Stock in pawnbrokers is increasing as the recession continues. Image: Pink Moose/Flickr/CC BY

As the recession continues, stock is rising in industries that profit from hard times. Pawn brokers, payday lenders, debt collectors and discount stores are more profitable than ever. Brokers are recommending buying stock in these sorts of companies rather than traditionally higher-end investments.

Recession continues as employment falls

The unemployment rate rose to 9.2 percent in June, making many stocks plummet. The number of people living below the poverty line has risen to one in seven, the highest since 1994. Consumer spending has dropped for two months in a row. Times are hard, and nobody knows if or when they will get better.

Profiting from hard times

Some industries profit from bad times. Stocks for many pawnbrokers, payday lenders, discount stores and debt collectors are on the rise. And while that may raise ethical issues for some, stock brokers are recommending buying stocks from many of these companies.

David Rosenberg, an economist at the money management firm Gluskin Sheff, said, “People are broke. They’re all chasing value. It’s a seismic shift in mindset.”

Pawnbrokers and payday lenders on the rise

John Coffey Jr., an analyst with Sterne, issued a report in June urging stock buyers to seek out Ezcorp (EZWP), a firm that owns pawn shops and makes payday loans. The stock has gone up an average of 48 percent for the last five years. Coffey argued that the stocks were worth more than than their cost by a third and would most certainly go up. Within a few hours, the stock rose by 7 percent and is now worth double what it was a year ago.

Payday lenders are increasingly becoming a good investment. Advance America Cash Advance Centers (AEA),  has seen the price of its stock double in the last year. Cash America International Inc. (CSH) is up 64 percent from a year ago.

Debt collectors also making a profit

The same holds true for many other companies that thrive on financial hardship. The profits for San Diego based debt collector Encore Capital Group (ECPG) are up 59 percent from last year. This is despite the fact that the company has faced class action lawsuits in many states concerning its debt collection practices.

Some experts disagree

Some experts believe that investing in these kinds of companies is not as safe as it may seem. They say the stocks are as likely to fall as to rise. Should the economy recover and fewer people become financially stressed, stock for these companies will drop drastically. And if the economy should continue to slip, even those companies will find less traffic.

Sources

Huffington Post
Cox

Encore Capital Group

The Anti-Poverty Coalition of Greater Dallas wants payday lending in Texas to end. (Photo Credit: CC BY-ND/Nik Hewitt/Best of Both Worlds)

Jobs fight poverty. Gainful employment grants motivated, enterprising consumers with the means to provide. Yet groups like the Anti-Poverty Coalition of Greater Dallas seem to have missed the memo, suggests the Payday Pundit. The Dallas Observer reports that the Dallas coalition is working hard to shut down personal loan and installment loan companies in Texas, as if eliminating thousands of jobs resembles a blow against poverty.

Blazing a trail out of poverty through scorched earth

Larry James, the CEO of Dallas-based non-profit CitySquare, told local media via press release that the coalition has a burning desire to find pathways out of poverty:

“The Anti-Poverty Coalition of Greater Dallas is a new coalition that seeks to move 250,000 people out of poverty permanently by 2020 by coordinating efforts to keep people from falling into poverty and increasing pathways out of poverty,” writes James.

‘A treadmill of debt’

The attack against the personal loans and installment loans industry amounts to keeping people from falling into poverty – “a treadmill of debt” – said James. Legislation such as Texas HB 410 and SB 253that bars payday lenders from being classified as credit service organizations would challenge existing zoning ordinances. By instituting a “strong zoning ordinance to decrease the clustering of payday and auto title lending stores,” the Anti-Poverty Coalition of Greater Dallas believes the shackles of poverty would lift from the wrists and ankles of the poor citizenry. Allegedly, there would be no more tears for those who were financially razed, not by bad personal spending habits and the exploitation of Wall Street, but by the so-called evils of payday lending. In truth, eliminating payday lenders limits consumer choice and costs Texas jobs, both dire consequences in light of the recession-ravaged economy.

An indirect attack, at best

Instituting zoning ordinances via HB 410 and SB 253 that would require personal loan and installment loan outlets to be at least 1,000 feet apart would only be the beginning, industry experts believe. Direct attacks against payday lenders such as demanding an untenable 36 percent APR cap have proven unpopular when it comes to battling poverty, as it would shut payday lenders down, which means people would lose their jobs.

Attacks through zoning fail to disguise the true intent of such “anti-poverty” coalitions. If groups like the Anti-Poverty Coalition of Greater Dallas took the time to understand the extant independent research that shows the connection between the absence of access to short term loans in a community and higher levels of poverty, perhaps charitable groups could find a more worthwhile target for their efforts.

