Posts Tagged ‘Payday Loans’
Thursday, December 3rd, 2009
I wonder if the FDIC even considered the fact that it’s very difficult to take out a payday loan without having a bank account? That leaves pawn shops as the ONLY option for these consumers seeking short-term credit.
By David Ellis, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) — New York State is known as the nation’s financial capital, yet nearly one in 10 of its residents do not have a checking or savings account.
And while Texas is densely populated with banks, nearly a quarter of households in the Dallas-Forth Worth area have gone to a pawn shop or check cashing company recently to carry out a simple financial transaction.
Those were just a few of the findings of a new government survey released Wednesday on Americans’ access to basic banking services.
The survey, which tallied responses from roughly 54,000 U.S. households, marks the first time that the Federal Deposit Insurance Corp. has published such data.
Perhaps one of the biggest revelations of the study was that approximately 7.7% of all U.S. households, or 17 million Americans, were considered “unbanked,” meaning they did not have any sort of a checking or savings account.
The most common reason cited, according to the study, was a lack of funds. More than a third of those considered “unbanked” said they did not have enough cash to warrant having a bank account.
In fact, nearly 20% of all U.S. households earning $30,000 or less per year did not have a bank account.
The study also found that almost a quarter of all households headed by someone who didn’t finish high school were considered “unbanked.” Meanwhile, nearly one of every five African-American or Hispanic households do not have a checking or savings account, according to FDIC data.
Another key finding of Wednesday’s survey, was that many Americans that actually have bank accounts still look elsewhere to cash their checks or borrow money.
In fact, nearly 18% of all U.S. households have relied on payday lenders, pawn shops or check-cashing outlets at least once in the past five years.
Such businesses have often been criticized for charging consumers rates that would even make loan sharks blush. In some instances, borrowers pay the equivalent of an annualized interest rate as high as 500%.
Americans living without a bank: See a state-by-state breakdown
People who were polled, however, said they continued to use these services simply because they were convenient or because it was easier to get a loan from them.
Hoping to migrate consumers away from such expensive options, the FDIC has enacted a number of initiatives including a short-term loan pilot program it launched in February 2008.
As part of the program, a select group of banks have agreed to offer short-term loans of up to $2,500 to low-income Americans.
Wednesday’s survey report was yet another effort to expand consumers’ access to basic financial services, agency officials said.
“By better understanding the households that make up this group — who they are and their reasons for being unbanked or underbanked, we will be better positioned to help them take that first step,” FDIC Chairman Sheila Bair said in a statement.
Tags: consumer credit, FDIC, Pawn Loans, pawnbroker, pawnshop, Payday Loans
Posted in Pawn Ecomomics | 1 Comment »
Monday, September 28th, 2009
Here’s a realistic and well written article about short-term credit sources in the US in the latest edition of Reason Magazine:
Payday of Reckoning
Tags: consumer credit, Consumer Federal Protection Agency, Credit Crunch, Federal APR Rate Cap, Pawn Loans, pawnshop, Payday Loans, Reason Magazine
Posted in Pawn Ecomomics | No Comments »
Friday, May 22nd, 2009
Time will tell what long-term changes will take place for US consumers with the passage of the new credit card reform act. There is one thing we can be reasonably sure of, that being, an increase in demand for alternative sources of short-term consumer credit. Taken from the Cleveland Ohio Business News:
Haven’t lenders already been raising interest rates?
Yes. We have been seeing rate increases since a separate set of regulations approved last winter. That’s when the Federal Reserve adopted rules that cracked down on creditors’ ability to hike interest rates, levy fees or allocate payments in ways to keep people in debt longer. Those rules go into effect in July 2010. Some of them are nearly identical to what’s in the new legislation. But what’s expected to become law today goes further in its consumer protections and will be more difficult to alter.
What can I expect to happen in the next nine months?
The American Bankers Association says consumers should brace for even higher rates, new fees and additional restrictions on cards. As usual, you should be on the lookout for any letters from your credit card company. These could be notifications about rate or fee increases as card issuers prepare to comply with the new law. “The next nine months are going to be filled with issuers implementing changes while they still can,” said Greg McBride, a senior financial analyst at Bankrate.com, a personal finance Web site.
Will it be harder to get a new credit card?
It’s likely that people without stellar credit will have a harder time getting approved for cards. Because banks know that they won’t be able to change their interest rates on existing balances, it means they’ll be taking a longer-term risk on a customer. They will, therefore, be more conservative on the bets they make.
