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Who's Missing from the Payday Loan Debate?
Saturday's Washington Post carried an article with the hopeful headline "Credit Unions Slowly Fill Void as Payday Lenders Leave D.C." In January-before Ohio enacted its anti-payday lending law, before the Arkansas Supreme Court interpreted that state's laws to effectively ban payday lending-the District of Columbia capped interest rates on short-term loans at 24%. That meant that traditional payday lending was out of business.
While the article's headline was hopeful, what followed showed the difficulty these bans face. Credit unions are indeed trying to fill the gap, not just in the District, but nationally. And the Federal Deposit Insurance Corporation (FDIC) has a small-dollar loan pilot underway with 31 banks around the country (although none in the District).
But the article reports that whereas in 2006, the two largest payday lenders in the District made 260,000 loans, so far District credit unions have made only "a few hundred." More troubling, two credit union executives interviewed said that the loans are "not something we really make money on," but rather an on-ramp to "traditional banking products," but "it's hard to get persons to talk to our financial counselor so that we can get their financial status in a better position." Officials at the District's Department of Insurance, Securities and Banking added that some District residents are getting their payday loans in Virginia or on the internet.
Going around a payday lending ban is not limited to the District. New York has long prohibited payday lending. Yet, in a recent study of two low-income communities in New York City by the City's Office of Financial Empowerment, 9% of the respondents "reported accessing a formal or informal loan with a term of less than one month provided by a friend or family member, Internet or telephone-based business, loan shark, or local business." As the study's authors noted, this is a rate similar to the access rate in states where payday lending is legal.
All this suggests that while banning payday lending might be a good start, more is needed if lower income consumers are to really be able to rid themselves of high-price short-term debt. The credit union and FDIC programs are small but important steps toward both creating a good alternative product and encouraging-or requiring-users to build savings as part of the product, so that emergency needs can be reduced and, if they occur, satisfied with savings rather than high-priced credit.
But two parties are missing from the scene, the only parties who could take the alternatives to scale. Namely, the large banks and the payday lenders themselves. Unlike credit unions and many of the banks in the FDIC pilot, large banks and large payday lenders are publicly traded corporations. Their shareholders can't be very happy right now-bank shareholders for reasons that are well known, shareholders of payday lenders because state after state is destroying their business model. Maybe it's time for these parties to come to the payday alternative table. With good, scaleable and sustainable alternatives.
found this report on the
found this report on the whole banking crisis while trying to figure out what to do in this whole mess. Really glad I wasn't an indymac customer.
anyway, here's the report about the crisis. check it out, it's pretty informative.
Payday Pundit Comment
The "Payday Pundit" commented on your article at:
http://paydaypundit.org/2008/07/28/whos-missing-from-the-payday-loan-deb...
There's a lot of good information on the Payday Pundit website, and good links as well such as this one to the testimony of Professor Tom Lehman testifying before the Ohio General Assembly in May:
http://www.buckeyeinstitute.org/article/1128
Unfortunately the Ohio legislature ignored Professor Lehman and passed HB545 anyway, which bans payday loans by requiring that they be offered for a fraction of the cost of supplying them. Hopefully the voters in Ohio will overturn the bill.
Good article, it's exactly what I was thinking of.
Good article, it's exactly what I was thinking of. Hope and idealism doesn't translate easily into concrete policy, and it hasn't been here. We've just ripped a pound of flesh out of our financial gut, and now we have no one to stitch it back in.
If the politicians would quit using the payday issue to advance their careers, we might actually get something accomplished that helps people.
Credit Unions, what swell guys they are!
I was thinking that when the economy is down, crime usually sprints up in step, it only makes financial sense. We must watch to see any coming correlations between the communities and the businesses in them. Dont usually see credit unions in the hood.
A key feature to a payday loan, they serve a community that banks do not serve. Usually those patrons are in lower developed communities with subprime credit. No jobs, education or sense of family can lead to crime increases and financial decisions that are based on survival rather than perfect credit scores.
I work with online payday lenders, and the bad press the media is giving is unfair. Are the loans ideal? No. Is swiping a credit card to pay for gas ideal? No. Are they better than robbing an old lady or selling drugs yes. Many argue the loans are cheaper than going to the bank and writing a bad check or getting a late fee on a credit card.
Ian
Easy Cash Advance Loan Applications
Credit Unions are not heros, folks!
Credit unions has agressively gone after payday lenders via rate cap legislations (OH at 28% and Oregon at 60%) so they can take back their former customers: those who bounce checks.
Consumers were quick to learn that a $15.00 fee paid to a payday loan company was much cheaper than paying a credit union $25 or $35 for a bounced check fee. Where such fees comprise 40% of credit union incomes, credit unions have moved to limit the success non-traditional lenders have enjoyed with the public.
