Payday Cash Advance Providers: Hated by Those Who Don’t Use Their Services

Nov 14, 2017 by

Payday Cash Advance Providers: Hated by Those Who Don’t Use Their Services

By the standard definition, payday cash advance and related non-bank financial services are not very popular products. Three to five per cent of American consumers view non-bank financial services or lending as check cashing.

According to Americans for Financial Reform, that thought make those financial products unpopular among the average Americans. As per a recent data from Pew Charitable Trust, seventy per cent of Americans want to see non-banked consumer services and payday lending reformed and eighty per cent believe that they are very expensive.

So, most people hate payday lending and view check cashing as inherently predatory and suspicious.

However, there is one notable minority of American consumers who rather like these products – the ones who uses them. For this group of approximately ten to twenty million Americans, payday is quite popular.

Lisa Servon, Professor of City Planning at the University of Pennsylvania and former dean at The New School, noted that something did not make sense because if payday lending was so toxic and awful, then the number of people using these products would not be rapidly increasing.

Servon told PBS News Hour that she has spent twenty years working in low-income neighborhoods and she knew that people who do not have very much money are well aware of where every penny goes. That is when she thought that there has to be more to the story about the payday lending industry.

In her book, The Unbanking of America, she tried to tell a story – a story that she researched by working in various parts of the non-bank financial services industry including check cashing and payday lender shop.  She said that the reasons are neither hard to understand or illogical.

Consumers like payday lenders since they offer consistent transparency and consistent access to those who are living very close to the financial margin.

Accessibility and Access

When it comes to funds, consumers with savings do not think about immediacy as a driving concern. A check that goes to the bank and is not available for a few days does not seem like a life-and-death situation because the consumer presumably has funds in the account. However, that is not the financial reality for those consumers who use payday loan and check cashing services. Servon observed that this can be the cause why these financial products may seem odd to those outside of the unbanked experience.

Also, ATMs do not give $8 or $13. They give multiples of $20. Since the underbanked consumers need every dollar that they can get access to, everything suddenly makes so much more sense.

She further noted that these consumers require more than just funds in their hand. They also require funds to be distributed. The check cashers often act as a one-stop shop for multiple financial services, such as remittances to relatives overseas, pre-paid cards, paying rent or paying bills. Also, these services are available 24/7 as opposed to the 9 to 5 bankers hours.

Moreover, the payday lenders are fulfilling the basic needs of customers that are non-optional. Consumers pay their bills with payday loans, they do not purchase luxury items.

Servon said that people talk about getting rid of payday lenders without even realizing that their demand is there. Their demand is there because the wages have been decreasing since the ‘70s. since income volatility has doubled, it has become harder for people to predict how much money is going to come week to week. Even though the costs are high, isn’t it better to have access to expensive credit than not having access to any credit? She also urges people to realize that access to funds is expensive no matter where they turn – traditional or non-traditional.

Transparent transactions

Servon made an observation that even though the payday loans, wire transfers and check cashing are high, they are known commodity. People can find brightly colored, large signage all over the locations and customers are aware of exactly what they are paying to make use of funds.

Banks can also be just as expensive or maybe even more, but not in very obvious ways.

She says that the signage found in the bank teller windows resemble the ones that can be seen at a fast-food restaurant, such as McDonald’s. It says that it costs 2.03% the face value of your check to cash it, $1.50 to pay a bill, $0.89 for a money order.

She noted that with banks there is no immediate access to funds and checks can take a day or 2 to get cleared. In case other expenses hit an account during that window, the overdraft fees start at $35. 44% of the banks still stack charge to accounts to maximize the number of fee overdrafts that can be charged. Account service fees, ATM fees are charged if a minimum balance is not maintained. For marginal consumers, banks can prove quite expensive.

Payday cash advance providers are a boon for the millions of American consumers who are underbanked. Servon said that it is important that this industry remains so that millions of Americans have access to funds.

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Pawn Shops against Fast Cash Online Service Providers

Oct 24, 2017 by

Pawn Shops against Fast Cash Online Service Providers

The Consumer Financial Protection Bureau was an agency which received praise from around the country as it stood as a symbol of hope for the economy of United States of America. But it’s suspicious manner of functioning coupled with its unmindful rules and regulations has led to people distrusting the organization. One such instance where the Consumer Financial Protection Bureau has shocked the masses has been caused by the proposal of new rules and regulation on payday loaning. These strategically designed regulations are set to completely wipe out the majority of the payday lenders and providers of services like fast cash online and other such emergency cash provision services.

These new regulations are also set to control the practice of, ‘auto title lending’ or, ‘car title lending’ – a financial advance of a small sum of money given for a short duration of time which requires the borrower to give the moneylender the title of his or her automobile. Consumer Financial Protection Bureau’s new rules are also expected to possibly even crumple low scale and low cash advancing by banks and credit associations. But the new set of CFPB’s regulations will not rattle the pawn brokers. Consumer Financial Protection Bureau explicitly left out pawn shops from their guidelines because they think of them as an improved option over payday loaning for people in a desperate need for cash.

