Tag: payday loan regulation


Payday Loans and Unintended Consequences to Regulation

There is a well written and fairly balanced discussion of the Iowa payday loan industry written by Alec Schierenbeck of The Iowa Independent. In addition to Iowa, it highlights many of the issues faced by regulators of the Payday Loan Industry

Attempts to regulate the payday loan industry out of existence at the expense of consumers with a real need for small, noncollateralized loans must be balanced or unintended consequences will result. Comments by so-called consumer protectionists to ban the payday loan product or reduce the interest rates to an unsustainable rate (ie:36% APR) and thus “force these consumers to go to family and friends for a small loan to fix the car to get to work or to feed the kids is not an option. These “protectionists” need to spend an hour on the phone in a payday loan store where they’ll discover it’s often the family members of those in need who are calling us to inquire about a loan! The family doesn’t want to loan the payday loan consumer any more money because THEY NEVER GET PAID BACK!

For a taste of this payday loan article:

“And as policymakers attempt to clean up the nation’s credit mess, they will confront many of the same questions raised by the explosive growth of payday lending. At what point is an interest rate too high? When is a convenient loan too convenient? And how should governments balance regulation with respect for private enterprise and individual choice?

While the industry continues to grow at breakneck speed in many parts of the country, six states and the District of Columbia have decided that payday lending goes too far. Just this year, Ohio became the most recent state to pass legislation effectively eliminating the loans by imposing a cap on interest rates of 28 percent. At that rate, say payday lenders, their businesses have no choice but to close.

‘They’ve saved my life’

But Tammy, a mother and part-time employee at a nursing home in Newton, Iowa, believes that an Iowa ban on payday loans would be a disaster. “They’ve saved my life quite a few times,” she said on a recent afternoon, as she stood in the parking lot of a Newton strip mall after paying off a loan for $125 along with its finance charge of $19.44, which amounted to a 405.46 percent annual interest rate.

She accepts the steep finance charges because, for people like Tammy and her husband, there aren’t many other options. For those who have already exhausted their credit cards, it’s difficult to find another way to borrow money in the short term. And traditional banks, even for customers with stellar credit, rarely deal in loans as small as Tammy takes out on a regular basis.

As she reflected, “There have been times when I had to come here just to get food to feed my family.”

More on payday loan laws and legislation can be found here: www.Payday Loan Legislation.com


Payday Loan Legislators Do Not Understand Us!

It’s crazy how the regulators and legislators who feel the need to control our payday loan industry in an effort to “protect” consumers consistently fail to understand us!

Witness the latest introduction of payday loan legislation by the esteemed senator from Hawaii. These senators introduced a new act to”encourage mainstream institutions to be able to bank the unbanked”.

THEY DON’T GET IT! Payday loan companies ONLY make loans to consumers having a BANK ACCOUNT! HELLO!! Our customer is NOT UNBANKED! They know what they’re doing when they choose to use our product.

And as far as providing consumers with “financial literacy and educational opportunities”, THEY DON”T WANT TO BE BOTHERED! Why don’t the regulators ask? Payday loan customers simply want $300 to $1000 fast without a hassle! Most of the customers I talk to understand where the majority of bank and credit union profits come from Why Banks & Credit Unions Hate Payday Loans

For additional commentary on the stupidity of legislators we suggest you proceed to Payday Pundit

U.S. Senator Daniel K. Akaka (D-HI) introduced the “Improving Access to Mainstream Financial Institutions Act of 2008”. It is cosponsored by Senators Charles E. Schumer (D-NY), Joseph I. Lieberman (ID-CT), and Daniel K. Inouye (D-HI). It is endorsed by The National Association of Federal Credit Unions, the Hawaii Credit Union League, the Council for Native Hawaiian Advancement, and the Hawaii Alliance for Community-Based Economic Development.

Senator Akaka said: “About 45 million Americans do not have a bank or credit union account, denying them access to basic financial services. With these federal resources, mainstream institutions will be better able to bank the unbanked. This bill will also encourage banks and credit unions to provide an affordable alternative to predatory payday loans which typically carry exploitative fees. Several credit unions have developed similar products, including the Windward Community Federal Credit Union in Kailua (Hawaii), which used a federal grant to develop an affordable alternative to help the U.S. Marines and others they serve. More working families need access to affordable small loans.”

Senator Lieberman said: “At a time of rapid innovation in the financial services industry, it is discouraging that a so many Americans remain disconnected from the mainstream system of banking and finance. The sad reality is that in many low-income neighborhoods, the primary source for financial services is storefront check cashers, rent-to-own shops, money transfer operators, and payday lenders charging predatory interest rates. The legislation we are introducing today will help bring low-income communities closer to the retail financial services and savings opportunities they desperately need.”

“A bill like this has been a long time coming. It will promote a culture of saving by encouraging more people to open bank accounts. This bill will also help families get out of the cycle of debt caused by payday loans,” Schumer said.

U.S. Senator Daniel K. Inouye said: “Given the economic struggles currently confronting our nation, this legislation can help many Americans by bringing families without bank accounts into the mainstream of our nation’s financial system. I believe this bill will help many families build savings and improve their credit-risk profiles. That will lower the cost of payment services, and eliminate a common source of personal stress. Enabling more people to be a part of our mainstream financial system, whether through a credit union or a bank, will build the right financial foundation for many families.”

The bill creates two grant programs within the Department of the Treasury:

• The first authorizes grants intended to help low- and moderate- income unbanked individuals establish bank or credit union accounts, providing consumers with alternatives to rapid refund loans, check cashing services, and lower cost remittances. In addition, bank and credit untion accounts provide access to savings and affordable borrowing opportunities.

• The second provides consumers with a lower cost, short term alternative to payday loans by encouraging the development of affordable payday loan alternatives at mainstream financial institutions. Consumers who apply for these loans would be provided with financial literacy and educational opportunities. Loans extended to consumers under the grant would be subject to the annual percentage rate promulgated by the National Credit Union Administration’s (NCUA) Loan Interest Rates, currently capped at an annual percentage rate of 18 percent.