Why Payday Loans Must Remain To Help Low Income Families
It seems as if US Congress is on a mission to render low income Americans utterly helpless as they continue to crack down on payday loans, one of the few places a low income family can turn to for immediate financial assistance. Banks are under fire for refusing to issue loans to small businesses as America desperately tries to repair its fractured economy but they seem to be escaping censure for their treatment of the average consumer. If you have poor credit or a lack of collateral, banks will turn you away without a second thought.
Myths
Contrast this with instant cash loan companies that can provide funds within an hour. They don’t particularly care about credit scores or collateral; all they want to know is if you can repay the loan on time. This can be proven in the form of a pay slip which shows how much you get paid and when. Contrary to popular belief, payday loan companies don’t want people to miss their deadline so that they can collect excessive rollover charges. These companies are businesses that want to be repaid as soon as possible because they are aware of the high default rate in their industry.
US Congress has been in a hurry to punish the banking sector but this has only hurt the poor who are now suffering as banks are even more selective than ever when it comes to issuing loans. Not content with this, the Democrats seem intent on eliminating all avenues of financial escape for low income families. In January 2012, the Consumer Financial Protection Bureau sent notes to its email subscribers warning them off payday lending as it could lead them into a ‘cycle of debt’. The bureau’s chief, Richard Cordray even claimed that ‘people of color’ were disproportionately targeted by short-term lenders.
Truth
Congress seems to enjoy making out that the payday loan industry is some sort of underground loan sharking network that bleeds people dry. The statistics would suggest otherwise. Almost 20 million households availed of emergency cash loans in 2010 with a total of $40 billion being loaned in total. Congress even seem to have ignored the statement from the Federal Reserve in 2009 who did some research on the payday loan industry and concluded that the vast majority of customers were happy or satisfied with the service and terms they received.
Yet a number of state governments have acted to stop the short-term loan industry from escalating by reducing the interest rate to levels that make it almost unprofitable for companies to lend money. Even the 390% annual interest rate ($15 interest on $100 loan repaid in 14 days) pales into comparison with credit card fees of 900% or bounced check fees of 1500%. Advance America is one of the largest payday loan companies in the nation and received 100 complaints in 2011. However, this was from 10 million transactions, not a bad ratio!
Instead of trying to snatch payday loans away from low income Americans, perhaps Congress should look at the conduct of banks instead who continually benefit from taxpayers’ money but impose severe lending restrictions to ensure that as few people as possible benefit from them.
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