“Although a payday loan customer is typically financially vulnerable, payday lenders are not necessarily targeting their customers inappropriately. Identifying the motivations of lenders and customers is difficult. Payday lenders may create demand for their product by targeting financially vulnerable populations, or they may simply be locating their stores
where markets exist.”
This research provides new empirical evidence on the potential benefits and costs to consumers of restricting payday lending. Edmiston says in his opening remarks:
“The analysis shows that restrictions could deny some consumers access to credit, limit their ability to maintain formal credit standing, or force them to seek more costly credit alternatives. Thus, any policy decisions to restrict payday lending should weigh these potential costs against the potential benefits.”
How, you say?
1. Lack of access to credit: “The most obvious and important cost of restricting payday lending would be the potential loss of credit access for consumers who may not have other sources of credit. Fully 50 percent of respondents to the 2007 payday loan customer survey responded that, when they secured their most recent payday loan, it was their only choice for short-term funds (Elliehausen). This assessment may have been inaccurate in some cases, but lack of knowledge about credit alternatives has the same effect as a true lack of access.”
Another important issue to keep in mind: “Without access to lenders, many financially constrained consumers may turn to family and friends. Payday lenders, however, report that many of their borrowers are reluctant to reveal their financial situation to others, or they have exhausted access to such loans (Caskey 2002). Others may not have family or friends with the financial means to help them.”
2. Credit standing. “When faced with unanticipated changes in income or expenses, a borrower may be forced to miss loan payments or even default on a loan. Unlike traditional lenders, however, payday lenders typically do not report to credit agencies. In the event that finances do not improve over the course of the loan period, defaulting on a payday loan would typically not harm the borrower’s formal credit standing. Thus, from this perspective, payday loans may be less risky than traditional loans.”
3. More costly alternatives. “While a payday loan under normal circumstances is costly to the borrower, its terms could be more favorable than those of other sources of credit. Clearly, if access to a traditional lender such as a bank is available, most would-be payday borrowers would be better off seeking short-term funds there. But few banks make small-dollar loans. Even if they did, few typical payday loan borrowers would have sufficient credit standing to acquire such a loan.”
It appears that the CFPB’s new credit card complaint system is experiencing hiccups in routing some complaints to banks, according to Bloomberg.
The month-old complaint response system has failed to properly route all inquiries, a problem bureau spokeswoman Jen Howard said the agency will resolve “within a matter of weeks.” Howard didn’t say how many complaints have been held up.
Continued coverage from Bloomberg’s story:
Some banks found that their volume of complaints dropped as the bureau’s system failed to work properly, said Richard Hunt, head of the Consumer Bankers Association. The banks were concerned they might be blamed for unanswered queries, he said.
“If you’re a bank, you don’t know there has been a complaint unless the CFPB tells you,” Hunt said in an interview.
A word to the wise to all consumers of payday loans: Use a CFSA Member! We want to make sure that situations like this don’t happen. Remember, using a CFSA Member means you’re doing business with a legitimate financial institution.
A member will comply with the disclosure requirements of the state in which the payday advance office is located and with federal disclosure requirements including the Federal Truth in Lending Act. A contract between a member and the customer must fully outline the terms of the payday advance transaction. Members agree to disclose the cost of the service fee both as a dollar amount and as an annual percentage rate (“APR”). A member, in compliance with CFSA guidelines where they do not conflict with applicable federal, state or local requirements, will further ensure full disclosure by making rates clearly visible to customers before they enter into the transaction process.
A member will comply with all applicable laws. A member will not charge a fee or rate for a payday advance that is not authorized by state or federal law.
You’ll know when you’re taking out a loan with a CFSA member if you see this seal.
Charlotte’s Action 9 is reporting that a Lincoln County woman said she applied for a payday loan online but canceled it. Now, collectors have been calling demanding repayment. Elizabeth Ingle said what she did online led to a series of threatening phone calls that have left her in tears. Click on the image below to watch the full story.
So what happens if you experience a collection scam? CFSA released a statement earlier this year about rogue debt collectors. Here’s a snapshot from what our Board Chair D. Lynn DeVault said:
“It is simply wrong to pursue criminal complaints against consumers who have defaulted on personal debt,” said D. Lynn DeVault, board chair of the CFSA. “Lenders should be working with their customers to figure out a solution. Our members offer borrowers an extended payment plan at no extra cost to the borrower and adhere to CFSA Best Practices which prohibit any criminal recourse.”
CFSA’s Best Practices state, “A member will not threaten or pursue criminal action against a customer as a result of the customer’s check being returned unpaid or the customer’s account not being paid.”
We, at the Payday Pundit, really love it when reporters only take one side of the story. That was sarcasm in case you didn’t catch that.