Sources

Dallas Observer

Payday Pundit

Texas HB 410

Texas SB 253

Texas Secretary of State

Jobs fight poverty

Big banks have not favored African-Americans and Hispanics, says the Center for Responsible Lending. (Photo Credit: CC BY-ND/Velocity)

African-Americans and Hispanics are beginning to lose ground when it comes to the use of traditional banking, according to the Center for Responsible Lending. Discriminatory practices like redlining (denying access to credit) have once again risen up as the U.S. struggles to emerge from the economic recession. Such financial discrimination, which includes mortgage denial and lack of access to short term loans from banks, highlights an ever-present form of racism, critics suggest.

Minorities losing homes at twice the rate of Caucasians

Center for Responsible Lending President Michael Calhoun told USA Today that U.S. minorities have “received the worst treatment, at a very high cost.” Estimates that 20 percent of African-American and Hispanic householders will lose their homes in the mortgage crisis – a rate more than double that of white householders – suggest that the gap between the minority and the majority is growing.

In his 2008 study of household debt entitled “Credit Access, the Costs of Credit and Credit Market Discrimination,” Christian Weller of the University of Massachusetts and Center for American Progress found that African-Americans were 41.7 percent more likely than Caucasians to be denied a traditional bank loan. The gap widened considerably when mortgages were in question.

The inequity of a ‘dual system of finance’

John Taylor, CEO of National Community Reinvestment Coalition, sees a double standard.

“It’s about a dual system of finance,” he says. “People of color do not have the same access that most American citizens enjoy.

The alternative when traditional banks deny low- or middle-income minorities credit is frequently no credit check payday loans from payday lenders. While such short term loans are highly convenient in a financial emergency, the fees are generally higher than traditional prime loans, said NAACP Senior Vice President for Advocacy and Policy Hilary Shelton. Also, payday loans are small and can’t take the place of mortgage loans.

The legacy of banking deregulation

Redlining and similar practices gained much attention in the 1990s, when entire minority neighborhoods were shut out of being able to obtain bank loans, mortgages and insurance. Not coincidentally, banking and utility deregulation that occurred at the same time has been tied by numerous academic studies to the practice of redlining. While regulators installed such mechanisms as the Community Reinvestment Act and Home Mortgage Disclosure Act to help combat redlining, further loosening of the oversight belt allowed the practice to continue in various forms (such as reverse redlining, where short term bank loans are offered in minority neighborhoods, but at prohibitive rates). This ultimately led to the Wall Street crisis, from which the U.S. is still recovering.

What regulators are doing now to stem the tide

• The FDIC is trying out a two-year short term loan program at 28 volunteer banks.
• The Department of Justice has created a fair lending unit to police redlining.
• The Consumer Financial Protection Bureau will open in July 2011.

Sources

“Credit Access, the Costs of Credit and Credit Market Discrimination”

“Power Dereg Will Promote Customer Redlining”

USA Today

Did banking deregulation stack the deck against minorities?

A new report has been released by the Center for Responsible Lending, slamming payday loans lenders. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

The Center for Responsible Lending has released a new report on payday loans, bashing the product. The CRL is among the chief lobbyists against the payday lending industry, though it allies itself with other consumer credit causes. Payday lending will soon fall under the jurisdiction of the Consumer Financial Protection Bureau.

Payday lenders blasted for lending practices

Payday lending is often reviled as predatory, as opponents accuse payday lenders of trapping people into vicious cycles of debt. One of the leading advocates for reform or eradication of the practice is the Center for Responsible Lending, a consumer advocacy foundation that conducts research and lobbies on behalf of consumers. The organization has released a new report on payday lending, according to Daily Finance, asserting that people who take out payday loans tend to get trapped into debt for more than a single pay period. The report is titled “Payday Loans Inc: Short on Credit, Long on Debt” and is available on the CRL’s website.

Frequent targets

Payday lenders are often targets of increased regulation and of ardent criticism. Some lenders deserve it; the number of violations committed by payday lenders as well as the number of lawsuits including class actions show that not all short term loans lenders are on the level. Many are hoping for payday loans as an industry to get reigned in by the Consumer Financial Protection Bureau when it begins operation later this year, as many advocates have asserted a cap on repeat borrowing will be effective, though the CFPB will not be able to regulate interest rates. The CRL recommends the CFPB should do as much.

Credit involves risks

The scholarly literature that exists on payday loans and similar credit products indicates there is a risk of consumers falling into a fair amount of debt once they begin borrowing from payday lenders. For instance, the CRL report asserts that many people are indebted to a payday lender for one to two years. That’s better than 30 years, the length of the typical mortgage. That is also better than 10 years, the length of time that people are given to repay student loans. However, those debts don’t have the stigma that payday loans have been bestowed with. Credit cards are also seen as more respectable than payday loans even though a minimum payment schedule can keep a person in debt to credit card companies for decades.

