New Payday Loan Study Positive for the Industry
The results of a new payday loan study by the University of California Graduate School of Management entitled, “Are Credit Unions Viable Providers of Short-Term Credit,” the study by professor Victor Stango suggest borrowers seeking small, non-collateralized, short-term loans prefer to pay higher rates for “small, short-term loans than to participate in credit union programs that have strings attached, such as a savings component or a financial education requirement.”
Additionally, credit unions find that consumers resist their products due to shorter operating hours and a payday loan type of product offered by credit unions can harm a consumers credit rating; something payday loan stores do not do.
Titled, “Are Credit Unions Viable Providers of Short-Term Credit,” the study by professor Victor Stango comes as credit unions are petitioning regulators to increase charges on payday loans. The National Credit Union Administration.
Read the full Study here.
Colorado Payday Loans & Laws
Colorado Payday Loan Store
Residents of Colorado are about to have restrictions placed on their ability to use payday loan products to solve their temporary financial challenges. A Democratic sponsored bill (there they go again) was sent to the Colorado Governor for his signature Tuesday.
The House backed a new version of the bill by one vote. It changes short-term payday loans – with typical terms of just a week or two until the borrower’s next payday – into six-month loans.
Lenders would still be able to charge a $75 origination fee as well as monthly fees up to $30 and up to 45 percent in interest, but consumers have more flexibility with repayment plans.
In essence, the new bill if passed, will allow the payday loan product to continue to exist in Colorado but, with the extended repayment plan available to consumers, may reduce the number of brick-n-mortars existing in the state. There is little doubt that the payday loan Internet companies will address this new situation aggressively.
Too bad; if only the legislators and regulators would realize that by placing more and more restrictions on ALL financial products, they limit consumer access to a spectrum of products at competitive rates.
There is little doubt by payday loan industry pundits that this Colorado legislation was pushed hard by the banks and credit unions. They desire payday loan consumers because they’re lucrative having jobs and bank accounts. After all, lacking these characteristics precludes consumers from using payday loans to solve their financial problems in the first place.
And as usual during discussions of this bill, the media resorted to their typical misstatements regarding the payday loan industry; poorly regulated, no disclosure of fees and rates, consumer difficulty in understanding the payday loan product. All completely wrong of course! In every independent study done on this subject consumers have consistently stated their appreciation for industry disclosure, ease of use, and speed of negotiating through the paper work; unlike banks and credit unions and installment lenders and on and on.
The bill CO H.B. 1351 would require lenders to make loans for six months at a time. Additionally, and to give borrowers the flexibility to repay earlier. Lenders would still be able to charge a $75 origination fee in the first month followed by monthly fees of $7.50 per $100 borrowed – up to a maximum of $30 – and up to 45 percent annual interest. Under those terms, a borrower would pay $337.50 to borrow $500 if they waited until the end of six months to pay.
The government has done such a wonderful job in the past of dictating every aspect of our lives. Now we let them dictate where we can borrow a few hundred dollars. This makes me ill!
Payday Loan Business-Center for Irresponsible Lending at it Again!
Yes, the CRL, Center for Responsible Lending, who we in the payday loan industry like to refer to as “The Center for Irresponsible Lending” has done it again. They “helped craft” new federal legislation with the aid of U.S. Sen. Kay Hagan, D-N.C.
The bill, called The Payday Lending Limitation Act of 2010, would modify the Truth in Lending Act. Senator Hagan will introduce it as a standalone today, and again next week as an amendment to the financial regulatory reform bill making its way through the Senate.
And just who is The Center for Responsible Lending?
Herb and Marion Sandler! According to ActivistCash.com:
“Herb and Marion Sandler are the billionaire founders of the Center for Responsible Lending. The Sandlers made a fortune in the subprime mortgage industry, thanks to the success of their bank, Golden West Financial.
Golden West and its subsidiary, World Savings Bank, were among the biggest sources of subprime mortgages, especially of adjustable-rate loans called option-ARMs. Herb Sandler is credited with the invention of the option-ARM, which his bank marketed as “Pick-a-Payment” mortgages. These loans were extraordinarily popular in the years preceding the subprime mortgage crisis, generating billions in profits for the Sandlers’ banking empire.
