A government alternative?
December 7, 2009 | alternatives, federal legislation, industry | Comments (0)Because banks and credit unions can’t offer a true payday loan alternative, Sen. Herb Kohl (D-WI) wants the government to be involved:
The Safe Affordable Loan Act would encourage financial institutions to make loans of up to $2,500, with interest rates capped at 36-percent.
That may sound like a high rate, but J. Michael Collins, a UW-Madison professor of personal finances, says borrowers often end up paying much more if they allow payday loans to carry over month to month. Collins says some Wisconsin credit unions already offer small personal loans, but they’re not big money makers. He says it’s hard for lenders to make a business out of smaller loans because there’s a large fixed cost to making a loan.
The Safe Affordable Loan Act would lessen the risk for lenders by guaranteeing up to 60-percent of the loans. So if borrowers default the lender could recoup some losses.
So, Kohl is conceding that banks and credit unions can’t compete unless offered government breaks?
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