Congrats to the Online Lenders Alliance for a successful conference this week in Denver (that’s where we were this week, listening to all the latest developments in technology and innovation in the online space). While we’re giving a round of applause to OLA, we also want to hand it to Charles Hunter of Borrow Smart Alabama for his editorial in the Birmingham News.
In response to an article that ran last weekend, Mr. Hunter said this:
“The News used the loaded word “predatory” to describe the short-term lending industry and said lenders “force people who are least able to pay into a cycle of debt.”
For years, the industry has been trying to determine why anyone, particularly well-educated and worldly journalists, would have this unfounded impression the short-term lending industry is exploitative in any way. Perhaps this perception remains from the years before the passing of the 2003 state law that regulates the payday loan industry and protects consumers from cyclical debt.
Before that time, there were some “loan sharks” out there who did, in fact, live up to the reputation the industry can’t seem to shake. This misperception might also stem from media reports over the years stirred up by industry opponents using PR tactics to further their political agenda.
But here’s the punch line: It’s just not true. In this case, perception is not reality. The reality is that hardworking Alabamians occasionally need to borrow a couple hundred dollars to serve an urgent need. They are more than willing to pay the one-time fee of 17.5 percent the law allows to borrow that money.
I challenge the members of the City Council and The News to walk into any payday loan store in Birmingham and talk to a few customers. Take out a loan, perhaps. Don’t just believe what you read or what you hear. Find out from real people who use our products. I think you’ll be surprised by the truth.”
And we just wanted to applaud you.
I think the bottom line is that anytime you take out a loan it needs to be carefully considered. There are people that easily fall into the cycle of debt. But there are also times when you are in an true emergency situation and need a cash advance. It really is a personal decision.
A personal decision is really great way to think about it. Only we go out of our way to make sure our customers are protected. CFSA members are concerned about the potential for excessive use of loan rollovers which occurs when a borrower cannot pay back on time and repeatedly extends the loan. Nineteen of the 32 payday advance states expressly prohibit loan rollovers. CFSA Best Practices address this possibility by limiting rollovers to four or to the state limit—whichever is less.
An additional safeguard under the CFSA Best Practices is the Extended Payment Plan (EPP) which is available at no additional cost to a borrower who needs more time to pay back the loan. The EPP is meant to ensure that a customer does not feel compelled to take out another payday loan to pay off a prior one and provides a “cooling off” period between loans.