Sources

Daily Finance

Center for Responsible Lending (PDF – Requires Adobe Reader)

Western Sky Financial claims Maryland short term loans regulation does not apply to its business, due to tribal immunity. (Photo Credit: CC BY-ND/Stephen Bridenstine/Drawing on Indians)

There are a variety of state laws that apply to licensed payday lenders. When a legitimate company operates outside the bounds of state law – such as with Native American tribal lending – state laws traditionally have not applied. According to the Center for Public Integrity, such a legal divide has resulted in a legal clash between Maryland regulators and Western Sky Financial, a personal loans provider that claims affiliation with the Cheyenne River Sioux Tribe.

Western Sky claims sovereign immunity

Western Sky Financial owner, Martin Webb maintains that his company’s short term loans activity amongst Native American tribes protects it from state laws. This is an argument that Maryland is challenging in court as it attempts to tighten the reins on personal loans legislation in the state. Maryland claims Native American lenders use tribal immunity to skirt existing laws and offer short term loans to customers nationwide. Critics of the industry await a Consumer Financial Protection Bureau ruling on whether industry-wide reforms will also impact native payday lenders.

Western Sky violates Maryland law, claims commissioner

Maryland deputy commissioner for financial regulation Anne Norton sees the Western Sky Financial personal loans issue in black-and-white terms:

“I don’t think there’s a lot of gray area in terms of what is or is not permitted,” Norton said. “Under our reading of both how tribal immunity is interpreted and how it’s been applied by the Supreme Court, we feel that these are loans that violate Maryland law.”

Maryland law caps payday lending APRs at 33 percent on the unpaid balance. As Western Sky Financial does not hold a Maryland license – the company operates online out of South Dakota and claims sovereign immunity as a member of the Cheyenne River Sioux Tribe – it currently operates outside the bounds of Maryland short term loans regulation. APRs charged for short term personal loans vary by state, but are generally at least three times higher than the Maryland cap.

Indian Commerce Clause and legal precedence

Webb’s attorney argues that under the Indian Commerce Clause of the U.S. Constitution, tribes are the ones responsible for regulating consensual relationships undertaken between non-members and members of a tribe. As Webb claims membership in the Cheyenne River Sioux Tribe, he believes his business should not have to recognize non-tribal payday lending laws.

While Maryland does recognize the sovereign immunity of the Cheyenne River Sioux Tribe, Norton argues that Western Sky Financial is not an arm of the tribe, and hence should not be protected.

It remains to be seen on which side of the argument a court will rule. However, as numerous instances of legal precedence in which federal courts have ruled in favor of native tribes exist – such as in the case of casino lending with the Lac du Flambeau Band of Lake Superior Chippewa reported by the Wall Street Journal – legal experts would not be surprised if Western Sky Financial’s protection continues, inseparable from Webb’s personal status.

Sources

Center for Public Integrity
Wall Street Journal
Western Sky Financial

Western Sky Financial: No collateral required

Check cashing services are often grouped with payday lenders, but they're not the same thing. Image: Flickr / livenature / CC-BY-SA

The Texas legislature is currently hearing testimony on proposed legislation that would affect credit services. The payday loan bill would reclassify payday lenders, title lenders and check-cashing services. Legislators have said they are looking to negotiate the details.

Texas payday lending regulations

Under current Texas law, payday lenders, check-cashing services and title lenders operate as “credit service organizations.” This is a business classification that was originally intended for businesses that help customers get out of debt. Credit service organizations are not subject to limitations on the interest rate they charge. Instead, CSOs are asked to pay just a licensing fee of $100 per year.

Searching for the regulatory sweet spot

Initially, the bills presented in the Texas legislature would have essentially shut down payday lending, check-cashing and title lending in Texas. Reclassifying payday lenders and forcing them to operate under usury laws would force them to charge no more than 36 percent APR. Because most payday loans have a term of two weeks, charging a 36 percent annual interest rate would put lenders out of business because this amount is not enough to support their businesses. Legislators pointed out that these lending businesses do provide a service that is needed, as evidenced by their heavy use. Sen. John Carona has called it a “gold rush,” stating that the lenders are “entitled to make a profit,” but he feels it shouldn’t be a usury-level profit.

Differentiating credit products

Though the Texas legislature is grouping payday lenders, title lenders and check-cashing businesses, these are three very different businesses. Payday lenders offer a short-term loan, secured only by a promise to pay on the next payday. If the loan isn’t paid back, the lenders have little recourse. Title lenders offer loans secured by a car title. This means if the loan isn’t paid, the lender takes possession of the vehicle. Check-cashing services cash checks for customers that cannot or do not want to go into traditional banks for their financial services.