To effectively ban payday lenders via rate caps only serves to hurt, not help consumers by forcing them to pay for more expensive products.
Payday Loans
Payday loan customers applaud the payday loan industry mainly because, when used properly, they are the fastest and safest way to get out of an unexpected financial fallback. An old saying asks the question, "If something isn’t broken, than why fix it?" This is a perfect question to direct to many politicians who are attempting to or have outlawed the entire industry in many states. Of course, many people who are living beyond financial wealth would agree with this action and bond to fix something that isn’t broken. They have even inspired presidential hopeful, Barack Obama, to join their inexplicable motion. On November 4, vote for the peoples’ right to financial freedom and independence.
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Payday Loan
The Payday Loans industry has recently been under siege by politicians from every party. The governors of Oregon, North Carolina, and Georgia completely banned the payday loan industry in their states. However, the decision to eliminate payday loans is not in the best interest of the people who live in those states. For example, in the state of Georgia, bankruptcy filings, bounced checks, and home foreclosures all suddenly increased after payday loans were banned. Although it’s been proven that the number of bankruptcy, bad checks, and foreclosures rise when cash advances are prohibited within a state, many governors of other states are attempting to pass the same anti-payday loan legislation. High level politicians are hoping to eliminate payday loans from the entire United States. If this actually happens, it is quite plausible that there will be even more unemployment, debt, bankruptcy, and foreclosures in our already struggling economy.
Payday Loan Advocate
The most common reason people don’t seek temporary financial assistance from places such as traditional banks, credit unions or credit card companies is all the red tape. Whether taking out bank loans or putting whatever debt you’re facing on credit, approval processes are long, drawn out and normally exclude a large portion of the population whose credit history isn’t exactly spotless. And even if you are approved to borrow money, most of these other avenues won’t lend you small amounts, such as one or two hundred dollars, to tide you over until your next payday or cover the cost of a minor, yet urgent, car repair. When you apply for financial assistance with the help of our company, help is available for more people, with most lenders that we refer you to, never performing credit checks before making an approval decision. Most of the lenders also require no faxing of documents, meaning a lot less is standing between you and financial freedom.
political figures and interventions
I watched the latest debate between Barack Obama and John McCain. Although the “town-hall”-style TV debate attracted more than 60 million viewers, the majority were not satisfied with countless indirect answers to many of the questions that were asked that night. Instead of providing firm resolution for the well-being of all Americans, they hope to bring on a larger number of citizens to take sides by means of personal criticism. McCain continued to proclaim his “stay the course” stance on Iraq and his oil drilling policies. On the other hand, Obama carried on criticizing Republican policies that he claimed have led to America’s current recession. This unremitting action of theirs only leaves us wondering exactly how either of them would work to prevent further economic catastrophes. America needs a logical economic proposal. Obama encourages the scheme to wipe out the payday loan industry, which is not a logical solution to the real economic problems we face. This is only to add more flavors for the banking and credit union appetizer.
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Many countries suffer from
Many countries suffer from mortgage crisis. There are some who doesn’t worry about this issue because they already achieved financial independence. But how about the people who tend to loose everything because of overwhelming price increase in almost all the products? This is one of the reasons why consumers are turning to payday loan industries to assist them in emergency situations.
With the stock...
With the stock going under and our economy slowing down, we need all the financial options we can get. Although there have been many plans to bail out banks and try to get the economy running, there isn’t any kind of relief coming for many months ahead of us. We, as Americans, should try and start to get on our feet without the help of the government. When something unexpected arises, such as a flat tire or little Jimmy needing stitches, there should be a valid, quick, easy, and affordable option for anyone who would need temporary relief without the lending of taxpayers money. The payday loan industry is a great way to try and get that temporary relief we all have been searching for. They can provide the satisfaction that you need quickly, providing such perks as online application so you can get one anywhere, anytime, with direct deposit, so when you are quickly approved, you can use the money in a matter of hours. They work with you and the amount that you get paid, so you don’t have to worry about getting in over your head.
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Payday Loan Advocate
The Philadelphia Phillies are not the only story in Pennsylvania this week. Both John McCain and Barack Obama are braving the torrential downpour that forced umpires to call the Phillies-Rays World Series baseball game on Monday night. For the weary candidates, Election Day is the temporary finish line. For the winner, however, that’s merely the first leg on a great marathon. Thousands attended the morning rallies for both the republicans and democrats; McCain in Hershey and Obama spreading his message at Widener University outside Philadelphia. Despite what the polls and pundits predict, McCain declares he will fight on while Palin defends the attack mentality the GOP has taken against Obama/Biden. On the other side, Barack Obama sustained his decree that McCain will bring America “more of the same,” straight from the Bush administration. For many of us who have used quick loans, that “more of the same” might just mean that these loans will still be available, and our option to choose by means of financial freedom shall remain. Under a democratic president and congress, we may not have that choice.
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