A British Bank is run with precision!

During the economic crisis, payday loans have helped consumers during short-term emergencies. Yet the root causes of the crisis – banks – must be repaired if this kind of consumer credit can continue to exist. The world banking establishment has been reeling for months as the economic crisis has dried up the rivers of consumer credit. Banks and short-term consumer lending must go on, so banks are attempting to right the ship. That’s what the Bank of England is trying to do by reducing interest rates to one percent, reports the BBC. This comes none too soon, as UK unemployment had risen to 1.92 million by the final quarter of 2008.

The general idea here is to encourage lending, but many are concerned that such low interest rates will also harm savers. Business groups feel that the new rate won’t be enough to fix the problem. In an official statement, the Bank of England said this cut, as well as other government measures, “would provide a considerable stimulus to activity as the year progressed.” The European Central Bank has yet to act in kind; rates are currently holding at two percent.

Will it be enough?

Paul Broadhead of the Building Societies Association told the BBC that such a low rate “could hinder the funds available to societies to lend as mortgages.” In the corporate sector, The Federation of Small Businesses believes that the cuts aren’t working as the Bank of England intends and that other assistance is required for businesses to remain solvent. Yet the Bank still anticipates a “significant impact.” Perhaps the impact will be the opposite of what they intend? Citizens who cannot get short-term loans from banks will still have the option of a cash advance, however.

Some like the cut, however

Ernst & Young Item Club supported the cut, but encouraged that they drop even further, “possibly to zero.” John Philpott, chief economist at the Chartered Institute of Personnel and Development said: “The Monetary Policy Committee is right to cut Bank Rate to 1%, even though some question the merit of doing so without greater effort to increase the availability of credit to hard-pressed businesses.” As Philpott sees it, this is the kind of early action needed to boost the money supply.

Saving for a rainy day? This is it! Spend!

Time will tell what impact the lower interest rate will have, and whether more cuts are on their way for the Bank of England. Your payday loans source wonders about the argument of the savers, however. Isn’t increased spending needed to stimulate the economy?

Related articles

• Bank Rate: Cut Again, Say Experts (news.sky.com)
• Don’t cut interest rates building societies tell Bank of England (telegraph.co.uk)

Despite the fact that payday loans have been a boon to cash-strapped consumers who need a little help between paychecks, bank-controlled government acts in the best interests of their campaign supporters, rather than in the best interests of the people. Some take this path, while others recognize their value. Unfortunately with the former, it is overregulation at its finest.

Trying to keep the people’s choice down

A Congress-imposed 36 percent annual percentage rate cap on no fax payday loans to military personnel exists, and some states have banned payday lending. Even president-elect Obama supports such legislation, which will effectively put the lenders out of business. Thirty-six percent APR is not a supportable business model for loan-only companies. Families with less-than-perfect credit who need quick cash support are left out in the cold when payday loans are not available.

The Center for Responsible Lending (CRL) claims that 90 percent of payday-lending revenues “are based on fees stripped from trapped borrowers.” However, numerous independent studies, including this one by researchers from Chapman University, Colby College and the University of Virginia find that “payday loans help the subjects to absorb expenditure shocks and, therefore, survive.”

Supporters of faxless payday loans come from all walks of life

U.S. Sen. George McGovern, who once vied for the presidency, is a supporter of no fax payday loans. In an opinion piece he wrote for the Wall Street Journal, McGovern objected to those who sought to ban the consumer loan product. In particular he noted that the costs for payday loans are:

Reasonable when all your other options, such as bounced checks or skipped credit-card payments, are obviously more expensive and play havoc with your credit rating.

Regarding Federal Reserve findings, McGovern went on to say that

Payday lending bans simply push low-income borrowers into less pleasant options, including increased rates of bankruptcy. Net result: After a lending ban, the consumer has the same amount of debt but fewer ways to manage it. Why do we think we are helping adult consumers by taking away their options?

The Federal Reserve study found that patterns of bounced checks, complaints against lenders and debt collectors, and federal bankruptcy filings increased in Georgia and North Carolina after those states banned payday lending.

How does the Center for Responsible Lending counter?

They questioned the methodology and conclusions drawn by the Fed, but in the revised version of the Fed’s report, the authors respond in detail to each objection raised by CRL. Their response can be seen at the link above.

Capping rates hurts consumers; just look at Oregon

In still another study, Dartmouth College economist Jonathan Zinman looked at what happened in Oregon after it capped interest at 36 percent but also allowed lenders to charge “origination fees” of up to $30. That means the highest possible effective annual interest rate charged in Oregon by payday lenders is now just less than 154 percent.

Zinman said the immediate effect of the rate cap was to reduce the number of payday lenders in Oregon from 346 on Dec. 31, 2006, to 82 outlets in September 2008. He compared Oregon with the neighboring state of Washington, where an existing payday loan industry underwent no changes in the same period. According to Zinman:

Additional evidence suggests that restricting access caused deterioration in the overall financial condition of the Oregon households. The results suggest that restricting access to expensive credit harms consumers on average.

Now Montana wants to try 36 percent

Keep in mind that at 36 percent, payday lenders could charge only $1.38 on a two-week loan for $100, which now brings in $15 at some establishments. Factor in state licenses, annual examination fees, rent, lights, salaries, benefits and other incidentals and you can see that loan volume would have to be beyond massive. It simply isn’t a good business model.