Sources

Dallas News
Payday Lending Statistics report

Payday lenders are having to turn to Indian tribes to form partnerships that can keep their businesses open. Photo: Chika/Flickr.com/CC-BY

In order to circumvent state regulations, payday lenders are turning to Indian tribes to stay in business. Indian tribes are protected legally by a doctrine known as sovereign immunity, which exempts them from some state and federal laws. Demand is well established for payday loans, but states are starting to regulate them out of business.

Stifling regulation sends payday lenders to tribes for legal shelter

Payday lenders have been subject to an increasing amount of regulation, to the point it is difficult for operators to keep their doors open. Some lenders are beginning to form business partnerships with Indian tribes in order to circumvent strict regulation that prevent lenders from being able to make a living in the payday loans industry, according to the Wall Street Journal. Indian tribes are protected by a legal doctrine called sovereign immunity, which grants certain exemptions from regulation and lawsuits. Payday loan lenders need only incorporate their business on tribal lands and form an agreement with the tribe in order to offer a cash advance in whatever manner the firm sees fit.

Sovereign immunity

Essentially,  an entity with the protection of sovereign immunity is protected from prosecution or lawsuit, but the extent of immunity varies. Native American tribes and reservations are considered nations unto themselves, and businesses incorporated on tribal lands are not subjected to the laws of the state or states the reservation is located in. For instance, say a short term loan lender incorporates on a reservation located in Arizona but doesn’t have offices on the reservation. Even though the loan company is not located on a reservation, it is incorporated on tribal land. Sovereign immunity exempts the company from having to comply with Arizona law regarding small loans.

The scourge of payday loans

Payday loans are treated like a leper by some within the financial services industry. Even though the demand for the services is well established and similar businesses existed before the Statue of Liberty was built, many have called for the industry to be legislated out of existence. Payday lending as an industry represents more than $10 billion in the U.S. economy as a whole.

Sources

Wall Street Journal

Legislators at the Mississippi state capitol have stalled passage of a new payday loan regulation. Image from Wikimedia Commons.

The Mississippi state legislature has stalled a bill that would further regulate payday loan lending in the state. States have increasingly passed legislation regarding payday lenders, usually to reduce interest rates. The new regulatory bill is stalling as legislators cannot agree on terms.

Payday loan regulation bill stalls in Mississippi legislature

The state legislature of Mississippi, in session in Jackson, has stalled in passing a new law that would put further regulations on payday loan lending, according to Bloomberg. The new bill would extend repayment periods and cap interest rates on payday loans in the state. However, the new payday loan law is not going anywhere until both houses can agree. The Mississippi House of Representatives passed a version that would allow borrowers 21 days to repay cash advance loans less than $200 and 28 days to repay loans of $201 to $500. The Mississippi Senate version gives borrowers 21 days to repay loans of $300 or less, and 28 days to repay loans of $301 to $500. The current laws in the state regarding payday lenders expire in 2012.

Consumer Financial Protection Bureau may target payday lenders

It has been anticipated for some time that the Consumer Financial Protection Bureau may end up going after payday lenders, but that may not be the case. The Bureau was created as part of the Dodd-Frank Act and is headed by Elizabeth Warren, who was appointed to the post by President Obama. The agency has yet to do anything, as it isn’t an active agency yet, but it may not do much with the payday industry, according to the Motley Fool. The CFPB can’t cap interest rates, but it can call for greater disclosure from lenders.

Disclosure works in payday lenders’ favor

Greater amounts of disclosure would likely act more in the interest of payday loan and cash advance firms than banks. Given the number of fees that credit card and other accounts have tied to them, and the scant fees assessed by payday lenders, more people may end up taking out a payday loan. Most payday loan lenders already disclose all fees upfront due to the Truth in Lending Act.

Sources

Bloomberg

Motley Fool

FiSCA, the payday lending industry and others wait in D.C. for new financial rule. (Photo Credit: Public Domain/U.S. Bureau of Land Management)

The Financial Service Center of America (FiSCA), a trade association that represents check cashing and payday lending stores, has moved from its 20-year home in Hackensack, N.J., to Washington, D.C. Bloomberg Business reports that this will place FiSCA a mere two blocks from the newly formed Consumer Financial Protection Bureau. According to FiSCA general counsel Ed D’Alessio, the move enables the association to meet the increased levels of financial regulation that are on the way for the financial services industry.

FiSCA awaits a flurry of regulatory moves

FiSCA, which had been regulated primarily on the state level before the Obama administration’s financial reforms, handles approximately $106 billion annually in transactions for more than 30 million customers via such transactions as payday loans, investments and other financial arrangements. The payday lending industry and other groups represented by FiSCA are hopeful that new regulations will enable them to take market share from traditional banks that offer similar services, but financial legislation will determine the success of this endeavor.

