Intelligent payday loan customers
December 11, 2009 | alternatives, federal legislation, industry | Comments (0)Larry Meyers dissects the FDIC report on the “underbanked”:
While payday loans are approved in a mere 15 minutes, most of these FDIC-sponsored loans took more than 24 hours to approve — failing consumers who needed their funds immediately; some required direct deposit, credit checks and possibly a financial literacy class or collateral (none of which are required for a PDL); some required a portion of the loan be put on deposit (not part of the PDL process); only a few thousand loans were made because of said inconveniences (compared to 100 million loans annually for PDLs due to their convenience); and none of the institutions actually made a profit while some lost money, even when including an origination fee of up to $50 (whereas PDL’s profitability allows them to be widespread and easily accessible).
For the FDIC, it’s the agony of defeat – which naturally didn’t stop them from calling the program a success. Let’s also remember that the only reason 30 institutions came on board to offer these loans because they’d receive “favorable consideration under the Community Reinvestment Act”. In other words, participating banks had to be bribed to get them on board.
What can we learn from this ridiculous experiment? Not surprisingly, we discovered that a government-administered program for short-term credit failed to serve the real needs of real Americans. After all, consumers are not stupid. They know how to shop for the best deal. The rates and fees on the FDIC’s products, despite being 95% cheaper, did not balance out the consumer’s desire for quick, convenient cash provided without a bevy of requirements, and handled with a minimum of invasiveness.
Comments»
No comments yet.