If you haven’t seen it already, the Today Show aired a short segment on the industry highlighting two customer experiences with our product. Finally—a story that offers the perspective of a borrower who said “for me, it works well.” And that’s exactly why products like ours are one of many options to consumers.
There was a bit about credit card cash advances and overdraft being “cheaper” than payday advances. But, are they?
A report by the FDIC concluded that bank and credit union overdraft fees carry APRs ranging from 1,067 to 3,520 percent. In addition, a recent Pew Center study concluded that if an overdraft was treated like a short-term loan with a repayment period of seven days, the APR for a typical incidence would be well over 5,000 percent.
Also, a Federal Reserve Bank of New York staff report, “Price-Increasing Competition: The Curious Case of Overdraft versus Deferred Deposit Credit”finds that that deferred deposit credit, payday loans, and overdraft protection compete directly for market share in the short-term credit market, an $80 billion dollar market. The report found that payday advances are a cheaper alternative to cover small-denominations and “when deferred deposit credit [payday loan] priced per dollar borrowed is available, depositors prone to small overdrafts switch to that option.”
Wonder if the Today Show got their hands on these studies?
The U.S. Chamber of Commerce released a national survey today that found that the majority of Americans were more likely to oppose the creation of the Consumer Financial Protection Bureau (CFPB) after they were given information about what the Bureau looks like and how it operates. One interesting tid bit of information within the survey that we found fascinating, and it has to do with what many of our member companies’ customers care about: Access to credit.
According to the survey, 53 percent of participants (combined) say they would be less likely to support the CFPB when asked this question:
The CFPB has the ability to ban features of products or entire products it deems unfair potentially limiting choices for consumers.
The telephone survey of 1,005 Americans was conducted November 9-13 by Harris Interactive on behalf of the U.S. Chamber of Commerce.
Many stories have flooded the marketplace pointing out one of the many options consumers have for a quick emergency loan. According to Fox Business News, iIncreasingly, banks are offering what they call direct-deposit loans, giving customers access to short-term advances.
Banks that offer these types of loans say their products are different from payday loans because they have lower interest rates than traditional payday loans, and loans are made only to existing customers. In most cases, customers can only borrow up to a maximum of $500, but some banks, including Wells Fargo, limit the loan to half of the direct deposit or $500.
But are they really that different?
“Depending on how long the loan is outstanding, the interest rate can be 300% to 400%,” says Lauren K. Saunders, managing attorney at the National Consumer Law Center. As soon as a direct deposit comes into the account, “which could be three days later,” the bank takes the money plus interest, she says.
This article today discusses Ricardo Salinas Pliego, a Mexican billionaire, who wants to extend his Grupo Salinas to New York. The catch? He would need approval for his bank’s 60 to 80 percent interest rates on small loans.
With that, here is your quote of the day. Apparently this happens in other countries as well, not just in the United States.
“The do-gooders don’t know this, but this is what happens,” he said. “The people who need a $500 loan can’t get it because it’s illegal. So where do they go? To the sharks and the illegal economy. We see this all across Latin America.”
Reminds us to remind you that CFSA Members are required to be licensed and regulated. A member that offers payday advances through the Internet must be licensed in the state where the payday advance customer resides. Unlike companies that are licensed by the state, unregulated and illegal lenders, including those located offshore, are not subject to state examination, compliance standards, or the formal complaint process.
If you’ve watched TV in the last year chances are you’ve seen commercials for the History Channel’s “Pawn Stars” or perhaps TruTV’s hit show “Hardcore Pawn”. Suddenly pawnshops are in the spotlight. According to this article, we have the Great Recession and the popularity of reality TV to thank.
This side of the short-term credit market is experiencing a miniboom and creating an opportunity for investors. Pawnbrokers are seeing waves of homeowners unable to qualify for credit cards, entrepreneurs looking for seed capital, and small-business owners struggling to make payroll. In some cases pawnshops are stepping in where the banks are stepping back.
“We’re servicing people that in the past had easy access to credit,” says Todd Hills, CEO of Pawngo.com, an online pawn operation that launched in June of this year and specializes in high-value loans. “Ninety percent of our customers are college educated or own a home. They’re in the $75,000 to $150,000 range in income. Bank solutions have dried up.”
This story came out yesterday covering Holly Petraeus’, who heads the Office of Servicemember Affairs for the Consumer Financial Protection Bureau, conference call this week with Senator Tim Johnson (D-SD). On the call Petraeus discussed the importance of appointing a director to the CFPB, saying agency enforcement personnel “cannot start their work until we have a director in place. It’s like they are circling their airfield waiting for permission to land.”
As she discussed the need for a director, we were a bit flabbergasted by the headline and its ties to the story? Sensationalism, much? Perhaps.
Just a reminder for those who follow the Pundit, CFSA member companies do not market or provide two-week payday advance loans to the military. This policy is in accordance with federal law that imposed a 36 percent rate cap on loans of 91 days or fewer to military personnel, their spouses, and their dependents.
And with that last blogpost, here is your quote of the day. When speaking of alternatives, we encourage access to competitive products in the short-term lending arena and hope all consumers have a choice in what product is right for their individual circumstances:
“That’s not to say these other products aren’t great alternatives — which, in fact, they are. I champion the introduction of an innovative product into the credit market, particularly at a time when credit is so restricted.”
The more clear and transparent options a consumer has the better.
“The mainstream media loves to hate payday lenders. That’s because it’s easy to paint them as villains without ever explaining the whole story behind the product. So they publish article upon article attacking payday lenders without ever acknowledging that millions of consumers use it every year, with only an infinitesimal number of complaints. The free market and repeated studies have determined that customers like the service, understand its costs and risks, and are left worse off when the option is forcibly removed.”
A House Financial Services subcommittee is taking a look at the first 100 days of the Consumer Financial Protection Bureau. Raj Date, the agency’s acting head, is testifying on the Bureau’s work so far and what’s on the horizon. Watch it live now, by clicking here. Look to the right and click on “CFPB hearing: Live Now”
Consumers ultimately rule the market, and if they want something bad enough they can change businesses’ behavior. And the proof is in the pudding.
Today Bank of America, after several weeks of back lash from its announcement of its $5 debit card fee starting in January, has announced that the banking giant is going to drop the fee.
“We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee,” David Darnell, co-chief operating officer, said in a statement today. “Our customers’ voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.”
