Payday Loans Popular As Consumers Wait for Restructuring

Payday Loans Popular As Consumers Wait for Restructuring

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President Obama’s message to banks

As the President looks for ways to invigorate the lending industry, consumers are using payday loans to help them out of financial binds. Recently President Obama encouraged top bankers to “help keep the fragile recovery from faltering by boosting lending to small businesses and getting behind the overhaul of financial regulation.” He added, “We rise and fall together.”

The President is referring to the post-recession financial world. Due to the economic downturn many lenders closed their doors. Loans were defaulting in mass numbers and to mitigate losses, loan companies stopped lending. They also took on some questionable tactics to save their business. Lending limits were cut without notice, interest rates were increased and fees were out of control. Consumers suffered as a result and had to manage on their own with savings, alternative loan options and family help.

The banks response

In response to the President’s address, banking lenders stated that they are getting mixed messages. On one hand they are trying to extend loans to consumers, but on the other hand, heavy regulation from the government is making it difficult. They cite that the regulators are continuously cracking down on banks wanting them to lend more prudently. They are also pressing banks to keep larger coffers of funding to protect against potential problems. The larger money reserve means they have less money to hand out in loans.

Obama explained, “America’s banks received extraordinary assistance from American taxpayers to rebuild their industry, and now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.” The president is pushing banks to lend again. He added that each financial institution should “take a third and fourth look” at all loa forms that come to them. Lenders should do all they can to spur on the lending market.

The payday loan market

The meeting between President Obama’s cabinet and the banking industry was thought of as successful. The President’s lecture was part of an initiative to tie bank lending to the problem of high joblessness. US Bankcorp CEO Richard Davis was one of those in attendance. He believed that the meeting was “highly productive” and said that banks have lagged when it comes to lending like they did pre-recession. Proof of their slow return to normal is the booming number of payday loans currently being extended. Small lenders that offer unsecured personal loans and short-term loans are finding huge numbers of customers coming to their doors.

Peggy Champ, manager of Pay Day Now, in Pittsburgh, Pennsylvania said, “Our store is open from nine in the morning until ten at night and we have to have it fully staffed the whole time. We’ve had to go through an intense hiring process twice since June of this year to keep up.” Pay Day Now is finding that their alternative loan product is one of the few reliable loan options Americans have.


President Obama’s plan seems to be working with the major players in the banking industry. For example, Bank of America CEO Kenneth Lewis stated that his bank would lend $5 billion more in 2010 then it did in 2009. JPMorgan Chase and Company said it would increase lending by $4 billion. Both companies are focusing on four areas of development coming 2010:

• Increased mortgage modification possibilities for homeowners

• Heavy support for the new financial regulations and legislations

• More lending to small and mid-sized businesses

• Control over CEO salaries

The changes in the banking industry are hopefully going to bring borrowers new possibilities in terms of finding funding. Until changes happen, however, many borrowers are looking to payday loans, short term loans and small unsecured personal loans to make it through their monthly budgets.

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