Recent exposés by “60 Minutes” and the New York Times have focused national attention on the Sandlers’ role in the subprime crisis. The Sandlers’ loans, described in the Times as “the Typhoid Mary of the mortgage industry,” are part of a second wave of toxic debt predicted to default over the next several years, hitting the economy with another $600 billion in losses.
The Sandlers made over $2.3 billion on the sale of their company to Wachovia in 2006, and they have used their fortune to fund organizations advancing their political aims. They have given millions of dollars to left-wing groups, including ACORN (radical activists implicated in election fraud investigations in over a dozen states), and the Center for Responsible Lending (a “consumer advocacy” front-group that lobbied for expanded subprime lending while promoting its funders’ business interests).”
And more here about the Proposed Bill:
Federal Payday Loan Legislation
Fredreka Schouten at USAToday.com has an informative article describing the payday loan industry’s lobbying efforts in Washington DC. They reported that CFSA, The Community Financial Services Association, representing roughly half of all brick-n-mortar payday loan operators spent $2,6000,000 in 2009 compared to The US Chamber of Commerce at $3,000,000.
USAToday.com also mentions OLA, The Online Lenders Association, and their efforts to lobby on behalf of Internet payday loan lenders in Washington DC as well.
USAToday.com further reports, “A bill that recently passed the Senate banking committee could shield some of the industry from the new agency’s enforcement powers, but a House-passed version would make the lenders subject to full enforcement by the proposed Consumer Financial Protection Agency.
The fight now moves to the full Senate, which may take up the bill later this week.”
With an average loan to payday loan consumers approaching $345, it seems crazy to us for the crew in D.C to be focused on the payday loan industry. After all, it’s not as if the payday loan industry contributed to the “too big to fail” mantra currently consuming Big Brother.
Read the entire USAToday.com article here.
Payday Loans and the Hypocrisy of Their Competitors
Texas Credit Union League Headline:
“Texas Regulator Bid To Cap Payday Loan Fees Comes At Bad Time.”
I attended my first national payday loan convention in 1997. As long as I can remember, the payday loan product has been attacked by banks and credit unions. After all, they want our customers! In the past they’ve simply failed to figure out how to properly serve our customer with the right products and still make money.
In Texas, as in many locales, credit unions are aggressively developing products to compete with payday loans; the majority of which are offered under the CSO Model ( Credit Services Organization ). In a nutshell, under the CSO Model, a payday loan company simply fills out a one page form required to register as a CSO along with a bond and they’re in business. (There are a few other details…like forming two entities “at an arms-length-relationship” to (1)act as a “CSO and (2) a “Lender.”)
Anyway… a few Texas Credit Unions have launched a new payday loan product just as the Texas State Credit Union Department has proposed new limits on fees for payday loans.The Texas State Credit Union proposal would limit fees at $20 for unsecured loans less than $1000 for a maximum of 6 months. Additionally the new credit union proposal would limit CU’s to a maximum of 20% of their portfolio.
Now, you readers in Texas don’t need to freak-out! This proposal only relates to Texas credit Unions, not the CSO Model. It’s still an interesting read if I do say so myself!
So… I was incredulous when I read this statement by Jeff Huffman, chief lobbyist for the Texas CU League, “We think that credit unions’ boards and management are really in the best position to determine the fees based on their individual situations.” He continued by saying, “Market conditions vary across the state. We don’t think the regulator should get involved [in setting the fees].”
“They ought to get off the backs of credit unions,” he said. “It’s just a rule that’s unnecessary.”
WHAT THE HECK HAVE WE BEEN SAYING!
Whoa! Credit unions and banks spend tons of cash lobbying against payday loan companies while extolling the virtues of protecting our customer from “a cycle of debt” and “poor disclosure.” They would like nothing better than to eliminate payday loan companies. They do their best to regulate us out of business by lobbying for legislation on both a state and federal level.
Those of us in the payday loan industry respond by simply pointing out that our product is in huge demand. Our customers continue to support us by choosing our payday loan products. They choose us because we fully disclose exactly what our product will cost them and when our product is appropriate. If you, the reader doubt this, go into a typical payday loan store and look! In spite of what the media reports, we do fully disclose EVERYTHING; unlike bank, credit union and credit card NSF fees, overdraft fees, late fees… Who can understand all their fees?
