New proposed Federal Reserve rules “could make it more difficult for millions of people with bad credit to get what’s referred to as a sub-prime card”, whines Governor Mike Rounds of South Dakota. Gov. Rounds further states, “In essence it would shut down the low-limit credit card business across the U.S.”
The proposed rules ban credit card companies from boosting interest rates on existing account balances. Peter Garuccio, a spokeshole for The American Bankers Association, says, “What it does, by and large, is limit the ability of credit card issuers to use risk-based pricing. And in so doing, the credit card issuers will have to sort of change their models to figure out how to project changing risks going forward. It’ll be a big challenge for the industry.”
No dah! This is exactly where those of us in the payday loan industry are. With the regulatory and legislative assault on our business model escalating we must adapt new, creative approaches allowing us to offer a product in huge demand by our clients AND make a sufficient profit to remain in business.
The other similarity between credit card issuers and our payday loan industry is the credit card industry’s reference to a potential loss of jobs should the FED rules be adopted. Gov. Rounds of S.D. predicts 3,000 to 5,000 job losses if limits on sub-prime cards take effect (They only have 788,000 people in the whole state!). Didn’t we just lose 6000 jobs in Ohio as a result of the passage of their referendum limiting interest rates on payday loans? And surely the same thing will happen in 2010 in Arizona as a result of their recent election.
Greg Ticknor, owner of Premier Bankcard (estimated net worth $2 billion), states,”Under the current proposal, some of the 70 million Americans with challenged credit won’t qualify for a card so they’ll have to rely on payday loans.” Not in North Carolina, Ohio, Arkansas, North Carolina, Georgia, New
York, Pennsylvania, New Jersey … These folks certainly can’t walk into their nearest payday loan store today! I guess they’ll just have to deal with some offshore payday loan provider via the Internet. You know, one of those Internet companies that insist on knowing your social security number, your bank account number and your payroll info without revealing their phone number or location!
Finally, a review of the public comments to this proposed FED rule change are very interesting. Many of these public comments urged the FED not to limit the product (sub-prime credit cards) because, “It’s a way for some people to rebuild their credit rating.” Well, with products like PRBC’s, folks using payday loans for temporary emergency help can build their credit as well. Several other consumer comments were along the lines of, “If adopted, this rule would have a disproportionate and adverse impact on minority consumers, who historically have had difficulty obtaining access to credit.”
There are a tremendous number of similarities between payday loans and credit card companies; particularly sub-prime credit card issuers. It would make a great deal of sense for
CFSA and FISCA to develop partnerships with the credit card companies to educate the public, so-called consumer protectionists, the regulators, and the legislators so we can all serve the public demand for credit building, small non-collateralized loans and access to credit.
Your thoughts? Comments?
Jer@PaydayLoanIndustry.com
