The War on Installment Loans Continues

1. The War on Installment Loans Continues PersonalMoneyStore.com

2. The Obama administration has been waging all-out war on installment loans for some time. The administration calls them “predatory” and a threat to Americans on low-income. They say that these lending agencies are charging the poor far more than they can afford. Quick money might be convenient, but if the politicians are to be believed, it certainly isn’t affordable. Testimonies Of Loan Recipients Doesn’t Back Up Obama Administration Claims The problem with the view from the Hill is that it just isn’t backed up by the view from the ground. Yes, there are stories of people who get into serious trouble with payday loan interest payments. But for the vast majority, as Personal Money Store notes, these installment loans are a lifeline.

3. The government doesn’t like this information spilling out intothe public domain. It contradicts their negative narrative about installment loans. But information has subsequently trickled out, thanks to the Freedom of Information Act. The Consumer Financial Protection Bureau was forced to release more than12,500 testimonials on the matter. And of these testimonials, 98 percent expressed positive sentiment towards installment loans. That’s hardly the picture of payday loans the mainstream media and politicians portray. One of the reasonspeople love installment loans so much is the sheer convenience. They’re far easier to obtain than government assistance. And because installment loans are offered by private companies, the level of customer service is far higher. Then there’s the affordability issue. We’re told by the political class the interest rates on payday loans are unaffordable. Interest rates of over a 400 percent per year seem utterly unreasonable.

4. But payday loans aren’t designed to be paid back over the course of a year. Instead, they are meant to be paid back within a matter of weeks, if that, meaning that the actual payments are much lower. Installment Loans Are A Good Option For The Poor Right Now One of the problems today is that many poor people simply don’t have anywhere else to turn when they get into trouble. Sure, payday loans aren’t ideal - not least because they imply that a lot of people don’t have any savings. But it’s clear that they are dealing with a pressing need in the community. People need to have access to credit when their car breaks down, or boiler stops working. Without that money, there’s a good chance that people will get sick or won’t be able to get to work to earn money in the first place. Because there’s such a clear and immediate need for payday loans, banning them doesn’t seem to be the right approach. Jim Hawkins is an associate professor at the University of Houston Law Center.

5. He has called prohibition a “blunt regulatory instrument.” He says that a blanket ban would punish reputable lenders and prevent people from getting installment loans that they need. That's a problem. Policy Makers are Looking To Regulate the Installment Loan Market The government isn’t going to give up its fight against the payday lenders. Sowhat options are on the table right now? The Consumer Financial Protection Authority has suggested moves to make sure that borrowers can pay off their loans. The so-called “full-payment test” would be carried out to see if borrowers can still meet their living expenses along with the loans. Of course, carrying out an assessment like this would make the cost of borrowing even higher for those most in need. And it will deny some people the opportunity to get a loan in circumstances where the regulator thinks that they can’t afford it. Individuals making adjustments to their budgets is, apparently, not an option.

6. The CFPB also wants to clamp down on what it calls “the debt trap.” The idea here is that when payday lenders roll over debts,customers get bogged down in a spiral of debt and interest payments. It is true that this is something that has happened to some people using installment loans. But not allowing borrowers to refinance will ultimately put them in the same position that they were in before. That is, with no money. The final proposal is to regulate penalty fees. Currently, payday loan companies can withdraw funds from their customers’ checking accounts directly. But if they don’t get their payment immediately, some payday loan companies charge additional fees. This is perhaps one way the industry could improve its services. It’s clear that there are things that the payday loan industry could do better. But the idea that it is an unbridled scourge on our society is unfounded. Positive customer feedback and real-world benefits suggest otherwise.