Sorry about the rant… I go crazy when our competitors attempt to portray us as loan sharks and themselves as protectors of the people! As they say, “Follow the money.”
So… “Texas Regulator Bid To Cap Payday Loan Fees Comes At Bad Time”? All I can say is, “Poor babies!”
Check back with PaydayLoanIndustryBlog.com for updates on this proposal. Page 14.
Colorado Payday Loan Update
Colorado payday loan opponents are at it again! According to the Denver Post, “A new version of a payday loan bill passed the House Judiciary Committee on a 7-4 party-line vote Thursday, the second time the bill has come out of the committee this year.”
“The newest version of the Colorado payday loan bill caps interest rates at 45 percent and limits lenders to charging no more than a $50 annual origination fee on any payday loan.”
Colorado “do-gooders” have been introducing various payday loan legislation for the past several years. Lucky for consumers each bill has experienced severe opposition and died in committee.
Let’s hope this bill experiences a similar death!
Payday Loan Company EZCORP on the Motley Fool
Rich Duprey at The Motley Fool has an insightful post regarding the future of the payday loan and pawn industry. His post states, “Greater sales volume for merchandise, an increase in same-store-sales and higher fees generated from payday loans allowed EZCORP and rival First Cash Financial Services (Nasdaq: FCFS) to achieve rich results last quarter.”
The point is made that our payday loan customers, like most citizens of the world, are loaded with debt and have no one to turn to but us. Who but a payday loan lender will advance $300 to $1500 with little more than a promise to pay us back. A job and a bank account is all that is required.
Read the full article here; it’s great reading… Rich Duprey & The Motley Fool
Arizona Payday Loan Law Update
Arizona payday loan operators still have a shot at continuing to offer their product; albeit a long one.
Many payday lenders have other lines of business, including car title loans, check-cashing services, scrap gold buying and acting as agents for the Motor Vehicle Division to register vehicles. Rapid tax refunds (RALS) are in the mix as well.
So, while operators try to develop a strategy for remaining in the payday loan business, Arizona legislators are prepared to debate legislation next week that could change existing payday loan laws to allow lenders to impose an “origination fee” of up to 7.5 percent for loans up to $1,000.
Additionally, Arizona payday loan operators could charge a $10 fee for preparing documents and obtaining a credit report on the Arizona payday loan applicant.
We’re a creative bunch! Those payday loan operators who remain flexible and informed will survive and prosper. Installment loan products, CSO ( Credit Services Organizations) Models, Internet offerings and more will appear to help Arizona residents gain access to credit. Regulating payday loan operators out of existence does NOT cause demand for our product to disappear. Every independent study conducted emphasizes the need for the existence of small, no hassle, non-collateralized loans. Payday loan consumers are actually a pretty bright bunch - in spite of what our government bureaucrats think.
And, it’s important to note that it was NOT payday loan consumers, those middle-class folks who ACTUALLY used our product, who complained about the payday loan industry. As usual, it was the elitists who THINK they know what’s best for everyone else who restrict our financial choices.
Wait until they attack your business! You sell some type of product or service? Maybe you run or are employed by a business that, so far, has escaped the busy bodies who lurk in the entrepreneurial trenches? Wait until THEY decide you should not be allowed to sell french fries, cokes, sell two cheeseburgers to your customer rather than one. Maybe you’re involved with the automobile industry, you’re a hair stylist, … Then, when your business is attacked you’ll finally join our bandwagon and fight to keep government out of our pockets and our businesses.
Oh! Come to think of it, THEY already have their hands on your entrepreneurial throat! What are you going to do about it?
Collection Strategy No-No for PaydayLoans, Car Title & Check Cashers
Collection Strategy No-No for PaydayLoans, Car Title & Check Cashers
In our industry, you’d better “get” collections. Comprehending Federal and state collection practices are crucial to us. After all, we’re really a “collections business.”
So… if you get anything out of this short Blog let it be this:
Bottom line, DO NOT CALL your customer at their employer once you’re told it’s unacceptable.
