Payday Loans – Are They as Bad as Some Make Them Out to Be?
Most of the payday loan industry’s criticism
is politically motivated and calls to mind the classic meme of a scout trying to help an old lady across the street when she doesn’t want to go. Politicians are filled with good intentions to legislate from ivory towers while down-to-earth people struggle when they don’t have financial alternatives in emergency situations. Regardless of whether payday loans are good or bad
, people appreciate having them as fail-safes, and many industry experts support the industry’s contention that its charges are reasonable when administrative processing costs, high default rates and limited payback periods are factored into the equation.
The Payday Lending Industry Receives Conflicting Reviews and Politically Motivated Criticism
Good or bad are relative terms–especially when they get started to choices that people make. It might seem as though paying 400 percent annual interest on a loan is usurious, but these loans are only meant to generate interest for about two weeks and not an entire year. Lenders have fixed operating and processing costs, so they don’t clear as much money from these loans as critics suggest.
It’s not bad to pay high interest for two weeks if the alternative is losing points on the borrower’s credit rating, incurring bounced check fees or suffering a utility service disconnection when there’s no cash to pay the bill. Politicians tend to focus on the few examples of people getting trapped in debt because they renewed their loans too many times. Believing that politicians always have people’s best interest in mind is confusing when an elected official changes his or her long-standing position in the way that Florida Congresswoman Debbie Wasserman Schultz did.
Political “hot potatoes” can generate ambiguous responses, and flip-flops become common due to political pressures that have little bearing on real-world conditions and everything to do with perceived political correctness. For example, the former Democratic National Committee Chair, Representative Debbie Wasserman Schultz, had been known as a supporter of payday lending, but she quickly flip-flopped in her short-lived role as DNC chair.
A Thinkprogress.org report suggested that Wasserman Shultz bowed to political pressure and reversed her long-standing support of the industry to support the Consumer Financial Protection Bureau’s release of new regulations against the industry. The report stated that Wasserman had supported the payday lending industry for years but quickly flip-flopped in her role as Hillary Clinton’s choice as DNC chair.
Clinton is inextricably tied to the CFPB, President Obama and the payday lending industry’s chief critic, Elizabeth Warren, whom President Obama appointed to set up the agency according to HuffingtonPost.com. Wasserman Schultz sponsored legislation to gut the reforms of the agency before bowing to political pressure. However, the DNC chair was removed from her post after Wikileaks revealed compromising information about her strategy to discredit Clinton political rival Bernie Schultz.
Real-World Analyses of Calmer Heads Challenge Political Extremism
Payday lending remains immensely popular with rank-and-file consumers who have poor credit, few resources in emergencies or an immediate need for cash to resolve thorny situations. One HuffingtonPost.com report quoted a Rederal Reserve study that found 47 percent of U.S. families couldn’t cover an emergency expense of $400. People from all socioeconomic groups tend to live payday-to-payday because of their existing loan obligations, high-cost auto payments and everyday living expenses in a society that encourages profligate spending and consumerism.
Any Business Can Receive Criticism, but Payday Loans Survive Due to Their Popularity
Payday loans can save money when they prevent defaulting on credit card payments, which increases interest rates and generates late fees. People who need cash for a car repair, tooth extraction, medical procedure or return-trip home after being stranded certainly don’t worry about the relatively high fixed costs of securing a short-term loan.
In fact, banks and other financial companies are anxiously trying to develop similar loan products if the payday lending industry is banned through unrealistic regulations from agencies like the CFPB. The short answer to whether payday loans are as bad as claimed is a resounding “no.” Learn more about payday lending, its attempt to self-regulate through industry associations and its fight against unlawful regulations at the PersonalMoneyStore
Thursday, August 25th, 2016 by bryanh