Wisconsin Gets It
The action that some states have chosen to take-all in the name of consumer protection-is to ban alternative financial products so that no one has access to brick and mortar payday loan establishments. So, instead of protecting consumer rights and allowing individuals to have credit options that they otherwise would not have, they are now limited to overdraft fees and late payment fees. In addition, there is typically nowhere for consumers to turn in cases of financial emergency and uncertainty. One study out of North Carolina concluded that consumers more often did not pay an expense or paid a bill late when in financial crisis and there was no longer access to payday loans. Only 5 out of 401 people surveyed said that prohibiting payday lending has had a positive effect on their household. North Carolina and similar states could have chosen a number of other moves in order to make the product more consumer friendly while allowing the payday institutions to exist and profit.
Wisconsin introduced a new bill to change payday loan regulation while still allowing consumers to have access to short-term credit and eliminating any abusive practices in the state. Lenders would be banned from having customers guarantee their vehicles as collateral and would set the maximum loan amount at $600 or 35% of the borrowers two-week income, whichever is the least. Although there are some parts of the bill that I wouldn’t particularly agree with, I commend Wisconsin for acknowledging that the product is a necessary and viable service that can be extremely beneficial to those with limited credit options. However, if the new legislation requires all payday loan customers to payoff one bulk payment on their due date, my concern is that consumer advocates will not support it. One of the major arguments is that customers who pay their loans off in full find that they still need money to pay other bills, hence the infamous “cycle of debt” claims. A pay-down option would at least allow consumers to decrease the balance before the loan has to be paid in full. All things considered, it’s a huge step toward the acceptance of payday loans as a legitimate product in Wisconsin.
Underbanked,Undertelecommunicated,Undergrocered, How About Yourself?
I’ve recently been labeled by our government as “underbanked” and although I know why, it makes very little sense to me. Not because I don’t have a checking or savings account-not because I don’t have direct deposit- not because I don’t use or transact on my accounts on a regular basis- but because I’ve bought a cashiers check this year from an institution other than my bank. Simply because it was much cheaper to do it elsewhere than at my bank. I thought that made me somewhat savvy since the cashiers check was something that I had to purchase. That really confuses me because I’ve maintained a bank account every day of my life for the past 16 years and yet I’m “underbanked” based on an illogical definition created by the FDIC. I am going to assume that I am also undertelecommunicated because I frequently choose to send e-mails rather than call someone or undergrocered because I choose to eat fast food every so often. These labels are superficial and just as absurd as “underbanked,” a term used to describe anyone who has used an institution other than a traditional banking institution in order to take care of financial business. And it also seems as though the prefix “under” is perhaps meant to be derogatory as it suggests being beneath, below or less than those who are banked.
Unfortunately, it has come to a point where steps are being taken to re-legitimize banks by making non-bank financial institutions illegitimate . However, the demand for short-term loans and alternative financial services will not disappear.
Let’s Spend Millions More
There has been much debate on the necessity of the proposed Consumer Financial Protection Agency and how it will ultimately effect the economy. Of course there have been pros and cons brought up by both advocates and opposition. One subject that seems to keep getting overlooked during discussions is the costs associated with enacting the Consumer Financial Protection Agency. The primary question that comes to mind for me is-how much will the American people end up paying for the creation of this agency and is it an expense that we can afford to take on? According to a Congressional Budget Office Report, enacting H.R. 3126 would increase direct spending by $646 million dollars over the next 9 years while decreasing revenues by $490 million. That’s a total budget deficit of more than $1.1 billion dollars and $126 million per year to handle concerns that the House Financial Services and Senate Banking Committees in addition to the FDIC, NCUA and several other federal agencies should be taking care of and monitoring. Are there matters of inefficiency or competency within the federal financial sector that should be addressed ?
Also, according to the report, “The bill would require the CFPA to charge fees to offset the expenses of carrying out its exercise of the government’s sovereign authority, CBO believes that those amounts should appear in the budget as revenues.” In addition, business taxes, including fees paid to the Consumer Financial Protection Agency would reduce the tax base of income and payroll taxes, resulting in reductions in income and payroll tax revenues. What are your thoughts? http://www.cbo.gov/ftpdocs/108xx/doc10830/hr3126.pdf.
Can You Define “Protection?”