The Dodd-Frank Wall Street Reform Act (aka the Dodd-Frank law) sketched the new regulatory landscape only in broad strokes. Thus, Bloomberg reports that there are as many as 330 new rules on the way by July that will affect payday lending, derivatives trading and mortgage lending, to name but a few industries. Some industries will benefit from Dodd-Frank, while others will face greater restrictions. As financial regulation expert Douglas Elliott of the Brookings Institution told Bloomberg, what happens to bankers could play a significant role in the U.S. economic recovery.

“Bankers could be hurt badly or could come away without too much damage, and the economy could be helped or hurt, depending on those choices,” said Elliott.

Mortgages: A blip on the consumer protection radar

Wells Fargo would like the Consumer Financial Protection Bureau to allow banks to retain a stake in home loans sold into mortgage-backed securities. U.S. Bancorp and SunTrust Banks are lobbying to exempt a wide array of mortgages from crackdown, while Wells Fargo is seeking to exempt only those riskier mortgage loans with a 30 percent or higher down payment. Smaller banks want the extra exemptions because they are less equipped to handle risk.

Sources

Bloomberg Businessweek

Wikipedia entry for the Dodd-Frank Act

Dodd-Frank and the danger of making bank decisions on political grounds

Applying for a loan by phone is as easy as 1-2-3. (Thinkstock)

Applying for a loan by phone is perhaps the fastest, most convenient way of borrowing money. You don’t have to drive anywhere or visit multiple lenders just to get a helping hand. Sites like Personal Money Market are here to help you through your cash needs the fastest, easiest way possible.

A loan by phone can get you money fast

You can access quick funding using your iPhone, smartphone or any other wireless device. Call the toll-free number located in the top left corner of the page and a loan application specialist will help get you started right away. Or better yet, jump online and complete the application yourself. It takes just a few short minutes to fill out, and we’ll get right to work the moment you hit “submit.”

Personal Money Market has built a vast network of some of the most reputable direct payday lenders online whose number one goal is to fund your need as quickly as possible. Most of the lenders require no credit check or faxing of any documents, and you get a quick response every time.

Benefits of applying for a loan by phone

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What you need to qualify

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Banks and credit unions don't offer a loan until payday like a payday loan lender, because they can't. Image from Wikimedia Commons.

There is a good reason a traditional bank or credit union doesn’t offer a loan until payday to customers. Many people have wondered why it is that a small loan for a short period of time is solely the province of payday lenders. Banks and credit unions steer clear of the practice. There are good reasons why payday loans will never be offered by traditional institutions.

Typical institutions do not offer a loan until payday

A lot of people have observed that while you can visit any payday loan store for a loan until payday, a similar loan is not available at a bank or credit union. It turns out there are some very good reasons for that. Firstly, banks and credit unions have to shield themselves against risk. Most people who use payday loans when they need to borrow money do repay them, but the limited documentation needed is less than the average bank or credit union is willing to accept. Part of bank underwriting criteria is normally to perform a check of credit scores, which a person who needs quick cash doesn’t have the time to wait for.

Studies prove they can’t

Banks and credit unions cannot afford to offer a loan until payday, the way a cash advance or payday loan lender does. It isn’t profitable enough for them, and a bank’s first priority is usually the shareholders. A study by Victor Stango revealed that not only were credit unions not able to offer lower prices on payday products and break even or profit, they were also hampered by not having hours or locations as convenient as payday lenders. The same study revealed only 6 percent of National Credit Union Association members offered a similar product.

Reformers should not hold their breath

It is not likely that banks or credit unions will offer a loan until payday anytime soon. They have status as institutions, which leads many to think they are safe. However, the credit cards and overdraft policies many have makes them anything but. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

Payday lenders do not move into a poor area to turn it into a dust bowl. The truth about payday loan borrowers is actually surprising. Image from Wikimedia Commons.

The actual people that are payday loan borrowers are not who some claim them to be. Payday loan lenders are thought to target the most desperate and poor. Cash advance lenders are also said to concentrate in areas that are more densely populated by minorities. Like most stereotypes, the larger picture is actually a little more complex. Like most stereotypes, there isn’t a lot of truth in these views either.

The poorest of the poor cannot get a payday loan

The thing about the people who actually do borrow money from payday lenders, be it from a payday loan store or online payday loan lender, is that they are not the poorest and most desperate. First of all, one has to have a coming pay day to even be considered for a payday loan. One also has to have a checking account. Now, when it comes to banking, there are two designated people that don’t use a bank for every need. There are the “unbanked,” and the “under banked.” The FDIC and the Federal Reserve define the “under banked” as people who have a transaction account (e.g. checking or savings accounts) but still utilize alternative financial services (AFS) in order to obtain the products they need.

