Payday Loans Blog

Jamie Fulmer recently wrote an article supporting the payday loan option.  In the column, he highlighted the negative conotation that a local newspaper, The State, a South Carolina based paper, has been giving to the payday loan industty. 

The State has clearly made its position known.  The paper has written several articles and columns calling for a ban on payday advances and have questioned the payday lending industry's lobbying and political contributions, suggesting that they are trying to persuade policy.

Fulmer points out that this position blatantly dismisses the value of the payday loan services for families.  There are thousands of consumers of payday loans in the state of South Carolina.  He also stated the the vast majority of consumers appreciate the service, have a good experience with it, and use the services responsibly.  He went on to explain that for one South Carolina company, Advance America, 90 percent of their customers repay their loans on time and are completely satisfied with the product.

We all know that our currently economy is struggling.  In a time of such financial and economic troubles, it's necessary to have services available for hardworking people who need access to short-term loans.  Sometimes payday loans are their only option or the least expensive option.  Payday loans are a great way to go for a lot of people, especially those who want to stay away from increased bank fees and credit card debt.  

It is important for people to have the freedom to weigh their options and choose the financial option that will be best for their situation.  Payday loans are one option that have helped many people, and should remain an option.  

One of the major criticisms of payday loans are that their rates are too high.  Well, now Congress is looking at banks and their overdraft fees with the same eye.  

Banks call the the "service" overdraft protection.  So, lets say, for example, that you go to the gas station and get a candy bar.  BUT, you only have a dollar left in your checking account and the candy bar costs two dollars.  Never fear!  The bank will protect your overdraft by charging you a large fee-basically, an automatic loan.

There are now a number of lawmakers and consumer groups that are urging Congressional leaders to include overdraft reform in a package concerning the regulation of the finance industry.  One of the main arguments against this kind of overdraft "service" is that American taxpayers have bailed out Wall Street banks already, and are now having to endure dealing with abusive fees from those they rescued.

Last November a report was released by the Federal Deposit Insurance Corporation that found that overdraft fees ranged from $10 to $38 on average.  In 2007, the Centers for Responsible Lending, who generally speak out quite frequently about payday loans-by the way, reported that overdraft fees bring in about $17.5 billion each year.

Another major issue is that most banks automatically enroll their customers in the overdraft protection program without their knowledge or consent.  There also is no system in place that will warn customers that a potential purchase will send them into overdraft territory.

These are large concerns and are, luckily, finally being recognized and addressed.  Instead of going after short-term payday loans as the only financial entity that should be regulated, there is finally attention going to those who are hurting consumers unknowingly and aggressively.  

There was recently an article written in The Sun News, a South Carolina paper, concerning the option of a payday loan.  The article was written by Craig Conwell and has some very valid and interesting points that I wanted to briefly summarize.  

 Craig is a 42-year-old man who successfully graduated from college and had numerous small businesses.  He has been professionally successful, but has also had some very hard times.  He says, "...there have been times when I did not know if I would make it.  And I would not have made it without the sole institution that was willing to work with me on small loans over a short period of time, and that is the payday lending industry."

Craig is like almost everyone in our great nation.  He has ups and downs.  He pointed out that while he was having financial struggles, banks and other lending companies weren't interested in helping him with immediate financial needs.  They of course would give a loan for a car or house that would take years  (and plenty of interest) to pay back, but small short-term loans for immediate needs were not something they were interested in.

There are some in South Carolina who think that they should adopt the same legislation that Georgia and North Carolina passed.  However, the only thing that happened in those states was that payday lending was banned entirely.  A study later showed that consumers in those states had more bankruptcies and credit problems because of it.  

The major issue is-what will take the place of payday loans if they are done away with?  In the previously mentioned states, there was no help for those who needed short term loans.  It can be very hard to find an affordable alternative.  

Payday loans are a viable and reliable option.  In these hard economic times, it seems ridiculous to take away financial options.  People need more options, not less.   

The House Financial Serivces subcommitee is preparing to legalize payday loans with a 391% interest rate.  This subcommittee is in charge of consumer credit issues with Luiz Gutierrez as the chairman.  

Gutierrez now has a "power" plan that is suppose to help the payday loan industry.  However, many of it's provisions would be detrimental for payday loan companies.  Critics of the payday loan industry say that the industry is "pretending" to oppose his bill.  I do believe that, in this case, the opposition is sincere and warranted.

The bill contains regulations that are extremely stringent.  The basic aspects of the measure include capping the annual interest rate for payday loans at 391 percent, ban "rollovers"-which allows the borrower who can't afford to pay off the loan to renew the extend the loan with a fee.  The proposal would also prevent payday lenders from suing borrowers who don't pay back their debts, or garnishing wages from the borrower to collect the debt.