There are just as many definitions for protection as there are opinions about payday loans and the short-term lending industry. What is protection and is it relative? Well, according to the Merriam-Webster Dictionary there are at least 6 ways to define protection but the one that caught my attention is: “supervision or support of one that is smaller and weaker.” So, my initial thought is “yes,” protection is relative because what I believe that I need protection from may be completely different from what you need protection from. My next thought was- why are consumers considered small and weak? We ARE the consumers! If the CFPA is eager to enforce the full disclosure of all financial contracts and associated risks, then-the payday loan industry as an industry would probably rejoice seeing as though best practices already include such conditions. As consumers, we may need guidance, but not protection. You may recall the USDA’s attempt to protect us and our health by creating the food pyramid? The creation of the food pyramid in addition to the promotion of carbohydrates instead of fat was followed by epidemics of cancer, diabetes, heart disease and obesity. Therefore, leaving choices as personal as diet and financial options in the hands of our government just seems a bit absurd to me. I can name hundreds of instances throughout the history of our country in which the government was not only wrong but grossly negligent. However, for the sake of taste, I won’t go there.
It’s no secret that some Congressional leaders have been extremely biased and in my opinion are incapable of assessing the needs of the people. There is a noticeable disconnect between the average consumer and our Congressional leaders. Consumers want rights and government wants to tweak those rights. Too often, their ability to make sound decisions for the people are interrupted by their personal beliefs. What does protection mean to you and what are your thoughts on the CFPA?
Consumer Financial Protection Agency An Afterthought?
There’s a government agency and/or committee for just about every interest that you can imagine. There’s even an advisory committee for stamps…yes stamps, but it’s probably safe to say that many of them were created out of necessity. We may be required to submit to another controlling force known as the Consumer Financial Protection Agency, adding to the hundreds of existing entities. Now that most of the major damage has already been done to the economy by big banks and mortgage lenders, it seems to be more of an afterthought than a mitigative move. If this committee can provide non-police-like mitigation to prevent catastrophe’s similar to the housing market crash and subsequent multi-industry downfall versus being responsible for the elimination of tens of thousands of more jobs then I welcome it. The feeling is, however, that this agency will attack the short-term lending industry which had absolutely nothing to do with the economic collapse. The traditional financial institution will be praised and reaffirmed while alternative financial institutions will be dogged and made illegitimate. This includes payday lenders, title lenders, installment lenders, and pawn shops. While supporters of the above may have a handful of reasons for allowing such to happen, there are endless reasons not to – beginning with the availability of credit options and ending with the damage it would cause to local governments and employment rates.
I Know Why The Blinkered Activist Sings
Okay, so maybe I’m being a little cynical but it’s certainly warranted given the current fiscal climate. Individuals have the right to express their own thoughts, beliefs and passions but where do we draw the line when they insist on imposing those thoughts, beliefs and passions on everyone? Why do I have to believe that banning a product or service is best for the economy just because someone tells me that it is? When I am completely against a product or service then guess what-I don’t use it…and I may even suggest that others steer clear. I don’t, however, insist that the product/service be completely eliminated. It apparently works for some people given the fact that there’s a market for it. Which leads to another question. Will consumer advocates always find something to be concerned about or is there a state of minimum satisfaction that they’re seeking regarding their need to tell others what’s good for them?
There are a number of products, services and companies that in the past and present that have been targeted because of the perception of a minority. Our lawmakers, including the Congressional Oversight Panel have failed us terribly in recent years, causing an economic avalanche. An application of a 36% Annual Percentage Yield on two-week payday loans would only exacerbate existing conditions as we look forward to the loss of tens of thousands of more jobs, including those in state positions that regulate the industry. Although this would be a great victory for consumer advocates as well as traditional banking institutions, I wonder how long it will be before we are completely stripped of our free will. We are constantly being told by our own government that as individuals we don’t have the capacity to decide what is right for us, so if anything is “questionable” it should be eliminated altogether.
The Secret Is Out
Ask any banking manager or representative why their institution pays amounts from largest to smallest and they’ll tell you that it’s because they assume that the larger amounts are the most important and that you’d want them paid first in case there are insufficient funds in your account. Well, if that’s the case then why don’t you have a choice? If you’ve realized that you’ve made a mistake balancing your checkbook or discovered that you’re going to be just a couple of dollars short after all of your transactions clear, you can’t call your bank and ask them to pay items in the order in which they are presented or from smallest to largest in order to avoid multiple overdrafts. In many cases, if banks were to pay items in the order in which they’re received or from smallest to largest there would be far fewer associated overdraft fees. Yes, in many cases I’d probably prefer to have my outstanding checks covered by the bank if there was an error in my balancing. However, if it’s a case where a mistake in balancing causes me to overdraw my account by debit card I’d rather the transaction be rejected than to be charged $38 for the initial overdraft and $38 for each subsequent overdraft-causing a domino effect on fees.