Proof of income is required

By definition, only the under banked can even get access to a payday advance. That means a person has to have a stable income. The unbanked, who are the poorest and most desperate, can’t get a payday loan if they tried. Furthermore, it is economics, not ethnicity, that determines where payday lenders locate. Studies have found that payday lender concentration correlated better to urban and rural areas where most of the population was younger than 40 and lived above the poverty level.

Stereotypes never live up to reality

The average payday loan borrower has a high school education or better, and makes between $25,000 and $50,000 per year. That is middle class, through and through. Considering how easily minimum payments and accumulating interest can trap a person for years, credit cards are far worse for that demographic. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

Every online loans lender gets on a bull's back with every loan. Image from Wikimedia Commons.

A lot of people have the idea that lenders of online loans can get away with just about anything. The offices for any online personal loan or installment loan could be anywhere, so people get the impression they can’t be tracked down. However, online loan lenders actually have to be far more careful than the average payday loan store. Online payday loan lenders face far more risk than banks or credit card companies.

Online loan lenders face more risk

Contrary to popular belief, payday lenders do not make money hand over fist. In fact, it can be downright hard for a lender to even turn a profit. The largest risk for a payday lender is default. Comprehensive data does not exist on the rate of defaulting on loans or on late payments, as the industry is largely privately held and many private entities are hesitant to publish their financial records, which in the case of the payday lending industry, has been acknowledged many times over. Online lenders face perhaps the greatest risk, as they have no community presence (no “face” to put on the name) and can be without any means of collection if a customer decides to take the money and run.

Loss for payday lenders is guaranteed

One study indicated that losses could account for as much as 25 percent of operating costs. That’s just for traditional payday loan stores, never mind online payday loans lenders. In 2009, the auditing firm Ernst and Young did a study of all the members of the Financial Service Centers of America, or the FiSCA, one of the major trade organizations that many payday lenders belong to. The typical payday lender in the FiSCA study charged $15.26 per $100 loaned, and of that $15.26, $3.74 of the fee went toward bad debts. Just more than $1.00 was realized as profit.

Online lenders the most vulnerable

An online payday loan lender has to assume a lot of risk. Essentially, every loan application is asking for hundreds of dollars to be lent, sight unseen. That’s a lot to ask of any business. You can read more in the payday loan facts and statistics report on Personal Money Market.

If cash advance lenders were stalking the poor like prey, they would be out of business. Image from Wikimedia Commons.

Critics of the cash advance industry have tried to say that lenders exploit minorities. The idea goes that minorities in poor neighborhoods are preyed upon by short term loan lenders to get them hooked. The truth is not that simple. A payday loan store goes where demand is highest. There isn’t a business on earth that doesn’t adhere to that rule.

Where cash advance stores cluster

One of the allegations made about payday lending is that lenders will move into specific areas in order to target customers according to race.The Center for Responsible Lending released a report that purported payday lenders in California clustered in areas in which predominantly African Americans and Latinos were located. The actual main focus of these locations was where alternative financial services in general, like check cashing, were located. Robin Prager, in a study released in 2009, found that payday lender concentration was high in urban and rural areas where most of the population was younger than 40 and lived above the poverty level. I payday lenders only lent loans for bad credit to people who couldn’t afford to repay, they would soon be out of business.

Demand determines location of supply

To argue that a business locating where there is demand for their services is predatory simply because of the demographics of the area is patently ridiculous. If that was the standard, marketing to any demographic besides everybody is predatory. Essentially, claims that lenders are unfairly targeting minorities in this case is like saying that if a chain of retail stores offers parkas rated to 80 degrees below zero in Anchorage while branches of the same retail chain do not in Phoenix is unfairly targeting Alaskans and preying on their need for protection against cold temperatures.

Economics determines everything

Correlations do not prove cause and effect relationships. Payday lending, as a business, also doesn’t yield enough high enough profits to lend to people who cannot pay the loan lender back. If they did, the industry would be out of business quickly. You can read more in the payday lending facts and statistics report on Personal Money Market.

Payday lenders don't deserve to be labeled "sharks." Image from Wikimedia Commons.

Over the past few years, the term “predatory lending” has been brought up a lot, and the term is often leveled at payday lenders. The payday lending industry has been called just about every name in the book. These accusations are inaccurate. Furthermore, it isn’t fair to level these terms at the typical short term loan lender. In fact, it is hard to call any lending institution a “predatory lender.” The reason is that no one really knows what that phrase means.