That last point of not being able to take the appropriate measures to collect the money that is owed is, by itself, very reasonable grounds to oppose the measure.  If that were to pass, it would essentially be impossible for payday lenders to collect any of the money they lend.  

The current proposals for regulating payday loan companies are very flawed, with regulations that would cause the complete elimination of payday loan companies.  In order to regulate this industry appropriately, there needs to be a bit of compromise from those who are "protecting" consumers.  Payday loans are a valid and essential resource for those needing short-term loans.  Hopefully there will be an appropriate and fair resolution.

A columnist for a San Angelo, Texas publication describes payday loans as filling a "financial void".  The columnist, Dennis Weese pointed out several reasons why payday loans are such a necessity.  But the overall feel of the article was how payday loans can serve as the best option for a lot of families with financial struggles.

In every state there are individuals who are hard-working citizens, but live paycheck to paycheck.  Especially with the current economic situation, many families and individuals have learned how to stretch their dollar.  However, sometimes they need a little extra to pay for a pressing need, like car trouble.  

The article also points out that a lot of families don't make maxing out a credit card an option (which is very wise), and if a check bounces, the bank fees are, more often than not, greater than a short-term payday loan would be.  

Because of different financial situations, it's essential to have a variety of responsible lending options.  Payday loans have "filled the void" that most banks left when eliminating short-term, small-dollar loans.  There is still a large demand for those types of loans, and most consumers who enter into these loans do so responsibly and are greatly benefited by them.

There are those who do not weigh their options appropriately and may have financial issues with payday loans.  Often, these people would have financial struggles with any financial option they were to choose.  Payday lenders work hard to make sure their customers understand how exactly a payday loan works and what they will ultimately be paying for the loan. 

Payday loans are a viable solution to those who need them, and while regulations are necessary for any industry, payday loan companies should not be solely targeted for providing a service that is so helpful for many citizens. 

Recently, USA Today printed an article about how banks, not payday loan companies, are causing financial woes for their consumers. Banks continue to be considered the “stable financial standard”, while payday loans are the “evil” alternative. However, how much goes overlooked when it comes to bank fees and overdrafts?

The article cited two specific consumer experiences.  First, a 43 year old divorced mother of two was slapped with a $175 overdraft fees for small-dollar debit card purchases.  Small, as in coffee and lunch.  Similarly, a 33 year old had overdraft fees adding up to $400 within a few months.  She apparently kept very good tabs through her online account, but was still surprised with overdraft fees.  She stated that the fees "affected her (abilitiy to pay) groceries, gas money, everything you need to live on."

In a survey conducted by USA Today, it was found that, of the largest retail banks, none of them provide warnings for point of sale overdrafts to their consumers.  So, essentially, in the most crucial time for a consumer to know what fees will be incurred, there is no information given.  Individuals are unknowingly hit with relatively large fees.  

One of the beautiful things about payday loans is that the consumer knows beforehand exactly what fees will be added.  A lot of payday loan critics state that the short-term loans "target" unexpecting and incapable borrowers.  It seems that, at the very least, the payday loan industry provides the information necessary for it's borrowers to make informed decisions and knowledge concerning what exactly they will be paying.       

Missouri is the most recent state to bring a bill to the House looking to tighten payday loan restrictions.  The state currently caps payday loans at $500 and an individual must take out a loan for a 14-30 day period, and can renew the loan up to six times.  The new bill, filed by Rep. Mary Still, would cap the APR at 36 percent.  It would also allow a one time fee of $15 per $100 loan, but ban any renewals. 

Those in favor of the bill use the typical excuse, saying the bill will protect people from "predatory lending".  Larry Weber, Missouri Catholic Conference Executive Director, said, "People are taking out loans who, there's just not any reasonable likelihood that they're going to be able to pay this in a reasonable amount of time."  It doesn't sound like those people are being preyed upon, it sounds like they are taking out loans they can't pay back.  

Responsible lending is up to the lender.  Responsible borrowing is up to the borrower.  A payday loan is a short-term loan for those who can't get a loan from a more traditional financial lender.  Payday loan companies have higher rates because they take on a greater risk.  

Capping these short-term rates would initially cripple payday loan companies, and ultimately push them out of business.  Luckily, the Missouri House has faced similar bills in the past that have gotten nowhere.  Hopefully, the House will recognize the need for payday loan companies and how they provide a needed service to a lot of people.  