FDIC reports show that banking customers paid $23.7 billion in overdraft fees just in 2008 but “consumer advocates” still spend much of their energy debating about the ethics of short-term lending. The elimination of short-term lending would most definitely lead to an even greater increase in such fees. At least short-term loan fees are contractual, flat fees unless carried over past the original due date. I’m not against overdraft fees nor am I against banks charging the amounts that they do. My concern is the method in which they pay overdrafts in order to capitalize on and snowball what starts as one single overdraft.
Kick Predatory Journalists Out of Wisconsin
So, now the claim-according to Ms. Emily Mills (writer, musician, activist)-is that payday loan companies are stealing money from individuals through an act of fraud? Wow-that’s probably the most absurd and diluted statements that I’ve heard about the industry in a while, and I’ve heard a lot. By definition, to fleece is to strip of money or property by fraud or extortion. Whether or not she agrees with the services, the fact is that people use them willingly-not against their will-not at gunpoint-not coerced or lied to. I’m quite certain that if I stood outside of a payday lender for several hours the employees would not forcibly drag me into the location, stuff several hundred dollars into my pockets and then forge my signature on a contract that contains no conditions or terms of payment. I’m going to cherish my right to exercise free will as long as I’m able since those like Ms. Mills and Representative Gordon Hintz seem to want to fight against it.
Furthermore, the existence of payday loans is the least of the country’s fiscal dilemmas and suggesting such and using extreme negatives to promote ones opinion makes it very difficult to digest and consider hers. Especially considering the fact that big banks and traditional financial institutions are the ones who set the current financial crisis in motion and were not able to sustain themselves. Payday loans may not be the best choice for everyone who seeks short-term supplemental funds but it should remain as an option for those who use them responsibly. Those of us who take responsibility for our own actions don’t consider ourselves as a “victim” of societal forces.
Source: http://thelostalbatross.blogspot.com/2009/08/kick-predatory-payday-loans-out-of.html
What Consumer Advocates Don’t Want You To Know
The Center For Responsible Lending and other “consumer advocates” base many of their arguments against short-term lending on the “cycle of debt” that they say customers are lured into. Apparently, cash advance centers seek out individuals who are in a bind in order to loan them a couple hundred dollars that they can’t ever pay back. Well, there are several problems with this assumption. If consumer advocates were really so concerned about the welfare of those who are having temporary financial difficulties, then why are they never on a mission to educate people on the truths of short-term lending? It’s simply because they have a vested interest in the elimination of non-traditional lending and finance- including payday loans, title loans, rent-to-own centers and pawn shops. So, instead of giving consumers useful information on supplemental income choices, the CRL finds the worst case scenarios of people who have clearly misused these products and had prior financial difficulties beyond what any short-term loan could assist with in order to prove their theories.
These lenders are regulated by the state, so if there are any instances in which a customer is expected to pay the entire balance by their next payday, the reason is most likely that the particular state doesn’t allow for rollovers or extensions. The industry’s trade association, CFSA advocates practices and procedures that are in line with local laws. Another problem with the CRL’s cycle of debt theory is that all CFSA members have a contractual obligation to allow every customer the opportunity to pay their loan, interest free, in installments if they express difficultly paying. This is not information that the CRL willing shares with their target audience and lumping every short-term lender into one category is preposterous but it gives the CRL the opportunity to target and generalize them all. It becomes our duty to be knowledgeable on the CRL and all of its skeletons and affiliations.
APR or Interest Rate
Short-term lenders are required by law to present their products in terms of an Annual Percentage Yield, I suppose, to dissuade individuals from seeing it as a desireable option. The APR on a short-term loan is a scenario in which a customer would have to take out a loan every payday consecutively for an entire year. So what’s wrong with this picture? Well, for starters, someone taking out a cash advance every payday for an entire year for any reason is a rarity since they are for immediate and minimal use. The second dilemma is that the same lawmakers who are comfortable with these institutions having to quote their services as APR, bash them for supporting such usury and predatory lending conditions. Futhermore, there are several states that do not even allow for repeated, discretionary use of cash advances and limit the number and amount taken out per designated term. I believe that short-term lenders wouldn’t be such a target if they were given the opportunity to present their products and services in their true interest form rather than an APR, as the typical interest rate is between 15-20%. There is little debate as to whether or not short-term loans have a place in today’s economic atmosphere so what is the best solution to the media-created problem of APR?