Case in point, a West Virginia resident Woman sues over collection calls at work
A West Virginia woman claims she suffered “humiliation, embarrassment, mental anguish and emotional distress after a debt collection agency repeatedly called her at her work.”
Amy Wellman filed a lawsuit Feb. 3, 2010 in U.S. District Court for the Northern District of West Virginia against Martin and Seibert .
Wellman claims she began receiving phone calls from Martin and Seibert regarding collection for her debt in July 2009.
“When Plaintiff was first contacted by a representative of Defendant at Plaintiff’s place of employment, she requested that the Defendant cease placing telephone calls to her place of employment regarding the alleged debt,” the suit states. “Despite her request, Plaintiff continued to receive telephone calls from Defendant’s representatives at her place of employment. Plaintiff often hung up the phone on such occasions, but Defendant’s representatives would call back immediately thereafter. On numerous occasions Plaintiff reiterated to Defendant’s representatives her request not to be called at work too often explaining that calls of such a nature were not allowed by her employer.”
Wellman claims Martin and Seibert violated the Fair Debt Collection Practices Act and the West Virginia Consumer Credit and Protection Act by communicating with her at her place of employment and by continuing to call her with an intent to annoy and harass her.
In the two-count suit, Wellman seeks actual and compensatory damages, statutory damages of $1,000 for each violation of the FDCPA, attorney’s fees, costs and other relief the court deems just.
U.S. District Court case number: 10-CV-5
Just imagine this strategy being used by you in your business and a friendly class action lawyer getting a hold of you?
Don’t do it! Did you read our previous “Text Messaging Article?” There are plenty of methods you can employ to perform your collection efforts. Educate yourself and your team. Proper collections activities are micro-lending 101.
Time to Use the Power of Text in Marketing and Collections for Payday Loan, Car Title…
It’s time to use the Power of Text in Marketing and Collections for Payday Loan, Car Title, Check Cashers, Pawn & More
Here is the how and why Text Messaging can help your Collection efforts INCREASE up to 25% or more and your payment defaults DECREASE by about 40%, as well as generate new leads and create repeat customers.
Our payday loan customers are inundated with “noise” from competitors and others screaming at them for their attention. Print, radio, TV, email, direct mail, billboards, phone calls, magazines… on and on and on. Every company in the micro-lending space is focused on our customer.
Now, it’s “Text Messaging” referred to as SMS. The explosion of cell phone use has brought the newest marketing and collection channel to us.
Personal cell phone use has become essential to virtually EVERYONE. All of us rely on our mobile device!
Mobile text messaging can connect you to your customer. Mobile text messaging offers a powerful alternative to all the other marketing strategies.
Those of us in the micro-lending space, that includes payday loans, car title lending, scrap gold buying, check cashing, rapid tax refunds, etc., must enter this mobile marketing and mobile collecting arena to communicate with our customers immediately.
The heaviest users of SMS are ages 18-34 at 80% and 35 -49 at 63%. Those are our demographics! 97% of all text messages are read!
So, what’s this all mean to us? INSTANT COMMUNICATION! SMS dwarfs all other features on a cell phone today!!
Reach your customer anytime and anywhere, with the Power of Text.
Why is Text Messaging SMS so successful?
More than 265 MILLION Mobile Phone Users
Easy to use
Available on 99% of all cell phones
Cheap
Instantaneous
Everyone has a phone
Direct link to your customer
Able to launch a web page
Specifically target messages to your customer
Messages to your customer are permission based; CAN-SPAM Compliant
Your customer can act on your message instantly
Present your customer with a coupon
Remind them of a payment due
Contest announcements
Announcements of sales, promotions and events
Additionally…
Text messaging is personal
Cell phone users keep their phones with them ALL THE TIME
90% of Text Messages are read within 8 MINUTES!
Bulk SMS is economical and you can send thousands of text messages to consumers at wholesale rates
One SMS message can be created and sent to a large group of customers
Tracking of SMS delivery and customer response is simple
It’s not uncommon to improve your collection efforts 25% or more by using SMS
A 40% increase in “on-time” payments is possible by using SMS to notify customers of their upcoming payments and appointments.
Transparent integration with your software is easy or you can use a web-based gateway.
Are you ready for more info to learn how you can get instantaneous communication with your customer AND increase your collection results?
