Where is the consumer credit?
March 30, 2010 | alternatives, federal legislation, industry, research | Comments (0)The Gerson Lehrman Group explains:
The available supply of consumer credit has dwindled due to credit card lines being dramatically reduced or eliminated and home equity lines being frozen or reduced because of falling home values.
What is the role of Alternative Financial Service providers to meet the demand?
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The Alternative Financial Services (AFS) space – payday lenders, pawnshops, rent-to-own stores, and auto title lenders -lenders – are all sources for low-dollar/short-term credit.One source of unsecured credit to meet this demand is the payday loan industry. In states that permit payday loans, households with checking accounts pay up to 13% less in overdraft and insufficient fund fees than in states that prohibit payday loans.
An idea whose time has not come
March 30, 2010 | federal legislation, industry | Comments (0)Great op-ed in the Huffington Post (never thought I’d say that) by Marty Robins, an attorney:
For an Administration which claims to be committed to economic recovery through free markets, the Obama Administration does a good job of confusing the issue. Its advocacy of a Consumer Financial Protection Agency is exactly what our economy does not need as it tries to recover from the Great Recession.
The whole piece is a great read.
Why oppose the CFPA?
March 30, 2010 | alternatives, federal legislation, industry | Comments (1)Because some people believe consumers should have access to credit. And that more regulation hurts the economy. And that the federal government shouldn’t be regulating small loans.
From the editorial in the Sarasota Herald Tribune:
Why should there be any significant opposition to the creation of an independent agency with strong powers of enforcement to protect consumers from exploitation by banks, mortgage companies, auto dealers and other purveyors of credit?
Auto dealers aren’t happy either
March 30, 2010 | alternatives, federal legislation, industry | Comments (0)From the story in The Hill:
The Obama administration is trading sharp words with auto dealers over a new proposal to create a consumer financial protection office.
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“The U.S. government saying that those who sell cars and trucks are ‘preying on’ our men and women in uniform is akin to calling dealers unpatriotic and we find that blatantly offensive,” said Bailey Wood, spokesman for the National Automobile Dealers Association (NADA). “We sure didn’t need the CFPA to win World War II, yet to DoD is claiming that a super-agency is necessary for ‘military readiness’. Give me a break!”
Silliness in Wisconsin, too
March 30, 2010 | Wisconsin, industry, regulation | Comments (1)Another op-ed calling for a rate cap. Or, to put it another way, another op-ed calling for an end to short-term credit for working people.
(link fixed)
Silliness in California
March 30, 2010 | California, industry, regulation | Comments (0)This legislation to impose an interest rate cap on loans to unemployed people is counter-productive. It will simply reduce the availability of credit. From the story:
Under a new proposal, state Assemblywoman Nancy Skinner (D-Berkeley) wants to cap the interest rate on payday loans covered by unemployment checks to 36 percent.
Federal law already caps the interest rate for the military at 36 percent. This proposal is a state version aimed at extending it to California’s unemployed.
The industry points out the cap forced stores to cut back payday loans to military personnel because the rate didn’t cover their cost, and it warns the same could happen to the unemployed.
“What, in effect, you will do is limit the choices available for short-term credit in the marketplace for these consumers,” said Greg Larsen, a spokesman for the California Financial Service Providers Association.
Transparency
March 29, 2010 | federal legislation, industry, positive media coverage | Comments (0)I think I like some of the this New York Times op-ed piece:
So if the Consumer Financial Protection Agency should not focus on constraining prices or mandating disclosure, what should it do? A growing body of evidence from economics and psychology offers insight. Providing consumers with information can help, but only if it comes at the right time and in doses that don’t cause information overload.
Hard to argue with.
Against a new agency!
March 29, 2010 | Colorado, federal legislation, industry | Comments (0)Wow. The Denver Post editorial page has come out against creating a new agency:
Instead, we’d rather see a focused return to fundamentals than creation of a new, all-encompassing government agency. To begin with, Dodd’s CFPA proposal is a watered-down version of a plan passed in the House that would have created a much stronger and more independent consumer-protection agency.
Maybe the tide is turning.
At least he’s honest
March 29, 2010 | federal legislation, industry | Comments (0)From an op-ed by Martin Neil Bailey of the Brookings Institution in Politico today:
Most surprisingly, the Dodd bill lodges the new Consumer Financial Protection Agency in the Fed, as a bureau not an agency.
This has incensed critics on the left, but it looks like a clever ruse to use the Fed’s deep pockets as an independent source of funding for the bureau. It would have a Senate-confirmed head and would not be told what to do by the Fed. In the Fed it can coordinate with their bank regulators — which is an advantage.
So, overall, I like the Dodd proposals on consumer protection. If these proposals were to reduce consumer borrowing a bit, that would also be welcome.
Pawn shops boom in Virginia
March 29, 2010 | Virginia, alternatives, industry | Comments (0)Is it a coincidence that since Virginia created a more difficult operating environment for payday loans pawnshops are booming? This is the second story we’ve post in the last two weeks:
The back room of Vinton Pawn Shop Inc. looks like a pi-rate’s cove, a hardware store and grandma’s attic combined as one.
It has shelves of fishing poles, chain saws, weed whackers, hunting rifles, guitars in cases, vaults of engagement rings and gold necklaces, a slot machine and a Rascal scooter. With 13,000 square feet of storage, there’s hardly room for more stuff.Shops such as Vinton Pawn straddle the line between banking and retail — two business models that have been less than stagnant in the past year. Stagnant or not, almost 1,000 pawn shops opened in the past few years in the U.S. and at least two new storefronts have lit up in the Roanoke Valley: 220 Pawn & Gun Inc. in Roanoke County and Bargain Pawn in Salem.
The shops loan money — usually $100 or less, plus 5 percent to 10 percent interest — and keep collateral, such as DVD players or hunting bows, in storage. If a customer defaults on the loan after 30 days, the item in pawn becomes mer-chandise.
A deflated economy has increased the stores’ revenues from loans and gold sales while slowing retail sales.
Johnny Hill, a 16-year industry veteran who works at Vinton Pawn Shop, says it’s the “golden age’‘ and the “heyday’‘ of pawn shops.
