Payday Lenders Are on the Defensive
Well, it looks like payday lenders have their backs up against the wall. Things are getting so bad that they are making voluntary changes. According to yesterday's WSJ, payday lenders are willing to:
• Place a ban on advertising loans for "frivolous" purposes such as gambling, entertainment or vacationsFor those of you not familiar with payday loans, they are essentially short-term loans. Let's say things are tight and you need $100 to pay the electric bill. You go to a payday loan company and write them a check for $115 (they usually charge $15 per $100 loan). You walk out with $100. They won't cash your check for a certain period of time (usually two weeks). If at the end of the two weeks, you don't have enough money to cover the check, the lender will be more than happy to roll you over into a new loan (with another $15 or more fee). This is how most people get into trouble. According to the WSJ article, the typical client of a payday lender takes out seven loans per year.
• Add language to all marketing materials warning borrowers that "payday advances should be used for short-term financial needs only, not as long-term financial solutions."
• Introduce an extended payment plan that may be used once a year for those who can't pay their bills on time.
Will these changes make any difference? I doubt it. — JLP
Payday Lenders Strike a Defensive Pose [WSJ]
(Photo: hanneorla)
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How about they put up educational posters, letting customers know how to get a real bank account? Seems like that would have a positive impact on reducing poverty and neverending debt-cycles. Of course, that would cut into their repeat-business ... but it's better to help people get out of poverty than keep a loan shark afloat, right?
@Kornkob: Movie ratings. Sure, the voluntary system is awful and always has been, but it was far, far worse when the government was involved. Before the production code, local governments were just outright banning movies.
A slightly better example might be the ESRB's video game ratings. They are also shitty, but still better than the limits on sales that legislators want.
Awesome. Now, if only we can get the tobacco companies scared...
Actually, they are more likely to charge 25 or 30 per hundred than 15.
If you only see 15 per hundred it's because there are state regulations that require that amount be capped.
Brink and mortar payday lenders are slowly becoming a thing of the past because virtual lenders are able to incorporate in states like Nevada and Delaware where they can basically charge anything.
In addition, this doesn't include the lenders from England and other non-US countries that are started to set up virtual lenders.
@MattyMatt: Movie ratings (or game ratings for that matter) have never been a case of the customer being abused, IMHO. It's not like the movie makers were out there tricking people into buying tickets for duck and nun porn/snuff films by billing the movie as a documentary before the industry self regulated.
Nanny nanny nanny.
They are just providing a service and should able to advertise any way they want. At least they don't send Guido to break your legs when you default.
Jeeze, can't even fleece a sucker nowadays without people wanting to sic the .gov on you...
As many states have already banned these payday loan lenders, it is quite obvious that they will be on a defensive mode. Those states allowing this have put a restriction on the maximum interest rate to be charged. So there is no way other than to play a safe game. Moreover these companies should not be completely banned. Instead an awareness can be spread among people to opt for such a loan only if they are in real need. Else the effects can be horrible as a small delay in payment can really make the amount increase by a great amount. In some countries these are developing as the people know when and how much to borrow. This helps them to have a broader look at these lenders. Everyone is convinced that these loans are a great bonus in case of financial emergencies. Just what is required is a little bit of awareness.
Is there an example where an industry that abused it's customers has elected to self regulate and that has resulted in meaningful, tangible change for the end user?