Payday Loan Companies Get Creative

By | Jun 15, 2008

We like the fact that the payday loan industry remains creative and optimistic about its future. Could that be because we interface with our customer every day thus gaining tremendous insight into their needs? Unlike those who continue to attack our industry without doing the work necessary to understand the payday loan industry and our customers?

Ohio regulators recently decided they know what’s best for all of us by attempting to destroy our product and reduce the financial choices available to their residents. This despite the fact there have been virtually zero complaints by consumers regarding our industry.

Had the regulators attempted to learn as much about the payday loan customer as we have, they would have learned our product cannot be stopped. By eliminating the ability of payday loan stores to maintain physical locations in their state they have simply forced residents of Ohio to secure their small $200 to $1000 emergency loans from payday loan call centers and Internet sites residing in other states and offshore.

Thus the state of Ohio loses licensing fees, auditing revenue, jobs for Ohio residents (estimated to be 6,000+) and, most importantly, the ability to protect their residents from abuse, due-process, and privacy concerns.

Meanwhile, us pesky payday loan operators are creatively developing new products and methods in order to continue to help residents of Ohio meet their emergency financial needs AND make a buck.

Since controversial House Bill 545 first cleared the state House of Representatives in April, six payday lending companies have sought licenses to make loans under the state’s Small Loan and the Ohio Mortgage Loan acts. Not as lucrative as payday lending, short-term loans permitted under either statute can be made with the equivalent of triple-digit annual percentage rates – similar to the combination of fees and rates that prompted lawmakers to target the industry with H.B. 545.

Payday lenders still must determine if we can remain profitable by making small, short-term loans, and face the legal difficulties. But these license applications indicate those of us in the payday loan industry are not willing to quit Ohio, our customers, or our revenue streams.

“We’re looking for ways to continue to service customers,” said Jeff Kursman, a spokesman for Mason-based Check ‘n Go, which applied for 73 lending licenses under the Small Loan Act. “Nothing is off the table.”

Share
12 Comments so far
  1. PaydayLoanGuy June 15, 2008 2:12 am

    Bottom line the payday loan industry just doesn’t give up! Sure, they serve a need. There’s no denying people want these loans; demand is certainly there. But people can get in trouble. I have personally gotten payday loans over the net and it went fine. I paid it back after fixing the car and have not been back.

  2. John June 25, 2008 6:11 pm

    A lot of the demand for payday loans is artificial! In the state of Ohio, the average borrower takes out almost 13 loans per year, with many individuals taking out one loan to pay off another, artificially inflating demand. House Bill 545 is one of the best bipartisan consumer protection laws in the country and the Ohio General Assembly should be commended for its efforts on this issue. On a side note – HB 545 actually makes lending above 28% APR via the internet to Ohio consumers illegal as well.

  3. Christine July 1, 2008 5:10 am

    To Anonymous, that’s exactly the intent of payday loans. It’s a *short term* loan, 2 weeks then you’re done.
    Payday loans are no different than borrowing from a credit card or purchasing with one, CC companies charge interest and for some people, late fees. Banks charge fees, NSF fees and overdraft charges daily.
    Fees for borrowing money that you don’t have.
    And yes, people can get in trouble, even with credit cards ,even in home loans. Do we blame the companies or the people?

  4. PaydayLoanGuy July 1, 2008 7:05 am

    John,

    How can you say, “A lot of demand for payday loans is artificial”? That’s like saying the demand for cafe lattes at Starbucks is artificial because some of us choose to purchase more than one per day and certainly more than one per week.

    These folks need the money; for whatever reason they deem fit. You want government to decide who can borrow, when, and how much? Like they know better than us?

    You cannot put a stop for demand of the payday loan product! Not even with the help of government. Remember prohibition? What about drugs?

    HB 545 simply forces the residents of Ohio to go online or call an 800# to get their funds for an emergency. And they will pay $30 per $100 borrowed vs the old rate of approx. $15 per $100.

    Illegal or not; they will get their $$

  5. PaydayLoanGuy July 1, 2008 7:07 am

    Christine,

    I blame the knuckleheads who need the loans! Let competition drive down rates and fees.

