday loan.

    My feeling is that competition is good. Don’t put handcuffs on payday lenders. Compete with them.

    You can read the full report on the FDIC small loan pilot program here.
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  • Nevada Federal is Out Of Payday Loan Business

    Nevada Federal had been offering a loan called AdvancePay, which charged an application fee up front.

    After receiving this letter from the National Credit Union Administration (NCUA) chairman, Michael Fryzel; Nevada Federal decided to stop offering their payday alternative product, even though they believed the product was cheaper than other alternatives.

    What I think happened is that the NCUA considers the application fee part of the finance charge. This makes their loan product above the 18% max APR ceiling allowable by an Federal Credit Union Act (FCUA).

    So why does the NCUA think that an application fee that is charged, regardless, of whether or not a loan is provided considered part of a finance charge?

  • Another bad payday loan alternative article

    I’m all for payday loan alternative products. There is room in the market for anything that customers demand, but some of the things these articles allow to print are rediculous.

    For example,

    “It’s a high risk to the consumer,” Carrol says. The Better Business Bureau says when you see a triple digit interest rate, beware. “Let’s say you default on a loan like this, 500%,” Carrol says, “it can ruin your life, it’s huge.”

    “Ruin your life”? I find that hard to believe considering payday loans:

    • Do not report to the 3 major credit bureaus, so they can’t hurt your credit.
    • It’s not like you borrowed $500 from your brother-in-law and did not pay him back. Now, you have to face him at Thanksgiving.
    • Most, if not all, payday lenders will allow you to enter into a payment plan.

    Here’s what the article leaves out (I went to the credit unions website):

    1. They run a credit report. “…this is one of several determining factors in the decision of your application.” (from their site)
    2. They may require a co-borrower to sign.
    3. You must attend mandatory monthly financial coaching classes once a month for the term of your loan.

    Sometimes, I think society wants lenders to give away free money. Even when interest rates are low, they use the term free money; but they expect you to pay back the amount you borrowed. People do not realize how many borrowers take out a loan and never make a single payment. This is why the fees are where they are.

    You can read the article titled “Non-Profit Offers Payday Loan Alternative.”

  • Payday Alternative Loans or PALS

    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%!

  • PALS or just payday loans

    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.

  • Beware of the payday loan alternatives @ credit unions

    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.