Payday moneylenders are feeling cornered and victims of partiality. The special protection given to pawn shops by the Consumer Financial Protection Bureau looks highly discriminatory to legally registered payday lenders. In the future, exactly what and how pawn shops will benefit from these changes in the system is a matter of guesswork, but some criticizers of payday advances are certain that people in a desperate need for cash will be well treated by putting their trust in pawn shops over payday creditors. The agency’s reason is that pawn shops do not source the difficulties that inspired them to levy the new rules on payday loaning.

The guidelines were supposed to put an end to the vicious, ‘debt traps’. A vicious cycle where debtors take out credits with exceedingly high rates of interest to evade a temporary emergency, and then they start falling profoundly into further debt and liability in trying to pay back the amount of loan which keeps increasing. The statistics and numbers provided by the agency showed that ‘debt traps’ are very common and are happening all over the country. Nine out of ten payday advances are rolled over or trailed by one more advance in two weeks. Almost fifty percent of payday advances are part of an order where the debtor is seen eventually taking over 10 loans. With rates of interest reaching over 300%, those charges usually find themselves to be greater than the original amount of loan that was taken. This is the major reason behind the agency demonizing the payday lenders.

The Pawning industry, however, does not present similar types of danger to its customers. The debtor is never at risk of dwindling into a sequence of debt. If anyone is unable to recompense the credit, the broker merely keeps a hold of the pawned piece and the deal is concluded then and there.

In its projected regulation, the agency gave out two other motives behind classifying pawning as an industry superior to payday lending. The motives were psychological and practical. Firstly, people are more likely to fear to lose a physical item over calculating the long term ill-effects of loaning at high rates for fast cash online. Secondly, the pawned article that the dealer takes is not as much likely to upset the debtor’s capability to toil and harm him financially.

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Are Payday Lenders who we really think they are?

Jun 20, 2017 by

Are Payday Lenders who we really think they are?

Though we have more information readily available to us now that the Internet is so readily available, people still base their opinions upon what they hear people say. And it is often the loudest voices (websites with the most visitors) that tend to get listened to the most. This is not a good thing, as the world has grown more and more polarized despite most of us having instant access to all the facts that are available to us. People would often rather just go along with the popular opinion than make informed decisions for themselves.

This state of affairs leads us to a world where perception really has become reality for most. If the websites and people we tend to gravitate toward say something on a topic, many people simply mentally check out and take that opinion on as their own. A topic that really shows this idea in action is payday loans. The mainstream media has pretty much demonized the lenders that make up this industry, while making the people who use these loans out to be folks who simply don’t know how to make better choices for themselves. Heck, if you believed what gets put into print most of the time, you’d think that every payday lender was a millionaire Ebenezer Scrooge type of character; someone who is raking in tons of profits off of the misery of others.

So, what kind of money are payday lenders raking in regularly? Are they really the heartless, rich money changers that so many people would like you to believe? In a word – “No!” It turns out that many payday lenders are not nearly as wealthy as the CFPB and other organizations would like you to believe. Studies have been done across the industry to find out what the average lender brings in every year. The higher per-loan and store overhead costs can make it extremely difficult for lending companies, especially smaller companies to remain profitable.

It is important to remember that payday lenders are in the business of providing unsecured (no collateral) loans to some of the highest risk borrowers (people with low credit scores and/or lower than normal income levels.) These folks make up a large portion of the country, but are dramatically unserved/underserved by the mainstream banks and other creditors. In other words, in many ways payday lenders have a corner on a market. Yet, most lenders continue to charge fees that are very similar across the board. That is to say, that payday lenders (for the most part) are not driving up the costs associated with their loans, even though that would be pretty easy for them to do, as the majority of their client-base has no other source to turn to for small dollar/short term lines of credit.

The long and short of this whole situation is that payday lending companies (especially the smaller to medium sized ones) are like other small businesses in this country. Most of them care about the people and communities they serve. Most of them are not on a mission to gouge their clients, even though they could easily do so. The majority of payday lenders are working hard to remain even minimally profitable, and like the fact that they are able to provide valuable services to the communities that they work in.

Think about that the next time you read an article that talks about wealthy, predatory lenders who have no regard for the people they loan money to. This description might work as great click-bait and undoubtedly outrages people. But it simply does not paint an accurate picture of 99 percent of all payday lending companies doing business today.

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CFPB Accuses Online Payday Lenders of Exposing Customers to Hidden Risks

Jun 6, 2016 by

CFPB Accuses Online Payday Lenders of Exposing Customers to Hidden Risks

Dealing with emergency expenses is difficult for even the most affluent among us. Lower income households, however, can fact outright ruin when financial emergencies rear their ugly heads. And many low to mid income households in this country are either underbanked or unbanked, so they often have very few options when they need to borrow money to take care of these types of expenses. Often, these folks turn to alternative financial service providers, like online payday lending companies.

