I thought this was interesting. Cash Store of Canada released an earnings report. They posted a $5.5M profit in the second quarter. This is a 28% increase from the previous year.
What intrigued me was the micro-loan product via text messaging. I guess they’re doing it in Finland and Sweden. That part of the world is much more innovative than the US when it comes to cell phone technology.
You read the full article in the Edmonton Journal.
First, two Business Week articles involving payday lending in one day. That’s a first.
In an article titled Liberals push range of issues at Iowa Capitol, there is a lot on the agenda. Most of it will not get passed but their feeling good about their chances of enforcing a new payday loan law.
Does anyone have an insider information they want to share?
Republican Rep. Andy Tobin of Paulden pulled his bill from a committee hearing agenda Monday but vowed to look for more support and bring it back. On June 30th payday lenders, in Arizona, will lose their exception from the 36% usury cap.
Today, there are over 600 payday lending locations in Arizona. That would be a lot of empty real estate space, not to mention the jobs.
You can read the full article in Business Week.
Lynn DeVault, board chair of the Community Financial Services Association of America, says, “In the end, things have been relatively positive.”
Currently, the CFSA is tracking about 178 bills in the states. It opposes 101 of those.
The states that will likely have a lot of attention in 2010 are: Arizona, Wisconsin, Colorado and Ohio.
You can read more details at Cheklist Magazine Online.
Interesting op-ed about the check cashing industry in the Boston Globe titled “Banking on the Unbanked.”
It basically praises check cashers and rips banks a new one. Take this quote for example:
“A recent study by the Pew Charitable Trusts found that the nation’s 12 largest banks, responsible for issuing more than 80 percent of credit cards, engage in practices that the Federal Reserve deemed “unfair or deceptive.”
The article praises check cashing outlets for posting their fees upfront for their customers. For the record, payday lenders post their fees on the walls in their locations too.
The article does take a swipe at payday loans, but you can’t blame the economic meltdown on payday lenders. Can’t say that about our banks.
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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Ohio payday lenders have been in a dog fight for years now. Consumers want payday loans while consumer groups do not.
I thought this article titled “Payday loans the only way to get by, some customers say” does a decent job of covering both sides.
Here is an example of a rational comment:
Ted Saunders, CEO of CheckSmart, said he wants customers to compare his product to their other choices:
“There is a bank right there,” he said, pointing to a bank about 100 yards across the parking lot from his store. “They could go right there if they wanted to.”
Bill Faith of COOHIO compares payday loans to subprime mortgages and says:
“People at one point also were excited about high-interest subprime mortgage loans that helped ruin the housing market.”
Bill, the housing market crash happened b/c Wall Street lied to investors and the Federal Governent’s monetary policy. Put more simply, the federal reserve and the greed on Wallstreet. So what does this have to do with payday loans?????? Nothing!
Payday Pundit shares a very intelligent article about the CFPA (Consumer Financial Protection Agency). I would like to add my $0.02.
Start by reading this blurb from the article by Megan McArdle:
“For some people this is an argument for laws that make it unprofitable to loan money to people who are likely to default, aka those living on marginal incomes. The problem is, there are two groups of people among the poor: those who will be made better off by credit, and those who will be made worse off. Judging from the bankruptcy statistics, the former group is larger. And there is no way to distinguish between them. The alternate forms of credit that poor people have traditionally used, like pawn shops and loan sharks, are worse than Bank of America.”
My opinion is that as long as the government and press baby people who make bad financial decisions for themselves, it’s going to be hard to lend money to people that need it. Instead of looking at payday lenders as part of the credit cycle. They want to demonize them and make them as unprofitable as possible. The problem is that this inevitably lets irresponsible borrowers off the hook (in their own minds), and the cycle continues.
I just don’t get the insanity of all this. If you ate liver and didn’t like it, then you stop eating liver. If an adult takes out a payday loan and does not like it, then they don’t have to borrow again.
Here’s the full video:
Ray Fishman writes a thought provoking article in Slate Magazine about the psychology of payday loans titled “400 Percent APR—Is That Good?“
What I like about the article is that it approaches payday loan abuse from the correct angle. Basically, he says that most people using payday loans do not understand the true cost of the transaction and the the APR actually is not a good metric.
I know this isn’t going to be popular, but I want to see this industry continue. Quoting a payday loan as a daily rate $2.35 per day, is a bad idea. Trying to make an expensive product look inexpensive is why most people turn off when the industry talks.
Payday loans are expensive because many people do not pay. The people that pay have to cover the losses for the people that don’t pay. This is why 36% does not work. Every lender would go out of business.
Legislators, instead of limiting rollovers, should demand another, more practical, method of disclosure. Create an schedule for a loan that is rolled over 3 times and show the nominal cost of the loan.
Anyone that’s been successful in this industry knows that if the borrower needs the money, they’re going to take it. Maybe this type of disclosure could be used to build credibility for the industry.
As far as I’m concerned, providing clearer disclosure will win over the people that are on the fence with payday loans. That’s what the payday lending side needs to do. Get people that don’t care, to care; and be on our side.