    Oh, and how is Dino?

  6. John July 1, 2008 2:45 pm

    Demand for payday loans is largely artificial because those who take them out can’t pay them back in the first place. Someone who needs $500 today, isn’t likely going to have $575 to pay them back in two weeks. 99 percent of borrowers take out more than one loan per year – it isn’t a one time fix to a short term problem. An individual who takes out $300 only to end up paying over $2,000 in interest and fees is not better off – in fact, she ultimately only gained $300! A borrower’s ability to repay should be considered when offering them a loan! Has no one learned anything from the foreclosure crisis we’re in!

    As for the Anonymous comment to Christine – in Ohio, the only small loan lenders exempted from the state’s 25% usury cap are payday lenders. Perhaps if there actually WAS some competition, lenders would charge less than 391% interest – but they simply choose not to!

  7. Christine July 1, 2008 5:01 pm

    John- You’re saying there is no competition in the payday loan industry?

    I would imagine also that payday loans have some criteria for approving a customer and giving them a loan. Why would I lend someone money if I thought they weren’t going to pay it back?

  8. John July 7, 2008 6:45 pm

    Christine –

    I’m saying there is no competition from other small loan lenders. Payday lenders managed to receive an exemption from the Ohio legislature in 1996 so that they are the only lenders able to charge interest rates above the state’s 25% usury rate cap. Doesn’t competition generally drive prices and interest rates down? The maximum interest rate of 391% APR is charged much more often than not…I bet you’d struggle to find many shops that charge any less than that on most of the loans they provide.

  9. pablo August 21, 2008 11:04 pm

    “Demand for payday loans is largely artificial because those who take them out can’t pay them back in the first place. ”

    john, do you have some empirical research to back that claim up? because i HAVE seen some numbers that indicate that things are a touch different in the payday loan industry than you think.
    “The majority of payday advance customers earn between $25,000 and $50,000 annually;
    Sixty-eight percent are under 45 years old; only 4 percent are over 65, compared to 20 percent of the population;
    Ninety-four percent have a high school diploma or better, with 56 percent having some college or a degree;
    Forty-two percent own their own homes;
    The majority are married and 64 percent have children in the household; and,
    One hundred percent have steady incomes and active checking accounts, both of which are required to receive a payday advance. *
    *Source: The Credit Research Center, McDonough School of Business, Georgetown University, Gregory Elliehausen and Edward C. Lawrence. Payday Advance Credit in America: An Analysis of Customer Demand. ”

    re-read that last point, it’s important…EVERY SINGLE borrower has a steady income and active checking account, because BOTH are required as a BARE MINIMUM.

    additionally, the whole USURY issue? balanced against the massive amounts of “de facto” loans issued with the benign title “overdraft protection,” a one-time FLAT FEE of $12-$18 per $100 loaned (for two weeks period) is TINY, considering the FACT that it is POLICY for almost EVERY BANK in the US to force the LARGEST PENDING ITEMS through in order to reap those overdraft protection fees many times over, for several SMALLER checks or debits.

    funny how payday lenders are FORCED to show those FEES as “APR” in order to scare consumers. fact is that those fees are only applied ONE TIME…they do not ACCRUE like interest does. however…IF a borrower is not prudent OR if they are so consistently late with paying bills that they would otherwise BOUNCE CHECKS or pay OVERDRAFT “PROTECTION,” then it is STILL smarter to pay the fees for payday loans. MUCH MUCH LESS. imagine if banks had to post those $25-30 overdraft fees as INTEREST (one day, $30 fee on a $50 check…figured the way payday lenders are forced to, that works out to $10,950 in fees per year, and i BELIEVE, an APR of about 21,900%!!! it’s TRUE. and…considering these ppl often have several items “protected” by the bank…it ain’t even in the SAME UNIVERSE of INTEREST).

