Legislation to kill the payday loan?
Supporters of the payday loan industry are concerned that President Obama’s economic plan will eventually cripple short-term cash advance. Harry Lacheen of iStockAnalyst reports that payday loan and pawn shops “often come under heat from governments and consumer groups” because they supposedly charge exorbitant annual interest rates. Moreover, they claim that since “most customers” don’t repay their loans on time, they are trapped in a cycle of debt. That last one isn’t true. Both of these assumptions are based upon hearsay and sloppy research (when research has even been done; often hearsay is enough for the media and unscrupulous consumer groups like the Center For Responsible Lending).
Faxless payday loan companies serve consumers who the banking system abandoned. For various reasons, offering small loans for credit-challenged people is not what banks wanted to do in the early 1990s when payday loans first began their rise. It is no coincidence that banks left the inner cities; lending risk was greater. However, no fax payday loans are the bridge the middle class needs, particularly when financial times are as difficult as they are today.
36 percent APR payday loans increase unemployment
According to barackobama.com, President Obama and Vice President Biden will cap payday loans at 36 percent annually. Do the math and you’ll see that this is ridiculous. That means that a two-week cash advance of $300 brings a profit of only $4.14 to the lender. That’s a quick route to going out of business and creating even mass unemployment. Obama also promises to make payday lenders accountable and force them to disclose all terms, but anyone who knows anything about payday loans knows it isn’t hard to throw a rock and hit a lender who already has these concepts well in hand and is serving the public well.
Obama’s “crackdown” could also mean outsourcing
This is exactly what the president doesn’t want, but he could force businesses who have no interest in outsourcing to consider that route. According to Lacheen, First Cash Financial Services has already moved into Mexico. This actually makes sense on another level, too, as the Mexican population is also largely under-banked. Lobbying lawmakers in America helps, but it isn’t always successful. And don’t think for one minute that lobbying is back-room shadiness. It’s a necessary part of America’s political system.
Lacheen calls the threat of anti-payday loan legislation from President Obama’s swift left-handed pen the “Obama Risk.” I call it a bad idea for America.
With the financial system in shambles, banks are going to be scrambling to rack up overdraft fees – it’s their main source of income, believe it or not – and credit is tight as a drum. Payday loans are a valuable service as an alternative credit source, and if everything is done correctly and responsibly, you can end up 40 or 50 bucks out of pocket. It’s a multi-billion dollar legal industry, and there really isn’t a good reason to get rid of it.
To introduce legislation that would vertually eliminate the payday loan industry would be a very unwise decision. Payday loans, especially in todays bank credit starved economy are needed more than ever.
If the payday lender is operating in a legal and forthright manner the consumer is fully aware of the terms of the loan.
Sometimes (as sick as this sounds) I wish they will just ban the payday loan industry entirely so they will finally understand just how important they really are. $4.14 profit for a $300 loan is absolutely ridiculous; I don’t care what anyone says. How in the heck do they think the industry will survive with this atrocious regulation? Any business, every company needs a certain amount of proceeds just to remain above waters (especially now with the way the economy is going). A mere four dollars will not push the industry even close to the surface.