Predatory lending didn’t exist until 1994

In the wake of the mortgage crisis, there has been great outrage at “predatory lending,” a buzzword of the last two decades. According to Adair Morse and others who have studied whether payday lending is predatory, the term was first coined in 1994, and rarely used until at least 2000, and didn’t gain prominence in the national lexicon until after 2005. The phrase, like others, are conjecture at best. A small loan lender is no more a predatory lender than a mortgage company.

The spread of buzzwords

There is a social phenomenon known as “buzzwords.” Some of them are tied to legitimate concepts, but any buzzword should be viewed with a skeptical eye. Many of them have differing meanings and fuzzy logic. The term “predatory lending” would presume that a loan was lent to a person who was desperate, couldn’t understand the terms, or couldn’t really pay it back. Since the typical payday advance lender explains terms well, and can’t afford to lend to people who can’t pay the loan back, that standard can’t really be applied. However, that is only a subjective definition. Someone else could think something else entirely.

Who is really predatory

Think of the debt burdens many think of as “good.” A new car costs almost $20,000. A new house costs over $150,000. These debts can lock a person into a lifetime of payments only to never realize the benefits of ownership. That sounds far more predatory than a loan until payday. You can read more in the payday loan facts and statistics report on Personal Money Market.

What are the guidelines for this loan?

• You must be at least 18 years of age to apply
• Worked at a job for three months and still working
• Provide your social security number
• Have legal U.S. citizenship

What if I’m bankrupt?

It almost doesn’t matter because most of our lenders don’t check credit histories. Overnight cash advance companies care very little if you have bad credit, no credit or bankruptcy. So if bad or poor credit is holding you back from getting the help you need today, rest your worries aside and apply right now. Take advantage of Personal Money Market’s wide network of payday lenders today.

Do I need direct deposit set up for an overnight cash advance?

Yes. You will need either an active checking or savings account in order to receive your cash loan. This is a must because it is the No. 1 fastest way loan agencies send out cash loans to their clients.

Is there an application fee?

No. You do not have to worry about being charged with an application fee when applying here for an overnight cash advance. Most credible companies avoid this practice because they believe it is bad business.

Where can I get an overnight cash advance loan?

You will see a short application form located below this article. There you will need to type in some basic information about yourself. Once a loan agency reviews and accepts your information, you will be notified of your status. It’s fast, simple and hassle-free.

Need an overnight cash advance? Apply HERE!

Credit companies will still have you fork over the cash for a cash advance. Image from Wikimedia Commons.

After the CARD Act, or the so-called Credit Card Holder Bill of Rights, passed Congress, credit card companies started to think of new ways to increase revenue. Credit card companies now are figuring out ways to legally charge more for using the credit they extend. There are greater interest rates being assessed. Late payment penalties and charges for credit card cash advances are also increasing.

Credit card companies legally charging more

When regulative or restrictive legislation is passed, the industry being regulated or restricted will find new ways to improve business legally. Credit card companies are finding ways to not break the laws of the CARD Act, but still make the bottom line. According to the Wall Street Journal, card issuers disclose to customers that interest rates will increase because of late payments, but they do not have to disclose the amount of the increase. Credit card cash advances have gone up to 24 percent interest for bank cards and credit union cards are up to 16 percent.

Credit unions have lower fees

A recent study found that most fees or charges associated with credit cards were lower on credit union issued cards. The average bank issued card carries a late fee of $39 and the average credit union late fee is $25.  Card issuers also didn’t halt annual fees. Only 1 percent fewer cards had an annual fee from 2009. However, annual fees average $59 for bank issued cards and $25 on cards from credit unions. According to Newsweek, the average APR charged on credit cards overall has risen more than 1.5 percent in the last year. Free checking accounts might also become a thing of the past as well.

The mad dash for customer cash

Credit card companies are looking to bolster their bottom line, and with new laws on how they can charge you, are starting to raise their rates. It might soon be that more people are getting payday loans rather than use their cards, unless payday lenders are regulated out of business by the new Bureau of Consumer Financial Protection.

Further Reading

Wall Street Journal

Newsweek

Advance America is forced to desert 122 stores after Arizona banned their trade from the state. Image from Wikimedia Commons

After the Arizona ban on payday lending went into effect, and new legislation is being passed in Colorado, Advance America announced it was closing more than 100 store locations nationwide.  One of the nation’s largest payday lenders, and one of the few that grew large enough to be publicly traded, is shutting down 122 stores in Arizona, Washington and Colorado.  The stock price for Advance America then quickly tumbled on the New York Stock Exchange or NYSE, dipped 5 percent. Advance America has been in a stock lull so far this year

Advance America to shutter 122 stores

Advance America announced it would close 122 stores. The affected states are Washington, Arizona and Colorado. The state of Arizona recently let a law lapse that allowed payday lenders to operate in the state. The law was not renewed, and payday lending is now illegal in Arizona which has forced numerous payday loan stores to close their doors. Advance America will be closing 47 stores in Arizona and 75 other locations in Colorado and Washington state. The company will incur up to $5 million in closing costs in doing so.