    the idea is that many citizens do not HAVE any options to what is now “traditional banking,” meaning having to accept overdraft “protection” meaning they also tacitly accept ALL THOSE FEES, which dwarf the fees for payday loans. you outlaw those and what happens? ppl STOP banking (they’d HAVE TO…who can afford fees like that?). ppl go to less scrupulous lenders on the internet, chartered offshore (and therefore not regulated WHATSOEVER)…

    bottom line…that BS “391% APR” bit is nothing but a scare tactic from the bank lobby, whose sole interest in this case is NOT to protect consumers, but to continue to “PROTECT” those consumers OVERDRAFTS at ever-increasing rates. it’s actually DISHONEST to list a $15 fee for a $100 loan as an interest rate or APR. only if interest continued to accrue if the loan was not paid would that make real world sense. think of it–if a payday loan goes delinquent, NO INTEREST MAY ACCRUE AT ALL!!! therefore…it is NOT INTEREST, nor should it have an APR!

    it’s crap, bottom line.

  10. admin August 22, 2008 12:17 am

    Great point, Pablo! Obviously you thoroughly understand the payday loan product, the payday loan customer and the alternatives to payday loans.

    Great post!!

  11. Ian September 26, 2008 5:30 pm

    Pablo is full of it. He’s starting with the premise that payday loans are equivalent to bank overdraft fees. But Bank fees are a DISINCENTIVE (to use his caps method). Overdraft fees are a PENALTY paid for an unauthorized loan form the bank. It is your money in their account, not some bogus fake loan company money. And the bank does not lay CLAIM to your paycheck, their only recourse is to collect from your account if you deposit your money there. Limitations that only apply to a REAL BANK. Payday loan companies are just collections of slick operators who front for fatcat money-types looking to make outrageous profit on the backs of the working poor. Big difference, PABLO!

    A payday loan uses fees as an enticement, to create the illusion of EASY credit, which really is a code word for EXPENSIVE credit. Because the risk is higher, the fees are higher. But there is no limit to their fees, penalties, charges, etc, unlike Banks, which are heavily REGULATED and therefore are prevented from the kinds of nasty illegal collection tricks and lies constantly used by Payday loan managers. The facts are in court records, pal, I did not make this up.

    It is time to face the economic truth. A payday loan by definition locks a worker out of his next paycheck, which means that poor soul MUST get another loan to survive, because her paycheck is syphoned off to the payday loan industry, not to his family to feed and house the kids. That is what a CYCLE OF DEBT means, for those of you from out of town!

    So Pablo and your little shyster friends need to find another job and stop shilling for the money grubbing bosses at the payday companies you pretend to love. We all know you are paid to make this stuff up.

  12. Ian September 26, 2008 5:39 pm

    Oh, and the last point by Pablo, that no interest will accrue if a payday loan goes past-due, lets review their methods:

    1. Resubmit the personal check from the past-due customer 7 times or more, pounding the poor guy with HUNDREDS of dollars in bank fees to punish them and get a payment.

    2. Call their boss and coworkers and neighbors and pretend to be concerned about their finances, trying to shame them into paying.

    3. Show up at their work, try to harass their employer to get them in trouble and shame them into paying.

    4. Threaten to call the police and have them arrested for CHECK FRAUD (a bogus and illegal claim shown to be used repeatedly by payday loan managers in every state they operate in)

    5. Post LATE FEES and PENALTIES that must be paid along with the past-due loan, which of course is really exhorbitant interest renamed to avoid detection.

    6. The real HAT TRICK, offer to finance all the over-charges and fees and penalties for the customer, thereby charging for another loan and getting a bonus from the payday loan company for repeating a customer.

    That’s what really happens. There are heavy interest charges for Payday loans that use a LOOP HOLE in the law to simply define interest as something else. What a sad, sad way to make a living.

Leave a Comment

If you would like to make a comment, please fill out the form below.

Name (required)

Email (required)

Website

Comments

What is 5 + 8 ?
Please leave these two fields as-is:
IMPORTANT! To be able to proceed, you need to solve the following simple math (so we know that you are a human) :-)
© 2009-2019... Payday & Title Lending, - Payday Loan Biz Resources & Courses How to Start Title Loan Business Website Legal Terms Disclosure
Share
Share