Fed Study Finds 169 Mortgage Finance Companies Failed Last Year
December 31, 2008 | Uncategorized | Comments (2)While the study has nothing to do with payday lending, the Pundit wanted to take this moment to remind readers that payday lenders are not failing due to people not paying them back. The fact is that, unlike many mortgage lenders, payday lenders do assess a borrowers ability to repay the loan. And more than 95% of borrowers do pay the loans back.
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The fact is that, unlike many mortgage lenders, payday lenders do assess a borrower’s ability to repay the loan.
That’s a half truth. Payday lending is “asset lending” but it doesn’t fit the FDIC standard for responsible lending. To qualify, the lender must gather information about both assets and debts before granting a loan.
Payday lenders do the former but not the latter. They set the loan size in relation to income but do not gather easily accessible information about debts (through a credit report). If you did that and you were trying to be responsible, you would have to reject more than the 20% of applications the typical lender already declines.
A case in point: If your Oklahoma customer who has already taken out 18 payday loans this year applies for loan #19, an ethical lender would say no. But judging by the statistics, there don’t seem to be too many ethical payday lenders in Oklahoma since roughly 15,000 residents did get loan #19.
I guess the fact that they’d paid off 18 loans already this year was sufficient proof of their credit worthiness.
Arthur,
How much debt a person has does not determine whether a payday loan is a good idea for them. If the loan enables them to repair their car so they don’t lose their job or saves them from eviction, then it’s a good idea even if they owe a million bucks. And it’s also a good idea even if it just saves them a few dollars in alternative fees that they would otherwise have to pay. People know their individual circumstances and are in a better position to know if a loan is good for them than the lender or any government formula put together by activists and politicians who want to pride themselves on how they are protecting us from ourselves.
Every loan is a gamble on the part of both lender and borrower, and nobody can ever guarantee that any loan can ever be repaid. If both the lender and the borrower mutually agree that the transaction is likely to further their interests, then who are you or any government agency to tell them that they can’t engage in it? If the lenders are tricking people into expecting one thing but delivering another that of course is deception which should be stopped, but apart from that, BUTT OUT, MAN!
If lenders have a responsibility to investigate the finances of people who apply for loans to make sure they can afford them then so do all other merchants and service providers. Is that the kind of society you want to live in? When you are the one who has to get government permission to purchase a product or service then you may feel differently about making politicians our parents instead of our servants.