Some good news from a man who is obviously not an “ivory tower” economist or an academic! Drew Breakspear, Florida’s banking commissioner, comments on banks that dropped deposit advance products (payday loans), virtual currencies, regulatory issues and consolidation in the financial services industry.
Is there a way for banks to offer short-term small-dollar loans? [From “RepubHub]
I tell a story about a conversation I had with someone. We were chatting and for some reason payday loans were mentioned. The person said, ‘I used a payday loan once.’ I said, ‘For how much?’ ‘$300.’ ‘How long?’ ’30 days.’ ‘How much did you pay?’ ‘$42.’ I said, ‘Didn’t you feel that was a lot?’ And the response was, ‘It was the only way I could feed my family next week. I would have paid $100.’
I’m always concerned about eliminating a pool of credit [payday advances] that may be the only source of credit for a segment of the population if you don’t have something better to replace it.
I constantly hear about how expensive it is. I don’t think people always understand the fixed-cost element. If you are doing payday lending, you have to have a storefront, utilities, staff. You have to fill out paperwork. When someone walks in for a $300 loan, there is a certain fixed cost. Let’s say it costs $20 to make a loan. I’m not saying that is the actual number. But let’s just say $20 on $300 is 6.6%. If it was a $3,000 loan, $20 is 0.6%. It’s the same fixed cost.
To read this piece in its entirety: RepubHub. It’s not long and is certainly worth your time!
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