Stock price dips

Advance America announced the store closures on July 9, after an all time low for the year. The share price for the firm was down to $3.55 on the NYSE. As of July 22, the stock price had climbed back up to $3.66. Publicly traded payday lending companies are thought to be at great risk with the creation of the Bureau of Consumer Financial Protection, as some believe the newly created agency will regulate cash advance lenders out of business. Since the average payday loan store employs at least 3 people, 366 people are now going to be out of work due to these closures.

State governments starting to slip the noose

Payday lending has been under fire for more than a decade. While no one relishes the idea of high cost lending, payday lenders entered into a market that the banks had left. One wonders what options will be left if the finance market that is not Wall Street is driven out of existence.

Further Reading

Advance America closures

NYSE

What are the minimum requirements?

If you have a valid social security number and a steady job, you may qualify for easy cash loans. Online payday lenders typically require that you:

• Have a valid social security number
• Be at least 18 years old
• Have a permanent street address
• Be currently employed
• Be employed at your current job for three to six months, depending on the lender
• Have a minimum income of about $1,000 a month, depending on the lender
• Have a valid bank account with direct payroll deposit

What about credit checks?

One of the main goals of payday lenders is to provide short-term credit to people who might not otherwise be able to meet lending standards because of credit problems. Credit reports are rarely required for easy cash loans, although many payday lenders do obtain consumer reports from Teletrack.

What is Teletrack?

Teletrack is a consumer reporting agency operating under the Fair Credit Reporting Act, the same federal law that governs the three major credit-reporting agencies. The consumer information provided by Teletrack is obtained from payday lenders, rent-to-own businesses, furniture stores that provide financing, cable and telecom companies, non-prime lenders and credit unions.

Will a Teletrack report show up on my credit history?

Unlike reports from Equifax or the other major credit-reporting agencies, a consumer report from Teletrack will not show up on your credit report and will not affect your credit score. Payday lenders use Teletrack to verify the information provided by borrowers and to avoid fraudulent applications, but they don’t use them to access credit histories or to determine credit scores.

Should I apply?

Yes! What is there to lose? Remember that payday lenders are in the business of making easy cash loans to people with credit challenges just like yours. Some lenders even offer installment loans for bad credit. When you apply at Personal Money Market, you’ll instantly be matched with the best payday lender for your needs, and you’ll find out right away whether your application is approved. If you meet the lender’s minimum requirements and your application is honest, chances are good you’ll soon have the extra cash you need.

Apply for Easy Cash Loans | Start HERE!

Will an Arizona style ban on payday lending happen with the Consumer Financial Reform bill? Image from Wikimedia Commons

The state of Arizona recently allowed the licenses of payday lenders for the entire state to lapse. Payday loan stores are in the process of closing their doors all over the state and are moving on to different pastures. Currently, the financial reform bill is awaiting the president’s signature. Part of the bill will create a new consumer financial protection agency within the Federal Reserve that will regulate consumer lending, and there is concern that a fate similar to Arizona payday lenders’ awaits all payday loan lenders nationwide.

Arizona stores closing up shop

A recent article on azcentral.com highlighted the effects of the new usury cap, or percentage rate cap the state of Arizona has imposed. At 36 percent interest, or rather, 36 percent annualized interest (on a two week loan), any payday lenders in Arizona are having a hard time keeping their doors open. Check’N'Go, one of the largest payday loan, cash advance and check cashing franchises in the country, immediately closed 11 of its 34 locations. The company employs more than 100 employees in Arizona, and all stores will be closed by the end of the summer. The remaining stores in the state will have to either resort to making car title loans or close their doors completely. Studies have shown greater incidents of bankruptcy, bounced checks, and debt collections after bans on payday credit.

Financial reform bill

Part of the financial reform bill is a new Consumer Financial Protection Agency, that will be housed inside the Federal Reserve. The bill, recently passed by the Senate, is awaiting the President’s signature. Payday lending will then fall out of the hands of the states, and into Federal jurisdiction. If the rate cap were to be imposed nationally, the entire industry will fold.

Who will the ban benefit?

It is thought that consumers will no longer be trapped by awful loans and high interest, or at least payday lenders will have to follow the same standards applied to mortgages and credit cards to cash advance loans. The only problem with that is that it costs almost $14 to lend $100 of payday credit, and 36 percent APR only yields a couple dollars per $100 loaned. Since payday customers aren’t accessing first tier credit because they don’t want to or can’t, what is going to take the place of short term loan lenders if they can’t lend and keep their doors open?

Further reading

AZ Central

Consumer Affairs