Montana Banking Commissioner Annie Goodwin is quoted in this Billings Gazette story as saying that the 36 percent cap “would most likely shut down the payday lending industry, based on what has happened in other states. During the 2007 Legislature, my division opposed legislation that would have capped interest rates at 36 percent.”

Why do payday loan opponents persist?

They know that people want payday loans to be an option when they need quick cash in an emergency between paychecks. They also know that if payday lenders can be regulated out of business with unreasonable rate requirements, there will be a customer base that will come running to the next best thing. Exercise your right to choose, tell your Congressmen, Representatives and governmental officials what you think about having the freedom to choose payday loans.

Depending on your personal circumstances, funds these days can be tight. We are going to discuss whether payday loans are an appropriate choice in different circumstances. Primarily, most Americans have access to credit like credit cards, and some even have access to small loans from family or friends to get them through a tough spot. If this is you, then payday lending websites are likely not on your favorites list. That is typical for most people who do have other sources of short term credit and loans.

What about those who do not have the privilege of credit?

Many people, especially in this economy, are having a rough go of making ends meet. Are the families of these people any less deserving than those who have the privilege of accessing credit when their normal income fails to cover the budget? Some people actually think so, which is a real shame and somewhat of a shock to the conscience. Why would those with great incomes want to limit access to short term installment loans and payday loans?

Big business plays a major role in the media’s negative reporting on payday loans

If you are an average family you are likely very appreciative that gas prices have gone down in recent weeks. It is a relief that you don’t need to scramble to come up with gas money. For many, the high gas prices did not even touch their lives except when they heard others complaining about it. Most of the people who have control over what the media and the news report about the different lending options are influenced by large banks. Do banks have any influence in your personal opinions? Unimaginable, but those who seem to be living a decent life are usually in a job position where banks have a direct or indirect influence on their “official opinion.”

How banks and the media get into your home

Again, there are two types of people we are talking about here. The first is the average family that struggles from time to time with bills and the other family who didn’t even notice that gas prices were outrageous except in observation only. Those who make decisions about what goes in the news and what is on TV are paid by someone. Large banks control huge advertising budgets and therefore can influence what makes it into the news just by simple the principle of conflict of interest. The media has to balance the interests of their readers or viewers and their own pocket books.

Media favors the industries with the largest advertising budgets

As the average family, how is your perception of the payday loan industry shaped? Have you directly ever gotten a loan to avoid a budget emergency? Is your opinion based on direct experience or based on what you have heard. We all know where “they” got their expert opinions. Most people repeat pretty much everything they hear in person, on TV, radio, or what they read in the paper. The sad fact is that most opinion is influenced one way or another strongly against payday loans by the competitors of the payday loan industry.

Why are banks against the payday loan and short term installment loan industries?

Have you ever gotten 5 overdraft fees in one day? Have you ever been late on a car or house payment? How much did you pay? How long did you borrow the money for? I seriously doubt you paid less than a payday loan would cost. Banks rake in billion of dollars every year on these types of crazy fees on top of fees. Here is an interesting statistic, 60% of credit union profit comes from fees. The banking industry is one of the most powerful influences in the world on government policy and media opinion.

It is just competitive business tactics

The banks are not actually sicking the media on the payday loan industry because they are trying to stop a certain class of American’s from retaining their rights to short term borrowing options. They just don’t want you borrowing from anyone else besides them. Making sense yet? Big banks know that those who try to balance check books but also use debit cards are highly likely to mess up and overdraft their account every so often. They count on overdraft fees for existence. As a matter of fact, without these fees almost all banks would immediately go bankrupt and close down. The threat from payday loan companies is a matter of life and death for many big banks, especially those who wasted billions in bad investments and all the other garbage you hear in the news that they have been up to.

Now that you know the truth, are payday loans appropriate for you?

What choices you make about your private financial affairs is up to you. If you have read this far then you are likely an informed consumer anyway. It is important to weigh your needs and determine if you need extra cash to get by or if you can do without it. In the end, after time passes, doing without rather than getting a loan usually works out for the best. Payday loans are not really meant for convenience shopping or instant gratification purchases. If you are serious about protecting your family’s best interests financially, you will avoid unnecessary use of credit no matter what type it is. However, there are many situations where online payday loans can save you tremendous grief.

Payday loans can prevent family tragedies

There is nothing worse than having your family suffer unnecessarily. That is why the payday loan industry exists today. When you are going to have to go without food due to unexpected emergency bills or for some other reason you become short on funds, it is a huge privilege to have access to getting money directly deposited to your account in just a few hours. No questions asked! Your car could get impounded right after you paid all your bills, you could have a medical emergency, or any other situation you can imagine. If it were up to certain people you would only have access to 100 times more expensive forms of lending from them exclusively.

Everyone knows that using credit should be done responsibly

You know that money is to be used wisely. Common sense should let you know if payday loans or cash advances are right for your particular family budget. Payday loans are not drugs that make people sick if they don’t keep using them. Big banks would have you believe they are close though. The point is you know the truth and if you have read this far, you now see payday loans in the correct light. Keep the media from controlling your view point on matters of personal finance and credit. For those of use who have avoided emergency financial situations with these type of short term loans, we are happy to enjoy the privilege of accessing payday loans online.