A bill that capped the annual percentage rate on short-term payday loans at 28 percent was signed by Ohio Governor Ted Strickland earlier this past year.  However, Rep. Bob Hagan stated recently that he is "embarrassed that the storefronts continue to operate throughout Ohio."

Hagan sponsored a bill last year that would have put a 36 percent cap on payday loan rates.  As stated above, a different bill was passed that makes the cap even lower.  Apparently, Ohio payday loan companies have now obtained licenses under two other code setions-the Small Loan Act and the Mortgage Loan Act.  Hagan said, "They (the payday loan companies) seem to have won on legal terms."  It seems interesting that he is trying to condemn the industry for legally keeping higher rates.

He later went on to say, "It's embarrassing, it's wrong and the people of the state of Ohio have said as loud as they could that they didn't want this type of payday lending industry to operate in the state of Ohio."  That statement seems a bit contradictory on several levels. 

First of all, if the citizens have "said as loud as they could" that they don't want payday loan companies, then how are the companies staying in business?  Could it be that the Ohio citizens are still using that resource?  A lot of individuals responsibly use the payday loan service with no negative experiences or problems. 

The second thing Hagan indicated in this statement is that he doesn't seem to want to just cap the rates, he wants the whole industry to leave the state.  Apparently he realizes that a 28 percent rate cap would ultimately put the industry out of business. 

Putting payday loan companies out of business would not solve borrower's problems of needing a loan.  They would have to get a loan from a different source, and some may not be able to reach the higher qualifications of a bank loan.  Payday loans help consumers who need a quick and convenient loan.  Taking that service away would only cause more hardships for Ohio citizens that need a short-term loan option.

One of the major issues that opponents to the payday loan industry has is the rate percentage.  Short-term loans do require a higher rate of interest.  However, the effect on consumers due to the rates is often taken out of context and exaggerated.  Payday loan advocates have often pointed out that the fees attached to "traditional" borrowing, such as credit cards, are often higher than payday loans.

USA Today recently reported an increase in bank credit card fees.  It reported that, "A growing number of banks are raising credit card fees or rolling out new fees..."  Some of the specific banks cited were Wells Fargo, which increased late fees and cash-advances fees; Chase, putting a yearly $120 fee on cards with low interest rates; and American Express, which raised its late fee for some business cards.

Robert Hammer, chairman of R.K. Hammer, stated that banks "are not going to watch their costs go up and take no action."  So, in essence, banks are deciding to increase rates and fees to protect itself against the failing economy.  I wonder if the "consumer advocates" will be fighting against this action as hard as they fight against short-term payday loans.

Managing director of Fitch Ratings, Kevin Duignan, recently stated that, "The unemployment outlook is dreary, there's been a tremendous loss of personal wealth, and the housing situation has forced many consumers to take a hit."  So, in response to the "huge hit" that consumers have been taking, banks will raise rates and fees.

It's interesting to note that many payday loan consumers recognize that the fees they are charged by banks are already much greater than those needed to take out a payday loan.  That is exactly why payday loans are such a great benefit to those who need short-term loans in a hurry.  They know exactly what the fee will be and don't have to worry about any hidden fees or charges.   

Washington states House of Representatives passed a payday loan law that has been called "a balance for borrowers and lenders."

State Representative Steve Kriby said the Bill "has been carefully assembled from parts of several bills we've discussed" in a House Financial Institutions and Insurance Committee.  The "several bills" is actually nine different payday loan measures.  The Committee heard testimony on the nine measures and Kirby stated, "The legislations we passed in the House early this morning uses the best parts of those bills to craft what I believe is on eof the best payday laws in the nation."

There are several aspects of the new legislation that is set up to help both the consumers and the industry.  Some of these aspects include: payday loans being limited to no more than 30 percent of a borrower's income or $700; customer right to an installment plan if they cannot pay off the loan outright-with three months to repay loans of up to $400, and six months to repay loans of more than $400; customers who are on an installment plan or in default on a loan could not receive a new loan; and implementation of an electronic system to ensure that these restrictions are being obeyed by lenders and borrowers.

The legislation is meant to be a compromise to provide security for consumers, but allow the payday loan industry to continue to provide services.  Kirby said, "Our goal in the legislation is to preserve payday loans as an option for people who have no other choice.  This bill helps consumers tay out of trouble if they need to use the product, and it makes it easier for them to escape trouble if they inadvertently fall into a cycle of revolving debt."

Later he points out that payday loans are sometimes the only choice for certain individuals.  A lot of people don't have the option to just reach into their wallet and use a credit card to take care of short-term issues.  Payday loans provide a service that banks and credit unions do not.  By creating legislation that satisfies lawmakers but enables the payday loan industry to provide a responsible borrowing option is essential.