Here’s a story from Mississippi about a new payday lending alternative.  The Payday Pundit thinks this is great.  The more choices consumers have when it comes to short-term financial products, the better!  However, because you’ve come up with an alternative doesn’t mean you should replace existing products.  Let the market work and let consumers choose which product they like better.  There is one thing in this announcement that makes this pundit think that this new loan will not replace payday loans outright:

There are no fees to participate in the BankPlus program, but a credit check is required, and the credit score affects the loan amount for which a customer is approved. Customers also must complete a financial literacy program before they receive the loan and they receive credit counseling once they are approved

One reason people take out payday loans is because there is no credit check required.  Imagine if you’re a busy person and need money today, something tells me you won’t have time to receive credit counseling before you need the money.

From an interesting blog called Necessary Roughness, not only the blog post itself, but the comments following the post are worth the read. Intelligent people debating the merits of credit, without all of the hype.  We need more of that. An excerpt:

Payday loans are a risky business. If a customer is demanding a payday loan, the risk that customer may not pay back the money is phenomenally greater than the person who can pay for a car in cash. The payday creditor must make money from other loans to cover the losses on loans that default. The market currently exists because some people can pay those loans at those interest rates. If the interest rate is capped below a point where the creditor makes money, the creditor will have to get funds elsewhere or go out of business.

One comment asks the question, “what if instead of setting a maximum interest rate, the state legislature instead passed a law that only required the lenders to report in big letters the annualized interest rate for the loan, or something that would insure that the putative debtors truly understood the cost of what they were getting into?”  The Payday Pundit wants the commenter to know that members of CFSA, the national payday lending trade association, are required to post their fees (in both dollars and APR) in large font on poster-size displays in all stores.  Read more on the industry’s fee transparency at www.knowyourfee.org.

Interesting post from Steele Street Blog, The Assault on Market Transparency:

“When a free market works it is a beautiful think. Adam Smith’s invisible hand graces many a bargain from flat screen TV’s to fast food. Supply and demand work as opposing forces in a tug of war as the market sets the price of goods and services. This process works when purchasers are able compare the quality of goods and services along with their price, among multiple sellers.”

We could not agree more.  The best way to protect consumers is to give them the
information they need to make an informed choice. Consumers demand and deserve full disclosure of relevant information before they make a purchase.

To that end, CFSA member companies are required to display their fees in large type on posters in all of their stores.  Before entering into the transaction, customers can compare the fee with their alternatives and decide if the product is right for them.