Hurts the economy? Really? Below are just some great stats that we wanted to share with our audience about the economic impact of payday lending in Missouri.
IHS Global Insight conducted a comprehensive study analyzing the economic impact of the payday loan industry nationally and in states with storefront locations. Findings illustrate “measurable and significant” economic benefits to local economies directly through employment, compensation and taxes, as well as through indirect and induced relationships with suppliers and other industries.
The industry contributed over $596 million to Missouri’s gross state product (GSP) in 2007.
The payday lending industry supports over 9,000 jobs[1] in Missouri including 4,152 people directly employed in 1,272 storefront locations. [2]
The industry indirectly created another 1,871 jobs in supplier industries.
Payday loan store and supplier industry employees induced the creation of 3,335 jobs through the purchase of goods and services using earned wages.
[1] Includes jobs in industries supplying input goods to the payday lending industry as well as jobs sustained due to the spending of wages in local economies by payday ending employees.
[2] Direct employment includes only store employees and not those employed in corporate headquarters or parent organizations.
The CFPB has received some interesting letters in response to their request for comment on larger participants in the nondepository markets. One of the most unique letters that we’ve seen is the one submitted by the group Tech Progress. The letter, which was featured in the Huffington Post last week, suggested that the CFPB not only include traditional nonbank financial institutions in this group of “larger participants,” but that they oversee search engines and related online advertisers as well.
In particular, Tech Progress’ Founder Nathan Newman asks that the new agency look into services that provide online marketing for financial services based on behavioral targeting. Newman states that “the issue of behavioral targeting — delivering ads to individual consumers based on their demographic profile or search patterns — opens up whole new areas of potential abuse.” Newman’s biggest strife with the behavioral targeting industry is that too much of the process is hidden for the public. Rather than calling for significant regulation of these services, Newman is first asking for more transparency in the process. He argues that, “just publicizing how much revenue search engines like Google make from the financial industry will highlight their key role in the financial world.”
CFSA member RKZ Management is supporting the Make-A-Wish Foundation by hosting the 5th Annual Wishing on a Star Trivia Night. Every community is full of precious children who may have had a more difficult childhood than the average person because of an illness. The Make-A-Wish Foundation® of Missouri is an organization that has recognized the hardships of these children and makes efforts to ease their current situation by granting their greatest wish for them.
Please join one of your fellow CFSA members in support of the Make-A-Wish Foundation by participating in RKZ Management’s 5th Annual Wishing on a Star Trivia Night. Wishing on a Star Trivia Night will be held on Friday, September 23, 2011 at the Kirkwood Community Center at 111 S. Geyer Rd.., Kirkwood, Missouri 63122.
This is a great opportunity to get your business involved in corporate social responsibility and community outreach! The minimum donation for entry is $20 per person, $160 for a team of 8 or $140 if paid in advance. Registration begins at 6:00 p.m and trivia begins at 7:00 p.m. All net proceeds will go to benefit the Make-A-Wish Foundation. For tickets or more details contact Yolanda CLark Knew at 636-533-0119 or yolanda@rkzmgmt.com.
And in other Member community news this week,Advance America collected over 7,000 toys for Alabama’s only freestanding pediatric medical facility, Children’s of Alabama. From April to June, Advance America centers in Birmingham held a Toy Drive in their communities. In that time, they were able to collect over 7,000 toys for Children’s of Alabama.
“Our company has built its foundation on being a part of the communities we serve, and events like these are central to our commitment to giving back,” said Jamie Fulmer, vice president of public affairs for Advance America. “We are pleased to provide support for local families through this contribution to Children’s of Alabama, and proud of our employees for taking an active role in their community.”
Quoting an article that ran in The Daily Texantoday that used targeting in its lede in for the report: “… astutely recognized lenders’ predatory nature on working-class and financially inexperienced Austinites.”
Just a point of clarification, as this statement is misleading. CFSA members do not target certain demographics. Our members are located in population centers, and in convenient locations where customers live, work, and shop. As brick and mortar lenders, CFSA members are part of the neighborhoods they serve and are sensitive to the needs and concerns of our customers.
Let’s not forget that our service provides access to credit to more than 19 million banked customers across the United States who choose our product to meet their small-dollar, short term needs. Research shows that payday advance customers generally come from moderate income, working families, with most customers earning between $25,000 and $50,000 annually. Payday advance customers are educated; 90 percent have a high school diploma or better, with 54 percent having some college education or a degree. For more information on demographics, click here.
It’s Friday, and what better way to spend your day than chiming in on why access to short-term credit is so important. We’re happy to see that even our critics read our blog, and as you can tell by this post–they’ve chimed in. And we want our supporters to chime in too! Click here to see the comments on a recent post, and tell the Payday Pundit why the payday advance should be available to millions of hard-working Americans who understand and appreciate the service.