More often than not, people who take out payday loans run into no problems with repaying them, and they are then free to go about their normal routines. In some cases, though, people get hit with fees that they may not have expected. Some reports have shown that borrowers pay an average of $185 in penalties from their banks – usually overdraft or non-sufficient fund fees – when lenders go through the process of automatically deducting repayment for loans given. It is estimated that about a third of online borrowers who winded up with bank penalties had to deal with involuntary bank account closures.

This has happened to consumers when online lending companies repeatedly make debit attempts on their customers’ accounts. This causes extra bank fees to kick in for the account holders, even though these efforts usually lead to no payment being recovered on the part of the lending companies.

Of course, the CFPB is keeping tabs on online payday lending companies, so it comes as no surprise that the Director of the CFPB, Richard Cordray has a strong opinion on these types of issues. Cordray said, “Each of these additional consequences of an online loan can be significant, and together they may impose large costs, both tangible and intangible, that go far beyond the amounts paid solely to the original lender,” said CFPB Director Richard Cordray.

These findings come with the third analysis that the CFPB has done on the United States payday lending industry. Payday lenders provide unsecured loans to their customers, and typically the person who borrowers from one of these lending companies pays the lender back within a few weeks. It used to be that most payday lenders got paid back via a post-dated check. These days, though, online payday lenders usually automatically deduct the loan amount plus fees when the loan has run its term. The Obama administration has always had a disdain for this industry, and has supported the CFPB in its efforts to cook up new regulations that could potentially drive a lot of smaller lending companies out of business.

The CFPB analyzed about a year and a half’s worth of data from Automated Clearing House. This is the financial network used to put money into a borrower’s account and also to extract payment when the loan payment comes due. The data analyzed showed that some borrowers did not have adequate funds in their accounts when the loan repayment request happened, and that this – as one might expect – resulted in people getting hit with overdraft charges from their banks.

Here’s the thing, though – these fees are not charged by payday lending companies; it is the traditional banks that love to profit from imposing these fees. It is not the fault of a lender if a borrower does not live up to their end of the agreement by having adequate funds to cover the transaction in their bank accounts. No matter how much Cordray and his team want to twist these types of situations into being the fault of online payday lenders, the bottom line is that the fees are charged by the banks and happen because consumers fail to keep enough money in the bank to cover loan payments that they knowingly agreed to. End of story.

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Federal Trade Commission Fines Payday Lending Company for Alleged Deception

Feb 2, 2016 by

Federal Trade Commission Fines Payday Lending Company for Alleged Deception

Companies and individuals that provide financial services to the people of this country – whether big banks or individually owned lending shops – owe it to consumers to be transparent in all of their dealings. We all know, however, that this is not always the case. There are always lenders that will be deceptive. It can be a big bank or the smallest of title loan companies, and the deception can be purposeful or possibly an oversight. The thing is, though, that the Federal Trade Commission (FTC), and other government watchdog groups are making it their collective mission to crack down on deceptive financial practices. Sure, it does seem to happen to alternative financial providers more often than big banks, but it happens nonetheless.

To illustrate this point, the FTC recently settled charges against two different payday lending companies. These charges allege that the lenders charged consumers illegally via inflated and sometimes undisclosed loan fees. The two companies are SFS Inc. and Red Cedar Services Inc. Each company had to pay $2.2 million. By doing so, they were allowed to jointly wave an estimated $68 million in fees to people that did not get collected.

These charges, when totaled up with some previous settlements, add up to a whopping $25 million that the FTC has collected related to this particular case against Red Cedar, AMG Services Inc. and SFS, along with various related lending operations. The case also allowed for about $353 million dollars in debt to be waived. The combined efforts have made this the largest recovery that the FTC has pulled of so far. And there is still pending litigation against some other defendants that will likely bring the total higher.

The Director of the Bureau of Consumer Protection, when asked about payday lending practices, said, “Payday lenders need to be honest about the terms of the loans they offer. These lenders charged borrowers more than they said they would. As a result of the FTC’s case, they are paying a steep price for their deception.”

The charges that kicked all of this off date back to April of 2012. These charges, which were filed in federal court, allege that the lending companies made misrepresentations about how much it would cost consumers to borrow money. This is considered to be a direct violation of the FTC Act. An example from this case was a time when Red Cedar, MNE Services and AMG Services used a contract which told the borrower they would have to pay $309 for a $300 loan. However, the borrower ended up being charged $975.

The defendants have also been accused of failing to disclose the actual annual percentage rates of the loans, along with other terms. This is being handled as a violation of the Truth in Lending Act. To make matters worse for the lending companies, they made preauthorized debits from the bank accounts of borrowers. This is a violation of the Electronic Funds Transfer Act. SFS and Red Cedar operated as lending companies under the names One Click Cash and 500 Fast Cash.

Lending Companies Should Keep These Kinds of Cases in Mind!

This case, like many others that the FTC and CFPB have been behind recently, should serve as a stern warning to lenders that there is always someone looking out for deceptive financial practices. The majority of payday lending companies out there make it a point to be straight with consumers. But it appears that those who don’t will have a heck of a lot of explaining to do; along with a lot of money to cough up.

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