McBride said card issuers probably will start charging higher rates at the outset, when a customer gets a new card. The card probably will come with a lower credit limit than in the past.
“Doing away with credit card companies’ gotcha-type practices is unequivocally a great deal for consumers,” McBride said. “But that progress comes at a price, and that price is that credit is going to be tougher to come by.”
More people probably will begin turning to outlets such as payday lenders and pawn shops, he said.
“In the absence of credit cards, people in need of a short-term loan will resort to other means,” McBride said.
Greg McBride’s statement is both knowledgeable and visionary. What Mr. McBride was not asked in this interview is what will happen to US consumers should a federal APR rate cap drastically alter or eliminate their other outlets available for short-term credit. I believe his answer would amaze you.
Tags: Bankrate.com, consumer credit, Credit Card Reform, Federal APR Rate Cap, Greg McBride, Pawn Loans, pawnshop, Payday Loans
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Wednesday, May 13th, 2009
It seems obvious that Senator Richard Durbin (D-IL) does not care about the millions of American consumers who rely on short-term credit sources daily to meet their emergency financial needs. Here is text of Senator Durbin’s comments taken from the Congressional record as to why he is trying to amend a bill currently being considered to include a 36% federal APR rate cap.
Senator Durbin said:
The second amendment I will file will be a Federal usury cap at a very high level. What is a usury law? It is a limit on interest rates. There was a time in America when that was considered normal; States would have usury caps. The Federal government had a usury cap. But then they went away in the interest of competition and free markets. We decided we were not going to put a cap on interest rates, and so it has reached the point where there are very few usury caps left. What I have established, as the maximum, is 36 percent.
Nobody in their right mind would pay 36 percent on a mortgage, or 36 percent on a credit card. I mean, you would have to be out of your head to get into that kind of a predicament–a 36-percent annual interest rate. But the fact is Americans right and left are paying much higher interest rates today and don’t know it–payday loans, title loans, installment loans. Sit down and do the math and figure out to borrow a hundred dollars and what you end up paying, whether you are going to one of those places and putting up the title of your car or letting them have access to your checking account, which is a deadly thing to do from a credit point of view. You end up paying interest rates that go through the roof. I have actually had people sit in my office and say, Senator, this 36-percent cap on interest rates will put us out of business. I said: Well, how much do you charge? Well, somewhere between 58 percent and 400 percent a year. I said: I hope you do go out of business, because, quite frankly, they used to call that a juice loan when the syndicate and gangs were involved in it, but now it is legitimate. It is legal.
So this 36-percent cap on interest is something which I know will be resisted by banks and title loans and payday loans and all the rest of these folks, but it is about time we got real here. If we are not going to protect the American consumers when it comes to some of these interest rates, they are going to be very vulnerable to some bad practices.
I’m confident his intentions are honorable, however, if he should be successful in his efforts, his effect on short-term credit available in the United States will be devastating.
Tags: consumer credit, Credit Crunch, economic crisis, Federal APR Rate Cap, Pawn Loans, pawnbroker, pawnshop, Payday Loans
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Thursday, May 7th, 2009
From Michael Flores, CEO, Bretton Woods Inc. Mgmt Consulting Firm
Used with author’s permission
The “credit crunch” isn’t just about mortgages and large corporations. It’s also about people needing $200 or $300 to get through to their next payday. It means going to pawnbrokers, credit unions, banks, payday lenders and other financial services that make small loans.
As Congress considers legislation to regulate short-term credit — Rep. Luis Gutierrez (D-Ill.) recently held a hearing on payday loan reform legislation, and Sen. Dick Durbin (D-Ill.) and Rep. Jackie Speier (D-Calif.) have introduced a 36 percent annual interest rate cap bill — they should tread very carefully.
It’s just not that simple to regulate a $100 billion short-term credit market made up of a diverse group of products that charge different rates and are of various term lengths. A payday loan, for example, is typically two weeks, installment loans are three months, and pawn loan lengths vary.
Recently, I wrote a report revealing that banks are the largest players in the short-term credit market through “bounced check fees” and overdraft protection. In fact, banks garner $34.7 billion in revenue from these products.
When a consumer does not have enough money in his or her checking account to pay a bill, they have the option of bouncing a check, using overdraft protection, getting a payday loan, paying the bill late or borrowing from another institution, primarily credit card advances, all of which come at a price.
