It is no news that payday lending is a very hot and controversial subject and it seems that the discussions around it are becoming even more heated. At the present moment the Consumer Financial Protection Bureau is working on a new regulation that is meant to end payday lending operation as it is. Surely, the opinions are not entirely unanimous on the subject; however, the proponents are in the minority.
Payday loans are frequently described as predatory and ugly and they are more expensive than any other average loan option; however, the question is how much such emotive and subjective epithets can actually reflect the nature of this credit option.
Although not deprived of some truth, this notion is not altogether truthful. The attitude is subjective to a very great extent as government and all payday lending opponents judge in a one-sided way – they do not seem to see how many people actually rely on this option when no banking alternative there is. The opponents miss one of the major points of the puzzle – by closing payday loan stores you basically shut a great deal of people off the cash access.
The figures presented by such reputable agencies as Pew Charitable Trusts are very eloquent on this subject – there are about 12 million people using payday loans in the U.S. and they take as much as $7 billion annually. This amounts to the following figures – about 5% of the U.S citizens rely on this credit option. It is not a small number, actually. Payday loan stores are getting as popular as fast food restaurants and even more popular.
Taking that into consideration one should understand that all the opponents that seek for payday lending business elimination prefer to be blind in certain ways. The thing is that payday loans are expensive and many people seem to overestimate their potential; however, this is not actually the reason to call the sphere my emotional epithets such as predatory.
Payday lenders do not grant loans to people under the age of 18; thus, it seems likely that a person, a borrower is able to make a decision for themselves – whether the latter is good or bad no one should judge.
According to the numerous payday loan opponents suggestions, payday loan borrowers are either illiterate or fools with no knowledge of the subject. Yet again, it does not seem to correlate the reality. It looks like payday lenders seek for the people who are unable to repay with the purpose to make them pay longer and larger sums. However, this notion lucks some sense.
The thing is that the number is still here – 12 million people use payday loans on an annual basis and recent survey carried out by Columbia Law School and Ronald Mann. The survey described the attitude of borrowers to payday loans they take and their potential to estimate the time when they will be able to repay a well as failure to do so.
The research showed maybe not the most demonstrative but still pretty informative results that about 60% of borrowers have been well aware of the prospect of a rollover when they took a loan and they still decided to go on; moreover, most of them were able to make a repayment in time or with a week’s delay at most.
The thing is that there is no actual problem with payday lending regardless of the fact that various complaints are piling in (they can also be from those borrowers who simply seek a way to lower their payment).
Still, the CFPB seems to be very determined about its decision that will lead to shutting down many loan places. Such regulations are already practiced in several states; however, they are not the same for the entire country yet. But they may become. There may be rules introduced that involve easy repayment options and lower rates; however, none of the officials actually offer any alternative to the industry.
At the present moment there is not a single other option that would offer loans of $300 to $500 on average for such short term as a fortnight and without all the paperwork involved. It looks like the government does everything to evoke a market failure in order to take its place with their own product. This is all about dividing a market and everything is covered by the noble notion that small private companies can’t be trustworthy; on the other side, agencies that are backed with taxpayers are trustworthy for a change.
The question of payday loan legality and their right for existence will not seize to be discussed; however, it really looks like those who vote for the industry elimination do not do so solely from the point of view borrower benefit. There is much more to the subject.