The FDIC reports that the average amount of a check written to overdraw a bank account is $66. For that $66 check transaction, a customer would pay an average of $27 in overdraft protection fees. Customers without overdraft protection would pay a non-sufficient funds/bounced check fee averaging $28.95, plus incur additional fees upwards of $30 from the merchant to whom they wrote the bad check. In comparison, a customer who took out a $66 payday advance to cover the cost would pay a fee ranging from $9.90 to $11.22.
The 36 percent APR cap proposed by Sen. Durbin and Rep. Speier would leave some of these products banned (payday loans), some advantaged (bounced check fees) and some untouched (some installment loans). That’s because the shorter the length of the loan term, the higher the theoretical annual percentage rate, even if the actual costs are the same.
The Gutierrez bill has some good disclosure language, but it sets payday lending fees at $15 per $100 loaned. It sounds reasonable but why shouldn’t an industry be able to raise prices as costs — rent, salaries, taxes — go up?
The goal of any federal legislation should be to ensure that consumers have choice, the market has competition and that there’s enough transparency of all products so that cost comparisons are easy to make. Arbitrary rate caps simply pick winners and losers.
Saint Simons Island, Ga.
Published in “The Hill” Copyright 2009 Capitol Hill Publishing Corp
Tags: Bretton Woods, consumer credit, Credit Crunch, Federal APR Rate Cap, Michael Flores, Pawn Loans, pawnbroker, pawnshop, Payday Loans
Posted in Pawn Ecomomics | 1 Comment »
Monday, May 4th, 2009
Been interesting watching the news reporting with everyone’s plan on how to fix the current global credit crisis. The pawnbroking industry has been in the spotlight but the real focus lately has been on credit card issuers and payday loan stores. At least this gives the pawnbroking industry the opportunity to take a deep breath and regroup for a minute.
But one story that’s been covered from several angles has had some interesting spins put on it by some credit unions in the US and the US payday lending industry. It seems that several credit unions are now touting a brand-new product for low buck short term loans to help people with low paying jobs or poor credit. And they’re trying to come across as a financial savior.
Yeah, right. Problem is - I’m sure many liberal consumer groups will believe them.
One credit union president was quoted as saying that he’s going to allow these low income poor credit consumers to get off the treadmill. He states that his new short-term small loan product is just the ticket to get these consumers away from the check cashers, payday loan stores, and of course - the pawn shops. Not surprisingly, the payday loan industry does not agree.
The payday loan industry is stating that the credit unions product is nearly identical to the payday loan stores product. In certain cases they are correct. If either one of these industries thought a bit more progressively about what their customer base actually wants in a short-term lending product and what they can actually afford to repay in a reasonable length of time they could come up with a hybrid micro-lending product for consumers that would be far superior to what either one of them are currently offering. Don’t worry - this isn’t going to happen.
Why - because I can guarantee you government will get in the way of such progress.
Funny thing is - government’s been drilling the hell out of just about every short-term high-interest lending product on the market these days, but these are really the only consumer credit lending options available currently to many people around the globe. And what surprises me the most I feel is the fact that nobody is taking on the rent to own industry. At least not yet.
But no matter who they compare in short-term lending products - be it credit cards, payday loan stores, right to own stores, credit unions, or even Uncle Vinnie - no one can compare to the civilized nature of the lending product offered by pawnbrokers. Pawnshops still remain and always will remain the only short-term lenders worldwide who do not create debt for their customers. Pawnbrokers offer the only lending product on the market where the customer has a choice of whether to repay their loans or not. And we are also the only short-term lender who will never ever cause our customer’s credit score to plummet because of unpaid loans.
Whoops - I’m mistaken there. Uncle Vinnie won’t do that either, although he could cause your medical expenses to go up. Not something I would recommend to anyone in need of credit.
Pawnbrokers know how superior a pawn loan is to other forms of short-term credit. So do their customers. But the point here is most people have no idea how much sense pawn loans make in a credit hungry society. Hopefully, by spreading the word, pawn shop owners and customers may just cause the industry to be looked at in a different light.
Because when it gets right down to it the 5000 year history of the pawnbroking industry speaks for itself. Pawnbrokers were practically the only lender out to help the consumer during the Great Depression. The pawnbroking industry is still vibrant and economically relevant in today’s global consumer credit market. While it will never replace the more mainstream forms of consumer credit lending it has proven to be for thousands of years the true financial savior in difficult times.
Tags: consumer credit, Credit Unions, Pawn Loans, pawnbroker, pawnshop, Payday Loans
Posted in Pawnbroker Rants | No Comments »
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